Planet Payment, Inc. (NASDAQ:PLPM)
Q1 2014 Earnings Conference Call
May 12, 2014 5:00 PM ET
Robert Cox - CFO and COO
Carl Williams - President and CEO
George Sutton - Craig-Hallum
Greetings and welcome to the Planet Payment First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Robert Cox, Chief Financial Officer and Chief Operating Officer. Thank you Mr. Cox, you may begin.
Thank you, operator. Good afternoon everyone. With me on today's call is Carl Williams, our CEO. By now, you should have access to our first quarter 2014 press release. It can also be found at www.planetpayment.com under the Investor Relations section.
Throughout this conference call, we will also be presenting certain non-GAAP financial information. This information is not calculated in accordance with GAAP and maybe calculated differently from other companies, similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information, to the most directly comparable GAAP financial information appear in today's press release.
Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could the cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's press release. Others are discussed in our Form 10-Q, which is available at www.sec.gov, as well as on our web site.
These forward-looking statements including guidance provided during this call, are valid only as of today's date, and we assume no obligation to publicly update these forward-looking statements.
Today, we are going to provide a brief summary of the company's activities in the first quarter, discuss some of the key business metrics and growth drivers for our business, give an overview of our results for the first quarter 2014 and provide guidance for the full year. We will then open the call up for any questions you might have.
With that, I would now like to turn the call over to Carl Williams, our CEO. Carl?
Thank you, Bob. Good evening. On our recent call in March, I outlined a strategic plan to set the company on a path to solid and predictable revenue and earnings growth. By way of review, the approach consists primarily of two distinct, yet complementary components; creating a sales centric organization, with a robust pipeline, and performing an operational review of the organization to ensure efficiency.
We have made progress on instilling a true sales centric approach throughout the organization, from marketing to development to IT and operations, the core focus of each and every team member, is to provide the support to ensure the success of our global sales and business development teams. The dedication of resources towards both newly acquired, as well as longstanding customers will help ensure the rollout of our services to the maximum number of revenue generating merchant locations.
Additionally, the sales centric approach is also essential to building a healthy pipeline of new acquirer and processor customers to drive additional sources of revenue over the coming quarters. This pipeline is critical to the execution of our long term strategy, and therefore, all necessary resources across all functional areas of the company are being dedicated to supporting our efforts towards new customer acquisitions.
Finally, our customer centric focus does not end at contract signing. Rather, to ensure the ultimate success of our sales efforts, our operations and IT teams are dedicated to delivering reliable and secure products and services that exceed the expectations of our customers.
The second component of our strategy involves a complete top-down review of the organization, to ensure that resources are aligned to support revenue generating activities, and that the company is operating as efficiently as possible.
With our current base of business of over 60 acquirers, across 23 countries, we need to constantly strike a balance between the needs of the business, and our expenses to ensure that our costs remain in line with our profitability goals.
As a result of our initial review, we have made some difficult decisions resulting in a 10% reduction in our global work force, and a reduction in certain executives' compensation by 20%, on what we hope is a temporary basis, in order to achieve greater operational efficiencies. Bob will explain further the impact of those changes on our first quarter results, and on our cost base for the year.
While our efforts on these fronts are ongoing, we believe we have made considerable progress since our March call, which should position the company for success, as we look to the remainder of 2014 and beyond.
Let me now take the opportunity to provide a more detailed update on our progress on some important initiatives we had previously discussed, and provide some brief comments about guidance for 2014, which Bob will discuss in greater depth in his remarks.
During the quarter, we formally launched Pay in Your Currency in Brazil with Cielo, the largest acquirer in Latin America. After a successful pilot, Cielo has begun the formal commercial rollout of our product to its merchant base, which covers a number of industry sectors catering to international visitors, including airlines, hotels, retail and restaurants. We are greatly encouraged by Cielo's commitment to the project. Cielo has publicly stated that they intend to have the solution deployed at 200,000 merchants, with a concerted push to activate paying your currency to better serve the expected influx of foreign travelers, attending the World Cup which begins next month in several cities across Brazil.
Cielo has made substantial progress towards its initial goals. As of today, Cielo has over 126,000 merchant locations setup in our system.
Our progress in another new market, Indonesia, continues as well. Over the course of the quarter, our new partner in Indonesia, Bank of Central Asia, or BCA, continued the rollout of our Pay in Your Currency service. Our team in Asia-Pacific continues their close collaboration with BCA and the early indications are encouraging, with BCA signing a number of top luxury hotels in both Bali and Jakarta.
Moving from Asia-Pacific back to the Americas, let me turn briefly to another exciting initiative that we have discussed on past earnings calls, our project with Visa in Mexico. The teams are continuing their support of the Visa initiative, with Grupo Bimbo for solution enabling the processing of both financial transactions and other commercial services, such as mobile top-up and bill payment. The rollout of this solution to new merchant locations is continuing, and the teams are in parallel, fine-tuning the offering, to add new features and functionality that improves the overall merchant value proposition.
We believe that the initiative, coupled with our work to support core point-of-sale in ATM processing in Myanmar, has demonstrated the power and flexibility of our platform, and sets the stage for Planet Payment and Visa's joint collaboration to solve challenges in other emerging and frontier markets across the globe.
Next, I'd like to provide you with a quick update on some notable wins with our existing acquirer customers and products we continue to see strong demand for our Pay in Your Currency solution. With our partner Vantiv, we recently completed the implementation of Pay in Your Currency at a prominent national retailer with 1,800 locations across the United States. We believe that the addition of this merchant, together with interest from other national merchants in the pipeline, demonstrate that retailers herein the U.S. continue to view Pay in Your Currency as an important tool to deliver a better customer experience and improved profitability.
Our sales and business development teams are also seeing increased demand for the company's MICROS payment gateway solution. In many markets across the globe, hospitality merchants process electronic payments through standalone terminals that operate completely independent from the MICROS Property Management systems that hotels utilize to run their day-to-day operations. The MICROS Payment gateway solution combines payment acceptance and the hotel's property management system, allowing the hotel to run its business from a single system and simplifying the hotel's back office business operation.
In Mexico and Asia-Pacific, we have seen that the ability to offer an integrated hospitality solution with Pay in Your Currency, has provided our acquirer partners with a powerful tool to both win new business and strengthen relationships with existing merchants.
From its first implementation in Hong Kong, the Planet Payment MICROS Solution is now live across multiple markets, including the Philippines, Mexico, Canada and most recently, the United States. We believe that the MICROS Solution will continue to play an important part of our sales strategy.
We are also making solid progress around our initiative with UnionPay. Our UnionPay solutions supports UnionPay transactions for card present merchants around the world, as well as UnionPay's eCommerce solution called UnionPay Online Payment or UPOP in the United States and Canada.
In addition to providing core acceptance of UnionPay credit and debit cards, the Planet Payment UPOP Solution is multi-currency enabled, allowing merchants to localize their offerings to Chinese consumers by displaying pricing and accepting Chinese yuan on their websites.
Our team in the United States are continuing to see increased demand for the UPOP solution, which provides an essential tool for U.S. and Canadian merchants, to sell into what is now the world's largest eCommerce market. As a result, we are in the process of activating significant new accounts per UPOP acceptance.
On the card present front, Planet Payment is helping a new acquirer enter the market in Macau, through the delivery of a fully-outsourced UnionPay processing solution. This acquirer identified that the large influx of Chinese travelers into Macau drove a specific market need for a terminal based UnionPay card acceptance solution. The bank turned to Planet Payment and we are providing a fully outsourced processing solution, to enable the acquirer to meet its goal, while avoiding the capital investment that would have been required for the bank to build and support its own UnionPay solution.
We are particularly excited about it, a new initiative involving the deployment of our Pay in Your Currency service, with one of the leading providers of integrated cash management solutions to the gaming industry. As part of the initiative, casinos located initially in the United States, will offer their patrons the ability to complete their cash advance transactions in their home currency. With the impressive list of this new partner's gaming customers, coupled with the high level of international transaction activity at these casinos, we believe that this new initiative could play a role in the growth of our multi-currency processing line of business. We look forward to providing additional information on this deal in the coming weeks.
We are also very encouraged by the interest in our products and services that is being generated in Mexico. We are currently working to finalize a number of new agreements with major acquirers and processors in Mexico for the launch of our Pay in Your Currency solution at the point-of-sale and ATMs. With the addition of these new customers in Mexico, together with the potential that we see around Visa and Banorte in Mexico and the tremendous opportunity with Cielo in Brazil, we believe that Latin America will be a significant driver of our future success.
Our pipeline is also building in the Asia-Pacific and the CEMEA regions. We expect to continue to sign significant new accounts in these markets as well, further ensuring a healthy future pipeline of new merchants and multi-currency volumes. We look forward to providing additional details around all of these initiatives on future earnings calls. As you can see, we believe the prospects for Planet Payment's future growth are strong.
However, before turning to guidance, I wanted to provide some comments on our first quarter results. It was a challenging quarter with revenue off year-over-year in both the Americas and CEMEA region. Bob will take you through the details in a moment, but we have worked and are working to reverse the first quarter trends.
Turning then briefly to our guidance; overall, I am encouraged by the opportunities in both our existing business, as well as our pipeline of new customers and processors. While the true potential of these opportunities will not be fully realized this year, as we look to the future, I do believe that the company stated sales centric strategy, coupled with our focus on reducing expenses, are helping us lay the foundations of the plan, that will lead Planet Payment on the path to sustainable growth and increased profitability.
Now I would like to turn the call back over to Bob Cox, our CFO and COO, so that he can provide an overview of our financial results for the first quarter of 2014 and our guidance for the year. Bob?
Thank you, Carl. Let me provide a high level overview of first quarter revenue by category and geographic segment. We have two revenue streams, multi-currency processing services revenue and payment processing services revenue.
As discussed further in our MD&A, we conduct our business primarily in three geographical regions, Asia-Pacific or APAC, the Americas and Central Europe, Middle East and Africa, or CEMEA. Detail of our revenue by region is based upon when the transaction originated. Today, we conduct our payment processing services, primarily in the Americas.
Now for our results for the first quarter 2014; overall net revenue decreased approximately 8% to $11.2 million. Multi-currency processing revenue decreased approximately $400,000 or 5% to $74 million. For the quarter ended March 31, 2014, we earned an average transaction fee of 1.09% on the value of the multi-currency transactions processed, compared to 1.12% a year ago.
Breaking that down further, Asia-Pacific multi-currency revenue increased $0.2 million or 5% predominantly due to an increase in multi-currency volume processed in that region.
In CEMEA, we saw a decrease of approximately $300,000 or 12% due to a decrease in our average mark-up on settled dollar volume processed in that region. The 2% volume reduction in CEMEA was in part attributable to the temporary deactivation of a number of merchants that have been migrated to new devices, in order to ensure compliance and improve the flow of our Pay in Your Currency solution. We believe that this is a short-term issue that is currently in the process of being resolved and that we should therefore begin to see volume return from this segment in the coming quarters.
In the Americas, revenue decreased $300,000 or 17%, due primarily to reduced multi-currency volume from existing customers in that region, including a reduction in volume attributable to a decision on the part of several Brazilian issuers, to reject any transaction completed by a merchant outside of Brazil, in Brazilian real. This new policy led to a number of Pay in Your Currency merchants turning off support for the Brazilian real.
The reasoning for the decision on the part of the issue is unclear, but we remain hopeful that the negative backlash that we were seeing on the part of acquirers, merchants and cardholders will result in a reversal of this action by the issuers.
Our payment processing services revenue decreased 12% in the first quarter of 2014 to $3.7 million, due in large part to professional services revenue included in our 2013 results, but not recognized in this quarter.
On a GAAP basis, our net loss for the first quarter of 2014 was $800,000 or $0.01 per share compared to net income of $400,000 or $0.01 a share a year ago. Included in that loss for 2014 are $600,000 of restructuring charges in the first quarter. The reductions in staff that Carl referenced earlier happened at the end of the first quarter, so the benefit of those reductions will be felt in future quarters. In all, we have taken over $3 million in annualized costs out of the business, since the fourth quarter of last year.
Adjusted EBITDA for the first quarter was $0.9 million compared to $1.4 million a year ago. Our management relies on certain key performance indicators, such as active merchant locations, consolidated gross billings and settled dollar volume process to manage and assess our business. These key performance indicators which are explained in table three of our press release, 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.
Our total active merchant locations increased by 60% to approximately 67,000 as of March 31, 2014. As a reminder the company considers a merchant location to be active as of the date, if that merchant completed at least one revenue generating transaction at the location during the 90-day period ending on such date.
Gross foreign currency markup was $28.1 million for the quarter versus $28.2 million a year ago. Total settled dollar volume processed increased 17% to $2 billion. Total settled payment processing transactions processed for the quarter increased to approximately $24 million.
Turning to guidance; we have provided in our guidance for the year 2014 to be as follows; net revenue is estimated to be in the range of $52.1 million to $55.1 million for the year. This would represent a 12% to 18% increase in our revenue. Net income is estimated to be in the range of $4.1 million to $6.4 million, and adjusted EBITDA is estimated to be in the range of $10 million to $12.3 million for the year. Both net income and adjusted EBITDA would represent substantial increase over the prior year.
Fully diluted earnings per share are estimated to be in the range of $0.06 per share to $0.10 per share, based on an estimate of $56 million fully diluted common shares outstanding in 2014.
Now let me hand you back to Carl to make some closing remarks.
Thank you, Bob. We are hard at work, transforming Planet Payment into an efficient and sales centric organization with an exciting pipeline that will generate future revenue growth and profitability. These changes are underway, but do not happen overnight. The projects that we have discussed today demonstrate the flexibility and rich features of our platform, which enable us to deliver innovative solutions that the market demands.
We are truly excited about the opportunities in front of us, and we look forward to reporting on our progress in upcoming calls. When I stepped into the role of Chief Executive Officer of Planet Payment, I accepted the many challenges facing our business. With our commitments to the plan and the progress that we have made over the past few months, I am more optimistic today about our prospects for success as we look to the future.
With that operator, we'd like to open the call to questions. Thank you.
Thank you. (Operator Instructions) Our first question comes from the line of George Sutton from Craig Hallum. Please proceed with your question.
George Sutton - Craig-Hallum
Thank you. Good afternoon guys.
George Sutton - Craig-Hallum
Obviously, a lot of stuff on the call, let me focus a couple of questions on; first, Cielo, when you talk about up to 200,000 merchants being deployed and 126,000 set up, can you explain what that means, what does being set up mean, relative to the upcoming World Cup, and can you give us a sense of what you're assuming in guidance for that very large number of terminals?
Well I will handle the first part George. So as far as being set up, that means active on the system and that the -- I think as we have discussed before, Cielo deployed the product via a central host. So effectively they have paid our Pay in Your Currency Offering available at the customer's point-of-sale. There is bit of work to be done as far as customer training post that event or in conjunction with that event, as well as getting the customer to sign, generally, to get them to sign an addendum to offer the product. So those two things are happening, and -- but those customers are available and ready to utilize the product, as soon as those two things are done.
Now as far as what goes into our guidance, Cielo is a part of our guidance and obviously you can see that we got some g win the numbers between now and the year-end. They and all the other customers, major initiatives we mentioned, contribute to that. What we can't do obviously is, give you specific customer information as we have discussed, but they are a part of the growth, and we are pleased with the way things are going so far.
And George, this is Carl, let me just add that, you know -- I think you have some understanding of who Cielo is in Brazil. They have in excess of 60% of the market there, and they certainly have the merchants that we are particularly attracted to. So in terms of what it's going to look like over the next quarter, I can only tell you that we are very optimistic that we are in the right place with the right acquirer during the right time.
George Sutton - Craig-Hallum
Okay. Let me switch over to [indiscernible] [25:23] real quick. You mentioned you were fine tuning the offering in Mexico, I wondered what sort of fine tuning things you were doing, and how does that relate to -- you had mentioned some other country opportunities?
Well as it relates to Mexico specifically, we are adding, as we have talked about, things like mobile top-up and bill pay, as well as the payment transactions. There are additional transaction pipes that we are looking with these and with Grupo Bimbo that we are looking to add to the offering. So that's sort of the increased features and functions. We are also looking at adding certain terminal types. So there is work being done, kind of behind the scenes to increase the attractiveness to the merchant base and part of that is the features, i.e., what's available. The other part is the terminal types they are most comfortable with.
I just want to add, the dialog with these that goes on, on a weekly basis, with respect to targeted markets for both sides, meaning markets that they may be interested in, markets we are interested in, and we don't want to get ahead of ourselves, because at the end of the day, when Visa is ready to make public statements about some of these things that would be fine with us. But we just have to kind of wait on them.
George Sutton - Craig-Hallum
Lastly for me if I could, the terminals that were down during the quarter in the CEMEA region, and I believe it was specifically that region. Can you give us a sense of kind of the number of terminals and have those now gone live?
They haven't gone live. So they were in the, let's say -- I think you would actually see these in the numbers as you track. But there was probably north of 1,000 terminals that were affected. Effectively, they were all terminal types that didn't support the Pay in Your Currency solution, and they are being swapped out, as we said. That is happening on an ongoing basis, I wouldn't go so far as to say it has happened yet, but it's happening on an ongoing basis with the customer. The customer is doing the majority of the lifting on that. So they have got a plan, and we are helping everywhere we can, but it's imminent.
George Sutton - Craig-Hallum
Okay. Thanks guys.
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