2008 Investor Presentation


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  • Refinancing in 2006
  • Please clarify in plain English why 50 million from GE equals 35 million in sources please provide a simple example of the metrics for all to understand Update the Dymas term sheet with WCC Provide a separate page with the metrics for all lenders to insure there are no conflicts. For example Dymas is using gross profit metrics and GE is using EBITDA metrics (see next slide) What are the diligence updates and risks that we may not close
  • 2008 Investor Presentation

    1. 1. Pipeline Data Inc. Annual Shareholder Meeting May 22, 2008
    2. 2. Investor Disclaimer <ul><li>The information provided for in this investor presentation contains forward-looking statements that involve risks and uncertainties more fully set forth in the Company's filing. Certain information included in this presentation may contain statements that are forward-looking, such as statements relating to uncertainties that could affect performance and results of the Company in the future and, accordingly, such performance and results may materially differ from those expressed or implied in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to those relating to the Company's growth strategy, customer concentration, outstanding indebtedness, seasonality, expansion and other activities of competitors, changes in federal or state laws and the administration of such laws, protection of the securities markets and other risks detailed in the Company's filings with the Securities and Exchange Commission. </li></ul><ul><li>Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company's actual results could differ significantly from those discussed and/or implied herein. </li></ul>
    3. 3. Company Profile Pipeline Data Inc. (PPDA) is a value-added provider of merchant payment processing services and other related software products. The Company currently delivers credit and debit card-based payment processing and related services to small to medium-sized merchants who operate either in a physical “brick and mortar” business environment or over the Internet. Pipeline’s payment processing services enable merchants to process both traditional card-present, or “swipe” transactions, as well as card not-present transactions. For more information please visit www. pipelinedata .com.   Credit Card Processing and Merchant Accounts
    4. 4. <ul><li>Northern Merchant Services, Inc. </li></ul><ul><li> Bank referral division representing 54 banks, comprising 420 bank branch </li></ul><ul><li> locations, along with 48 credit unions </li></ul><ul><li>SecurePay, Inc. </li></ul><ul><li> Custom credit card transaction processor serving as a gateway </li></ul><ul><li> intermediary between the customer and the financial networks, integrating </li></ul><ul><li> shopping cart, gateway and custom third-party solutions </li></ul><ul><li>Pipeline Data Processing, Inc. </li></ul><ul><li> Provider of wholesale payment processing solutions, new account </li></ul><ul><li> boarding, underwriting and risk management </li></ul><ul><li>Charge.Com, Inc. </li></ul><ul><li>Internet industry leader in merchant account acquiring and marketing </li></ul><ul><li>AIRCHARGE ®, Inc. </li></ul><ul><li>Provider of cellular phone-based credit card acceptance solutions for mobile business merchants </li></ul><ul><li>Cardaccept, Inc. </li></ul><ul><li>Inbound telemarketing and Web presence for marketing of Internet solutions </li></ul>Pipeline Companies
    5. 5. Industry overview <ul><li>The use of non-cash forms of payment, such as credit and debit cards, has steadily increased over the past ten years. </li></ul><ul><li>The Nilson Report, a leading industry publication that tracks the transaction processing industry, is forecasting the following: </li></ul><ul><ul><li>Global purchase volume grew at a compound annual growth of 14.0% over the period 2000-2006 </li></ul></ul><ul><li>Additional forecasts estimate that purchase volume by U.S. consumers using Visa credit cards will increase 63% from 2003 through 2008, while MasterCard usage is projected to increase by 46% during the same period. </li></ul><ul><li>The Internet marketplace is growing at a rate of 20% annually. </li></ul><ul><li>Pipeline is poised to capitalize on this rapid growth. </li></ul>
    6. 6. Large and Growing Market Electronic 36% Electronic 51% Electronic 72% Traditional 64% Traditional 49% Traditional 28% 2000 2005 2010 5.3 trillion transactions 6.7 trillion transactions 8.2 trillion transactions Merchants locations accepting credit cards continue to grow * First Annapolis Consulting Inc. CAGR > 10 %
    7. 7. Large and Growing Market <ul><li>Pipeline Data focuses exclusively on the 5 million small merchants that generate $422 billion in Visa / MasterCard charge volume </li></ul>Small merchants represent a large market opportunity <ul><li>Small merchants represent an attractive customer base </li></ul><ul><ul><li>Largest market </li></ul></ul><ul><ul><li>Fastest growing market </li></ul></ul><ul><ul><li>Difficult to identify and serve – less competition </li></ul></ul><ul><ul><li>Most profitable to merchant processors </li></ul></ul>$2.202 trillion * The Nilson Report
    8. 8. Stable and Recurring Revenue Base <ul><li>Processing fees paid by merchant are recurring in nature </li></ul><ul><li>Credit card processing is vital to a merchant’s success </li></ul><ul><li>Approximately 88% of Pipeline Data’s volume recurs </li></ul>
    9. 9. MasterCard Visa MasterCard and Visa IPOs 12 months 2 months
    10. 10. Efficient Model <ul><li>Pipeline enjoys low costs related to account acquisition </li></ul><ul><li>through the Internet and strategic partners </li></ul><ul><li>Pipeline generates leads from potential merchants via the Internet. </li></ul><ul><li>The Company also obtains leads via call generation and other marketing media. </li></ul><ul><li>Pipeline owns a sophisticated call center that enables quick turnaround. Merchants can be activated for card acceptance within 24 hours. </li></ul><ul><li>Pipeline Data has favorable search engine positioning through its proprietary optimization tools. </li></ul><ul><li>Optimal positioning places the Company in prime viewing area for potential customers who search via the Internet. </li></ul><ul><li>A high barrier to entry gives Pipeline Data a significant cost advantage over its competitors. </li></ul>
    11. 11. Organic Growth Strategy <ul><li>Management seeks to aggressively grow the number of merchant accounts serviced through the solicitation of new merchant accounts. </li></ul><ul><li>The Pipeline sales team intends to expand the portfolio of merchant clients through internal sales efforts augmented by expanding marketing and advertising. Management focused on aligning marketing, sales capacity and sales incentives in a cost-effective sales cycle. </li></ul><ul><li>The Company aims to achieve greater business efficiencies by creating, operating and continually enhancing processing and servicing operations in an efficient and scalable manner. </li></ul><ul><li>The Company’s service and support platforms are completely flexible, enabling merchant customization to meet the their specific requirements. </li></ul>
    12. 12. Application Growth Application Count by Month (Trailing 15 months)
    13. 13. <ul><li>Financial Overview </li></ul>
    14. 14. Financial Overview ($,000) <ul><li>2007 </li></ul><ul><ul><li>Revenue of $49,903 up 19 % from $41,814 in 2006 </li></ul></ul><ul><ul><li>Gross Profit of $17,716 up from $14,926 for 2006 </li></ul></ul><ul><ul><li>EBITDA of $5,765 compared to $3,392 for 2006 </li></ul></ul><ul><ul><li>Adjusted EBITDA of $6,389 compared to $6,339 for 2006 </li></ul></ul><ul><ul><li>Net Income (loss) of $(1,970) compared to $(2,286) for 2006 </li></ul></ul><ul><li>1 st Quarter 2008 </li></ul><ul><ul><li>Revenue of $11,410 down 3.8% compared to 1Q2007 </li></ul></ul><ul><ul><li>Gross Profit of $4,306 up 10.2% from $3,908 for 1Q2007 </li></ul></ul><ul><ul><li>EBITDA of $888 compared to $1,148 for 1Q2007 </li></ul></ul><ul><ul><li>Adjusted EBITDA of $953 compared to $1,256 for 1Q2007 </li></ul></ul><ul><ul><li>Net Income (loss) of $(1,161) compared to $(1,098) for 1Q2007 </li></ul></ul>
    15. 15. Annual Financial Results
    16. 17. Financial Results – Year End Comparative Balance Sheets
    17. 18. Financial Results-Cash Flows Selected Data
    18. 19. 1st Quarter Financial Results
    19. 20. Financial Results – Year End and March 31 Balance Sheets
    20. 21. Financial Results-Cash Flows Selected Data
    21. 22. COCARD TRANSACTION Details behind Merger
    22. 23. OPPORTUNITY <ul><li>Combine Pipeline and COCARD together at an estimated 6.5X pro forma EBITDA </li></ul><ul><li>Historically this is between 1-2X the EBITDA multiples of most comparable trading values and represents a 40-50% discount to the average sale and going private multiples over the last several years. </li></ul><ul><ul><li>Take advantage of a unique opportunity to incorporate Pipeline’s excess processing capacity and extremely attractive pricing into COCARD </li></ul></ul><ul><ul><li>Plug the COCARD sales engine into the Pipeline processing machine to increase the reach of Pipeline beyond the Internet marketing engine it has developed </li></ul></ul><ul><ul><li>Repurchase ownership of the main portfolio at NPC and use it to increase cash flow and drive down costs </li></ul></ul><ul><li>Combining the processing volumes of the two companies will drive transactional pricing down through the Fidelity National Information Services contract previously negotiated. </li></ul>Pipeline
    23. 24. Highly Complementary <ul><li>Both Pipeline and COCARD are companies involved in the processing of credit and debit card transactions and related services. Each has a unique and complementary approach to the merchant service processing (“MSP”) business. </li></ul><ul><ul><li>Pipeline is a leader in boarding and servicing e-commerce merchants. Its primary distribution channel is through its Internet marketing initiatives. </li></ul></ul><ul><li>COCARD is a leading marketing organization whose distribution channel is independent sales offices that focus primarily on retail merchant sales. </li></ul><ul><ul><li>COCARD produces between 650 and 800 new merchant accounts each month. </li></ul></ul><ul><ul><li>COCARD is comprised of over 71 sales offices (as of December 31, 2007). </li></ul></ul><ul><li>Pipeline’s risk, underwriting and customer service departments will be utilized for new COCARD merchants, as well as the approximately 27,000 existing merchants that will be converted to the preferential pricing provided by the combined volumes of the two entities. </li></ul><ul><li>Pipeline will process and support the merchant base derived from the sales efforts of all of its combined entities, including COCARD and all of its sales offices and agents. </li></ul>
    24. 25. Operational Efficiencies <ul><li>Pipeline would have processed over 75 million transactions and $5.1 billion in transaction volume per year on a pro forma basis for 2007. </li></ul><ul><li>Pipeline is qualified to provide direct-connect card association authorizations, which will magnify the Company’s already significant processing capability. </li></ul><ul><li>COCARD’s business will flow through Pipeline’s access points, providing significant leverage with the Company’s transaction settlement providers. </li></ul><ul><li>Pipeline has already achieved significant price discounts from its settlement providers. By combining the volume of Pipeline and COCARD, the Company has the ability to achieve additional discounts from these providers. </li></ul>
    25. 26. Roles and Capabilities Acquiring has a fairly complex value chain which gives rise to a number of different business models and types of players in the market. Sales & Marketing Underwriting & Boarding Deployment & Activation MARKETING & ACCOUNT SETUP BACK-OFFICE SUPPORT TRANSACTION PROCESSING Merchant Services Value Chain & Business Models Front-end Processing Operations/ Risk Mgmt Merchant Servicing Relationship Mgmt Product Dev. & Mgmt Back-end Processing Network / Clearing Fully Integrated Large Bank Acquirer (example: Fifth Third) <ul><ul><ul><li>Fully Integrated Non-Bank Acquirers (example: Global Payments) </li></ul></ul></ul>Bank – non-Bank Alliance (ex. First Data, Wells Fargo Merchant Services) Sponsor Bank Bank Regional Bank Acquirer (ex. Commerce Bank) 3 rd Party Processor More Sophisticated ISO (ex. iPayment) 3 rd Party Processor (ex. TSYS) 3 rd Party Processor Less Sophisticated ISO (or Small Referral Bank) Pipeline YES YES YES NO 2Q’08 NO 1Q’08 YES YES Limited COCARD YES NO NO NO NO NO NO NO NO YES
    26. 27. Actual Results 2007, Pro forma and Baseline Projections 2008 Consolidated Pipeline/COCARD Financials
    27. 28. Current Debt Funding Term Sheets <ul><li>$50 million from a major financial institution at a cost of L+450 (8%) </li></ul><ul><ul><li>$5 million from draw on revolving credit </li></ul></ul><ul><ul><ul><li>further availability limited to $7 million until credit metrics are achieved: either 1.5x EBITDA or 2x Gross Profit </li></ul></ul></ul><ul><ul><li>$25 million term loan, 5 year maturity </li></ul></ul><ul><li>$40 million from an institutional lending source at 13.5% </li></ul><ul><ul><li>No amortization, 5.5 year maturity </li></ul></ul><ul><ul><li>Repayable at 105% year 1, 103% year 2 </li></ul></ul><ul><li>$11+ million in 12% seller’s financing notes from COCARD and other parties to the transaction </li></ul>05/12/10 2
    28. 29. REVOLVING CREDIT AVAILABILITY <ul><li>VS 1.5X LTM trailing EBITDA. </li></ul><ul><ul><li>Example- Estimated LTM EBITDA at close will be $24 million in adjusted pro forma EBITDA </li></ul></ul><ul><ul><li>Availability would be 1.5X $24 million=$36 million plus reimbursement of $2 million in cash expenses already paid plus $500,000 estimated cash on hand </li></ul></ul><ul><li>Thus, availability= $36m+$2m+$500,000= $38.5 million </li></ul><ul><li>Funding available to support the transaction= $38.5m-$10.00m in working capital=$28.5 million </li></ul>05/12/10 2
    29. 30. Comp Loan Metrics and Key Terms 05/12/10 2 1 st Lien LENDER 2 nd Lien 2 nd Lien Term EBITDA GROSS PROFIT EBITDA GROSS PROFIT Revolver Availability 1.5x less Funded 1 st Lien Debt TOTAL SENIOR 3.25X LTM EBITDA 2.0x TOTAL DEBT 5X LTM EBITDA 4.4x INTEREST RATE 4%+ 450 bps or 400bps less than 2nd =8.5% =9.5% 4%+950bps =13.5%
    30. 31. Estimated Capital Structure Pro forma 05/12/10 CONFIDENTIAL: BLUMBERG INVESTMENTS CAPITAL STRUCTURE AVAILABLE WORKING CAPITAL 10,000,000 REVOLVER 8.50% 5,000,000 TERM LOAN 8.50% 25,000,000 2 nd Lien TERM LOAN 13.50% 40,000,000 TOTAL SELLER’S NOTES 12.00% 20,000,000 TOTAL DEBT $90,000,000 PREFERRED EQUITY 16.00% 50,000,000 TOTAL CASH INTEREST $10,175,000 TOTAL INTEREST EXPENSE $18,975,000 DEBT/EBITDA (LTM est q2 $25.5) 3.39X DEBT AND PFD/EBITDA 5.47X EBITDA/CASH INTEREST 2.60X EBITDA/TOTAL INTEREST 1.39X
    31. 32. Estimated Cash Flow and Potential Debt Amortization Pro forma (low end case ‘09) 05/12/10 CONFIDENTIAL: BLUMBERG INVESTMENTS CASH FLOW NET INCOME $(6,520,000) DEPRECIATION & NON- CASH $16,030,000 NON- CASH INTEREST 8,800,000 WORKING CAPITAL NEEDS $(1,500,000) CAPEX $(750,000) NET FREE CASH FLOW FROM OPS. $16,060,000 MANDATORY TERM DEBT PAYMENTS $(5,000,000) NET ESTIMATED FREE CASH FLOW FOR ADDITIONAL DEBT PAYMENTS $11,060,000
    32. 33. Total Estimated Sources and Uses 05/12/10 2 USES NEEDED SOURCES FUNDING Convertible Bond Redemption $42,550,000 Senior Secured 1 st Lien $30,000,000 COCARD Purchase $79,100,000 Senior Secured 2 nd Lien $40,000,000 Temporary Equity $14,385,000 COCARD Loan $11,000,000 Other $465,000 Deferral of fees by BI $1,500,000 Fees & Expenses $6,000,000 TOTAL EST. USES $142,500,000 TOTAL ESTIMATED NEED $60,000,000
    33. 34. Rationalization <ul><li>The combination of Pipeline and COCARD brings an opportunity to rationalize the operating structures of both companies. </li></ul><ul><li>Pipeline possesses a significant Internet service, as well as a back office and information technology structure capable of servicing the combined companies. </li></ul><ul><li>As a cooperative, COCARD did not build its own infrastructure. Instead, it entered into an agreement with National Processing Company (“NPC”) for the back-end settlement of transactions. Under the terms of the agreement, each ISO provides its own services and is responsible for its own selling, general and administrative expenses . </li></ul>
    34. 35. Significant Growth Drivers <ul><li>Proprietary advantages and sales engines </li></ul><ul><ul><li>Top-tier search engine placement </li></ul></ul><ul><ul><li>Advanced underwriting and application processing technology </li></ul></ul><ul><ul><li>Proprietary gateway and shopping cart solutions </li></ul></ul><ul><ul><li>Proprietary wireless payment solutions </li></ul></ul><ul><li>Acquisitions </li></ul><ul><ul><li>Highly fragmented merchant portfolio market in e-commerce and retail </li></ul></ul><ul><ul><li>Consolidating market with diminishing number of purchasers of small-to-medium portfolios </li></ul></ul><ul><li>Operating model leverage </li></ul><ul><ul><li>Increased transactional volume and growing merchant base improves Pipeline’s ability to effectively negotiate advantageous processing contracts </li></ul></ul><ul><ul><li>Proven model to improve portfolio margins after acquisition and alleviate attrition </li></ul></ul><ul><ul><li>Highly scalable model </li></ul></ul>
    35. 36. Experienced and Vested Management Team <ul><li>Experienced and Vested Management Team </li></ul><ul><li>The Company’s combined management team has more than 150 years of industry experience. </li></ul><ul><li>Management team members average 16 years of experience each. </li></ul><ul><li>Management’s solid industry underpinnings and business know-how is unique in that its breadth spans almost every major processor and processing system in the credit card industry today. </li></ul><ul><li>Management is deeply vested in the industry as evidenced by its combined 50 plus years of service on industry association boards and committees. </li></ul>
    36. 37. Experienced integration execution
    37. 38. Investment Highlights <ul><li>Emerging Growth Company in Large and Growing Market </li></ul><ul><li>Strong and Broad Operating Platform </li></ul><ul><li>Significant Growth Drivers </li></ul><ul><li>Strategic Partnerships </li></ul><ul><li>Stable and Recurring Revenue Base </li></ul><ul><li>Cash-efficient Model </li></ul><ul><li>Strong, Committed Management Team </li></ul>
    38. 39. Contact Us <ul><li>Pipeline Data Inc. </li></ul><ul><li>(OTCBB: PPDA) </li></ul><ul><li>1515 Hancock Street, Suite 301 </li></ul><ul><li>Quincy, MA 02169 </li></ul><ul><li>Phone: 617-405-2600 </li></ul><ul><li>Fax: 617-405-2619 </li></ul><ul><li>Web site: www. pipelinedata .com </li></ul><ul><li>For more information: </li></ul><ul><li>ceo @ pipelinedata .com </li></ul>
    39. 40. Management <ul><li>MacAllister Smith, President,Chief Executive Officer and Director – Mr. Smith has served as Pipeline Data’s president and CEO since March 2002. He has over fifteen years of experience in the merchant processing industry and has held ownership positions in three companies that have been merged with public corporations. Mr. Smith was most recently regional vice president of Elavon, formerly Nova Information Systems (acquired by U.S. Bank (NYSE:USB)), a multi-billion dollar corporation and one of the three largest credit card processors in the industry. He was president and CEO of Pinnacle Financial Technologies, Inc., a nationally recognized firm and a pioneer in electronic benefits transfer programs. Pinnacle Financial Technologies, Inc. merged with Nova Information Systems in 1998. Mr. Smith was also co-founder and senior partner of AccesServices, Inc. (“AccesServices”). He was part of the team that designed and built a nationwide network processing switch for retail and online MasterCard, Visa, American Express and debit card transactions. AccesServices was sold to Digital Courier Technologies, Inc. (NASDAQ:DCTI) in 1999. </li></ul><ul><li>Don Gruneisen, Chief Financial Officer – Mr. Gruneisen has over 20 years of experience in the volatile, high-growth telecommunications industry, with expertise in the areas of finance, management, accounting and top executive corporate management. Mr. Gruneisen holds an MBA from Clarkson University in Accounting and Management Information Systems and is a Certified Public Accountant with twelve years experience as a corporate officer (including serving in positions of chief executive officer/general manager). He has been the Treasurer and Director of Finance of NMSI since July 2001. From June 2000 to July 2001, Mr. Gruneisen was a consultant providing strategic guidance with specialization in billing, accounting, and tax issues associated with the telecommunications industry and financial management. From January 1999 to June 2000, he was a senior accountant at Whalen, Davey & Looney, and LLP. From 1977 to 1998, he worked for Nicholville Telephone Company, a $3.5 million ESOP-owned local exchange carrier/utility. He started with the company in 1977 as an accountant and accounting manager and ultimately became Chief Executive Officer. </li></ul><ul><li>Kevin Smith, Chief Operating Officer – Mr. Smith has served as Pipeline Data’s chief operating officer since May 2004, and as the president and director of Pipeline Data subsidiary, Pipeline Data Processing. He has over 14 years of experience in the merchant processing industry. Mr. Smith was employed by Concord EFS (acquired by First Data (NYSE:FDC)) from 1998 to 2004, serving as its senior vice president of ISO Sales and as COO of Concord Payment Systems, a wholly owned subsidiary of Concord EFS. Mr. Smith was responsible for the wholesale credit card processing division, which included all aspects of operations and sales. Prior to that, he served as operations director for Bancard Systems.   </li></ul>
    40. 41. Management <ul><li>Thomas Tesmer, Chief Technology Officer – Mr. Tesmer has served as Pipeline Data’s chief technology officer since July 2004. Mr. Tesmer is an experienced senior operations executive with more than 25 years in the transaction processing business. Prior to joining Pipeline, he was the president of Symmetrex, Inc., a processing company supporting third-party clients that operated stored value card programs in the United States and foreign markets. Mr. Tesmer was the executive vice president of Front End Systems for Heartland Payment Systems (NYSE: HPY), one the nation’s largest merchant processing companies. He served as president and chief executive officer of Access Services, Inc. (“AccesServices”), a credit card payment processing corporation servicing merchant sales agencies and financial institutions nationwide. Mr. Tesmer is also the chairman of the board of Q Comm International, Inc. (Amex:QMM). </li></ul><ul><li>Jack Rubinstein, Chairman – Mr. Rubinstein has served as Pipeline Data’s chairman since the Company’s inception. He has been the general partner of DICA Partners, an investment hedge fund, since the commencement of its operations in 1991. Mr. Rubinstein also acts as a management and financial consultant to various public companies in the telecommunications industry. He was a founding public board member of CD Radio, Inc. (Sirius Satellite Radio (NASDAQ:SIRI)) and aided in the funding of the Molloy Group, a help desk software developer. Mr. Rubinstein is also a founding member of The Capital Advisory Services, a consortium of consultants aiding the capital market needs of emerging private and smaller public companies. Mr. Rubinstein has been a securities analyst with Shearson Hammill & Co., and was employed at Bear Stearns & Co. where he was a director, managing the proceeds of corporate insider securities sales. Prior to Bear Stearns, Mr. Rubinstein joined Morgan Stanley & Co. where, in addition to serving corporate officers and select individual clients, he provided his expertise to private investment partnerships. Mr. Rubinstein is a graduate of Cornell University and received an MBA in Finance from New York University. </li></ul><ul><li>James Plappert, Chief Marketing Officer – Mr. Plappert has served as Pipeline Data’s chief marketing officer since October 2005. Mr. Plappert is a seasoned executive with over 24 years experience in the payment systems and merchant bankcard industry. He has held a number of executive level positions in prominent companies including National Processing Company [NPC], PNC Bank and First National Processing acquired by iPayment Holdings in 2001. He also served as executive vice president M&A of First American Payment Systems from January 2002 to April 2003 culminating in a private equity transaction with Lindsay, Goldberg and Bessemer. He co-founded ACH Payment Solutions Inc. in 2002 where he remains a director. Additionally, for over eleven years, Mr. Plappert held a number of executive level board positions, including president, with the Electronic Transaction Association (ETA), the leading international trade association in the merchant processing industry. </li></ul>