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NamSys Q1 2021 Results & AGM

NamSys Q1 2021 results were released on March 30th.

Revenue grew slightly quarter-over-quarter but declined sequentially for the first time in 12 quarters.

NamSys held its annual general meeting on April 29th. There was some interesting information about COVID impacts, international growth and hiring difficulties.

My full year 2020 post can be found here and my interview with COO Jason Siemens here.

Disclosure: I own shares of CTZ.V

NamSys Q1 2021: Balance Sheet

NamSys Q1 2021: Balance Sheet

75% of the employee’s term bonus plan has been paid out to employees. 25% remains which equates to close to $1 million that will be used to purchase shares from CEO Barry Sparks and distributed to employees giving them an equity stake in the company.

The non-current trade receivable is new for NamSys. While it is a small amount of money it comes from a foreign customer. The company wants to expand internationally in 2021 so I’ll be watching to see if this becomes a greater issue if international revenue increases.

NamSys Non-Current Asset
Non-Current Asset

NamSys Q1 2021: Income Statement

NamSys Q1 2021 Income Statement

After the conversation I had with COO Siemens, found here, I thought Q1 was a little light on revenue. COO Siemens described being overloaded with new business that they were still working through at the time of our conversation in March. Q1 2021 was the first quarter after 12 or 13 consecutive quarters of revenue growth.

During the AGM conference call I asked about Q1 revenue. COO Siemens directed me to one of the slides from their presentation.

NamSys 2021 AGM Presentation
NamSys 2021 AGM Presentation

I prefer Canadian companies that do the majority of their business in the U.S. but this does come with some exchange rate risk and the Canadian dollar is performing well compared to the historical U.S/CAD exchange. In Q1 revenue was 9% higher than Q1 2020 but down 0.8% compared to Q4 2020. If you add in the 3% difference in the exchange rate from January 31st, 2020 to January 31st, 2021 NamSys did grow revenue 2% over Q4 2020. The USD has only weakened since January 31st, 2021 when NamSys concluded its Q1 so I expect a continued drag on NamSys revenues compared to 2020.

I suspect NamSys is showing some signs of a COVID hangover. To me, it looks like customers that had yearly contracts with NamSys did not renew in 2021 after year-end and new customers offset the churn resulting in a flat quarter. Surprisingly the market didn’t really react to what I felt was a weak quarter.

Deferred revenue is also down 14% compared to Q1 2020. NamSys classifies deferred revenue as:

Deferred Revenue

So add back 3% for the exchange rate and deferred revenue is down 11% year over year. As I’m writing this I felt like it was a sign of weakness ahead but as I look back on revenue growth and deferred revenue growth there are years where Q1 year over year deferred revenue growth is down but NamSys streadily grew revenues that year. 2017 to 2018 and 2018 to 2019 are examples of that.


NamSys Q1 2021: Cash Flow Statement

NamSys Q1 2021: Cash Flow Statement

The cash flow statement shows the big cash outflow required to settle 75% of the bonus plan. Q2 2021 will also be a negative cash flow quarter as they settled the remainder of the plan in Q2 and then finally no more employee long-term bonus plan confusion. Ending Q2 2021 NamSys should have around $2.5 million in cash.

2021 Annual General Meeting

NamSys held its Annual General Meeting on April 29th. This is the first time we have heard from management since the 2019 AGM since they didn’t hold a fall investor update. I’ll summarize the meeting:

  • NamSys was negatively impacted by its inability to attend industry trade shows. This is one of their main customer acquisition channels. Unfortunately, I don’t see this changing much in 2020. The U.S seems to be much further ahead than Canada in terms of re-opening and since NamSys is a Canadian-based company they are influenced by the Canadian COVID recovery. Virtual conferences were not as effective as in-person so NamSys alternatives to the traditional sales channels.
NamSys Revenue Mix Slide
NamSys AGM Presentation
  • In the past eight quarters, NamSys has seen revenue growth in each segment sequentially. 13% and 9% growth aren’t huge numbers for their most mature products but they are still growing and very profitable. It appears that if NamSys wants to return to 20% plus growth it will be coming from CIT and Cirreon Banking.
  • NamSys will be negatively impacted by the improvement of the Canadian dollar versus the U.S. dollar.
  • NamSys saw growth with new CIT customers that service industries like the rapidly growing cannabis space. Cirreon was the preferred solution because it is a turnkey solution for both cash management and logistics with the actual CIT trucks.
  • In 2020 NamSys was not able to attend the international trade shows they had planned so little international expansion occurred in 2020. NamSys envisions hiring someone in international regions in the coming year. One difficulty NamSys is facing with international expansion is justifying the cost of software to customers. In countries where labour costs are low, it can be difficult providing adequate value to customers.
  • There is still room to grow in the North American market, both with acquiring net new customers and upselling current customers.
  • Banks outsourcing cash management will continue and NamSys continues to grow as CIT companies take over regional banks’ cash logistics.
  • Smart Safe growth was impacted by COVID as traditional retailers, like shopping malls, haven’t fully opened. COO Siemens expects smart safe growth to return to 2018-2019 numbers (18%) once retailers invite service providers back into their stores.
  • Hiring continues to be challenging. In order to attract and retain employees, NamSys will be issuing stock options as part of employee compensation. Large tech companies are resuming project that was put on hold due to COVID and are ramping up hiring making hiring even more difficult for NamSys.

My Thoughts

There were more questions I was hoping to ask but had some technical difficulties and was unable to ask them. I did find it odd that the potential of Cirreon Banking was not discussed. I tend to think this was NamSys remaining conservative and staying away from discussing anything to do with Brinks. Brinks remains committed to increasing penetration in the U.S. using Brinks Complete. I had hoped to see higher than 22% growth for Cirreon Banking but Brinks has explained that rollout has not progressed as fast as they would like.

Management Change

On April 29th NamSys announced that CEO Barry Sparks would be transitioning to Executive Chairman and COO Jason Siemens would become the CEO. Controller Christie Gray will become the COO. I was not surprised by the announcement. By all accounts Jason has been running the company since I began following NamSys a few years ago. This was also reflected in CEO versus COO compensation.

It will be interesting to see if capital allocation changes with Jason in charge. Now that the employee bonus plan is resolved the company might be more willing to spend some of the cash they continually generate to drive growth. In a past conference call, CEO Sparks mentioned they assessed 6 acquisitions and did not like the risk. Whether it’s through acquisition or spending more to drive their own organic growth it will be interesting to see what 2021 brings for NamSys.

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This Post Has 2 Comments

  1. mike

    Dear Blair,

    Thank you for another interesting NamSys post.

    What is your opinion about the new employee stock option plan? One of the biggest reasons why I have decided to purchases NamSys shares was the non-dilutive nature of the company and this appears to be gone now. Also, it was a little sad to see that John Siemens (I believe the previous president and father of Jason, the current one) selling around 1.5M worth of shares at the end of 2020 and neither Jason Siemens nor other insiders buying any (from the limited data I see on the internet).

    Options have asymmetric risk-reward profile and often are granted without any “real” cost to the management – so they encourage reckless behaviour and short-term nearsightedness (making a terrible acquisition to boost revenue or cooking books just so that they meet the payout requirements regardless of the long-term costs). Companies also like to pretend like options and share-based compensation are not a real expense, which is not true and can be very costly to long-term shareholders (reverse compounding).

    Constellation software (CSU) does not issue new shares and instead requires part of the bonus to be used to purchase its shares on the open market and be held in place for a specific lock-up period. I think Converge technology (CTS) is trying to do something similar. Other companies like Brascan / Brookfield (BAM) used to pay very modest salaries but would provide large loans and encourage management to buy into the deals/company to ensure correct alignment of interests.

    I had several bad experiences with TSX companies where misaligned CEOs and management made out like bandits from options by leveraging up businesses with overpriced acquisitions/capex and eventually bankrupting the company and/or diluting their shareholders into nothing (while the CEO got convenient margin call in some carribean jurisdiction ahead of the quarterly reports… “forcing” them to sell all of their holdings before ruining everyone else after the news release…).

    During your interview with the management, did they explain their compensation strategy and why they chose the previous bonus plan and now their option plan?

    Have a wonderful day!

    1. Blair

      Hi Mike,

      Thanks for reading my post and the insightful comment.

      As for John Siemens selling his shares, I believe they were purchased by a hedge fund called Topline Capital Management. I spoke with Collin McBirney from Topline and he likes the company for all the same reasons most NamSys investors do, recurring revenue growth, non-dilutive, well-managed company.

      As for the option plan, I did send Jason an email after I read the management circular. I expressed disappointment that the share count would be rising. I have always felt that the share structure is one of NamSys’s biggest advantage. Jason replied the following:

      “Hi Blair, thanks for reaching out. I understand your concern regarding dilution. Options are more tax-efficient for the employee (which indirectly makes them a less expensive incentive for the company) but more importantly, they are not necessarily dilutive if the company has cash-on-hand sufficient to redeem the options when they are exercised.”

      So it looks like they are willing to buy back the shares once options are exercised. I think I would prefer the CSU plan instead as the costs are known while the finals costs of options compensation will not be known until the options are exercised and redeemed by NamSys.

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