JetPay Corporation Announces First Quarter 2018 Financial Results

JetPay Corporation (NASDAQ:JTPY) announced financial results for the first quarter ended March 31, 2018. The company is a leading provider of vertically integrated solutions for businesses including card acceptance, processing, payroll, payroll tax filing and other financial transactions.

The company’s revenues were $15.9 million for the first three months ended March 31, 2018 as compared to $14.5 million for the same period in 2017. The company said that the revenue for payment services segment increased $1.3 million or 14.4 percent for the three months ended March 31, 2018.

As quoted in the press release:

Financial Highlights

• JetPay adopted the new accounting standards requirements of ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606” or “ASC 606”), replacing ASC Topic 605, Revenue Recognition. The Company adopted the requirements of ASC 606 on January 1, 2018 using the full retrospective method, which required both the current and prior reporting periods to be presented under the same methodology. Accordingly, the March 31, 2017 and December 31, 2017 financial statements and related disclosures within this press release and within our Form 10-Q are presented on an “As Adjusted” basis.The adoption of ASC 606 had several significant impacts on JetPay financial statements and results, including:
  • Under ASC 606, the Company reflects revenues net of certain fees that the Company pays to third parties, including interchange, which is earned by the cardholder’s issuing bank, and dues and assessments, which are earned by the credit card associations. The Company previously reported some of these items as revenues and cost of revenues under previous standards. This change in presentation will have no effect on the reported amount of gross profit and operating income; however, the Company’s total revenues and cost of revenues for the three months ended March 31, 2017 is each lower by $5.2 million.
  • Under ASC 606, the timing of recognition of certain revenue streams, including Form W-2 and annual and quarterly tax filing revenues, has changed from when delivery has occurred or services have been rendered to when a customer takes control of the goods or services. This change in the timing of revenue recognition resulted in an increase in revenues of $744,000 for the three months ended at March 31, 2017.
  • Under ASC 606, certain incremental direct costs of obtaining and fulfilling a contract, primarily inside commission costs, are deferred and recognized over the estimated terms of the Company’s customer relationships. This change in the timing of commission recognition resulted in a reduction of commission expenses of $148,000 for the three months ended March 31, 2017.

The detailed impact of adopting ASC Topic 606 on revenues and financial results within the Payment Services Segment and the HR & Payroll Segment is more fully described in the chart below.

• Revenues, as reported under ASC 606, increased 9.5%, or $1.4 million, to $15.9 million for the three months ended March 31, 2018, as compared to $14.5 million for the same period in 2017. Under former ASC Topic 605, Revenues would have increased 13.8% for the three months ended March 31, 2018 versus the same period in 2017.

• Revenues within our Payment Services Segment increased 14.4% or $1.3 million, to $10.4 million for the three months ended March 31, 2018 as compared to $9.1 million for the same period in 2017.
• Revenues within our HR & Payroll Services Segment increased 1.1%, or $59,000, to $5.44 million for the three months ended March 31, 2018, as compared to $5.38 million in 2017. Under former ASC Topic 605, revenues in the HR & Payroll Segment would have increased 13.6% as ASC 606 changed the timing of revenue recognition of $744,000 of revenues from Q4 2016 to Q1 2017.
• Consolidated gross profit increased 9.6% to $7.7 million, or 48.7% of revenues, for the three months ended March 31, 2018, up from $7.1 million for the same period in 2017.
• Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) were $1.4 million and $2.2 million for the three months ended March 31, 2018 and 2017, respectively. EBITDA, adjusted for non-recurring and non-cash items (“adjusted EBITDA” – see Non-GAAP Financial Measures definition and reconciliation of operating income (loss) to EBITDA and adjusted EBITDA below), was $2.4 million, or 15.3% of revenues for the three months ended March 31, 2018, as compared to $2.5 million, or 17.3% of revenues, for the same period in 2017.
• The ratio of total debt to total capitalization, which consists of total debt of $15.7 million and common stock subject to possible redemptions, convertible preferred stock and stockholders’ equity totaling $62.3 million, was 20.1% at March 31, 2018, a slight improvement from 20.5% at December 31, 2017.

News Highlights

• Entered into a settlement agreement with Valley National Bank, settling JetPay Payment Services, TX, LLC’s (“JetPay Payments, TX”) litigation against Valley National Bank on April 30, 2018. Pursuant to the settlement agreement, Valley National Bank paid JetPay Payments, TX $2,175,000.
• Announced a new facility which consolidates our Lehigh Valley, PA-based Human Resource, Payroll Processing, and Payroll Tax Service operations bringing together the approximate 140 area employees. The new location provides JetPay increased operating capacity to support the organizations growth plans and includes an expanded datacenter and production facility that offers increased speed and capabilities for delivering human capital management (HCM) and payroll processing.
• Announced a partnership with, Biz2Credit, the leading online resource for small business finance. Through this arrangement, JetPay customers will gain access to capital through Biz2Credit’s small business lending marketplace which has arranged more than $2 billion in financing to thousands of small and mid-size companies over the last decade.
• Announced a new strategic partnership with Chargeback Gurus to offer businesses the combined services needed to improve risk management and overall payment processing services. Chargeback Gurus offers solutions that help merchants manage fraud as well as fight and recover chargebacks. The collection of more chargebacks allows merchants to minimize losses and increase their overall profitability.

“JetPay’s performance in the first quarter of 2018 was strong and consistent with our first quarter revenue growth expectations. With our services to the State of Illinois continuing to roll out, the realization of new strategic partnerships, and the expansion of our JetX cash discount product, our Payments business continued its solid growth course,” stated Diane (Vogt) Faro, CEO of JetPay Corporation. “When combined with the record results in our HR & Payroll Segment, JetPay’s performance is improving each quarter. Our teams throughout the country are working hard to grow revenues while continuing to provide the first-class service our customers have come to expect,” Ms. Faro added.

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