Hodgepodge

So, there is not one overriding theme to this week’s post.  I am going to write about some things that interest me around the topics I cover.

Well, as hot as it is we know that it is now Summer.  One thing I have noticed in the North Bay is that we end up with a week or so every June of very hot weather.  I think this is our “natural air conditioner” starting up.  As you know we are cooled by air coming from the Pacific to take the place of the rising air over the Central Valley.  It is almost like this week is a pre-requisite to getting that machine started.  Enough latent heat and enough temperature differential.

The fact that it is now summer means that the SMART Train will miss its opening schedule.  There is currently no defined date for starting the regular schedule while a safety review at the Federal level proceeds.  I wonder how long we will continue to support the train after it comes on.  I am a skeptic for ridership.  Riders will need to secure transport at both ends of their commute and it does not extend into SF nor connect to BART.  Given the widely dispersed places that we have employment, I am not sure the right way for a commuter to use this today.  If it continues to exist, maybe a generation from now business will have moved.  Will it be open still?  I don’t know.

The Net Neutrality writing I have done was in response to the massive outcry over a Notice of Proposed Rulemaking (NRPM) at the FCC, which asked many questions about what it should implement for residential Broadband Service.  This resulted in the “Title II Light” that we have today.  I want to note that there are many NRPMs that go on so this was not a unique thing.  For example the FCC just announced one about changing how Payphone Service payments are audited.  I doubt this one will receive much public interest.  It should be noted that the FCC is likely to change a number of rules that you care about.  As things evolve, I will try to keep you informed.

Have a great day!

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

Change Your Business – Change Your Life!

Sonoma County: News and Notes

This week I want to talk a bit about the results of the election in Santa Rosa last week.  As you probably know by now, Measure C was rejected.  This was the implementation of Rent Control.  I was quite surprised that it was rejected and I had seen polls before the voting that said that Measure C was going to pass handily.  My guess is that a lot of this could have been turnout based.  Older voters (property owners) tend to vote.  Younger voters (renters) tend not to vote.  I don’t think that Measure C would do much to alleviate our housing crunch here in Sonoma County.  I am hopeful that we can get a plan in place to expand housing options soon.

The second thing that I note is that the SMART Train did a “soft launch” on June 7th and they are awaiting approval by the Federal Railroad Administration.  Well, they have less than 1 week to meet their last published schedule of a “late Spring” launch.  There is a schedule posted with 17 trips a day.  The first train leaves Sonoma County Airport at 4:19AM and arrives in San Rafael at 5:26AM.  The last train leaves San Rafael at 8:35PM and arrives at Sonoma County Airport at 9:42PM.  There are 17 round trips on weekdays and 5 on weekends.  So, it looks like things are ready to go for later this year.

While Measure C failed, Measure D passed.  The City of Santa Rosa now has a Pot Tax.  I think the bigger issue here is that the city is now having a space crunch for warehouse type buildings.  3 of my friends in the Automotive Business have lost their location so that it can be turned into a grow house.  I have heard outrageous pricing for space and I expect that this will cause a significant amount of disruption as well.  Looking forward, I wonder how these places will be constructed and staffed.  I suspect that there will be a great deal of money wasted in all of this and that 3 years from now there will be bargains to be had in space that failed.

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

Change Your Business – Change Your Life!

Sonoma County: News and Notes

Today I will go over the next company in my usual list to analyze for quarterly results:  Keysight.  The raw numbers are that Revenue was $753M up from $731M a year ago.  Non-GaaP Net Income was $0.64 compared to $0.61 a year ago.  These are reasonably level results on a year over year basis, given that a tiny amount of Ixia is included in these numbers.

I want to point out what looks to be the strategy here, based up on the acquisition of Anite and now Ixia.  This looks to be a form of a roll-up.  Keysight is acquiring some smaller companies that are specialists in technologies that are adjacent to markets that Keysight is strong in.  To be clear, these markets are sub-markets of larger market segments.  So think of this as Keysight buying much of its future product development.  Anite has replaced the revenue of some of the more troubled parts of Keysight’s business.  Ixia will bolster Keysight in other markets.

The question for you:  “What does this mean for the future of Keysight?”.  That is hard to say.  Remember both Ixia and Anite were bought with cash.  That means that the value of this cash was removed from the shareholders and given to the shareholders of Anite and Ixia.  In the case of Ixia, the cash given to them was 45% above the closing price at the time of the deal.  When the deal was announced there was a bit of run in the stock.  This culminated in the announcement of the results.  The stock did really well in after hours the night of the quarterly conference call.  If you ignore this bump, the stock has been on a flat to slightly downward trend for a few days.

The company itself is large and profitable.  What we are discussing is how the company uses the cash that it makes.  There are 2 basic alternatives.  First, the company can keep the cash.  At the level that Keysight has it (or Google or Apple or Microsoft for example), it is not a service to shareholders.  Keeps more cash than is required means that your investment is in a CD or a Checking account under the control of the company.  The second alternative is to return the cash to the shareholder as a dividend.  This allows the shareholder to invest this cash in other, hopefully successful, places.  I favor this last, because the market that Keysight is addressing is slow growth but high technology.  It means there will be struggles in increasing share price until there is some rationalization in Product Development.  If you need to “buy” your future, then that means your current R&D is not being productive.  The right thing to do is to cut back on older products and focus on the growth areas.  The problem with is that you likely will be laying off current employees and replacing them with those from the company that you just bought.

I hope this helps you and have a great day!

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

Change Your Business – Change Your Life!

 

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!

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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!

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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!

Sonoma County:  News and Notes

Things have been extraordinarily busy for me over the past few weeks.  However, I was able to catch up with Jennie Jinnivik of Skin Care by Jennie recently.  Jennie has an office in Penngrove, but is looking for her own office in Santa Rosa.  If you know of a good space, let her know at either skincarebyjennie@hotmail.com or 707.793.9311.

Jim Sackman:  Jennie, you are an Esthetician.  Since many of my readers are men, can you fill us in on what that is?
Jennie Jinnivik:  Estheticians are not medical doctors; instead, they perform cosmetic skin treatments such as facials, light chemical peels, body treatments, and waxing.

Estheticians, also called skin care therapists, specialize in cosmetic treatments of the skin. If you’ve ever wondered what skin type you are, have trouble deciding on which skin care product to buy, you need an esthetician.  This is the skin care professional that can help teach you all you need to know about the proper care of your skin. Estheticians can help you create a daily skin care routine and suggest skin care products that are appropriate for your skin type. In short, estheticians can help you maintain a healthy skin.

JS:  Okay, well Skin is important!  I know that the Skin is the largest organ in the human body.
JJ:  That’s right and because of that we need to take care of our skin and promote health.  But that is only part of my job.

JS:  What is the rest?
JJ:  A lot of what I do is help people feel better about themselves.  If you look better, you feel better.  If you feel better, you look better.

JS:  So there is a self-esteem and confidence part of what you do.
JJ:  Absolutely.  It leads to one of the most important part of what I do differently than many others in my field.  Being an Esthetician, can be an extremely intimate experience with people’s bodies.  I want to ensure that everybody is comfortable and relaxed with the experience and that I have built trust with them.

JS:  Does that mean that you have a lot of long term clients?
JJ:  Yes, most of my business is long term clients.  There are many people that have not used an Esthetician before and are uncomfortable when they walk in.  I work to provide them with education on the different treatments and help them choose the products and services that are right for them.  My main goal is that everybody leaves satisfied with my work and that they are happier with their looks than when they came in.

I would like to thank Jennie for her time.  She is part of our Health and Wellness team at the Best Networkers in Town.  If you want to have breakfast with 50 Small Business Owners, come by Legends on Friday Mornings at 7 and visit our BNI chapter!

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

Change Your Business – Change Your Life!

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