Lemonade Q2 2024 Earnings Call Transcript

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July 31, 2024

There are 5 speakers on the call.

Operator

afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Paysign Inc. 2nd Quarter 2024 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session.

Operator

As a reminder, this conference call is being recorded. The comments on today's call regarding Payside's financial results will be on a GAAP basis unless otherwise noted. Paysign's earnings release was disseminated to the SEC earlier today and can be found on the Investor Relations section of our website, paysign.com, which includes reconciliations of non GAAP measures to GAAP reported amounts. Additionally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward looking statements regarding Pason's future performance. Actual performance could differ materially from these forward looking statements.

Operator

Information about the factors that could affect future performance is summarized at the end of PaySign's earnings release and in our recent SEC filings. Lastly, a replay of this call will be available until October 29, 2024. Please see PaySign's 2nd quarter earnings call announcement for details on how to access the replay. It's now my pleasure to turn the call over to Mr. Mark Lukecomer, CEO.

Operator

Please go ahead.

Speaker 1

Thank you, Kevin. Good afternoon, everyone, and welcome to PaySign's 2nd quarter earnings call. I'm Mark Newcomer, the President and CEO of PaySign. Alongside me today for our discussion is Jeff Baker, our Chief Financial Officer. Later during the question and answer session, we will be joined by Matt Turner, our President of Patient Affordability and Matt Lanford, our Chief Payments Officer.

Speaker 1

Today, we shared our financial results for the Q2 of 2024. I'm pleased to report that we've achieved remarkable growth both sequentially and year over year and in both our top and bottom lines. Our revenue for the Q2 reached $14,300,000 a robust increase of nearly 30% compared to the Q2 of 2023 and an 8.7% increase from the Q1 of 2024. Our adjusted EBITDA increased 96% to $2,240,000 translating to $0.04 per fully diluted share, a substantial rise from $1,140,000 or $0.02 per fully diluted share a year earlier. A significant highlight of this quarter is the exceptional performance of our patient affordability business, which has proven to be a major catalyst for our growth.

Speaker 1

The revenue from this segment has impressively increased by 2 67% from the same quarter last year from 730,000 in the Q2 of 2023 to roughly 2,700,000 in the same quarter this year. The number of claims processed increased by 3 65% versus the same quarter last year. Patient affordability alone contributed to 59% of our total revenue growth year over year and has been pivotal in our 200 basis point increase in gross margin. We expect to see this margin expansion continue as patient affordability remains the dominant growth driver of company. During this period, we added 8 new patient affordability programs, including both retail and specialty brands, bringing our total to 61 active programs.

Speaker 1

We are particularly proud of the confidence our clients have in our solutions, which has led to multiple wins from many of them. For example, in the Q3 of 2023, we onboarded a new cornerstone client, AstraZeneca. Since then, we have increased the number of programs from their initial four to a total of 12 by the end of the second quarter. The AstraZeneca programs encompass a mix of retail and specialty therapies covering a wide array of therapeutic classes and include both new launch and transition programs. This is only one example as we currently manage programs for 6 of the 20 largest pharmaceutical companies in the world.

Speaker 1

Our sales pipeline remains extremely robust, filled with promising opportunities slated for launch later this year and into 2025. This forward momentum positions us to continue scaling our patient affordability solutions as we secure our leadership position in the market. We are confident that our operational cash flow will robustly support these ambitions. Additionally, our plasma donor compensation business also showed strong performance this quarter with plasma revenues rising to $11,300,000 a 13% increase from the same quarter last year and an 8.7% increase over Q1 of this year. This revenue growth is supported by a 4.4% increase in revenue per center from 7,581 in the Q2 of last year to 7,916 in this year.

Speaker 1

We added 8 new plasma centers this quarter, reaching a total of 4 77 centers and we plan to add another 5 to 10 centers by year end. Our expansion underscores our commitment to helping our clients focus on enhancing center productivity after a period of rapid expansion. We are anticipating moderate and stable growth in our plasma donor compensation business in the foreseeable future. To conclude, the Q2 of 2024 marks another period of significant growth, particularly for our patient affordability business. The investments we are making in that business is poised to yield substantial long term revenue growth, enhancing shareholder value considerably.

Speaker 1

We remain dedicated to pioneering advanced and innovative FinTech solutions that address key challenges in patient affordability and healthcare payments and beyond. With our steady growth in the plasma business and ongoing exploration of new opportunities in the evolving payments landscape, we are well positioned capitalize on future opportunities and deliver substantial value for our shareholders. I would like to extend my deepest thanks to every member of the Pason team for their relentless effort and commitment. It is your hard work and dedication that propels our success. I will now pass the call over to Jeff, who will delve deeper into our financial details for the quarter.

Speaker 2

Thank you, Mark. Good afternoon, everyone. As Mark said, we had another solid quarter. Plasma donor compensation revenue increased $1,260,000 versus the same period last year or 12.6 percent to $11,270,000 driven by more plasma centers, 477 versus 443, an increase in the average monthly revenue per plasma center of $7,916 versus $7,581 a 12.7% increase in gross dollar card loads and an 11.2% increase in the gross spend volume, all while the average load amounts remain fairly steady. Pharma patient affordability revenue increased $1,950,000 or 2.67 percent to $2,670,000 primarily driven by the addition of 30 net new pharma patient affordability programs launched over the past 12 months.

Speaker 2

Pharma patient affordability revenue equated to 18.7% of total revenue during the quarter versus 6.6% during the same period last year. We exited the quarter with 61 active pharma patient affordability programs, an increase of 18 programs since the end of 2023. Other revenue increased $86,000 or 28.9 percent to $383,000 due to the growth in our payroll, retail and other corporate incentive businesses. As in previous calls, with all of the details we provided in the press release and that will be available in our 10 Q filing tomorrow morning, I will simply hit the financial highlights for the Q2 of 2024 versus the same period last year. First, Q2 2024 total revenues of $14,300,000 increased $3,300,000 or up 29.8% versus the same period last year.

Speaker 2

Gross profit margin for the quarter was 52.9% versus 50.9% during the same period last year, an improvement of 200 basis points. SG and A for the quarter increased 13 point 5% to $6,000,000 with total operating expenses increasing 19.1 percent to $7,500,000 We continue to make significant investments in IT and personnel to support the continued growth of our business, especially our patient affordability business. We exited this quarter with 149 employees versus 108 during the same period last year. For the quarter, we posted a net income of $697,000 or $0.01 per fully diluted share versus a net loss of $104,000 or just under breakeven per share for the same period last year. We recorded a tax expense of $242,000 during the quarter for an effective tax rate of 25.8 percent.

Speaker 2

Our fully diluted share count for the quarter was 55,900,000 shares. The 2nd quarter adjusted EBITDA, which is a non GAAP measure that adds back stock compensation to EBITDA, was $2,200,000 or $0.04 per diluted share versus $1,100,000 or $0.02 per diluted share for the same period last year. This equates to a 96% year over year growth in our adjusted EBITDA. The fully diluted share count for the quarters used in calculating the per share amount was 55,900,000 shares and 54,500,000 shares respectfully, which reflects additional in the money options that were previously out of the money. The adjusted EBITDA margin improved to 15.6% versus 10.3% during the same period last year, further highlighting the positive operating leverage in our business model.

Speaker 2

Regarding the health of our company, we exited the quarter with an adjusted $8,600,000 in unrestricted cash and 0 debt. This was a $1,700,000 decline from the adjusted unrestricted cash balance of $10,300,000 at the end of 2023, but an increase of $1,600,000 from the adjusted unrestricted cash balance of $7,000,000 at the end of Q1 twenty twenty four. The adjusted amounts take out the impact of accounts receivable, accounts payable and cash collections related to pass through invoicing of our patient affordability business. As discussed in the past, patient affordability customers are invoiced at the end of the period to reimburse refunds used to cover related co pay amounts for the monthly patient affordability claims. The changes in these balances do not equate to the revenue per claim we charge the pharmaceutical companies for paying such claim amounts.

Speaker 2

We expect that as the business grows, so will the fluctuations in AR, AP and unrestricted cash. Restricted cash increased $10,000,000 to $102,200,000 from December 31, 2023, primarily due to the increases in funds on cards of 3 point $7,000,000 and customer deposits for our plasma and pharma customers of $6,300,000 Restricted cash or funds used customer card funding and pharmaceutical claims with a corresponding offset under current liabilities. As we did not complete any share repurchases during Q2, dollars 3,900,000 remains outstanding under our share repurchase program. Now turning your attention to our full year 2024 guidance. Due to the outperformance of our business during the 1st two quarters of the year relative to our initial expectations, we are raising our full year guidance as follows: total revenues are estimated to be in the range of $56,500,000 to $58,500,000 reflecting year over year growth of 20% to 24%.

Speaker 2

Plasma revenues are estimated to account for approximately 78% of total revenue, while pharma revenue is estimated to account for approximately 20% of total revenue. Full year gross profit margins are expected to be between 54% 55%, reflecting increased revenue contribution from our patient affordability business. Operating expenses are expected to be between $30,000,000 $32,000,000 as we continue to make investments in people and technology to support the growth of our business. Of this amount, depreciation and amortization are expected to remain unchanged between $6,000,000 $6,500,000 while stock based compensation is expected to remain unchanged between $2,700,000 $3,000,000 Given the continued increases in our average daily balances of unrestricted and restricted cash, the current interest and the current interest rate environment, we expect to generate interest income of $3,000,000 to $3,200,000 We expect our tax rate to be between 28% 29% and our fully diluted share count outstanding to be 55,800,000 to 56 point 0,000,000 shares. Taking all of the factors above in consideration, we expect net income to be in the range of $2,000,000 to $3,000,000 or $0.04 to $0.06 per diluted share and adjusted EBITDA to be in the range of $9,000,000 to $10,000,000 which is 15% to 17% of total revenues or $0.16 to $0.18 per diluted share.

Speaker 2

With that, I would like to turn the call back over to Kevin for question and answers.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Gary Prestopino from Barrington Research. Your line is now live.

Speaker 3

Hi. Good afternoon, everyone. A number of questions here. First of all, on the patient affordability business, how many pharmaceutical companies are you currently working with now within all of your programs that you have?

Speaker 4

Hi, this is Matt. I should have that number in front of me, but I don't. I think it's in excess of 40 as it stands right now.

Speaker 2

Okay, Gary, keep in mind, Gary,

Speaker 4

some of

Speaker 2

those are direct, some of those are through hubs, which represent a number of different pharmaceutical companies. So it's hard I mean, we have the number, but to say that it's XYZ Pharma Company, if they're coming through a hub with another XYZ Pharma Company has no relationship. So that I don't know if that helps you, but like Matt said, it's in excess of 40.

Speaker 3

No, I just wanted to get an idea is a lot of that pipeline coming from pharmas that you have not done anything for? Or is most of the pipeline build just with your existing clients?

Speaker 2

No, I would say

Speaker 4

a majority of the pipeline is new clientele.

Speaker 3

It is? Okay. New clients. And then just for our purposes here.

Speaker 4

Yes. I mean, it's a mix, right? Like, so it's not to say we obviously, as you heard Mark's commentary about the AstraZeneca business and the movement there, right, 4 programs up to 12. We do have clients that are continuing to add programs, but if you look at the pipeline and between say now and the end of next year, the lion's share of that pipeline is going to be new clients, but many of those clients will be launching multiple programs at one time. So when we look at a Cornerstone account, we're not looking at that just from the perspective of say one brand.

Speaker 4

Our goal is to go in and get an MSA, prove ourselves with them and then begin to migrate more and more brands over time. So that's kind of the goal there. So there's a mix. There's certainly existing clients that are going to grow out as they get new indications for or they get new products that they're launching or potentially they're not satisfied with the service or the products of their current vendor. They may move stuff over, but then we have a decent chunk of stuff that is entirely there'll be new MSAs.

Speaker 4

It's going to be all new paper.

Speaker 3

And then just lastly, and I'll let somebody else go. How are these programs structured? Do you have an actual contract that runs for a duration of time or is it something that the pharmaceutical company can walk away from you if they're unhappy with the performance of what you do?

Speaker 4

Yes. So we have master service agreements that are varying in length. I mean anywhere from I guess 2 to 5 years, I think is probably about the average that we see. And then we have statement of work that will guide each program. Some of those SOWs, some of those MSAs do contain outs for our clients.

Speaker 4

So it's not like they're locked in forever. So they can leave if they're unhappy with the services, which is also one of the reasons why you hear Mark and Jeff both talk about investing the financial resources into people, and we do that so that we don't have customer service issues and that we make sure we're providing the level of service that they want.

Speaker 2

And Gary, listen, a lot of these pharma companies are international, right? So the idea of a long term locked in contract really only exists in the United States. If you go to Europe and you look at contracts overseas over there, pretty much all of them have 30, 69 a days out for whatever reason. So we have to earn the business every day and we're willing to put our money where our mouth is. And the other good thing is if you do a good job for the pharmaceutical guys, they'll stay with you.

Speaker 2

So they're very loyal, but you got to earn their business every day.

Speaker 3

Okay. I'll let somebody else go. I do have some follow-up questions.

Operator

Gary, please go ahead with your follow-up. Your line is now live.

Speaker 3

Okay. And Matt, could you possibly size up the total TAM on a worldwide basis for this business?

Speaker 4

So I don't want to be pedantic here, but I'm not going to size the cam on a worldwide basis because patient affordability as a product is a byproduct of the U. S. Health care ecosystem and it does not exist in the form that we know of it at Pason in other countries in mass. I'm sure there are some examples of it as far as like rebate or something like that. But we believe right now the TAM is north of 500,000,000

Speaker 2

dollars

Speaker 4

It takes a lot of back and napkin math to kind of get there. We've worked with some consultants inside of the industry to really try to help us narrow down that answer. No pharma company comes out and says, hey, last month across our entire company, we processed or we helped 90,000 patients last month. They don't tell us that. So we can't we don't have hard numbers to go off of.

Speaker 4

We kind of have to look at industry trends.

Speaker 3

Okay. And then as you're building these programs, I mean, obviously, you're going to have very strong positive impact to your gross margin. But in terms of the SG and A to support it, Is there a lot of leverage there? I mean, I'm looking at your SG and A expenses just this quarter and they were up about 13.5% and your pharma revenues were up over 200%. But I'm just trying to get an idea is as you add programs, can you scale this to where you don't have to you can eventually start reducing the additional personnel that you need to support what you're doing?

Speaker 4

So Gary, so listen, a couple

Speaker 2

of things to look at on the OpEx. One of the bigger increases there is D and A, And that's a byproduct of us capitalizing software development costs, which is part of the growth, right? We're doing a lot of IT development. And so you got to kind of back that out of the number, back out your stock comp and then you're going to kind of get to an SG and A number. Now the other thing to look at on the leverage side is your adjusted EBITDA operating margin.

Speaker 2

So we did 15.6% this quarter, up from 10.3% last year. 1st quarter, we did 12.8% versus 7.1%. So you are seeing there in the numbers that there is operating leverage here. But make no mistake about it. I mean, we are having to invest as we grow these programs and part of the guidance that we gave like we've already been given indications of opportunities that we'll see at the towards the Q4 of this year in new pharma programs and we're going to have to hire people in front of that.

Speaker 2

We can't bring those guys on and then hire afterwards. So that's reflected in the guidance that $30,000,000 plus in SG and A for the year is expected hirings that we're going to have to make in account management. So keep in mind, when I bring on big pharma companies like in AstraZeneca, I've got to hire account managers, I've got to hire at least 1 senior account manager, a support account manager, I've got to hire claims analyst. I've got a higher call center. I mean, there's hiring across the business, but it is the best way for you to look at are we getting operating leverage to the business is that adjusted EBITDA margin.

Speaker 4

Okay. No, it's all good. I'm just trying to get an idea

Speaker 3

of how this business works. Okay. Thank you very much. I appreciate it. Appreciate your time.

Speaker 2

Thank you. Thank you. We've reached the

Operator

end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker 1

Thank you, Kevin. Thank you all for joining today's call. Your continued interest and support fuels our journey towards transforming healthcare payments and enhancing patient access to vital treatments. We look forward to sharing more about our progress in the coming quarters and to build a healthier future together. Have a great day everyone.

Speaker 1

See you next time.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Lemonade Q2 2024
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