Paysafe Holdings (PSFE)

[Dietl]

I am reading 6K and based on what they written, the test on goodwill reveal a potential write off on the digital wallet segment, the digital wallet good will is no less than $1B, out of $3.5B. The annual test was performed on October 1st, so there is a really good chance good will could be impaired. Hard to indicate what that is. 

[fubar]

On 11/16/2021 at 8:32 AM, Dietl said:

How do you know? I post 13f from Sept 30th

Just looking at Fintel, as of 11/15

[Dietl]

2 hours ago, fubar said:

Just looking at Fintel, as of 11/15

Those are records ending on Sept 30. 

[fubar]

1 hour ago, Dietl said:

Those are records ending on Sept 30. 

Right.

I do know Izzy was saying on Twitter that they had calls with two big boys on ER date, whom he thought was Loeb and Tepper, and two others cancelled, presumably completely out.  Doesn't help with amount of shares, but still good to know.

Is there a way to find out more recent moves other than the latest 13 F?

[Dietl]

7 hours ago, fubar said:

Right.

I do know Izzy was saying on Twitter that they had calls with two big boys on ER date, whom he thought was Loeb and Tepper, and two others cancelled, presumably completely out.  Doesn't help with amount of shares, but still good to know.

Is there a way to find out more recent moves other than the latest 13 F?

Yes, anecdotal info is there, but outside of 13Fs there is really nothing sooner. 13D which shows more than 5% must be filed within 10 days from the purchase, but we are hitting a week tomorrow and nothing yet.  

[Dietl]

22 hours ago, Dietl said:

I am reading 6K and based on what they written, the test on goodwill reveal a potential write off on the digital wallet segment, the digital wallet good will is no less than $1B, out of $3.5B. The annual test was performed on October 1st, so there is a really good chance good will could be impaired. Hard to indicate what that is. 

The CEO has confirmed likelihood of the impairment on goodwill in Q4. Well clean it up to move forward with 2022. 

[Steven12]

So you think we will have a 333 million impairment charge for the next 2 quarters?

[Dietl]

1 hour ago, Steven12 said:

So you think we will have a 333 million impairment charge for the next 2 quarters?

I think we will have another impairment in Q4. I doubt they want to take into Q1 2022, you want new year clear. It makes sense to impair a goodwill on DW, because they did intangible assets associated with it.  In addition goodwill will go up by $700M for acquisitions if SafetyPay is completed in Q4, or by $250M, based on the other two only. Goodwill is an intangible asset, but it is separated because of the time and retention of value. If one was impaired, likely it will be the other. $1B of DW in goodwill was on books in Q3. The market will likely unleash hell on the stock if they did anything, but I think they could do $300M or more, it kind of make sense. This is of course just prediction on my part which got a bit of confirmation from CFO today. Keep in mind GW is only SKRILL. NETELLER is holistic invention. If they combine efforts, this could soften the outcome. However, reset is a serious paradigm shift. What do you think?

[Steven12]

This whole thing is just so crazy to me. I guess with the impairment charges though they aren't real cash losses. So it's more of cleaning up the books. Unfortunately it means this could be dead money if they do it again in Q4.

[Alex R]

Dietl, thank you very much. I learned a lot from your research. The most

important the company does not have DW anymore (may be another version in a year). This was a major attraction.

Here are my dark predictions. Institutions are tax selling like there is no tomorrow. By end of Dec they drive the stock price to $3-3.50. Then comes Q4 report. The stock will dive to $2 range. After all that 2022 tax selling. At the end we have $1 stock without institutional participation. There is no good news in between and even if we hear something it will be met with the understandable mistrust. 

The only hope is a buyout. Would you buy a company which house is not in order? What price would you pay?

Are we better off to sell now? I would appreciate your input. Please, keep in mind I am not a big optimist rather a sceptic.

 

 

[Raj]

I have no idea why they wouldn’t buy back their stock at these levels. Pretty stupid of management and the board. They have free cash flow to do it. 

[Dietl]

7 hours ago, Alex R said:

Dietl, thank you very much. I learned a lot from your research. The most

important the company does not have DW anymore (may be another version in a year). This was a major attraction.

Here are my dark predictions. Institutions are tax selling like there is no tomorrow. By end of Dec they drive the stock price to $3-3.50. Then comes Q4 report. The stock will dive to $2 range. After all that 2022 tax selling. At the end we have $1 stock without institutional participation. There is no good news in between and even if we hear something it will be met with the understandable mistrust. 

The only hope is a buyout. Would you buy a company which house is not in order? What price would you pay?

Are we better off to sell now? I would appreciate your input. Please, keep in mind I am not a big optimist rather a sceptic.

 

 

Hi there, I can only say what I am doing and this is not an advice. I am holding my shares. I do not know what the outcome will be but I have been in those situations before. One of the companies I have followed here is Canadian Solar, I bought this stock at $15 to watch drop to $3. The market turned bad for about 3 years, then I managed to sell it at $44. If I was more patient I would be a lot wealthier. I got at least two more examples like that. In all three what kept me going was a balance sheet and income statement. I did not buy an idea, new fashion, I bought those two documents. I had to learn how to read them, but that was what kept me going. When company makes money, has a cash flow and idea to work problems out it is worth holding when emotional market goes through motions. 

Now to Paysafe, the market is a ball of emotions. Paysafe could not do anything right, since the day they rang the bell. However, they balance sheet and income statement were good and still are. Yes, it is painful to learn that expectations have to be tempered, that problems are for all participants of industry, but Paysafe is aiming for $1.5B in revenue in 2022 and that is a conservative outlook if you believe the company. No I do not believe DW is done. I think it is being reinvented. Yes, there is some balance sheet cleaning but all of it is non-cash. It takes a trained eye to understand that difference. All those people talking about going to zero, bankruptcy do not have first idea what is going on. Institutions have many people who are professionals, it is a job for them, they do not sell on emotion outbursts. They pray on those and take the advantage. 5 days have passed from the news release and the stock is ravaged by forces which clearly manipulate. The company is viable, liquid and supported by big players. One can guess prices forever, but clearly this not the valuation Paysafe is fairly assessed. I am going to take time and watch this circus. I am 6 figures down, 65% or so. Like I said, the two things which were important to me when I invested in this spac was balance sheet and income statement are still intact, in fact they are getting better. Let emotions manage choices of others. I hope this helps. 

[Dietl]

5 hours ago, Raj said:

I have no idea why they wouldn’t buy back their stock at these levels. Pretty stupid of management and the board. They have free cash flow to do it. 

If they paying debt off that's better

[Alex R]

8 hours ago, Alex R said:

Dietl, thank you very much. I learned a lot from your research. The most

important the company does not have DW anymore (may be another version in a year). This was a major attraction.

Here are my dark predictions. Institutions are tax selling like there is no tomorrow. By end of Dec they drive the stock price to $3-3.50. Then comes Q4 report. The stock will dive to $2 range. After all that 2022 tax selling. At the end we have $1 stock without institutional participation. There is no good news in between and even if we hear something it will be met with the understandable mistrust. 

The only hope is a buyout. Would you buy a company which house is not in order? What price would you pay?

Are we better off to sell now? I would appreciate your input. Please, keep in mind I am not a big optimist rather a sceptic.

 

 

Thank you for your input. I have a single comment. Current stock behavior is not manipulation only. This is institutional exit as well. We will see in several weeks. This is a one man opinion of course.

[Dietl]

8 minutes ago, Alex R said:

Thank you for your input. I have a single comment. Current stock behavior is not manipulation only. This is institutional exit as well. We will see in several weeks. This is a one man opinion of course.

I will be here looking at the data in January, February etc. There are many institutions, in some cases I have more shares than they do. In some they have millions. I do not believe institutions that have 20M shares selling into panic. They have first hand inside into the company and know what is coming before it becomes tomorrow's news. For every share there is an active buyer. I take solace in balance sheet and income statement, I am not selling at 65% loss, and I do not need to sell until I get my price, mind you adjusted down for the conditions we face. So while unhappy, I can wait when tide turns, and do my moves at my convenience.

[Dietl]

So Q3 BMO tripled its holding Bank of Mellon NY added 30% of course this is Q3 and not last 7 days, but I cannot see BMO looking at this and saying sell, but buy. 607M have been spoken for in Q3, that leaves 117M for retail, so far. 

[Dietl]

I saw Lincoln posts today on yahoo MB. Once I asked him to join here, but he was not interested. Yahoo is a swamp  I am once again done with it. It would be nice to build a community around investment in Paysafe but I get alot of people are just suffering.

[Steven12]

This price is unreal. It seems like the only thing that will turn this is Foley or some other big investor coming out and announcing they bought a massive amount of shares 

[Dietl]

If one took a look across the industry there is actually a significant downturn in value. In my opinion this creates  huge opportunities for consolidation. Pasafe is a mid-size revenue business which can now fuel growth at the fraction. Industry seems to value around 11 times revenue as fair. Hence I think Paysafe is an attractive target at $14 to 15 per share. The prices in the market does not represent business values among the companies and how they look at each other. 

[Dietl]

I have seen various messages questioning the organization's health, describing debt levels as prohibitive, and being on the verge of bankruptcy, including questions about "free" cash flow.

A free cash flow is a non-GAAP (generally accepted accounting principles) indicator created by the company to communicate a financial message. The only reporting requirement is a Consolidated Statement of Cash Flows, and Paysafe has lost $300M in nine months of $2021 there. However, the breakdown is essential. Operating activities made money, and the business was profitable. Elsewhere the $299M was invested in the business, while financing activities were reduced by $95M.  One caution about making hard conclusions based on this statement is that 2021 is a transitory period for Paysafe, reconciling SPAC transactions and early debt repayment. Despite the negativity surrounding DW in 2022, financially, 2022 will likely be more accurate to show what Paysafe is or does. I expect to see an impairment on goodwill in Q4, as the last effort to clear the books for 2022.

Below is the explanation of free cash flow. The comparison is just an illustration since each company is trying to explain different conditions. Indeed, criticizing Paysafe based on PayPal collides with the subjective nature of the metric. One can accept it or discard it but cannot question it its structure or definition. PayPal cash flow has only two contributors. Operating cash flow and capital expenditure.

The cash flow presented by Paysafe:

A lot more showing here. Using PayPal metric, Paysafe has $32M of free cash flow vs. $233M declared. Why do we see cash paid for interest? Paysafe's definition of cash flow: "Management believes free cash flow to be a liquidity measure that provides useful information about the amount of cash generated by the business." A liquidity measure means to have the ability to pay the interest among other financial obligations. Using metrics from PayPal, there is even $32M left.

There are other elements of free cash flow provided by Paysafe. Movement in customer accounts is a dramatic increase from the same period of 2020. In 2020, this line was negative $20M. I do not think this remarkably consistent metric to use as a definition of cash flow; that's my opinion, of course.  I would say this metric is good enough to show cash availability at that given moment only. The problem compounds because I am assuming most think of "free" as available, and that is not the case. Finally, capital expenditure in Paysafe's FCF is adjusted. It does not include the acquisition of merchant portfolios, clearly described in the definition. Adjusted in, using PayPal's free cash flow structure, it turns negative. Is this a reason to sound the alarm? No, in conclusion, as a measure of liquidity, free cash flow gives me enough not to be concerned with the ongoing business. The consolidated cash flow tells me business is profitable; investments in the company are at a reduced amount of financing until now. Q4 will add debt, but acquisitions will increase investment activities.

The management of debt has been already shown above through interest payments. But what about the principal amounts? The company has presented an idea to have 3.5x net debt to LTM (last twelve months) Adj. EBITDA. This one is important as covenants are calculated on it.

Paysafe is adding around $700M of debt in Q4. During the conference call, 5.7x of EBITDA was described. Estimated EBITDA of $430M for 2021, I can calculate debt level. 5.7x 430M =$2,451M, adding assumed cash as of Q3 at $262M is $2.71B. 3.5x the calculation is $1.7B requiring a $1B reduction.

Current operating cash flow does not have a meaningful impact on the reduction of the principal debt. The lack of organic growth appears to magnify this condition. In my personal view, I do not think 2022 will be financially the same. I think it is improved with SPAC costs, refinancing costs eliminated, further operating savings, and inorganic growth added. However, one must see it to believe it due to damage done by changes to the guidance for 2021 and 2022.

Finally, the company is not at risk of breaching any covenants, so it is false when you read they are.

From the statements, "Our key debt covenant governing these facilities is financial and is monitored monthly. Our primary financial covenant is to maintain a first lien debt ratio below 7.5x a Last Twelve Months EBITDA measure adjusted for certain items as stipulated in the company's facilities agreement. As of September 30, 2021, and December 31, 2020, the company complied with all financial covenants associated with its debt."

The formula for the covenant is 7.5x*430M plus cash or $3.4B, and there is about $700M room.

An increase in EBITDA influences results, a change from $430M to $460M, creates a gap to $3.7B of borrowing, and 3.5x times is $1.8B of debt, not $1.7B. Therefore 2022 EBITDA improves the room under covenants.

The debt levels are easily maintained. The cash flow illustrates transitional business, which is experiencing contraction with one segment, and the need to remodel that space to become a producer once more. The company is financially sound, and I suspect it will get better, not worse, in financial statements starting in Q1 2022.  

I should add that company does not have the means to buy shares. There is a difference between saying it is not the right thing to do or having no means. A difference between "free" and available is resulting in lacking of means. The cash on hand is part of the covenants, so keeping as much of it as possible is essential.

 

[Dietl]

 

[Dietl]

this is what I tweeted

 

[STP821]

What's up, everyone?  Bag holding since last December and here for some positive Paysafe community vibes.  Standing ovation for Dietl's post history, which somehow I've only just tonight discovered.

[Dietl]

5 minutes ago, STP821 said:

What's up, everyone?  Bag holding since last December and here for some positive Paysafe community vibes.  Standing ovation for Dietl's post history, which somehow I've only just tonight discovered.

Welcome, I wish this was better time for Paysafe shareholders. To answer twitter questions, Enterprise/EBITDA, Market cap/sales etc. FCF is too subjective. 

[Dietl]

The IO current till Nov 19th 

Paysafe IO Q3.pdf