Planet Payment Inc.
Planet Payment Inc (Form: 10-Q, Received: 05/07/2015 16:43:15)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to              

 

Commission file number 001-35699

 

PLANET PAYMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Delaware

 

13-4084693

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

670 Long Beach Boulevard
Long Beach, New York

 

11561

(Address of Principal Executive Offices)

 

(Zip Code)

 

(516) 670-3200

(Registrant’s Telephone Number, Including Area Code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Large Accelerated Filer

 

Accelerated Filer

 

 

 

Non-Accelerated Filer

 

Smaller Reporting Company

(Do not check if smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

 

As of April   3 0 , 201 5   there were 5 4 , 258 , 750 shares of the registrant’s common stock outstanding.

 

 

 

 


 

Table of Contents

Planet Payment, Inc.

Report on Form 10-Q

For the Quarterly Period Ended March 31, 2015

 

Table of Contents

 

 

 

 

 

 

Page

 

 

 

Part I.  

Financial Information

 

 

 

Item 1.  

Financial Statements

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 201 4 (unaudited)

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and 201 4 (unaudited)

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 201 4  (unaudited)

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

 

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15 

 

 

 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

25 

 

 

 

Item 4.  

Controls and Procedures

26 

 

 

 

Part II.  

Other Information

26 

 

 

 

Item 1.  

Legal Proceedings

26 

 

 

 

Item 1A.  

Risk Factors

26 

 

 

 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

47 

 

 

 

Item 3.  

Defaults Upon Senior Securities

48 

 

 

 

Item 4.  

Mine Safety Disclosures

48 

 

 

 

Item 5.  

Other Information

48 

 

 

 

Item 6.  

Exhibits

49 

 

 

 

Signatures  

 

50 

 

Planet Payment®, iPAY® and Pay in Your Currency® and our logo are registered trademarks of Planet Payment and Shop in Your Currency ™ is an additional trademark of Planet Payment. All other service marks, trademarks and trade names appearing in this report are the property of their respective owners.

 

2


 

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PART  I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Planet Payment, Inc.

Condensed Consolidated Balance Sheet s

 

 

 

 

 

 

 

 

 

 

 

 

As of   March 31,

 

As of December 31,

 

 

 

2015

 

2014

 

 

 

 

(Unaudited)

 

 

 

 

Current assets:

 

 

    

    

 

    

    

Cash and cash equivalents

 

$

11,313,689 

 

$

9,837,791 

 

Restricted cash

 

 

3,680,925 

 

 

4,167,560 

 

Accounts receivable, net of allowances of $0.1  million as of March 31, 2015 and December 31, 2014, respectively

 

 

7,358,715 

 

 

6,948,595 

 

Prepaid expenses and other assets

 

 

1,682,340 

 

 

1,136,821 

 

Total current assets

 

 

24,035,669 

 

 

22,090,767 

 

Other assets:

 

 

 

 

 

 

 

Restricted cash

 

 

432,071 

 

 

432,094 

 

Property and equipment, net

 

 

2,181,255 

 

 

2,139,747 

 

Software development costs, net

 

 

4,525,805 

 

 

4,612,457 

 

Intangible assets, net

 

 

1,771,070 

 

 

2,046,700 

 

Goodwill

 

 

285,327 

 

 

319,671 

 

Security deposits and other assets

 

 

2,337,088 

 

 

2,289,858 

 

Total other assets

 

 

11,532,616 

 

 

11,840,527 

 

Total assets

 

$

35,568,285 

 

$

33,931,294 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

474,721 

 

$

512,057 

 

Accrued expenses

 

 

3,498,067 

 

 

2,918,645 

 

Due to merchants

 

 

3,864,848 

 

 

4,352,199 

 

Current portion of capital leases

 

 

429,979 

 

 

458,812 

 

Total current liabilities

 

 

8,267,615 

 

 

8,241,713 

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term portion of capital leases and deferred revenue

 

 

1,476,159 

 

 

1,560,310 

 

Total long-term liabilities

 

 

1,476,159 

 

 

1,560,310 

 

Total liabilities

 

 

9,743,774 

 

 

9,802,023 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Convertible preferred stock— 10,000,000 shares authorized as of March 31, 2015 and December 31, 2014, $0.01 par value: Series A— 2,243,750   issued and outstanding as of March 31, 2015 and December 31, 2014; $8,975,000  aggregate liquidation preference

 

 

22,438 

 

 

22,438 

 

Common stock— 250,000,000 shares authorized as of March 31, 2015 and December 31, 2014, $0.01 par value, and  55,519,291 and 55,016,191 shares issued and outstanding as of March 31, 2015, and 55,680,999 and 55,177,899 shares issued and outstanding as of December 31, 2014

 

 

555,193 

 

 

556,810 

 

Treasury stock, at cost, 503,100 shares as of March 31, 2015 and December 31, 2014

 

 

(822,603)

 

 

(822,603)

 

Additional paid-in capital

 

 

103,519,915 

 

 

103,277,253 

 

Accumulated other comprehensive loss

 

 

(431,205)

 

 

(173,774)

 

Accumulated deficit

 

 

(77,019,227)

 

 

(78,730,853)

 

Total stockholders’ equity

 

 

25,824,511 

 

 

24,129,271 

 

Total liabilities and stockholders’ equity

 

$

35,568,285 

 

$

33,931,294 

 

 

The accompanying notes are an integral part of these financial statements

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Operations (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Revenue:

    

 

    

    

 

    

    

Net revenue

 

$

12,132,770 

 

$

11,175,117 

 

Operating expenses:

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Payment processing service fees

 

 

2,588,204 

 

 

2,518,821 

 

Processing and service costs

 

 

3,237,940 

 

 

3,714,593 

 

Total cost of revenue

 

 

5,826,144 

 

 

6,233,414 

 

Selling, general and administrative expenses

 

 

4,470,400 

 

 

5,081,793 

 

Restructuring charges

 

 

—  

 

 

629,215 

 

Total operating expenses

 

 

10,296,544 

 

 

11,944,422 

 

Income (loss) from operations

 

 

1,836,226 

 

 

(769,305)

 

Other (expense) income:

 

 

 

 

 

 

 

Interest expense

 

 

(14,613)

 

 

(16,170)

 

Interest income

 

 

426 

 

 

175 

 

Total other expense, net

 

 

(14,187)

 

 

(15,995)

 

Income (loss) from operations before (provision) benefit for income taxes

 

 

1,822,039 

 

 

(785,300)

 

(Provision) benefit for income taxes

 

 

(110,413)

 

 

6,010 

 

Net income (loss)

 

$

1,711,626 

 

$

(779,290)

 

Basic net income (loss) per share applicable to common stockholders

 

$

0.03 

 

$

(0.01)

 

Diluted net income (loss) per share applicable to common stockholders

 

$

0.03 

 

$

(0.01)

 

Weighted average common stock outstanding (basic)

 

 

53,800,606 

 

 

53,437,184 

 

Weighted average common stock outstanding (diluted)

 

 

54,448,382 

 

 

53,437,184 

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss )   (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Net income (loss)

  

$

1,711,626 

  

$

(779,290)

  

Foreign currency translation adjustment

 

 

(257,431)

 

 

(12,913)

 

Total comprehensive income (loss)

 

$

1,454,195 

 

$

(792,203)

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

    

 

    

    

 

    

    

Net income (loss)

 

$

1,711,626 

 

$

(779,290)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

233,462 

 

 

311,124 

 

Depreciation and amortization expense

 

 

725,173 

 

 

746,313 

 

(Recovery) provision for doubtful accounts

 

 

(1,007)

 

 

3,268 

 

Disposal of property and equipment

 

 

 —  

 

 

3,157 

 

Gain on insurance settlement

 

 

(517,930)

 

 

 —  

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Decrease in settlement assets

 

 

486,539 

 

 

1,496,906 

 

(Increase) decrease in accounts receivables, prepaid expenses and other current assets

 

 

(436,702)

 

 

346,274 

 

Increase in security deposits and other assets

 

 

(47,230)

 

 

(107,049)

 

Increase (decrease) in accounts payable and accrued expenses

 

 

454,979 

 

 

(1,112,427)

 

Decrease in due to merchants

 

 

(487,255)

 

 

(1,524,224)

 

Other

 

 

(81,947)

 

 

(10,979)

 

Net cash provided by (used in) operating activities

 

 

2,039,708 

 

 

(626,927)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Decrease (increase) in restricted cash

 

 

119 

 

 

(230,094)

 

Decrease in merchant reserves

 

 

(96)

 

 

 —  

 

Purchase of property and equipment

 

 

(123,817)

 

 

(19,756)

 

Capitalized software development

 

 

(287,223)

 

 

(397,401)

 

Purchase of intangible assets

 

 

(5,888)

 

 

(53,695)

 

Net cash used in investing activities

 

 

(416,905)

 

 

(700,946)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

 —  

 

 

602,572 

 

Principal payments on capital lease obligations

 

 

(146,905)

 

 

(137,922)

 

Net cash (used in) provided by financing activities

 

 

(146,905)

 

 

464,650 

 

Effect of exchange rate changes on cash and cash equivalents(*)

 

 

 —  

 

 

 —  

 

Net increase (decrease) in cash and cash equivalents

 

 

1,475,898 

 

 

(863,223)

 

Beginning of period

 

 

9,837,791 

 

 

6,572,468 

 

End of period

 

$

11,313,689 

 

$

5,709,245 

 

Supplemental disclosure:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest

 

$

18,837 

 

$

18,272 

 

Income taxes

 

 

199,364 

 

 

180,835 

 

Non cash investing and financing activities:

 

 

 

 

 

 

 

Assets acquired under capital leases

 

 

79,291 

 

 

163,861 

 

Accrued capitalized hardware, software and fixed assets

 

 

38,609 

 

 

50,401 

 

Capitalized stock-based compensation

 

 

10,711 

 

 

10,352 

 

 


(*) For the three months ended March 31, 2015 and 201 4 , the effect of exchange rate changes on cash and cash equivalents was inconsequential.

 

The accompanying notes are an integral part of these financial statements

 

 

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Planet Payment, Inc.

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

1. Business description and basis of presentation

 

Business description

 

Planet Payment, Inc. together with its wholly owned subsidiaries (“Planet Payment,” the “Company,” “we,” or “our”) is a provider of international payment and transaction processing and multi-currency processing services. The Company provides its services to approximately 105 ,000 active merchant locations in 23 countries and territories across the Asia Pacific region, the Americas, the Middle East, Africa and Europe, primarily through its acquiring bank and processor customers, as well as through its own direct sales force. The Company provides banks and their merchants with innovative services to accept, process and reconcile electronic payments. The Company’s point-of-sale and e-commerce services are integrated within the payment card transaction process enabling its acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels. The Company’s ATM services provide its domestic and international acquirers with additional processing capabilities to help them increase revenue and improve customer satisfaction.  The Company also offers non-financial transaction processing services that allow merchants to offer a range of commercial services including pre-paid mobile phone top-up and bill payments using the same point-of-sale devices deployed to accept payment cards. The Company is a registered third party processor with the major card associations and operates in accordance with industry standards, including the Payment Card Industry, or PCI, Security Council’s Data Security Standards.

 

Basis of presentation

 

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Planet Payment, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

 

Unaudited condensed consolidated interim financial information

 

The accompanying unaudited condensed consolidated interim financial statements as of March 31, 2015 and for the periods ended March 31, 2015 and 2014 have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are normal and recurring, necessary for a fair presentation of the statement of operations, financial position and cash flows. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for the interim period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 201 5 .  The December 31, 2014 balance sheet information has been derived from the audited financial statements at that date. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulation of the Securities and Exchange Commission, or SEC.

 

2. Concentration of credit risk

 

The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and receivables from clients. The Company places some of its cash, cash equivalents, and restricted cash with financial banking institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 . The Company also maintains cash balances at foreign banking institutions, which are not insured by the FDIC.

 

The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of customers’ financial condition.

 

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The Company’s accounts receivable concentrations of 10% and greater are as follows:

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

 

March 31,

 

December 31,

 

 

 

 

2015

 

2014

 

 

Customer A

    

31 

%  

28 

%  

 

Customer B

 

11 

 

13 

 

 

Customer C

 

15 

 

17 

 

 

 

The Company’s revenue concentrations of 10% and greater are as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

March 31,

 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Customer A

    

20 

%    

22 

%    

 

Customer C

 

11 

 

13 

 

 

 

a

 

3 .   Net income (loss) per share

 

The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share (“ASC topic 260”). Under ASC topic 260, securities that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities and should be included in the two-class method of computing earnings per share. The Company’s preferred stockholders are entitled to participate in dividends and earnings when, and if, dividends are declared on the common stock. As such, the Company calculates net income (loss) per share using the two-class method. The two-class method is an earnings formula that treats a participating security as having rights to dividends that otherwise would have been available to common and preferred stockholders based on their respective rights to receive dividends. Losses are not allocated to the preferred stockholders for computing net loss per share under the two-class method because the preferred stockholders do not have contractual obligations to share in the losses of the Company.

 

Basic earnings per share is calculated by dividing net income (loss), adjusted for amounts allocated to participating securities under the two-class method, if applicable, by the weighted average number of common stock outstanding during the period.

 

Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding, assuming dilution, during the period. The diluted earnings per share calculation assumes (i) all stock options and warrants which are in the money are exercised at the beginning of the period and (ii) each issue or series of issues of potential common stock are considered in sequence from the most dilutive to the least dilutive. That is, dilutive potential common stock with the lowest “earnings add-back per incremental share” shall be included in dilutive earnings per share before those with higher earnings add back per incremental share.

 

The following table sets forth the computation of basic and diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

 

$

1,711,626 

 

$

(779,290)

 

Amounts allocated to participating preferred stockholders under the two-class method

 

 

(193,285)

 

 

 —

 

Net income (loss) applicable to common stockholders (basic and dilutive)

 

$

1,518,341 

 

$

(779,290)

 

Denominator:

 

 

 

 

 

 

 

Weighted average common stock outstanding (basic)

 

 

53,800,606 

 

 

53,437,184 

 

Common equivalent shares from options and warrants to purchase common stock

 

 

647,776 

 

 

 —

 

Weighted average common stock outstanding (diluted)(1)

 

 

54,448,382 

 

 

53,437,184 

 

Basic net income (loss) per share applicable to common stockholders

 

$

0.03 

 

$

(0.01)

 

Diluted net income (loss) per share applicable to common stockholders(1)

 

$

0.03 

 

$

(0.01)

 

 

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(1)

In accordance with ASC 260-10-45-48 for the three months ended March 31, 2015 and 2014, the Company has excluded 1 , 035,180 and 1, 077,712 , respectively, of contingently issued restricted shares from diluted weighted average common stock outstanding as the contingencies (a) were not satisfied at the reporting date nor (b) would have been satisfied if the reporting date was at the end of the contingency period.

 

The following table sets forth the weighted average securities outstanding that have been excluded from the diluted net income (loss) per share calculation because the effect would have been anti-dilutive:

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

Stock options

 

5,908,970 

 

8,106,302 

 

Restricted stock awards

 

225,442 

 

506,812 

 

Warrants

 

 -

 

183,983 

 

Convertible preferred stock(1)

 

6,851,144 

 

6,851,144 

 

Total antidilutive securities

 

12,985,556 

 

15,648,241 

 

 

 


(1)

Diluted net income (loss) per share increases (decreases) when convertible preferred stock is included in the required sequence in the diluted earnings per share computation. As such, convertible preferred stock is excluded from the computation of diluted earnings per share for the three months ended March 31, 2015 and 2014.

 

4. Stock-based compensation expense and assumptions

 

During the first quarter of 2015, 0.2 million stock options were granted to an employee of the Company with a grant fair value of $0.2 million. The actual number of shares that will be issued upon exercise of the options is subject to the achievement of service-based vesting conditions.  Stock-based compensation expense is recorded on a straight line basis from the date of the grant over the requisite service period of 36 months.

 

During the first quarter of 2015, 0.1 million restricted stock awards with a grant fair value of $0.1 million were granted to an employee of the Company.  The final number of vested shares is subject to service-based vesting conditions.  Expense is recorded on a straight line basis from the date of the grant over the applicable service period of 36 months.

 

Stock-based compensation expense is measured at the grant date based on fair value and recognized as an expense over the requisite service period, net of an estimated forfeiture rate.

 

The following summarizes stock-based compensation expense recognized by income statement classification:

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

Processing and service costs

 

$

50,497 

 

$

63,910 

 

Selling, general and administrative expenses

 

 

182,965 

 

 

212,081 

 

Restructuring charges

 

 

 -

 

 

35,133 

 

Total stock-based compensation expense

 

$

233,462 

 

$

311,124 

 

 

The following summarizes stock-based compensation expense recognized by type:

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

Stock options

 

$

131,272 

 

$

217,583 

 

Restricted stock awards

 

 

102,190 

 

 

93,541 

 

Total stock-based compensation expense

 

$

233,462 

 

$

311,124 

 

 

 

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5 . Property and equipment

 

Property and equipment, net consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

As of

 

As of

 

 

 

useful life

 

March 31,

 

December 31,

 

 

 

(in years)

 

2015

 

2014

 

Equipment

 

-

7

 

$

945,067 

    

$

945,116 

 

Computer hardware

 

-

5

 

 

3,166,708 

 

 

2,963,629 

 

Furniture and fixtures

 

-

7

 

 

193,442 

 

 

194,399 

 

Leasehold improvements

 

-

10

 

 

755,907 

 

 

749,275 

 

Total property and equipment, gross

 

 

 

 

 

 

5,061,124 

 

 

4,852,419 

 

Less: Accumulated depreciation and amortization

 

 

 

 

 

 

(2,879,869)

 

 

(2,712,672)

 

Property and equipment, net

 

 

 

 

 

$

2,181,255 

 

$

2,139,747 

 

 

 

 

Property and equipment depreciation and amortization expense is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

Depreciation and amortization expense

 

$

171,229 

    

$

156,423 

 

 

 

6. Goodwill and intangible assets

 

The change in carrying amount of goodwill for the three months ended March 31, 2015 is as follows:

 

 

 

 

 

 

Goodwill, gross, as of December 31, 2014

    

$

319,671 

 

Impact of change in Euro exchange rate

 

 

(34,344)

 

Accumulated impairment losses as of March 31, 2015

 

 

 —

 

Goodwill, net, as of March 31, 2015

 

$

285,327 

 

 

 

The entire goodwill balance is assigned to the payment processing services segment as this is the reporting unit expected to benefit from the synergies of the combination.

 

Intangible assets are recorded at estimated fair value and are amortized ratably over their estimated useful lives to processing and service costs, which are included in cost of revenue.

 

The gross book value, accumulated amortization and amortization periods of intangible assets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2015

 

As of December 31, 2014

 

Amortization

 

 

Gross book

 

Accumulated

 

Net book

 

Gross book

 

Accumulated

 

Net book

 

period

 

 

value

 

amortization

 

value

 

value

 

amortization

 

value

 

(in years)

 

Trademarks and patents

$

1,159,323 

  

$

(407,697)

  

$

751,626 

  

$

1,158,572 

  

$

(387,134)

  

$

771,438 

  

15 

-

21

 

Technology

 

2,376,150 

 

 

(1,356,706)

 

 

1,019,444 

 

 

2,662,164 

 

 

(1,386,902)

 

 

1,275,262 

 

 

 

 

Intangible assets, net

$

3,535,473 

 

$

(1,764,403)

 

$

1,771,070 

 

$

3,820,736 

 

$

(1,774,036)

 

$

2,046,700 

 

 

 

 

 

 

 

Amortization expense related to intangible assets is as follows:

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

Amortization expense

 

$

145,000 

    

$

171,291 

 

 

 

 

 

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7. Commitments and contingencies

 

Employment agreements

 

Pursuant to employment agreements with certain employees, the Company had a commitment to pay severance of approximately $0.8 million as of March 31, 2015 and December 31, 2014, in the event of termination without cause, as defined in the employment agreements. Additionally, in the event of termination upon a change of control, as defined in the agreements, the Company had a commitment to pay severance of approximately $1.0 million as of March 31, 2015 and December 31, 2014.

 

Contingent liabilities

 

In instances where the Company is acting as the merchant acquirer, the Company bears a risk that a merchant may engage in fraud by submitting for payment certain credit card transactions that may have been manipulated, are fictitious, or are otherwise not bona fide. Similarly, the Company bears the risk that a merchant becomes insolvent, owing money to cardholders. To the extent that such fraud or insolvency occurs in circumstances where the Company is liable to make good any resultant losses, this could affect the Company’s operating results and cash flows. The Company has required certain merchants to post cash reserves of approximately   $0.7   million with the sponsoring bank against such liabilities and has itself paid the acquirer a security deposit of $0.2 million in connection therewith, which is included in long-term “Restricted cash” on the condensed consolidated balance sheets. In addition, the Company holds merchant reserves of approximately   $2.2 million. This reserve amount is included in “Restricted cash” with an offset in “Due to merchants”. Under FASB ASC 460, Guarantees , the Company evaluates its ultimate risk and records an estimate of potential loss for chargeback’s related to merchant fraud and processing errors based upon an assessment of actual historical fraud rates and errors in processing compared to recent bank card processing volume levels .   No contingent liability has been recorded as of March 31, 2015 and December 31, 2014, as the risk of material loss is considered remote. The Company monitors these contingent liabilities on a quarterly basis and will provide for a reserve if deemed necessary .

 

Outstanding litigation

 

From time to time, the Company’s operating entities are involved in legal proceeding in the ordinary course of business. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

 

Acquiring bank sponsorship agreement

 

In order to offer merchant acquiring services for Visa and MasterCard transactions, the Company must be sponsored by a financial institution that is a principal member of the Visa and MasterCard networks.

 

The Company entered into a five year agreement with a sponsoring bank effective September 1, 2013. The Company is required to pay minimum annual sponsorship transaction fees of $0.3 million in year one, escalating each year with minimum fees of $0.5 million in year five for total minimum fees of $1.8 million to be paid over the term of the agreement.  Sponsorship fees are recorded to cost of sales with the total agreement minimum of $1.8 million recognized on a straight line basis over the term of the agreement.

 

Pursuant to the agreement, the Company is liable for all losses incurred by the sponsoring bank with respect to the activities of our merchants sponsored under the agreement.  No contingent liability has been recorded as of March 31, 2015 as the risk of material loss is considered remote based on historical information.  The Company monitors this contingent liability on a quarterly basis and will provide for a reserve if deemed necessary.

 

Insurance reimbursement

 

Based on the loss recovery model the Company recorded an insurance reimbursement gain of $0.5 million in selling, general and administrative expenses during the first quarter of 2015.  The insurance reimbursement was related to a previous property and casualty loss recognized by the Company.  The insurance proceeds were collected in April 2015.

 

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8. Related party transactions

 

The Company incurred the following amounts to companies that are principally owned by executives, directors or stockholders of the Company:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

Rent

 

$

90,887 

    

$

125,094 

 

Consulting and professional fees

 

 

1,929 

 

 

611 

 

 

 

 

Rent was paid to BDP Realty Associates LLC, a company in which our former chief executive officer and Chairman of the Board of Directors, Philip Beck has a one -third (1/3 rd ) interest. In February 2015, Philip Beck ceased to serve as the Company’s Director and Chairman of the Board.  The Company’s related party expense for 2015 is for the two months Philip Beck was Chairman of the Board of Directors.

 

Consulting and professional fees were paid to a professional services company where a family member of Philip Beck has a substantial interest but Mr. Beck does not have any financial interest in such company.

 

9 . Accrued expenses

 

The following are the components of accrued expenses:

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Deferred revenue(*)

 

$

834,483 

 

$

800,650 

 

Other(**)

 

 

2,663,584 

 

 

2,117,995 

 

Total accrued expenses

 

$

3,498,067 

 

$

2,918,645 

 

 

 


(*) Current deferred revenue will be recognized as revenue ratably over the next 12 months.  As of March 31, 2015, i ncluded in the balance sheet classification “Long-term portion of capital leases and deferred revenue” is the non-current portion of deferred revenue in the amount of $1.0 million as of March 31, 2015 and December 31, 2014 .  

 

(**) No amounts included in “Other” exceed 10% of total current liabilities.

 

10. Segment information

 

General information

 

The segment and geographic information provided in the table below is being reported consistent with the Company’s method of internal reporting. Operating segments are defined as components of an enterprise for which separate financial information is available and which is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker, or CODM, reviews net revenue and gross profit by service by geographical region. The Company operates in two reportable segments; multi-currency processing services and payment processing services.

 

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Information about revenue, profit and assets

 

The CODM evaluates performance and allocates resources based on net revenue and gross profit of each segment. For purposes of analyzing segments, gross profit of the multi-currency processing services segment is equal to net revenue less multi-currency cost of sales of $0.6 million, which is included in “processing and services costs” for the three months ended March 31, 2015 and 2014, respectively. The gross profit for the payment processing services segment includes net revenue of the segment less the cost of revenue component “payment processing services fees”, which includes interchange and card network fees and assessments. Net revenue and gross profit by geographical region is based upon where the transaction originated. Lastly, the Company does not evaluate performance or allocate resources using segment asset data. Long-lived assets are primarily located in the Americas and Europe and as of March 31, 2015 and December 31, 2014, long-lived asset amounts are $8 .8 million and $9.1  million, respectively.

 

The Company conducts its business primarily in three geographical regions: Asia Pacific (“APAC”), the Americas, and Central Europe, Middle East and Africa (“CEMEA”). The following table provides revenue concentration by geographic region. Analysis of revenue by segment and geographical region and reconciliations to consolidated revenue and gross profit are as follows:

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

Net Revenue:

 

 

 

 

 

 

 

APAC

 

$

4,036,276 

 

$

3,886,007 

 

Americas

 

 

1,493,130 

 

 

1,210,806 

 

CEMEA

 

 

2,152,359 

 

 

2,341,622 

 

Total multi-currency processing services revenue

 

 

7,681,765 

 

 

7,438,435 

 

Payment processing services revenue

 

 

4,451,005 

 

 

3,736,682 

 

Net revenue

 

$

12,132,770 

 

$

11,175,117 

 

Gross Profit:

 

 

 

 

 

 

 

APAC

 

$

4,006,712 

 

$

3,858,140 

 

Americas

 

 

1,396,279 

 

 

1,178,702 

 

CEMEA

 

 

1,666,004 

 

 

1,803,744 

 

Total multi-currency processing services gross profit

 

 

7,068,995 

 

 

6,840,586 

 

Payment processing services gross profit

 

 

1,862,800 

 

 

1,217,861 

 

Total gross profit

 

$

8,931,795 

 

$

8,058,447 

 

 

 

 

Payment processing service revenue and gross profit is the result of transactions that primarily originated in the Americas. For the three months ended March 31, 2015 Customer B and Customer I had revenue concentration of 15% and 19% respectively. No individual customer of the payment processing segment was greater than 10% of segment revenue for the three months ended March 31, 2014.

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Concentration of revenue by customer by geographical region:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

Multi-currency processing services revenue:

    

 

 

 

 

APAC:

 

 

 

 

 

Customer A

 

60 

%  

64 

%  

Americas:

 

 

 

 

 

Customer D

 

15 

 

 

 

Customer E

 

14 

 

23 

 

Customer F

 

18 

 

26 

 

Customer G

 

*

 

11 

 

CEMEA:

 

 

 

 

 

Customer C

 

62 

 

61 

 

Customer H

 

37 

 

39 

 

 


(*) Less than 10% revenue concentration.

 

1 1 . Restructuring charges

 

In 2014, the Company initiated a realignment of its workforce aimed at achieving great er operational efficiencies. As a result of the realignment, the Company incurred total restructuring charges during the three months ended March 31, 201 4 of approximately $0 . 6 million .  

 

The table below sets forth the cash components and activity associated with the realignment of workforce and business for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Balance as of 

  

 

 

  

 

 

  

Balance as of

 

 

 

January 1, 2015

 

Charges

 

Cash Payment

 

March 31, 2015

 

Severance and benefits

 

$

195,773 

 

$

 —

 

$

116,645 

 

$

79,128 

 

Legal expenses and other

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total restructuring charges

 

$

195,773 

 

$

 —

 

$

116,645 

 

$

79,128 

 

 

 

12. Stock Repurchase Program

 

In October 2014, the Company announced that its Board of Directors authorized the repurchase of up to $6.0 million of the Company’s outstanding shares of common stock.  The shares may be purchased from time to time for a period ending December 31, 2015.  The timing, price and quantity of purchases will be at the discretion of the Company and the program may be discontinued or suspended at any time.  As of March 31, 2015, the Company repurchased approximately 0.5 million shares of common stock for an aggregate price of $0.8 million.  From April 1, 2015 to April 30, 2015, the Company repurchased approximately 0.8 million shares of common stock for an aggregate price of $1.4 million. Total amount of common stock repurchased under the program through April 30, 2015 was 1.3 million shares for an aggregate price of $2.2 million.

 

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Item 2. Management’s discussion and analysis of financial condition and results of operations

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Business overview

 

We believe Planet Payment is a leading provider of international payment and transaction processing and multi-currency processing services. We provide our services to approximately 105 ,000 active merchant locations in 23 countries and territories across the Asia Pacific region, the Americas, the Middle East, Africa and Europe, primarily through our acquiring bank and processor customers, as well as through our own direct sales force. Our point-of-sale and e-commerce services help merchants sell more goods and services to consumers and, together with our ATM services, enable our acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels.

 

To ensure our long-term success and the success of our customers:

 

·

we invest in new services and in enhancing our processing platform to facilitate more convenient and innovative payment methods , mobile payments and e-commerce; as well as the processing of non-financial transactions such as mobile phone top-up.

 

·

we continually work to improve the speed, efficiency, security and performance of our platform and our payments and transaction processing services to enhance the reliability of our global processing infrastructure and protect the security of cardholder information.

 

Key trends

 

Our financial results have been and we believe will continue to be impacted by trends in the international payment processing industry, including the global shift toward electronic-based methods of payments and away from paper-based methods of payment, the increasing levels of international travel and commerce and the rapid adoption of e-commerce on a global scale. Our results are impacted by the changes in levels of international spending using electronic methods, and as a result, negative trends in the global economy and other factors which negatively impact international travel may negatively impact the growth in total transaction volume processed using our platform. The global economy has been undergoing a period of economic uncertainty and stock markets are experiencing high levels of volatility, and it is difficult to predict how long this uncertainty and volatility will continue.

 

W e plan to grow our business by increasing the use of our services by the merchants of our existing and future acquiring bank and processor customers. If we are successful in increasing our share of this currently addressable market, as well as by adding new acquiring bank and processor customers and expanding into new geographies and business sectors, we would expect our revenue to continue to grow. In addition, based on the positive trends in the international payment processing industry noted above, we anticipate that as and when more payments are made using electronic methods, such as those that we offer, our revenue would also increase.

 

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Table of Contents

Key metrics

 

Our management relies on certain performance indicators to manage and assess our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. We believe that improvements in these metrics will result in improvements in our financial performance over time. We monitor our non-GAAP financial measures and other business statistics as a measure of operating performance in addition to net income (loss) and the other measures included in our consolidated financial statements.

 

The following is a table consisting of non-GAAP financial measures and certain other business statistics that management monitors :

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

KEY METRICS:

    

 

 

 

 

 

 

Consolidated gross billings(1)

 

$

33,246,649 

 

$

31,832,572 

 

T otal settled dollar volume processed(2)

 

$

2,074,690,850 

 

$

1,700,379,848 

 

A djusted EBITDA (non-GAAP)(3)

 

$

2,794,861 

 

$

882,214 

 

Capitalized expenditures

 

$

466,248 

 

$

531,605 

 

Total active merchant locations (at period end)(4)

 

 

104,916 

 

 

67,112 

 

Total settled transactions processed(5)

 

 

45,350,822 

 

 

24,354,732 

 

Multi-currency processing services key metrics:

 

 

 

 

 

 

 

Active merchant locations (at period end)(4)

 

 

42,527 

 

 

24,504 

 

Settled transactions processed(6)

 

 

3,487,816 

 

 

3,171,691 

 

Gross foreign currency mark-up(7)

 

$

28,795,644 

 

$

28,095,890 

 

Settled dollar volume processed(8)

 

$

660,276,149 

 

$

680,570,444 

 

Average net mark-up percentage on settled dollar volume processed(9)

 

 

1.12 

%  

 

1.09 

%  

Payment processing services key metrics :

 

 

 

 

 

 

 

Active merchant locations (at period end)(4)

 

 

62,412 

 

 

42,631 

 

Payment processing services revenue(10)

 

$

4,451,005 

 

$

3,736,682 

 

Settled transactions processed(11)

 

 

41,863,006 

 

 

21,183,041 

 

Settled dollar volume processed(12)

 

$

1,414,414,701 

 

$

1,019,809,404 

 

 


(1)

Represents gross foreign currency mark-up (see footnote 7) plus payment processing services revenue (see footnote 10).

 

(2)

Represents total settled dollar volume processed through both our multi-currency and payment processing services. For the three months ended March 31, 2014 total settled dollar volume processed was updated from the amounts originally reported of $1,995,274,708 .

 

(3)

We define Adjusted EBITDA as GAAP net income (loss) adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense and (6) certain other items management believes affect the comparability of operating results. Please see “ Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

(4)

We consider a merchant location to be active as of a date if the merchant completed at least one revenue-generating transaction at the location during the 90-day period ending on such date. The total number of active merchant locations exceeds the total number of merchants, as merchants may have multiple locations. As of March 31, 2015 and 201 4 , there were 2 3 active merchant locations, included in both multi-currency and payment processing active merchant locations but are not included in total active merchant locations, in order to eliminate counting these locations twice.

 

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Table of Contents

(5)

Represents total settled transactions (excluding other transaction types such as authorizations and rate look-ups).  For the three months ended March 31, 2014 total settled transactions processed was updated from the amounts originally reported of 23,990,910.

 

(6)

Represents settled transactions processed using our multi-currency processing services (excluding other transaction types such as authorizations and rate look-ups).

 

(7)

Represents the gross foreign currency mark-up amount on settled dollar volume processed using our multi-currency processing services. Gross foreign currency mark-up represents multi-currency processing services net revenue plus amounts paid to acquiring banks and their merchants associated with such multi-currency processing transactions. Management believes this metric is relevant because it provides the reader an indication of the gross mark-up derived from multi-currency transactions processed through our platform during a given period.  Refer to our segment disclosure in Note 1 0 of our condensed consolidated financial statements for information on our net revenue from multi-currency processing services.

 

(8)

Represents the total settled dollar volume processed using our multi-currency processing services.

 

(9)

Represents the average net foreign currency mark-up percentage earned on settled dollar volume processed using our multi-currency processing services. The average net mark-up percentage on settled dollar volume processed is calculated by taking total multi-currency processing services net revenue ($7. 7  million and $ 7.4 million for the three months ended March 31, 2015 and 2014, respectively ) and dividing by settled dollar volume processed (see footnote 8).  For purposes of calculating “Average net mark-up percentage on settled dollar volume processed”, multi-currency processing services revenue includes revenue related to multi-currency transactions only.

 

(10)

Represents revenue earned and reported on payment processing services.

 

(11)

Represents settled transactions processed using our payment processing services (excluding other transaction types such as authorizations and rate look-ups). For the three months ended March 31, 2014 settled transactions processed using our payment processing services was updated from the originally reported amounts of 20,819,219.

 

(12)

Represents the total settled dollar volume processed using our payment processing services. For the three months ended March 31, 2014 total settled dollar volume processed using our payment processing services was updated from the originally reported amounts of $1,314,704,264.  

 

Adjusted EBITDA

 

This discussion includes information about Adjusted EBITDA that is not prepared in accordance with GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. A reconciliation of this non-GAAP measure is included below.

 

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude (1) interest expense, (2) interest income, (3) provision (benefit) for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense and (6) certain other items management believes affect the comparability of operating results.

 

Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team in connection with our executive compensation.

 

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Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:

 

·

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

·

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

·

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

·

non-cash compensation is and will remain a key element of our long-term incentive compensation for our employees, although we exclude it from Adjusted EBITDA when evaluating our ongoing performance for a particular period; and

 

·

Adjusted EBITDA does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations.

 

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplement to our GAAP results.

 

The following table sets forth the reconciliation of Adjusted EBITDA to net income (loss), our most directly comparable financial measure in accordance with GAAP :  

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

ADJUSTED EBITDA:

    

 

 

 

 

 

 

Net income (loss)

 

$

1,711,626 

 

$

(779,290)

 

Interest expense

 

 

14,613 

 

 

16,170 

 

Interest income

 

 

(426)

 

 

(175)

 

Provision (benefit) for income taxes

 

 

110,413 

 

 

(6,010)

 

Depreciation and amortization

 

 

725,173 

 

 

746,313 

 

Stock-based compensation expense

 

 

233,462 

 

 

275,991 

 

Restructuring charges

 

 

 —

 

 

629,215 

 

Adjusted EBITDA (non-GAAP)

 

$

2,794,861 

 

$

882,214 

 

 

Components of operating results

 

Sources of revenue

 

We derive our revenue principally through transaction fees earned under fixed contractual arrangements with customers who use our international payment and multi-currency processing services. We operate the business in two reportable segments:

 

·

Multi-currency processing services revenue.   Revenue derived from foreign currency transaction fees earned on processing and converting a credit or debit card transaction from one currency into another currency. Foreign currency transactions fees earned under our agreements with our multi-currency processing services customers have traditionally been based on a fixed percentage applied to the net foreign currency margin earned, after deducting any merchant revenue and other contractual costs.  Also included are fees for non-transactional services.

 

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·

Payment processing services revenue.   Revenue derived from transaction fees earned on processing services provided in facilitating the sale of goods and services by means of credit and debit cards and other electronic payments, the processing of certain non-financial transactions and professional services fees related to the payment processing business.

 

Geographic and customer concentration

 

We conduct our business primarily in three geographical regions: Asia Pacific, or APAC, the Americas, and Central Europe, Middle East and Africa, or CEMEA. The following table provides multi-currency processing services revenue concentration by geographical region. Revenue by region is based upon where the transaction originated. We conduct our payment processing services primarily in North America.

 

Analysis of revenue by segment and geographical region :

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2015

 

2014

 

Revenue:

    

 

 

 

 

 

 

APAC

 

$

4,036,276 

 

$

3,886,007 

 

The Americas

 

 

1,493,130 

 

 

1,210,806 

 

CEMEA

 

 

2,152,359 

 

 

2,341,622 

 

Total multi-currency processing services revenue

 

 

7,681,765 

 

 

7,438,435 

 

Payment processing services revenue

 

 

4,451,005 

 

 

3,736,682 

 

Net revenue

 

$

12,132,770 

 

$

11,175,117 

 

 

 

A significant portion of our revenue is derived from agreements with a limited number of customers. Specifically, for the three months ended March 31, 2015, subsidiaries of Global Payments, Inc. represented 2 0 % of our revenue and Network International, LLC represented 1 1 % of our revenue.

 

Operating expenses

 

Cost of revenue.   Cost of revenue primarily consists of two categories: (1) payment processing services fees, which includes payment processing transactions fees such as sponsorship fees, interchange and card association fees and assessments; and (2) processing and service costs, which include certain expenses related to multi-currency processing segment, expenses of running our platform infrastructure, including: internet connectivity, hosting and data storage expenses, amortization expense on acquired intangibles and capitalized software development costs, compensation and related benefits and a portion of general overhead expenses.

 

Selling, general and administrative expenses.   Selling, general and administrative expenses consist primarily of compensation and related benefits, facility costs, public company costs and professional service fees for our sales, marketing, customer service, administrative functions, and a portion of general overhead expenses.

 

Based on the loss recovery model we recorded an insurance reimbursement gain of $0.5 million in selling, general and administrative expenses during the first quarter of 2015.  The insurance reimbursement was related to a previous property and casualty loss.  The insurance proceeds were collected in April 2015.

 

We allocate overhead such as occupancy, telecommunication charges and depreciation expense based on headcount, as we believe this to be the most accurate measure. As a result, a portion of general overhead expenses is reflected in both our cost of revenue and selling, general and administrative expenses.

 

Restructuring charges.    We recorded restructuring charges in connection with a realignment of its workforce.  These charges primarily include employee severance and benefits.

 

Other income (expense), net.  Other income (expense), net, primarily consists of non-operating income as well as interest expense related to our capital leases.

 

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Critical accounting policies and estimates

 

The discussion and analysis of our financial condition and results of our operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP.  These principles require us to make certain estimates and judgments that affect the reported amounts and the disclosure in our financial statements.  We base our estimates on historical experience, future trends and other assumptions we believe to be reasonable under the circumstances.  Because these accounting policies require significant judgment, our actual results may differ materially from our estimates.

 

Our critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and that involve difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The estimates are based on historical experience and on various assumptions about the ultimate outcome of future events. Our actual results may differ from these estimates if unforeseen events occur or should the assumptions used in the estimation process differ from actual results. Management believes there have been no material changes to the critical accounting policies discussed in the section entitled “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Results of operations

 

The following tables set forth our condensed consolidated results of operations for the periods presented and as a percentage of our net revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

$ amount

 

revenue

 

$ amount

 

revenue

 

Revenue:

    

 

    

    

    

    

 

    

    

    

    

APAC

 

$

4,036,276 

 

33.3 

%  

$

3,886,007 

 

34.8 

%  

Americas

 

 

1,493,130 

 

12.3 

 

 

1,210,806 

 

10.8 

 

CEMEA

 

 

2,152,359 

 

17.7 

 

 

2,341,622 

 

21.0 

 

Total multi-currency processing services revenue

 

 

7,681,765 

 

63.3 

 

 

7,438,435 

 

66.6 

 

Payment processing services revenue

 

 

4,451,005 

 

36.7 

 

 

3,736,682 

 

33.4 

 

Net revenue

 

 

12,132,770 

 

100.0 

 

 

11,175,117 

 

100.0 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Payment processing services fees

 

 

2,588,204 

 

21.3 

 

 

2,518,821 

 

22.5 

 

Processing and service costs

 

 

3,237,940 

 

26.7 

 

 

3,714,593 

 

33.2 

 

Total cost of revenue

 

 

5,826,144 

 

48.0 

 

 

6,233,414 

 

55.7 

 

Selling, general and administrative expenses

 

 

4,470,400 

 

36.8 

 

 

5,081,793 

 

45.5 

 

Restructuring charges

 

 

 —

 

 —

 

 

629,215 

 

5.6 

 

Total operating expenses

 

 

10,296,544 

 

84.9 

 

 

11,944,422 

 

106.8 

 

Income (loss) from operations

 

 

1,836,226 

 

15.1 

 

 

(769,305)

 

(6.8)

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(14,613)

 

(0.1)

 

 

(16,170)

 

(0.1)

 

Interest income

 

 

426 

 

 —

 

 

175 

 

 —

 

Total other expense, net

 

 

(14,187)

 

(0.1)

 

 

(15,995)

 

(0.1)

 

Income (loss) from operations before (provision) benefit for income taxes

 

 

1,822,039 

 

15.0 

 

 

(785,300)

 

(6.9)

 

(Provision) benefit for income taxes

 

 

(110,413)

 

(0.9)

 

 

6,010 

 

0.1 

 

Net income (loss)

 

$

1,711,626 

 

14.1 

%  

$

(779,290)

 

(6.8)

%  

 

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Comparison of the three months ended March 31, 2015 and 201 4

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

Variance

 

 

    

2015

    

2014

    

Amount

    

Percent

 

APAC

 

$

4,036,276 

 

$

3,886,007 

 

$

150,269 

 

%  

Americas

 

 

1,493,130 

 

 

1,210,806 

 

 

282,324 

 

23