Paysign, Inc. (PAYS) Earnings Call Transcript & Summary

Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Paysign, Inc.'s Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. The comments on today's call regarding Paysign's financial results will be on a GAAP basis, unless otherwise noted. Paysign's earnings release was disseminated to the SEC earlier today and can be found in the Investors section -- Investor Relations section of our website, paysign.com, which includes reconciliations of non-GAAP measures to GAAP reported amounts. Additionally, as set forth in more detail on our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding Paysign's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance is summarized at the end of Paysign's earnings release and in our recent SEC filings. Lastly, a replay of the call will be available until November 4, 2026. Please see Paysign's second quarter 2026 earnings call announcement for details on how to access the replay. It is now my pleasure to turn the call over to Mr. Mark Newcomer, President and CEO. Please go ahead.

Thank you, Kevin, and good afternoon, everyone. Thank you for joining us for Paysign's Second Quarter 2026 Earnings Call. I'm Mark Newcomer, President and Chief Executive Officer. And I'm joined today by Jeff Baker, our Chief Financial Officer. Also with us are Matt Turner, our President of Patient Affordability; and Matt Lanford, our Chief Payments Officer, both of whom will be available for Q&A following our prepared remarks. Earlier today, we reported second quarter results, setting new records for revenue, net income and adjusted EBITDA. In fact, it was our second consecutive quarter of exceeding our quarterly guidance. As a result, we're raising our outlook for the full year today. The momentum we're seeing reflects the strategic decision we made a few years ago to invest in patient affordability as a business that could complement plasma and augment our overall growth trajectory. And this quarter is a good example of that work continuing to pay off. To put the quarter in perspective, revenue grew 48% year-over-year to $28.3 million. Net income came in at $6.8 million or $0.11 per fully diluted share, a near 5-fold increase year-over-year. Gross margin expanded 170 basis points to 63.3%. Jeff will walk you through all the financial results from the quarter, but these numbers clearly demonstrate the progress we are making in the business. Patient affordability delivered another exceptional quarter and remains the company's principal growth engine. Revenue rose 89% year-over-year to $14.6 million, and claim volume was approximately 54% higher than the second quarter of last year. Those results reflect the compounding effect of new program wins, deeper utilization across the existing clients and the continued expansion of our largest pharmaceutical partnerships. We are scaling the business methodically, and the combination of strong growth, margin expansion and positive contribution margin demonstrates that strategy is working. What's also encouraging is that plasma is now contributing to that same story. Both lines of business expanded margin this quarter: patient affordability compounding as it matures and plasma moving past the headwinds that weighed on it for the better part of the last 1.5 years. That's the balance we've been working toward, a steady, cash-generative core supporting a faster-growing, high-margin platform. Through the first half of 2026, the platform has channeled more than $900 million in financial assistance to patients. For context, we provided close to $1 billion over the whole of 2025, and we have already come within reach of that full year figure in just 6 months. The pace reflects both widening program base and increased utilization within programs that have now been live for a year or more. And it shows how central Paysign has become to keeping high-cost therapies within patients' reach. Our Dynamic Business Rules technology is a meaningful part of why pharmaceutical partners are consolidating more of their business with us. Over the first half of the year, it shielded clients from more than $300 million in costs that co-pay maximizers and accumulator programs would otherwise have diverted. To frame that, the full year 2025 total was roughly $325 million. So we have nearly matched the entire year of savings in 6 months. That reflects both the scale of the platform and the continued sharpening of our detection logic. We launched 13 new programs in the second quarter and exited the quarter with 148 active programs, up from 97 a year ago, in line with our expectations and demonstrating consistent and rapid growth. Launch activity tends to build as the year progresses, and the second quarter was a clear step-up from the insurance plan year transitions and resets that make the first quarter our most constrained. The pipeline remains healthy through the balance of 2026 and well into 2027, and we expect to match or surpass the 55 net additions we recorded in 2025. Between the rising program count, growing utilization and assistance dollars deployed, the read is consistent. The platform scales cleanly and market demand for our patient affordability solutions continues to strengthen. Turning to our plasma donor compensation business. Plasma contributed $13 million in revenue for the quarter, up 21.4% from $10.7 million a year ago. More telling was monthly revenue per center, which reached $7,699, the strongest reading since the third quarter of 2024. That measure reinforces our view that the recent center closures were strategic, with donors moving to nearby centers inside the same network rather than leaving the system altogether. We finished the quarter providing services to 561 centers, reflecting the 19 center closures that we flagged on last quarter's call, partially offset by 7 new additions. The trend leaves us increasingly confident that the headwinds we faced are now largely behind us. Plasma also remains a dependable source of cash generation, and it gives us a natural entry point to broaden adoption of our donor management and engagement software among the collectors we serve. Our life sciences technology suite, which we bring to market under the Apherion brand, continues to advance through the regulatory review process for our Blood Establishment Computer Software, or BECS, donor management system. And we look forward to sharing additional milestones as that work progresses. Interest in the Apherion platform remains strong both domestically and internationally. To support that international demand, we have established Apherion Technologies Limited, a wholly owned subsidiary, domiciled in Ireland, which will anchor our sales development and client support as our European hub. With roughly 1/3 of sourced plasma collected outside of the United States, much of it by companies that also run U.S. operations, we see substantial international runway for this business, and this step positions us to pursue it. In summary, the second quarter validated the strategy we have been building towards the past several years. Patient affordability is scaling, plasma is steady and cash generative, and our life science technology efforts are opening another meaningful avenue for growth. We head into the back half of the year with business accelerating, margins expanding and a pipeline that reaches into 2027. This is a business that's ramping, not just beating a number. And we believe Paysign is well positioned to continue delivering sustainable growth and long-term value for our shareholders, the clients who trust us and the patients who ultimately benefit from what we build. With that, I'll turn it over to Jeff for additional details on our second quarter results.

Thank you, Mark. Good afternoon, everyone. We delivered another strong quarter. Results in both plasma and patient affordability show the momentum we have been building. We also drove year-over-year margin improvement across the entire income statement, even excluding a onetime noncash benefit of $990,000 related to the carrying value of the Gamma acquisition earn-out liability. Our first 2 quarters of 2026 make 2 things clear. Our patient affordability solutions are resonating with pharmaceutical companies; and our plasma business has recovered from the high inventory levels that weighed on the results throughout 2025. For the second quarter, total revenues increased 48.1% year-over-year to $28.3 million. Pharma revenue led the way, increasing 88.9% year-over-year to $14.6 million. That growth was driven by continued program expansion, including 51 net pharma patient affordability programs launched over the last 12 months. We exited the quarter with 148 active programs, and processed claims increased approximately 54% compared to the second quarter of 2025. The revenue increase reflected higher monthly management fees, set-up fees, claim processing fees, customer service contact center support and other billable services such as Dynamic Business Rules. Pharma revenue again surpassed plasma revenue this year, even with the normal seasonal pattern in which claims begin to decline and plasma donations tend to increase as we move through the year. Plasma revenue increased 21.4% year-over-year to $13 million. Average monthly revenue per center increased more than 5% to $7,699, up from $7,098 in the second quarter of 2025. And the average number of loads per center again increased year-over-year. The improvement was driven primarily by stronger utilization at existing centers rather than footprint expansion, which is an encouraging indicator of underlying donor activity. As Mark noted, we exited the quarter with 561 centers, in line with the expectations we communicated on our first quarter earnings call. These trends support our view that the 2025 inventory overhang has largely normalized. Gross profit margin expanded to 63.3% from 61.6% a year ago, reflecting a greater mix of pharma revenue, which carries higher gross margins than our plasma business. Call center support, implementation, processing and commission costs in the aggregate grew well below our 48.1% revenue growth, which is what produced the margin expansion and demonstrates the operating leverage inherent in our model. Total operating expenses were $10.9 million, an increase of 5.5% from $10.3 million in the second quarter of 2025. During the quarter, we recorded a nonrecurring noncash benefit of $990,000 related to the carrying value of the Gamma acquisition earn-out liability. Excluding this benefit, total operating expenses would have been $11.9 million, an increase of 15.1% over the prior year and well below our 48.1% revenue growth. Selling, general and administrative expenses increased 4.3% to $8.5 million, including stock-based compensation of $1.3 million. Excluding the onetime benefit, selling, general and administrative expenses would have increased 16.3% to $9.5 million. Operating leverage was one of the highlights of the quarter. Excluding the onetime Gamma earn-out benefit, adjusted operating margin, calculated as adjusted operating income divided by revenue, expanded to 21.3% from 7.5% in the second quarter of 2025, an improvement of more than 1,300 basis points. Put another way, we converted roughly half of our incremental revenue into adjusted operating income, demonstrating the scalability of the platform as pharma mix increases and plasma normalizes. Depreciation and amortization increased $200,000 due primarily to the amortization of intangible assets from our Gamma acquisition and the capitalization of new software development costs. Here are a few other important details for the second quarter. Income before taxes increased to $7.9 million from $2 million in the second quarter of 2025. The company reported an income tax provision of $1.1 million, resulting in an effective tax rate of 14.5%, compared to 32.1% in the second quarter of 2025. The lower rate reflects discrete item adjustments primarily related to the increase in our stock price at June 30, 2026 compared to the same period last year, which increased the tax benefit from stock-based compensation relative to the prior year period. GAAP net income for the quarter totaled $6.8 million or $0.11 per fully diluted share, an increase from $1.4 million or $0.02 per fully diluted share in the second quarter of 2025. Adjusted EBITDA increased 113% to $9.6 million or $0.16 per fully diluted share, compared to $4.5 million or $0.08 per fully diluted share in the second quarter of 2025. Adjusted EBITDA margin expanded to 34% from 23.7% a year ago. We use adjusted EBITDA, which excludes stock-based compensation and onetime noncash adjustments, to evaluate core operating performance. The fully diluted share count used in calculating per share amounts was 62 million shares, versus 57.9 million shares in the prior year period. We exited the quarter with $27.4 million in unrestricted cash and 0 bank debt. Restricted cash increased $5.2 million from the year-end December 31, 2025 to $149 million. The increase was driven primarily by customer program deposits for plasma and pharma programs as well as higher funds on card, which represents balances loaded to cards but not yet spent by cardholders. Before turning to our outlook, I want to note that our second quarter results once again exceeded our guidance across every line of the income statement, primarily driven by strength in our patient affordability business. Revenue of $28.3 million exceeded the high end of our $26.2 million to $26.7 million guidance range. Gross margin of 63.3% finished above our guided range of 60% to 62%. Adjusted EBITDA of $9.6 million exceeded the high end of our $7.7 million to $8.5 million range. And adjusted net margin of 20.4% exceeded the top of our 13.4% to 15% range. The outperformance in the first 2 quarters of the year, combined with the visibility we have in the program launches and seasonal trends, supports our increased full year outlook. For full year 2026, we now expect full year revenue of $114 million to $117 million, representing 39% to 43% year-over-year growth. This is an increase of approximately $7 million at the midpoint compared to our prior guidance, primarily driven by stronger-than-expected patient affordability business and a recovery in our plasma business. With the increase in patient affordability revenues driving continued margin expansion and operating leverage, we expect gross profit margins between 62% and 63%, an increase compared to our prior guidance of 60% to 62%. GAAP net income is expected to be in the range of $21.5 million to $23 million or $0.35 to $0.37 per diluted share. And adjusted EBITDA is expected to be in the range of $35 million to $38 million or $0.57 to $0.61 per diluted share. These full year net income expectations include the nonrecurring noncash Gamma earn-out benefit recorded at the second quarter. Consistent with our adjusted presentation, adjusted EBITDA excludes that benefit. For the third quarter, we expect revenue of $28.5 million to $30 million, a year-over-year increase of 32% to 38.9%, with approximately $300,000 coming from other revenue and the remaining balance being split between the patient affordability and plasma businesses. Gross margins are expected to be in the range of 61% to 63%, reflecting a greater mix of plasma revenues. Our tax rate for the quarter is expected to be 17%. And our GAAP net income is expected to be $5.7 million to $6.0 million or $0.09 to $0.10 per fully diluted share. Adjusted EBITDA is expected to be $9.5 million to $10 million or $0.15 to $0.16 per fully diluted share. As of today's announcement, we have 157 active patient affordability programs and expect to exit the third quarter with 165 to 170 active programs. We also expect our active plasma center count to slightly increase from the second quarter. As a reminder, pharma revenue is typically highest in the first half as claims peak with annual insurance deductible resets and then moderate throughout the balance of the year. Plasma revenue, by contrast, is typically softest in the first quarter and builds as donor activity normalizes following tax refund season. Both dynamics are fully reflected in our full year guidance. In short, we are entering the second half of 2026 with stronger program momentum, improved plasma utilization, higher margins and a clean balance sheet. Those factors support both our revised guidance and our confidence in the long-term earnings power of the platform. That concludes my prepared remarks. With that, I would like to turn the call back over to the operator to begin the question-and-answer session.

[Operator Instructions] Our first question today is coming from Gary Prestopino from Barrington Research.

At this point, Mark, have you contemplated or even really measured on a same-store basis what the revenue growth per program is, for programs that you've had in hand for 12 months or so?

Yes. Can you -- this is Matt. Can you repeat that? Are you talking plasma or are you talking patient affordability?

Patient affordability, please.

So you're asking like month-over-month, what it's like -- what it looks like when it normalizes?

No. Just to get an idea of, if you have a program -- the programs that you have 12 -- in hand 12 months, what's been kind of -- if you look at it like on a same-store basis? What's been the, for lack of a better word, organic growth within a program or within your program?

Yes. So Gary, so for the most part, all things being equal on a year-over-year basis, once it becomes a mature program, you would expect flattish revenue growth. However, we've been adding in more feature functionality into a program, a program may get an additional education. There are a number of factors that will go into. I mean we have some programs that we're turning on other services for, that we're now billing for. So it's kind of hard to tell you. If we did nothing, if we did absolutely nothing, you would expect, if there were x number of claims 1 year, there would be the same number of claims next year. But we're actually seeing growth in some of our existing programs because we're adding more products and services for those programs. We've got a couple of brands that are getting more indications, meaning there's other uses for the drug, and so that expands their opportunity. So that's what we're seeing right now.

Okay. So just the bulk of the growth is going to continue to come from adding new programs. And that's what I was trying to get at.

Absolutely.

So I think at one time or another, Jeff, we talked and you said there's between 850 and 900 potential pharmaceutical programs. Is that still a good number?

Yes. This is Matt. It's way higher. I mean I think there's 850 drugs that currently have like maximizer and accumulator impact. But if you look at the total number of drugs in market with a co-pay program, you're in the tens of thousands, pretty much every branded product as well as most biosimilars. And then you get into some medical devices as well and you get into physician administered or infused products, there's still a tremendous TAM here for us to tap into. We're, going back to analogies from a couple of quarters ago, we're still in the first inning here.

Okay. That's great. And then just lastly, I know you mentioned something about the Apherion program needing approval, but could you just go into that a little bit more, what you're waiting for here before you can launch it into the market?

Yes. I mean really the regulatory process is something we're in the process of going through. There's not -- I don't have a crystal ball, so anytime you're in that new process, it kind of is what it is and you just kind of roll with it. I can't really give a date for that at this point in time. But you've got to figure that we're going to continue -- we're getting lots of interest internationally and domestically, and I expect that to continue. We'll definitely give you additional feedback as it comes down the pipe on milestones met on that.

And it's the FDA that you're waiting for the regulatory approval from, right?

Correct.

Okay. So then just lastly, the TAM there is pretty big, probably over $1 billion worldwide?

So the TAM for software, for blood and plasma software alone, globally today, it's $3.5 billion. And the estimates from a third-party resource that we look at thinks that that's going to $7 billion over the next 10 years.