HDX Announces Financial Results for the Third Quarter of 2014

TORONTO, Nov. 13, 2014 /CNW/ - Posera-HDX Ltd. (TSX: HDX) (the "Company" or "HDX") announced today its financial results for the three and nine-months ended September 30^th, 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 third quarter of 2014 despite a number of difficulties encountered due to changes within the industry which were beyond the Company's control.

In May of 2014, a major long-term equipment supplier to HDX announced that it was exiting the Point-of-Sale ("POS") industry. This was a concern to HDX as the Company was a master distributer of the supplier's hardware products. The equipment vendor stated that this decision to exit the POS industry was required in order to focus its efforts to rebuild its core business in televisions and consumer electronics, as it had experienced significant difficulties over the past three years.

The Company had been distributing the hardware through its reseller network and now was faced with finding another appropriate vendor, achieving distributor status, training in house sales and technical staff, and training and marketing to the Company's existing distribution channel.

Secondly, the Company had a significant level of inventory that needed to be sold at historical margins while the Company also made monetary commitments and investments to the new product line.

Thirdly, the Company was delayed in being able to distribute the hardware through its sales force of approximately 175 agents and now was faced with a 4 – 6 month delay before being able to provide the sales team with a replacement product line.

The Company was able to secure a relationship with a best-in-breed hardware supplier and on October 23^rd, 2014 announced a North American distribution agreement with Casio America Inc., which provides the Company, its resellers, and its sales team with a full range of leading electronic cash registers and POS terminals.

In the fourth quarter of 2014, the Company intends to train and activate its sales force with the new product line.

In the third quarter of 2014, the Company's payment processing partner arbitrarily announced that significant Payment Card Industry ("PCI") compliance fees were to be levied against all payment processing clients. This action necessitated ongoing negotiations with the processor and direct communications with over 2,900 of the Company's merchants to explain the fees. This project was a significant drain on the Company's sales and marketing team. While communications with merchants are ongoing, negotiations with our payment processing partner have been finalized, and sales efforts have returned to normal levels, with brisk activity in period subsequent to quarter-end.

The Company continued to integrate business units, build new software products and tools. Additionally, the Company continues to explore merger and acquisition opportunities in Canada and the United States to take advantage of the anticipated growth opportunities due to EMV Chip and PIN deployment.

The Company continued its due diligence of Terminal Management Concepts ("TMC"), a company that develops software for Ingenico's wireless pay-at-the-table devices. The company announced a letter of intent to acquire TMC on June 30, 2014 and anticipates that this transaction will be completed in of the fourth quarter of 2014.

On October 1^st 2014 HDX announced that it has signed a letter of intent to acquire Premier Payments Systems Inc. ("Premier") of Oak Brook, Illinois, USA. 

Founded in 2010, Premier Payment Systems Inc. provides payment processing solutions for debit and credit transactions to clients throughout the United States. 

Based in the Western Suburbs of Chicago, Illinois Premier is superbly situated to fuel HDX's growth strategy in the United States. The combined company will ramp quickly to offer merchants best-in-breed payment and POS solutions in time for the upcoming Liability Shift for EMV Chip and PIN slated for October 2015. HDX has developed and deployed EMV Chip and PIN enabled solutions at thousands of merchant locations throughout Europe and Canada over many years and is well prepared to scale the combined organization for the coming opportunity in the USA.

Premier has established its own BIN ("Bank Identification Number"), maintains multiple front-end authorization network agreements, holds its payment processing agreements directly with its merchants, performs its own ongoing risk monitoring and underwriting, and has the ability to transfer its merchant processing base from one back-end settlement network and Sponsor Bank to another if necessary.

The upcoming merchant liability shift in October, 2015 will result in a huge market opportunity for the Company in the United States. The combination of Premier's wholesale ISO business model, TMC's wireless EMV Chip and PIN pay-at-the-table software and HDX's software and hardware products leave HDX well positioned to succeed in this market.

Quarterly Highlights and Summary

The Company continued to achieve strong top-line revenue during the third quarter of 2014. Company revenue was $4,693,705 for the three-months ended September 30, 2014, a decrease of $640,885 (12.0%) from $5,334,590 for the three-months ended September 30, 2013.

• Total revenue was $4,693,705 for the three-months ended September 30, 2014, down $477,850 (9.2%) from $5,171,555 for the three-months ended September 30, 2013 and down $640,885 (12.0%) from $5,334,590 for the three-months ended June 30, 2014;
  
  
• Net loss for the three-months ended September 30, 2014 was a loss of $200,176, an improvement of $201,322 from a loss of $401,498 for the three-months ended September 30, 2013, and an improvement of $427,393 from a loss of $627,569 for the three-months ended June 30, 2014;
  
  
• EBITDA profit / (loss) for the three-months ended September 30, 2014, was ($15,823), a decrease of $572,678 from a profit of $556,855 for the three-months ended September 30, 2013, and an improvement of $161,263 from a loss of $177,086 for the three-months ended June 30, 2014;
  
  
• Normalized EBITDA profit / (loss) for the three-months ended September 30, 2014 was ($80,898), a decrease of $363,594 from $282,696 for the three-months ended September 30, 2013, and a decrease of $474,004 from $393,246 for the three-months ended June 30, 2014⁽¹⁾;
  
  
• Total revenue was $4,693,705 for the three-months ended September 30, 2014, down $477,850 (9.2%) from $5,171,555 for the three-months ended September 30, 2013 and down $640,885 (12.0%) from $5,334,590 for the three-months ended June 30, 2014;
  
  
• Gross profit was $2,103,058 for the three-months ended September 30, 2014, up $56,034 (2.7%) from $2,047,024 for the three-months ended September 30, 2013, and down $191,281 (8.3%) from $2,294,339 for the three-months ended June 30, 2014;
  
  
• Operating expenses were $2,400,530 for the three-months ended September 30, 2014, up $102,202 (4.4%) from $2,298,328 for the three-months ended September 30, 2013, and down $353,405 (12.8%) from $2,753,935 for the three-months ended June 30, 2014; and
  
  
• Included in cost of sales and operating expenses for the three-months ended September 30, 2014, September 30, 2013 and June 30, 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 $216,574, $513,143 and $636,342 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 $262,961,695 ($1,051,846,779 on an annualized basis presuming processing volumes were consistent throughout fiscal 2014 with the Company's processing volumes realized for the three-months ended September 30, 2014) compared to $168,518,483 for the three-months ended September 30, 2013 and $251,091,345 for the three-months ended June 30, 2014.

As at September 30, 2014 Zomaron has 2,852 active merchants which compares to 2,711 (an increase of 4.9%) and 1,985 (an increase of 43.7%) active merchants as at June 30, 2014 and September 30, 2013 respectively. The September 30, 2013 figures were prior to the date of acquisition of Zomaron by the Company. As a result of the Company and its sales agents to target higher volume customers during the three-months ended June 30, 2014 and September 30, 2014, the average merchant amount processed by the Company's merchants increased to $92,203 for the three-months ended September 30, 2014 compared to $84,896 for the three-months ended September 30, 2013 and the Company achieved a similar result of $92,619 for the three-months ended June 30, 2014. The processing of debit and credit card transactions is somewhat seasonally based, as a result of the demographics of Zomaron's merchant base. That being said, the processing volumes are generally consistent between the three-months ended June 30^th and September 30^th.

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 nine-months ended September 30, 2014.

Additional information on HDX third 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 POS 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.

HDX develops, deploys, and supports a restaurant POS 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 96 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. 

Forward-Looking Statements 

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 27^th 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-HDX

Paul K. Howell, Chief Executive Officer, Posera-HDX Ltd., 350 Bay Street, Suite 700, Toronto, Ontario M5H 2S6, [phone] ext. 2263

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