On August 15, 2019, the company amended the employment agreement of Nathaniel A. Davis, the company’s CEO. The company awarded a one-time issue of performance-based restricted stock, valued at $10 million that will vest over three years, subject to the company attaining its free cash flow goals for 2020, 2021 and 2022.
Retrieval of information is a vital tool for an investment professional. Searching Google drive is like a doing a Google search of your research files. It will retrieve all the documents (Word, Excel, PDF) that contain your keyword in both the content and title. The system will list all the documents that contains the keyword.
Globalscape : Signs of moat, well-written CEO letter & significant percentage in Fondren Management’s portfolio
Huge recurring revenue: The maintenance and support segment of Globalscape accounted for 63% of the 2018 revenue. Maintenance and support (M&S) are recurring in nature. Almost all customers who purchase a perpetual license to use the EFT platform also purchase an M&S contract, for which they pay a recurring fee that is typically 20% to 30% of the perpetual license fee per year.
As per the company’s 10-K, GastroPlus has one significant competitor and has a high barrier to entry, as it would be difficult to validate new software to levels required to support regulatory submissions. In the past three years, that company generated roughly 69%-80% of revenue from renewals. The company’s renewal rates were 85% based on accounts and 93% based on fees.
TheStreet denied SpearPoint’s nomination request citing failure to request to the company’s transfer agent to have their shares registered in their name
The key takeaway is this – investors who plan to send nomination notices should contact the company’s transfer agent to have their shares registered in their name. The shares should be in the investor’s name before the deadline to nominate board candidates.
Pay close attention to the CEO’s language. Also, check the number of times the CEO uses the word “acquisition”, and how bad news is delivered – it is a red flag if the CEO tries to obscure the details of bad news.
Transcat’s calibration service is critical to ensure that test equipment is operating according to specifications. This segment is supported by a recurring revenue stream. This segment maintains high margins and an inherent operating leverage. Out of the $1.4 billion calibration service market, 41% is controlled by 3rd party service providers. Transact enjoys a 17% market share of the 3rd party service segment.
(a) The company’s technology is the only mask-free, clinically validated alternative to the current standard of care for the treatment of respiratory distress.
(b) De nova: The FDA recently granted the company’s de novo request for an expanded indication for the Precision Flow Hi-VNI system. De nova means the device is “novel” with no existing classification or predicate device on the market.
(c) Recurring revenue: Vapotherm generated roughly 67% of its total revenue for FY 2018 from the sale of single-use disposables, nasal interfaces, cannulas, and adaptors used in conjunction with the Precision Flow capital units.
(d) Huge installed base + treated patients: As of December 31, 2018, more than 1.7 million patients have been treated with the Precision Flow systems, and the company has a global installed base of over 14,000 capital units.
Liquidity Services : Significant percentage in 22NW LP & Roumell Capital’s portfolio and signs of moat
The company creates liquid marketplaces for surplus and scrap assets. The company’s warehouse can be replicated – in fact, a competitor can easily double or triple the company’s warehouse capacity (which is less than 0.6 million square feet), but it is difficult to attract a large buyer and seller base. Think of Facebook, LinkedIn, eBay – the network effect itself acts as a barrier to entry.
Failure to reply to the company’s question before the deadline makes the nomination letter a failure: lessons for wannabe activists
If you plan to send a nomination letter, you are required to send it before the “deadline”, which can be found in the by-law / proxy statement.
Even though Saba Capital sent the nomination letter before the deadline, BlackRock Muni New York Intermediate Duration Fund argued that Saba Capital failed to respond to the board’s further questions within the deadline. As such, the company rejected the nomination.
(a) Kimmeridge failed to win the proxy fight at PDC Energy, citing failure to garner support from passive investors.
(b) NexPoint Advisors failed to win the proxy fight at Medley Capital Corporation due to poor institutional ownership and a huge insider ownership.
Most of the activist letters and proxy documents contain heavy arguments about the management and the board. These arguments range from capital allocation to corporate governance.
Some arguments are distinct and worthy to note. In fact, if added to the “investment checklist”, it could improve the investment research process. #1 Transactions that are favorable to an insider #2 Arguments against a buyback #3 Issuing stock options at a significantly lower exercise price than a recent buyback program
http://thepatientinvestors.blogspot.com/. This blog is run by Avram Fisher, Portfolio Manager at Long Cast Advisers. The blog is updated regularly – most recently he discussed Cynergistek, Quest Resources etc.
Occasionally, I write about a few technical hacks. This article is about the usage of “Pin” in windows.
There are two pin options: (a) Pin to taskbar and (b) Pin to this list
Roumell Capital’s top five stocks account for 57% of the total portfolio. ZAGG accounts for 17% of the total portfolio – Rank #1
Signs of Moat – The company’s screen protection products enjoy a 51% market share in the US market. Moreover, the company enjoys 67% market share of US battery cases; 35% market share of US external power; 23% market share of US wireless charging pods.
When Mr. Martin attended the annual meeting of Tidewater (May 6, 2019), he was handed a “Rules of Conduct” document. Basically, the document provided the rules for asking questions and information regarding “removal from the meeting”. Mr. Martin was clearly not pleased.
Activist’s minority board seat is not an insurance for alpha. Screen companies that experienced a majority board change
Even though securing a board seat is a significant activism milestone, as evident by few activist situations, gaining a minority board seat is not enough. Incumbent directors may not listen to the activist. By tracking companies that underwent “majority” board changes after activist(s) showed up, investors can increase the odds of success.
KEMET Corporations Moat: When was the last time you saw a company where its customers offered interest free loans?
KEMET is a market leader in polymer tantalum, with an estimated market share of greater than 50.0%. The company claims that over the years it has transformed its product portfolio from a commodity-based approach to a customized, design-in approach.
Activist’s letters and presentations are long, and most of the contents are arguments that highlight mistakes of the management or the board. We extract the sections that provide readers with “insights”.
Two wonderful letters:
1. Laughing Water Capital says Iteris, a micro-cap company, enjoys a huge market share and has the potential to be a $billion+ company
2. Edenbrook Capital applauds the Marchex management for its initiatives over the course of 2018; Believes that the stock is worth $6.25 per share
MAK Capital runs an ultra-concentrated portfolio with just five stocks. Agilysis is the second largest position, and accounts for roughly 25% of its portfolio. Agilysys has been a leader in hospitality software for more than 40 years. The company has shifted from the legacy business model (license and maintenance) to the SaaS model. Generally speaking, SaaS customers face huge switching costs – (a) risk of data loss from migration from one platform to another platform; and (b) the learning curve involved with learning a new platform.
Looting of assets and attempt to kill: Investors who track 13D filings have every right to remain silent
Even though shareholder activism is a fertile hunting ground for finding ideas, there are some situations when it is better to avoid getting involved too early. For example, from an investing standpoint, when a shareholder refers to an insider’s transaction as “looting of assets” and “little more than theft”, it is better to stay away from the situation until the “core problem” is solved.
(1) Huge insider ownership is always a hurdle in a proxy fight, irrespective of shareholder sentiment. (2) ISS, a proxy advisory firm, approves an activist investor nominating a family member as a nominee. (3) Overcommitted nominee is voted against by ISS and G&L.
As a part of preparing an investor presentation, the activist group visited 200 stores, interviewed 100+ industry experts and 40 former employees, surveyed 650 customers, reviewed 15 years of SEC filings and 10 years of earnings transcripts, had discussions with advisory firms… well, the list continues.
Israeli District Court is shareholder friendly: Enjoins a dilutive offering by directors during a proxy campaign
Israeli Companies Law is generally considered shareholder-friendly. Joseph Payne’s victory in blocking the attempt of the Board of Arcturus Therapeutics to dilute shares by 24.5% before the EGM date is a perfect example of shareholder-friendly laws in Israel.
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