NET REVENUE INCREASES 22%
NET INCOME $0.8 MILLION; ADJUSTED EBITDA INCREASES 75% TO $1.7 MILLION
LONG BEACH, N.Y., May 11, 2012 (GLOBE NEWSWIRE) -- Planet Payment, Inc. (LSE:PPT) (LSE:PPTR) (OTCQX:PLPM), a leading provider of international payment processing and multi-currency processing services, today announced its results for the three months ended March 31, 2012 ("Q1 '12"). During the first quarter of 2012, the Company again achieved strong operating results.
First quarter of 2012 highlights include:
- Net revenue for the period increased 22% to $11.7m (Q1 '11: $9.6m).
- Consolidated Gross Billings increased 37% to $30.2m (Q1 '11: $22.0m). (See Table 2 for explanation of this metric)
- Gross Foreign Currency Mark-up increased 40% to $26.1m (Q1 '11: $18.6m). (See Table 2 for explanation of this metric.)
- Net income was unchanged at $0.8m (Q1 '11: $0.8). Net income in Q1 '11 included $0.7m in other income due to the Derecognition of a Note Payable. Prior to consideration of this item, Net income increased by $0.66m.
- Adjusted EBITDA for the period increased 75% to $1.7m (Q1 '11: $1.0m). See Table 1 for reconciliation of net income to Adjusted EBITDA.
- Settled multi-currency dollar volume processed increased 41% to $683m (Q1 '11: $485m).
- Total active merchant locations increased by 55% to 30,977 as of March 31, 2012 (as of March 31, 2011: 19,927). (See Table 2 for explanation of this metric.)
Net revenue for the three months ended March 31, 2011 has been restated to reflect the presentation of net revenue adopted in previously published financial statements. The correction made to net revenue for the three months ended March 31, 2011 has already been reflected in the Company's audited financial statements for the year ended December 31, 2011, which was issued on March 30, 2012. Details of the adjustments to our previously issued unaudited statements of operations and statements of cash flows for the three months ended March 31, 2011 are set forth in Note 2 to the consolidated condensed financial statements included in this announcement and filed with OTCQX.
Commenting on the results, Philip Beck, Chairman of Planet Payment, Inc., said:
"Our revenue growth reflects the increase in transaction processing volumes primarily driven by increases in active merchant locations. Customers have continued to roll out our multi-currency processing solutions as reflected by the 27% increase in active multi-currency merchant locations over last year. The improvement in our financial results demonstrates the operating leverage inherent in our payment platform and business model.
During the first three months of 2012, the Company continued to expand its acquiring customer base in both existing and new markets, in particular announcing agreements with China UnionPay to provide processing support for China UnionPay's credit and debit cards in both card present and card-not-present environments directly to banks and acquirers on a worldwide basis. The Company is enhancing the iPAY gateway to include support for China UnionPay' new UnionPay Online Payment ("UPOP") service, which is expected to launch in the second quarter of 2012. The Company also recently announced an agreement with MICROS to add support for China UnionPay to the MICROS Payment Gateway.
In addition, the Company entered into agreements with Citibank, Hong Kong and Macau, Citi, Philippines and Mashreq, UAE for our Pay in Your Currency service in each of those countries.
During the period the Company continued the process of becoming a reporting company under U.S. Securities laws and continues to work with its advisors on that process. In January 2012, the Company held a Special Meeting of Shareholders, in order to approve various matters in relation to the Company's capital and corporate structures, in connection with the process.
Additional breakdown on the Company's performance can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations appended to this release. In accordance with the rules of the OTCQX market, the Company's First Quarter Report, including its Condensed Consolidated Financial Statements (unaudited), as of December 31, 2011 and March 31, 2012 and for the three months ended March 31, 2011 and 2012 have been posted on the OTCQX website at www.otcqx.com and on the Company's website at www.planetpayment.com.
| Enquiries: | |
| Planet Payment, Inc. | Tel: + 1 516 670 3200 |
| Robert Cox (CFO) | www.planetpayment.com ; |
| Redleaf Polhill (UK PR for Planet Payment) | Tel: +44 20 7566 6720 |
| Emma Kane / Henry Columbine / Luis Mackness | planet@redleafpolhill.com |
| Canaccord Genuity Ltd (UK) (Nomad for Planet Payment) | Tel: +44 20 7523 8000 |
| Simon Bridges / Andrew Chubb | |
| Canaccord Genuity, Inc. (US) (DAD for Planet Payment) | Tel: +1 617-371-3900 |
| Andy Viles |
Forward-Looking Statements. Information contained in this announcement may include 'forward-looking statements'. All statements other than statements of historical facts included herein, including, without limitation, those regarding the financial position, business strategy, plans and objectives of management for future operations of both Planet Payment and its business partners, and the public offering of the Company's shares are forward-looking statements. Such forward-looking statements are based on a number of assumptions regarding Planet Payment's present and future business strategies, and the environment in which Planet Payment expects to operate in future, which assumptions may or may not be fulfilled in practice. Actual results may vary materially from the results anticipated by these forward-looking statements as a result of a variety of risk factors, including, regulatory changes and changes in card association regulations and practices; general economic risk and volume of international travel and commerce and others. See the Company's Quarterly Report for the period, filed at www.otcqx.com for other risk factors which investors should consider. These forward-looking statements speak only as to the date of this announcement and cannot be relied upon as a guide to future performance. Planet Payment expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in its expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Management's Discussion & Analysis of Financial Condition and Results of Operations.
Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011
NON-GAAP MEASURES
The Company provides certain non-GAAP financial measures in this statement, in order to provide investors with additional perspective of underlying business trends and results. In addition management utilizes these measures in monitoring performance. These non-GAAP key business indicators, which include Adjusted EBITDA, should not be considered replacements for and should be read in conjunction with the GAAP financial measures.
We define Adjusted EBITDA as GAAP net income adjusted to exclude (1) interest expense, (2) interest income, (3) provision (benefit) for income taxes, (4) depreciation and amortization, (5) stock‑based expense from options and warrants 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, the most directly comparable financial measure calculated and presented in accordance with GAAP.
| Table 1. Reconciliation of Net Income to Adjusted EBITDA (non-GAAP) | ||
| For the three months ended March 31, 2011 and 2012 | ||
| Three Months Ended | ||
| March 31, | ||
| 2011 | 2012 | |
| US$ Million | ||
| Net income | $0.8 | $0.8 |
| Interest expense | 0.2 | 0.0 |
| Interest income | 0.0 | 0.0 |
| Provision for income taxes | 0.0 | 0.1 |
| Depreciation and amortization | 0.5 | 0.6 |
| Stock-based expense | 0.1 | 0.2 |
| Derecognition of note payable | (0.6) | 0.0 |
| Adjusted EBITDA (non- GAAP) | $1.0 | $1.7 |
| Table 2. Explanation of Key Metrics | |
| Consolidated gross billings | Represents gross foreign currency mark-up plus payment processing services revenue. |
| Gross foreign currency mark-up | 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. |
| Active merchant locations | 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. |
You should read the following discussion and analysis in conjunction with the information set forth under our consolidated financial statements and related notes thereto. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements in this discussion, are forward‑looking statements. These forward‑looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in this report and in the Annual and Quarterly Reports previously filed with the OTCQX and elsewhere. Our actual results may differ materially from those contained in or implied by any forward‑looking statements.
Key metrics
For the three months ended March 31, 2011 and 2012, our net revenue was $9.6 million and $11.7 million, respectively. In the same periods, our net income was $0.8 million and $0.8 million, respectively, and our Adjusted EBITDA was $1.0 million and $1.7 million, respectively. Adjusted EBITDA is a financial measure not calculated in accordance with GAAP. For information on how we calculate Adjusted EBITDA, see "—Key metrics—Adjusted EBITDA."
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 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, | ||||
| 2011 | 2012 | |||
| KEY METRICS: | ||||
| Consolidated gross billings(1) | $21,993,311 | $30,237,240 | ||
| Adjusted EBITDA (non-GAAP)(2) | $993,737 | $1,741,480 | ||
| Capitalized expenditures | $468,535 | $494,152 | ||
| Total active merchant locations (at period end) | 19,927 | 30,977 | ||
| Multi‑currency processing services key metrics: | ||||
| Active merchant locations (at period end)(3) | 13,503 | 17,209 | ||
| Settled transactions processed(4) | 2,213,606 | 2,976,916 | ||
| Gross foreign currency mark‑up(5) | $18,570,749 | $26,078,929 | ||
| Settled dollar volume processed(6) | $485,432,613 | $683,434,508 | ||
| Average net mark‑up percentage on settled dollar volume processed(7) | 1.27% | 1.10% | ||
| Payment processing services key metrics: | ||||
| Active merchant locations (at period end)(3) | 6,441 | 13,782 | ||
| Payment processing services revenue(8) | $3,422,562 | $4,158,311 | ||
| (1) Represents gross foreign currency mark-up (see footnote 5) plus payment processing services revenue (see footnote 8). |
| (2) We define Adjusted EBITDA as GAAP net income adjusted to exclude (1) interest expense, (2) interest income, (3) provision (benefit) for income taxes, (4) depreciation and amortization, (5) stock‑based expense from options and warrants 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, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
| (3) 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, 2011 and 2012, there were 17 and 14 active merchant locations, respectively that used both our multi‑currency processing services and our payment processing services. These amounts are included in multi‑currency and payment processing active merchant locations but are not included in total active merchant locations. |
| (4) Represents settled transactions processed using our multi‑currency processing services. |
| (5) 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 revenue recognition policy in Note 3 and segment disclosure in Note 10 of our consolidated financial statements for information on our net revenue from multi‑currency processing services. |
| (6) Represents the total settled dollar volume processed using our multi‑currency processing services. |
| (7) 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 the reported total multi‑currency processing services net revenue ($6.2 million and $7.5 million for the three months ended March 31, 2011 and 2012, respectively) and dividing by settled dollar volume processed (see footnote 6). |
| (8) Represents revenue earned and reported on payment processing services. |
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 adjusted to exclude (1) interest expense, (2) interest income, (3) provision (benefit) for income taxes, (4) depreciation and amortization, (5) stock‑based expense from options and warrants 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 growth. 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.
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, our most directly comparable financial measure in accordance with GAAP:
|
Three months ended March 31, |
||||
| 2011 | 2012 | |||
| ADJUSTED EBITDA: | ||||
| Net income | $768,956 | $787,147 | ||
| Interest expense | 215,619 | 14,220 | ||
| Interest income | (108) | (171) | ||
| Provision for income taxes | — | 95,272 | ||
| Depreciation and amortization | 548,979 | 620,620 | ||
| Stock‑based expense | 120,291 | 224,392 | ||
| Derecognition of note payable(1) | (660,000) | — | ||
| Adjusted EBITDA (non-GAAP) | $993,737 | $1,741,480 | ||
| (1) In 2003, we entered into an agreement with FHMS and FTB and recorded a liability. Due to a breach of the contractual terms by FHMS and FTB, we did not believe we were liable to repay these amounts. As of March 31, 2011, the statute of limitations had expired on $0.66 million of the $0.7 million balance and as of September 30, 2011, the statute of limitations had expired on the remaining $40,000. For the three months ended March 31, 2011, we recorded other income due to the derecognition of the note payable in the amount of $0.66 million. | ||||
Critical accounting policies and estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the amounts reported for assets, liabilities, revenue, expenses and the disclosure of contingent liabilities.
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 for the year ended December 31, 2011.
Results of operations
The following table sets forth our 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, | ||||||||
| 2011 | 2012 | |||||||
| % of | % of | |||||||
| $ amount | revenue | $ amount | revenue | |||||
| Revenue: | ||||||||
| APAC | $4,494,274 | 46.8% | $4,189,768 | 35.9% | ||||
| North America | 946,258 | 9.9 | 969,585 | 8.3 | ||||
| CEMEA | 732,610 | 7.6 | 2,363,272 | 20.2 | ||||
| Total multi‑currency processing services revenue | 6,173,142 | 64.3 | 7,522,625 | 64.4 | ||||
| Payment processing services revenue | 3,422,562 | 35.7 | 4,158,311 | 35.6 | ||||
| Net revenue | 9,595,704 | 100.0 | 11,680,936 | 100.0 | ||||
| Operating expenses: | ||||||||
| Cost of revenue: | ||||||||
| Payment processing services fees | 2,913,942 | 30.4 | 2,783,591 | 23.8 | ||||
| Processing and service costs | 2,115,832 | 22.0 | 2,730,829 | 23.4 | ||||
| Total cost of revenue | 5,029,774 | 52.4 | 5,514,420 | 47.2 | ||||
| Selling, general and administrative expenses | 4,241,463 | 44.2 | 5,270,048 | 45.1 | ||||
| Total operating expenses | 9,271,237 | 96.6 | 10,784,468 | 92.3 | ||||
| Income from operations | 324,467 | 3.4 | 896,468 | 7.7 | ||||
| Other (expense) income: | ||||||||
| Interest expense | (215,619) | (2.3) | (14,220) | (0.1) | ||||
| Interest income | 108 | 0.0 | 171 | 0.0 | ||||
| Other income, net | 660,000 | 6.9 | — | 0.0 | ||||
| Total other income (expense), net | 444,489 | 4.6 | (14,049) | (0.1) | ||||
| Income from operations before provision for income taxes | 768,956 | 8.0 | 882,419 | 7.6 | ||||
| Provision for income taxes | — | — | (95,272) | (0.8) | ||||
| Net income | $768,956 | 8.0% | $787,147 | 6.8% | ||||
| Comparison of the three months ended March 31, 2012 and 2011 | ||||||||
| Revenue | ||||||||
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| APAC | $4,494,274 | $4,189,768 | $(304,506) | (7)% | ||||
| North America | 946,258 | 969,585 | 23,327 | 2 | ||||
| CEMEA | 732,610 | 2,363,272 | 1,630,662 | * | ||||
| Total multi‑currency processing services revenue | 6,173,142 | 7,522,625 | 1,349,483 | 22 | ||||
| Payment processing services revenue | 3,422,562 | 4,158,311 | 735,749 | 21 | ||||
| Net revenue | $9,595,704 | $11,680,936 | $2,085,232 | 22 | ||||
| * Percentage not meaningful. | ||||||||
Net revenue increased $2.1 million, or 22%, to $11.7 million for the three months ended March 31, 2012 from $9.6 million for the three months ended March 31, 2011. The year over year increase in revenue was primarily due to the overall increase by 55%, or 11,050, in total active merchant locations processing transactions through our multi‑currency and payment processing services. Additionally, we believe our business was positively impacted by the global shift toward electronic payment transactions, increased international travel and commerce, and increased e-commerce on a global scale.
Multi‑currency processing services revenue
APAC multi‑currency processing services revenue. APAC multi‑currency processing services revenue decreased $0.3 million, or 7%, to $4.2 million for the three months ended March 31, 2012 from $4.5 million for the three months ended March 31, 2011. APAC multi‑currency processing services revenue key business metrics are as follows:
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| APAC multi‑currency processing active merchant locations (at period end) | 9,813 | 11,078 | 1,265 | 13% | ||||
| APAC multi‑currency processing settled transactions processed | 1,342,676 | 1,449,565 | 106,889 | 8 | ||||
| APAC multi‑currency processing gross foreign currency mark-up | $13,607,022 | $14,910,579 | $1,303,557 | 10 | ||||
| APAC multi‑currency processing settled dollar volume processed | $336,559,786 | $372,849,034 | $36,289,248 | 11 | ||||
| APAC average net mark-up % on settled dollar volume processed | 1.34% | 1.12% | (0.22)% | (16) | ||||
The 11% increase in settled dollar volume processed resulted in a $0.4 million increase to revenue, offset by a 16% decrease in our average net mark-up percentage on settled dollar volume processed, which resulted in a $0.7 million decrease to revenue. The primary reasons for the increase in total dollar volume processed were a 13% increase in active APAC merchant locations, which resulted from the addition of new active merchant locations in existing markets and the continued improvement in the global economy. This resulted in an 8% increase in settled transactions processed through our multi‑ currency services. The decrease in average net mark-up percentage on settled dollar volume processed was primarily due to re-pricing of certain contracts that have been renewed on a long-term basis coupled with the pricing mix of different services during the period.
North America multi‑currency processing services revenue. North America multi‑currency processing services revenue increased $23,000 to $0.9 million for the three months ended March 31, 2012 from $0.9 million for the three months ended March 31, 2011. North America multi‑currency processing services revenue key business metrics are as follows:
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| North America multi‑currency processing active merchant locations (at period end) | 1,788 | 1,998 | 210 | 12% | ||||
| North America multi‑currency processing settled transactions processed | 650,858 | 725,056 | 74,198 | 11 | ||||
| North America multi‑currency processing gross foreign currency mark-up | $2,325,396 | $2,561,285 | $235,889 | 10 | ||||
| North America multi‑currency processing settled dollar volume processed | $66,512,766 | $80,010,326 | $13,497,560 | 20 | ||||
| North America average net mark-up % on settled dollar volume processed | 1.42% | 1.21% | (0.21)% | (15) | ||||
The 20% increase in settled dollar volume processed resulted in a $163,000 increase to revenue offset by a 15% decrease in our average net mark-up percentage on settled dollar volume processed which resulted in a $140,000 decrease to revenue. The primary reason for the increase in settled dollar volume processed was a 12% increase in active North America merchant locations, which resulted from the addition of new active merchant locations in existing markets including a large national retailer. This resulted in an 11% increase in settled transactions processed through our multi‑currency services. The decrease in average net mark-up percentage on settled dollar volume processed was primarily due to the pricing mix of different services during the period.
CEMEA multi‑currency processing services revenue. CEMEA multi‑currency processing services revenue increased $1.6 million to $2.3 million for the three months ended March 31, 2012 from $0.7 million for the three months ended March 31, 2011. The $1.6 million increase in CEMEA multi‑currency processing services revenue was driven by changes in the following key business metrics:
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| CEMEA multi‑currency processing active merchant locations (at period end) | 1,902 | 4,133 | 2,231 | * | ||||
| CEMEA multi‑currency processing settled transactions processed | 220,072 | 802,295 | 582,223 | * | ||||
| CEMEA multi‑currency processing gross foreign currency mark-up | $2,638,331 | $8,607,065 | $5,968,734 | * | ||||
| CEMEA multi‑currency processing settled dollar volume processed | $82,360,061 | $230,575,148 | $148,215,087 | * | ||||
| CEMEA average net mark-up % on settled dollar volume processed | 0.89% | 1.03% | 0.14% | 16% | ||||
| * Percentages not meaningful. | ||||||||
The $148.2 million increase in settled dollar volume processed was due to the continued merchant rollout for the two new countries implemented during the last quarter of 2010. The addition of the merchant locations from these new countries significantly impacted the number of transactions processed through our multi‑currency services in CEMEA.
Payment processing services revenue
Payment processing services revenue is primarily earned from transactions originating in North America. Payment processing services revenue increased $0.7 million, or 21%, to $4.1 million for the three months ended March 31, 2012 from $3.4 million for the three months ended March 31, 2011. The increase was primarily due to increased transaction volume in the U.S. and Canadian market for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011.
| Cost of revenue | ||||||||
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| Payment processing services fees | $2,913,942 | $2,783,591 | $(130,351) | (4)% | ||||
| Processing and service costs | 2,115,832 | 2,730,829 | 614,997 | 29 | ||||
| Total cost of revenue | $5,029,774 | $5,514,420 | $484,646 | 10 | ||||
| * Percentage not meaningful. | ||||||||
Payment processing services fees
The decrease of $0.1 million, or 4%, to $2.8 million for the three months ended March 31, 2012 from $2.9 million for the three months ended March 31, 2011 is as a result of the pricing mix of services for 2012.
Processing and service costs
Processing and service costs increased $0.6 million, or 29%, to $2.7 million for the three months ended March 31, 2012 from $2.1 million for the three months ended March 31, 2011. The increase in processing and service costs was primarily the result of increased salary and compensation and related benefit costs of $0.4 million, which are primarily due to technology headcount additions to support the growth in our existing business, launches into new markets, increased bonus compensation, $0.1 million in increased technology costs, and an increase in depreciation and amortization expense of $0.1 million primarily related to software development additions.
| Selling, general and administrative expenses | ||||||||
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| Selling, general and administrative expenses | $4,241,463 | $5,270,048 | $1,028,585 | 24% | ||||
Selling, general and administrative expenses increased $1.0 million, or 24%, to $5.3 million for the three months ended March 31, 2012 from $4.3, million for the three months ended March 31, 2011. The increase in selling, general and administrative expenses was primarily the result of increased salary compensation and related benefit costs of $0.5 million, recruiting costs of $0.2 million, and travel costs, facility costs, insurance costs and other general and administrative costs of $0.2 million. These increases are primarily due to head count additions to support the growth in our existing business and the launches into new markets.
| Other income (expense), net | ||||||||
| Three months ended March 31, | Variance | |||||||
| 2011 | 2012 | Amount | Percent | |||||
| Interest expense | $(215,619) | $(14,220) | $201,399 | * | ||||
| Interest income | 108 | 171 | 63 | * | ||||
| Other income | 660,000 | — | (660,000) | * | ||||
| Total other income (expense), net | $444,489 | $(14,049) | $(458,538) | * | ||||
| * Percentages not meaningful. | ||||||||
Total other income (expense), net, decreased $0.5 million for the three months ended March 31, 2012 from non-operating income of $0.4 million. The decrease was primarily due to $0.7 million derecognition of a note payable for which the statute of limitations expired and that management did not believe we were liable to repay. The decrease of other income of $0.7 million was offset by $0.2 million decrease of interest expense due to the recognition of three months of convertible debt interest expense in 2011 compared to zero in 2012. The convertible debt holders converted their entire principal in April 2011.
| Cash flows | ||||
| Three months ended March 31, | ||||
| 2011 | 2012 | |||
| Cash (used in) provided by operating activities | $(276,579) | $1,510,819 | ||
| Cash used in investing activities | (430,266) | (440,841) | ||
| Cash provided by (used in) financing activities | 95,343 | (167,605) | ||
Operating activities
Cash provided by operating activities during the three months ended March 31, 2012 was $1.5 million, primarily comprising $1.7 million cash generated by operations and a net decrease in our operating assets and liabilities of $0.2 million. This net decrease in our operating assets and liabilities of $0.2 million primarily consisted of a $0.4 million decrease in accounts receivable and other current assets, driven by an increase in our cash collection efforts, offset by a $0.6 million decrease in accounts payable and accrued expenses. Cash generated by operations of $1.7 million was inclusive of net income of $0.8 million and total net non-cash charges of $0.9 million. Significant non-cash adjustments to net income primarily included: (i) depreciation and amortization expense of $0.6 million and (ii) stock option expense of $0.2 million.
Cash used in operating activities during the three months ended March 31, 2011 was $0.3 million, primarily comprising $1.0 million cash generated by operations offset by a net increase in our operating assets and liabilities of $1.3 million. This net increase in our operating assets and liabilities of $1.3 million primarily consisted of: $1.0 million increase in accounts receivable and other current assets, driven by an increase in activity in our multi‑currency processing services business during the period, and a net increase due to merchants of $0.4 million due to growth in the ACH processing business and an increase in reserves held on behalf of merchants using our credit card acquiring services as security deposits, offset by a decrease in settlement assets of $0.2 million. Cash generated by operations of $1.0 million was inclusive of a net income of $0.8 million and total non-cash charges of $0.2 million. Significant non-cash adjustments to net income primarily included: (i) depreciation and amortization expense of $0.5 million, (ii) non-cash interest expense on convertible and term debt of $0.2 million and (iii) stock option and warrant expense of $0.1 million, offset by the $0.6 million derecognition of note payable.
Investing activities
Cash used in investing activities for the three months ended March 31, 2012 was $0.4 million, which was primarily attributable to our investment in the business through capital expenditures for network infrastructure and investments in software development.
Cash used in investing activities for the three months ended March 31, 2011 was $0.4 million, which was primarily attributable to our investment in the business through capital expenditures for network infrastructure and investments in software development.
Financing activities
Cash used in financing activities for the three months ended March 31, 2012 was $0.2 million, primarily consisting of $0.1 million in capital lease payments and $0.1 million in paid IPO costs.
Cash provided by financing activities for the three months ended March 31, 2011 was $0.1 million, primarily consisting of $0.2 million in net proceeds from issuance of common stock, partially offset by $0.1 million in capital lease payments.
| Condensed consolidated financial statements (unaudited) as of December 31, 2011 and March 31, 2012 and for the three months ended March 31, 2011 and 2012. | ||||
| Planet Payment, Inc. condensed consolidated balance sheets (unaudited) | ||||
| As of December 31, | As of March 31, | |||
| 2011 | 2012 | |||
| Current assets: | ||||
| Cash and cash equivalents | $7,671,963 | $8,574,336 | ||
| Restricted cash | 1,941,909 | 2,106,625 | ||
| Accounts receivable, net of allowances of $1.4 million as of December 31, 2011 and March 31, 2012 | 4,768,040 | 4,144,355 | ||
| Prepaid expenses and other assets | 947,043 | 1,129,611 | ||
| Total current assets | 15,328,955 | 15,954,927 | ||
| Other assets: | ||||
| Restricted cash | 659,958 | 606,647 | ||
| Property and equipment, net | 1,223,562 | 1,259,846 | ||
| Software development costs, net | 4,978,002 | 5,022,061 | ||
| Intangible assets, net | 799,648 | 764,622 | ||
| Security deposits and other assets | 213,230 | 217,376 | ||
| Deferred IPO costs | 1,650,789 | 1,866,575 | ||
| Total other assets | 9,525,189 | 9,737,127 | ||
| Total assets | $24,854,144 | $25,692,054 | ||
| Liabilities and stockholders' equity | ||||
| Current liabilities: | ||||
| Accounts payable | $993,872 | $332,829 | ||
| Accrued expenses | 2,482,255 | 2,643,050 | ||
| Due to merchants | 2,137,064 | 2,342,455 | ||
| Current portion of capital leases liability | 247,257 | 238,235 | ||
| Total current liabilities | 5,860,448 | 5,556,569 | ||
| Long-term liabilities: | ||||
| Long-term portion of capital leases liability | 248,730 | 323,518 | ||
| Total long-term liabilities | 248,730 | 323,518 | ||
| Total liabilities | 6,109,178 | 5,880,087 | ||
| Commitments and contingencies (Note 6) | ||||
| Stockholders' equity: | ||||
| Convertible preferred stock—4,000,000 shares authorized, $0.01 par value: Series A—2,243,750 issued and outstanding as of December 31, 2011 and March 31, 2012; $8,975,000 aggregate liquidation preference | 22,438 | 22,438 | ||
| Common stock—80,000,000 shares authorized as of December 31, 2011 and March 31 2012, $0.01 par value, and 51,764,405, and 51,799,396 respectively, issued and outstanding as of December 31, 2011 and March 31, 2012, respectively | 517,644 | 517,994 | ||
| Additional paid-in capital | 94,083,901 | 94,349,932 | ||
| Warrants | 1,622,651 | 1,622,651 | ||
| Accumulated other comprehensive loss | (40,729) | (27,256) | ||
| Accumulated deficit | (77,460,939) | (76,673,792) | ||
| Total stockholders' equity | 18,744,966 | 19,811,967 | ||
| Total liabilities and stockholders' equity | $24,854,144 | $25,692,054 | ||
The accompanying notes are an integral part of these financial statements
| Planet Payment, Inc. condensed consolidated statements of operations (unaudited) | ||||
| Three months ended | ||||
| March 31, | ||||
| 2011 | 2012 | |||
| Revenue: | ||||
| Net revenue | $9,595,704 | $11,680,936 | ||
| Operating expenses: | ||||
| Cost of revenue: | ||||
| Payment processing services fees | 2,913,942 | 2,783,591 | ||
| Processing and service costs | 2,115,832 | 2,730,829 | ||
| Total cost of revenue | 5,029,774 | 5,514,420 | ||
| Selling, general and administrative expenses | 4,241,463 | 5,270,048 | ||
| Total operating expenses | 9,271,237 | 10,784,468 | ||
| Income from operations | 324,467 | 896,468 | ||
| Other (expense) income: | ||||
| Interest expense | (215,619) | (14,220) | ||
| Interest income | 108 | 171 | ||
| Other income, net | 660,000 | — | ||
| Total other income (expense), net | 444,489 | (14,049) | ||
| Income before provision for income taxes | 768,956 | 882,419 | ||
| Provision for income taxes | — | (95,272) | ||
| Net income | $768,956 | $787,147 | ||
| Basic net income per share applicable to common stockholders | $0.01 | $0.01 | ||
| Diluted net income per share applicable to common stockholders | $0.01 | $0.01 | ||
| Weighted average common stock outstanding (basic) | 46,147,557 | 51,782,902 | ||
| Weighted average common stock outstanding (diluted) | 47,725,757 | 54,259,500 | ||
The accompanying notes are an integral part of these financial statements
| Planet Payment, Inc. condensed consolidated statements of comprehensive income (unaudited) | ||||
| Three months ended | ||||
| March 31, | ||||
| 2011 | 2012 | |||
| Net income | $768,956 | $787,147 | ||
| Foreign currency translation adjustment | (49,959) | 13,473 | ||
| Total comprehensive income | $718,997 | $800,620 | ||
The accompanying notes are an integral part of these financial statements
| Planet Payment, Inc. condensed consolidated statements of cash flows (unaudited) | ||||
| Three months ended | ||||
| March 31, | ||||
| 2011 | 2012 | |||
| Cash flows from operating activities: | ||||
| Net income | $768,956 | $787,147 | ||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||
| Stock option expense | 118,231 | 224,392 | ||
| Depreciation and amortization expense | 548,979 | 620,620 | ||
| Provision for doubtful accounts | — | 26,711 | ||
| Non‑cash interest expense on convertible debt | 199,281 | — | ||
| Warrant expense | 2,060 | — | ||
| Derecognition of note payable | (660,000) | — | ||
| Changes in operating assets and liabilities | ||||
| Decrease (increase) in settlement assets | 158,758 | (164,716) | ||
| (Increase) decrease in accounts receivables, prepaid expenses and other current assets | (974,420) | 414,406 | ||
| (Increase) in security deposits and other assets | (21,309) | (4,146) | ||
| Increase (decrease) in accounts payable and accrued expenses | 43,996 | (612,054) | ||
| (Decrease) increase in due to merchants | (411,152) | 205,391 | ||
| Other | (49,959) | 13,068 | ||
| Net cash (used in) provided by operating activities | (276,579) | 1,510,819 | ||
| Cash flows from investing activities: | ||||
| Decrease in restricted cash | 38,269 | 53,311 | ||
| Purchase of property and equipment | (39,620) | (53,674) | ||
| Capitalized software development | (396,126) | (418,527) | ||
| Purchase of intangible assets | (32,789) | (21,951) | ||
| Net cash used in investing activities | (430,266) | (440,841) | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of common stock | 150,642 | 41,989 | ||
| Principal payments on capital lease obligations | (55,299) | (105,614) | ||
| Payment of IPO costs | — | (103,980) | ||
| Net cash provided by (used in) financing activities | 95,343 | (167,605) | ||
| Effect of exchange rate changes on cash and cash equivalents(*) | — | — | ||
| Net (decrease) increase in cash and cash equivalents | (611,502) | 902,373 | ||
| Beginning of period | 5,182,499 | 7,671,963 | ||
| End of period | $4,570,997 | $8,574,336 | ||
| Supplemental disclosure: | ||||
| Cash paid for: | ||||
| Interest | $16,338 | $14,811 | ||
| Income taxes | — | 110,030 | ||
| Non cash investing and financing activities: | ||||
| Convertible debt converted to common stock | $— | $— | ||
| Common stock issued to pay accrued interest | — | — | ||
| Common stock issued as payment of accounts payable | — | — | ||
| Common stock issued for stock options and warrants exercised | — | — | ||
| Assets acquired under capital leases | — | 171,380 | ||
| Common stock issued for warrants exercised | — | — | ||
| Accrued IPO Costs | — | 111,806 | ||
| (*) For the three months ended March 31, 2011 and 2012, the effect of exchange rate changes on cash and cash equivalents was less than $1,000. | ||||
The accompanying notes are an integral part of these financial statements
| Planet Payment, Inc. condensed consolidated statements of changes in convertible preferred stock and stockholders' equity (unaudited) | ||||||||||
| Convertible | ||||||||||
| preferred stock | ||||||||||
| $0.01 par value— | ||||||||||
| 4,000,000 shares | Common stock | |||||||||
| authorized | $0.01 par value— | |||||||||
| Series A | 80,000,000 shares | |||||||||
| Additional | Accumulated | Total | ||||||||
| Shares | Shares | Shares | Shares | paid-In | other | Accumulated | stockholders' | |||
| issued | par value | issued | par value | capital | Warrants | comprehensive loss | deficit | equity | ||
| Balance—December 31, 2011 | 2,243,750 | $22,438 | 51,764,405 | $517,644 | $94,083,901 | $1,622,651 | $(40,729) | $(77,460,939) | $18,744,966 | |
| Options exercised | — | — | 34,991 | 350 | 41,639 | — | — | — | 41,989 | |
| Stock-based expense | — | — | — | — | 224,392 | — | — | — | 224,392 | |
| Cumulative translation adjustment | — | — | — | — | — | — | 13,473 | — | 13,473 | |
| Net income | — | — | — | — | — | — | — | 787,147 | 787,147 | |
| Balance—March 31, 2012 | 2,243,750 | $22,438 | 51,799,396 | $517,994 | $94,349,932 | $1,622,651 | $(27,256) | $(76,673,792) | $19,811,967 | |
The accompanying notes are an integral part of these financial statements
Planet Payment, Inc.
Notes to condensed consolidated financial statements
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 processing and multi‑currency processing services. The Company provides its services to approximately 31,000 active merchant locations in 18 countries and territories across the Asia Pacific region, North America, 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's point-of-sale and e-commerce services are integrated within the payment card transaction flow and enable its acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels. 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.
Company structure
Planet Payment was incorporated in the State of Delaware on October 12, 1999 as Planet Group Inc. and changed its name to Planet Payment, Inc. on June 18, 2007.
Since March 20, 2006, shares of the Company's common stock have traded on the Alternative Investment Market of the London Stock Exchange, or AIM, under the symbols "PPT" and "PPTR." Since November 19, 2008, shares of the Company's common stock have traded on the OTCQX market tier operated by OTC Markets Group, Inc., or the OTCQX, in the United States under the symbol "PLPM."
Basis of presentation
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.
The accompanying condensed consolidated financial statements include the accounts of Planet Payment, Inc. and its wholly‑owned subsidiaries. All intercompany transactions and balances have been eliminated.
The Company evaluated subsequent events through May 10, 2012, the date on which the March 31, 2012 financial statements were available to be issued. There were no events or transactions occurring during this subsequent reporting period that require recognition or disclosure in the financial statements.
Unaudited consolidated interim financial information
The accompanying unaudited condensed consolidated interim financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 are unaudited and 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 the fair presentation of a statement of results of operations, financial position and cash flows. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
2. Immaterial restatement
Subsequent to the issuance of the Company's 2010 financial statements, the Company's management determined that it had an error in its presentation of multi-currency processing services revenue. Multi-currency processing services revenue was previously presented gross of amounts related to certain third party revenue share arrangements. The Company reconsidered the requirements of reporting revenue gross as a principal versus net as an agent included in the Revenue Recognition Topic Accounting Standards Codification ("ASC") topic 605 as it related to its multi-currency processing services revenue stream and concluded, based on the terms of its contractual arrangements that ASC 605-45 was not applicable to its facts and circumstances, that the Company was earning a processing fee for its services, and only the multi-currency processing services fee earned by the Company should be presented within the income statement without including the third party revenue sharing fees in either revenue or expense. In addition, the Company's management determined it had incorrectly capitalized certain amounts to software development costs.
While the Company does not believe these errors to be material to its financial statements for any reported period, the Company's management concluded that the condensed consolidated financial statements for the three months ended March 31, 2011 should be restated.
Furthermore, as more fully described in the next paragraph, in preparation of becoming an SEC registrant, the Company made certain changes to the previously issued Consolidated Statement of Operations to conform to the SEC format for public filers. The ''As Previously Reported'' lines within the table below conform to the SEC format for public filers and therefore reflect the condensation of the previously reported line item for the three months ended March 31, 2011.
On the Consolidated Statement of Operations, the Company condensed the previously reported two revenue lines into a single ''Net revenue'' (net of provisions for sales credits) line, condensed the previously reported two costs of sales lines into a single ''Payment processing services fees'' cost of revenue line which excludes the aforementioned third party revenue share arrangements fees, and disaggregated the previously reported total operating expense line items into the ''Selling, general and administrative expense'' line and reclassified certain amounts to the ''Processing and service cost'' cost of revenue line, which was an added cost of revenue line item.
The following table sets forth the effects of the correcting adjustments (hereafter in this Note 2 referred to as "adjustments") on affected line items based on the new SEC format within the previously reported Condensed Consolidated Statements of Operations for the three months ended March 31, 2011.
|
Three Months Ended March 31, |
||||
| 2011 | ||||
|
As Previously Reported |
As Adjusted |
|||
| Net revenue | $21,993,312 | $9,595,704(1) | ||
| Cost of revenue: | ||||
| Processing services fees | 15,311,550 | 2,913,942(1) | ||
| Processing and service costs | — | 2,115,832(2) | ||
| Total cost of revenue | 15,311,550 | 5,029,774 | ||
| Selling, general and administrative expenses | 6,278,359 | 4,241,463(2)(3)(4) | ||
| Total operating expenses | 21,589,909 | 9,271,237 | ||
| Income from operations | 403,403 | 324,467 | ||
| Other income: | ||||
| Interest expense | (209,192) | (215,619)(4) | ||
| Interest income | 108 | 108 | ||
| Other income | 660,000 | 660,000 | ||
| Total other income, net | 450,916 | 444,489 | ||
| Income from operations before provision for income taxes | 854,319 | 768,956 | ||
| Provision for income taxes | — | — | ||
| Net income | $854,319 | $768,956 | ||
| Basic net income per share applicable to common stockholders | $0.02 | $0.01 | ||
| Diluted net income per share applicable to common stockholders | $0.02 | $0.01 | ||
(1) Multi-currency processing services revenue was previously presented gross of amounts related to certain third party revenue share arrangements. The Company reconsidered the requirements of ASC 605-45 as it related to its multi-currency processing services revenue stream and concluded that based on the terms of its contractual arrangements ASC 605-45 was not applicable to its facts and circumstances, that the Company was earning a processing fee for its service, and that its multi-currency processing services revenue should be presented net of amounts related to certain third party revenue share arrangements. The period presented have been corrected to show the transaction fee that the Company earns for its processing services. The effect of the correction resulted in a reduction of previously reported revenues and corresponding reductions in cost of revenue in those periods. For the three months ended March 31, 2011, the reduction in revenue and the corresponding reduction in cost of revenue is $12.4 million. Refer to the Company's summary of significant accounting policies for further information regarding the Company's accounting policy on revenue recognition.
(2) In preparation of becoming an SEC registrant, the Company condensed the previously reported eight operating expense line items into the Selling, General, & Administrative (''SG&A'') line and reclassified certain amounts to the Processing and service costs line. The Company reclassified $2.1 million for the three months ended March 31, 2011from SG&A to Processing service fees for costs related to running the Company's technology platform infrastructure, including: compensation and related benefits related to the infrastructure personnel, internet connectivity, hosting and data storage expenses, amortization expense on acquired intangibles and capitalized software development costs and a portion of overhead. The amounts that remained in SG&A related to compensation and related benefit costs for our sales, marketing, customer service and administrative functions, facility costs, public company costs, administrative professional services fees and a portion of overhead.
(3) Represents the adjustment of incorrectly capitalizing software development costs of $0.1 million.
(4) Amounts represent correcting adjustment affecting interest expense and SG&A line items by $6,000.
The following table sets forth the effects of the adjustments on affected line items based on the new SEC format, within our previously reported Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011.
|
Three Months Ended March 31, |
||||
| 2011 | ||||
|
As Previously Reported |
As Adjusted |
|||
| Cash flow statement line items affected: | ||||
| Net income | $854,319 | $768,956 | ||
| Net cash used in operating activities | (178,403) | (276,579)(5)(6)(7) | ||
| Net cash used in investing activities | (553,898) | (430,266)(5)(7) | ||
| Principal payments on capital lease obligations | (28,721) | (55,299)(6) | ||
| Net cash provided by financing activities | 121,921 | 95,343(6) | ||
(5) Refer to adjustment (3) above.
(6) Represents the correction of principal payments and related depreciation expense on capital leases that was not previously recorded of $27,000.
(7) Represents the correction to reclassify $38,000 of change in restricted cash from an operating activity to an investing activity.