Company Info

5/6/2015

Share Price

$0.75

Exchange

OTC

52 Week Range

0.44-1.30

Enterprise Value (MM)

8.70

Market Capitlization (MM)

9.51

Public Market Float (MM)

6.32

Shares Outstanding (MM)

12.67

Avg Volume (3 months)

8,468

Short Interest (MM)

0.00

Balance Sheet Key Points

3.3M

Total Debt (MM)

Financial Projections For PAYBOX

(Excludes new legacy revenue):
Full Year

2014 2015E

Revenue (MM)

8.295

12.5

25

0.5

0.10

EPS

2016E

P/E

20x

20x

PPS

$1.00

2.00

One Year Chart:

May 6, 2015

Direct Insite: An Under-The-Radar SaaS Gems

Validated Product Transition Could Yield
Substantial Upside Potential

Original
Initiation
Price: $0.58

Company Overview: Direct Insite (DIRI) is a profitable $10.4M microcap company whose ERP
agnostic working capital management platform facilitates $160B worth of transactions annually
among over 375,000 companies worldwide. The companys flagship product is PAYBOX, a
component of its platform. PAYBOX is a receivables and payables automation solution that brings
together electronic invoicing, online approvals and adjustments, electronic payments and integration
with any legacy accounting, ERP or lockbox system. Banks and corporations use PAYBOX to lower
their days-sales-outstanding or DSO, reduce costs to improve straight through accounts receivable
posting. Direct Insites new strategy to offer PAYBOX to banks and corporations unlocks a significant
opportunity for the company and has, in part, been validated by the signing of a global bank.
Short-Term Catalysts: Signing additional banks to white-label, providing PAYBOX and adding
customers through the existing and recently signed Tier-1 global bank.
Capturing A Massive Trend: PAYBOX for banks is a first mover in the industry and is targeting a
major trend linked to Banks. With the growth of electronic payments diverting bank payment
revenue, banks require a reprieve to (1) replace lost revenue due to declining B2B check volumes,
and (2) find a way to preserve their lockbox franchise. PAYBOX is the solution to preserve banks
treasury management business. Lockbox is a $1 trillion dollar business and between fees, float and
deposits, banks need to protect this massive profit center. This aligns Direct Insites first mover
solution to this major banking trend.
The Opportunity Within This Trend Is Viable: Nearly $1.3 trillion is spent within the global
market on receivables solutions and over 15.5 billion business-to-business invoices are generated in
the U.S. annually. 60% of U.S. corporations are dissatisfied with their receivables and payments
processing operations. As such, there is a clear calling in the marketplace for a clear solution. That
solution is PAYBOX.

Balance Sheet Key Points:

Cash and Cash Equivalents

(MM)

Continuing Coverage: Technology

Total Available Market: PAYBOXs total market for large corporate volume through bank lockboxes
is $1.25B annually. This does not include the $1,7B total available market for PAYBOX from large
corporations which do not utilize a lockbox.
A Small Companys Solutions Verified By Industry Giants : A Global Bank and BAI: Direct
Insites offerings have been verified and purchased by industry giants such as IBM and Siemens.
Direct Insite reduced IBMs DSO by four days, increased available cash by $50M and accomplished
65% fewer billing disputes with DIRIs solutions. The company now generates over 4.1M invoices
annually for IBM while increasing customer service. Siemens is a major client which benefited from
Direct Insites solutions similarly. PAYBOX has been taken on by a Tier-1 global bank and won the
BAI Payments Innovation Track Award out of over 13 competitors.
An Extremely Clean, Undervalued and Undiscovered Company: With no debt, $3.3M in cash and
receivables and $25M and $20M in Federal and State net operating loss carry forwards, the company
is a clearly a clean and funded microcap distinguishing itself in the microcap realm. Outside of our
original report in November when shares traded at $0.58, there is virtually no coverage on the
company. This offers investors an opportunity to purchase shares prior to analyst coverage.
Valuation: If Direct Insite obtains a 2% marketshare, it would yield $12.5M in additional annual
revenues. Assuming an 70% gross margin and a 5% net income margin (since PAYBOX is a lean
SaaS solution), that would yield $1.25M in income. With a conservative 20X P/E ratio the company
would be valued at $2 per share yielding 100%+ upside potential, with far greater returns possible as
the companys bank market penetration increases.
Bear Scenario: With $6.5M in TTM recurring revenue, we believe Direct Insite could sell itself
based upon a 1.5X multiple on its recurring revenue stream if the companys PAYBOX initiatives do
not come to fruition. This would fetch a sale price of $9.75M, or $0.77 per share. Adding cash and
equivalents to this sale price after subtracting total liabilities leaves an additional $1.38M for
shareholders or $0.88 per share. This represents 5% to 10% upside potential in the bear scenario.
Risks: Lack of uptake by banks customers of PAYBOX; loss of legacy recurring revenue customers;
longer timelines for banks to take on PAYBOX as a solution for their customers.

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Specific Short Term Catalysts:

The main focus for Direct Insite is signing additional global banks to white-label and to provide
PAYBOX to their clients while adding new customers to utilize PAYBOX through Tier-1 global bank.
Signing additional banks can come through the companys recent marketing outreach plan to target the
top 100 U.S. banking lockbox providers. Acquisition of additional clients will arise as these bank clients
become familiar with PAYBOX and as such, realize the need for PAYBOXs benefits offered to them.
Contingent upon these two items, Direct Insite could see a significant upside potential of 100%+ in
one year, with far greater returns possible into 2017, based upon higher bank market penetration.
Since the company could be sold based upon its sticky recurring revenue stream and strong cash
position, we believe the bear scenario could still yield 5% to 10% upside potential.
Company Overview and Products Breakdown:
Direct Insite's key offering, PAYBOX, is a reverse lockbox platform for corporations and banks. The
companys current focus is to target banks and have them white-label PAYBOX for their clients. The
opportunity for PAYBOX is significant as 60% of corporations are dissatisfied with its receivables and
payments process. This solution is a first mover in the industry targeting an underserved $2.9T segment
of the market. This $2.9T market is broken up into two areas the company is targeting, the $1.7T
PAYBOX market for corporates that do not use a lockbox, and the $1.25B total market for corporate
volume that goes through bank lockboxes.
PAYBOX is a white-label solution which banks can utilize as part of an integrated receivables and
electronic lockbox strategy. The solution brings together electronic invoicing, online approvals and
adjustments, electronic payments and integration with any legacy receivables or lockbox system. Per
Direct Insite, the solution allows banks to extend their lockbox and treasury services to meet integrated
receivables demand, strengthen customer relationships, generate new revenue streams, drive electronic
payments adoption and create opportunities for supply chain financing.
These PAYBOX solutions are currently live in the marketplace and demonstrates Direct Insites'
solutions' viability. Outside of this success, the large and lucrative opportunity for Tier-1 global financial
institutions and corporations both represent a major opportunity for the company. PAYBOX does not
have any competition as a component in this system offered by a bank. Further, if a banks client
requires an accounts receivable or a lockbox solution, PAYBOX is the white-labeled component they
will be choosing. Having succeeded as a key component of a global banks solution package is of
paramount importance and a high achievement. This is the backbone of our thesis for a nano-cap
company to securely accomplish.
Overall, Direct Insites working capital management platform for banks and corporations has over
375,000 global network participants. Global receivables solutions have been deployed for IBM, HP,
Shell, Kraft, Mondelez and more, such as Siemens BE Aerospace and ATOS, to name a few.
PAYBOX: Aligned and Capturing A Massive Banking Trend:

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Beyond current offerings already in the marketplace, Direct Insite has introduced PAYBOX for Banks
and PayBox For Corporates. This represents a massive opportunity for the company which, unlike at the
time of our original thesis, has been validated as a viable strategy through the signing of a Tier-1 global
bank.
The growth in electronic payments has decreased the business to business (B2B) check volume which
banks used to derive profit from. To make up for the lost revenue and to preserve their lockbox
franchises (which comprise bank fees, float and deposits) PAYBOX for Banks is the solution. Targeting
a $1 trillion dollar business, DIRI's solution is targeting the 2nd most profitable bank treasury product
behind lending. Banks are eager to protect their declining $1T+ lockbox business which can be achieved
through PAYBOX. This relationship directly aligns PAYBOX with a major banking trend.
Interestingly, targeting the bank market provides a viral effect for DIRI as each new client links together
a multitude of B2B transactions which PAYBOX can handle and profit from. PAYBOX for Banks will
enjoy success as the offering targets banks' top lockbox priorities. These include rationalizing payment
infrastructure to enhancing the experience for clients. The Bank will white-label the solution and offer it
as their own solution to clients (whereas the solution is not white-labeled for corporates).
Direct Insite has recently initiated a comprehensive outreach marketing campaign for PAYBOX to target
the top 100 U.S. banking lockbox providers. Signing an additional bank is a key catalyst that has the
potential to be unlocked in the first half of 2015. Further, management has stated that it has a pipeline for
its first bank to execute upon. Therefore, it is conceivable that additional clients through the first half of
2015 will be signed as well.
PAYBOX is much more marketable since a global bank is selling the solution versus a small $10M
company. The credibility and backing of a global bank will propel sales in the coming quarters to new
clients and clients that the company was originally too small to reach.
Signing A Tier-1 Global Bank Validates This Thesis And Provides An Inflection Point:
The company achieved a major coup in November when a Tier-1 global bank embraced PAYBOX,
especially considering Direct Insites size. This transaction celebrated and validated the validity of
PAYBOX and demonstrates that this is not just a blueprint but an initiated opportunity. The risk of
singing an initial bank have been mitigated, and the company will now strive to and be successful at
attracting additional Tier-1 global banks as well as other smaller banks.
On November 10, 2014 Direct Insite announced that a global bank had begun live production with
PAYBOX to provide white-label accounts receivable automation to a leading consumer goods provider.
In turn this enabled this banks customer to accelerate its DSO while reducing invoice presentment and
collection costs and increasing accounts receivables - straight through posting. Moving forward,
growth will come from two key areas: (a) signing additional banks, and (b) increasing the number of
banking customers utilizing PAYBOX as their solution.
Direct Insites PAYBOX is the only solution in the area of receivables being offered to global banking
customers as a solution - significantly reducing competition and paving the way for PAYBOXs uptake.
Signing a tier-1 global banks is an inflection point for the company, removing considerable risk to the

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story through the validation and signing on of a major institution, that was in the past an obstacle for the
company to overcome.
Direct Insite earns a profit based upon two avenues, (1) the professional services fees linked to setting up
PAYBOX for a company, and (2) earnings based upon volume depending on the amount of volume
PAYBOX handles for a bank or corporate customer. Direct Insite has not broken down these numbers
specifically for investors, although this is how the company earns money. The companys current
recurring revenue comes from legacy customers who are utilizing PAYBOX, namely IBM and Siemens.
PAYBOX Is Powerful: First-Mover Status Paving The Way:
Direct Insite has not replaced a solution - they innovated the solution - which solution brings all four
key elements together into one.
These elements are (i) invoice presentation, (ii) online approvals and adjustments, (iii) electronic
payments and (iv) integration with legacy system and accounts payable platform. There is no known
solution which successfully brings all these items together as Direct Insite does with PAYBOX.
More specifically, Direct Insites PAYBOX is the only solution offered by banks to bring these four
elements together. Other competitors offer one or two elements, but no provider offers all four in one
solution. As such, Direct Insite has no competition in offering these four elements to banks customers,
and are a textbook first mover in the arena.
Further, no provider offers the level of performance that PAYBOX offers. For example, historically if
any single line item in a check is cause for dispute, a company would withhold the entire amount of the
check for payment. With PAYBOX, items can be disputed by each individual line item electronically
while the remainder of the check is processed. The payer can even send information, documentation or
pictures directly to the buyer electronically, as has never been accomplished before. This is just one
example of the power and efficiency of PAYBOX in cutting down the DSO for companies significantly.
PAYBOX solves another key business issue as only 50% of receivables post without human
intervention. This is due to 75% of U.S. companies having too many receivables with incomplete or
inaccurate remittance data which then require human intervention to complete. PAYBOX is positioned
to solve this problem by brining together four key elements electronically.
The first element is PAYBOXs ability to present invoices in any format a customer requires such as
electronic, print, or integration with an AP network. Corporate America loses 2% of its revenues each
year to unauthorized deductions since paper receivables make it extremely difficult to capture and
reconcile inbound payments. Instead of writing off these discrepancies and incurring a loss, PAYBOX
tracks and adjusts automatically so that billers receive a file detailing any adjustments.
The company has no competition in this area as no company offered by this Tier-1 global bank offers all
four of these components in one offering. Direct Insite will gain marketshare as banks customers see the
benefits in PAYBOX and choose the offering, and as the company signs additional banks to offer
PAYBOX. Our thesis is based upon these two events, of which significant risk has been removed due to
the singing of a tier-1 global bank.

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PAYBOX Is A First-Mover:
PAYBOX has innovated the solution, without any direct competition, while offering the functional
combination of four critical treasury elements previously discussed into one.
On the flip side, the company cannot directly market itself through the bank to their customers. It can,
however, indirectly market itself through mass-marketing programs and industry recognition and
exposure. An example of this recognition occurred on on March 5, 2015 when PAYBOX won the
acclaimed BAI Payment Innovation Track Award at the BAI Payments Connect 2015 Conference. The
company prevailed over 14 participating organizations demonstrating just how competitive the offering
is. In addition to BAI, PAYBOX has been ranked in the leader quadrant of Celents Integrated
Receivables Report and Direct Insite was named one of the Top 20 Financial Services Companies to
Watch by CIO Review Magazine.
Why A Banks Customer Would Choose A Small Companys Solution:
Outside of PAYBOX being directly sold to customers in the corporate market, banks white-label and
provide PAYBOX to their customers as an innovative solution. Since PAYBOX is being white-labeled,
banks offer it as their own solution which provides massive credibility to the solution and circumvents
the obstacle of potentially losing customer who wouldnt want to work with a small company. Instead of
purchasing a small companys product customers can choose to purchase a Tier-1 global banks solution
which includes the institutions massive credibility.
PAYBOX: Targeting The Corporate Market
Direct Insite is also targeting the corporate market with PAYBOX for Corporates. With $1.3 trillion
spent on receivables solutions in the global market and $15.5 billion B2B invoices generated in the U.S.
annually, there is a large market for Direct Insite to target with its working capital management
solutions.
The corporate market is far from perfect leaving ample room for a new provider to encompass.
Currently, per the company:
1. Only 50% of receivables in the U.S. post without human intervention;
2. 75% of U.S. corporations have too many receivables with incomplete or inaccurate data;
3. 74% of U.S. corporations have a growing number of receivables that require human intervention;
With these statistics in mind, there is a clear need in the corporate marketplace for Direct Insites
solutions. Automating and reducing human intervention for corporations is a key area for cost savings
and increasing the relationship experience for the corporations customers and suppliers.
Massive Total Available Market For PAYBOX:
The amount of annual B2B paper invoices between businesses with $1B+ in revenue is $11.78 billion.
PAYBOX can easily handle this all within the the cloud with added benefits and cost savings. Further,

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the total available market for PAYBOX from large corporates through a lockbox and in-house activities
is a $2.9B annual market.
This market is broken up into the total available market for PAYBOX from large corporate volume
through bank lockboxes which is a $1.25B annual market and the corporate volume which does not use
a lockbox which is $1.7B annually.
Company projections on DIRI's revenues range from $25M - $50M annually with a 2% to 4% bank
market penetration level. Due to the added benefits of PAYBOX, demonstrated with the IBM case study,
and the substantial size of this market, DIRI should be able to capture at least a small percentage of this
market share as PAYBOX for Banks and Corporates ramps up.
Direct Insite made a significant investment to increase the functionality of PAYBOX over the past
several years which is recently completed. The company capitalized $400-$500K of this investment in
each of the last two years. This will not affect the bottom line for the company and will be capitalized
through depreciation and amortization. This investment in PAYBOX has markedly increased the
functionality and level of innovation of the offering, deeming it a lead offering, to compete in the
marketplace.
It is worth noting that when DIRI attracts another large bank to its offering that will move shares to the
upside. This is due to (i) the huge amount of invoices a major bank carries out which PAYBOX can
handle and profit from (ii) the viral B2B effect DIRI can capture within bank clients and (iii) the
announcement itself will move shares.
Direct Insites Offerings Are Validated By Industry Giants:
On the corporate side of the market, Direct Insite is proven in the marketplace through its ability to
satisfy an industry giant's invoicing improvement needs. Direct Insite has worked with IBM to improve
its order-to-cash processes to achieve three goals:
Improve the efficiency of generating 4.1 million invoices annually;
Enhance customer service;
Reduce Days Sales Outstanding (DSO) (source).
Direct Insite tackled IBMs problem through its working capital management platform by creating a
fully web-based electronic invoice presentment system to generate 4.1M invoices yearly. This included a
fully-automated dispute management system to reduce disputes and offered support in 113 countries in
15 languages and 100+ currencies.
IBM benefited significantly by partnering with Direct Insite as IBM's DSO was reduced by roughly 4
days. PAYBOX increased IBM's available cash by $50M and created a $4M annual savings in interest
expense. Outside of the quantitative data, DIRIs solutions resulted in 65% less billing disputes and a 3x
increase in trading partner satisfaction with invoice process. Overall, the benefits to IBM were
substantial and demonstrates Direct Insites viability in the marketplace to serve clients as large as IBM.
IBM could have contracted a larger company yet it contracted with Direct Insite.

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Ellie Mahoney, Invoices On-Line America's E-Business Advocate for IBM, stated the following after
seeing the results of PAYBOX (speaking to PAYBOX's viability in the marketplace):
Transforming IBMs AR processes with Invoices On-Line resulted in a 90 percent reduction
in transaction costs, 65 percent fewer billing disputes and calls, and a 10 percent reduction in
DSO. These benefits have annually delivered tens of millions of dollars in savings to IBM.
Interestingly, PAYBOX is the companys 4th generation working capital management platform,
whereas IBM is a legacy customer utilizing the first generation AR system. The functionality between
the two are similar, but PAYBOX is a more advanced system in both aesthetics and functionality. This
proves that IBM has been satisfied with DIRIs working capital management solutions for over a decade.
It is conceivable that new companies will be drawn to the more advanced, 4th generation version of
PAYBOX. IBMs contract was renewed in 2013 for a three-year extension through 2016. I believe that
Direct Insite will attempt to up-sell the company to the 4th Generation of PAYBOX which would
provide for a significant revenue opportunity in the future.
The above-mentioned IBM case study proves as much as what the company achieved for Siemens.
Siemens requested reduction of supplier inquires, related call center costs and to move invoicing beyond
transaction processing into strategic valued added activities. Through Direct Insites electronic invoicing
platform, the company handles 2.4M invoices annually, supports 50 Siemens business units and services
over 60,000 suppliers and 5,000 internal users. Through DIRIs intervention, 63% of payments now post
without operator intervention, 81% of invoices are received electronically and supplier inquiries have
been reduced by 67%. Workflow time has been reduced by 2/3 for electronic invoices and 1/3 for paper
invoices.
The Bull Thesis: Valuation
With $51K in net income for the 4Q 2014 compared to a loss of $119K in last years quarter, the
company is not only lean, but profitable. Although a 12.3% decline in recurring revenue for FY14, an
increase in non-recurring revenue of 57.3% or $176,000 (new initiatives) in the quarter aided in the
companys profitability. Overall, net income for FY14 amounted to $106K on $8.295M in revenue,
made up of $6.515M in recurring revenue and $1.78M in recurring revenue. Investors are not
overpaying for shares in light of the decrease in recurring revenue as shares are down from $1.25 to
$0.82 to more than reflect this decrease.
We believe management will keep maintaining a lean, undiluted and profitable company in each of the
quarters to come. That being said, we do not expect any major increases in the companys profitability
until one or two initiatives are captured. These events being (i) signing on additional banks and (ii) an
increase in signed banks customers taking on PAYBOX.
Since the sales cycle for signing a bank can be lengthy (6-18 months), we believe looking at quarterly
figures will not accurately provide clear light into the companys real potential. Direct Insite has

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completed numerous demonstrations with banks regarding PAYBOX. Due to the extended sales and

implementation timeline we view the current share price as an extremely attractive entry for a 1-2 year
investment.
Looking at the banking opportunity, when Direct Insite captures 1% to 2% of bank market
penetration (half of managements 2-4%projections) this would yield $12.5 to $25M in additional
annual revenue. Keep in mind this excludes the $1.7B PAYBOX market for corporates that do not
use a lockbox, larger than the $1.25B total market for corporate volume that goes through bank
lockboxes, and excludes any legacy recurring revenue and any new customers on the AP side of the
business.
We believe significant risk has been removed by the signing of a global Tier-1 bank although there is
still significant headway that has to be made to bring on additional banks and clients.
With this in mind, if Direct Insite is able to obtain just a 2% marketshare, this would yield $12.5M in
additional annual revenues. Assuming an 70% gross margin and a 5% net income margin, since
PAYBOX is a lean SaaS solution, this could yield $1.25M in income, or an additional $0.10 per share.
With a conservative 20X P/E ratio this would result in a $2 share price, yielding 100%+ upside potential.
There is significant growth possible beyond our conservative estimate based upon expanding this
penetration percentage upwards, coupled with an increased P/E ratio as investors are more willing to
award growth offers an attractive investment opportunity for investors. We believe that a 20X P/E ratio
is (1) conservative since it is not expanded based upon continued growth and (2) will not be further
discounted due to lack of future opportunities since this would only amount to 0.5% to 1% of the
marketshare and would still leave the rest of the market to capture. Lastly, our projections do not include
any legacy or current recurring revenue streams which would be entirely additional to the companys
bottom line.
The above financial projections are provided to offer clear understanding of the potential income Direct
Insite can capture. We have not provided a detailed financial model or a straight line revenue growth

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model as these projections are contingent on the company brining on additional banks and clients

through these banks. When adding current revenue to our additional projections based upon PAYBOX,
revenue would amount to $12.5M and $25M in 2015 and 2016, respectively. Further, this does not
include the $6M+ the company has in recurring legacy revenue. Since legacy revenue is not a major
provider to the bottom line, we have opted to not add this revenue or current net income to our PAYBOX
projections to remain conservative.
We believe a 5% net income margin is applicable as PAYBOX is a lean SaaS solution and requires little
to no costs to the company as the main costs to develop the technology are sunk costs. The product is
scalable and incurs only small costs for the company to roll-out the solution for an end-user. These costs
are mainly the set up and professional services fees. Further, the company does not need to expand their
fixed costs, operations, employees, real estate or R&D spend to roll out PAYBOX for a bank or end user,
as such the company will have very high GMs and NI margins for PAYBOX.
A 5% NI margin is derived from a high 70%+ GM which is the norm in the SaaS realm. Software Equity
Group LLC found the average GM for SaaS companies to be 70%+ (Source). More specifically, DIRI
names Aruba Networks (ARUN) as one of their competitors in their 10-K. Aruba has a 72% GM as of
last quarter, and a 3% NI margin, granted they are a $2.7B company. Our 5% NI margin for DIRI is in
line with their main competitor, but slightly better since DIRI has no debt, and does not have to incur
any additional expenses to roll out PAYBOX for their customers.
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Since Direct Insite is an ultra lean $10M microcap, they do not need to incur any additional costs to roll
PAYBOX out as all of the R&D is a sunk cost and they currently have the infrastructure to roll out
PAYBOX for customer without additional expenses. An example is how expenses did not ballon with
the signing on of, and roll out, of PAYBOX for the recent Tier-1 global bank. Further, Direct Insite is
debt free, so debt will not eat into the companys margins. As such, we believe Direct Insite can beat
their competitors with a more competitive NI margin in the 5% range.
We note that it may be too early to form conclusive projections on PAYBOX as the 4th-generation has
just rolled out with a Tier-1 global bank and data is limited, but these projections do provide a line for
investors to base their expectations. Granted, signing a tier-1 global bank to offer your product to their
customers is a large feat for a $10M company, and provides a significant inflection point ahead of
analysts discovering the event.
Further, we believe Direct Insites current share price offers an attractive entry for a multi-year
investment contingent on PAYBOXs expansion and we are not expecting this expansion to take place
over the next few weeks or months. Granted, as PAYBOX ramps the forward looking markets will
reward shares with a higher price, as such we prefer to be invested ahead of this event.
One item which could help shorten the lengthy timeline is the companys investment in PAYBOX in
2014 which helped to reduce the integration of PAYBOX from 6 months to under 90 days.
We have had very positive responses to our external marketing and our channel relationship
opportunities. - CEO Matthew Oakes, Q4 2014 Conference Call
We believe marketing spending will increase ahead of sales as the company continues to reach new
clients and businesses. Further, we anticipate an upward sloping adoption curve that is small to start and
grows upwards as PAYBOX penetrates the global market. Keep in mind that our estimates for
PAYBOXs effect on the bottom line do not include the companys current and legacy revenue which is
all additional.
The Bear Thesis: 5% to 10% Upside Potential:
Two customers make up this revenue stream, HP with 37.7% share and IBM with a 38.1% share. HPs
portion declined from 45% Y/Y while IBMs share increased from 32% last year. Recurring revenue
declined from $7.43M in 2013 to $6.52M in 2014, or ~$911k or 12.3%. DIRI had 8 recurring revenue
clients in 2013 with IBM and HP amounting to 83% to total recurring revenue in 2013. This decline was
due to one HP customer, General Motors, terminating their contract effective June 30, 2013 and a
customer that divided its operations and suspended DIRIs service in one of its divisions. The loss of
HPs general motors customer accounted for 8.5% of recurring revenue in 2013, or $631,550. Outside of
these events, recurring revenue was stable in the 2H of 2014 versus the 2H of 2013.
Further, per the 4Q 2014 CC, the company is no longer charging for the boarding process and has
increased emphasis on simply obtaining a recurring revenue stream from a customer. This has removed
obstacles to obtaining clients since it takes away the large engineering fee many clients would regress
on. Management expects predictable blocks of recurring revenue moving forward. Per the 4Q
conference call, management believes they will likely see recurring revenue grow in 2015.

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With $6.5M in TTM recurring legacy revenue, we believe Direct Insite could sell itself based upon a
1.5X multiple on its recurring revenue stream if the recent PAYBOX initiatives do not come into
fruition. With this multiple, DIRI would fetch a sale price of $9.75M, or $0.77 per share.
With $3.3M in cash and equivalents on the balance sheet, $1.3M in cash per the 4Q 2014 CC, this crests
the $1.921M in total liabilities the company owes. When assuming cash and equivalents covers the
companys total liabilities this leaves an additional $1.38M for shareholders in the event of a sale.
Adding this to the $9.75M sale price equates to $11.13M or $0.88 per share, yielding 5% to 10% upside
potential.
Further, the $1.9M spent on sales and marketing would be cut in part or in its entirety in the situation of
a sale. This will bolster the balance sheet for a sale which is not included in our bear projection to
remain conservative. Additionally, the R&D portion of the $3.5M in operations and R&D would also be
additionally scaled down in the event of a sale to bolster the balance sheet.
This bear projection limits the downside for shareholders since it is based upon the companys new
initiatives not coming to fruition and zero growth in recurring revenue while still featuring upside
potential. In our opinion, the company would not sell itself based upon their recurring revenue stream
and strong balance sheet, yet it does provide investors with the bear thesis which still features upside
potential.
We are aware that this is an overly specific calculation to determine the value of the company in the
result of a sale based upon the companys recurring legacy revenue and cash level, but it does provide a
backstop if the companys plans do not come into fruition.
This Legacy Revenue Stream Is Extremely Sticky:
Due to PAYBOX playing such an integral, integrated and large component within a business, following
implementation business are extremely likely to remain long term customers. Since integrating a new
working capital solution system is extremely time consuming, expensive and disruptive to the
companys employees and operations, Direct Insites customers remain long term assets. Further, the
companys products are extremely competitive and innovative,so there is no reason to switch providers.
The company has as strong legacy backbone supporting its operations as recurring revenue amounted to
78% of revenue in FY 14. In 2014, Direct Insite re-signed eight of their current enterprise customers to
extended contracts, which have an average duration of four years. This clearly demonstrates just how
sticky the companys customers are as they could have opted to not renew their contracts although 100%
of them opted to renew.
A Financially Distinguished Microcap:
Apart from the majority of the microcap realm, Direct Insite is in a strong financial position. The
company has federal and state net operating loss carry-forwards of ~$25M and ~20M respectively, as
noted in the companys financials. These NOLs can be used to reduce futures taxes as the companys
profitability grows.

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Direct Insites NOL carry-forwards date back to 2004 when the company had NOLs of $78M (Source,
2005 10-K). Up until 2004 the company was losing a significant amount of money to develop their
technologies which created large NOLs. Since NOLs generally last 20 years, the company still has a
portion of these NOLs they can utilize in the future. The accumulation of these NOLs are in the past and
does not represent a weak current business, as Direct Insite reported a full year profit in 2012, 2013 and
2014.
With $1.3M in cash as per the recent conference call, the company has no current need to raise money as
the company generates cash and has a has a very low burn rate. Demonstrating this, cash and cash
equivalents are only down $62K from the previous quarter. Adding receivables to cash and cash
equivalents, the level rises to $3.3M, demonstrating the companys funded structure.
Furthermore DIRI is debt-free and profitable, two virtues in the microcap realm. I believe the company
will remain profitable for each quarter moving forward as they roll out PAYBOX (i) to be attractive to
investors and (2) profitability and a strong business structure are key areas a bank looks at prior to taking
on the companys solutions.
In our opinion, the company likely granted the first global banks customer a compelling deal to take on
PAYBOX as a solution to roll out the offering. Moving forward we expect the company to earn more per
bank and corporate customer as they would not be the first party. Additionally, this bank customer could
have opted to end PAYBOX as a solution but they have not terminated their service.
High Insider Ownership Aligns Managements Interests:
After several of my conversations with CEO Matthew Oakes and CFO Lowell Rush, it is clear to me
that these individuals are dedicated to maintaining a lean and profitable company as they execute in the
marketplace. Management proves its desire not to dilute with a diluted share count that only increased
by 35K in FY14 over FY13. This is extremely clear and positive for shareholders.
Moreover, DIRI's management is clearly aligned with its shareholders. Mr. James Cannavino, a
gentleman who sits on the Board of Directors, owns 19.5%, CEO Matthew Oakes owns 4.3% of the
company and CFO Lowell Rush owns under 1% of the company. Also, Mr. Paul Lisiak, Mr. Thomas
Lund and Mr. John J. Murabito, also Board of Directors Members, own 14.4%, 7.4% and 2.5% of the
company, respectively.
Altogether, directors and officers of the company own 48.1% of the company - squarely aligning their
interests with shareholders. Insiders have been bullish on the companys prospects. For example,
Thomas Lund added 160,583 shares at an average price of $0.656 over the past several months.
CEO Matthew Oakes experience includes being COO for several companies including Direct Media
Networks and Mall Net Media Corp, both New York based E-commerce and technology companies. Mr.
Oakes received a Juris Doctorate of Law from Nova Southeastern University and a Bachelors Degree in
Business Administration from Cornell.
CFO Lowell Rush has over 35+ years experience in financial management and operational development.
Prior to Direct Insite, Mr. Rush was COO of Cosmetic Dermatology and CFO of Little Switzerland Inc.,
in addition to various financial management roles at Sunglass Hut and Burger King Corp.

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Mr. James Cannavino was previously Chairman and CEO of Direct Insite and continues to hold his large
position while being a Director at the company. Prior, Mr. Cannavino was Chairman and CEO of Perot
Systems Corporation and CyberSafe Inc, the latter being a company specializing in network security.
An Undiscovered Company Offers Investors An Early Entry:
Direct Insite is a virtually undiscovered company by both Main St and Wall St. As a $10M microcap
company, the market opportunity for the company is substantial, and it has not been recognized in the
marketplace. Other than our original thesis in November, 2014, there has been virtually no coverage. I
believe as the company executes, additional financial coverage and potential analyst coverage could
push shares higher as institutions and retail understand the investment opportunity.
New Verticals Offer New Additional Growth Areas:
In 2014, Direct Insite made a significant investment in PAYBOX to increase the functionality of the
offering both internally and with regard to integration. The company has seen interest in new verticals
with their financial banking partner, such as healthcare and insurance which they were not aware of
originally. This is beyond the normal verticals of light manufacturing, services and commercial goods
companies that DIRIs working capital solutions historically serve. Adding functionality to PAYBOX for
these industries can provide new growth catalysts for PAYBOX in the future. Direct Insite is also
working on becoming HIPPA compliant which will aid in growth within the healthcare system and likely
take one year to complete.
Renewed Contracts and Strong Interest
In the past 12 months, DIRI has generated $8.295M in revenue. The company continues to satisfy its
clients as the company recently renewed eight customer contracts which amount to a total average
recurring revenue run rate of $6.5M annually.
Furthermore, DIRI was recently ranked among the top 500 software and solutions providers in the world
by Software Magazine. Within this press release Direct Insite included the following:
"The ranking comes as Direct Insite is experiencing strong interest for its new PAYBOX(TM)
receivables platform for banks and corporations."
Due to the strong interest DIRI has stated for its new PAYBOX for Banks and Corporates we think the
company has a strong potential to attract another major financial institution to its model - which would
include a viral effect for the company's offerings.
The company has renewed every contract that has come up for renewal this past year - which totals eight
renewed contracts.
Contracting An IR Team Is A Future Catalyst:

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Currently Direct Insite does not have an investor relations team and I believe they have no short-term
plans to contract one as management is currently focused on expanding PAYBOXs presence in the
marketplace. In the future, when the company integrates a relations team, I believe this will drive shares
higher. Unlocking exposure to retail and institutional investors through an IR team with a killer story is
key for share price appreciation. For now, I believe management wants to execute on PAYBOX first,
before making a strong move to educate investors.
Recent Specific and Targeted Marketing:
Outside of an IR firm, Direct Insite has begun their marketing campaign to the top 100 U.S. banking
lockbox providers which can provide for product exposure. Additionally, the company is planning to
attend additional shows such as NACHA on April 19, 2015, in addition to AFP. With only a set number
of lockbox providers and banks to target, there is a set number of decision makers who can decide
whether or not to bring on PAYBOX as their solution. Management is planning to expand their
marketing budget as they target these decision makers to feed the uptake of PAYBOX.
NACHA is The Electronic Payments Associations 2015 Payments Conference that unties thousands of
payments system stakeholders and has over 130 sessions with industry experts and workshops. In
addition to BAI these conferences will aid in expanding the companys sales reach.
An Acquisition Target:
In my opinion, Direct Insite will be purchased before they are able to fully envelope this market by a
larger competitor looking to gain an edge in the industry. If management is able to attract additional
bank interest and customers through the banks themselves, Direct Insite could be a buy-out candidate. In
my opinion the company is not for sale and management would not sell at current prices,although this is
a viable end game for management and shareholders in the coming years.
The Viral Effect:
As Direct Insite expands their offerings, they have the opportunity to capture a viral effect. In laymans
terms, this is what happens when banking customers utilizing PAYBOX overlap and encompass a bank
outside of the companys sales network - but are included affiliation with a PAYBOX transaction. When
all of these parties start overlapping, the company can enjoy a viral effect. The benefit of increased
business is paramount, but the company can then sell added and additional benefits through this network
to customers.
Opportunity Within Accounts Payable:
Outside of receivables, PAYBOX is also targeting the accounts payable side of the business. Direct
Insite has deployed its accounts payable solution across four of its current global enterprise customers.
This solution's substantial benefits are described in detail following implementation with Siemens.
Overall, per DIRI, this solution improves working capital management and dynamic discounting and
supply chain financing, enables corporations to capture more discounts through accelerated invoice
processing and provides visibility for liquidity management and cash flow analysis.

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This area of the business has become extremely competitive and Direct Insite has moved their focus to
the accounts receivable section of the business yet still serve the accounts payable segment of a
companys business.
Risks:
As a small microcap company, DIRI does face risks such as the lack of uptake by banks or corporations
of the companies new offerings and old offerings. Further, as a small microcap company, share swings
and illiquidity could affect investors. Investors should track PAYBOXs uptake in the marketplace to
quantify this key risk. As previously discussed, it is too early to provide a straight line financial growth
model for Direct Insite, and our projections are solely based upon bank market penetration numbers. It is
conceivable that Direct Insite will be able to achieve a share of the market based upon
One of the specific risks to Direct Insite is to the recurring revenue side of their business. As Kraft is one
the companys customers, the Heinz and Kraft merger could have an impact on one of the companys
partners, Hewlett-Packard. Management has stated, and it is clear, that the loss of any legacy customer
could impact recurring revenue which is the current backbone of the company.
General microcap related risks also may affect Direct Insite. These include but are not limited to
competition, illiquidity, share price swings, and general market fluctuations.
Concluding Analysis:
Direct Insite is a first-mover in the industry targeting a $2.9B market with its SaaS Cloud solutions. The
company's solutions are already successful and validated in the marketplace with a Tier-1 global bank
contract, over 375,000 global network participants, partners with industry giants such as IBM and HP,
DIRIs facilitation of over 7M B2B transactions and wining the coveted BAI Payments Innovation Track
Award.
PAYBOX represents a massive opportunity which is highly scalable. Centered around signing additional
banks and additional clients through these banks the offering is on the verge of a substantial opportunity.
As a debt free company, $3.3M in cash and equivalents, a high level of insider ownership and a sticky
recurring revenue stream, Direct Insite offers investors a bleached-clean structure to support the
continued roll out of PAYBOX.
With a conservative 20X P/E ratio and a conservative 2% bank market penetration, shareholders could
see 100%+ upside potential with far greater returns possible as this bank penetration level increases. In
the event these initiatives do not pan out, investors are protected with 5% to 10% upside in the bear
scenario.
With the risks noted, Direct Insite is clearly one of our top picks for 2015 and 2016. Rarely do we come
across a highly-scalable SaaS technology micro-cap with a rock-solid balance sheet and high insider
ownership, whose offerings are cross validated from a global bank to industry giants in the first
inning of the world series.

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Additional information: A Recorded Interview with Direct Insites CEO Matthew Oakes is available for
viewing at SecretCaps.com, along with our original report.

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you with an investment strategy, mentioned herein. Nor is this intended to be relied upon as the basis for making
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