PaySign: Steady As She Goes
Nov. 20, 2022 7:39 AM ETPaySign, Inc. (PAYS)
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Gary Bourgeault
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Summary
The positives and negatives of being heavily reliant on one market.
Why PAYS should maintain a modest, positive growth trajectory in the quarters ahead.
The recent U.S. District Court's injunction will play a significant role in company growth going forward.
Close-up of IV drip bag
Portra/E+ via Getty Images
PaySign, Inc. (NASDAQ:PAYS) reported a good quarter recently, as its core plasma business continues to grow based upon more wins, increased demand and a recent injunction from a U.S. District Court that will increase the number of plasma donors in the months ahead.
The company had its best quarter in plasma, and guides for it to continue to grow at a good pace.
Since its 52-week low in mid-May 2022, the company has more than doubled its share price, pointing to much of the company's near-term future performance already being priced in.
In this article we'll look at some of the progress it has made in its performance, its heavy reliance on plasma to drive the business, and how that is likely to play out going forward.
We'll also look at its ancillary business to see what part they're playing in the company's outlook.
Recent performance
Because I want to do a deep dive on the plasma business of PAYS, I'm going to primarily focus on the numbers in this section of the article, with not much commentary on the impetus behind them. In the next section I'll tie that together.
The main thing to take into consideration is plasma accounts for approximately 90 percent of revenue for PAYS, so when looking at the numbers, they essentially reflect the plasma business, with a little side contribution of 10 percent from Pharma and Other.
With that in mind, revenue in the third quarter was $10.6 million, up $2.8 million, or 36 percent year-over-year. Revenue from plasma accounted for $9.8 million of the total.
Revenue from Pharma was $693,000, an increase of 5 percent over last year in the same reporting period, and revenue from Other was $73,000, a gain of 3 percent over the third quarter of 2021.
Net income in the quarter was $852,000, or $0.02 per share, an improvement over the net loss of $271,000 or $0.01 per share in Q3 last year.
At the end of the third quarter PAYS had $8 million in cash and no debt.
For full-year 2022, the company guided for revenue to reach $38.15 million to $38.25 million, with plasma accounting for over 90 percent of total revenue.
Gross margins for all of 2022 are projected to be from $21 million to $21.25 million.
With the company trading at a 52-week low of $1.15 per share on May 12, 2022, the company has since jumped to a 52-week high of $3.25 per share, before pulling back to $2.72 per share as I write.
Based upon its recent performance and guidance, I think that's close to an accurate valuation of the stock, although with plasma demand not going away and an increase in potential donors, there is more room for upside in the near and long term, as people look for ways to sustainably supplement their income in difficult economic conditions.
On the Price/Sales side of its numbers on a FWD basis, PAYS stands at 3.72 - not a great number but not terrible either. But on the other hand, as measured by the sector medium, it's behind the FWD P/S of the industry average of 2.50.
If momentum in its plasma business continues, P/S numbers are probably going to get better.
Its plasma business
Since about 90 percent of the revenue of PAYS comes from its plasma business, understanding where that stands in relationship to the company is vital to knowing how it's going to perform in the future.
As far as the plasma industry itself, demand is never going away, and will indefinitely increase into the future. It's never going to be a question of demand, it's more of a question of supply in the market sector.
To that end, a recent preliminary injunction on September 16, 2022, from the U.S. District Court allows "Mexican nationals with a valid B1, B2 visa to resume donating plasma in the U.S." After the decision, those plasma collection centers that were affected started to accelerate donations immediately after the injunction.
Consequently, this will be a tailwind for PAYS, which should be able to leverage the increased plasma supply as it continues to grow its plasma center customer base.
In the third quarter PAYS added another 13 plasma centers, ending the reporting period with 450 centers that use its services. The company grew revenue organically and via new wins. With one of its plasma customers closing and consolidating 13 of its centers, the number of centers at the end of 2022 are expected to be slightly down to 445.
In the quarter being reported the average revenue generated per plasma center on a monthly basis was $7,384, against the monthly average of $6,542 last year in the same quarter. Concerning the risk in its plasma business, if there is any reverse in direction of its wins and customer base, the share price is going to take a big hit. For that reason, it would be beneficial if the company was able to grow other business lines that would offset some of that risk in the months and years ahead.
I don't see any short-term issues, but with over 90 percent of its revenue being in one segment of the market, it's something investors need to watch, even as it expands its plasma footprint.
Pharma
In regard to diversifying its revenue streams, its other businesses are pharma and patient affordability. As noted above, Pharma generated $693,000 in revenue in the third quarter of 2022.
Looking ahead to 2023, there will no longer be any revenue from its higher-margin pre-paid business, so that will have an impact on revenue and earnings in Pharma over the next year.
In its patient affordability business, the company added another couple of program launches in the vertical, including retail and specialty pharmaceutical products.
PAYS is working on building long-term partnerships in the segment that would result in ongoing growth if they bear fruit. There is growing interest in the business, but it's going to take time to grow and have an impact on the top and bottom lines of PAYS. Management said the pipeline in patient affordability in Q4 "looks robust," and if it lands the business, it will provide some clarity as to how it will perform as a percentage of overall revenue. Obviously, it'll take more than a quarter or two to determine outcomes, but it should provide some visibility on its potential.
Conclusion
I don't see anything with PAYS changing over the next couple of years in relationship to plasma revenue remaining the vast majority of its business. And even while it's working on developing other revenue streams, it's expected to continue grow its share of the plasma market.
Under that scenario, it would boost revenue in that key business, and even if there is decent progress in its secondary businesses, it could represent an ever greater percentage of revenue because the probability growth in plasma will outpace the growth in pharma and patient affordability. That could change over time, but I don't see it happening in the near future.
Even with its heavy reliance on its plasma business to drive growth, along with the accompanying risk that presents to the company, I don't think there will be any disruption anytime soon.
Under the current economic conditions where people are looking for consistent ways to boost income, and the permanent and growing demand associated with the plasma industry, there is little to suggest PAYS is going to experience a disruption in its momentum and growth, other than a competitor grabbing a significant piece of its business.
But based upon its performance, that doesn't appear to be a major threat, but it could happen in the future, especially if the plasma sector grows faster than it historically has based upon the current economic conditions. Under that scenario a larger player could compete for a piece of the pie if it gets big enough to have an impact on the performance of the company.
Outside of that, PAYS should continue to grow at a measured pace, and if it continues to win in 2023, it would
