CardConnect Corp. Reports Third Quarter Financial Results

CardConnect Corp. (NASDAQ:CCN) ("CardConnect"), one of the nation's leading payment processors, today provided financial results for the quarter ended September 30, 2016. Revenue increased 30.7% to $154.0 million in the third quarter as compared to $117.9 million in the prior year period. Net revenue increased 32.2% to $41.1 million in the third quarter as compared to $31.1 million in the prior year period. Revenue and net revenue growth were driven by record growth in both Merchant Acquiring services and Enterprise services. Merchant Acquiring services revenue and net revenue were driven by record bankcard volume of $5.8 billion for the quarter ended September 30, 2016, a 33.9% increase from the prior year period.

Highlights for the third quarter of 2016 include:
  • Bankcard volume of $5.8 billion, a 33.9% increase from $4.4 billion in the prior year period
  • Revenue of $154.0 million, a 30.7% increase from $117.9 million in the prior year period
  • Net revenue of $41.1 million, a 32.2% increase from $31.1 million in the prior year period 1
  • Net loss of $22.1 million, and GAAP loss of $0.93 per share
  • Pro forma adjusted net income of $3.5 million, and pro forma adjusted net income per share of $0.11 1
  • Adjusted EBITDA was $10.6 million, compared to $7.1 million in the prior year period 1

Jeff Shanahan, President and CEO of CardConnect, said, "I am very pleased to report strong results in our first quarter following the merger. In the third quarter, we generated a 33.9% increase in total bankcard volume fueled by our continued success in penetrating the integrated payments market. Our go to market strategy for integrated payments is based on the distribution of our CardPointe platform. SMB merchants access our CardPointe platform via our developer friendly APIs, mobile iOS and Android solutions, a full featured virtual terminal, and our Point to Point Encrypted (AKA, P2PE) device solutions. It's at the forefront of our ability to differentiate CardConnect as a leading provider of value-added merchant electronic payment and related services. We are now focused on leveraging our new corporate structure to accelerate growth and expand the CardConnect franchise. Our focus will continue to be to reinvest in our differentiated technology to take advantage of the trend in the market that places greater value on integrated payment services and security. We are pleased with our third quarter results and look forward to life as a public company."

Earnings Conference Call and Audio Webcast

CardConnect will host a conference call to discuss the third quarter financial results today at 8:30 a.m. ET. You may participate by calling 877-883-0383 and providing the operator with Pin Number 5914339. You can also listen to the conference call broadcast through a webcast on CardConnect's website. To access the webcast, please visit the Investor Relations portion of CardConnect's website at  www.cardconnect.com. The webcast will be archived on CardConnect's website for replay within two hours of the live call.

1 Net revenue, adjusted EBITDA, pro forma adjusted net income, and pro forma adjusted net income per share are non-GAAP measures that are detailed later in the attached schedules to this release.

Non-GAAP Financial Measures

This earnings release presents non-GAAP financial information including net revenue, adjusted EBITDA, pro forma adjusted net income, and pro forma adjusted net income per share. The company uses these non-GAAP financial performance measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The company believes that they provide useful information about operating results by excluding certain expenses that may not be indicative of its core operating results and business outlook. As such, management believes the presentation of these non-GAAP financial measures enhances the overall understanding of past financial performance and future prospects, and allows for greater transparency with respect to key metrics used by management in its financial and operational decision making.

The non-GAAP measures presented in this release are important financial performance measures for the company, but are not financial measures as defined by GAAP. The presentation of this financial information is not intended to be considered in isolation of or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company's results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company's result of operations in conjunction with the corresponding GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are presented in the attached schedules to this release.

About CardConnect

CardConnect (CCN) is a leading provider of payment processing and technology solutions, helping more than 65,000 organizations - from independent coffee shops to iconic global brands - accept billions of dollars in card transactions each year. Since its inception in 2006, CardConnect has developed advanced payment solutions backed by patented, PCI-certified point-to-point encryption (P2PE) and tokenization. The company's small-to-midsize business offering, CardPointe, is a comprehensive platform that includes a powerful reporting and transaction management portal which extends to a native mobile app. For enterprise-level organizations, CardSecure integrates omni-channel payment acceptance into several ERP systems - such as Oracle, SAP, JD Edwards and Infor M3 - in a way that minimizes PCI compliance requirements and lowers transaction costs.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These statements are based on CardConnect's management's current expectations and beliefs, as well as a number of assumptions concerning future events.

Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside CardConnect's control that could cause actual results to differ materially from the results discussed in the forward-looking statements. Additional risks and factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements can be found in CardConnect's reports filed with the SEC, which are available, free of charge, at the SEC's website at www.sec.gov. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and CardConnect undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
                 

Schedule 1

CardConnect Corp.

Consolidated Statements of Operations

(Unaudited)
 
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2016 2015 Amount % 2016 2015 Amount %
 
Revenue $ 154,031,109 $ 117,860,548 $ 36,170,561 30.7 % $ 432,484,905 $ 331,105,661 $ 101,379,244 30.6 %
 
Cost of services (exclusive of depreciation and
amortization shown separately below):
Interchange and pass-through 112,949,106 86,785,102 26,164,004 30.1 % 317,552,417 243,400,105 74,152,312 30.5 %
Other cost of services   23,428,462     18,660,872     4,767,590   25.5 %   67,251,017     51,267,988     15,983,029   31.2 %
Total cost of services 136,377,568 105,445,974 30,931,594 29.3 % 384,803,434 294,668,093 90,135,341 30.6 %
General and administrative 31,222,863 6,290,209 24,932,654 396.4 % 45,576,797 17,887,090 27,689,707 154.8 %
Depreciation 444,745 293,430 151,315 51.6 % 1,298,200 882,788 415,412 47.1 %
Amortization of intangibles   5,291,330     5,054,952     236,378   4.7 %   15,387,036     14,447,780     939,256   6.5 %
Total expenses   173,336,506     117,084,565     56,251,941   48.0 %   447,065,467     327,885,751     119,179,716   36.3 %
(Loss) income from operations (19,305,397 ) 775,983 (20,081,380 ) (2587.9 )% (14,580,562 ) 3,219,910 (17,800,472 ) (552.8 )%
 
Other expense:
Interest expense, net (1,764,711 ) (274,150 ) (1,490,561 ) 543.7 % (2,636,908 ) (844,308 ) (1,792,600 ) 212.3 %
Other, net   (239,030 )   (20,141 )   (218,889 ) 1086.8 %   (405,719 )   (173,328 )   (232,391 ) 134.1 %
Total other expense   (2,003,741 )   (294,291 )   (1,709,450 ) 580.9 %   (3,042,627 )   (1,017,636 )   (2,024,991 ) 199.0 %
 
(Loss) income before income tax provision (21,309,138 ) 481,692 (21,790,830 ) (4523.8 )% (17,623,189 ) 2,202,274 (19,825,463 ) (900.2 )%
Provision for income taxes   (772,160 )   (315,346 )   (456,814 ) 144.9 %   (1,064,328 )   (1,314,809 )   250,481   (19.1 )%
Net (loss) income $ (22,081,298 ) $ 166,346 $ (22,247,644 ) (13374.3 )% $ (18,687,517 ) $ 887,465 $ (19,574,982 ) (2205.7 )%
Dividends on preferred stock   (666,667 )   -     (666,667 ) na   (666,667 )   -     (666,667 ) na
Net (loss) income available for common shareholders (22,747,965 ) 166,346 (22,914,311 ) (13775.1 )% (19,354,184 ) 887,465 (20,241,649 ) (2280.8 )%
 
(Loss) earnings per share:
Basic $ (0.93 ) $ 0.01 $ (0.94 ) (9400.0 )% $ (1.06 ) $ 0.06 $ (1.12 ) (1866.7 )%
Diluted $ (0.93 ) $ 0.01 $ (0.94 ) (9400.0 )% $ (1.06 ) $ 0.05 $ (1.11 ) (2220.0 )%
 
Weighted-average common shares outstanding:
Basic 24,449,816 15,145,708 9,304,108 61.4 % 18,277,085 15,145,708 3,131,377 20.7 %
Diluted 24,449,816 16,720,871 7,728,945 46.2 % 18,277,085 16,720,871 1,556,214 9.3 %
 
 

Schedule 2

CardConnect Corp.

Consolidated Balance Sheets
 
September 30, December 31,
2016 2015
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 9,624,317 $ 3,574,661
Restricted cash 5,678,308 1,603,783
Accounts receivable 19,931,120 15,670,324
Processing assets 7,217,647 6,929,522
Other receivables 1,374,812 1,659,588
Related-party receivables 125,663 145,367
Prepaid income taxes - 168,522
Other prepaid expenses 1,261,309 542,827
Other current assets   1,872,397     1,248,805  
Total current assets 47,085,573 31,543,399
 
Property and equipment, net 5,953,016 6,109,009
 
Other assets:
Long-term restricted cash 3,083,333 -
Long-term related-party receivables 184,795 4,140,000
Long-term other receivables 442,499 621,844
Goodwill 40,241,161 40,241,161
Intangible assets, net 59,673,941 63,013,832
Long-term other assets   890,993     242,373  
Total assets $ 157,555,311   $ 145,911,618  
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,942,232 $ 2,897,056
Residuals payable 6,391,358 5,642,386
Processing liabilities 9,145,319 8,533,305
Settlement obligation 2,842,409 2,691,569
Accrued expenses 2,904,852 2,247,030
Income tax payable 525,865 -
Current portion of LT debt 3,000,000 -
Deferred revenue   2,974,017     1,382,099  
Total current liabilities 30,726,052 23,393,445
 
Long-term liabilities:
Accrued expenses 1,889,373 2,059,011
Long-term debt 129,144,041 59,964,989
Deferred tax liability   1,787,216     1,787,216  
Total long-term liabilities   132,820,630     63,811,216  
 
Total liabilities 163,546,682 87,204,661
 
CardConnect Corp. Redeemable Series A Preferred Stock 37,500,000 -
 
Stockholders' equity:
FTS Holding Corporation Preferred Stock - 2,037
Common stock 28,751 15,145
Additional paid-in capital 2,748,135 88,687,317
Accumulated deficit (46,268,257 ) (26,914,073 )
Treasury stock of 681,538 common shares at December 31, 2015 Treasury stock   -     (3,083,469 )
Total stockholders' equity   (43,491,371 )   58,706,957  
Total liabilities and stockholders' equity $ 157,555,311   $ 145,911,618  
 
                 

Schedule 3

CardConnect Corp.

Reconciliation of GAAP Revenue to Net Revenue

(Unaudited)
 
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2016 2015 Amount % 2016 2015 Amount %
 
Revenue $ 154,031,109 $ 117,860,548 $ 36,170,560 30.7 % $ 432,484,905 $ 331,105,662 $ 101,379,243 30.6 %
 
Non-GAAP Adjustments:
Interchange and pass-through (1)   112,949,106   86,785,102   26,164,004   30.1 % $ 317,552,417   243,400,105   74,152,312 30.5 %
Net Revenue $ 41,082,003 $ 31,075,446 $ 10,006,556 32.2 % $ 114,932,487 $ 87,705,557 $ 27,226,931 31.0 %

Non-GAAP Financial Measures

This schedule presents net revenue, which is an important financial performance measure for the Company, but is not a financial measure as defined by GAAP. Such financial measure should not be considered as an alternative to GAAP revenue, and such measure may not be comparable to those reported by other companies. Amounts may not foot due to rounding.
     
(1)   Represents interchange fees, dues and assessments, debit network fees and other pass-through costs.
                 

Schedule 4

CardConnect Corp.

Reconciliation of GAAP Net Income to Adjusted EBITDA

(Unaudited)

 
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2016 2015 Amount % 2016 2015 Amount %
 
Net (loss) Income $ (22,081,298 ) $ 166,346 $ (22,247,644 ) (13374.3 )% $ (18,687,518 ) $ 887,465 $ (19,574,983 ) (2205.7 )%
 
Non-GAAP Adjustments:
Interest expense, net 1,764,711 274,150 1,490,560 543.7 % 2,636,908 844,308 1,792,600 212.3 %
Depreciation and amortization 5,736,075 5,348,382 387,693 7.2 % 16,685,236 15,330,568 1,354,668 8.8 %
Taxes (1)   960,684     335,486   625,197   186.4 %   1,418,954     1,487,836   (68,882 ) (4.6 )%
EBITDA (13,619,829 ) 6,124,365 (19,744,194 ) (322.4 )% 2,053,580 18,550,177 (16,496,597 ) (88.9 )%
 
Share-based compensation 2,939,668 461,538 2,478,131 536.9 % 3,788,400 1,384,694 2,403,706 173.6 %
(Gain)/Loss on Asset Disposal 50,506 - 50,506 na 50,506 - 50,506 na
Non-operating expenses (2) 20,728,169 - 20,728,169 na 20,728,169 - 20,728,169 na
Transition, acquisition and integration costs (3)   526,100     528,094   (1,993 ) (0.4 )%   1,086,759     1,443,494   (356,735 ) (24.7 )%
Adjusted EBITDA $ 10,624,615 $ 7,113,996 $ 3,510,619 49.3 % $ 27,707,415 $ 21,378,365 $ 6,329,050 29.6 %
 

Non-GAAP Financial Measures

This schedule presents adjusted EBITDA, which is an important financial performance measure for the Company, but is not a financial measure as defined by GAAP. Such financial measure should not be considered as an alternative to GAAP net income, and such measure may not be comparable to those reported by other companies. Amounts may not foot due to rounding.
     
(1)   Includes the provision for income taxes and other business taxes.
(2) Non-operating expenses for the three and nine months ended September 30, 2016 relate to the transaction costs associated with the July 29, 2016 merger.
(3) Represents acquisition and integration costs incurred in the connection with our acquisitions, charges related to employee termination benefits and other transition activities.
                   

Schedule 5

CardConnect Corp.

Reconciliation of Pro Forma Adjusted Net Income to Net Income

(Unaudited)

 
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2016 2015 Amount % 2016 2015 Amount %
 
Net (loss) Income $ (22,081,298 ) $ 166,346 $ (22,247,644 ) (13374.3 )% $ (18,687,518 ) $ 887,465 $ (19,574,983 ) (2205.7 )%
Provision for income taxes   (772,160 )   (315,346 )   (456,814 ) 144.9 %   (1,064,328 )   (1,314,809 )   250,481   (19.1 )%
(Loss) Income before income tax provision (21,309,138 ) 481,692 (21,790,830 ) (4523.8 )% (17,623,190 ) 2,202,274 (19,825,464 ) (900.2 )%
 
Non-GAAP Adjustments:
Non-operating expenses (1) 20,728,169 - 20,728,169 na 20,728,169 - 20,728,169 na
Transition, acquisition and integration costs (2) 526,100 528,094 (1,993 ) (0.4 )% 1,086,759 1,443,194 (356,435 ) (24.7 )%
Share-based compensation 2,939,668 461,538 2,478,130 536.9 % 3,788,400 1,384,694 2,403,706 173.6 %
Intangible amortization (3)   2,955,812     2,647,983     307,829   11.6 %   8,884,618     7,940,896     943,722   11.9 %
Non-GAAP (Loss) Income before income tax provision 5,840,611 4,119,307 1,721,305 41.8 % 16,864,756 12,971,058 3,893,699 30.0 %
 
Non-GAAP Pro Forma Adjustments:
Pro Forma Provision for income taxes (4)   (2,303,427 )   (1,705,393 )   (598,034 ) 35.1 %   (6,613,638 )   (5,370,018 )   (1,243,620 ) 23.2 %
Pro Forma Adjusted Net Income 3,537,184 2,413,914 1,123,271 46.5 % 10,251,118 7,601,039 2,650,078 34.9 %
 
Pro Forma common shares outstanding (5) 30,866,441 30,866,441 - 0.0 % 30,866,441 30,866,441 - 0.0 %
 
Pro Forma Adjusted Net Income per share $ 0.11 $ 0.08 $ 0.04 46.5 % $ 0.33 $ 0.25 $ 0.09 34.9 %

Non-GAAP and Pro Forma Financial Measures

This schedule presents non-GAAP and pro forma financial measures, which are important financial performance measures for the Company, but are not financial measures defined by GAAP. Such financial measures should not be considered as alternatives to GAAP, and such measures may not be comparable to those reported by other companies. Amounts may not foot due to rounding.
     
(1)   Non-operating expenses for the three and nine months ended September 30, 2016 relate to the transaction costs associated with the July 29, 2016 merger.
(2) Represents acquisition and integration costs incurred in the connection with our acquisitions, charges related to employee termination benefits and other transition activities.
(3) Represents amortization expenses related to finite-lived intangible assets recorded in connection with our acquisitions.
(4) Represents pro forma adjusted income tax expense to reflect an effective tax rate of 39.1% for 2016 and 41.4% for 2015, assuming the reversal of the valuation allowance recorded in connection with our deferred tax asset.
(5) Includes 2,141,498 shares outstanding assuming the exercise of 3,463,950 fully vested, 'in the money' options resulting from the July 29, 2016 merger.
     

Schedule 6

CardConnect Corp.

Outlook Summary

(Unaudited)

($ in millions)

 
Full Year Financial Outlook
Year Ended December 31, 2016
 
Revenue $ 588 - $ 603
 
Non-GAAP Adjustments:
Interchange and pass-through (1)   436 -   447
Net Revenue $ 152 - $ 156

Non-GAAP Financial Measures

This schedule presents net revenue, which is an important financial performance measure for the Company, but is not a financial measure as defined by GAAP. Such financial measure should not be considered as an alternative to GAAP revenue, and such measure may not be comparable to those reported by other companies. Amounts may not foot due to rounding.
     
(1)   Represents interchange fees, dues and assessments, debit network fees and other pass-through costs.

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