Sonoma County: News and Notes

Well, it is nice to report on a good quarter from one of the companies that I follow.  In this case, it is the results from Autodesk.  Let us start with the raw numbers.  The company reported Revenue of $485M and a loss of $0.59 per share.  Revenue was down year over year and they lost less money.  Given what I have written about other companies, why is this such a good result?

Well, the financial statements are all whacked up at the moment due to the change from Selling Software to Selling Subscriptions to Use Software.  There is a large number of changes that go on when that happens.  The biggest of which in the short term is Revenue Recognition.  If you sign a 1 year contract for a Cell Phone Service, companies can Recognize that Revenue 1 month at a time (for 1/12th of the total).  This is true even if you paid completely up front.  Autodesk’s software was generally pretty expensive, some licenses cost thousands of dollars annually.  So people converted to the subscription model slowly.  I have had the same Microsoft Office package for over 5 years.  I don’t see the reason to get the latest version.  Over time, Autodesk has converted many people to this new model and it looks to have turned the corner on that.

One big gain for investors this quarter is the way they have started breaking down Revenue.  I have been been asking for this transparency for some time.  Now they report in 3 categories:  Subscription, Maintenance, and License and Other.  Subscription Revenue is the kind of Software Revenue that we have been talking about.  Maintenance is Software Maintenance for those that had previously bought software and have a Maintenace Subscription.  License and Other is a catch-all for all one-time revenue like those last few Sales of Software that have existed.

There are 3 pools of people left to convert to the subscriptions.  First, there are those people that bought Software relatively recently.  This will take time and the company estimates that there are about 2M packages left to convert.  Not all of these will convert, but that is the idea.  The second group is software that is pirated.  The company estimates that this is 12M packages.  Some of this will become legitimate.  Given the size of the pool, even a modest transition could be quite good.  Finally, there are the Maintenace users.  The company is instituting a program to convert these customers by raising Maintenance Costs over time, with a Reduction in Subscription Cost for those that convert sooner.

All of this is essentially growth in this model before we talk about new users and new products.  If you are concerned about whether the company is viable, the place to look is the Cash Flow Statement.  Here the important number is Net Cash Provided by Operating Activities.  In this case, the company generated $45M in cash in the quarter. This is a key number for all companies as it tells you if the ongoing operations of the business is producing positive cash flow or not.  With all the vaguaries of reporting under Sarbanes-Oxley, this one number is an investor’s best friend.  Just to compare this one number, Enphase burned $24M and Calix burned $23M in Operating Cash.  Think of it this way.  Imagine you have one bank account and it is a free checking account.  You check your balance at the start of a quarter and at the end.  If did not do any investing or take out/pay back any loans, then this number would be how to look at how you are doing financially.  If you are generating cash (adding), that is good.  If you are burning cash (subtracting), that is bad.

So, we have a really nice quarter by Autodesk and a reporting structure that makes sense AND we can use to understand how the transition is going.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

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Sonoma County: News and Notes

Well, it is nice to report on a good quarter from one of the companies that I follow.  In this case, it is the results from Autodesk.  Let us start with the raw numbers.  The company reported Revenue of $485M and a loss of $0.59 per share.  Revenue was down year over year and they lost less money.  Given what I have written about other companies, why is this such a good result?

Well, the financial statements are all whacked up at the moment due to the change from Selling Software to Selling Subscriptions to Use Software.  There is a large number of changes that go on when that happens.  The biggest of which in the short term is Revenue Recognition.  If you sign a 1 year contract for a Cell Phone Service, companies can Recognize that Revenue 1 month at a time (for 1/12th of the total).  This is true even if you paid completely up front.  Autodesk’s software was generally pretty expensive, some licenses cost thousands of dollars annually.  So people converted to the subscription model slowly.  I have had the same Microsoft Office package for over 5 years.  I don’t see the reason to get the latest version.  Over time, Autodesk has converted many people to this new model and it looks to have turned the corner on that.

One big gain for investors this quarter is the way they have started breaking down Revenue.  I have been been asking for this transparency for some time.  Now they report in 3 categories:  Subscription, Maintenance, and License and Other.  Subscription Revenue is the kind of Software Revenue that we have been talking about.  Maintenance is Software Maintenance for those that had previously bought software and have a Maintenace Subscription.  License and Other is a catch-all for all one-time revenue like those last few Sales of Software that have existed.

There are 3 pools of people left to convert to the subscriptions.  First, there are those people that bought Software relatively recently.  This will take time and the company estimates that there are about 2M packages left to convert.  Not all of these will convert, but that is the idea.  The second group is software that is pirated.  The company estimates that this is 12M packages.  Some of this will become legitimate.  Given the size of the pool, even a modest transition could be quite good.  Finally, there are the Maintenace users.  The company is instituting a program to convert these customers by raising Maintenance Costs over time, with a Reduction in Subscription Cost for those that convert sooner.

All of this is essentially growth in this model before we talk about new users and new products.  If you are concerned about whether the company is viable, the place to look is the Cash Flow Statement.  Here the important number is Net Cash Provided by Operating Activities.  In this case, the company generated $45M in cash in the quarter. This is a key number for all companies as it tells you if the ongoing operations of the business is producing positive cash flow or not.  With all the vaguaries of reporting under Sarbanes-Oxley, this one number is an investor’s best friend.  Just to compare this one number, Enphase burned $24M and Calix burned $23M in Operating Cash.  Think of it this way.  Imagine you have one bank account and it is a free checking account.  You check your balance at the start of a quarter and at the end.  If did not do any investing or take out/pay back any loans, then this number would be how to look at how you are doing financially.  If you are generating cash (adding), that is good.  If you are burning cash (subtracting), that is bad.

So, we have a really nice quarter by Autodesk and a reporting structure that makes sense AND we can use to understand how the transition is going.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

The 4 P’s of Leadership: You

May 22, 2017/

We have talked about Leadership and my 4 Ps model of Leadership:  Products, Process, Plans, and People.  The last post before we wrap up on this topic is the most important person in this whole equation.  That would be You.

You can be the kind of leader that grows and develops your Business.  The kind that focusses their energy in alignment with their Vision and their Plan.  You can tune your Business Processes to make them work more efficiently.  You can deliver Products and Services that your Customer want.

Many of you believe that last and want things to stay the way they are to allow you to deliver them.  But status quo is not something that works forever.  We want things to be the way they used to be and long for the good ole days.  Those days are gone and we need to create the better days ahead.

And that is what this process and model is about.  Creating your future.  What do you want out of your business?  Are you on a path to get there?  If not, then what are you going to change to make that happen?  If you are not sure how to change, then you need to hire help to get that change in place.  I see so many owners who don’t like the way that their business works for them.  But it can be different.  If you are not sure about that then look around.  Does one of your competitors have a business that works the way that you want yours to work?  If so, then the business you want already exists.  That means that you can do it as well.

Your Vision for your Business is something you need to share.  Share it with your employees and partners and customers and prospects.  Tell them what you want to achieve for them and for you.  Tell them why you are great.  Then most importantly make sure that your Business delivers on what you promise you want to do for your customers.  I call this your Brand Promise.  Make sure everyone involved knows what this is.  Make sure that you and your employees deliver on your promise.

It is never easy.  There are bumps along the way.  But if you believe in what you are doing then those customers that believe as you do will come to you.  It is you as the most important person that can lead your Business into the future.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

Sonoma County: News and Notes

It was the best of times.  It was the worst of times.  It could be the “Tale of Two Cities” or it could be the Q1 Earnings report from Calix.  The raw numbers are that the company had $117M in Revenue and lost $0.57 per share (non-GaaP).  We need to dig a bit into these numbers to understand where the company is and what it is up to.

The $117M in revenue is up significantly from the past year.  The challenge is that it includes $26M of Service Revenue up from $6.6M the Q1 of last year.  This left the Product Revenue almost completely flat.  Additionally, this Service Revenue comes at what is an apparent Gross Margin of less than 1%.  But this can be deceiving and may not actually represent the actual Costs here.  One of the challenges under Sarbanes-Oxley is that you report Cost of Goods Sold (COGS) when they happen.  You recognize the Revenue when the customer accepts the service.  This means that there can be a delay from the reporting of Costs to the recognizing of Revenue.  The conference call stated that there will be a decline in this type of Revenue in Q2 and that it should return to more historical levels.  This implies that the Cost and the Revenue all happened in Q1, but I don’t think this is as clear as it should be.

Now, I would generally rail against adding in a 0% Gross Margin business.  It certainly should not be the cause for celebration and growth pinned to it is disingenuous in its marketing of the results.  However, we know that Calix is in very competitive situations at its major customers with Adtran.  If this was a way of securing a chunk of footprint for later additional work, then it is a good deal.  I need to caveat this now.  Calix’s primary products are chassis that generally are installed partially filled.  The sale of add-on cards is a great deal of the Gross Margin of this kind of business.  If this was about securing footprint for that kind of work, then this was a great move.  If on the other hand it was for the box products that are complete as installed, then I think we need to view this business with great concern.  The analysts on the call should have pursued this but did not.  In the latter case, it would say that this kind of work is what keeps Calix competitive.  If true, then that is a problem.

The real downside comes on the Operational Expense (OPEX) front.  The company $67M in OPEX, including a 50% jump in year over year R&D expenses. This is coupled with a $10M decline in Gross Margin from Systems to make the company extremely unprofitable in Q1.  This wiped out about 50% of Calix’s cash reserves.  The Q2 guidance suggests that this should reverse based upon the growth in Accounts Receivable in Q1.  There is supposed to be growth, but I will want to see growth in Systems and not in Services in Q2.  We shall have to see how this works out, but the company is spending too much money based on the return this is bringing shareholders.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

The 4 P’s of Leadership:  Change and People

This series has been about why businesses need to continue to evolve and some thoughts about how this happens.  We need to get to the core of this and this is people.  People are the element that causes any long term growth in your business.  Why is that?  If it wasn’t clear from the last post, then I will be explicit.  Plans require Action to be successful.  Plans without Action are wishes.  Without people there is no Action.

That is why we have gone to all the trouble to understand the change in our Business and to create distinct measurable activities.  These activities need to align with our plans for growth.  The reality is that all of this change and growth will create holes within the organization.  There will be skills that you don’t have and there will be skills that you will need more of.  That all comes back to more people and the right people.

If you are constantly hiring those new skills from the outside, it limits the growth potential of your current employees.  These are the folks that brought you to where you are today.  In comparison to a new hire, they should be at a higher trust level with you.  They might lack a skill, but you know that you can depend on them.  Are you better off hiring from the outside or training/promoting from within?  Ideally you want a mix of both.  When you bring people from the outside, they will bring their experience and ideas with them.  That diversity of viewpoint is not a detriment.  It is a strength.  You want to balance that with opportunities for existing employees.

As you think about the Changes you are going to make, ensure that you understand any skill gaps that you need to close.  Those skill gaps will help define your hiring and training needs for the future.  Neglecting these gaps will mean a plan failure or a significant change to the plan.  Training also helps motivate and retain employees.  Even if you are hiring to close skill gaps, training can be a powerful tool in your arsenal.

Businesses are simply collections of people with their skills and ideas.  Don’t forget that as you build your business.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

Sonoma County:  News and Notes

We are entering Earnings Season and two of the companies that I post about reported yesterday.  I have decided to start with my review of Enphase’s Q1 results.  The basics are the company had Revenue of $54M down from $64M a year ago.  The company lost $0.30 per share compared to a loss of $0.41 a year ago.  I want quote the transcript from the Q4 Conference Call held on February 28th, 2017:

“Now, let’s discuss our outlook for the first quarter of 2017. We expect our revenue for the first quarter of 2017 to be within the range of $60 million to $65 million. While our first quarter results are typically impacted by normal seasonality, the extraordinarily wet winter in California, where we have a strong presence, has negatively impacted our first quarter revenues. We estimate that the residential PV market in California will be off by as much as 50% in Q1. However, we believe that the California market will recover in Q2 and return to normal growth rates.

Turning to margins, we expect GAAP and non-GAAP gross margin in Q1 to be within a range of 16% to 20%. Non-GAAP gross margin excludes approximately $250,000 of stock-based compensation expense. We expect GAAP operating expense for the first quarter to be within a range of $27.5 million to $29.5 million, and non-GAAP operating expense to be within a range of $19 million to $21 million, excluding an estimated $1.5 million of stock-based compensation expense and approximately $7 million of additional restructuring expense.”

About the only thing that the company hit was the Operating Expense numbers.  Revenue was less than expected as was the Gross Margin.  Note that on the Q1 call the weather in CA was blamed for much of the downturn in Q1.  The problem is that the Q4 call happened at the end of February.  The company should have had a really good look at the totals for Q1 and apparently did not.  Which leads to the thing that I think that investors need to deal with.  Do you trust Management and their projections?

I think this is a fair question in this case.  There have been so many wrong turns that you have to wonder if Management is in touch with what it is doing.  Let me point something else out from the conference calls.  The Q4 call predicted that Q2 would see a return to normal growth rates.  On the Q1 call, we were told that California is 40% of Enphase’s business.  And the projection for Q2 is flat to down from last year.  How is this a return to growth?

I think it is important to judge management by their words and actions.  We will be having this conversation again about Calix, but it is so stark with Enphase that I want to call it to your attention.  Enphase builds great products but are they a great company?  Is the Leadership in place to lead them into the future?  These are the decisions that you need to make.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business!

The 4 P’s of Leadership: Goals from Top to Bottom

You have created a real Business Plan based upon the strategic situation that you documented in your SWOT.  Great.  Now what?  The answer is to put that plan into action.  This will turn the near term parts of the Business Plans into actions on either you Products/Projects or your Processes.  Those actions need to have Goals and Objectives to be met.  That way that they can be monitored and course corrected.  Depending on the size of the organization this can be a simple or a complex exercise.

But no matter what, everyone needs to understand how they fit into the plan.  In large Businesses, this is cascaded down through different levels of Management.  In smaller Businesses, this can be a direct conversation.  Again, in either case there are 2 questions to be answered:

– What part of the plan am I responsible for and how will you know that I am delivering?
– What are the actions I need to take to execute my part of the plan and how will you know that I am doing them?

The answer to the first question is what is called a KRI or a Key Results Indicator.  We may track many things but within a Business Plan there will not be more than 3 to 7 measurements that are critical to the success of the Business.  Revenue, Gross Margin Percentage and Profit are three Key Results for everyone.  Any others are specific to the Plan and the Business.

But it is action that makes a Plan work.  And that is the answer to the second question.  It is called a KPI or Key Performance Indicator.  KPIs are trackers of action.  The idea is that if everyone performs the actions that can be measured by their KPIs then the Business Plan (and thus the Business) will succeed.  Let me give you a simple example that can help explain this.  Let’s say that you want more Revenue.  You can do one of several things:  You can get more Customers;  You can sell Customers more things;  You can charge Customers more;  or You can sell Customers things more often.  That is pretty much the range of ways of raising Revenue.  If you are going to do one or more of these things, the Business will have to change (however slightly) for this.  The actions that you take to do this should be measurable. For Example: I will call on 6 prospects per day instead of 5.  The beauty behind a KPI is that it defines the action that you take, so you can control it.

Many Business Owners and Executives struggle with KPI development.  This is something that I can help with as KPIs are critical to the success of a Business Plan in action!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Visit the FocalPoint Norcal Forum – We have many tools for helping your Business