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ClickSoftware Technologie (CKSW) Message Board

  • pajacobsen pajacobsen May 3, 2012 2:09 PM Flag

    Stepping back - part 1

    Hello All,

    Running the danger of being, well, flamed......

    In my view the problem with the per share price development for CKSW and the associated outcries on this board is simply that they are all too predictable.

    Let's look at fundamentals first. Click Software, the corporate entity underlying the CKSW equity and any CKSW related derivatives (including options and shorts,) has extremely strong historic fundamentals, including the historical fundamentals for the first quarter of fiscal year 2012 - except the relationship to price (as expressed in its P/E ratio,) which has tended to run very high over the last year or so. In a growth/investment mode and in the first quarter, arguably the hardest part of the fiscal year, the company still managed to generate $700 thousand or so in net earnings, achieve gross profit of 57%, and, importantly, generate $2.1 million in cash from operating activities. Moreover, the company increased its reported backlog for the year to sufficiently offset any quarterly shortcoming against the annual guidance.

    Generally, there are three issues around CKSW: 1) on the short-term side, the dividend paid in first quarter of the fiscal year undermined the results (cash in from operations was $2.1 million and dividend paid was $2.5 million;) 2) an obsession with providing annual guidance, which inevitably is misconstrued or, rather, looked at through a quarterly prism rather than a yearly one; and 3) a tendency to issue too many incentive options (causing significant dilution and continuously harming the company's earnings performance) and to continue to award the CEO of the company with, what surely at this point must be completely meaningless, incentive options.

    == Dividends ==
    The dividend, of course, is a double-edged sword that should be treated with the outmost care much like a loaded and cocked revolver. Personally, I like dividend (for all the usual reasons) and I see nothing wrong with the dividend paid out in the first quarter, but I think that it is important to keep in mind that average investor (including, btw, institutional investors and analysts) are headline driven, and, unfortunately, the headline here is that of a decline in the company's cash, cash equivalents and short and long-term investments.

    If the purpose of dividend is to increase shareholder value, then, certainly, seen through the prism of the first and second quarter, it did not work. That being said, having observed the CEO of Click Software in action for a number of years, I am dead certain that if he for even one minute thought that the effect that we are seeing now is a permanent one, then he would cancel the dividend program immediately.

    * Overall, I think the dividend program is a good idea, but it should be annualized and should be payable in the fourth quarter of the fiscal year, so as to minimizing any perception problem. *

    ... Continued ...

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • The only reason to pay a dividend is if the company cant give a better return on reinvesting it in the company. Berkshire for instance has never paid a dividend.

    • ... continued from part 2


      == Stepping Back ==
      All this being said, I think Click Software is an interesting, high-growth company that appears to, on the operational level, be very well managed, and, as it is often the case, the shareholders are mostly along for the ride, which, at time, can be bumpy, but, generally, is ascending. As has been (consistently, I think) postulated by our resident apple grower, there is a real possibility of a strong liquidity event in the not to distant future, and so, ultimately, the shareholders may be richly rewarded for the bumpy ride.

      I don't think it is possible to argue with the company's recent, strong operational performance or Mr. BenBassat's singular, strong long-term vision. This is clearly a company that has leadership with a plan and the ability to execute on this plan. Unfortunately, as it is almost always the case when dealing with talented people with a strong vision, this also means that we have a company with idiosyncrasies that, from time to time, will impact upon the per share price.

      The company's calculated gamble is costly in the short term, but given the growing pipe-line for the new offerings, which is now on par with the pipeline for the traditional offerings, this high cost probably will be justified by a correspondingly high return in the near future and, ultimately, by a very high return in the long term.

      The recent adjustment (read drop) in the per share price is *not* in line with the expected annual results or, in fact, the reported results for the first quarter of the fiscal year, and, therefore, subject to the caveats implicit in what I write below, I now consider CKSW a very good buy.


      == Disclosure ==
      In March and very early April I liquidated all my holdings of CKSW at a price of approximately $12.50 per share. I did this having reviewed the company's S-8 filing (noting, again, the significant issues around option dilution,) and having evaluated the share price relative to the results in the 20-F filing and the historic trend of the per share price of CKSW. After the recent adjustment, I have started accumulating a position, and my expectation is that, all else being equal, I will revisit my allocation in CKSW in March of next year or when the per share price exceeds $12.50 in the first three quarters or $15 in the final quarter, whichever, may occur first.

      Flame away!

      Best,

      pajacobsen

      P.S. I cannot abide the constant yelling about shorts and market makers. Once and for all: There is no market maker conspiracy for CKSW and the short interest is entirely consistent (in both volume and timing) with the company's early warning on first quarter results relative to the guidance. I will not dignify the market maker conspiracy with any further comment, and with respect to the short conspiracy, then, if there is anything to be said about the traders shorting CKSW subsequent to the early warning, then it is that they took their position *entirely* relying on the ignorance of the general public, are very smart people, and could not succeed without the help and ignorance of everyone else.

    • ... continued from part 1

      == Guidance ==
      Well, frankly, guidance sucks. The purpose of guidance is, of course, to increase visibility and normalize the share price development, and some company achieve this, frequently by simply guiding low and exceeding their own low guidance. Click Software is both very good and very poor at using guidance as a corporate tool. The company is very good in guiding for the year, and it is very poor at managing the inevitable quarterly variations, particularly because the personality of the CEO of the company does not necessarily lends itself well to explaining what he sees as obvious (sorry, Mr. BenBassat.) I think Click Software would be in a better general position if no guidance was given, and my experience is that Click Software's guidance can only be relied on as a yearly measure (however, as a yearly measure it can be heavily relied on.)

      * Overall, I think the company should stop providing guidance until further notice. *

      == Incentive Options ==
      I am a strong believer in incentive options and think they can make a critical impact on a company's performance, but, in my view, given the position that Click Software has achieved today, incentive options are now being used too liberally and directly impacts the earnings negatively through dilution (issuing close to one million options per year is obscene when the number of outstanding shares is in the 25 to 50 million range.)

      With respect to the Board of Director's liberal spraying of incentive options on the CEO of the company (and various entities that he controls), well, do the CEO really need an incentive at this point, and what kind of incentive is 100,000 options really when you (in some form or another) are holding more than 10% of the outstanding shares (sorry, again, Mr. BenBassat?) In fact the only thing the Board of Director is achieving with the current issuance to Mr. BenBassat is to, effectively, minimize the dilution felt by the CEO when they issue incentive options to the rest of the employees (and, of course, themselves.) With a net dilution of 800,000 shares, or so, in fiscal year 2011, the shareholders, including Mr. BenBassat, were diluted approximately 2.5%, but Mr. BenBassat et al were "held harmless" through the issuance of 100,000 options, equal to 2.5% of, in one form or another, his holdings of 3.9 million shares. However, if this is the objective of the Board of Director, then, as a minimum, we are dealing with a perverse reverse incentive, which can have all kind of negative effects.

      * Generally, I think that, in view of the company position and stage, the annually issued incentive options should be reduced to 200,000 (or, more precisely, less than 0.5% of the outstanding shares,) and, until further notice, Mr. BenBassat should not be issued any further options. *

      ... Continued ...

      • 1 Reply to pajacobsen
      • ... continued from part 2

        == Stepping Back ==
        All this being said, I think Click Software is an interesting, high-growth company that appears to, on the operational level, be very well managed, and, as it is often the case, the shareholders are mostly along for the ride, which, at time, can be bumpy, but, generally, is ascending. As has been (consistently, I think) postulated by our resident apple grower, there is a real possibility of a strong liquidity event in the not to distant future, and so, ultimately, the shareholders may be richly rewarded for the bumpy ride.

        I don't think it is possible to argue with the company's recent, strong operational performance or Mr. BenBassat's singular, strong long-term vision. This is clearly a company that has leadership with a plan and the ability to execute on this plan. Unfortunately, as it is almost always the case when dealing with talented people with a strong vision, this also means that we have a company with idiosyncrasies that, from time to time, will impact upon the per share price.

        The company's calculated gamble is costly in the short term, but given the growing pipe-line for the new offerings, which is now on par with the pipeline for the traditional offerings, this high cost probably will be justified by a correspondingly high return in the near future and, ultimately, by a very high return in the long term.

        The recent adjustment (read drop) in the per share price is *not* in line with the expected annual results or, in fact, the reported results for the first quarter of the fiscal year, and, therefore, subject to the caveats implicit in what I write below, I now consider CKSW a very good buy.


        == Disclosure ==
        In March and very early April I liquidated all my holdings of CKSW at a price of approximately $12.50 per share. I did this having reviewed the company's S-8 filing (noting, again, the significant issues around option dilution,) and having evaluated the share price relative to the results in the 20-F filing and the historic trend of the per share price of CKSW. After the recent adjustment, I have started accumulating a position, and my expectation is that, all else being equal, I will revisit my allocation in CKSW in March of next year or when the per share price exceeds $12.50 in the first three quarters or $15 in the final quarter, whichever, may occur first.

        Flame away!

        Best,

        pajacobsen

        P.S. I cannot abide the constant yelling about shorts and market makers. Once and for all: There is no market maker conspiracy for CKSW and the short interest is entirely consistent (in both volume and timing) with the company's early warning on first quarter results relative to the guidance. I will not dignify the market maker conspiracy with any further comment, and with respect to the short conspiracy, then, if there is anything to be said about the traders shorting CKSW subsequent to the early warning, then it is that they took their position *entirely* relying on the ignorance of the general public, are very smart people, and could not succeed without the help and ignorance of everyone else.

 
CKSW
7.24+0.04(+0.56%)Dec 22 4:00 PMEST

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