On February 25th, NamSys 2020 results were released. NamSys achieved 15% revenue growth in what was a very difficult year for many businesses. When I look back to the beginning of 2020 I was forecasting 0 revenue growth. Things were so uncertain in March. The revenue growth NamSys achieved is solid considering in March they were reporting a 10% decline in smart safe revenue, which is their biggest revenue generator.
Brinks Complete launched in 2020 providing NamSys a much larger total addressable market.
The employee long-term bonus plan was resolved in early 2021 with the expense fully captured in 2020. This will result in a profitability increase in 2021 that could draw more eyes to the company.
I also spoke with COO Jason Siemens. I will describe our conversation in follow up post.
- Previous NamSys Posts:
- NamSys Q3 2020
- NamSys Q2 2020
- Cirreon Banking: The 2nd NamSys Product Brinks is Launching
Disclosure: I own shares of CTZ.V and recently added to my position.
NamSys 2020 Results: Balance Sheet
The company continues to operate without any debt. $3.95 million needs to be deducted from the balance sheet to account for the resolution of the long-term employee bonus plan. This leaves the company with $2.3 million in cash. I’ve discussed the bonus plan at length on previous posts but will give it a little bit more attention later in this post.
In Q1 2021 we should see the adjustment on the balance sheet to satisfy the bonus plan creating a much simpler and cleaner story for NamSys investors.
NamSys 2020 Results: Income Statement
In 2020 NamSys grew revenue by 15% despite a very uncertain beginning to 2020. In the annual general meeting presentation, NamSys reported a 10% decrease in smart safe revenue. Considering smart safe revenue makes up the largest portion of revenue this was concerning. For my MicroCapClub application, I valued NamSys on zero revenue growth for 2020 and still found it an attractive investment.
On the spring call, management said that a large portion of their customers were deemed essential. A large portion of their customers are gas stations and quick-service restaurants. These businesses remained open which helped keep NamSys’s revenue consistent and growing in 2020. Having a portion of their revenue coming from essential businesses provides a strong base should another U.S. lockdown occur.
Quarterly revenue has grown for 12 consecutive quarters. This is a great sign of a healthy business with strong recurring revenues. Recurring revenue was 99.2% of revenue in 2020. This type of consistency shows me there is very little churn within their customers (although I don’t have an exact figure to provide). Trading at an enterprise value to sales of 5.3x I think NamSys is fairly valued and undervalued if revenue growth climbs North of 20% again.
NamSys 2020 Results: Cash Flow Statement
As of October 31st, the plan was decided upon but the cash hadn’t been paid out yet. This will resolve itself in Q1 financials.
The bonus plan expense is a one-time expense and makes it difficult to compare 2020 to past years. I removed the employee bonus plan expense from NamSys 2020 results to get a better picture of what future years can look like without the overhang of the bonus plan. To calculate a normalized 2020 I removed all long-term bonus plan expenses that show up on the income statement. This made the most sense to me.
So after removing the employee long-term bonus plan expense and paying a full 26.5% in taxes NamSys had a net income of $1,629,231. This is a 25% increase over 2019 ($1,298,997). Selling expenses were very low in 2020 and this is likely not repeatable. I anticipate selling expenses to increase back to a more normal number in 2021 and beyond when business travel opens up again.
I also wanted to see what the past five years look like with the employee long-term bonus plan spread out over the previous 5 years. The plan was initiated in 2015. This would give a more accurate picture of the past 5 years results,
I felt this was the most consistent way to measure the company over the past 5 years so I divided the bonus plan expense equally over the past 5 years. I also used charged the full 26.5% in taxes even though in most years NamSys was able to use past losses to offset taxes.
When the $790,000 expense is factored into the past 5 years net operating profits after tax takes a major hit. It doesn’t take a rocket scientist to figure that would happen. The future for NamSys looks much brighter now that the bonus plan has been resolved and net income is no longer impacted.
Employee Long-Term Bonus Plan
The employee long-term bonus plan was created in 2015 as a way to reward employees when the company is sold (or a change of control event occurs). If the company were sold, employees would be given 15% of the purchase price.
The plan was amended in 2019 so that COO Jason Siemens could still participate in the plan even though he had become a board member. The amended plan also allowed COO Siemens to receive his portion of the plan (15%) at the end of 2021 whether a change in control occurred or not.
While this plan clearly did not benefit shareholders I think it did serve a purpose, mainly retain important employees. I have written before that if an investor could not get comfortable with the bonus plan they should pass on NamSys. The uncertainty surrounding the plan and the eventual payout was a major hurdle to many investors.
The first rumblings that the plan might change was at the AGM in April 2020. CEO Sparks said they were looking at other options for the plan. Then in the fall of 2020 CEO Sparks said in an email that they were working on resolving the plan. This would lead to a one-time earnings impact.
My hope was the plan would be resolved mainly with cash, since NamSys had enough cash on the balance sheet. I felt it was important to retain NamSys share count which hadn’t changed since 2011.
It was suggested to me that an equity component would be good since it could help retain employees that are in high demand (software developers).
In January 2021 the official resolution was finalized. 3/4 of 15% of NamSys’ market cap would be paid in cash and 1/4 in shares. In total $3.95 million is needed to complete the resolution. This seemed reasonable and leaves plenty of cash to operate the business and minimize dilution while aligning employees.
To satisfy the equity portion NamSys purchased the equivalent amount of shares directly from the CEO. I thought this was a clever way to settle the share portion. The CEO gets to sell of his shares in an illiquid company without flooding the market with shares. The resolution ends up being all cash and zero dilution and employees own more of the company. My opinion is NamSys is more valuable 2-3 years from now so I’d rather they settle the bonus plan now than 3 years from now.
All things considering I was happy with the results NamSys produced in 2020. They grew revenue 15%, resolved the bonus plan, maintained profitability (when the bonus plan expense if backed out) and are positioned for growth in 2021 with the launch of Brinks Complete/Cirreon Banking.
Brinks 2020 Earnings Presentation
Since Brinks provides nearly 40% of NamSys’s revenue I think it’s important to keep an eye on Brinks and how they are performing. The launch of Brinks Complete is clearly a focal point for Brinks. Brinks Complete is a more affordable solution than Brink’s smart safe. Brinks believes that more of their customers can be served by a lower cost option like Brinks Complete. Cirreon Banking is the technology behind the Brinks 24Seven app which is used to manage the customers Brinks Complete account.
A huge portion of U.S retail locations are not served by the cash management industry. The solution for these retailers is Brinks Complete. Many retailers can’t justify the cost of a smart safe and the corresponding fees but could still benefit from next-day credit, more efficient cash consolidation and fewer trips to the bank. This is where Brinks Complete fits in.
Brinks only began piloting Brinks Complete in 2020 and have already have 3,200 customers. It is clear from listening to the conference call and looking through the earnings presentation that Brinks Complete is a focal point for Brinks and a major driver of growth for the company.
Brinks Conference Call Notes
There were some good quotes from the conference call that I’d like to highlight:
“And finally, our 2.4 digital payment solution integrates our cash management offerings with retailers, others — other payment methods to provide a unified solution for small and medium-size retailers. For example, companies like square and many other digital payment processes are solely focused on processing noncash payments with a solution — without a solution for cash, which is, in Square’s case, it’s estimated that about 1/3 of their customers use cash as a form of payment in their retailers’ stores.“CEO Doug Pertz, Brinks February 23rd, 2021 Conference Call, Source: TIKR.com
I think this is an important point. While you can track your cash acceptance on Square that is all it does. Square does not assist with the processing of cash nor does it communicate with cash-in-transit companies to arrange pickup or coin requests. Directly from the Square website:
There’s no fee to accept other tender types. When you accept other tender types, Square doesn’t process any funds and functions only as an organizational tool. Money for these transactions are exchanged directly between you and your customer and will not be transferred by Square.Square Support
Treating Cash Like Debit and Credit
Brinks Complete gives businesses the ability to treat cash like credit and debit. This is a huge advantage when compared to traditional cash acceptance and deposit. Cash is more expensive to process than credit and debit. Brinks Complete is lowering the cost of managing a customers cash to a level similar to debit and credit:
Brink’s provides advanced credit on cash deposits with the next day — the next day, regardless of who the retailers’ banking partner is. And allowing customers to access cash quickly just like debit and credit cards. Because Brink’s monitors the retailers — the retail customers’ devices in real time, we can plan fewer trips to the store to empty that device without disrupting the store or the employees and their customers. All these services are included in a single monthly subscription.
These are strategic account targets that have been historically underserved by the industry, walking their deposits to the bank at great risk. These accounts also typically deposit their cash at several different banks around their network, a huge source of labor cost and potentially bank fees. With 2.1, we can ensure that all deposits are settled in the customers’ bank of choice.CEO Doug Pertz, Brinks Februery 23rd, 2021 Conference Call, Source: TIKR.com
This is another huge advantage for businesses. Cash deposit and reconciliation is simplified saving customers time and money. Picture a regional fast food company with locations throughout the South West. Each branch physically carries their deposits to their local bank. Their accounting department then has to reconcile the cash deposits from multiple states and multiple branches. Brinks Complete accomplishes this for the customers and they are credited for the cash they are depositing before it ever hits the bank.
I know in 2020 I have focused a lot on Brinks Complete. I think it is a big opportunity for NamSys but it won’t just be Brinks selling a product like Brinks Complete. Other cash-in-transit companies will be following suit and offering to their customers. Smart safes are not a fit for all customers. Cirreon Banking by comparison is much more flexible with different options to the customer, including not having hardware at all.
NamSys 2020 Results: Conclusion
All things considered, it was a pretty successful year for NamSys. The elephant in the room for NamSys will always be cash use decline. The trend is real and I am not denying it exists. Personally, I use cash very little in my day-to-day life but I know a big portion of the population still relies on it. I don’t think this changes anytime soon and it should be a concern for NamSys investors.
Last fall I was in a Sportchek (a Canadian sports equipment and apparel retailer). I asked about their cash management system. Everything they did was done manually and picked up by Gardaworld. I described the functionality of a smart safe and the dashboard and the manager thought it was a wonderful idea. Instead of two managers having to count cash manually it could be done faster and cheaper by a smart safe. NamSys and smart safes have been around a long time but market penetration still remains low. If a large retailer like Sportchek can’t justify a smart safe Brinks Complete may be the solution.
Part II will be posted soon with my talk with COO Jason Siemens.
I purchased more shares on March 12th before close. I remain bullish on NamSys and think 2021 will be a strong year.
Do Your Own Research | Disclaimer
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
I swear I proof read all of my posts multiple times but always seem to miss errors. Apologies in advance.