To all investors who have long term horizons (e.g Fuji, Flying trader, etc.), can you please provide compelling reason(s) as why one can continue to be optimistic and to stay long in CKSW for thet long haul given that:
1) The management missed the boat in a sense that they did not see the direction of where the business model would shift (i.e. the low margin, low cost cloud VS. the traditional install)? How can one trust in the intelligence and business saavy of these people if they did not see this coming to them?
2) More importantly, how can one trust in anything these folks say when they told the biggest lies to the share holders from the beginning of this year with respect to their revenue and earnings and how arrogantly they repeatedly kept saying the second half of the year will be when the company makes the biggest chunk of its money - not realizing not only that would not be the case BUT in fact their entire business model will be shifting 180 degree AND they are NOT ready for it.
3) The perception I have now is that They will be burning their cash fast for the next several quarters to setup their infrastructures, and in the meantime younger companies (e.g. TOA) will kick them aside. Is this perception NOT correct? And if it is, why would one want to stay long in CKSW?
4) And lastly, the one reason to stay long would be to see it be bought out... but then who would do so and in spite of CKSW's great intrinsic value, given they are not quite ready for Cloud (or at best are mediocre at it).
Thank you so kindly in advance
The main reason to remain long on CKSW is that it is the market leader in a rapidly growing software niche and has executed a successful strategy to get to this point. The unevenness in the stock price over the past couple of years has been mainly due to the lumpiness of license revenue each quarter. Whenever licenses are delayed they seem to get hit. However, on a yearly basis license revenue has been growing quite consistently. Here is the trend (1,000):
I realize that the miss this quarter is not quite like the others in that it is due to clients switching to a service model rather than perpetual license. This is not necessarily a bad thing as it could eventually lead to more predictable and steadier results. If, however, it is due to clients moving to competitor offerings then that is another matter.
At a market cap of 250M, 55M in cash and annual cash flow of over 16M last year CKSW is still solid financially. Given the global economic environment I would say they have done fairly well. Looking forward, the bookings and deferred revenue numbers should show if they are still signing deals.
You make a valid point but it's only a partial picture. The maintenance and service gross margin has been increasingly important to the business model. Also the impact of the disproportionate growth in opex cannot be ignored. Here are those trends as a comparison:
* Lic revenue $19.3m GM 90%
* Serv revenue $41.9m GM 55%
* Opex $29.2m 48% rev
* Net income $12.5m
* NonGAAP income $12.7m
* Lic revenue $25.8m GM 91%
* Serv revenue $45.2m GM 46%
* Opex $33.9m 48% rev
* Net income $9.1m
* NonGAAP income $12.0m
* Lic revenue $31.5m GM 92%
* Serv revenue $55.5m GM 47%
* Opex $39.8m 46% rev
* Net income $12.2m
* NonGAAP income $17.0m
* Lic revenue $34.5m GM 89%
* Serv revenue $65.5m GM 46%
* Opex $53.9m 54% rev
* Net income $7.5m Y/Y (39%)
* NonGAAP income $10.2m Y/Y (40%)
In conclusion, prior to this year's top line softness, they have seen a drop in gross margin of 500 basis points since 2009 and during that time they have seen opex increase by 600 basis points. Combined the decrease in pretax income relative to revenues is over $10m. Now with top line softening, where is the profit going to come from? Admittedly, I haven't follwed the company closely so it's very possible they have been investing in something i'm not aware of. Would appreciate hearing if this incremental overhead and depressed margins has been identified as some new intiative that is expected to result in improved performance going forward.
I think you know the answer to your question. In this situation a buyout is the last hold out. How long are you going to wait?? As I posted before I am invested in several smartphone component makers and they are crushing clicks performance. A few of my picks have doubled since last year and continue to slowly grow. So do I want to put more money in Click on the hopes somebody with money to throw away buys them??? That sounds like my relative that goes to the casino continually losing money but hoping "for that big payday." Lets just be clear, waiting for a buyout (and that's the only reason you are holding) is not an investment. Its a gamble and you should be prepared to lose. And I don't believe TOA is not giving them competition. I have the experience of reading company preannouncements over about twenty years (most famously Enron, that I was criticized for not investing in at the time). This preannouncement is all BS. You think these IT managers aren't familiar with cloud or SAAS??? And click didn't know anything last quarter (even though moshe hinted at 2014 as when margins recover)?? The problem I see is in a thinly traded small cap such as this one institution can blow you out of the water. If moshe starts talking more about 2014 as the recovery year, this stock is at best dead money plain and simple and the question is how long do you want to wait for something positive to happen.
With TriQuint shares up more than 30% this year and holding steady since early June, those concerns likely aren’t yet priced into the stock. Meanwhile, RF Micro shares are up 15% year-to-date, in line with the rise in the tech-heavy Nasdaq.
By contrast, the shares of Cirrus Logic have been hammered this year — dropping 40% — on worries about its exposure to the smartphone market. And shares of Broadcom and Qualcomm are both slightly under water this year on investor concerns about handset growth and margins.
As a result, TriQuint and RF Micro look to be the most vulnerable to any weak forecasts coming from Apple and other smartphone companies during the next few weeks.
With several data points that show a deceleration in high-end smartphone sales now in, it’s time to look at which companies might be taking a hit to second-half revenue forecasts — before tech earnings season kicks off next week.
I fully agree the Q2 financials won't provide much reason for CKSW investors to be optimistic. The video, "Ledcor Rolls Out in 12 Days," available on Click's website under "customer videos," does. That "wow" implementation represents an amazingly smooth, fast customer rollout that generated immediate and compelling ROI. Replicate that level of new customer experience and Click will gain market momentum and eventually achieve an inflection point.
Accurately predicting what is going to happen in the apple industry over any 12 month period is impossible. In my experience, the tech industry isn't any different. That said, "under promise and over deliver" remains a solid business strategy and the reverse (think 20% to 25% revenue growth guidance) is not.
After today's vote it would seem logical for Moshe to step into the Chairman's role where he can continue providing strategic advice. Having shot himself in the foot with investors, it would probably be better to promote some fresh leadership to serve as spokesperson in press releases and conference calls.
TOA has been 100% focused on the Cloud which gives them some edge in that niche. Don't count Click out, however, as they have a much stronger customer base, product portfolio and in my opinion, R&D team. Click will win their share of that rapidly growing business. I agree with Gunnar that TOA is likely bleeding cash and winning some contracts primarily by offering low ball (and completely unsustainable) bids.
In spite of occasional boneheaded leadership (i.e. 90,000 more options dumped in Moshe's pocket) I remain optimistic regarding Click. And as long time chat board readers all know, I am usually wrong.
Good luck to everyone.
Thanks Fuji as always...
One question... so you do not think the company is going to be burning cash for the next several quarters (at least 2 quarters) and hence losing money till such time that its new business model based mainly on a subscription model (i.e. cloud) as oppose to license is in place? Hence as far as the stock is concerned it will drifting lower - much lower - into the $5's slowly. Therefore what is the point of holding on when it is as clear as a day light, that nothing will happen for the next 6 months at least.
I am not implying to time the CKSW stock, but then unless it is sold to a bigger fish, I really dont see how it can possibly remain in $7's let alone gong up any further in the short term at least.
On a separate topic, I have started to shift some of my cash into MGIC, and I noticed you are also invested in the stock. Appreciate your thoughts on the company and stock (either posting to my message on the MGIC yahoo message board).
Thank you so kindly,
AJPB, Tough questions and Fuji will be more optimistic than I am right now, but there are two things I would like to figure out before bailing... one is will these big utilities really go to the cloud for their scheduling... I am not so sure, if not than CKSW is still king of that world...
Second, I would like to see if there is a profitable angle to the SaaS business... as someone one else pointed out it doesn't necessarily mean lower margins, but we will have to see... and if this means that every Mom & Pop business out there (as well as every municipality) can use the market leading software for their scheduling needs, than perhaps you are looking at CRM types of valuations...
I also wonder if this latest move to buddy up to CRM (an ORCL leaning shop) (vs or in addition to SAP?) was brought on by SAP development of their own solutions and that the SAP connection is grower weaker...
This last announcement was not a good sign... you are right to wonder why they could not have seen this coming 20 weeks ago... seems they were completely blindsided...
I am still evaluating options... I worry the dividend will be next to go... you can't pay dividends for long if you are losing money, then the stock will just be dead weight to carry...
I am not sure of my next move... will wait for the CC...
All the best
I know you asked Fuji for his opinion but I will add my two cents (I think Fuji is finally realizing Click's management is not All-Stars)
In regard to TOA, they are not stealing Click's lunch. The truth is that TOA is bleeding money and they keep raising money from PE. The founders got diluted so bad that they only control a small portion of the company.
For example, one of their recent PRs about winning four telecom customer fails to inform us that those were old wins. They recycled the wins as new wins when in reality they are 1-2 year old wins.
Click will be sold in the next 12 months. Their business is growing while the rest of IT spending is flat at the best.
The problem is the management. They don't know to manage expectations and as I said many times, guiding for 20%+ growth was a huge mistake.
Other problem is the huge increase in head count. They grew from 400 to 600 (50%) while their business is growing at 15%.
I think Ben Bassat is finally realizing it's time to sell and move on to spend time with his family and grand kids.