I recently had a chance to meet with Vishy Karamadam, CEO of The Mint Corporation (OTCPK:MITJF) (MIT.V) to ask some in depth questions about the company's fintech business in the UAE. Mint has a similar business model to other companies in which I have invested and written about before. The highly risky nature of the small cap world has shown how difficult it can be to invest in companies like this from a stock price perspective, a revenue forecast perspective and a company's ability to execute. But I like this space and this particular opportunity so I will keep on trying until I strike it big - and not just in the short run, but permanently.
With the risky nature of the small cap fintech space bearing in mind, Mint has had a fairly rocky road to get to this point. All one needs to do to understand that is to look at the company's Q3 2017 balance sheet. Gravitas Financial has played a key role in keeping Mint afloat and has put its own people in charge of the company. These are experienced capital market professionals, not something that you see everyday in the nanocap space. Mint has made some rather bold statements in recent forward looking statements and appears to be ready to execute starting in 2018 but really ramping up in 2019. Given how tricky this space can be, I asked the CEO some tough and in-depth questions.
While I held a face-to-face interview, Mr. Karamadam agreed to write out his responses in an email in addition to a face-to-face discussion over some pertinent points. His responses, word-for-word, are provided for each question below along with my commentary, if any, immediately following it.
Q1: Up until Q3, Mint has had a very troubled balance sheet. $4 million in assets against over $60 million in liabilities. You have taken steps this year to substantially improve that, including private placements and the conversion of $39 million of $59 million in debentures into common shares at essentially a conversion price of $0.89. How did you manage to pull off a restructuring at such a significant market premium? With that being said, there is still $20 million left maturing at the end of 2021 with interest payments starting in October 2019. Are you confident that Mint can start generating the necessary cash flows by then to handle these payments?
VK: Mint executed on its business plan and achieved the operational and business milestones which are the drivers to achieve meaningful growth in revenue and earnings. Some of the milestones achieved include, certification from major payment card networks like Union Pay and Mastercard and a linked mobile application to turbocharge the payment card with a comprehensive mobile banking experience to our underbanked employee cardholders. This will drive much better unit economics (earnings/customer) and the debt repayment and servicing needs of the remaining debt in relation to our business plan objectives makes this manageable. The debt is coming due around four years from now and we have ample time to execute on our exciting business plan.
EV: What Mr. Karamadam states here as the groundwork for what Mint hopes to become in the next couple of years - the financial infrastructure, relationships in the UAE and certification from the payment card networks - cost tens of millions of dollars and is worth at least that much if not more. But this type of stuff is not accurately reflected in a balance sheet and even if it was it would be in the form of intangible or long-term assets that would generally not attract value investors. I believe that Mint has tremendous value locked up in these unaccounted assets and that now is the time to unlock that value through high-margin, high-growth revenues.
One thing that I did not ask as part of this question set but did in the face-to-face discussion was the robustness of the security of Mint's network. Mint meets the Payment Card Industry Data Security Standard (PCI DSS) and meeting this high standard was one of the major reasons why Mint took three years to get to where it is now.
Q2: Can you briefly elaborate on the development of the relationship between Mint and Gravitas over the years? Gravitas is the majority owner of the debt and holds a significant equity stake. Mint shares the same head office in Toronto as Gravitas. Can you give assurance to existing and potential minority shareholders that their goals and the goals of Gravitas as Mint shareholders are aligned?
VK: Gravitas has been a big supporter of Mint and helped in leading the restructuring of Mint and committed significant amounts of capital. I am one of the Gravitas co-founders and partners and assumed a leadership role to see the restructuring through. The Gravitas team and support is a big strength for all shareholders. They know that there is a committed and serious group who have co-invested with other shareholders. Gravitas paid for all its ownership in Mint and will make money when all investors make money. The last few years track record and the share price appreciation from when Gravitas invested to now (already has been a seven bagger) is a good evidence of how Gravitas has already created significant value for all shareholders in Mint. We have a long way to go and this is just the start.
EV: Take one look at the balance sheet and another at the stock price, particularly since 2014, and understand Mint is only where it is today because of the support of Gravitas. Mint was part of that group of stocks impacted by the Venture tech craze in 2011 that led to some outstandingly high valuations before the five year bear market and poor financial performance destroyed many of them. Companies like Intertainment Media and Poynt have fallen away long ago. Mint is still around even though it had the ugliest set of financials out of a group of stocks known for eventual de-listings. The people at Gravitas are nice but they aren't running a charity. The only reason for them to give such a long leash to Mint and to go to the effort of putting the firm's own people in charge is because they are confident that they can extract a lot of value here on both the debt and equity side of the company.
Q3: You have mentioned that Mint has processed over $1 billion US per year in payroll. However, according to the Q3 2017 financial statements, Mint has not recorded any revenue for 2016 or 2017. Are you currently charging or planning to charge for this service or has this been like a loss leader to gain users for the additional value added services? When do you expect Mint to start recording revenues?
VK: Currently even though we have a majority ownership in UAE business, certain shareholder agreement provisions with our minority partner meant that we do not record revenues from the UAE business, but show the income. Notes to our financial statement do show the subsidiary income statement. The company is working on strategies in consultation with our legal and compliance to make it easier for our shareholders to view subsidiary income statements summary.
Q4: The workers in the UAE that you currently service earn $5,000 annually. You plan to provide up to $600 worth of services per cardholder and project a $130 ARPU. How can you justify such a seemingly high number? What is the split between revenue derived from individual cardholders versus revenue from employers? Will you be offering services that currently don't exist in the marketplace?
VK: $5000 is the disposable income of these workers and employer pays for accommodation and transportation and there is no income tax. Our customers don’t have a bank account and we are the only organized financial services provider. We know how much they earn, have all their KYC information and where they are employed. This allows us to uniquely service our customer group and have a long term sticky relationship with them. The services we plan to offer are all essential to our customer segment, not “nice to have” services. They are currently consuming these services, and in most cases, they are either paying more or are having to spend more time and effort to acquire such services. We are bringing these services to their fingertips. $600 is not a huge number considering a portion is derived from lending products which always command high value and profits.
Q5: A follow up to the previous question, I believe that the most obvious low-hanging fruit in your UAE business is remittance, a service you project to earn $82 per cardholder in revenue. Can you elaborate how your user experience will be superior to the current process for the migrant workers who send the bulk of their salary back to their family? What is the expected margin specific to remittance?
VK: Today our customers have to typically take a bus, spend time and money and travel some distance to do their remittance. With our service in partnership with licensed remittance companies we can make it available at their finger tips and improve their lives.
EV: What is not apparent with reading these answers for Q4 and Q5 (as opposed to hearing Mr. Karamadam present in person) is his passion for the industry and how Mint can solve a problem for people in the developing world who are on the verge of substantially improved standard of living. His goal with Mint is to be able to offer an "RBC experience" to the migrant workers in UAE. Clearing $5,000, even without taxes and with lodging provided doesn't sound like a lot to North Americans but it actually puts these workers solidly within the median range of global income earners. Mint's core business is to provide access to financial services to this underserved and potentially lucrative market.
While remittance is the low-hanging fruit, microlending looks to be the blue sky potential. Mr. Karamadam is confident that this service will be quite popular during holiday gift-giving season and for weddings as the migrant workers return home to India and Bangladesh to spend some time with their families during these special occasions. There is no such thing as a credit card for these workers, so Mint's service can fill that void and charge credit-card like rates, which are still well below loan shark alternatives which can have interest rates in excess of 100%. The chance of default is very low as Mint runs the payroll for these people. The microlending service is essentially an ability to go into overdraft.
Q6: Sixteen banks in the UAE have teamed up to develop Klip, the Emirates Digital Wallet. This would be a very formidable competitor. Can you comment on this initiative as a potential competitive threat?
VK: We are going after the underbanked segment - not serviced by the banks and this segment is not hugely profitable for the banks to service. So, the Klip wallet is targeted primarily to the UAE banks' clients.
EV: I think this is an important distinction to make. Canadians are use to banking services done in a certain way and dominated by a few large players with a sprinkling of credit unions. In the developing world, fintech opportunities are far more vast. It will be difficult to pry these customers away from Mint as long as the company is performing these payroll services. Mint is just "there" and convenient for these people. Even if Klip or something like it was to come along and directly compete, as long as Mint offers an equivalent (or better) suite of services at a competitive price, there is very little incentive for these customers to leave. That being said, complacency on the part of shareholders and Mint management is in no one's best interest. Shareholders should be aware of potential competitive threats and should be vocal in voicing their concerns to management. Management should be cognizant of its market and clearly disclose its business plan so investor concerns are minimalized.
Q7: You previously disclosed that the mobile wallet will be ready in April. Is it fair to assume that within the next three weeks we'll see a press release that the wallet is now live?
VK: Please refer to our press release as it speaks for all the detail on this product launch and schedule. As we mentioned in the press release we are going through the regulatory approval process for launch.
Q8: Mint recently created Mint Block which intends to develop intellectual property and applications leveraging blockchain technology with Mint’s existing FinTech platform. Can you give a status update on this initiative? Can you elaborate on some of the advantages that you believe blockchain technology brings to Mint's offerings in the UAE? Do you plan to raise money for the corporation through an ICO or is the proposed token just meant to augment Mint's fintech offering to its cardholders? I believe that investors are caught up in buzzwords and crypto bubbles and don't fully understand yet how imperative something like blockchain technology should be to Mint and similar Fintech companies so giving real world examples of how this technology can apply will go a long way to helping people understand that this is more than just about a token.
VK: Our initial focus is to develop a global remittance solution leveraging block chain technology and launch in UAE where we have a huge customer base. Block chain will improve the cost structure for remittance transactions and we can generate greater value for our customers and remittance company partners.
Q9: You recently announced a strategic investment and option to acquire a majority stake in vPay, a mobile payment solution business in India. How does this investment tie into the main business in the UAE?
VK: Mint Corp management team and board have acquired a deep domain expertise in payments and have deep connections in India. India is among the most attractive markets for digital payments and this is an expansion plan by Mint to enter India. Vpay is a fast-growing payments company, with necessary platform integrations to payment gateways in India already done and showing an early momentum by rapid increase in processing volume. We have some very interesting plans to grow this business and the company will elaborate on vpay developments to shareholders over the coming months. We are very pleased with this opportunity to enter India.
Q10: I have often said that if a small cap company wishes to be treated like a large cap, it needs to act like one. This includes providing the investment community with more timely and detailed financial disclosure. It sounds like Mint is in a position to move beyond the start up phase. Some activities that I am thinking of that Mint could engage in include:
a. quicker quarter-end reporting
b. more detailed metrics and margin figures in quarterly earnings press releases
c. holding quarterly earnings conference calls
d. financial guidance for upcoming quarters and projections for outer years.
What are your thoughts on this and do you have any plans to undertake these initiatives in the near future?
VK: We continue to strengthen our corporate investor relations team to engage with our investor base. We are also now joining investor conferences, webinars and other means to engage with our investors.
EV: I take this as an answer that Mint is moving towards greater financial transparency and will undertake my suggestions in future quarters when there is substantial revenue and margins to speak about. As a shareholder, I will continue to push for greater transparency.
Disclosure: I am/we are long MITJF.
Additional disclosure: I hold positions in securities as disclosed in this article and may make purchases or sales of these securities at any time. I will be receiving options as part of my coverage on Mint 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.