# Paysign, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Paysign, Inc.](/companies/pays.md) (CIK 1496443)
- Form: 10-Q
- Filed: 2024-11-06
- Accepted by EDGAR: Nov 6, 2024, 13:00 ET
- Period: 2024-09-30
- Accession: 0001683168-24-007637
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1496443/000168316824007637/paysign_i10q-093024.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1496443/000168316824007637/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $15.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $42.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $6.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $19.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $8.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $23.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $6.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $18.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $689.8k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $557.2k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $53.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $459.6k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 56,051,960 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 55,613,026 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $8.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $318.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $360.5k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $10.3m | us-gaap:Cash |
| Current assets | at 2024-09-30 | $147.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $167.0m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $135.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $138.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $28.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,108 characters.

### Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Forward-Looking Statements”). All statements other than statements of historical fact included in this report are Forward-Looking Statements. These Forward-Looking Statements are based on our current expectations, assumptions, estimates and projections about our business and our industry. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “propose,” “may,” and other similar expressions identify Forward-Looking Statements. Specific forward-looking statements made herein include our belief that we do not anticipate any losses with respect to accounts with balances exceeding federally insured limits; our expected lease obligations for subsequent years; our belief that our platform can be seamlessly integrated with our clients’ systems; our belief that our distinctive positioning allows us to provide end-to end technologies that securely manage transaction processing, cardholder enrollment, value loading, account management, data and analytics, and customer service; our belief that our architecture is known for its cross-platform compatibility, flexibility, and scalability – allowing our clients and partners to leverage these advantages for cost savings and revenue opportunities; our expectation that in the future we will expand our product into other prepaid card offerings such as travel cards and expense reimbursement cards; our focus of our marketing efforts on corporate incentive and expense prepaid card products in various market verticals; our plan for 2024 to continue to invest additional funds in technology improvements, sales and marketing, cybersecurity, fraud, customer service, and regulatory compliance; our belief that from time to time we evaluate raising capital to enable us to diversify into new market verticals; our belief that if we do not raise new capital, that we will still be able to support our existing business and expand into new vertical markets using internally generated funds; our belief that the following measures are the primary indicators of our quarterly and annual revenues: gross dollar volume on loaded cards and conversion rates on gross dollar volume loaded on cards; our belief that the following are also key performance indicators: revenues, gross profit, operational expenses as a percent of revenues, cardholder participation, and EBITDA; and our belief that our available cash on hand, excluding restricted cash, along with our forecast for revenues and cash flows for the remainder of 2024 and through the third quarter of 2026, will be sufficient to sustain our operations for the next 24 months. In the normal course of our business, we, in an effort to help keep our stockholders and the public informed about our operations, may from time-to-time issue certain statements, either in writing or orally, that contain, or may contain, Forward-Looking Statements. Although we believe that the expectations reflected in such Forward-Looking Statements are reasonable, we can give no assurance that such expectations will prove to have been correct. In addition, any statements that refer to expectations, projections, estimates, forecasts, or other characterizations of future events or circumstances are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the Forward-Looking Statements. Such important factors (“Important Factors”) and other factors are disclosed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in other reports filed with the Securities and Exchange Commission (the “SEC”) from time to time. All prior and subsequent written and oral Forward-Looking Statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Important Factors described below that could cause actual results to differ materially from our expectations as set forth in any Forward-Looking Statement made by or on behalf of us. You are cautioned not to place undue reliance on these Forward-Looking Statements, which relate only to events as of the date on which the statements are made. We undertake no obligation to publicly revise these Forward-Looking Statements to reflect events or circumstances that arise after the date hereof. You should refer to and carefully review the information in future documents we file with the SEC.

### Overview

Paysign, Inc. (the “Company,” “Paysign,” “we” or “our”), headquartered in Nevada, was incorporated on August 24, 1995, and trades under the symbol PAYS on The Nasdaq Stock Market LLC. We are a vertically integrated provider of prepaid card products and processing services for corporate, consumer and government applications. Our payment solutions are utilized by our corporate customers as a means to increase customer loyalty, increase patient adherence rates, reduce administration costs and streamline operations. Public sector organizations can utilize our payment solutions to disburse public benefits or for internal payments. We market our prepaid card solutions under our Paysign® brand. As we are a payment processor and prepaid card program manager, we derive our revenue from all stages of the prepaid card lifecycle.

We operate on a powerful, high-availability payments platform with cutting-edge fintech capabilities that can be seamlessly integrated with our clients’ systems. This distinctive positioning allows us to provide end-to-end technologies that securely manage transaction processing, cardholder enrollment, value loading, account management, data and analytics, and customer service. Our architecture is known for its cross-platform compatibility, flexibility, and scalability – allowing our clients and partners to leverage these advantages for cost savings and revenue opportunities.

Our suite of product offerings includes solutions for corporate rewards, prepaid gift cards, general purpose reloadable debit cards, employee incentives, consumer rebates, donor compensation, clinical trials, healthcare reimbursement payments and pharmaceutical payment assistance, and demand deposit accounts accessible with a debit card. In the future, we expect to further expand our product into other prepaid card offerings such as travel cards and expense reimbursement cards. Our cards are sponsored by our issuing bank partners.

Our revenues include fees generated from cardholder fees, interchange, card program management fees, transaction claims processing fees, breakage, and settlement income. Revenue from cardholder fees, interchange, card program management fees, and transaction claims processing fees is recorded when the performance obligation is fulfilled. Breakage is recorded ratably over the estimated card life based on historical redemption patterns, market-specific trends, escheatment rules, and existing economic conditions and relates solely to our open-loop gift card business which began at the end of 2022. Settlement income is recorded at the expiration of the card or card program and relates primarily to our pharma prepaid business which ended in 2022.

We have two categories for our prepaid debit cards: (1) corporate and consumer reloadable cards, and (2) non-reloadable cards.

Reloadable Cards: These types of cards are generally classified as payroll or considered general purpose reloadable (“GPR”) cards. Payroll cards are issued by an employer to an employee in order to allow the employee to access payroll amounts that are deposited into an account linked to their card. GPR cards can also be issued to a consumer at a retail location or mailed to a consumer after completing an on-line application. GPR cards can be reloaded multiple times with a consumer’s payroll, government benefit, a federal or state tax refund or through cash reload networks located at retail locations. Reloadable cards are generally open-loop cards as described below.

Non-Reloadable Cards: These are generally one-time use cards that are only active until the funds initially loaded to the card are spent. These types of cards are generally used as gift or incentive cards. Typically, these types of cards are used for the purchase of goods or services at retail locations and cannot be used to receive cash.

Both reloadable and non-reloadable cards may be open-loop, closed-loop, or restricted-loop. Open-loop cards can be used to receive cash at ATM locations by PIN; or purchase goods or services by PIN or signature at retail locations virtually anywhere that the network brand (American Express, Discover, Mastercard, Visa, etc.) is accepted. Closed-loop cards can only be used at a specific merchant. Restricted-loop cards can be used at several merchants, or a defined group of merchants, such as all merchants at a specific shopping mall.

The prepaid card market in the United States has experienced significant growth in recent years due to consumers and merchants embracing improved technology, greater convenience, more product choices and greater flexibility. Prepaid cards have also proven to be an attractive alternative to traditional bank accounts for certain segments of the population, particularly those without, or who could not qualify for, a checking or savings account.

We manage all aspects of the prepaid card lifecycle, from managing the card design and approval processes with partners and networks, to production, packaging, distribution, and personalization. We also oversee inventory and security controls, renewals, lost and stolen card management, and replacement. We employ a 24/7/365 fully staffed, in-house customer service department which utilizes bilingual customer service representatives, Interactive Voice Response, and two-way short message service messaging and text alerts.

Currently, we are focusing our marketing efforts on corporate incentive and expense prepaid card products in various market verticals including but not limited to general corporate expense, healthcare related markets including patient affordability solutions, clinical trials and donor compensation, loyalty rewards, and incentive cards.

As part of our continuing platform expansion process, we evaluate current and emerging technologies for applicability to our existing and future software platform. To this end, we engage with various hardware and software vendors in evaluation of various infrastructure components. Where appropriate, we use third-party technology components in the development of our software applications and service offerings. Third-party software may be used for highly specialized business functions, which we may not be able to develop internally within time and budget constraints. Our principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party processors, and small and mid-size financial institutions in the United States and Mexico.

We have devoted more extensive resources to sales and marketing activities as we have added essential personnel to our marketing, sales and support teams. We market our Paysign payment solutions through direct marketing by the Company’s sales team. Our primary market focus is on companies that require a streamlined payment solution for rewards, rebates, payment assistance, and other payments to their customers, employees, agents and others. To reach these markets, we focus our sales efforts on direct contact with our target market and attendance at various industry specific conferences. We may, at times, utilize independent contractors who make direct sales and are paid commissions and/or restricted stock awards. We market our Paysign premier product through existing communication channels to a targeted segment of our existing cardholders, as well as to a broad group of individuals, ranging from non-banked to fully banked consumers with a focus on long term users of our product.

In 2024, we plan to continue to invest additional funds in technology improvements, sales and marketing, cybersecurity, fraud, customer service, and regulatory compliance. From time to time, we evaluate raising capital to enable us to diversify into new market verticals. If we do not raise new capital, we believe that we will still be able to support our existing business and expand into new vertical markets using internally generated funds.

### Results of Operations

#### Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

The following table summarizes our consolidated financial results for the three months ended September 30, 2024 in comparison to the three months ended September 30, 2023:

| Revenues | Three Months Ended September 30, (Unaudited) 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Plasma industry | $11,439,534 | $11,061,712 | $377,822 | 3.4% |
| Pharma industry | 3,274,888 | 1,026,270 | 2,248,618 | 219.1% |
| Other | 542,009 | 312,343 | 229,666 | 73.5% |
| **Total revenues** | 15,256,431 | 12,400,325 | 2,856,106 | 23.0% |
| **Cost of revenues** | 6,783,117 | 6,068,207 | 714,910 | 11.8% |
| **Gross profit** | 8,473,314 | 6,332,118 | 2,141,196 | 33.8% |
| **Gross margin %** | 55.5% | 51.1% |  |  |
| **Operating expenses** |  |  |  |  |
| Selling, general and administrative | 6,217,844 | 4,696,509 | 1,521,335 | 32.4% |
| Depreciation and amortization | 1,565,621 | 1,045,177 | 520,444 | 49.8% |
| **Total operating expenses** | 7,783,465 | 5,741,686 | 2,041,779 | 35.6% |
| **Income from operations** | $689,849 | $590,432 | $99,417 | 16.8% |
| **Other income** | $800,715 | $615,324 | $185,391 | 30.1% |
| **Net income** | $1,436,837 | $1,100,604 | $336,233 | 30.5% |
| **Net margin %** | 9.42% | 8.9% |  |  |

18

The increase in total revenues of $2,856,106 for the three months ended September 30, 2024 compared to the same period in the prior year consisted primarily of a $377,822 increase in plasma revenue, a $2,248,618 increase in pharma revenue, and a $229,666 increase in other revenue. The increase in plasma revenue was primarily due to the addition of 16 net new plasma centers since September 30, 2023 and rise in the number of donations at existing plasma centers, and, consequently, dollars loaded to cards, cardholder fees, and interchange, as there continues to be an increase in demand for plasma driven by global increases in plasma protein therapies. The increase in pharma revenue was primarily due to the launch of 32 net new pharma patient affordability programs since September 30, 2023 and the subsequent growth in monthly management and setup fees, claim processing fees, and other billable services such as call center support. The increase in other revenue was primarily due to the growth and usage in the number of cardholders of our payroll, retail, and corporate incentive programs.

Cost of revenues for the three months ended September 30, 2024 increased $714,910 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management, application integration setup, and sales and commission expense. The increase in cost of revenues consisted primarily of (i) increased customer care expense of approximately $293,000 associated with the growth in our business, wage inflation pressures, a tight labor market, and increased benefit costs; (ii) increased third-party program management of approximately $173,000 associated with our pharma revenue; (iii) increased sales commission expense of approximately $175,000 related to the increase in overall revenue for programs in which we pay commission expenses; (iv) increased fraud charges of approximately $123,000; and (v) and increased network fees of approximately $34,000, which was driven predominantly by increased ATM network usage associated with growth in our card programs and increases in transaction fees related to inflationary pressures. These increases were offset by a decline in postage of approximately $42,000 and a decline in plastics and collateral of approximately $36,000.

Gross profit for the three months ended September 30, 2024 increased $2,141,196 compared to the same period in the prior year, resulting primarily from the increase in plasma revenue and the beneficial impact of a variable cost structure, as many of the plasma transaction costs are variable in nature and are provided by third-parties who charge us based on the number of active cards outstanding and transactions that occurred during the period. Gross profit also benefited from the growth in our pharma patient affordability business. The increase in gross profit was offset by price increases from many of our third-party service providers, and an increase in customer service and fraud expenses mentioned above. The increase in gross margin resulted from the aforementioned factors.

Selling, general and administrative expenses for the three months ended September 30, 2024 increased $1,521,335 compared to the same period in the prior year and consisted primarily of an increase in (i) compensation and benefits of approximately $1,821,000 due to continued hiring to support the Company’s growth, a tight labor market, and increased benefit costs; (ii) technologies and telecom of approximately $279,000 primarily related to ongoing platform security investments; and (iii) all other operating expenses of approximately $16,000. This increase was offset by a decrease in stock compensation of approximately $136,000 and an increase of $459,000 in the amount of capitalized platform development costs.

Depreciation and amortization expense for the three months ended September 30, 2024 increased $520,444 compared to the same period in the prior year. The increase in depreciation and amortization expense was primarily due to continued capitalization of new software development costs and equipment purchases related to continued enhancements to our processing platform and employment growth.

For the three months ended September 30, 2024, we recorded income from operations of $689,849 representing an improvement of $99,417 compared to income from operations of $590,432 during the same period in the prior year, related to the aforementioned factors.

Other income for the three months ended September 30, 2024 increased $185,391 primarily related to an increase in interest rates and the associated interest income received on higher average bank account balances at our sponsor bank.

At September 30, 2024, our income tax expense was $53,727, which equates to an effective tax rate of 3.6% primarily as a result of tax benefits related to our stock-based compensation and changes to the Company’s valuation allowance recorded on its net deferred tax assets. We recorded an income tax expense of $105,152 for the three months ended September 30, 2023, which equates to an effective tax rate of 8.7% primarily as a result of the full valuation on our deferred tax assets in both the current and prior period and the tax benefit related to our stock-based compensation.

The net income for the three months ended September 30, 2024 was $1,436,837, an improvement of $336,233 compared to the net income of $1,100,604 for the three months ended September 30, 2023. The overall change in net income relates to the aforementioned factors.

#### Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

The following table summarizes our consolidated financial results for the nine months ended September 30, 2024 in comparison to the nine months ended September 30, 2023:

| Revenues | Nine months ended September 30, (Unaudited) 2024 | 2023 | Variance $% |  |
| --- | ---: | ---: | ---: | ---: |
| Plasma industry | $33,080,830 | $30,436,240 | $2,644,590 | 8.7% |
| Pharma industry | 8,338,433 | 2,345,068 | 5,993,365 | 255.6% |
| Other | 1,358,841 | 803,358 | 555,483 | 69.1% |
| **Total revenues** | 42,778,104 | 33,584,666 | 9,193,438 | 27.4% |
| **Cost of revenues** | 19,779,776 | 16,589,139 | 3,190,637 | 19.2% |
| **Gross profit** | 22,998,328 | 16,995,527 | 6,002,801 | 35.3% |
| **Gross margin %** | 53.8% | 50.6% |  |  |
| **Operating expenses** |  |  |  |  |
| Selling, general and administrative | 18,149,506 | 14,946,584 | 3,202,922 | 21.4% |
| Depreciation and amortization | 4,291,648 | 2,848,194 | 1,443,454 | 50.7% |
| **Total operating expenses** | 22,441,154 | 17,794,778 | 4,646,376 | 26.1% |
| **Income (loss) from operations** | $557,174 | $(799,251) | $1,356,425 | NM |
| **Other income** | $2,345,416 | $1,800,388 | $545,028 | 30.3% |
| **Net income** | $2,443,035 | $836,318 | $1,606,717 | 192.1% |
| **Net margin %** | 5.7% | 2.5% |  |  |

The increase in total revenues of $9,193,438 for the nine months ended September 30, 2024 compared to the same period in the prior year consisted primarily of a $2,644,590 increase in plasma revenue, a $5,993,365 increase in pharma revenue, and a $555,483 increase in other revenue. The increase in plasma revenue was primarily due to the addition of 16 net new plasma centers since September 30, 2023 and rise in the number of donations at existing plasma centers, and, consequently, dollars loaded to cards, cardholder fees, and interchange, as there continues to be an increase in demand for plasma driven by global increases in plasma protein therapies. The increase in pharma revenue was primarily due to the launch of 32 net new pharma patient affordability programs since September 30, 2023 and the subsequent growth in monthly management and setup fees, claim processing fees, and other billable services such as call center support. The increase in other revenue was primarily due to the growth and usage in the number of cardholders of our payroll, retail, and corporate incentive programs.

Cost of revenues for the nine months ended September 30, 2024 increased $3,190,637 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management, application integration setup, and sales and commission expense. The increase in cost of revenues consisted primarily of (i) increased network fees of approximately $1,413,000, which was driven predominantly by increased ATM network usage associated with growth in our card programs and increases in transaction fees related to inflationary pressures; (ii) increased sales commission expense of approximately $510,000 related to the increase in overall revenue for programs in which we pay commission expenses; (iii) increased customer care expense of approximately $637,000 associated with the growth in our business, wage inflation pressures, a tight labor market, and increased benefit costs; (iv) increased fraud charges of approximately $407,000; and (v) and increased third-party program management of approximately $409,000 related to the growth in our pharma patient affordability business. These increases were offset by a decline in plastics and collateral of approximately $161,000.

Gross profit for the nine months ended September 30, 2024 increased $6,002,801 compared to the same period in the prior year resulting primarily from the increase in plasma revenue and the beneficial impact of a variable cost structure, as many of the plasma transaction costs are variable in nature and are provided by third parties who charge us based on the number of active cards outstanding and transactions that occurred during the period. Gross profit also benefited from the growth in our pharma patient affordability business. The increase in gross profit was offset by price increases from many of our third-party service providers and an increase in customer service and fraud expenses mentioned above. The increase in gross margin resulted from the aforementioned factors.

Selling, general and administrative expenses for the nine months ended September 30, 2024 increased $3,202,922 compared to the same period in the prior year and consisted primarily of an increase in (i) compensation and benefits of approximately $4,012,000 due to continued hiring to support the Company’s growth, a tight labor market, and increased benefit costs; (ii) technologies and telecom expense of approximately $963,000 primarily related to ongoing platform security investments; and (iii) all other operating expenses of approximately $77,000. This increase was offset by a decrease in non-IT professional audit and legal services of approximately $274,000, a decrease in stock compensation of approximately $251,000 and a $1,325,000 increase in the amount of capitalized platform development costs.

Depreciation and amortization expense for the nine months ended September 30, 2024 increased $1,443,454 compared to the same period in the prior year. The increase in depreciation and amortization expense was primarily due to continued capitalization of new software development costs and equipment purchases related to continued enhancements to our processing platform and employment growth.

For the nine months ended September 30, 2024, we recorded income from operations of $557,174 representing an improvement of $1,356,425 compared to loss from operations of $799,251 during the same period in the prior year related to the aforementioned factors.

Other income for the nine months ended September 30, 2024 increased $545,028 primarily related to an increase in interest rates and the associated interest income received on higher average bank account balances at our sponsor bank.

At September 30, 2024, our income tax expense was $459,555, which equates to an effective tax rate of 15.8% primarily as a result of tax benefits related to our stock-based compensation and changes to the Company’s valuation allowance recorded on its net deferred tax assets. We recorded an income tax expense of $164,819 for the nine months ended September 30, 2023, which equates to an effective tax rate of 16.5% primarily as a result of the full valuation on our deferred tax assets in both the current and prior period and the tax benefit related to our stock-based compensation.

The net income for the nine months ended September 30, 2024 was $2,443,035, an improvement of $1,606,717 compared to the net income of $836,318 for the nine months ended September 30, 2023. The overall change in net income relates to the aforementioned factors.

### Key Performance Indicators and Non-GAAP Measures

Management reviews a number of metrics to help us monitor the performance of and identify trends affecting our business. We believe the following measures are the primary indicators of our quarterly and annual revenues:

Gross Dollar Volume Loaded on Cards: Represents the total dollar volume of funds loaded to all of our prepaid card programs. Our gross dollar volume loaded on cards was $456 million and $448 million for the three months ended September 30, 2024 and 2023, respectively. Our gross dollar volume loaded on cards was $1,339 million and $1,232 million for the nine months ended September 30, 2024 and 2023, respectively. We use this metric to analyze the total amount of money moving into our prepaid card programs.

Conversion Rates on Gross Dollar Volume Loaded on Cards: Represents revenues, gross profit or net income conversion rates of gross dollar volume loaded on cards which are calculated by taking our total revenues, gross profit or net income, respectively, as a numerator and dividing by the gross dollar volume loaded on cards as a denominator. As we derive a number of our financial results from cardholder fees, we utilize these metrics as an indication of the amount of money that is added to cards and will eventually be converted to revenues, gross profit and net income. Our total revenue conversion rates for the three months ended September 30, 2024 and 2023 were 3.34% or 334 basis points (“bps”), and 2.77% or 277 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the three months ended September 30, 2024 and 2023 were 1.86% or 186 bps, and 1.41% or 141 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates for the three months ended September 30, 2024 and 2023 were 0.31% or 31 bps, and 0.25% or 25 bps, respectively, of gross dollar volume loaded on cards. Our total revenue conversion rates for the nine months ended September 30, 2024 and 2023 were 3.20% or 320 basis points bps, and 2.73% or 273 bps, respectively, of gross dollar volume loaded on cards. Our total gross profit conversion rates for the nine months ended September 30, 2024 and 2023 were 1.72% or 172 bps, and 1.38% or 138 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates for the nine months ended September 30, 2024 and 2023 were 0.18% or 18 bps, and 0.07% or 7 bps, respectively, of gross dollar volume loaded on cards.

Management also reviews key performance indicators, such as revenues, gross profit, operational expenses as a percent of revenues, and cardholder participation. In addition, we consider certain non-GAAP (or “adjusted”) measures to be useful to management and investors evaluating our operating performance for the periods presented and provide a financial tool for evaluating our ongoing operations, liquidity and management of assets. This information can assist investors in assessing our financial performance and measures our ability to generate capital for deployment and investment in new card programs. These adjusted metrics are consistent with how management views our business and are used to make financial, operating and planning decisions. These metrics, however, are not measures of financial performance under GAAP and should not be considered a substitute for revenue, operating income, net income, earnings per share (basic and diluted) or net cash from operating activities as determined in accordance with GAAP. We consider the following non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, to be key performance indicators:

“EBITDA” is defined as earnings before interest, income taxes, depreciation and amortization expense and “Adjusted EBITDA” reflects the adjustment to EBITDA to exclude stock-based compensation expense. A reconciliation of net income to Adjusted EBITDA is provided in the table below.

| Reconciliation of Adjusted EBITDA to net income: | Three Months Ended September 30, 2024 | 2023 | Nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income** | $1,436,837 | $1,100,604 | $2,443,035 | $836,318 |
| Income tax provision | 53,727 | 105,152 | 459,555 | 164,819 |
| Interest income, net | (800,715) | (615,324) | (2,345,416) | (1,800,388) |
| Depreciation and amortization | 1,565,621 | 1,045,177 | 4,291,648 | 2,848,194 |
| **EBITDA** | 2,255,470 | 1,635,609 | 4,848,822 | 2,048,943 |
| Stock-based compensation | 573,499 | 709,750 | 1,907,588 | 2,158,420 |
| **Adjusted EBITDA** | $2,828,969 | $2,345,359 | $6,756,410 | $4,207,363 |

22

### Liquidity and Capital Resources

### Capital Resources

The following table sets forth the major sources and uses of cash:

|  | Nine months ended September 30, (Unaudited) 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $8,633,922 | $4,180,064 |
| Net cash used in investing activities | (7,087,867) | (4,999,986) |
| Net cash used in financing activities | (331,695) | (1,118,284) |
| Net increase (decrease) in cash and restricted cash | $1,214,360 | $(1,938,206) |

#### Comparison of Nine Months Ended September 30, 2024 and 2023

During the nine months ended September 30, 2024 and 2023, we financed our operations through internally generated funds.

Operating activities provided $8,633,922 of cash as of September 30, 2024, an increase of $4,453,858 compared to the same period last year. This change in cash flow is primarily due to increases in operating assets and liabilities. The changes in accounts receivable, accounts payable, and customer card funding are primarily related to the growth in our pharma patient affordability business and timing of payments as we are invoiced by third-party service providers at the end of the period and are due monies from our pharma patient affordability customers to cover these third-party payables. The increase in cash flows from operating activities was also impacted by net income and non-cash adjustments for depreciation and amortization, deferred income taxes, stock-based compensation, and lease expenses.

We used net cash in investing activities during the nine months ended September 30, 2024 and 2023 of $7,087,867 and $4,999,986, respectively. Cash used for investing activities was primarily attributed to an increase in the capitalization of internally developed software as we continue to invest in our technology platform.

Finance activities during the nine months ended September 30, 2024 used $331,695 in cash, attributable to the repurchase of 100,000 shares of the Company’s common stock at a weighted average price of $3.60 per share offset by proceeds received of $28,800 for the exercise of stock options. Financing activities during the nine months ended September 30, 2023 used $1,118,284 in cash, attributable to the repurchase of 394,558 shares of the Company’s common stock at a weighted average price of $2.86 per share offset by proceeds received of $9,600 for the exercise of stock options.

Our significant contractual cash requirements also include ongoing payments for lease liabilities. For additional information regarding our cash commitments and contractual obligations, see “Note 4 – LEASE” in the notes to the accompanying condensed consolidated financial statements.

### Sources of Liquidity

Unrestricted cash was $10,293,207 as of September 30, 2024, an increase of $356,580 compared to the same period in the prior year. The increase resulted primarily from the improvement in our operating results. We believe that our available cash on hand, excluding restricted cash, at September 30, 2024 of $10,293,207, along with our forecast for revenues and cash flows for the remainder of 2024 and through the third quarter of 2026, will be sufficient to sustain our operations for the next 24 months. In light of the elevated interest rates and increased refinancing risks related to commercial real estate holdings on bank balance sheets, we continue to monitor the health and soundness of our bank relationships through publicly available information. Based on recent SEC filings, we have not discovered any issues that would cause us to alter our bank relationships.

### Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

## Controls and procedures

As filed, 1,444 characters.

### Disclosure Controls and Procedures

Disclosure controls and procedures means controls and other procedures that are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2024, the end of the period covered by this Quarterly Report on Form 10-Q.

### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2024, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 6, 2024.
Source: SEC EDGAR, the filing index for accession 0001683168-24-007637. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.