Paysign (PAYS) was our most disappointing pick in 2021 with a 31% drawdown from our cost basis. We believed PAYS was undervalued as the share price had gotten hammered due to the deluge of stimulus along with COVID inhibiting donors from giving plasma. However the long-term fundamentals were still intact, plasma demand along with plasma centers was still growing even though supply had slowed. PAYS is a payment processor for the prepaid cards plasma donors get. It acts as a toll booth on the money donors receive/spend; the less money that is given to donors, the lower PAYS revenue is. PAYS has been steadily growing its plasma business for the last several years and taking share from its main competitor Wirecard. Add to that at the end of 2020, Wirecard became embroiled in accusations that it was fraudulent and eventually became insolvent. Wirecard ended up selling its prepaid card division to Syncapay. We thought this boded well for PAYS as plasma centers (current and future customers) would be less amenable to using Wirecard given the reliability and customer service these centers required. Plasma trends even started picking up in Q4 which added to the setup. However, the landscape started changing quickly with Bank of America entering the space and winning a large customer (almost 100 plasma centers or about ten percent of all plasma centers in USA) that PAYS had believed it was going to win. This was surprising given the duopoly structure this industry had enjoyed for the last several years. Our valuation and reasoning were based on PAYS taking market share from a poor-performing incumbent. A new large entrant changed that dynamic. PAYS guided to have at least 400 plasma center customers at the beginning of 2021 and as of Q3 results, PAYS revised the number to 370. PAYS started 2021 with 343 centers. Normally we give some leeway (range) to KPIs with companies however given the zero-sum environment PAYS is in, we found that we did not have as much conviction in the name as when we entered the position. We sold out of PAYS and will keep an eye on future results.

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