I had a chance to meet face-to-face with First Global Data (OTCPK:FGBDF) (FGD.V) CEO Andre Itwaru for the first time on Saturday and I managed to ask him a few questions. As many people know by now, he is the brother of Mark Itwaru, the CEO of Keek (KEEKF) (KEK.V). While the same contacts who got me in touch with Mark also got me in touch with Andre, the fact that these two are brothers doesn't mean that FGD and KEK are similar investments. I find Andre to have a much different management style which is very conducive to business partnerships which has been key to FGD's ability to turn profitable so quickly. With Mark, I get the feeling that Peeks is his baby and he will keep as much to himself as possible until a multi-billion dollar exit, if at all. Peeks is a technology play in a burgeoning social commerce industry. First Global Data is a fintech play as well, but it will thrive largely on its partnerships and unlocking the very high value of its licenses.
Here are the questions that I asked Andre Itwaru. Just like with Mark's interview, it won't be verbatim but will hit all of the major points that Andre mentioned during the interview. Andre was particularly passionate in answering question six and expressed great confidence that the licenses FGD holds are the key to the company's current and future success. The licenses alone are worth multiples on the stock price in his opinion. If there is one single question to base your investment on FGD, it will be the answer to that question.
Q1: How do you feel about your brother's success and what do you have to say to investors who may have invested in FGD partially based on that relationship? Both of you use a lot of the same kind of language in press releases, making mention that how users in the commerce space are of higher value than those in the traditional social universe.
A1: Andre mentioned that both him and Mark are believers in monetization through transactions which creates a recurring revenue model. He pointed out his quote on the December 8th press release: "We are pleased with our evolving business dynamics. We have reached a tipping point whereby our award winning technology is set to intersect and converge on large enterprises with millions of users. To this end, it is our intent to grow our user base exponentially. The value of a FINTECH user is higher than users in the social universe as it is based on a recurring and transactional revenue model."
Q2: You were a co-founder of Navaho Networks with Mark. He has made mention that much of his payments processing experience gained from leading that company has been applied to Peeks and is part of what makes it special. What have you learned from your experience with Navaho and is there any proprietary technology related to that experience backing FGD?
A2: Andre's top lesson learned while working at Navaho Networks was how to work within a heavily regulated environment. When laws changed it devastated the payments processing industry and while working at Navaho he had to learn how to adjust. Now he prefers that FGD operates in a regulated environment as it has a strong competitive advantage (more on that in Q6) through the licenses that it owns.
The electronic processing business that FGD operates in is high margin but not specifically due to the technology IP. FGD's technology is proprietary but not yet patented (patent applications are a possibility in the future). When FGD acquired F1 Soft International Pvt. Ltd. and combined its newly-owned subsidiary's technology to its own, that became the genesis of FGD's mobile offering. It took two years to customize and to ensure it was compliant with regulators' guidelines.
Q3: FGD has been running recently on the strength of its financials. YTD costs have declined about 25% while YTD revenues are up over 1000%. How did the company manage to become profitable so quickly in such a competitive space like fintech while also reducing costs?
A3: FGD's prime goal is to go after fundamentally profitable companies and opportunities. Upon an acquisition, FGD focuses on profitable operations while trying to reduce "sexy" but unprofitable ones. FGD's business model is to work with companies with large consumer bases like banks and telecoms instead of trying to compete against them.
FGD has been able to reduce costs while at the same time increasing revenues because of its partnerships. Partners take on the costs for marketing and penetration of customers (or it already exists) which allows FGD to focus strictly on its core competencies. Andre pointed on an example of the recently announced news of the company's Indian subsidiary MSEWA partnering with Vijaya Bank to bring the VPayQwik™ mobile payments app to the bank's more than 14 million active account holders.
Q4: A lot of your most recent news has been based on fintech opportunities in India. Do you intend to focus your efforts there? Where is the source of your current revenue growth?
A4: Yes, India forms a large part of FGD's composite global strategy. Right now revenues have come from U.S. and international licensing which allows the company to penetrate multiple markets in parallel with simultaneous deployment in different regions.
Q5: You have estimated that 1M customers would drive $141M in annual revenue and $90M in annual EBITDA to FGD. A 15 EBITDA multiple would lead to about a $4 share price based on 335 million fully diluted shares. How fast do you think FGD can onboard one million customers, in the context that the deals in India represent access to 74M users? Do you see a substantial difference in the lifetime value of a client in the developing world versus one in the developed world?
A5: Given the recent corporate update and disclosure of pipeline that gives FGD access to 74 million users, Andre is confident that FGD's marketing strategy will result in considerable near-term user base traction.
(E: I could tell that Andre was rather sensitive to the material and forward-looking nature of this question. My sense is that one million users is a goal that he thinks won't be too hard to achieve.)
Q6: You have made mention of acronyms like KYC, AML and ATF which may not mean much to investors new to this stock and to the global fintech industry. Can you explain what they are, what they mean in a globally-connected financial world where crime, hacking and terrorism remain threats and what FGD has to protect the integrity of the transactions that run on its platforms? Do you use blockchain technology?
KYC stands for know your customer, AML stands for anti-money laundering and ATF stands for anti-terrorist financing and they all have to do with regulatory guidelines across the planet. FGD acquired a company by the name of Samso's Express which at the time had money services licenses in 7 U.S. states. Since then, FGD has grown that to 22 states with plans to have licenses in all 50 states in 2017. As part of the licensing process Andre and his family along with all FGD directors and members of management have to get a full background check in each state.
In these states, FGD is treated like a banking institution. The company needs a certain amount of capital to stay within leverage ratios and is subject to state and federal audits of systems, processes, procedures and controls to ensure compliance. The behavior of the regulators drives these institutions to profits. The stringent regulations and intense scrutiny involved with getting these licenses create barriers to entry. Some companies that are larger than FGD get refused licenses. As the regulatory landscape across the globe changes, the value of these licenses increases. Andre believes that these licenses are worth in the $10's of millions upon application.
FGD does not currently have blockchain technology but is aggressively pursuing it. Some crypto-currency companies don't follow all regulations but FGD has a fully compliant strategy. That, combined with the licenses, is a clear differentiator that would give FGD a competitive advantage in this industry.
Q7: Your presentation has touched on applications to several different industries in a variety of countries and has a very positive and confident tone. Diversifying and having contingency plans are great ways to ensure continued success. If one initiative or region fails, you have several others that can still succeed. However, do you see any roadblocks or risks to your wide-net strategy? With having your hand in so many different buckets do you not worry about having resources spread too thin or losing focus on your core competencies and most profitable business units?
A7: Andre is not worried about roadblocks or spreading resources too thin thanks to the partnership strategy. Aligning with local partners decreases the risk on the region and product side. As mentioned before, FGD is working with the incumbents in a region instead of competing against them.
FGD's resources are more considerable than investors realize because of the partnerships. G&A expenses will stay relatively low as partners will pick up most of the operating expenses in the countries they operate. The recent $3 million raise is going to go to hiring specific talent for international deployment.
Q8: With the stock price running as much as it has and with expectations of future profitable growth, it's reasonable to expect that FGD will have dilution from the exercise of options and warrants. However, with that dilution comes a cash inflow of $33 million, an absolute massive amount for a cash flow positive company with less than a $100M market cap. What do you plan to do with all that cash?
FGD plans to do more expansion - an opportunistic M&A spree to acquire companies that will bring value and intellectual property. FGD has and plans to stay ahead of the curve as a technology company. Blockchain technology was mentioned before and that is high up on the list of acquisition considerations. With the licenses that FGD already has, there is an opportunity to unlock synergies with any potential acquisition target.
Q9: Douglas Smith was a recent addition to the Board of Directors and has a very impressive resume, including being the former Assistant Secretary of the US Department of Homeland Security. Where do you think he will fit in to FGD?
A9: For this question, Andre pointed me towards Mr. Smith's quote in the December 7th press release: "It is indeed a privilege to be appointed to the board of First Global to help lead the FINTECH revolution currently taking place. It is my intent to reach deep into my rolodex to create opportunities globally and to maximize First Global's world class mobile payment technology as we cut a wide swath across the payments landscape". Andre emphasized the phrase "deep into his rolodex".
(E: With Mr. Smith being a former high ranking government official and an appointee of Obama, I can only imagine who that rolodex contains. The fact that FGD has all these state licenses as well tells me that there is going to be a lot of focus on the U.S. market, as well as the devloiping world.)
Q10: Do you have any additional comments that you wish to share?
A10: Andre felt it was important to emphasize three additional points. First, FGD has $48 million in accumulated deficit, meaning that the company will not have to pay any taxes on profitable operations until that deficit is eradicated. Second, FGD owns all of the data analytics gathered through business with the company's various partnerships. This is extremely valuable data that can be used for targeted user penetration. Third, FGD is very willing to share its API with banks, telecoms and its other partners to facilitate creating a greater value proposition for itself and them. This gives FGD an advantage over larger players like Google or Apple which are much less willing to share their API.
Disclosure: I am/we are long FGBDF.
Additional disclosure: I hold positions in securities as disclosed in this article. I have not received any compensation for this article and all opinions reflected herein are my own. The information provided herein is strictly for informational purposes only and should not be construed as a recommendation to buy or sell, or as a solicitation of an offer to buy or sell any securities. There is no guarantee that any estimate, forecast or forward looking statement presented herein will materialize and actual results may vary. Investors are encouraged to do their own research and due diligence before making any investment decision with respect to any securities discussed herein, including, but not limited to, the suitability of any transaction to their risk tolerance and investment objectives.