PAYS - PaySign: Plasma Donations Are Increasing Again

Summary

• PaySign is a microcap stock with a market cap of $177.12 million that has rewarded its investors with 68.0% returns over the last year.
• Before COVID-19, PaySign reported upward-trending top and bottom line results for five consecutive years.
• Strong plasma industry tailwinds and a growing pharma business segment have allowed for YoY growth of 36.4% from Q3 2021.
• Cautious of the revenue dependency on one industry.

PaySign, Inc. ( PAYS ) is a micro-cap card and payment solution with a market cap of $177.12 million. Over the last five years, it has rewarded investors with returns of 347.30%. Before COVID-19, it showed incredibly positive top and bottom-line upward trending performances for five consecutive years. However, 90% of its business is from its plasma card programs on which individuals are paid money for donating plasma. Due to COVID-19 economic relief , the number of donors dropped massively. Therefore, financials took a significant hit in 2020 and have not yet fully recovered. However, the incentive to donate plasma has increased again as individuals face an inflationary market increasing everyday living costs; furthermore, since September 2022, Mexican citizens have been allowed to donate in the US centres. These tailwinds and a growing number of new customers to the pharma card programs have led to YoY growth of 36.4% from Q3 2021.

TTM revenue is at an all-time high of $36.2 million, and TTM earnings are positive. As tailwinds continue to guide performance, and the management team plans to add 3 to 4 new agreements every month, this stock has a lot more upside potential. Investors may want to take a bullish stance on this company.

Overview

PAYS was founded in 1995 in Nevada, a provider of prepaid card programs and integrated payment processing services for corporate, consumer, and government solutions. The company generates revenue through various fixed and variable fees, including cardholder fees, interchange, card program management fees, transaction claims processing fees, and settlement income.

Its sales are primarily from its plasma card programs for plasma donation centres accounting for 88% of total sales in FY21. For those unfamiliar with these centres, the USA is one of the few countries worldwide to pay people to donate plasma. As an alternative to cash dispersion, the cash can be put on these payment cards and used at any VISA facility.

If we first look at its plasma card program, we can see that the company has 450 centres as customers. This is about 40% of the market share. There are approximately 1200 centres in the USA this year. The number of centres has tripled since 2009, with growth expected to continue at 100 to 120 new centres opening yearly. The typical donor is low-income and incentivised by monetary reward. Although the industry is impacted by inflation due to increased costs, these same inflationary headwinds are tailwinds that increase the number of people donating for financial rewards. Another tailwind is the previous ban on individuals with tourist visas being compensated for granting, which has been lifted since September 2022, and the business has benefited from Mexican nationals donating at centres in border towns.

Secondly, there are the pharma card programs, which assist individuals who need to pay for drugs at pharmaceuticals by providing alternative payment models, copay solutions, and medical benefits. The revenue increased due to a new direct network connection with Mastercard and a new copay program.

Organisations choose PAYS solutions to help streamline costs, reduce administration, and drive revenue. Its offerings play into a huge market potential with a lot of growth potential. Furthermore, although relying mainly on one industry is risky, plasma is critical in many therapies and will continue as an essential source.

Financials

Plasma donation centres are PAYS's dominant customer. These centres crumbled under the COVID-19 pandemic, and we can immediately see the negative impact on the business' upward trending top and bottom line performance. Revenues dropped from $34.4 million to $23.7 million, and after four consecutive years of profitable earnings, PAYS reported significant losses.

However, the business has been steadily increasing, pushed on by tailwinds from more people going to donation centres due to the monetary incentives helping them in the increasingly expensive inflationary environment, and the ability for Mexican citizens to donate blood in the US donation centres. TTM is at $36.2 million, which is above the FY19 revenues.

TTM revenue is $36.2 million, and we can see that the plasma card program continues to be the dominant contributor to revenue every quarter.

From a net income perspective, we can immediately see the impact of relying heavily on one industry as a customer. The COVID-19 pandemic halted plasma donation, many centres closed down, and PAYS reported a loss of $9.1 million. Net income took a significant hit, although it is upward trending again with a positive TTM net income of $400,000.

If we look at the company's cash flow, we can see that although FY20 was a challenging and unprofitable year, it maintained a positive cash flow of $900,000, and the TTM cash flow is positive at $700,000. This is good to see because the money can be used to grow the business, pay off expenses and return to shareholders.

The balance sheet shows us a total cash of $7.98 million and a total debt of $3.76 million. If we look at the company's liquidity, we see a current ratio of 1.09. However, the quick ratio is way below one at 0.14. This means that the business needs more liquid assets if it were to have to pay off short-term liabilities. According to management, if it excludes restricted cash and card funding liability, the current ratio is 2.21.

Although PAYS has improved its valuation over the last six months from a D+ to a C on Seeking Alpha's factor grades, we can see it has a very unattractive price-to-earnings ratio of 418.98. However, the growth rate of 29.45% YoY is one of the highlights, and the gross profit margin of 55.84% is a significant recovery from FY2020 and higher than pre-COVID-19. The stock has also been performing above the SP500 index over this year's short and long term.

Risks

Although PAYS was delivering solid results for five consecutive years, we saw the risk of relying on one dominant source of revenue during the COVID-19 pandemic, the business completely fell apart and had to rebuild its way up, two years on, and it is still in recovery mode. It has not significantly diversified its revenue, which remains a risk to its future performance. The USA is one of the few countries which provide monetary incentives for plasma donors. If the regulatory environment were to change, it could majorly impact the company's growth potential. Its plasma donation centre customers rely on individuals with low income to take time out of their days, at least two hours, for a relatively small amount of money. Any easier solution, such as the COVID-19 economic relief, removes the majority of the plasma donors.

Final Thoughts

PAYS is en route to a solid financial year finish thanks to plasma donation centres opening up again, a growing number of customers, and favourable tailwinds improving the number of individuals heading back to donate blood. While the company depends mainly on its plasma pay card program, pharma is showing growth potential, and the business is improving its top and bottom line performance. For this reason, investors may want to take a bullish stance on this company.

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