TIO Networks (fka TNC)

[junkHustler]

TIO Networks Corp CEO Hamed Shahbazi on Banking the Unbanked

TIO Networks Corp (TSX.V:TNC) (OTCMKTS:TNCGF) CEO Hamed Shahbazi from the President’s Club Investment Conference at the Atlantis Resort in Nassau, Bahamas, where he talks about TIO’s growing revenue base and margins.

James West: Gentlemen, thanks for joining me today.

Hamed Shahbazi: Thank you.

Hamed Shahbazi, John Lewis: It’s a pleasure to be with you.

James West: Why don’t we start with, we talked to you about a year ago. You’ve obviously been executing on your business model. Why don’t we refresh the memories of my listeners with the value proposition for investors from TIO.

Hamed Shahbazi: Great. We are a multi-channel bill payment network, and what we do is we help billers, which are guys who issue bills, large wireless, cable, utility companies, we help them get paid. So we’re as much of a payment processor as we are a receivables manager. We basically sit on their back office, on the back of their billing system. We work with whatever billing system that they have, whether it’s an SAP or Oracle or Mdocs system, and then we basically help them accept and collect from various different channels that are outside of the bank channel, and outside of print and mail.

So if they’re paying with a credit or debit card, if they’re paying you cash, if they’re paying in any of those alternative channels, which can be anywhere from 20 percent to 100 percent of a biller’s receipts, that’s the area that we play.

We’ve basically changed from being a small specialty niche processor to being a very essential back office partner for a biller, and that’s really what’s happened over the last few years.

James West: Sure. And who is your typical customer in terms of the non-corporate side? So on the customer-facing side?

Hamed Shahbazi: You know, it tends to be low-to-moderate income folks who wait till the last minute to pay bills. That falls in line with a lot of our strength, because the two basic problems that we solve as a company is access and speed for that payment. So if you pay with TIO, one of the hallmarks of our service is that we get the payment posted quickly. So you can confidently wait till the very last minute to pay with us, and we will make sure that that payment posts. So we have a low latency payment, and then access is, we allow customers to pay at many different types of locations and web experiences. So we have 22 mobile programs, we have a web platform called chargesmart.com where you can pay any bill with any card, or 70,000 locations where you can originate the payment. So a lot of payment options where we can originate payments into our network.

James West: Mm-hmm. And so how do you make money?

Hamed Shahbazi: We basically charger per transaction. We are either charging the customer, or we’re charging the biller. In some cases, depending on what the circumstances are, it’s a blend of both.

James West: Okay. So give me a snapshot of your financial condition last quarter and where it’s going in the near term.

Hamed Shahbazi: Sure. I mean, our last quarter that was actually disclosed was our Q3, which was the three-month period ended April 30th. We’re on a fiscal end that ends July 31. So actually our full year results come out later this November. That’s going to be important news for us. Our last quarter, we’re roughly 13.6 million in top line revenue for that quarter. We had about 1 million in adjusted EBITDA, so we’re on a $4 million adjusted EBITDA run rate, and we demonstrated some nice growth in gross margins, some nice growth in EBITDA margins, and that’s just our own stand-alone EBITDA, notwithstanding the acquisition we just made, which makes a nice contribution to EBITDA post-close.

James West: Right. So your share price has more than doubled in the past year. Is that the kind of growth that investors should expect to see going forward into the next year or two?

Hamed Shahbazi: That’s a great question. I mean, what we’re seeing is that our deal flow is improving, we’re seeing a lot of, our watch list has become stronger. Obviously, we’ve indicated numerous times that we are committed to growing organically and inorganically, and our organic growth in terms of transactions over the last couple of years has been healthy double-digit growth as well. So I would say that we do expect to do more deals, and our objective is to continue to maintain a strong growth rate, but we’re also very committed to being disciplined. We’re not going to be that company that goes out, just because they feel like they need to grow, and do a bad acquisition. We’re really sort of subscribing to that constellation software in-house mentality in terms of doing very strong accretive disciplined deals, and then being very focused on taking the cost out post-transaction and making sure that we get synergies from those acquired assets.

James West: So where do the major risks like for you, from an investment standpoint?

Hamed Shahbazi: I think we de-risked the company tremendously over the last couple of years. Couple of years ago, we had more customer concentration, we had some bigger customers that were a bigger share of our revenue by virtue of both the organic and inorganic growth that we’ve had. We’ve really de-risked that tremendously, so I feel a lot better about that.

The risk in our business tends to – when we start business with a new customer – tends to be during the integration phase, because there’s a lot of friction there, it’s a heavy development effort. But once you get through, it’s kind of like an SAP integration, you know, if you actually get through and get it done, the chances of you coming out afterwards are quite low. And so those are really the operational risks in our business.

But you know, we live in a hyper-regulated world, so I would say that if there are significant changes in regulation, those could affect our business. But I think that the regulators tend to be quite thoughtful about how they manage those areas in our business, and we feel confident that we have a good risk profile for our business. We continue to focus on de-risking that as we make more acquisitions and as we —

James West: Okay. So how are you going to continue to grow the business? How are you going to attract new business, and what’s going to drive growth into the numbers that you’ve delivered so far?

Hamed Shahbazi: Well, I think we’re committed to both organic and inorganic growth, so I think what you’re going to see is a focus on the same types of transactions from an M&A perspective where we’re looking to do deals in sort of that 5, 6 times EBITDA range. And you know, I think another nice thing is that once we do acquire post-transaction, it does take years to get all the full synergies out. So we really kind of segment – and I talk about this because of your question about growth, I take that within the context of organic profitability growth as well as top line growth, and really one of the hallmarks of the story is, when a deal’s done and you get that immediate profitability or accretive profitability, that’s not the end of the story. That’s something that we’re committed to, is really getting the most out of shared services, and really driving optimum levels of cash flow from these acquired assets.

So we think that’s a part of our profit enhancement profile. The other interesting thing that happens when we acquire a business is that it opens up a whole new group of customers for us to go in and sell our other channel capabilities. So for example, a company we just acquired, Softgate, whom hopefully will have all of the regulatory approvals within the next couple of months, is a single-channel player; all they do is point of sale, over-the-counter payments. And they serve some of the top billers in the US, from cable to utility and telecom. It gives us an entrée to go in and say listen, now we have a relationship with you, we speak to your billing system, what are you doing for mobile payments? What are you doing for self-service kiosks? What are some of these other emerging self-service automated forms of transacting that we can help you with?

And because we’ve overcome- because now we speak to their billing system by virtue of the acquisition, it becomes a way that we can grow. I’ll tell you why that’s important: because one of the hallmarks of our business is very sticky and it’s very hard to lose customers, but it’s also hard to acquire customers because of that stickiness and getting into the billing system. And so M&A opens that door for us.

James West: Right. So would you categorize TIO then as a consolidator of a niche bill-payment for the un-banked category?

Hamed Shahbazi: I think there’s a value of one that comes with TIO. What I mean by that is, if you’re a biller, you don’t want to have a separate processor for kiosk, point of sale, mobile, web, bank, you know, you’re not an IT company; you don’t want to have all these disparate processing connections. So I think there’s a real value proposition for the biller to work with a company that has those.

http://www.midasletter.com/2015/12/tio-networks-corp-ceo-hamed-shahbazi-on-banking-the-unbanked/