CardConnect Corp. Reports Fourth Quarter and Full-Year 2016 Results

King of Prussia, Pennsylvania, UNITED STATES


KING OF PRUSSIA, Pa., March 10, 2017 (GLOBE NEWSWIRE) -- CardConnect Corp. (NASDAQ:CCN) (“CardConnect”), one of the nation's leading payment processors, today provided financial results for the fourth quarter and full-year ended December 31, 2016.

For the fourth quarter of 2016, revenue increased 23.0% to $156.8 million as compared to $127.5 million in the prior year period.  Net revenue (a non-GAAP measure) increased 26.2% to $41.6 million as compared to $32.9 million in the prior year period.  Merchant Acquiring services revenue and net revenue were driven by record bankcard volume of $5.9 billion for the quarter ended December 31, 2016, a 24.6% increase from the prior year period.

For the full-year 2016, revenue increased 28.5% to $589.3 million as compared to $458.6 million in the prior year period.  Net revenue increased 29.7% to $156.5 million as compared to $120.6 million in the prior year period.  Merchant Acquiring services revenue and net revenue were driven by record bankcard volume of $22.3 billion for the year ended December 31, 2016, a 30.8% increase from the prior year period.

Highlights for the fourth quarter of 2016 include:

  • Bankcard volume of $5.9 billion, a 24.6% increase from $4.8 billion in the prior year period
  • Revenue of $156.8 million, a 23.0% increase from $127.5 million in the prior year period
  • Net revenue of $41.6 million, a 26.2% increase from $32.9 million in the prior year period 1
  • Net income of $2.5 million, and net income of $0.05 per share
  • Pro forma adjusted net income of $2.9 million, and pro forma adjusted net income per share of $0.09 1
  • Adjusted EBITDA was $10.3 million, compared to $7.4 million in the prior year period 1

Highlights for the full-year 2016 include:

  • Bankcard volume of $22.3 billion, a 30.8% increase from $17.1 billion in the prior year 
  • Revenue of $589.3 million, a 28.5% increase from $458.6 million in the prior year 
  • Net revenue of $156.5 million, a 29.7% increase from $120.6 million in the prior year 1
  • Net loss of $16.1 million, and net loss of $0.86 per share
  • Pro forma adjusted net income of $12.4 million, and pro forma adjusted net income per share of $0.38 1
  • Adjusted EBITDA was $38.0 million, compared to $28.8 million in the prior year 1

Jeff Shanahan, President and CEO of CardConnect, said, "I am very excited to continue the trend of strong organic net revenue growth in both the fourth quarter and full year 2016.  Our impressive growth in 2016 is a direct reflection of our ability to continue to take share in the integrated payments market via our differentiated product offering that delivers best in class payment security and integration services. Our go-to-market strategy continues to shift toward software partners that are looking for a unified payments platform inclusive of merchant acquiring, gateway services, and secure device integration.  We recently released Bolt, which brings the power of point to point encryption to any software application via a developer friendly API.  We believe Bolt positions us to significantly scale our customer base due to the ease of integration it provides our new customers.  We expect a major theme in 2017 will be a significant reinvestment back into the business, specifically in product development and in strengthening our sales and marketing organization.”

Full-Year 2017 Financial Outlook
Based on the current level of volume trends and new business activity, for the full-year 2017, bankcard volume is expected to be $26.7 billion to $27.2 billion, representing an increase of 20% to 22% above 2016.  Revenue is expected to be $685 million to $699 million, representing an increase of 16% to 19% above 2016.  Net revenue is expected to be $181 million to $184 million, representing an increase of 15% to 18% above 2016.  Adjusted EBITDA, which includes $3 million of general and administrative expenses related to growth initiatives, is expected to be $42 million to $44 million, representing an increase of 10% to 15% above 2016.  The additional general and administrative expenses will support new growth initiatives in product development, direct sales, and marketing.

Earnings Conference Call and Audio Webcast
CardConnect will host a conference call to discuss the fourth quarter and full-year 2016 financial results, Friday, March 10, 2017, at 8:30 a.m. ET.  You may participate by calling 844-358-9178 and providing the operator with Pin Number 80728713.  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)
($ in thousands) 

  Three Months Ended December 31, Change Year ended December 31, Change
   2016   2015  Amount %  2016   2015  Amount %
                 
 Revenue$156,835  $127,542  $29,293  23.0% $589,320  $458,648  $130,672  28.5%
                 
 Cost of services (exclusive of depreciation and                
 amortization shown separately below):               
 Interchange and pass-through 115,265   94,605   20,660  21.8%  432,818   338,005   94,812  28.1%
 Other cost of services 23,670   19,804   3,865  19.5%  90,921   71,072   19,848  27.9%
 Total cost of services 138,935   114,410   24,525  21.4%  523,738   409,078   114,661  28.0%
 General and administrative 9,708   7,479   2,229  29.8%  55,303   25,321   29,983  118.4%
 Depreciation 447   305   142  46.7%  1,745   1,188   558  47.0%
 Amortization of intangibles 5,191   4,727   464  9.8%  20,579   19,175   1,404  7.3%
 Total expenses 154,281   126,921   27,361  21.6%  601,365   454,761   146,604  32.2%
 (Loss) income from operations 2,554   622   1,932  310.8%  (12,045)  3,887   (15,932) (409.9)%
                 
 Other expense:               
 Interest expense, net (2,456)  (360)  (2,096) 582.8%  (5,125)  (1,250)  (3,875) 310.1%
 Other, net (17)  92   (109) (118.0)%  (364)  (81)  (283) 348.2%
 Total other expense (2,472)  (268)  (2,204) 823.7%  (5,489)  (1,331)  (4,158) 312.5%
                 
 (Loss) income before income tax provision 81   354   (273) (77.0)%  (17,534)  2,556   (20,091) (785.9)%
 Provision for income taxes 2,462   (69)  2,531  (3670.2)%  1,391   (1,384)  2,774  (200.5)%
 Net (loss) income$2,544  $285  $2,259  792.5% $(16,144) $1,172  $(17,316) (1476.9)%
 Dividends on preferred stock (1,167)  -   (1,167) na   (1,834)  -   (1,834) na 
 Net (loss) income available for common shareholders 1,377   285   1,091  383.0%  (17,978)  1,172   (19,150) (1633.3)%
                 
 (Loss) earnings per share:               
 Basic$0.05  $0.02  $0.03  150.0% $(0.86) $0.08  $(0.94) (1175.0)%
 Diluted$0.04  $0.02  $0.02  100.0% $(0.86) $0.07  $(0.93) (1328.6)%
                 
 Weighted-average common shares outstanding:               
 Basic 28,738,135   15,145,708   13,592,427  89.7%  20,906,638   15,189,788   5,716,850  37.6%
 Diluted 30,982,918   16,761,338   14,221,580  84.8%  20,906,638   16,774,075   4,132,563  24.6%
                 

Schedule 2 
CardConnect Corp. 
Consolidated Balance Sheets 
($ in thousands)

  December 31, December 31,
   2016   2015 
  (Unaudited) (Audited)
 Assets    
 Current assets:   
 Cash and cash equivalents$9,385  $3,575 
 Restricted cash 5,749   1,604 
 Accounts receivable 26,028   15,670 
 Processing assets 12,905   6,930 
 Other receivables 2,045   1,660 
 Related-party receivables 90   145 
 Prepaid income taxes 2,753   169 
 Other prepaid expenses 1,259   543 
 Other current assets 2,462   1,249 
 Total current assets 62,677   31,543 
     
 Property and equipment, net 5,591   6,109 
     
 Other assets:   
 Long-term restricted cash 2,146    
 Long-term related-party receivables 225   4,140 
 Long-term other receivables 266   622 
 Goodwill 40,241   40,241 
 Intangible assets, net 56,016   63,014 
 Long-term other assets 687   242 
 Total assets$167,849  $145,912 
     
 Liabilities and stockholders’ equity    
 Current liabilities:   
 Accounts payable$3,551  $2,897 
 Residuals payable 7,510   5,642 
 Processing liabilities 14,901   8,533 
 Settlement obligation 2,567   2,692 
 Accrued expenses 3,449   2,247 
 Income tax payable     
 Current portion of LT debt 4,250    
 Deferred revenue 1,736   1,382 
 Total current liabilities 37,964   23,393 
     
 Long-term liabilities:   
 Accrued expenses 1,834   2,059 
 Long-term debt 128,181   59,965 
 Deferred tax liability 2,577   1,787 
 Total long-term liabilities 132,591   63,811 
     
 Total liabilities 170,555   87,205 
     
 CardConnect Corp. Redeemable Series A Preferred Stock 37,159    
     
 Stockholders’ equity:   
 FTS Holding Corporation Preferred Stock -   - 
 Common stock 29   16 
 Additional paid-in capital 3,163   88,689 
 Accumulated deficit (43,058)  (26,914)
 Treasury stock of 681,538 common shares at December 31, 2015 Treasury stock -   (3,083)
 Total stockholders’ equity (39,866)  58,707 
 Total liabilities and stockholders’ equity$167,849  $145,912 
     

Schedule 3 
CardConnect Corp. 
Reconciliation of GAAP Revenue to Net Revenue 
(Unaudited) 
($ in thousands) 

 Three Months Ended December 31, Change Year ended December 31, Change
  2016  2015 Amount %  2016  2015 Amount %
 
 Revenue$156,835 $127,542 $29,293 23.0% $589,320 $458,648 $130,672 28.5%
                 
 Non-GAAP Adjustments:               
 Interchange and pass-through (1) 115,265  94,605  20,660 21.8%  432,818  338,005  94,812 28.1%
 Net Revenue$41,570 $32,937 $8,633 26.2% $156,502 $120,643 $35,860 29.7%

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)
($ in thousands)

 

 Three Months Ended December 31, Change Year ended December 31, Change
  2016   2015  Amount %  2016   2015  Amount %
 
 Net (loss) Income$2,544  $285  $2,259  792.5% $(16,144) $1,172  $(17,316) (1476.9)%
 
 Non-GAAP Adjustments:               
 Interest expense, net 2,456   360   2,096  582.8%  5,125   1,250   3,875  310.1%
 Depreciation and amortization 5,638   5,032   606  12.1%  22,324   20,363   1,961  9.6%
 Taxes (1) (2,440)  146   (2,585) (1776.6)%  (1,021)  1,633   (2,654) (162.5)%
 EBITDA 8,198   5,822   2,376  40.8%  10,284   24,418   (14,134) (57.9)%
                
 Share-based compensation 1,248   502   746  148.7%  5,036   1,887   3,150  167.0%
 (Gain)/Loss on Asset Disposal -   (169)  169  (100.0)%  51   (169)  220  (129.8)%
 Non-operating expenses (2) 208   -   208  na   20,936   -   20,936  na 
 Transition, acquisition and integration costs (3) 639   1,269   (630) (49.7)%  1,726   2,712   (987) (36.4)%
 Adjusted EBITDA$10,293  $7,424  $2,869  38.6% $38,033  $28,848  $9,185  31.8%

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 months and year ended December 31, 2016 that 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)
($ in thousands)

 

 Three Months Ended December 31, Change Year ended December 31, Change 
  2016   2015  Amount %  2016   2015  Amount % 
 
 Net (loss) Income$2,544  $285  $2,259  792.5% $(16,144) $1,172  $(17,316) (1476.9)% 
 Provision for income taxes 2,462   (69)  2,531  (3670.2)%  1,391   (1,384)  2,774  (200.5)% 
 (Loss) Income before income tax provision 81   354   (273) (77.0)%  (17,534)  2,556   (20,091) (785.9)% 
               
 Non-GAAP Adjustments:                
 Non-operating expenses (1) 208   -   208  na   20,936   -   20,936  na  
 Transition, acquisition and integration costs (2) 639   1,269   (630) (49.7)%  1,726   2,712   (987) (36.4)% 
 Share-based compensation 1,248   502   746  148.7%  5,036   1,887   3,150  167.0% 
 Intangible amortization (3) 2,956   3,090   (134) (4.3)%  11,840   11,030   810  7.3% 
 Non-GAAP (Loss) Income before income tax provision 5,132   5,214   (82) (1.6)%  22,004   18,186   3,818  21.0% 
                  
 Non-GAAP Pro Forma Adjustments: 
 Pro Forma Provision for income taxes (4) (2,248)  (1,629)  (619) 38.0%  (9,637)  (5,681)  (3,957) 69.7% 
 Pro Forma Adjusted Net Income 2,884   3,586   (701) (19.6)%  12,367   12,505   (139) (1.1)% 
                  
 Pro Forma common shares outstanding (5) 32,681,446   32,681,446   -  0.0%  32,681,446   32,681,446   -  0.0% 
                  
 Pro Forma Adjusted Net Income per share$0.09  $0.11  $(0.02) (19.6)% $0.38  $0.38  $(0.00) (1.1)% 
   
   
 Estimated Annual Effective Tax Rate 43.8%  31.2%  43.8%  31.2% 

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 months and year ended December 31, 2016 that 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 43.8% for 2016 and 31.2% for 2015, assuming the reversal of the valuation allowance recorded in connection with our deferred tax asset.
(5) Includes 3,630,098 shares outstanding assuming the exercise of “in the money” options and warrants, assuming a year-end stock price $12.85


Schedule 6
CardConnect Corp.
Outlook Summary
(Unaudited)
($ in millions)

 

 Full Year Financial Outlook 
 Year Ended December 31,     
 2017 Outlook 2016 Actual Change (%) 
        
 Bankcard Volume$26,699-$27,238 $22,320 20%-22% 
 
 Revenue$685-$699 $589 16%-19% 
            
 Non-GAAP Adjustments:          
 Interchange and pass-through (1) 504- 515  433 17%-19% 
 Net Revenue$181-$184 $157 15%-18% 
 
 Adjusted EBITDA (2)$42-$44 $38 10%-15% 

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.

Adjusted EBITDA is also 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.  Adjusted EBITDA differs from GAAP net income in that it excludes interest expense, net, depreciation and amortization, taxes, share based compensation, gain/loss on asset disposal, non-operating expenses and transition, acquisition and integration costs. The Company has not reconciled its Adjusted EBITDA guidance to net income, its GAAP equivalent, because net income is not accessible on a forward-looking basis due to, among other things, uncertainty regarding the tax impact of the July 29, 2016 merger, including with respect to the tax valuation allowances, and because of the uncertainty regarding, and the potential variability of making, forecasts with respect to reconciling items such as share-based compensation expense and transition, acquisition and integration costs. Accordingly, a reconciliation of Adjusted EBITDA guidance to GAAP net income is not available without unreasonable effort.  It is important to note that the actual amount of net income and such reconciling items will have a significant impact on the Company’s Adjusted EBITDA. 

__________________________

(1) Represents interchange fees, dues and assessments, debit network fees and other pass-through costs.
(2) Includes $3 million of general and administrative expenses related to growth initiatives.


        

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