Quarterly Report (10-q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35699

PLANET PAYMENT, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		13-4084693
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


670 Long Beach Boulevard Long Beach, New York		11561
(Address of Principal Executive Offices)		(Zip Code)

(516) 670-3200

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer ☐		Accelerated Filer ☒

Non-Accelerated Filer ☐		Smaller Reporting Company ☐
(Do not check if smaller reporting company)

Emerging growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 31, 2017 , there were 49,888,019 shares of the registrant’s common stock outstanding.

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Planet Payment, Inc.

Report on Form 10-Q

For the Quarterly Period Ended June 30, 2017

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		Page

Part I.	Financial Information	3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016	3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

Part II.	Other Information	30

Item 1.	Legal Proceedings	30

Item 1A .	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 6.	Exhibits	32

Signatures		33

Planet Payment®, iPAY® and Pay in Your Currency®, as well as our logo, are registered trademarks of Planet Payment, and Multi-Currency Pricing™ is an additional trademark of Planet Payment. All other service marks, trademarks and trade names appearing in this report are the property of their respective owners.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Planet Payment, Inc.

Condensed Consolidated Balance Sheet s


	As of		As of
	June 30,		December 31,
	2017		2016
		(unaudited)
Current assets:
Cash and cash equivalents	$	7,283,792	$	13,305,816
Restricted cash		5,552,887		4,981,472
Accounts receivable, net of allowances of $0.1 million as of June 30, 2017 and December 31, 2016		6,851,483		6,060,533
Prepaid expenses and other assets		2,100,989		1,940,544
Total current assets		21,789,151		26,288,365
Other assets:
Restricted cash		570,198		550,402
Property and equipment, net		1,607,115		1,674,410
Software development costs, net		4,153,393		4,197,142
Intangible assets, net		622,716		827,474
Goodwill		300,419		276,786
Deferred tax asset		22,119,464		22,673,206
Other long-term assets		1,555,719		2,095,817
Total other assets		30,929,024		32,295,237
Total assets	$	52,718,175	$	58,583,602
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	635,063	$	830,479
Accrued expenses		4,095,501		5,353,735
Due to merchants		5,729,411		5,199,390
Current portion of capital leases		196,483		166,966
Total current liabilities		10,656,458		11,550,570
Long-term liabilities:
Long-term debt		—		9,916,000
Other long-term liabilities		589,970		854,991
Total long-term liabilities		589,970		10,770,991
Total liabilities		11,246,428		22,321,561
Commitments and contingencies (Note 8)
Stockholders’ equity:
Convertible preferred stock—10,000,000 shares authorized as of June 30, 2017 and December 31, 2016, $0.01 par value: Series A—1,535,398 shares issued and outstanding as of June 30, 2017 and December 31, 2016; $6,141,592 aggregate liquidation preference as of June 30, 2017 and December 31, 2016		15,354		15,354
Common stock—250,000,000 shares authorized as of June 30, 2017 and December 31, 2016, $0.01 par value, and 60,232,922 shares issued and 49,857,568 shares outstanding as of June 30, 2017, and 59,666,333 shares issued and 49,290,979 shares outstanding as of December 31, 2016		602,329		596,663
Treasury stock, at cost, 10,375,354 shares as of June 30, 2017 and December 31, 2016		(31,726,486)		(31,726,486)
Additional paid-in capital		113,062,193		111,327,321
Accumulated other comprehensive loss		(572,309)		(654,408)
Accumulated deficit		(39,909,334)		(43,296,403)
Total stockholders’ equity		41,471,747		36,262,041
Total liabilities and stockholders’ equity	$	52,718,175	$	58,583,602

The accompanying notes are an integral part of these financial statements.

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Planet Payment, Inc.

Condensed Consolidated Statements of Income (unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Revenue:
Net revenue	$	12,516,383	$	13,103,376	$	25,245,268	$	26,787,889
Operating expenses:
Cost of revenue:
Payment processing service fees		2,085,445		2,734,689		4,201,054		5,425,913
Processing and service costs		3,205,246		3,524,123		6,397,319		7,024,791
Total cost of revenue		5,290,691		6,258,812		10,598,373		12,450,704
Selling, general and administrative expenses		4,681,705		5,204,892		9,969,043		10,685,606
Restructuring charges		7,284		125,268		72,742		125,268
Total operating expenses		9,979,680		11,588,972		20,640,158		23,261,578
Income from operations		2,536,703		1,514,404		4,605,110		3,526,311
Other (expense) income:
Interest expense		(92,813)		(83,021)		(209,145)		(97,697)
Interest income		585		398		1,108		822
Total other expense, net		(92,228)		(82,623)		(208,037)		(96,875)
Income from operations before provision for income taxes		2,444,475		1,431,781		4,397,073		3,429,436
Provision for income taxes		(474,946)		(149,058)		(1,010,004)		(386,408)
Net income	$	1,969,529	$	1,282,723	$	3,387,069	$	3,043,028
Basic net income per share applicable to common stockholders	$	0.04	$	0.02	$	0.06	$	0.06
Diluted net income per share applicable to common stockholders	$	0.04	$	0.02	$	0.06	$	0.05
Weighted-average common stock outstanding (basic)		49,238,405		49,602,206		49,078,889		50,186,828
Weighted-average common stock outstanding (diluted)		51,272,280		51,987,695		51,322,296		52,401,790

The accompanying notes are an integral part of these financial statements.

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Planet Payment, Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net income	$	1,969,529	$	1,282,723	$	3,387,069	$	3,043,028
Foreign currency translation adjustment		51,287		(80,052)		82,099		(7,222)
Total comprehensive income	$	2,020,816	$	1,202,671	$	3,469,168	$	3,035,806

The accompanying notes are an integral part of these financial statements.

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Planet Payment, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)


	Six Months Ended
	June 30,
	2017		2016
Cash flows from operating activities:
Net income	$	3,387,069	$	3,043,028
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		574,519		1,180,899
Depreciation and amortization expense		1,045,495		1,330,238
Provision for doubtful accounts		3,437		58,595
Deferred income taxes		553,742		—
Disposal of property and equipment		—		500
Changes in operating assets and liabilities:
(Increase) decrease in settlement assets		(571,415)		498,553
(Increase) decrease in accounts receivables, prepaid expenses and other current assets		(881,941)		358,980
Decrease in other long-term assets		514,274		287,923
Decrease in accounts payable and accrued expenses		(1,664,578)		(2,885,420)
Increase (decrease) in due to merchants		530,021		(438,099)
Other		52,065		(26,219)
Net cash provided by operating activities		3,542,688		3,408,978
Cash flows from investing activities:
Increase in restricted cash		(19,796)		(9,629)
Increase in merchant reserves		—		9,684
Purchase of property and equipment		(209,550)		(109,555)
Capitalized software development		(415,646)		(677,822)
Purchase of intangible assets		(12,296)		(353)
Net cash used in investing activities		(657,288)		(787,675)
Cash flows from financing activities:
Proceeds from issuance of common stock		1,293,738		1,965,380
Principal payments on capital lease obligations		(148,902)		(193,002)
Borrowings under credit facility		—		13,916,000
Repayments under credit facility		(9,916,000)		(4,000,000)
Purchase of treasury stock		—		(17,843,447)
Common stock repurchases for tax witholdings		(136,260)		(655,104)
Net cash used in financing activities		(8,907,424)		(6,810,173)
Effect of exchange rate changes on cash and cash equivalents (*)		—		—
Net decrease in cash and cash equivalents		(6,022,024)		(4,188,870)
Cash and cash equivalents at beginning of period		13,305,816		14,675,515
Cash and cash equivalents at end of period	$	7,283,792	$	10,486,645
Supplemental disclosure:
Cash paid for:
Interest	$	172,261	$	14,718
Income taxes		579,114		504,398
Non-cash investing and financing activities:
Common stock issued for preferred stock conversion		—		21,629
Common stock issued for stock options exercised		262		98
Assets acquired under capital leases		47,067		122,630
Accrued capitalized hardware, software and fixed assets		77,259		63,291
Capitalized stock-based compensation		8,541		14,018

(*) For the six months ended June 30, 2017 and 2016, the effect of exchange rate changes on cash and cash equivalents was immaterial.

The accompanying notes are an integral part of these financial statements.

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Planet Payment, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Business description and basis of presentation

Business description

Planet Payment, Inc. together with its wholly-owned subsidiaries (“Planet Payment,” the “Company,” “we,” or “our”) is a provider of international payment and transaction processing and multicurrency processing services. The Company provides its services to approximately 177,000 active merchant locations in 22 countries and territories across the Asia- Pacific region, the Americas, the Middle East, Africa and Europe, primarily through its acquiring bank and processor customers, as well as through its own direct sales force. The Company provides banks and their merchants with innovative services to accept, process and reconcile electronic payments. The Company’s point-of-sale multi-currency payment processing services are designed for merchants in the retail, restaurant, and hospitality environments. We also provide payment services for e-commerce and mail and telephone order merchants. Our point-of-sale and e-commerce services help merchants sell more goods and services to consumers, and are integrated within the payment card transaction process enabling its acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels. The Company’s ATM services provide its acquirers with additional processing capabilities to help them increase revenue and improve customer satisfaction. The Company also offers non-financial transaction processing services that allow merchants to offer a range of commercial services including pre-paid mobile phone top-up and bill payments using the same point-of-sale devices deployed to accept payment cards. The Company is a registered third party processor with the major card associations and operates in accordance with industry standards, including the Payment Card Industry, or PCI, Security Council’s Data Security Standards.

Basis of presentation

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Planet Payment, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Unaudited condensed consolidated interim financial information

The accompanying unaudited condensed consolidated interim financial statements as of June 30, 2017 and for the periods ended June 30, 2017 and 2016 have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are normal and recurring, necessary for a fair presentation of the statement of operations, financial position and cash flows. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Operating results for the interim period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The December 31, 2016 balance sheet information has been derived from the audited financial statements at that date. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulation of the Securities and Exchange Commission (“SEC”).

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation.

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2. Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new guidance includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers. The original effective date of ASU 2014-09 of January 1, 2017 has been delayed until January 1, 2018. Early adoption is not permitted before the original effective date. The standard allows for either retrospective application to each reporting period presented or retrospective application with the cumulative effect of initially applying this update recognized at the date of initial application. Through the use of various data gathering methods, the Company is categorizing the types of sales for our business units for the purpose of comparing how we currently recognize revenue for the purpose of quantifying the impact, if any, that this ASU will have on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU No. 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in ASU No. 2016-02 is permitted for all entities. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the Company is currently evaluating the effect ASU 2016-02 will have on the condensed consolidated financial statements and disclosures, the adoption of this ASU will result in a significant increase to the Company’s stated assets and liabilities.

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-08”). The amendments in ASU 2016-08 do not change the core principle of the guidance. The amendments clarify the implementation guidance on principal versus agent considerations. The update suggests that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The effective date and transition requirements for the amendments in ASU 2016-08 are the same as the effective date and transition requirements of ASU 2014-09. Through the use of various data gathering methods, the Company is categorizing the types of sales for our business units for the purpose of comparing how we currently recognize revenue for the purpose of quantifying the impact, if any, that this ASU will have on our consolidated financial statements.

In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-10”). The amendments in this update do not change the core principle of the guidance. The amendments in this update clarify the identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments in this update clarify that contractual provisions that, explicitly or implicitly, require an entity to transfer control of additional goods or services to a customer should be distinguished from contractual provisions that, explicitly or implicitly, define the attributes of a single promised license. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of update ASU 2014-09. Through the use of various data gathering methods, the Company is categorizing the types of sales for our business units for the purpose of comparing how we currently recognize revenue for the purpose of quantifying the impact, if any, that this ASU will have on our consolidated financial statements.

In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-12”), in which the FASB finalized the guidance in the new revenue standard on collectibility, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group, and provide additional practical expedients. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of update ASU 2014-09. Through the use of various data gathering methods, the Company is categorizing the types of sales for our business units for the purpose of comparing how we currently recognize revenue for the purpose of quantifying the impact, if any, that this ASU will have on our consolidated financial statements.

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In July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) (“ASU 2017-11”). The amendments in this update change the classification analysis of certain equity-linked financial instruments with down round features and clarify existing disclosure requirements of such instruments. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect ASU 2017-11 will have on the condensed consolidated financial statements and disclosures.

3. Concentration of credit risk

The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and receivables from clients. The Company places some of its cash, cash equivalents, and restricted cash with financial banking institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company also maintains cash balances at foreign banking institutions, which are not insured by the FDIC.

The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of customers’ financial condition.

The Company’s accounts receivable concentrations of 10% and greater are as follows:


	As of		As of
	June 30,		December 31,
	2017		2016
Customer A	20	%	22	%
Customer B	17		17

The Company’s revenue concentrations of 10% and greater are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Customer A	19	%	15	%	19	%	16	%
Customer C	*		*		*		10
Customer G	*		12		*		11

* Less than 10% revenue concentration.

4. Net income per share

The Company computes net income per share in accordance with ASC 260, Earnings per Share (“ASC topic 260”). Under ASC topic 260, securities that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities and should be included in the two-class method of computing earnings per share. The Company’s preferred stockholders are entitled to participate in dividends and earnings when, and if, dividends are declared on the common stock. As such, the Company calculates net income per share using the two-class method. The two-class method is an earnings formula that treats a participating security as having rights to dividends that otherwise would have been available to common and preferred stockholders based on their respective rights to receive dividends. Losses are not allocated to the preferred stockholders for computing net loss per share under the two-class method because the preferred stockholders do not have contractual obligations to share in the losses of the Company.

Basic earnings per share is calculated by dividing net income, adjusted for amounts allocated to participating securities under the two-class method, if applicable, by the weighted average number of common stock outstanding during the period.

Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of the Company’s common stock outstanding, assuming dilution, during the period. The diluted earnings per share calculation assumes (i) all stock options and warrants which are in the money are exercised at the beginning of the period and (ii) each issue or series of issues of potential common stock are considered in sequence from the most dilutive to the least

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dilutive. That is, dilutive potential common stock with the lowest “earnings add-back per incremental share” shall be included in dilutive earnings per share before those shares with higher earnings add back per incremental share.

The following table sets forth the computation of basic and diluted net income per share:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Numerator:
Net income	$	1,969,529	$	1,282,723	$	3,387,069	$	3,043,028
Amounts allocated to participating preferred stockholders under the two-class method		(170,881)		(110,402)		(293,870)		(261,909)
Net income applicable to common stockholders (basic and dilutive)	$	1,798,648	$	1,172,321	$	3,093,199	$	2,781,119
Denominator:
Weighted-average common stock outstanding (basic)		49,238,405		49,602,206		49,078,889		50,186,828
Common equivalent shares from options to purchase common stock		2,033,875		2,385,489		2,243,407		2,214,962
Weighted-average common stock outstanding (diluted)(1)		51,272,280		51,987,695		51,322,296		52,401,790
Basic net income per share applicable to common stockholders	$	0.04	$	0.02	$	0.06	$	0.06
Diluted net income per share applicable to common stockholders(1)	$	0.04	$	0.02	$	0.06	$	0.05


(1)	In accordance with ASC 260-10-45-48, for the three and six months ended June 30, 2017 and 2016, the Company excluded 396,500, of contingently-issued restricted shares from diluted weighted average common stock outstanding as the contingencies were neither (a) satisfied at the reporting date nor (b) would have been satisfied if the reporting date was at the end of the contingency period.

The following table sets forth the weighted average securities outstanding that have been excluded from the diluted net income per share calculation because the effect would have been anti-dilutive:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2017	2016	2017	2016
Stock options	37,390	11,071	22,528	592,170
Restricted stock awards	13,298	—	8,896	30,004
Convertible preferred stock(1)	4,688,237	4,949,687	4,688,237	6,015,339
Total anti-dilutive securities	4,738,925	4,960,758	4,719,661	6,637,513

(1)

Diluted net income per share increases when convertible preferred stock is included in the required sequence in the diluted earnings per share computation. As such, convertible preferred stock is excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2017 and 2016.

5. Stock-based compensation expense

Stock-based compensation expense is measured at the grant date based on fair value, and recognized as an expense over the requisite service period, net of an estimated forfeiture rate.

During the second quarter of 2017, 34,000 stock options were granted to certain employees of the Company, with a grant fair value of $53,000. The actual number of shares that will be issued upon exercise of the options is subject to the achievement of service-based vesting conditions. Stock-based compensation expense is recorded on a straight line basis from the date of the grant over the requisite service period of 36 months.

During the second quarter of 2017, 5,000 restricted stock awards with a grant fair value of $21,000 were granted to a employee of the Company. The final number of vested shares is subject to service-based vesting conditions. Stock-

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based compensation expense is recorded on a straight line basis from the date of the grant over the applicable service period of 36 months.

During the second quarter of 2017, 0.1 million restricted stock awards with a grant fair value of $0.2 million were granted to certain members of the Company’s Board of Directors. The final number of vested shares is subject to service-based vesting conditions. Stock-based compensation expense is recorded on a straight line basis from the date of the grant over the requisite service period of 12 months.

The following summarizes stock-based compensation expense recognized by income statement classification:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Processing and service costs	$	27,145	$	50,255	$	69,580	$	99,061
Selling, general and administrative expenses		221,502		526,676		504,939		1,081,838
Total stock-based compensation expense	$	248,647	$	576,931	$	574,519	$	1,180,899

The following summarizes stock-based compensation expense recognized by type:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Stock options	$	155,717	$	267,833	$	383,223	$	549,229
Restricted stock awards		92,930		309,098		191,296		631,670
Total stock-based compensation expense	$	248,647	$	576,931	$	574,519	$	1,180,899

6. Property and equipment

Property and equipment, net consist of the following:


	Estimated			As of		As of
	useful life			June 30,		December 31,
	(in years)			2017		2016
Equipment	2	-	7	$	1,001,081	$	998,722
Computer hardware	3	-	5		3,843,177		3,637,938
Furniture and fixtures	5	-	7		257,531		256,889
Leasehold improvements	3	-	10		1,077,657		1,037,386
Total property and equipment, gross					6,179,446		5,930,935
Less: Accumulated depreciation and amortization					(4,572,331)		(4,256,525)
Property and equipment, net				$	1,607,115	$	1,674,410

Property and equipment depreciation and amortization expense is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Depreciation and amortization expense	$	153,421	$	277,433	$	312,038	$	440,559

7. Goodwill and intangible assets

The change in carrying amount of goodwill for the six months ended June 30, 2017 is as follows:


Goodwill, gross, as of December 31, 2016	$	276,786
Impact of change in Euro exchange rate		23,633
Accumulated impairment losses as of June 30, 2017		—
Goodwill, net, as of June 30, 2017	$	300,419

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The entire goodwill balance is assigned to the payment processing services segment.

Intangible assets are recorded at estimated fair value and are amortized ratably over their estimated useful lives to processing and service costs, which are included in cost of revenue.

The gross book value, accumulated amortization and amortization periods of intangible assets are as follows:


	As of June 30, 2017						As of December 31, 2016						Amortization
	Gross book		Accumulated		Net book		Gross book		Accumulated		Net book		period
	value		amortization		value		value		amortization		value		(in years)
Trademarks and patents	$	1,221,339	$	(598,623)	$	622,716	$	1,203,097	$	(557,794)	$	645,303	15	-	21
Technology		2,501,834		(2,501,834)		—		2,305,019		(2,122,848)		182,171		5
Intangible assets, net	$	3,723,173	$	(3,100,457)	$	622,716	$	3,508,116	$	(2,680,642)	$	827,474

Amortization expense related to intangible assets is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Amortization expense	$	88,764	$	145,880	$	225,191	$	288,018

8. Commitments and contingencies

Employment agreements

Pursuant to employment agreements with certain employees, the Company had a commitment to pay severance of approximately $1.2 million as of June 30, 2017 and as of December 31, 2016, in the event of an involuntary termination, as defined in the employment agreements. Additionally, in the event of termination upon a change of control, as defined in the agreements, the Company had a commitment to pay severance of approximately $1.5 million as of June 30, 2017 and $1.4 million as of December 31, 2016.

Contingent liabilities

In instances where the Company is acting as the merchant acquirer, the Company bears a risk that a merchant may engage in fraud by submitting for payment certain credit card transactions that may have been manipulated, are fictitious, or are otherwise not bona fide. Similarly, the Company bears the risk that a merchant becomes insolvent, owing money to cardholders. To the extent that such fraud or insolvency occurs in circumstances where the Company is liable to make good on any resultant losses, this could affect the Company’s operating results and cash flows. The Company has required certain merchants to post cash reserves of approximately $1.0 million with the sponsoring bank against such liabilities and has itself paid the acquirer a reserve of $0.3 million in connection therewith, which is included in long-term “Restricted cash” on the condensed consolidated balance sheets. In addition, the Company holds merchant reserves of approximately $2.2 million. This reserve amount is included in “Restricted cash” with an offset in “Due to merchants.” Under FASB ASC 460, Guarantees , the Company evaluates its ultimate risk and records an estimate of potential loss for chargeback’s related to merchant fraud and processing errors based upon an assessment of actual historical fraud rates and errors in processing compared to recent bank card processing volume levels . No contingent liability has been recorded as of June 30, 2017 and December 31, 2016, as the risk of material loss is considered remote. The Company monitors these contingent liabilities on a quarterly basis and will provide for a reserve if deemed necessary .

Outstanding litigation

From time to time, the Company’s operating entities may be involved in legal proceedings in the ordinary course of business. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

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Acquiring bank sponsorship agreement

In order to offer merchant acquiring services for Visa and MasterCard transactions, the Company must be sponsored by a financial institution that is a principal member of the Visa and MasterCard networks.

The Company entered into a five-year agreement with a sponsoring bank effective September 1, 2013. The Company was required to pay minimum annual sponsorship transaction fees of $0.3 million in year one. The minimum fees escalate each subsequent year with minimum fees of $0.5 million due in year five for total minimum fees of $1.8 million to be paid over the term of the agreement. Sponsorship fees are recorded to payment processing service fees cost of sales with the total agreement minimum of $1.8 million recognized on a straight line basis over the term of the agreement.

Pursuant to the agreement, the Company is liable for all losses incurred by the sponsoring bank with respect to the activities of its merchants sponsored under the agreement. No contingent liability has been recorded as of June 30, 2017 as the risk of material loss is considered remote based on historical information. The Company monitors this contingent liability on a quarterly basis and will provide for a reserve if deemed necessary.

9. Credit Facility

On February 2, 2017, the Company entered into an amendment to its credit facility (the “Credit Facility”) with Citizens Bank, N.A. (“Citzens”) to increase the Company’s borrowing capacity from $20.0 million to $30.0 million and extend the maturity date to December 31, 2021. The Line of Credit is secured by substantially all of the Company’s personal property, including the Company’s intellectual property and that of its subsidiaries that are borrowers or guarantors. The interest rate applicable to committed borrowings is tied to LIBOR plus a margin of 2.5%. The Credit Facility also provides for a letter of credit sub-facility of up to $2.0 million. The credit agreement with Citizens, as amended (“Credit Agreement”), contains customary affirmative and negative covenants, including, among others, financial covenants based on the Company’s leverage and fixed charge coverage ratios, as well as an obligation to maintain a minimum availability requirement of at least $5.0 million in the aggregate of cash and availability under the line of credit. The Credit Facility provides funding availability for, among other things, general corporate purposes and repurchases of issued and outstanding capital stock of the Company. During the second quarter of 2017, the Company repaid $9.9 million on the Credit Facility. The Company had no outstanding borrowings under the Credit Facility at June 30, 2017 and was in compliance with all financial covenants contained in the Credit Agreement. The Company had $9.9 million outstanding under the Credit Facility at December 31, 2016.

10. Convertible preferred stock

During 2016, 708,352 shares of Series A Preferred Stock were converted into 2,162,907 shares of common stock at a conversion ratio of approximately 3.05 shares of common stock per share of Series A Preferred Stock in accordance with the terms of the Series A Preferred Stock Purchase agreement. As of June 30, 2017, the remaining preferred stock consists of 1,535,398 shares designated (and issued) as Series A Preferred Stock, and 1,756,250 shares which are undesignated (and unissued). Each issued share of Series A Preferred Stock is convertible into approximately 3.05 shares of common stock, for a total of 4,688,237 shares of common stock.

For additional information on the Company’s convertible preferred stock disclosure, refer to Note 9 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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11. Accrued expenses

The following are the components of accrued expenses:


	As of		As of
	June 30,		December 31,
	2017		2016
Bonus	$	68,757	$	611,228
Deferred revenue(*)		823,137		881,715
Deferred incentive(**)		462,809		1,087,591
Other(***)		2,740,798		2,773,201
Total accrued expenses	$	4,095,501	$	5,353,735

(*) Current deferred revenue will be recognized as revenue ratably over the next 12 months. As of June 30, 2017, included in the balance sheet classification “Other long-term liabilities” is the non-current portion of deferred revenue in the amount of $0.4 million. The long-term portion of deferred revenue balance as of December 31, 2016 was approximately $0.7 million.

(**) As of June 30, 2017 and December 31, 2016, the Company recorded approximately $0.5 million and $1.1 million, respectively, in short-term incentives in relation to future obligations under contracts. As of December 31, 2016, included in the balance sheet classification “Other long-term liabilities” is the non‑current portion of these incentives of approximately $0.1 million.

(***) As of June 30, 2017 and December 31, 2016, included in “other” were third party referral commissions of approximately $1.0 million and $0.6 million, respectively. No other amount included in “Other” exceeded 10% of total current liabilities.

12. Segment information

General information

The segment and geographic information provided in the table below is being reported consistent with the Company’s method of internal reporting. Operating segments are defined as components of an enterprise for which separate financial information is available and which is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM reviews net revenue and gross profit by service by geographical region. The Company operates in two reportable segments: multi-currency processing services and payment processing services.

Information about revenue, profit and assets

The CODM evaluates performance and allocates resources based on net revenue and gross profit of each segment. For purposes of analyzing segments, gross profit of the multi-currency processing services segment is equal to net revenue less multi-currency cost of sales of $0.5 million and $0.6 million, which is included in “processing and services costs” for the three months ended June 30, 2017 and 2016, respectively, and $1.0 million and $1.4 million for the six months ended June 30, 2017 and 2016, respectively. The gross profit for the payment processing services segment includes net revenue of the segment less the cost of revenue component “payment processing services fees,” which includes interchange and card network fees and assessments. Net revenue and gross profit by geographical region is based upon where the transaction originated. Lastly, the Company does not evaluate performance or allocate resources using segment asset data. Long-lived assets are primarily located in the Americas and Europe and as of June 30, 2017 and December 31, 2016, long-lived asset amounts are $6.7 million and $7.0 million, respectively.

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The Company conducts its business primarily in three geographical regions: Asia-Pacific (“APAC”); the Americas; and Europe, Middle East and Africa (“EMEA”). The following table provides revenue concentration by geographic region. Analysis of revenue by segment and geographical region and reconciliations to consolidated revenue, gross profit, and income before the provision for income taxes are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net Revenue:
APAC	$	4,143,965	$	3,761,918	$	8,237,350	$	7,578,982
The Americas		3,226,629		2,444,187		6,195,781		4,629,561
EMEA		1,140,372		1,752,501		2,510,739		4,384,295
Total multi-currency processing services revenue		8,510,966		7,958,606		16,943,870		16,592,838
Payment processing services revenue		4,005,417		5,144,770		8,301,398		10,195,051
Net revenue	$	12,516,383	$	13,103,376	$	25,245,268	$	26,787,889
Gross Profit:
APAC	$	4,118,537	$	3,731,646	$	8,191,331	$	7,525,150
The Americas		3,001,927		2,261,907		5,798,823		4,296,595
EMEA		913,809		1,341,917		1,963,225		3,407,535
Total multi-currency processing services gross profit		8,034,273		7,335,470		15,953,379		15,229,280
Payment processing services gross profit		1,919,972		2,410,081		4,100,344		4,769,138
Total reportable segment gross profit		9,954,245		9,745,551		20,053,723		19,998,418
Corporate allocated cost of sales		2,728,553		2,900,987		5,406,828		5,661,233
Total gross profit	$	7,225,692	$	6,844,564	$	14,646,895	$	14,337,185

Income from operations before provision for income taxes:
Total gross profit	$	7,225,692	$	6,844,564	$	14,646,895	$	14,337,185
Selling, general and administrative expenses		4,681,705		5,204,892		9,969,043		10,685,606
Restructuring charges		7,284		125,268		72,742		125,268
Income from operations		2,536,703		1,514,404		4,605,110		3,526,311
Interest expense		(92,813)		(83,021)		(209,145)		(97,697)
Interest income		585		398		1,108		822
Total other expense, net		(92,228)		(82,623)		(208,037)		(96,875)
Income from operations before provision for income taxes	$	2,444,475	$	1,431,781	$	4,397,073	$	3,429,436

Payment processing services revenue and gross profit are the result of transactions that primarily originated in the Americas. For the three months ended June 30, 2017, Customer B and Customer G had revenue concentration of 21% and 17%, respectively, and for the six months ended June 30, 2017, Customer B and Customer G had revenue concentration of 22% and 20%, respectively. For the three months ended June 30, 2016, Customer B and Customer G had revenue concentration of 16% and 29%, respectively, and for the six months ended June 30, 2016, Customer B and Customer G had revenue concentration of 15% and 28%, respectively.

“Corporate allocated cost of sales” includes expenses of running its platform infrastructure including: Internet connectivity, hosting and data storage expenses, amortization expenses of capitalized software development costs, compensation and related benefits of its technology personnel and a portion of general overhead expenses.

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Concentration of revenue by customer by geographical region:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Multi-currency processing services revenue:
APAC:
Customer A	58	%	52	%	58	%	56	%
The Americas:
Customer D	13		19		18		23
Customer G	10		*		12		*
Customer I	11		13		12		10
Customer J	11		11		10		*
EMEA:
Customer C	44		60		48		62
Customer H	36		39		39		37

(*) Less than 10% revenue concentration.

13. Stock Repurchases

Stock repurchase program

As of June 30, 2017, the total amount of common stock repurchased under the program was 6.5 million shares for an aggregate price of $17.5 million, and $10.0 million remained available for repurchase under the program. No repurchases were made during the six months ended June 30, 2017.

For additional information on the Company’s stock repurchase program, refer to Note 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section entitled “Item 1A - Risk Factors” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. We refer to Planet Payment, Inc. together with its wholly-owned subsidiaries as “Planet Payment,” the “Company,” “we,” or “our.”

Business overview

Planet Payment is a provider of international payment and transaction processing and multi-currency processing services. We provide our services to approximately 177,000 active merchant locations in 22 countries and territories across the Asia-Pacific region, the Americas, the Middle East, Africa and Europe, primarily through our acquiring bank and processor customers, as well as through our own direct sales force. We provide banks and their merchants with

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innovative services to accept, process and reconcile electronic payments. Our point-of-sale multi-currency payment processing services are designed for merchants in the retail, restaurant, and hospitality environments. We also provide payment services for e-commerce and mail and telephone order merchants. Our point-of-sale and e-commerce services help merchants sell more goods and services to consumers, and are integrated within the payment card transaction process, enabling our acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels. Our ATM services provide our acquirers with additional processing capabilities to help them increase revenue and improve customer satisfaction. We also offer non-financial transaction processing services that allow merchants to offer a range of commercial services including pre-paid mobile phone top-up and bill payments using the same point-of-sale devices deployed to accept payment cards. We are a registered third-party processor with the major card associations and operate in accordance with industry standards, including the Payment Card Industry, or PCI, Security Council’s Data Security Standards.

To ensure our long-term success and the success of our customers:

we invest in new services and in enhancing our processing platform to facilitate more convenient and innovative payment methods, mobile payments and e-commerce; as well as the processing of non-financial transactions such as mobile phone top-up ; and

we continually work to improve the speed, efficiency, security and performance of our platform and our payments and transaction processing services to enhance the reliability of our global processing infrastructure and protect the security of cardholder information .

Key trends

Our financial results have been and we believe will continue to be impacted by positive trends in the international payment processing industry, including the global shift toward electronic-based methods of payments and away from paper-based methods of payment, the increasing levels of international travel and commerce and the rapid adoption of e-commerce on a global scale. Our results are impacted by the changes in levels of international spending using electronic methods, and as a result, negative trends in the global economy and other factors which negatively impact international travel may negatively impact the growth in total transaction volume processed using our platform. The global economy has been undergoing a period of economic uncertainty and stock markets are experiencing high levels of volatility, and it is difficult to predict how long this uncertainty and volatility will continue. For example, the strength of the US Dollar may lead to reduced cross-border travel to the United States and other markets whose currencies are pegged to the US Dollar.

We plan to grow our business by increasing the use of our services by the merchants of our existing acquiring bank and processor customers adding new acquiring bank and processor customers and expanding into new geographies and business sectors. If we are successful in increasing our share of this currently addressable market, we would expect our revenue to continue to grow. In addition, based on the positive trends in the international payment processing industry noted above, we anticipate that as and when more payments are made using electronic methods, such as those that we offer, our revenue would also increase.

Key metrics

Our management relies on certain performance indicators to manage and assess our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. We believe that improvements in these metrics will result in improvements in our financial performance over time. We monitor our non-GAAP financial measures and other business statistics as a measure of operating performance in addition to net income and the other measures included in our consolidated financial statements.

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The following is a table consisting of non-GAAP financial measures and certain other business statistics that management monitors:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
KEY METRICS:
Total active merchant locations (at period end)(1)		176,870			178,198			176,870			178,198
Total settled transactions processed(2)		48,054,316			45,680,275			94,565,008			99,071,948
Total settled dollar volume processed(3)	$	2,248,334,128		$	1,962,972,987		$	4,443,434,026		$	4,026,255,657
Adjusted EBITDA (non-GAAP)(4)	$	3,412,848		$	2,834,706		$	6,425,567		$	6,059,571
Capitalized expenditures	$	402,642		$	479,098		$	723,292		$	865,039
Multi-currency processing services key metrics:
Active merchant locations (at period end)(1)		119,692			105,987			119,692			105,987
Settled transactions processed(5)		4,957,236			3,888,083			10,023,708			8,162,182
Settled dollar volume processed(6)	$	725,725,940		$	662,524,562		$	1,481,651,449		$	1,388,799,284
Average net mark-up percentage on settled dollar volume processed(7)		1.17	%		1.20	%		1.14	%		1.19	%
Payment processing services key metrics :
Active merchant locations (at period end)(1)		59,176			73,728			59,176			73,728
Payment processing services revenue(8)	$	4,005,417		$	5,144,770		$	8,301,398		$	10,195,051
Settled transactions processed(9)		43,390,839			41,969,598			85,247,940			91,231,000
Settled dollar volume processed(10)	$	1,572,046,750		$	1,333,260,862		$	3,061,766,773		$	2,697,846,395

(1)

We consider a merchant location to be active as of a date if the merchant completed at least one revenue-generating transaction at the location during the 90-day period ending on such date. The total number of active merchant locations exceeds the total number of merchants, as merchants may have multiple locations. As of June 30, 2017 and 2016, there were 1,998 and 1,517 active merchant locations, respectively, included in both multi-currency and payment processing active merchant locations but are not included in total active merchant locations, in order to eliminate counting these locations twice.

(2)

Represents total settled transactions (excluding other transaction types such as authorizations and rate look-ups).

(3)

Represents total settled dollar volume processed through both our multi-currency and payment processing services.

(4)

We define Adjusted EBITDA as GAAP net income adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense and (6) certain other items management believes affect the comparability of operating results. Please see “—Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

(5)

Represents settled transactions processed using our multi-currency processing services (excluding other transaction types such as authorizations and rate look-ups).

(6)

Represents the total settled dollar volume processed using our multi-currency processing services.

(7)

Represents the average net foreign currency mark-up percentage earned on settled dollar volume processed using our multi-currency processing services. The average net mark-up percentage on settled dollar volume processed is calculated by taking total multi-currency processing services net revenue ($8.5 million and $8.0 million for the three months ended June 30, 2017 and 2016, respectively, and $16.9 million and $16.6 million for the six months ended

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June 30, 2017 and 2016, respectively) and dividing by settled dollar volume processed (see footnote 6 above). For purposes of calculating “Average net mark-up percentage on settled dollar volume processed,” multi-currency processing services revenue includes revenue related to multi-currency transactions only.

(8)

Represents revenue earned and reported on payment processing services.

(9)

Represents settled transactions processed using our payment processing services (excluding other transaction types such as authorizations and rate look-ups).

(10)

Represents the total settled dollar volume processed using our payment processing services.

Adjusted EBITDA

This discussion includes information about Adjusted EBITDA that is not prepared in accordance with GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies. A reconciliation of this non-GAAP measure is included below.

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude (1) interest expense, (2) interest income, (3) provision for income taxes, (4) depreciation and amortization, (5) stock-based compensation expense and (6) certain other items management believes affect the comparability of operating results.

Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team in connection with our executive compensation.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

non-cash compensation is and will remain a key element of our long-term incentive compensation for our employees, although we exclude it from Adjusted EBITDA when evaluating our ongoing performance for a particular period; and

Adjusted EBITDA does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations.

Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as a supplement to our GAAP results.

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The following table sets forth the reconciliation of net income, our most directly comparable financial measure in accordance with GAAP to Adjusted EBITDA:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
ADJUSTED EBITDA:
Net income	$	1,969,529	$	1,282,723	$	3,387,069	$	3,043,028
Interest expense		92,813		83,021		209,145		97,697
Interest income		(585)		(398)		(1,108)		(822)
Provision for income taxes		474,946		149,058		1,010,004		386,408
Depreciation and amortization		492,513		618,103		1,045,495		1,227,093
Stock-based compensation expense		248,647		576,931		574,519		1,180,899
Restructuring charges and other		134,985		125,268		200,443		125,268
Adjusted EBITDA (non-GAAP)	$	3,412,848	$	2,834,706	$	6,425,567	$	6,059,571

Components of operating results

Sources of revenue

We derive our revenue principally through transaction fees earned under fixed contractual arrangements with customers who use our international payment and multi-currency processing services. We operate the business in two reportable segments:

Multi-currency processing services revenue. Revenue derived from foreign currency transaction fees earned on processing and converting a credit or debit card transaction from one currency into another currency. Foreign currency transaction fees earned under our agreements with our multi-currency processing services customers have traditionally been based on a fixed percentage applied to the net foreign currency margin earned, after deducting any merchant revenue and other contractual costs. Also included are fees for non-transactional services.

Payment processing services revenue. Revenue derived from transaction fees earned on processing services provided in facilitating the sale of goods and services by means of credit and debit cards and other electronic payments, the processing of certain non-financial transactions and professional services fees related to the payment processing business.

Geographic and customer concentration

We conduct our business primarily in three geographical regions: Asia-Pacific, or APAC; the Americas; and Europe, Middle East and Africa, or EMEA. The following table provides multi-currency processing services revenue concentration by geographical region. Revenue by region is based upon where the transaction originated. We conduct our payment processing services primarily in North America.

Analysis of revenue by segment and geographical region:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Revenue:
APAC	$	4,143,965	$	3,761,918	$	8,237,350	$	7,578,982
The Americas		3,226,629		2,444,187		6,195,781		4,629,561
EMEA		1,140,372		1,752,501		2,510,739		4,384,295
Total multi-currency processing services revenue		8,510,966		7,958,606		16,943,870		16,592,838
Payment processing services revenue		4,005,417		5,144,770		8,301,398		10,195,051
Net revenue	$	12,516,383	$	13,103,376	$	25,245,268	$	26,787,889

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A significant portion of our revenue is derived from agreements with a limited number of customers. Specifically, for the three and six months ended June 30, 2017, subsidiaries of Customer A represented approximately 19% of our revenue.

Operating expenses

Cost of revenue. Cost of revenue primarily consists of two categories: (1) payment processing services fees, which includes payment processing transactions fees such as sponsorship fees, interchange and card association fees and assessments; and (2) processing and service costs, which include certain expenses related to the multi-currency processing segment, expenses of running our platform infrastructure, including: internet connectivity, hosting and data storage expenses, amortization expense on acquired intangibles and capitalized software development costs, compensation and related benefits and a portion of general overhead expenses.

Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of compensation and related benefits, facility costs, public company costs and professional service fees for our sales, marketing, customer service, administrative functions, and a portion of general overhead expenses.

We allocate overhead such as occupancy, telecommunication charges and depreciation expense based on headcount, as we believe this to be the most accurate measure. As a result, a portion of general overhead expenses is reflected in both our cost of revenue and selling, general and administrative expenses.

Other (expense) income, net. Other (expense) income, net, primarily consists of non-operating income as well as interest expense related to our credit facility and capital leases.

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of our operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make certain estimates and judgments that affect the reported amounts and the disclosure in our financial statements. We base our estimates on historical experience, future trends and other assumptions we believe to be reasonable under the circumstances. Because these accounting policies require significant judgment, our actual results may differ materially from our estimates.

Our critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and that involve difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The estimates are based on historical experience and on various assumptions about the ultimate outcome of future events. Our actual results may differ from these estimates if unforeseen events occur or should the assumptions used in the estimation process differ from actual results. Management believes there have been no material changes to the critical accounting policies discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016.

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Results of operations

The following tables set forth our condensed consolidated results of operations for the periods presented and as a percentage of our net revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2017				2016				2017				2016
			% of				% of				% of				% of
	$ amount		revenue		$ amount		revenue		$ amount		revenue		$ amount		revenue
Revenue:
APAC	$	4,143,965	33.1	%	$	3,761,918	28.6	%	$	8,237,350	32.6	%	$	7,578,982	28.2	%
The Americas		3,226,629	25.8			2,444,187	18.7			6,195,781	24.5			4,629,561	17.3
EMEA		1,140,372	9.1			1,752,501	13.4			2,510,739	9.9			4,384,295	16.4
Total multi-currency processing services revenue		8,510,966	68.0			7,958,606	60.7			16,943,870	67.0			16,592,838	61.9
Payment processing services revenue		4,005,417	32.0			5,144,770	39.3			8,301,398	33.0			10,195,051	38.1
Net revenue		12,516,383	100.0			13,103,376	100.0			25,245,268	100.0			26,787,889	100.0
Operating expenses:
Cost of revenue:
Payment processing services fees		2,085,445	16.7			2,734,689	20.9			4,201,054	16.6			5,425,913	20.3
Processing and service costs		3,205,246	25.6			3,524,123	26.9			6,397,319	25.3			7,024,791	26.2
Total cost of revenue		5,290,691	42.3			6,258,812	47.8			10,598,373	41.9			12,450,704	46.5
Selling, general and administrative expenses		4,681,705	37.4			5,204,892	39.7			9,969,043	39.5			10,685,606	39.9
Restructuring charges		7,284	0.1			125,268	1.0			72,742	0.3			125,268	0.5
Total operating expenses		9,979,680	79.8			11,588,972	88.5			20,640,158	81.7			23,261,578	86.9
Income from operations		2,536,703	20.2			1,514,404	11.5			4,605,110	18.3			3,526,311	13.1
Other (expense) income:
Interest expense		(92,813)	(0.7)			(83,021)	(0.6)			(209,145)	(0.8)			(97,697)	(0.4)
Interest income		585	0.0			398	0.0			1,108	0.0			822	0.0
Total other expense, net		(92,228)	(0.7)			(82,623)	(0.6)			(208,037)	(0.8)			(96,875)	(0.4)
Income from operations before provision for income taxes		2,444,475	19.5			1,431,781	10.9			4,397,073	17.5			3,429,436	12.7
Provision for income taxes		(474,946)	(3.8)			(149,058)	(1.1)			(1,010,004)	(4.0)			(386,408)	(1.4)
Net income	$	1,969,529	15.7	%	$	1,282,723	9.8	%	$	3,387,069	13.5	%	$	3,043,028	11.3	%

Comparison of the three months ended June 30, 2017 and 2016:

Revenue


	Three Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
APAC	$	4,143,965	$	3,761,918	$	382,047	10	%
The Americas		3,226,629		2,444,187		782,442	32
EMEA		1,140,372		1,752,501		(612,129)	(35)
Total multi-currency processing services revenue		8,510,966		7,958,606		552,360	7
Payment processing services revenue		4,005,417		5,144,770		(1,139,353)	(22)
Net revenue	$	12,516,383	$	13,103,376	$	(586,993)	(4)	%

Net revenue decreased $0.6 million, or 4%, to $12.5 million for the three months ended June 30, 2017 from $13.1 million for the three months ended June 30, 2016. These changes are described below.

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Multi-currency processing services revenue

APAC multi-currency processing services revenue. APAC multi-currency processing services revenue increased $0.4 million, or 10%, to $4.1 million for the three months ended June 30, 2017 from $3.7 million for the three months ended June 30, 2016. The APAC multi-currency processing services revenue key business metrics are as follows:


	Three Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
APAC multi-currency processing active merchant locations (at period end)		18,791			17,743			1,048		6	%
APAC multi-currency processing settled transactions processed		1,936,257			1,680,161			256,096		15
APAC multi-currency processing settled dollar volume processed	$	382,812,486		$	353,077,286		$	29,735,200		8
APAC average net mark-up % on settled dollar volume processed		1.08	%		1.07	%		0.01	%	1	%

The 8% increase in settled dollar volume processed resulted in a $0.3 million increase to revenue and a 1% increase in average net mark-up percentage on settled dollar volume processed which resulted in a $0.1 million increase in revenue. The 8% increase in settled dollar volume processed was due to the 6% increase in active merchant locations.

The Americas multi-currency processing services revenue. The Americas multi-currency processing services revenue increased $0.8 million, or 32%, to $3.2 million for the three months ended June 30, 2017 from $2.4 million for the three months ended June 30, 2016. The Americas multi-currency processing services revenue key business metrics are as follows:


	Three Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
The Americas multi-currency processing active merchant locations (at period end)		83,138			74,408			8,730		12	%
The Americas multi-currency processing settled transactions processed		1,652,115			1,022,961			629,154		62
The Americas multi-currency processing settled dollar volume processed	$	173,035,471		$	116,698,542		$	56,336,929		48
The Americas average net mark-up % on settled dollar volume processed		1.86	%*		2.09	%*		(0.23)	%	(11)	%

(*) For purposes of calculating “Average net mark-up percentage on settled dollar volume processed,” multi-currency processing services revenue includes revenue related to multi-currency transactions only.

The 48% increase in settled dollar volume processed resulted in a $1.1 million increase to revenue which was offset by an 11% decrease in average net mark-up percentage on settled dollar volume processed which resulted in a $0.3 million decrease in revenue. The increase in settled dollar volume processed primarily due to the growth in our e-commerce and ATM offerings.

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EMEA multi-currency processing services revenue. EMEA multi-currency processing services revenue decreased $0.7 million, or 35%, to $1.1 million for the three months ended June 30, 2017 from $1.8 million for the three months ended June 30, 2016. The EMEA multi-currency processing services revenue key business metrics are as follows:


	Three Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
EMEA multi-currency processing active merchant locations (at period end)		17,763			13,836			3,927		28	%
EMEA multi-currency processing settled transactions processed		1,368,864			1,184,961			183,903		16
EMEA multi-currency processing settled dollar volume processed	$	169,877,983		$	192,748,734		$	(22,870,751)		(12)
EMEA average net mark-up % on settled dollar volume processed		0.67	%		0.91	%		(0.24)	%	(26)	%

The 12% decrease in settled dollar volume processed resulted in a $0.2 million decrease in revenue and a 26% decrease in average net mark-up percentage on settled dollar volume processed resulted in a $0.5 million decrease to revenue. The decrease in settled dollar volume processed was primarily due to the activation of new currencies in 2015 which had decreased throughout 2016. The decrease in average net mark-up percentage was primarily due to the repricing of certain agreements in exchange for extended terms and access to other markets.

Payment processing services revenue

Payment processing services revenue is primarily earned from transaction processing services for customers in the Americas. Payment processing services revenue decreased $1.1 million, or 22%, to $4.0 million for the three months ended June 30, 2017 from $5.1 million for the three months ended June 30, 2016. The decrease was primarily due to the culling and low margin processing revenue along with a direct acquiring merchant customer whose transaction volume is being temporarily impacted by a modification of the customers’ business model.

Cost of revenue


	Three Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
Payment processing services fees	$	2,085,445	$	2,734,689	$	(649,244)	(24)	%
Processing and service costs		3,205,246		3,524,123		(318,877)	(9)
Total cost of revenue	$	5,290,691	$	6,258,812	$	(968,121)	(15)	%

Payment processing service fees

The decrease in payment processing service fees of $0.6 million, or 24%, to $2.1 million for the three months ended June 30, 2017 from $2.7 million for the three months ended June 30, 2016 is a direct result of the mix of business within the payment processing service revenue.

Processing and service costs

The decrease in processing and service costs of $0.3 million, or 9%, to $3.2 million for the three months ended June 30, 2017 from $3.5 million for the three months ended June 30, 2016 is primarily due to a $0.1 million decrease in salary compensation and a $0.2 million decrease in multi-currency referral commissions earned by third party agents.

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Selling, general and administrative expenses


	Three Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
Selling, general and administrative expenses	$	4,681,705	$	5,204,892	$	(523,187)	(10)	%

Selling, general and administrative expenses decreased $0.5 million, or 10%, to $4.7 million for the three months ended June 30, 2017 from $5.2 million for the three months ended June 30, 2016. The decrease in selling, general and administrative expenses was primarily due to a $0.3 million decrease in stock-based compensation expense and a $0.3 million decrease in salary compensation. These decreases were partially offset by a $0.1 million increase in professional fees.

Comparison of the six months ended June 30, 2017 and 2016:

Revenue


	Six Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
APAC	$	8,237,350	$	7,578,982	$	658,368	9	%
The Americas		6,195,781		4,629,561		1,566,220	34
EMEA		2,510,739		4,384,295		(1,873,556)	(43)
Total multi-currency processing services revenue		16,943,870		16,592,838		351,032	2
Payment processing services revenue		8,301,398		10,195,051		(1,893,653)	(19)
Net revenue	$	25,245,268	$	26,787,889	$	(1,542,621)	(6)	%

Net revenue decreased $1.6 million, or 6%, to $25.2 million for the six months ended June 30, 2017 from $26.8 million for the six months ended June 30, 2016. These changes are described below.

Multi-currency processing services revenue

APAC multi-currency processing services revenue. APAC multi-currency processing services revenue increased $0.6 million, or 9%, to $8.2 million for the six months ended June 30, 2017 from $7.6 million for the six months ended June 30, 2016. The APAC multi-currency processing services revenue key business metrics are as follows:


	Six Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
APAC multi-currency processing active merchant locations (at period end)		18,791			17,743			1,048		6	%
APAC multi-currency processing settled transactions processed		3,804,755			3,247,806			556,949		17
APAC multi-currency processing settled dollar volume processed	$	757,088,114		$	684,499,493		$	72,588,621		11
APAC average net mark-up % on settled dollar volume processed		1.09	%		1.11	%		(0.02)	%	(2)	%

The 11% increase in settled dollar volume processed resulted in a $0.7 million increase to revenue which was offset by a 2% decrease in average net mark-up percentage on settled dollar volume processed resulted in a $0.1 million decrease to revenue. The decrease in average net mark-up percentage was primarily due to our five year contract extension with Global Payments announced in May of 2015.

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The Americas multi-currency processing services revenue. The Americas multi-currency processing services revenue increased $1.6 million, or 34%, to $6.2 million for the six months ended June 30, 2017 from $4.6 million for the six months ended June 30, 2016. The Americas multi-currency processing services revenue key business metrics are as follows:


	Six Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
The Americas multi-currency processing active merchant locations (at period end)		83,138			74,408			8,730		12	%
The Americas multi-currency processing settled transactions processed		3,186,652			2,149,395			1,037,257		48
The Americas multi-currency processing settled dollar volume processed	$	335,482,549		$	234,076,074		$	101,406,475		43
The Americas average net mark-up % on settled dollar volume processed		1.84	%*		1.97	%*		(0.13)	%	(7)	%

The 43% increase in settled dollar volume processed resulted in a $1.9 million increase to revenue which was offset by a 7% decrease in average net mark-up percentage on settled dollar volume processed which resulted in a less than $0.3 million decrease in revenue. The increase in settled dollar volume processed primarily due to the growth in our e-commerce and ATM offerings.

EMEA multi-currency processing services revenue. EMEA multi-currency processing services revenue decreased $1.9 million, or 43%, to $2.5 million for the six months ended June 30, 2017 from $4.4 million for the six months ended June 30, 2016. The EMEA multi-currency processing services revenue key business metrics are as follows:


	Six Months Ended
	June 30,						Variance
	2017			2016			Amount			Percent
EMEA multi-currency processing active merchant locations (at period end)		17,763			13,836			3,927		28	%
EMEA multi-currency processing settled transactions processed		3,032,301			2,764,981			267,320		10
EMEA multi-currency processing settled dollar volume processed	$	389,080,786		$	470,223,717		$	(81,142,931)		(17)
EMEA average net mark-up % on settled dollar volume processed		0.65	%		0.93	%		(0.28)	%	(30)	%

The 17% decrease in settled dollar volume processed resulted in a $0.5 million decrease to revenue and a 30% decrease in our average net mark-up percentage on settled dollar volume processed resulted in a $1.4 million decrease to revenue.

Payment processing services revenue

Payment processing services revenue is primarily earned from transaction processing services for customers in the Americas. Payment processing services revenue decreased $1.9 million, or 19%, to $8.3 million for the six months ended June 30, 2017 from $10.2 million for the six months ended June 30, 2016. The decrease was primarily due to the culling and low margin processing revenue along with a direct acquiring merchant customer whose transaction volume is being temporarily impacted by a modification of the customers’ business model.

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Cost of revenue


	Six Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
Payment processing services fees	$	4,201,054	$	5,425,913	$	(1,224,859)	(23)	%
Processing and service costs		6,397,319		7,024,791		(627,472)	(9)
Total cost of revenue	$	10,598,373	$	12,450,704	$	(1,852,331)	(15)	%

Payment processing service fees

The decrease in payment processing service fees of $1.2 million, or 23%, to $4.2 million for the six months ended June 30, 2017 from $5.4 million for the six months ended June 30, 2016 is a direct result of the mix of business within the payment processing service revenue.

Processing and service costs

The decrease in processing and service costs of $0.6 million, or 9%, to $6.4 million for the six months ended June 30, 2017 from $7.0 million for the six months ended June 30, 2016 is primarily due to a $0.2 million decrease in salary compensation and a $0.4 million decrease in multi-currency referral commissions earned by third party agents.

Selling, general and administrative expenses


	Six Months Ended
	June 30,				Variance
	2017		2016		Amount		Percent
Selling, general and administrative expenses	$	9,969,043	$	10,685,606	$	(716,563)	(7)	%

Selling, general and administrative expenses decreased $0.7 million, or 7%, to $10.0 million for the six months ended June 30, 2017 from $10.7 million for the six months ended June 30, 2016. The decrease in selling, general and administrative expenses was primarily due to a $0.5 million decrease in stock-based compensation expense, a $0.4 million decrease in salary compensation and a $0.2 million decrease in recruiting expense. These decreases were offset by a $0.4 million increase in professional fees.

Liquidity and capital resources

We currently anticipate that our available cash balances will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next twelve months. However, we may be required to raise additional funds through public or private debt or equity financing to meet additional working capital requirements. There can be no assurance that this additional financing will be available, or if available, will be on reasonable terms and not dilutive to our stockholders. If adequate funds are not available on acceptable terms, our business and operating results could be adversely affected.

Sources of liquidity

As of June 30, 2017, we had approximately $7.3 million in cash and cash equivalents, of which $5.1 million in cash was held by foreign subsidiaries. Currently, if we were to repatriate cash held by our foreign subsidiaries, to the extent that such repatriation was a taxable event, we could utilize a portion of our $56.8 million net operating loss carry forward to offset the tax obligation, so that no U.S. tax liability would arise. However, our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

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Agreement”), contains customary affirmative and negative covenants, including, among others, financial covenants based on the Company’s leverage and fixed charge coverage ratios, as well as an obligation to maintain a minimum availability requirement of at least $5.0 million in the aggregate of cash and availability under the line of credit. The Credit Facility provides funding availability for, among other things, general corporate purposes and repurchases of issued and outstanding capital stock of the Company. During the second quarter of 2017, the Company repaid $9.9 million on the Credit Facility. The Company had no outstanding borrowings under the Credit Facility at June 30, 2017 and was in compliance with all financial covenants contained in the Credit Agreement. The Company had $9.9 million outstanding under the Credit Facility at December 31, 2016.

Capital expenditures

Our capital expenditures related to property and equipment, software development costs, and intangible assets were approximately $0.7 million in the first six months of 2017. The 2017 capital expenditures were primarily attributable to our investment in the business primarily through capital expenditures for network infrastructure and investments in software development and equipment.

Cash flows


	Six Months Ended
	June 30,
	2017		2016
Net cash provided by operating activities	$	3,542,688	$	3,408,978
Net cash used in investing activities		(657,288)		(787,675)
Net cash used in financing activities		(8,907,424)		(6,810,173)

Operating activities

Cash provided by operating activities during the six months ended June 30, 2017 was $3.5 million, comprised of $5.6 million of cash generated by operations and a net decrease in our operating assets and liabilities of $2.1 million. This net decrease in our operating assets and liabilities of $2.1 million primarily consisted of a $1.6 million decrease in accounts payable and accrued expenses, a $0.9 million increase in receivables, prepaid expenses and other assets and a $0.6 million increase in settlement assets. These decreases were partially offset by a $0.5 million increase in due to merchants and a $0.5 million decrease in other long-term assets. Cash generated by operations of $5.6 million was inclusive of net income of $3.4 million and total non-cash charges of $2.2 million. Significant non-cash adjustments to net income primarily include depreciation and amortization expense of $1.0 million, stock-based compensation expense of $0.6 million and deferred tax income tax of $0.6 million.

Cash provided by operating activities during the six months ended June 30, 2016 was $3.4 million, comprised of $5.6 million of cash generated by operations and a net decrease in our operating assets and liabilities of $2.2 million. This net decrease in our operating assets and liabilities of $2.2 million primarily consisted of a $2.9 million decrease in accounts payable and accrued expenses, coupled with a $0.4 million decrease in due to merchants. These decreases were partially offset by a $0.4 million decrease in receivables, prepaid expenses and other assets, a $0.5 million decrease in settlement assets and a $0.3 million decrease in other long-term assets. Cash generated by operations of $5.6 million was inclusive of net income of $3.0 million and total non-cash charges of $2.6 million. Significant non-cash adjustments to net income primarily include depreciation and amortization expense of $1.3 million, stock-based compensation expense of $1.2 million and provision for doubtful accounts of $0.1 million .

Investing activities

Cash used in investing activities for the six months ended June 30, 2017 was $0.7 million, which was primarily attributable to a $0.4 million investment in software development and a $0.2 million purchase of property and equipment.

Cash used in investing activities for the six months ended June 30, 2016 was $0.8 million, which was primarily attributable to a $0.7 million investment in software development and a $0.1 million purchase of property and equipment.

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Financing activities

Cash used in financing activities for the six months ended June 30, 2017 was $8.9 million, comprised of $1.3 million in proceeds from issuance of common stock offset by $9.9 million of credit facility repayments, $0.2 million in payments for capital leases obligations and $0.1 million in common stock repurchases for tax withholdings.

Cash used in financing activities for the six months ended June 30, 2016 was $6.8 million, comprised of $17.8 million of treasury stock repurchases, $13.9 million of credit facility borrowings, $4.0 million of credit facility repayments, $0.2 million in payments for capital lease obligations, $1.9 million in proceeds from the issuance of common stock and $0.7 million in common stock repurchases for tax withholdings.

Stock repurchase program

For additional information on the Company’s stock repurchase program, refer to Note 16 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Contractual obligations and commitments

As of June 30, 2017, there were no material changes in our contractual obligations and commitments as disclosed in our financial statements for the year ended December 31, 2016, except for an Amendment to Credit and Security Agreement and related Revolving Promissory Note with Citizens Bank, N.A. entered into in February 2017 relating to the Credit Facility previously described.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.

Effects of inflation

Our monetary assets consist primarily of cash and cash equivalents and receivables, and our non-monetary assets consist primarily of property and equipment, software development, intangible assets and deferred tax asset, which are not affected significantly by inflation. We believe the replacement costs of property and equipment will not materially affect our operations. However, the rate of inflation affects our expenses, which may not be readily recoverable in the prices of services we offer.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk

We had cash and cash equivalents totaling $7.3 million and $13.3 million as of June 30, 2017 and December 31, 2016, respectively. The cash and cash equivalents are held for working capital purposes. We did not have any derivative financial instruments as of June 30, 2017 and December 31, 2016. We are not exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates given the historic low levels of interest being earned on the short-term fixed-rate cash operating accounts. In addition, the interest rate on our Credit Facility borrowings are based on LIBOR plus a margin of 2.5%. Any material increases to LIBOR could negatively impact our interest expense on our Credit Facility.

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Foreign currency exchange risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. Dollar, principally the Hong Kong Dollar. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we have experienced and will continue to experience fluctuations in our net income as a result of transaction gains (losses), we believe such a change would not have a material impact on our results of operations as Hong Kong is not considered to be a highly inflationary or deflationary economy and historically the Hong Kong Dollar has traded in a very narrow band of exchange rates against the U.S. Dollar. Based upon our annual historical financial statements, for every 1% change in the exchange rate between the U.S. Dollar and the Hong Kong Dollar, our net income would be impacted by approximately $11,000 and the carrying value of assets on our balance sheet would be impacted by approximately $0.1 million.

In the event our foreign sales and expenses increase and expand into other currencies, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. At this time we do not enter into derivatives or other financial activities in an attempt to hedge our foreign currency exchange risk, but may do so in the future. It is difficult to predict the impact any hedging activities would have on our results of operations.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the second quarter of 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting means a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in legal proceedings in the ordinary course of business. While any litigation contains an element of uncertainty, we have no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of Planet Payment.

Item 1A. Risk Factors

There were no material changes to the Company's risk factors as disclosed in Item 1A - Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities


						Maximum Number
				Total Number of		(or approximate
				Shares Purchased		dollar value) of
				as Part of Publicly		Shares that May Yet
	Total Number of		Average Price	Announced Plans		be Purchased Under
Period	Shares Purchased		Paid per Share	or Programs(1)		the Plan or Programs
April 1-30, 2017	—	$	—	—	$	10,000,000
May 1-31, 2017	—	$	—	—	$	10,000,000
June 1-30, 2017	—	$	—	—	$	10,000,000

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Item 6. Exhibits

(a) Exhibits

Exhibit

Incorporated by Reference

Filing

Filed/Furnished

Number

Exhibit Description

Form

File No.

Exhibit

Date

Herewith

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

* This exhibit is being furnished and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		PLANET PAYMENT, INC.
		(Registrant)

Dated: August 9, 2017	By:	/S/ CARL J. WILLIAMS
		Carl J. Williams
		Chairman of the Board of Directors and Chief Executive Officer
		(Principal Executive Officer)

Dated: August 9, 2017	By:	/S/ RAYMOND D’APONTE
		Raymond D’Aponte
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit

Incorporated by Reference

Filing

Filed/Furnished

Number

Exhibit Description

Form

File No.

Exhibit

Date

Herewith

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.