HDX Announces Financial Results for the Second Quarter of 2014
TORONTO, Aug. 15, 2014 /CNW/ - Posera-HDX Ltd. (TSX: HDX) (the "Company" or "HDX") announced today its financial results for the three and six-months ended June 30th, 2014. HDX is listed on the TSX under the symbol "HDX".
Paul Howell, Chief Executive Officer, reports:
The Company achieved strong sales, service, and payments processing revenue, in the second quarter of 2014. The Company also continued to integrate business units, and build new software products and tools. In addition, the Company is examining merger and acquisition opportunities in Canada and the United States.
Quarterly Highlights and Summary
The Company continued to achieve strong top-line revenue during the second quarter of 2014. Company revenue was $5,334,590 for the three-months ended June 30, 2014, an increase of $1,029,060 (23.9%) from $4,305,530 for the three-months ended June 30, 2013.
The Company has experienced a Normalized EBITDA profit for the three-months ended June 30, 2014 of $393,246, an improvement of $495,784 from a Normalized EBITDA loss of $102,538 for the three-months ended June 30, 2013.
- Total revenue was $5,334,590 for the three-months ended June 30, 2014, up $1,029,060 (23.9%) from $4,305,530 for the three-months ended June 30, 2013 and up $612,966 (13.0%) from $4,721,624 for the three-months ended March 31, 2014;
- Total gross payment processing fees was $3,917,007 for the three-months ended June 30, 2014, up $3,913,880 (125,164.1%) from $3,127 for the three-months ended June 30, 2013 and up $1,177,131 (43.0%) from $2,739,876 for the three-months ended March 31, 2014;
- Net loss for the three-months ended June 30, 2014 was a loss of $627,569, an increase of $276,580 from a loss of $350,989 for the three-months ended June 30, 2013, and an increase of $188,584 from a loss of $438,985 for the three-months ended March 31, 2014;
- EBITDA loss for the three-months ended June 30, 2014, was $177,086, an increase of $75,258 from $101,828 for the three-months ended June 30, 2013, and an increase of $22,746 from $154,340 for the three-months ended March 31, 2014;
- Normalized EBITDA(1) profit(loss) for the three-months ended June 30, 2014 was $393,246, an improvement of $495,784 from ($102,538) for the three-months ended June 30, 2013, and an improvement of $513,096 from ($119,850) for the three-months ended March 31, 2014;
- Gross profit was $2,294,339 for the three-months ended June 30, 2014, up $609,351 (36.2%) from $1,684,988 for the three-months ended June 30, 2013, and up $141,677 (6.6%) from $2,152,662 for the three-months ended March 31, 2014;
- Operating expenses were $2,753,935 for the three-months ended June 30, 2014, up $648,020 (30.8%) from $2,105,915 for the three-months ended June 30, 2013, and up $163,287 (6.3%) from $2,590,648 for the three-months ended March 31, 2014; and
- Included in cost of sales and operating expenses for the three-months ended June 30, 2014, June 30, 2013 and March 31, 2014 were certain one-time non-recurring expenditures, non-cash amortization of intangible assets and property plant and equipment, non-cash stock-based compensation expense and non-cash impairment to assets totaling $636,342, $326,714 and $318,136 respectively.
(1) During the three-months ended June 30, 2014, the Company incurred a one-time change in estimate of the Company's investment tax credits receivable, which transpired as a result of a review of the projects eligible for investment tax credits during the 2013 fiscal year. The change in estimate resulted in an increased one-time expenditure to the technology expense of $216,500 for the three- months ended June 30, 2014. The Company applied the $216,500 ratably to the 2013 quarters to calculate the Normalized EBITDA.
The Company's merchant base processed debit and credit card transactions totalling $251,091,345 ($1,004,365,380 on an annualized basis presuming processing volumes were consistent throughout fiscal 2014 with the Company's processing volumes realized for the three-months ended June 30, 2014) during the three-months ended June 30, 2014 compared to $145,205,386 for the three-months ended June 30, 2013 and $172,962,789 for the three-months ended March 31, 2014. As at June 30, 2014 the Zomaron has 2,711 active merchants which compares to 2,426 (an increase of 11.7%) and 1,689 (an increase of 60.5%) active merchants as at March 31, 2014 and June 30, 2013 respectively. The June 30, 2013 figures were prior to the date of acquisition of Zomaron by the Company. Due to seasonality between the first and second quarter and as a result of the focus of the Company to target higher volume customers, the average merchant amount processed by the Company's merchants increased to $92,619 for the three-months ended June 30, 2014 compared to $71,295 for the three-months ended March 31, 2014 $85,971 for the three-months ended June 30, 2013. The processing of debit and credit card transactions is somewhat seasonally and the three-months ended March 31st tends to be the slowest period during the year for transaction processing.
While the Company is in advanced discussions with a number of potential acquisition targets, none are specifically named at this time other than the previous June 18th 2014 announcement that the Company entered into a letter of intent to acquire Terminal Management Concepts Ltd. ("TMC") of Markham, Ontario. The terms of the potential transaction are not disclosed.
TMC provides wireless EMV chip and PIN "pay at the table" credit and debit card processing software and hardware solutions to Canadian merchants nationwide. Based in Markham, Ontario, TMC has deployed its payment software solutions through direct sales and strategic partnerships with the world's largest payment terminal manufacturers. TMC's solutions and services integrate directly with most of the leading restaurant point-of-sale ("POS") applications world-wide. Because TMC's middle-ware product is POS solution agnostic, payment processing relationships can be achieved regardless of the POS solution employed by a particular restaurant.
TMC has built "pay at the table" solutions that are used in over two thousand Canadian locations. This transaction would bolster the Company's strategy of providing integrated payment solutions to new merchants and existing clients that already utilize HDX products and services. TMC's products would also allow the HDX sales team the ability to achieve payment processing relationships with restaurants that currently use competitive POS solutions. TMC's software, in conjunction with HDX's intellectual property and services, would provide merchants with one-stop-shopping, one monthly payment, and one source for technical support of all of their retail technology solutions. TMC's business model supports HDX's ability to grow payment processing revenue, profitability, and TMC's recurring revenue model is very attractive to HDX.
TMC's solutions can be marketed and deployed in the United States where the requirement for "pay at the table" solutions is becoming a necessary part of restaurant operations due to the introduction of EMV chip and PIN requirements and the credit card / merchant liability shift due to take place in October of 2015.
The Company continues to pursue the opportunity to deploy "pay at the table" solutions with payment processing contracts in the United States and believes the opportunity is substantial. There are over 1.2 billion magnetic stripe cards in circulation, 15 million magnetic stripe POS terminals, and thousands of banking institutions managing electronic payments.
Theft of credit card account numbers and personal information through security breaches have resulted in an industry decision to employ EMV chip and PIN technology in the United States. Cardholder signatures are not a reliable method of identification and magnetic stripe data are easily copied, reproduced, and distributed as evidenced by hundreds of millions of consumer credit card accounts being compromised in recent history. As a result, the United States is now implementing EMV chip and PIN technology. Similar to previous jurisdictions, such as Canada in 2011, the liability for fraudulent transactions will shift to merchants that have not implemented Chip and PIN technology. Given the compressed timetable resulting from the October 2015 Liability Shift, merchants are seeking experienced organizations to implement EMV Chip and PIN.
HDX has developed and deployed POS software solutions at thousands of merchant locations in Europe and Canada and all of our software solutions have been EMV Chip and PIN enabled and certified for many years now. As a result, we believe we are well positioned to take advantage of the market opportunity presented in the United States.
Non-GAAP Reporting Measures:
Management reports on certain non-GAAP measures to evaluate performance of the Company. EBITDA is a measure commonly reported and widely used by investors as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric. While EBITDA has been disclosed herein to permit a more complete comparative analysis of the Company's operating performance and debt servicing ability relative to other companies, investors are cautioned that EBITDA as reported by HDX may not be comparable in all instances to EBITDA as reported by other companies. For definitions of Non-GAAP measures, refer to the Company's annual management discussion and analysis for the three and six-months ended June 30, 2014.
Additional information on HDX second quarter 2014 financial results will be available in the financial reports filed by the Company with Sedar at www.sedar.com.
About the Company
HDX is in the business of managing merchant transactions with consumers and facilitating payment. The company develops and deploys touch screen POS system software and associated enterprise management tools and has developed and deployed numerous POS applications. HDX also provides system hardware integration services, merchant staff training, system installation services, and post sale software and hardware support services.
HDX leading edge technology also includes prepaid stored value payments solutions, customer self serve kiosks and "line buster" mobile point of sale terminals. These products have been designed to dramatically enhance customer throughput and drastically reduce customer queues. These technologies are especially effective in high foot traffic environments that have limited cash register counter space, limited retail square footage, and the absence of a drive through.
Zomaron Inc., a division of HDX, founded in 2008, provides credit and debit card processing solutions to Canadian merchants nationwide. Based in London, Ontario, Zomaron has offices in Edmonton AB, Toronto ON, and Montreal QC. Through its nation-wide network of sales representatives and strategic partnerships, Zomaron has experienced rapid growth, doubling its sales annually. Zomaron's exponential growth led it to be ranked on PROFIT magazine's 13th and 14th annual PROFIT HOT 50 issues in October 2012 and 2013 respectively. Zomaron's solutions and services can also be marketed and deployed in the United States.
HDX develops, deploys, and supports a restaurant point-of-sale software known as "Maitre 'D" which has been deployed in over 20,000 locations worldwide in eight different languages. The Company sells and services its clients directly, as well as through a network of approximately 99 value added reseller partners in 25 countries with approximately 550 reseller representatives selling, supporting & installing its software. HDX employs approximately 140 people in offices in Toronto, London, Brantford, Mississauga, Seattle, Montreal, Glasgow (U.K.), Paris (France) and Singapore.
This discussion includes certain forward-looking statements that are based upon current expectations, which involve risks and uncertainties associated with our business and the environment in which the business operates. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "expect", "intend", and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not historical facts, but reflect HDX's current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under "Risks and Uncertainties" in the Annual Information Form to be filed on March 27th 2014 with the regulatory authorities. HDX assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward-looking statements.
SOURCE Posera-HDXFor further information: Paul K. Howell, Chief Executive Officer, Posera-HDX Ltd., 350 Bay Street, Suite 700, Toronto, Ontario M5H 2S6, (416) 703-6462 ext. 2263