Pipeline Data Inc. Secure, Affordable Payment Solutions

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Pipeline Data Inc. Secure, Affordable Payment Solutions

  1. 1. Pipeline Data Inc. Secure, Affordable Payment Solutions (OTC BB: PPDA) September 2007
  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 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 for Merchant Accounts
  4. 4. <ul><li>Northern Merchant Services, Inc. </li></ul><ul><li> Bank referral division representing over 50 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>Industry leader in Internet 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 merchants </li></ul><ul><li>Cardaccept, Inc. </li></ul><ul><li>Inbound telemarketing and Web presence for marketing of Internet payment solutions </li></ul>Pipeline Companies
  5. 5. How it Works
  6. 6. Pipeline Data Economics of a Credit Card Transaction On a typical $100.00 retail and e-commerce credit card purchase, Pipeline recognizes $2.14 and $2.65, respectively, in gross revenue and $0.54 and $1.01, respectively, in processing margin. Pipeline has an opportunity to generate more income via e-commerce accounts as they are more likely to procure value- added services. Retail E-Commerce
  7. 7. Market Growth <ul><li>The use of non-cash forms of payment, such as credit and debit cards, has steadily increased over the past 10 years </li></ul><ul><li>The Nilson Report, the leading industry publication that tracks the transaction processing industry, is forecasting the following: </li></ul><ul><ul><li>Purchase volume by U.S. consumers using credit cards will grow from $1.89 trillion in 2003 to $2.81 trillion in 2008 (8% CAGR) </li></ul></ul><ul><ul><li>Credit cards will comprise 47.7% of all transactions by 2009, up from 38.8% in 2004 </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>
  8. 8. Large and Growing Market Merchants accepting credit cards continue to grow Traditional Payments 82% Traditional Payments 54% Traditional Payments 39%
  9. 9. Large and Growing Market <ul><li>There are an estimated 23 million businesses in the United States </li></ul><ul><ul><li>Only 27% accept card-based payment </li></ul></ul><ul><ul><li>50,000 – 100,000 small merchants begin accepting credit cards every month </li></ul></ul><ul><ul><li>80% of activations come from new businesses </li></ul></ul><ul><ul><li>An estimated 580,000 new small businesses open every year in the U.S. </li></ul></ul>The small merchant market represents a significant growth opportunity *The Nilson Report Businesses Accepting Credit Cards
  10. 10. 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>
  11. 11. Recurring Revenue Model <ul><li>High recurring revenue </li></ul><ul><li>Processing fees paid by merchants are recurring in nature </li></ul><ul><ul><li>Smaller merchants typically do not focus on processing fee once initial buying decision is made </li></ul></ul><ul><ul><li>Credit card processing is vital to a merchant’s success </li></ul></ul><ul><li>Significant visibility due to higher merchant volume retention </li></ul><ul><ul><li>Approximately 88% of card processing revenue recurs every year </li></ul></ul><ul><ul><li>Numerous opportunities to grow merchant volume </li></ul></ul>Loss Volume 12% Recurring Volume 88%
  12. 12. Portfolio Valuation <ul><li>There is a well-established and liquid market for merchant portfolios </li></ul><ul><li>The average multiple of EBITDA paid was 3.69 times in 2005 and 2006 </li></ul><ul><li>First Annapolis appraised merchant portfolio alone at $60 million in December 2005 </li></ul>
  13. 13. 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 Data: </li></ul><ul><li>Generates leads from potential merchants via the Internet </li></ul><ul><li>Obtains leads via call generation and other marketing media </li></ul><ul><li>Owns a sophisticated call center that enables quick turnaround; merchants can be activated for card acceptance within 24 hours </li></ul><ul><li>Enjoys favorable search engine positioning through its proprietary optimization tools </li></ul><ul><li>Benefits from favorable positioning because it places the Company in prime viewing area for potential Internet customers </li></ul><ul><li>By being well-established in the Internet marketplace, the Company maintains a competitive advantage over would-be entrants due to high barriers of entry </li></ul>
  14. 14. Strong and Broad Operating Platform <ul><li>11,250,000 annual e-commerce transactions </li></ul><ul><li>$850 million in transactions / volume </li></ul><ul><li>Proprietary gateway and shopping cart solution </li></ul><ul><li>8,750,000 annual retail transactions </li></ul><ul><li>$850 million annual in trans. / volume </li></ul><ul><li>Solid regional bank relationships </li></ul><ul><li>Pipeline provides wireless processing through its subsidiary, AIRCHARGE </li></ul><ul><li>AIRCHARGE is a newly acquired entity in mid Q3-05 that provides remote processing </li></ul><ul><li>Pipeline has a strategic relationship with Nextel that has carried over to Sprint </li></ul><ul><li>One of the premier products in the field </li></ul><ul><li>4 transactions in the last twelve months: </li></ul><ul><li>Charge.Com </li></ul><ul><li>AIRCHARGE ® </li></ul><ul><li>Paynet </li></ul><ul><li>Valadata </li></ul>Acquisitions e-Commerce
  15. 15. Organic Growth Strategy <ul><li>Aggressively grow the number of merchant accounts serviced through the solicitation of new merchant accounts </li></ul><ul><li>Expand the portfolio of merchant clients through internal sales efforts augmented by expanding marketing and advertising. Management is focused on aligning marketing, sales capacity and incentives in a cost-effective sales cycle </li></ul><ul><li>Achieve greater business efficiencies by creating, operating and continually enhancing processing and servicing operations in an efficient and scalable manner </li></ul><ul><li>Leverage the flexibility of the Company’s service and support platforms enabling merchant customization to meet specific requirements </li></ul>
  16. 16. Application Growth
  17. 17. Merchant and Charge Volume Growth Proven History of Growth Performance
  18. 18. Significant Growth Drivers <ul><li>Proprietary technology 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 e-commerce and retail merchant portfolio market </li></ul></ul><ul><ul><li>Consolidating market with diminishing number of purchasers of small to medium-sized portfolios </li></ul></ul><ul><li>Operating model leverage </li></ul><ul><ul><li>Increased transactional volume and growing merchant base allows Pipeline to effectively negotiate advantageous processing contracts </li></ul></ul><ul><ul><li>Proven ability to improve portfolio margins and reduce attrition post acquisition </li></ul></ul><ul><ul><li>Highly scalable </li></ul></ul>
  19. 19. Competitive Advantages <ul><li>Pipeline has a strong industry presence and is considered to be one of a select group of providers who are able to provide an end-to-end VISA certified card acceptance solution </li></ul><ul><li>Pipeline is one of only a handful of companies to be certified by Visa as both PCI compliant and an authorized third-party processor (TPP) </li></ul><ul><li>Pipeline’s technology includes: </li></ul><ul><ul><li>Online proprietary digital merchant application </li></ul></ul><ul><ul><li>Proprietary shopping cart and secure payment gateway services </li></ul></ul><ul><ul><li>Wireless cellular phone software to enable mobile card payment acceptance </li></ul></ul><ul><li>Pipeline has higher gross profit margins (as a % of revenue) than its competitors </li></ul>
  20. 20. Strategic Partnerships <ul><li>Vendor relationships and increasing volume are driving lower processing costs </li></ul><ul><li>Overcapacity in the industry continues to benefit Pipeline with lower processing costs </li></ul><ul><li>Costs are expected to continue to decline in the future, as contract negotiations with the Company’s largest processing vendor have successfully concluded </li></ul>Declining Processing and Sponsoring Costs
  21. 21. 2 nd Quarter of 2007 and 2006 Financial Results <ul><li>2nd Quarter of 2007 </li></ul><ul><ul><li>Revenue increased 57% YOY to a second quarter record of $13.1 million </li></ul></ul><ul><ul><li>Gross Profit increased 34% YOY to $4.4 million </li></ul></ul><ul><ul><li>Adjusted EBITDA of $1.6 million, up 25% YOY </li></ul></ul><ul><ul><li>Adjusted EBITDA rose 45% from the first quarter ended March 31, 2007 </li></ul></ul><ul><li>2006 </li></ul><ul><ul><li>Revenue of $41.8 million, up 74% YOY </li></ul></ul><ul><ul><li>Gross Margin of 35.7%, up from 27.1% YOY </li></ul></ul><ul><ul><li>Gross Profit increased 129% to $14.9 million YOY </li></ul></ul><ul><ul><li>EBITDA of $5.1 million, up 320% YOY </li></ul></ul><ul><ul><li>Operating Income of $2.6 million, or 6.3% of Revenue </li></ul></ul><ul><ul><li>Net Income of $(2.3) million compared to $370,000 YOY; includes $2.1 million charge for early retirement of debt </li></ul></ul>
  22. 22. Financial Overview: YTD Financial Results Six months ended Twelve months ended June 30, December 31, $,000   2007 2006 Growth % 2006 2005 Growth % Revenue $24,937 $15,809 58% $41,814 $24,098 74% Interchange 11,536 6,741   18,543 12,049   Other cost of services/goods sold 5,093 2,912   8,346 5,525   Total costs of services and goods sold 16,629 9,653   26,888 17,575   Gross profit 8,308 6,156 35% 14,926 6,523 129% Gross profit % 33.3% 38.9%   35.7% 27.1%                 Salaries and payroll costs 3,340 3,017   6,403 3,677   Other selling, general and administrative 2,523 1,504   3,536 1,706   Customer acquisition cost amortization 289 193 - - Depreciation & amortization 1,521 923   2,373 834   Operating income 635 518 23% 2,613 306 753% Operating income % 2.5% 3.3%   6.2% 1.3%                
  23. 23. First Quarter 2007 Compared to Second Quarter 2007
  24. 24. Selected Statement of Cash Flows Data   Six months ended June 30,   2007 2006 $,000 Cash flow from operations $872  $(165)  Cash flow from investing activities (273) (18,276) Cash flow from financing activities 86  16,859  Total change in cash 685  (1,583) Cash balance, period end $3,456  $ 672 
  25. 25. 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>
  26. 26. <ul><li>&quot;Our operating results for the second quarter were marked by excellent growth in our core businesses. Pipeline will continue to expand gross profit and EBITDA through aggressive organic growth and the reinvestment of our positive cash flows. As previously stated, we expect gross profit margin to expand further in the third quarter of this year due to more favorable pricing from key vendors.&quot; </li></ul><ul><li>-MacAllister Smith, CEO </li></ul>2 nd Quarter Press Release
  27. 27. Contact Us <ul><li>Pipeline Data Inc. </li></ul><ul><li>(OTC BB: 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>[email_address] </li></ul><ul><li>Or </li></ul><ul><li>[email_address] </li></ul>
  28. 28. Management <ul><li>MacAllister Smith, President, Chief Executive Office and Director - has been president, chief executive officer and director since March 2002. Mr. Smith has over sixteen years of experience in the merchant processing industry and has held ownership positions in three companies that have been merged with public corporations. From 1996 to 1998, Mr. Smith was regional vice president of Nova Information Systems (NYSE:USB), a $2 billion corporation and one of the three largest credit card processors in the industry. He founded and was president and CEO of Pinnacle Financial Technologies, Inc. from 1994 to 1998, 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. from 1997 to 1998. 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. In 1999, Mr. Smith founded and served as president and CEO of Cardaccept, Inc., a specialty payment processor. After completing two strategic e-commerce acquisitions, the company merged with Pipeline Data in 2002. </li></ul><ul><li>Donald W. Gruneisen, Chief Financial Officer – has served as CFO since September 2002. He has been chief financial officer of Northern Merchant Services, Inc. (NMSI) since July 2001. Mr. Gruneisen has over 20 years of experience in the telecommunications industry, with expertise in the areas of finance, management, accounting and top executive corporate management. He holds a B.S in Accounting and Law and an MBA from Clarkson University. Mr. Gruneisen is a Certified Public Accountant with eighteen years experience as a corporate officer (including serving in the positions of chief executive officer/general manager). He has been the treasurer and director of finance for 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. </li></ul><ul><li>Kevin Smith, Chief Operating Officer – has served as chief operating officer since May 2004, as well as president and director of Pipeline’s subsidiary, Pipeline Data Processing.. Mr. Smith has over 14 years experience in the merchant processing industry. He 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 chief operating officer of Concord Payment Systems, a wholly owned subsidiary of Concord EFS. During his tenure, Mr. Smith was responsible for the wholesale credit card processing division, which included all aspects of operations and sales. Prior to that, Mr. Smith served as operations director for Bancard Systems of Irvine, CA. </li></ul>
  29. 29. Management <ul><li>James Plappert, Chief Marketing Officer –has served as chief marketing officer since October 2005. Mr. Plappert is a seasoned executive with over 24 years of 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] (acquired by Bank of America), PNC Bank and First National Processing (acquired by iPayment). Mr. Plappert also served as executive vice president of mergers and acquisitions for First American Payment Systems from January 2002 to April 2003, which culminated in a private equity transaction with Lindsay, Goldberg and Bessemer. He co-founded ACH Payment Solutions, Inc. in 2002, where he remains a director. For over eleven years, Mr. Plappert has held a number of executive level board positions, including president, with the Electronic Transactions Association (ETA), the leading international trade association in the merchant processing industry. </li></ul><ul><li>Thomas Tesmer, Chief Technology Officer - has served as chief technology officer since July 2004. Mr. Tesmer is an experienced and competent senior operations executive with more than 25 years of experience in the transaction processing industry. Prior to joining Pipeline, he was the president of Symmetrex, Inc., a processing company supporting third-party clients that operate stored value card programs in the U.S. and foreign markets. Mr. Tesmer was the executive vice president, front end systems, of Heartland Payment Systems (NYSE:HPY), one of the largest merchant acquiring processing companies in the nation. He served as president and chief executive officer of AccesServices, Inc., 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. Mr. Tesmer is currently a member of the board of directors of Q Comm International, Inc. </li></ul>
  30. 30. Management <ul><li>Jack Rubinstein , Chairman - has been chairman of the board since inception. Mr. Rubinstein has been the general partner of DICA Partners, an investment hedge fund located in Hartsdale, New York, 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 began his business career as a securities analyst with Shearson Hamill & Co., specializing in the electrical equipment and business services industries. After seven years as an analyst, he joined Bear Stearns & Co. where he was a director, managing the proceeds of corporate insider securities sales. At Bear Stearns, he also managed the derivatives investments of several senior officers, as well as a few select individual clients. In 1988, 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>

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