Tracing its roots to 2009, Global Payout, Inc. is a payment solutions provider offering U.S. and international companies electronic payment and pre-paid debit solutions. While there are a number of companies that perform various functions and target specific markets, we believe that given the management team’s expertise and experience, Global Payout is best positioned for the greatest success.
Initially, Global Payout began operations as a business-to-business provider of U.S. pre-paid debit cards for payroll and general spend programs under the MasterCard®, Visa® and Discover® identities. However, during 2011, management switched gears electing to leverage its expertise and experience in the industry by playing the role of quarterback on behalf of corporations and marketing organizations requiring custom stored value and worldwide payments solutions via an electronic wallet.
Management recognized that the market lacked a real platform that offered a new solution for large companies with an international presence in need of a global-capable payment system. Shifting to this new, innovative approach has positioned Global Payout with a first-mover advantage in a high-growth and more profitable segment of the market. Importantly, this strategy differs from those firms participating and competing in the traditional business and consumer provider role in a crowded space lacking differentiation.
As a result, Global Payout has emerged as a high-value, cost-effective designer and provider of electronic payment and prepaid debit card solutions on a global basis.
To execute its business model, Global Payout has partnered with some of the most important firms in the electronic payment and prepaid debit solutions market. Through its relationship with Tyburn Group, Inc., GOHE offers its customers prepaid debit card processing and program management under the MasterCard® identity and also offers these services under the Discover® identify through its affiliation with Expert Financial Systems, LLC (EFS). As illustrated in the images below, pre-paid cards can be branded with company logos or co-branded with Global Payout as well.
Global Payout custom solutions can be used for by companies and their employees for payroll as well as general spend programs. Global Payout’s international solutions offer an innovative and unique payment platform allowing accountholders to move money to personal bank accounts in over 200 countries. In addition, the Company offers U.S. and international debit cards, enabling accountholders without bank accounts to access funds worldwide. In the second half of 2012 the Company will roll out its innovative eWallet platform, which targets international customers. Via a partnership with a non-U.S. domiciled bank, this platform will enable GOHE’s multinational customers to pay its foreign workers efficiently and cost-effectively. Workers that utilize the platform will enjoy unrivaled convenience and ease-of-use features.
The eWallet platform leverages international banking relationships to provide a single portal to manage all payments for customers whether made locally or globally. It also provides the recipient of those payments with a flexible system that can move funds to their own bank account, a Visa or MasterCard prepaid/credit card, to another account or back to the payer for purchases, recurring fees, or reimbursements. Once launched, the eWallet platform will position the Company in a market that has limited competition, produces higher margins, and with an offering that could emerge as the international payment solution of choice for customers with foreign workers due to its architecture and numerous benefits to its sponsors and cardholders.
The Global Payout Revenue Model
Global Payout generates one-time and recurring revenue from the start of a project and throughout its implementation. While sales and implementation cycles times vary due to a variety of factors from the customer side to processors and others, we envision the typical sales and implementation cycle to run at least 6-9 months, conservatively. The timing of cardholder penetration activation varies as well, which impacts the start and magnitude of the recurring revenue stream.
Once a project is started, the Company is paid an initial fee which covers some of the early program design, management and related services. GOHE also receives a one-time fee per card which is assessed to the user once a card is loaded with funds. Finally, as the customer’s users engage the process and keep the card active by loading funds, GOHE receives a revenue share (along with processors) of the monthly maintenance fee as well as a percentage of the fees associated with certain transaction. Thus, the revenue model consists of one-time fees and recurring monthly for each revenue active card.
The Company generates business and signs up customers through management’s many years of experience and relationships with key service providers, customers, engaging Web and telemarketing, and through 3rd party marketers and sales agents in the space.
THE PREPAID DEBIT AND PAYMENTS MARKET
Some investors may have familiarity with the notion of prepaid debit cards, or stored value via cards awarded by financial institutions or through online and bricks and mortar offerings. These types of cards are called closed loop as they represent gifts or promotions.
The primary target market of open loop debit cards in the U.S. is the surprisingly large swath of consumers who are considered to be unbanked or underbanked. Unbanked reflects those without bank accounts while underbanked refers to consumers with limited activity. The combination of a poor economy and the rise of foreign (especially Hispanic) workers have played a role in the large totals. Open loop cards that have compensation loaded onto them can be used in lieu of checks by employers is one example of a current prepaid debit card application. Cards can also be used by consumers for general spending items as along as funds are loaded onto the cards.
In the U.S. alone an estimated 29% of Americans are either unbanked or underbanked. According to surveys conducted by the Rand Corporation and the FDIC, there are 48 million unbanked consumers in the U.S. and 43 million underbanked. Additionally, estimates suggest that over $13 billion is spent on alternative financial transactions such as check-cashing centers in the U.S. each year, highlighting the huge market opportunity as these consumers transition into prepaid debit card use, which is a less expensive and much more convenient option. These cards act like debit cards associated provided by banks to traditional account holders. Money is loaded via direct deposit or other methods, and the account is managed and money spent by the cardholder.
There are a ton of companies that play in this arena as the barriers to entry are fairly low. Some of the major players include Netspend Holdings, Inc. (NASDAQ – NTSP - $), HyperWallet, Global Cash Card, and Payoneer. Other publicly traded comparables in this space are smaller firms such as Trycera Financial (OTCBB – TRYF - $) and PrepaYd, Inc. (OTCPK – PPDC). NTSP is considered one of the 800-pound gorillas in the group and it focuses its attention on the underbanked with heavy, targeted marketing to the consumer. While the Company has generated a substantial number of active cards, the nature of the underbanked consumer market is characterized by inconsistent use of these cards ranging from occasional loading of funds to inactivity altogether. Global, Trycera and PrepaYd have similar marketing and business model tactics but also support, to a degree, companies seeking to use prepaid debit cards as an alternative or a replacement for payroll checks.
Global Payout’s eWallet Mechanics
With its international offering, U.S. non-U.S. citizens living and working in the States can easily send money abroad with the Global Payout platform. By providing custom programs in the U.S. with very competitive fees and a wide menu of features, the Global Payout team quarterbacks the process from start to finish which ensures program success. Still, the international program is where GOHE can offer unrivaled solutions. With its international eWallet platform, companies control payments, save money on payroll processing, and segregate currencies thus eliminating currency exchange transactions. The employee/contractor/constituent enjoys receipt of funds into a virtual account which can be moved to banks in the U.S. or internationally, as well as utilize funds transfer, web and mobile banking access.
Global Payout has a number of advantages over other prepaid debit and payments providers. In addition, management has built an effective, powerful international platform that should serve as a barrier to growth for smaller firms and a barrier to entry for new companies.
In our view, GOHE’s biggest risk is execution risk in the international markets. Customer churn, card inactivity and implementation delays remain ongoing risks for GOHE and all of the companies in this arena. However, the Company has already secured important relationships in the space which should help it overcome issues that might be more problematic for other firms. Execution risks noted above could push meaningful revenue generation out to a later date, or result in a smaller initial ramp, thus impacting revenue and product sales/recurring revenue goals. Slower sales penetration as a result of competition from larger firms or even from newer entrants is a typical concern and is also consistent with firms of GOHE’s size and standing. Finally, GOHE operates in a highly regulated environment and any new regulations that impair the Firm’s ability to succeed remain an unlikely, but possible concern down the road.
The senior GOHE management team members have a tremendous amount of experience in the financial services and payments industry and have led organizations of varying sizes, which puts them in a unique class, relative to most of the players in the field.
After serving as Vice President of Sales and Marketing for Resources International, an oil and gas drilling company in Newport Beach, CA, Mr. Hancock formed his own investment management company in 1983. As CEO of Partner Management Company, Del Mar, CA, Mr. Hancock created investment partnerships and joint ventures for natural gas drilling and real estate. Under Mr. Hancock’s direction, Partner Management successfully raised and managed over $25 million of invested funds creating an average rate of return of 12% annually.
After leaving Shoreline Partners in 2001, Mr. Hancock was appointed Chief Operating Officer and a Board of Director of Global Links Corp., a publicly held company. The electronic debit card business of Global Links became private in January 2003 and formed an equity venture with Electronic Exchange Systems. In August 2003, Mr. Hancock assisted in forming an equity partnership with Electronic Exchange Systems and Global Links Corp. into PayCard Corporation and developed a sales and marketing plan for its payroll debit card program. In 2004, Mr. Hancock was named Chief Operating Officer of Global Links Card Services, a subsidiary of Global Links Corp., where he launched and operated a prepaid Visa and MasterCard program, branded as FastMax Rewards. While with Global Links, Mr. Hancock launched 32 custom-designed prepaid debit card programs through MetaBank, Sioux Falls, SD.
In 2007, Mr. Hancock was hired by Continuum Payment Solutions, Inc. an international payment processor, as Director of Business Development. He was responsible for integrating new multi-national companies with virtual payment and Visa/MasterCard payout solutions. In 2008, Jim became Chief Financial Officer of Club Vivanet, Inc., an international marketing company and operated their payment and acquiring division.
In 2009, Jim launched Global Payout, Inc. to offer management consultant services in prepaid debit cards and electronic wallet products. Global Payout specializes in managing the launch of custom designed debit cards for marketing and affinity organizations in the U.S. In addition, Global Payout is developing an international payout platform (eWallet) and an international debit card ready for distribution in mid-2012.
Mr. Hancock earned a Juris Doctorate from California School of Law, San Diego, CA and a Bachelors of Business Administration from Southern Methodist University. Jim served in the Armed Forces and was honorably discharged from the U.S. Army in 1972 holding the rank of E-5.
Joseph Michael Sebo – Chief Financial Officer
Past experience includes 14 years with New York Stock Exchange Member firms E.F. Hutton, as well as Prudential-Bache Securities. At E.F. Hutton, Joe Sebo was an assistant manager of a 30-person office and was also training supervisor, training registered representatives and Prudential insurance agents, and later with the Prudential-Bache Brokerage Alliance Program he established a satellite securities office at the Bank of La Costa.
His personal investment experience and experience with his clients include stocks, bonds, exchange traded funds (FTF's), mutual funds, closed-end funds, commodities (gold, silver, pork bellies, live cattle, sugar and lumber); limited partnerships including commercial and residential real estate, motion pictures, oil and natural gas; and, Private Placement experience including real estate, live cattle feeding operations, airline passenger jets, RFID (Radio Frequency Identification), and trash recycling.
Mr. Sebo's clients have included individuals from all walks and stages of life, business owners of many different types of businesses and corporate clients. In his practice he consults with estate planning attorneys, accounting and tax specialists, securities attorneys, life insurance agents, retirement planners and investment bankers.
He is currently registered with R.W. Towt & Associates, a FINRA broker dealer. Under FINRA restrictions and as Global Payout's Chief Financial Officer, he may not advise or transact for clients in regards to Global Payout, Inc. stock.
Joe is a graduate of the U.S. Army N.C.O., school at Fort Benning, Georgia; afterward he served in Vietnam in reconnaissance and received two Bronze Stars. The Bronze Star Medal is awarded for 'heroic or meritorious achievement or service.’
William Rochfort – Executive Vice President, Sales & Marketing
Firms that Bill has directly supported include - Premiere Global Services, Intermedia Communications, Sprint Corporation, Cbeyond and San Diego Gas and Electric Company. Bill was a corporate officer with Intermedia ($1.0B annual revenues) with over 350 direct sales and technical support personnel, and with responsibilities encompassing monthly sales quota for multidiscipline sales environment exceeding $200 million in annual revenue. This included sales responsibility for F100 accounts with international operations. Bill is also a Principal with Realistic Solutions for evaluating wireless healthcare opportunities.
Additionally, Bill has acquired significant global sales, marketing and operational experience in new and established markets for direct, indirect (channel partners), and government divisions. He has extensive experience in developing and managing National Account prospects through strategic account management processes and new technology product development.
Throughout his career, he has received multiple field promotions from National Account Manager to Executive Vice-President. Bill has an MA in Business Economics from University of California at Santa Barbara.
Gil Hooper, Director of Board, Senior Vice President
Gil Hooper was appointed to the Board of Directors in October 2011 and is a Senior Vice-President for Global Payout. Mr. Hooper, an international payments sales and marketing professional, brings with him an extensive resume including international banking, debit card issuing and processing, eWallet systems, cross border remittance and mobile payment applications. He is currently the CEO of Boundless Payment Solutions, Inc. and the Managing Partner of 3G Consulting, both financial systems companies headquartered in San Diego but operating globally. He also is a co-founder and principal partner in a lending organization headquartered in Mexico City called Mi Adelanto and, through the 3G organization, an issuer of debit cards throughout Mexico. He has offices in San Diego, Mexico City and London.
During the early 90's, Mr. Hooper saw an opportunity evolving with a very large and underserved group of consumers in the U.S. and worked with the issuing banks and with Visa® and MasterCard® to develop and process one of the first prepaid debit card programs aimed at the under-banked and disenfranchised within the U.S. market. The prepaid debit card market has since evolved to become a global alternative banking source with millions of users around the world. Mr. Hooper currently advises many of today’s leaders in the banking, debit card and the evolving mobile payments industries. He previously held positions with other electronic & global payment platforms, including M2 Systems from 2004 through 2008.
Gil has an MBA from the Northwestern University, Kellogg School of Management.
As noted above, with a number of variables associated with this segment of the payments industry, it is difficult to accurately forecast the timing of project implementation, as well as the timing and magnitude of card activation, which ultimately affects GOHE’s actual results. As a result, our forecasts largely reflect the mid-point of an estimated range of active cards in the marketplace during a given period. For example, our current estimates for the first half of 2012 reflect what we refer to as project revenue which includes one-time implementation fees. However, revenue for the second half of the year includes project revenue as well as transaction-related, recurring revenue from active cardholders.
We currently forecast in our model (found at the end of this report) that the Company’s first meaningful transaction revenue will be recorded in 3Q12, with 12,000 – 18,000 active cardholders on board. For the full-year, our projections call for $975,000 in total revenue (project and transaction revenue) and that GOHE will end 2012 with 30,000 – 50,000 active cardholders. Using this figure as a base our top-line forecast represents the mid-point of this range and uses a monthly per card revenue assumption of around $5.00. At present, we expect that project and transaction revenue will be almost evenly split for 2012.
Keys to gross and operating profitability remain the mix of domestic versus international cards, which carry higher the highest margins. We have elected to keep gross margin essentially flat to allow for upside surprises in gross profitability as international market penetration occurs.
Investors should expect that 2013 is the first year of meaningful market penetration and associated revenue generation. We currently forecast active cardholders by the end of 2013 to range from 120,000 – 150,000, which is a huge increase from 2012 levels. Revenue of $5.7M and operating profit of $1.2M is presently modeled, along with EPS of $0.01. If management is able to execute its model, we deem it possible that revenue could nearly double in 2014 with substantial net profit.
VALUATION AND CONCLUSION
In our view, GOHE is trading at a ridiculous discount to its publicly traded peer group. Netspend, the leader in the space, currently trades 1.6x Street revenue estimates for 2013 and 11x the 2013 EPS forecast. The other two firms in the peer group, TRYF and PPDC, have market capitalizations considerably higher than GOHE. However, TRYF is not generating any real revenue yet from the payments arena, as it has adjusted its attention on financial literacy, with a small notable arrangement with Family Dollar Stores (NYSE – FDO). GOHE also engages in financial education and literacy as part of its overall effort and has successfully converted these initiatives into revenue-generating clients. PPDC also has a presence in payroll prepaid cards as well as in the mobile communications payments space.
We should note that both of these firms have not filed timely financial information and TRYF in particular trades at a substantial volume compared to GOHE, which we believe is due to the FDO relationship. Nonetheless, we believe that GOHE, should at worst be afforded a valuation close to TRYF, which is generating some revenue, although does not offer the investment prospects or advantages of GOHE. At $0.16 per share, GOHE would trade at a slight premium to TRYF and in line with the valuation afforded NTSP.
As investors are introduced to the GOHE story, we believe that the stock, which has only 8M shares in the public float, could double before the end of Q2. As milestone events occur in mid-2012, we believe that this low-float stock could easily reach $0.12, which is in line with the valuation afforded its peer group. Plus, with its first-mover advantage abroad, we believe that GOHE could emerge as an attractive M&A target. Looking ahead, as GOHE reaches its financial milestones and targets, the stock could reach the $0.20 – $0.25 range in 2013, which would still represent a very favorable valuation compared to its peer group. Thus, we rate these shares Speculative Buy.
Analyst: Robert Goldman
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