CCN Cardconnect Corp.

CardConnect Corp. (NASDAQ:CCN) (“CardConnect”), one of the nation's leading payment processors, today provided financial results for the first quarter ended March 31, 2017.  Revenue increased 20.5% to $156.7 million as compared to $130.0 million in the prior year period.  Net revenue (a non-GAAP measure) increased 19.3% to $41.1 million as compared to $34.4 million in the prior year period.  Merchant Acquiring services revenue and net revenue were driven by record bankcard volume of $6.0 billion for the quarter ended March 31, 2017, a 22.8% increase from the prior year period.

Highlights for the first quarter of 2017 include:

• Bankcard volume of $6.0 billion, a 22.8% increase from $4.9 billion in the prior year period
• Revenue of $156.7 million, a 20.5% increase from $130.0 million in the prior year period
• Net revenue of $41.1 million, a 19.3% increase from $34.4 million in the prior year period 1
• Net loss of $1.6 million, and net loss of $0.09 per share
• Pro forma adjusted net income of $1.5 million, and pro forma adjusted net income per share of $0.05 1
• Adjusted EBITDA was $7.6 million, compared to $7.7 million in the prior year period 1

“Fiscal 2017 is off to a strong start.  Most importantly, organic bankcard volume grew a record 22.8% in the first quarter of 2017 compared to the prior year quarter,” said CardConnect President and CEO Jeff Shanahan. “Volume growth was again primarily driven by our unique value proposition in the integrated payments market where we offer software partners a unified payments platform delivered with best in class payment security.  As part of our 2017 strategy to invest for future growth, early in the second quarter, we acquired MertzCo, Inc., who was our largest value-added reseller.  We are thrilled to have someone with Michael Mertz’s track record of success leading our sales.  Additionally, we are executing on our organic growth plan, both in sales and technology.  We are also providing updated guidance for 2017 as a result of the MertzCo transaction.”

Full-Year 2017 Financial OutlookCardConnect is re-affirming its initial 2017 financial outlook and providing an updated financial outlook that reflects the transaction with MertzCo, Inc. completed on April 3, 2017.  Bankcard volume is expected to be $26.7 billion to $27.2 billion, representing an increase of 20% to 22% compared to 2016.  Revenue is expected to be $686 million to $700 million, representing an increase of 16% to 19% compared to 2016.  Net revenue is expected to be $182 million to $185 million, representing an increase of 16% to 18% compared to 2016.  Adjusted EBITDA, which includes $3 million of general and administrative expenses related to growth initiatives, is expected to be $45 million to $47 million, representing an increase of 18% to 23% compared to 2016.  The additional general and administrative expenses will support previously discussed initiatives in product development, direct sales, and marketing.

Earnings Conference Call and Audio Webcast CardConnect will host a conference call to discuss its first quarter 2017 financial results on Wednesday, May 10, 2017, at 8:30 a.m. ET.  You may participate by calling 844-358-9178 and providing the operator with Pin Number 16163169.  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.

Non-GAAP Financial MeasuresThis 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 CardConnectCardConnect (CCN) is a leading provider of payment processing and technology solutions, helping more than 67,000 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 StatementsThis 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.

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.

Schedule 1
CardConnect Corp.
Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share data)
	Three Months Ended March 31,								Change
		2017				2016			Amount				%
Revenue	$	156,651			$	130,009			$	26,642			20.5	%
Cost of services (exclusive of depreciation and
amortization shown separately below):
Interchange and pass-through		115,565				95,575				19,990			20.9	%
Other cost of services		24,861				20,246				4,615			22.8	%
Total cost of services		140,426				115,821				24,605			21.2	%
General and administrative		10,689				7,140				3,549			49.7	%
Depreciation		445				422				23			5.6	%
Amortization of intangibles		4,333				5,159				(826	)		(16.0	)%
Total expenses		155,893				128,542				27,352			21.3	%
Income from operations		758				1,468				(710	)		(48.4	)%
Other expense:
Interest expense, net		(2,460	)			(426	)			(2,034	)		477.3	%
Other, net		(72	)			(45	)			(27	)		60.6	%
Total other expense		(2,532	)			(471	)			(2,061	)		437.6	%
(Loss) income before income tax provision		(1,774	)			997				(2,771	)		(278.0	)%
Benefit (provision) for income taxes		200				(74	)			274			(371.3	)%
Net (loss) income	$	(1,574	)		$	923			$	(2,497	)		(270.6	)%
Dividends on preferred stock		(1,072	)			-				(1,072	)		na
Net (loss) income available for common shareholders		(2,647	)			923				(3,570	)		(386.7	)%
(Loss) earnings per share:
Basic	$	(0.09	)		$	0.06			$	(0.15	)		(250.0	)%
Diluted	$	(0.09	)		$	0.05			$	(0.14	)		(280.0	)%
Weighted-average common shares outstanding:
Basic		29,124,399				15,151,872				13,972,527			92.2	%
Diluted		29,124,399				17,080,614				12,043,785			70.5	%

Schedule 2
CardConnect Corp.
Consolidated Balance Sheets
($ in thousands)
	March 31,				December 31,
		2017				2016
	(Unaudited)				(Audited)
Assets
Current assets:
Cash and cash equivalents	$	11,459			$	9,385
Restricted cash		5,659				5,749
Accounts receivable		20,636				26,028
Processing assets		14,230				12,905
Other receivables		1,850				2,045
Related-party receivables		79				90
Prepaid income taxes		2,962				2,753
Other prepaid expenses		1,790				1,259
Other current assets		2,495				2,462
Total current assets		61,157				62,677
Property and equipment, net		6,477				5,591
Other assets:
Long-term restricted cash		1,208				2,146
Long-term related-party receivables		225				225
Long-term other receivables		257				266
Goodwill		40,241				40,241
Intangible assets, net		58,450				56,016
Long-term other assets		789				687
Total assets	$	168,805			$	167,849
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	6,281			$	3,551
Residuals payable		6,515				7,510
Processing liabilities		16,134				14,901
Settlement obligation		2,337				2,567
Accrued expenses		2,369				3,449
Current portion of LT debt		4,250				4,250
Deferred revenue		1,977				1,736
Total current liabilities		39,862				37,964
Long-term liabilities:
Accrued expenses		1,761				1,834
Long-term debt		127,968				128,181
Deferred tax liability		2,577				2,577
Total long-term liabilities		132,305				132,591
Total liabilities		172,167				170,555
CardConnect Corp. Redeemable Series A Preferred Stock		37,294				37,159
Stockholders’ deficit
Common stock		29				29
Additional paid-in capital		3,946				3,163
Accumulated deficit		(44,632	)			(43,058	)
Total stockholders’ deficit		(40,656	)			(39,866	)
Total liabilities and stockholders’ deficit	$	168,805			$	167,849

Schedule 3
CardConnect Corp.
Consolidated Statement of Cash Flows
(Unaudited)
($ in thousands)
	Three Months Ended March 31,
		2017				2016
Operating Activities
Net (loss) income	$	(1,574	)		$	923
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		4,779				5,581
Stock-based compensation expense		1,337				458
Relocation loan forgiveness		11				17
Agent Advance Forgiveness		20				-
Other		26				-
Amortization of debt issuance costs		287				-
Changes in operating assets and liabilities:
Restricted cash		90				119
Accounts receivable		5,393				306
Processing assets		(1,325	)			230
Other receivables		72				(376	)
Other prepaid expenses		(530	)			(303	)
Other assets		(134	)			71
Accounts payable		2,730				167
Residuals payable		(995	)			(128	)
Processing liabilities		1,233				(348	)
Prepaid income taxes		(209	)			(96	)
Accrued expenses		(1,153	)			(1,089	)
Deferred revenue		241				(65	)
Net cash provided by operating activities		10,297				5,468
Investing Activities
Change ISO advances		87				151
Purchases of property and equipment		(1,331	)			(342	)
Purchases of merchant portfolios and residual buyouts		(547	)			(2,298	)
Payment to amend merchant program processing agreement		(4,500	)			-
Additions to internally developed software		(1,721	)			(715	)
Net cash used in investing activities		(8,012	)			(3,204	)
Financing activities
Release of deposits held in escrow		938				-
Net change in settlement obligation		(230	)			279
Payments on long-term debt		(500	)			(2,000	)
Payment of preferred stock dividend		(938	)			-
Proceeds from stock options exercised		519				145
Net cash used in financing activities		(211	)			(1,576	)
Net increase in cash and cash equivalents		2,073				688
Cash and cash equivalents at beginning of year		9,385				3,575
Cash and cash equivalents at end of year	$	11,459			$	4,263

Schedule 4
CardConnect Corp.
Reconciliation of GAAP Revenue to Net Revenue
(Unaudited)
($ in thousands)
	Three Months Ended March 31,						Change
		2017			2016		Amount			%
Revenue	$	156,651		$	130,009		$	26,642		20.5	%
Non-GAAP Adjustments:
Interchange and pass-through (1)		115,565			95,575			19,990		20.9	%
Net Revenue	$	41,086		$	34,434		$	6,652		19.3	%

Non-GAAP Financial MeasuresThis 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 5
CardConnect Corp.
Reconciliation of GAAP Net Income to Adjusted EBITDA
(Unaudited)
($ in thousands)
	Three Months Ended March 31,							Change
		2017				2016		Amount				%
Net (loss) Income	$	(1,574	)		$	923		$	(2,497	)		(270.6	)%
Non-GAAP Adjustments:
Interest expense, net		2,460				426			2,034			477.3	%
Depreciation and amortization		4,779				5,581			(802	)		(14.4	)%
Taxes (1)		(131	)			119			(249	)		(210.3	)%
EBITDA		5,533				7,049			(1,515	)		(21.5	)%
Share-based compensation		1,337				458			879			191.9	%
Non-operating expenses		-				-			-			na
Transition, acquisition and integration costs (2)		741				234			507			216.7	%
Adjusted EBITDA	$	7,611			$	7,741		$	(130	)		(1.7	)%

Non-GAAP Financial MeasuresThis 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)  Represents acquisition and integration costs incurred in the connection with our acquisitions, charges related to employee termination benefits and other transition activities.

Schedule 6
CardConnect Corp.
Reconciliation of Net (Loss) Income to Pro Forma Adjusted Net Income
(Unaudited)
($ in thousands)
	Three Months Ended March 31,								Change
		2017				2016			Amount				%
Net (loss) Income	$	(1,574	)		$	923			$	(2,497	)		(270.6	)%
Benefit (provision) for income taxes		200				(74	)			274			(371.3	)%
(Loss) income before income tax provision		(1,774	)			997				(2,771	)		(278.0	)%
Non-GAAP Adjustments:
Non-operating expenses		-				-				-			na
Transition, acquisition and integration costs (1)		741				234				507			216.7	%
Share-based compensation		1,337				458				879			191.9	%
Intangible amortization (2)		2,125				2,969				(844	)		(28.4	)%
Non-GAAP income before income tax provision		2,428				4,657				(2,229	)		(47.9	)%
Non-GAAP Pro Forma Adjustments:
Pro Forma Provision for income taxes (3)		(902	)			(1,725	)			823			(47.7	)%
Pro Forma Adjusted Net Income		1,526				2,932				(1,406	)		(48.0	)%
Pro Forma common shares outstanding (4)		33,371,521				33,371,521				-			0.0	%
Pro Forma Adjusted Net Income per share	$	0.05			$	0.09			$	(0.04	)		(48.0	)%

Non-GAAP and Pro Forma Financial MeasuresThis 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)  Represents acquisition and integration costs incurred in the connection with our acquisitions, charges related to employee termination benefits and other transition activities.

(2)  Represents amortization expenses related to finite-lived intangible assets recorded in connection with our acquisitions.

(3)  Represents pro forma adjusted income tax expense to reflect an effective tax rate of 37.2% for 2017 and 37.0% for 2016.

(4)  Includes 4,206,157 shares outstanding assuming the exercise of “in the money” options and warrants, assuming a quarter-end stock price of $13.20

Schedule 7
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	$	686	-	$	700		$	589		16	%	-	19	%
Non-GAAP Adjustments:
Interchange and pass-through (1)		504	-		515			433		17	%	-	19	%
Net Revenue	$	182	-	$	185		$	157		16	%	-	18	%
Adjusted EBITDA (2)	$	45	-	$	47		$	38		18	%	-	23	%

Non-GAAP Financial MeasuresThis 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.

Contact:

Joe Hassett
Gregory FCA Communications
27 West Athens Ave.
Ardmore, PA 19003
Tel: 610-228-2110
Email: joeh@gregoryfca.com