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Planet Payment, Inc. (NASDAQ:PLPM)

Q2 2014 Earnings Conference Call

August 11, 2014 5:00 PM ET

Executives

Robert Cox - CFO and COO

Carl Williams - President and CEO

Analysts

George Sutton - Craig-Hallum

Jim Kennedy - Marathon Capital Management

Operator

Greetings and welcome to the Planet Payment Second 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.

Robert Cox

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 second 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 their 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 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 second quarter, discuss some of the key business metrics and growth drivers for our business and give an overview of our results for the second quarter 2014. 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?

Carl Williams

Thank you, Bob. Good evening. It has been approximately 6 months since I accepted the position of Chief Executive Officer of Planet Payment. I believe that during this relatively short period of time the company has made solid progress in transitioning to a more sales centric and efficient organization. As our quarterly results show and as Bob will detail in his remarks we’re beginning to see intangible results of our efforts. And I believe that we are continuing to build upon a solid foundation for the growth of our business.

The theme of this call can be summarized as follows. We are executing the plan and we are staying on-track. Growth will be driven by our focus on the acquisition of the plan, which I have outlined on previous calls. All functional areas of the company continue to be focused upon supporting the roll out of our services with our customers, with the goal of increasing the number of merchants, utilizing our services. In order to grow our business in future quarters, our business development team in the Americas, Asia Pacific and CEMEA continue to cultivate new opportunities. We look forward to being able to announce agreements with major new channel partners in various markets as the year processes.

Based upon my conversation with the teams and our customers we continue to see strong demand for our innovative suite of products and services. I firmly believe that Planet Payment is well positioned to deliver solutions that meet the requirements of the dynamic and constantly evolving payments industry.

Our core suite of Pay in Your Currency services allows merchants to increase their sales by providing their international customers with the convenience of paying in their home currency. In addition, our robust and flexible processing platform supports the diverse transaction needs of our acquiring bank and processor customers in emerging and frontier markets across the globe with a shift from cash to electronic payments continues at an accelerated pace.

As our work with Visa highlights whether it is a turnkey processing domestic point of sale or ATM system for Myanmar or an innovative solution to support the processing of payments and other commercial services for thousands of small merchants across Mexico, our flexible platform enables Planet Payment to pursue new opportunities anywhere in the world our customers take us. As we discussed on our recent conference calls we’ve implemented certain cost reductions which we believe will set the stage for profitable growth in the years ahead. Our results this past quarter show that we are beginning to see the positive impact to the bottom-line of these cost saving efforts. We intend to continue to carefully manage the expense base without compromising the superior products and service delivery that our customers have come to expect from Planet Payment.

Now I’d like to take the opportunity to provide you with an update on the progress of some of our significant initiatives. I will then turn the call over to Bob to provide more specifics around the quarterly results as well as guidance for the remainder of the year. As I reported on our last call, Cielo was in the early stages of its commercial rollout of Pay in Your Currency to their extensive merchant base in Brazil. Cielo’s initial mass rollout approach is unique in our experience. While the activation of our solution to merchant locations was carried out centrally, Cielo’s ongoing implementation efforts involved training and supporting thousands of merchants dispersed over a large geographic area. We remain impressed by Cielo’s commitment to the Pay in Your Currency program and confident that our partnership with Cielo will prove to be another Planet Payment success story.

Shifting to Asia-Pacific, our partnership with Bank Central Asia or BCA in Indonesia continues to progress. BCA is steadily rolling out the service and we’re starting to see the increased merchant adoption. The portfolio of activated merchants includes numerous luxury hotel properties throughout the tourist and business center of Bali and Jakarta. Our relationship sales team has been hard at work supporting the BCA implementation providing focused training to key merchants, accounts to drive productivity. Our work with BCA highlights that our commitment to our customers does not end at contract signing and we will continue to support BCA efforts as they seek to add new merchant accounts over the coming quarters.

On our recent calls, we’ve also discussed the various projects with Visa for the frontier and emerging markets. The Visa initiatives with Grupo Bimbo offering a solution that supports the processing of both payment transactions and commercial services such as prepaid, mobile top-up on a single terminal device continues to develop, the rollout of the program to additional merchant locations across Mexico continues to build. We’re also working with Visa to enhance the solution to include new features and functionalities as well as adding new transaction types. Partied seek to capitalize on market forces such as the shift from cash to electronic payments in emerging markets such as Mexico and the need for financial inclusion solutions for the unbanked, through these efforts we hope to create a more powerful merchant value proposition and increase the transaction volumes processed by Planet Payment in support of the Visa initiatives.

The work with Visa in Mexico, as well in Myanmar demonstrates the power and flexibility of our platform and our ability to deliver solutions that meets the specific needs and technical requirements of our customers. We are continuing our discussions with Visa on other opportunities in both emerging and frontier markets across the globe and look forward to providing you with updates on future calls.

Our sales team in the U.S. and Canada are continuing to see strong demand for our UnionPay eCommerce solution called UnionPay Online Payments or UPOP. As more e-tailers seek to increase sales by tapping into the world’s largest e-commerce market. They need the ability to accept UnionPay, the dominant card, credit and debit card product in China as well as localize their offering by displaying pricing and accepting Chinese Yuan on their Web site, our UPOP solution allows merchants to accomplish both goals and as a result we’ve signed significant new accounts for this service and continue to pursue several other substantial opportunities.

The recently announced agreement with Axia Payments a leading ISO in the United States highlights our progress with the implementation of the MICROS Payment Gateway solution which includes support of our Pay in Your Currency service for lodging merchants. Our micro-solution essentially allows merchants to integrate customer’s card payments with the MICROS property management system eliminating the need to rely on two separate systems and simplifying the back office reconciliation process for the hotel, the launch with Axia of several hotel properties marks an expansion of the MICROS solution with Pay in Your Currency in the U.S.

We are seeing demand for our MICROS gateway solutions both from merchants, migrating from standalone terminals to integrated solutions as well as merchants with existing integrated functionality that are migrating to our MICROS solution for the enhanced functionality that it delivers. With this demand continuing across the Americas, Asia Pacific, and the CEMEA region we remain optimistic that the MICROS Payment Gateway product will represent an important channel for new multicurrency merchant locations and volume in the years ahead.

Another area where we’re seeing solid progress is the deployment of our Pay in Your Currency product on ATMs. With this solution a cardholder withdrawing money at a participating ATM can enjoy the convenience of knowing the exact amount that will be deducted from their bank account in their currency at the time of withdrawal. We have been hard at work implementing two new initiatives with major ATM processors in the U.S. and Mexico which we expect to announce in the coming months.

Our pipeline of new acquirers represents a key source of growth in the years ahead. We have several initiatives underway at various stages of implementation. In addition to our continuing business development activities, we are working with a number of major acquirer relationships in the Americas, Asia Pacific and CEMEA regions for additional Pay in Your Currency programs. We look forward to providing you with specifics around all these new initiatives in the coming quarters.

Now I’d like to turn the call back to Bob Cox our CFO and COO so he can provide additional overview of our financial results for the second quarter of 2014 and our guidance for the year. Bob?

Robert Cox

Thank you, Carl. Let me provide a high level overview of our second quarter revenue by category and geographic segment, overall net revenue increased to 11.9 million for the quarter, multicurrency processing revenue increased approximately 700,000 or 9% to 8.1 million. For the quarter ended June 30, 2014 we earned an average transaction fee of 1.14% on the value of multicurrency transactions processed. Breaking our revenue down further Asia Pacific multicurrency revenue increased 300,000 or 8% predominantly due to an increase in multicurrency volume processed in that region. In CEMEA we saw a decrease of approximately 51,000 or 3% due to a decrease in our average mark up on settled dollar volume processed in that region, offset impart by an increase in active merchants in that region. In the Americas revenue increased approximately 400,000 or 25% from the same period a year ago.

Our payment processing services revenue decreased 13% in the quarter 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 income for the second quarter 2014 was approximately $1.5 million or $0.02 per share compared to net income of approximately $300,000 or $0.01 a share a year ago. Adjusted EBITDA for the second quarter was 2.8 million compared to 1.3 million a year ago.

Our management relies on certain key performance indicators, such as active merchant locations, consolidated gross billings and settled dollar volume processed to manage and assess our business. These key performance indicators which are explained in table three of our press release help us to evaluate growth trends, established 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 overtime.

Our total active merchant locations increased to approximately 80,000 as of June 30, 2014. As a reminder, we consider merchant location to be active as of the date, if that merchant has processed at least one revenue generating transaction during a 90-day period ended on such date. Gross foreign currency markup was 27.9 million for the quarter versus 26.1 million a year ago. Total settled dollar volume processed increased 22% to 2.1 billion. Total settled transactions processed for the quarter increased to approximately 26.3 million.

We are reaffirming 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. 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. 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.

Carl Williams

Thank you, Bob. We are hard at work in executing the plan that we believe will generate revenue, growth and profitability. These efforts are starting to bear fruit as can be seen by the profitability in the quarter as compared to a year ago. And we shall ardently continue our efforts to achieve all of goals. The progress that we have made over the past few months shows that we are on the right track and I’m excited 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.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from George Sutton with Craig Hallum. Please proceed.

George Sutton - Craig-Hallum

So Carl, I wonder if you could give us a sense of how the key opportunities are rolling out relative to your expectations, UPOP for example, sounds well ahead of what we would have expected, I had sensed that it’s going to be a longer term opportunity, Visa sounds as expected Cielo perhaps a little different than expected, if you could just give us a sense relative to your expectations?

Carl Williams

Okay. So I agree that UPOP is moving a little bit faster and we’re very excited about how that’s going. Visa’s there’s a lot of work to be done, but Visa has been working hard as we have been not just in Mexico but on identifying some new opportunities that as I said in the script that we’re hoping that we’ll be able to announce in the not too distant future. Cielo was -- we couldn’t be more excited with the relationship that we have with Cielo and I now they feel the same way. This initiative is very important to them and it’s very important to us. We probably underestimated the little bit how much work it was going to be, especially with the World Cup moving so quickly into their orbit. So there’s still a lot of training that has to be done. But we still know that that’s going to be one of the great deals for us. So I still feel very good about that. And then BCA which is the other one that we’ve talked a lot about, that’s taken a little bit longer than I would liked it to have however, I think that it’s really ramping up nicely. Now we’re seeing increase in merchants, increase in transaction volume. So by and large George I think that my expectation is nothing could happen fast enough. And what I have to learn is some of the stuff isn’t going to roll as quickly as I want it, but I feel very good about where we are.

George Sutton - Craig-Hallum

So you hinted at a number of opportunities to come, additional partners, I wondered if you could just give us a sense of how much that is Pay in Your Currency versus how much would be processing?

Carl Williams

So the bulk of it is Pay in Your Currency from my perspective, that’s not to say we don’t have some processing deals but you know I’m very excited about the Pay in Your Currency opportunities because first of all there’re deals that I think will be very complementary in the markets that we have and I’m looking forward to being able to tell you more about it, but as I probably said on one of my earlier calls I don’t want to get ahead of ourselves as we have in the past, I’d rather talk about it when they’re in pilot so that we can be excited about them moving quickly to the next stage.

George Sutton - Craig-Hallum

Lastly just a follow-up to that last question, you talked about moving to a sales centric organization is that why you’re seeing more of these opportunities start to come to the forefront?

Carl Williams

No, look I think that the guys who run sales and customer service and marketing for us do a very good job, I think that my role was to make sure that they were getting the full support of everybody in the organization so I think that we’ve, I put a lot more emphasis and focus on making sure that we’re supporting the initiatives that these guys are working on, so that’s I mean I hope that answers your question, we have the sales guys in place, it was just giving them the ability and the authority to go out and make deals and have the guys lined up supporting what they were working on, so that’s kind of where it’s coming from.

George Sutton - Craig-Hallum

I understand, thanks guys.

Carl Williams

Sure, thank you.

Operator

Our next question comes from Jim Kennedy with Marathon Capital Management, please proceed.

Jim Kennedy - Marathon Capital Management

Hi Carl, hi Bob.

Carl Williams

Hi Jim.

Jim Kennedy - Marathon Capital Management

Reiterate George’s comments here but nice quarter. I wanted to follow-up on the Cielo World Cup, so am I reading into your comments that while the relationship is going well that we shouldn’t view the results from this quarter as some sort of POP from the World Cup that is a one-time earning, you know it may continue in the future rather as that relationship develops you should be able to build on whatever what in there from Cielo this quarter?

Robert Cox

I think the answer there Jim, this is Bob is the latter which is you know, it was a very aggressive undertaking as you might have surmised with several hundred thousand merchants or in excess of a 100,000 merchants ramping right in advance of a very large event you know for that market and we were pleased with the activity but the real story of Cielo is what happens over the course of the next several years you know not what happened during the World Cup and I think we’ve been pretty consistent about that, so we remain excited but we’re well aware that there continues to be work that needs to be done.

Jim Kennedy - Marathon Capital Management

Good, and then on the Grupo Bimbo relationship, is that more of one with a Pay in Your Own Currency or is that, got a strong processing component to it?

Robert Cox

Today Jim it is purely on the processing side of the business, we act as the underlying processor for all transactions including non-payment transactions and each time we touch something we earn a fee. So think of it as fat pennies. We do like that model in the right -- given the right environment and that is most of what we are doing Visa today and Visa partners is processing.

Operator

(Operator Instructions) Thank you. There are no further questions at this time. This concludes today’s teleconference. You may disconnect your lines and thank you for your participation.

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Source: Planet Payment's (PLPM) CEO Carl Williams on Q2 2014 Results - Earnings Call Transcript

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