About Me

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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Tuesday, April 17, 2018

LCA 1Q18 Letter: "On Testing An Investment Hypothesis"

I included this short piece as part of my 1Q18 letter posted on the Long Cast Advisers website.

***

I like to make as few decisions as possible and react as little as possible to short-term changes in price. However, as the largest single client in the firm, I definitely feel it when stock prices go down. And when they do, as they will inevitably, I increase my research to try to better test the hypothesis, because I want to make sure I’m not missing anything while taking advantage of the opportunity to buy more.

Thinking about this, I’m reminded of a wonderful article I recently read in my alumni magazine about the physicist Andrew Ewald’s work on metastasized cancers. I recommend the entire article but this paragraph alone blew me away. It speaks to the amount of time, effort and experimentation involved in simply tracking information that might be useful:

“He reconfigured his microscopes to image hundreds of positions in quick succession while staying in perfect focus. And he replaced the light filters. Microscope designers typically enhance their instruments' resolution by blasting a sample with as much light as possible. But light that bright kills cells. "Bringing in more light looks fantastic for a few images," Ewald says. "Then the sample dies." He took a different tack: He carefully guided the scope's light beams to make each photon do more work. He managed to supercharge his resolution while keeping light levels low enough for cells to survive indefinitely. He wrote software that made the microscope take a picture every 10 to 20 minutes for up to 100 hours. He calls the technique 4-D confocal microscopy—the fourth dimension being time. He calibrated his equipment to collect not just images but numbers—quantitative measures of cells' positions, velocities, and trajectories.”

What an intense and extraordinary amount of work first identifying a problem then testing different solutions. It got me thinking about how investors test a hypothesis related to an investment idea.

All public investors have access to self-reported financial information published quarterly; macro-economic information published regularly by the government (and supplemented by private sector service providers); and their own abilities to reason. These are good primary sources to help form a hypothesis.

We also have access through Seeking Alpha, Sumzero, VIC, et al. to other people’s views on a stock. And of course, the most expedient piece of information is the stock price, which is essentially the aggregate of what everyone thinks.

There is value to knowing what everyone else thinks, but it often serves more as a “bias creating machine” than a “hypothesis testing machine”.

I recently met a PhD psychology student at Stanford who told me: “There’s lots of human error out there, that’s for sure,” which is a nice way of saying something a lot of us probably wonder from time to time. It gets to the heart of my belief that the markets, theorized as an efficient method of price discovery just as often amplifies human error.

If you want to do better than the crowd, you have to do different. With nearly two decades of investment experience, and a foundation of healthy skepticism, a little irreverence and a lot of humility, I think it is possible to sustainably and repeatedly do better than the crowd. The question is: How?

Part of my work, which was informed by my brief experience in 1996 working as a PI for BackTrack Reports, involves interviewing people. Without care, interviews can lend towards biases (small sample sizes, weak connections, etc) but a good source (customers, executives’ former colleagues, competitors who always love to dish dirt, experts in certain fields) asked the right open-ended questions can add value that is not otherwise available elsewhere. It is a sharp relief from talking with other investors who more often than not don’t want to hear or haven’t considered the bad news. (The best ones do, and most likely already know it.)

I know I’m not the only investor who interviews people and I know that as a “hypothesis testing machine” it is imperfect. But I think marrying the quantitative analysis of financial statements with the qualitative aspects of “walking around and talking to people” helps reduce some errors.

Whatever the favored method is, the key is to first figure out what we’re looking for, then try to figure out how to find it. It’s hard and it’s time consuming and you never know if what you’re going to find will add value. I start with asking “where am I wrong” in order to seek out what I don’t know so I can find ways to disprove the hypothesis. Asking the right questions is one of the hardest parts to solving any problem, investing included.

There’s no one answer and we can all find our paths to success. But following a scientific method has tremendous value. I realize that comparing the humble and greedy aspects of business valuations and investing doesn’t hold a candle to cancer research, but in taking a professional and scientific approach to the work, at least we can match the integrity of it.

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ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Monday, March 26, 2018

"The Past is History, Tomorrow's a Mystery": On Paying Backup Prices for Starting Talent (CTEK, PSSR)

In a post-game interview after beating the Giants in a January 2007 playoff game, Jeff Garcia, then QB for my Philadelphia Eagles, said: "The past is history, tomorrow's a mystery, today's a gift" (sadly he didn't complete the aphorism: "that's why they call it the present.")

The premise of the comment was to "live in the moment" and it was made in response to a question about Garcia's unlikely rise from backup to playoff hero, a role I might add that was reprised and expanded on even more heroically by Nick Foles, 11 years later.

Investors, like athletes, should as much as possible "live in the moment" by putting their heads into their work of reading, learning and analyzing, and then making most of opportunities when offered by the occasionally mis-priced market.

Athletes are "talent" but investors are "talent evaluators". We look for managers and executives at a company, who themselves need to allocate their assets optimally. It is capital allocators all the way down.

And where a professional athlete's drive and focus directs them to only one outcome (with a focus on winning) the investor's world is by nature much more probabilistic. We need to consider the range of potential outcomes from success to failure, the inputs to those outcomes, and weigh the likelihood of each.

In our role as a "talent evaluator," I (and I'm sure many others) place a lot of emphasis on historical results as a reference for understanding what worked and why, and how in our assessment of future outcomes, these same managers are likely to behave given a set of changing circumstances.

But sometimes the near and / or distant past offers little guidance, b/c the product or company is new, or has an unremarkable - or even tarnished past - so the future opportunities aren't immediately apparent on form or financial statement. And since most people tend to repeat their behaviors, for better or worse, something significant needs to have changed for the trajectory to change, or one need be aware of the factors that lead to poor historical results. Getting back to the sports analogy, most viewed Foles' history with the Rams as sufficient to dismiss him as a potential starter, but they may not have understood how capable Jeff Fisher was at ruining QB's.

Companies with unremarkable histories are inherently lonely trades b/c understanding the opportunity requires some knowledge of what's changed / is changing, or requires some digging and / or comprehension of accounting, or simply requires the kind of patience that is unusual on Wall Street. And it usually takes time for these changes to filter through.

A simple example that comes to mind is PSSR, which I've written about previously and which I've patiently been accumulating even as the near history shows profits turning to losses, negative cash flow and evaporating BVPS.

This negative change of recent history is primarily a result of SG&A growth +21% CAGR 1Q15 to 1Q18 TTM while over the same period, revenues growth of +7% CAGR. The slowdown in sales growth was primarily due to a single customer not renewing a contract in 2017. (PSSR is a tiny $18M EV company; investors should consider the risks / consequences given the impact a single contract can have on the P&L.)

If you stopped at this unprofitable inversion, you'd miss the potential conclusion of that spend. When the "S" of SG&A is spent wisely and consistently, that "S"elling effort should result in a resumption of sales growth. It is the job of every investor under any scenario to assess for themselves the reasonableness and probability of "should" and where "should" elevates to opportunity.

This isn't an ideological "should" ("We should have ice cream for dinner every night") but one based on causality and reasonableness ("if you study hard you should do well on the test"). As a caveat, I warn those away from ever investing on the thesis of what Congress "should" do, b/c in my experience at least, it never does.

The nice thing in the case of PSSR (and other subscription-based companies like them), is that the balance sheet offers a peek into the future via deferred revenues, which has grown to new highs, indicating some traction (at long last) that "S"elling is converting into sales.

Therefore, there is a reasonable probability that revenues over the next 12-months should grow to new highs (back of the envelope assumes +$16M in 2018). This would infer some re-normalization of revenue growth > expense growth and a return to profitability.



And this is potentially just the start. Given the growth in demand for air travel concurrent with capacity constraints at airports, et al., one may anticipate that the airline industry should continue to want (and perhaps even rely upon) even in an ADS-B world, the type of technology solutions that PSSR offers (surface management, diversion management, fee management, etc), and that spending for that offering could be sustained by the strong positive economics experienced by the airline industry (provided fuel costs remain stable).

That PSSR has access to permanent capital sourced from their Chairman who is 76 years old, owns 55% of the company and has a long history of operating with an eye towards wise & capital allocation further aids my view. That his age creates a form of impatience makes it even more interesting b/c in a sale, this I believe could go for multiples of the current public market valuation.



Nobody knows the future ("tomorrow's a mystery") but with PSSR the probabilities seem attractive, at least to me.

All that said, it is actually not my endeavor here to write about PSSR but about another opportunity that seems like a lonely trade, where one can pay backup prices for starting talent, and where the past seems unremarkable but the future potentially rewarding.

In this case, I refer to Cynergistek (ticker: CTEK), which at the current price of $4.75 has a roughly $45M market cap company and by virtue of nearly $17M in net debt outstanding, an EV of $62M. At 8x EBITDA, and with foreseeable growth in its high margin cybersecurity business, it seems like an opportunity. And as we discuss later, the filings actually show some championship style historical financial statements, but an investor would need to dig to find them, an endeavor that would require more effort than trying to find pretty much any athletic statistic at the minor league, college or CFL level.



CTEK provides two niche service - cybersecurity and managed print services - to one niche type of customer - hospitals and healthcare institutions. 

About these services, in brief ...

1. Cybersecurity. This is the prize of the company. It is a consulting / staffing business, with low revenues, high margins and high cash flow. It is a service that utilizes highly skilled, trained, personable, customer service oriented folks with advanced knowledge of IT. The contact point with the customer tends to be the CIO or CTO.

2. Managed print services (MPS). This is a cash generator but an otherwise unattractive, low growth, low margin service for managing the purchases of printer supplies (toner / paper) and equipment (printers / copiers). It tends towards high and lumpy but low margin revenues (based on the timing of pass through equipment purchases). Traditionally it utilizes low skilled, personable customer service oriented folks with basic knowledge of IT. The contact with the client is the purchasing office.

... the company itself is the result of an acquisition where publicly traded pure play MPS company "Auxilio" acquired privately held cybersecurity company "Cynergistek", and then changed its name to Cynergistek.

I'll discuss more about this acquisition in a moment, but for now, here's a slide from their investor deck showing services offered. These are primarily consulting type offerings with some staffing and some MPS.


Why in brief this investment works ...
  • This is primarily a services business that makes money (broadly speaking) on the bill / pay spread of a utilized employee or contractor. 
  • The company has access to talent though a strong military connection that helps provide a quality labor supply, which is often a constraint in services businesses. More importantly, it is a constraint for customers who cannot otherwise access this talent.  
  • The company also owns technology that can be utilized for remote / automated engagements, which enables some scaling.
  • The risks of a cybersecurity breach means spending on it should no longer be discretionary. 
  • Customer spending supports growth in contracts = Grow sales. Leverage O/H. Generate cash. Pay off the debt. Value accrues to shareholders + potential multiple expansion.
  • Publicly traded staffing comps trade 10-15x FORWARD EBITDA. This is trading at 8x trailing.   
Why in brief this investment fails ... 
  • Customers don't have fat wallets. Post ACA, healthcare institutions have fragile income statements. That means long sales cycles and competition. 
  • A corollary to stressed financials is that it can lead to consolidation, which would shrink CTEK's market. 
The optionality of end market expansion beyond the thin-walleted healthcare market into education and academia offsets what I believe to be the biggest risks of the investment.

Since the company recently reported 4Q17 results, let's look at the present through this brief peak into the financials ...


... the contribution of the lower revenue / higher margin cybersecurity business means OpInc + EBITDA growth much faster than revenue growth. Investors who just look at topline growth are missing the picture entirely.

My view is that over time, mix shift towards faster growth / higher margin cybersecurity business justifies a higher multiple even if overall revenue growth slows. If this plays out over time, I'd say at current prices, the present really is a gift to investors.

"The Past is History" (ie a brief look at how we got here)

Going back to early 2000's, Auxilio (as this publicly traded company was previously known) was a pure play MPS business. It was managed capably under prior CEO Joe Flynn, except for the period '06-'09 when he left to pursue other opportunities and the company was incapably managed by someone else (Flynn returned in 2009).

Like everyone, Flynn has positive and negatives. One of this strengths was anticipating that the MPS business wouldn't offer enough growth or profitability for the long term so as far back as 2014, he started pursuing a cybersecurity offering.

He made two small acquisitions to implement the change: Delphiis for $2.7M in mid-2014 and RedSpin for $2.6M in early '15. His weakness however was making / integrating acquisitions. By the end of '16, the goodwill on both those deals was written down.

Then in January 2017, he cracked open his wallet to acquire Cynergistek for $34M. That acquisition cost $27M upfront, consisting of ...

$15M in cash (borrowed from a bank)
$2.8M in stock (1.2M shares valued at $2.40 / share)
and $9M seller's note

... with the potential earnout of an additional $7.5M to the two founders of Cynergistek, Michael "Mac" McMillan and Dr. Michael Mathews. (All the proceeds of the deal went to them).

At the time of the deal, core Auxilio was a $3M EBITDA company. As per deal press release: "CynergisTek generated approximately $15 million in revenues and $5.0 million of EBITDA in 2016." Thus, the acquisition was valued at 7x EBITDA fully loaded.

The two entities together offered a company with 2017 EBITDA of $3M + $5M = $8M, though by the end of this year, despite some cancelled contracts, it got pretty darn close.

Early into the acquisition, the company did a few things that had been anticipated ...

changed its name from Auxilio to Cynergistek to reflect the emphasis on CyberSecurity
moved its state domicile from NV to DE, a shareholder friendly move

... BUT financial results for 1H17 did not set the trajectory of an $8M EBITDA company.

Turns out, both the acquired company and the core company were experiencing contract churn + delays to new contracts. This Q/A b/t Jeff Bash (an investment analyst) and Paul Anthony (CFO) on the 2Q17 conference call sums up the issue ...


... the two key issues with the 1H EBITDA shortfall were ...

1. negative surprises aren't welcome in the investment world.
2. the difficulty the company could have funding the debt, with about 60% owed to a bank and 40% owed to the prior owners of Cynergistek

... then, more surprises post the deal ...

In October 2017, Flynn left, replaced by "Mac" McMillan, founder of the original Cynergistek. (Flynn went to a small private MPS business).
In March 2018, the COO of Cynergistek left, took his earnout with him, and the company refinanced the debt in order to pay off the bank and prior Cynergistek management ahead of schedule

... obviously, not everything went according to plan. It's a bit screwy and a bit weird and for investors who acquired this at the time of the acquisition, a bit frustrating. But, "the past is history" and at the end of all these changes, Michael "Mac" McMillan is like a QB that catches their own pass; he sold his company, pocketed $15M and now runs the company again along with it much larger acquirer.

It's a small sample size and not the easiest data point to find, but the filings from the acquisition show financial information for then privately held Cynergistek that perhaps indicates "major league" talent.

From 2014 to 2016, McMillan's company generated topline growth, margin expansion and strong cash flow generation ...



... that the cash on the b/s doesn't grow is simply a function of an annual "draw" by the business owners of $2M, $4M and $7M in 2014-2016. Even before the acquisitions, this business created a lot of wealth for its owners. Over the two year period, adding back the "draw" they grew BV +80% CAGR

That's where tomorrow's mystery comes in. Is it reasonable that he can continue to create value for owners today? Certainly there are reasons to consider either way.

One can blame prior management for overpaying for Cynergistek (and other acquisitions), for not doing enough due diligence to see that core and acquired contracts were at risk, that perhaps levering up in the near term might create risk.

One could argue, (as I do) that we should see more insider buying by the board and by the newly enriched management team of much more stock at current prices. (I'd also like to see more alignment of incentives towards lower DSO's for line managers and cash earnings for upper mgmt.)

The company has recently cleaned up its debt situation, but one should acknowledge that "putting the pieces into place" is not equal to value creation; rather its the performance of those pieces that creates value for shareholders. They need to continue to show results.

But even as the company digests these changes, it has transformed into a higher value business, though its not necessarily evident right off the bat. You won't see incredible topline growth with the cybersecurity business but rather margins and cash flow generation. And to see evidence that they've done this before, you'd have to dig to find it.

For the patient investor, with the past as history, and today's valuation a gift, tomorrow's mystery does not need to be a complete thriller to experience the opportunity. It could actually be boring, and investors can still win. Just the way I like it.

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Thursday, February 15, 2018

Investment Diary: Reflecting on IVTY ( + / - ) and why buying more despite frustration might be the right step

Asked recently what my thoughts were on IVTY, after meeting management at the Leerink Conference, my reflections belong in this investment diary:

Competition isn’t the issue.  The issue is the way the company is run: I observe that investors are attracted to the company's product, but the big spend is on developing a sales organization. It is difficult and expensive to do this from scratch. What frustrates me as well is that a native sales force seems so outdated but everyone says "that's the way its done".

Since I just had the science fair experience with my 5th grader it very much feels like we shareholders are the kids with the science fair project (cool product!!) and dad (Phil) has taken it over to force a costly & time consuming sales org down our throats, while also taking all our babysitting and snow shoveling money.

So what do we do from here?

As always I like to look at history. Sawyer's last company was Fusion, which was acquired by Baxter in 2002. The story I've heard a lot from two sell side analysts who cover this industry is that "Phil sold Fusion too early and doesn't want to make the same mistake with IVTY" 

A few screenshots tell us something that offers perspective, a potentially different narrative and certainly a cautionary tale.

First, look at FSON's volatility / awful stock market returns!!! When it comes to the pain of stock ownership, Invuity shareholders have nothing on FSON shareholders.



Consider that the company was eventually sold for $10 / share. What a tremendous destruction of shareholder capital by Mr. Sawyer. And it begs the questions: Did he really sell too soon or was he forced to sell from frustrated investors?

Concurrently, look at how much stock Phil was taking on top of his salary compared to everyone else. It sort of looks comparatively the same relative to the colleagues but still a fraction of the +$1M he paid himself last year.



(it's a bit interesting / weird / tidbit to note that no one from the board or the executive team from FSON appears to be involved in IVTY. this could be totally meaningless and arbitrary but if you asked me to start a company tomorrow I'd hire people I've worked with in the past.)

and finally, look at how much they spent on sales / marketing relative to flat R&D and consider that IVTY doesn't even have a head of R&D anymore


All of it reinforces what's really going on here: they're building a sales force and the early steps are costly and is not going at the expected trajectory. but is it failed? 

A few things to keep in mind ... 

if history is a guide, stock market volatility should be expected  
there is value in a good sales force, even if they haven't built it yet. and maybe they are learning / adapting as they go? 
we originally bought this company b/c they were narrowing the gap between sales / marketing, here they have finally bridged it while growing (more slowly than expected) accounts and procedures. 



... at less than 2x sales, why shouldn't we buy more? 

two things have changed 

our frustration
the balance sheet. and this is where I erred months ago. i should have re-evaluated (and maybe sold) when they levered up, b/c that changed the valuation

... but standing here today the reasons for initially owning this have only improved 

Investing is a very hard business. And let me stress it is preferable to become part owners of companies with master capital allocators at the helm. But I have found myself in certain frustrating situations and this is one. This is where research and due diligence come in. Information provides a reference point no matter what the market tells you day to day. For me, it's these three charts and a low valuation that of course could get cheaper still. 

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.



Wednesday, February 14, 2018

A Few Quick Tidbits on PSSR's 10K

Fiscal year 2017 was the first year since fiscal year 2005 in which the Company did not generate positive income from operations. While the Company fully anticipates returning to positive income from operations in fiscal year 2018, future liquidity and capital requirements are difficult to predict, as they depend on numerous factors, including the maintenance and growth of existing product lines and service offerings, as well as the ability to develop, provide, and sell new products and services in an industry for which liquidity and resources are already adversely affected.

...

The Company relies on a small number of customer contracts for a large percentage of its revenues and expects that a significant percentage of its revenues will continue to be derived from a limited number of customer contracts. The Company's top five customers accounted for 58% of its revenue in fiscal year 2017. The Company's business plan is to obtain additional customers, but the Company anticipates that near-term revenues and operating results will continue to depend on large contracts from a small number of customers. One of the Company's customers, who accounted for 11% of total revenues during fiscal year 2016, did not renew a contract that expired on December 31, 2016.  However, notwithstanding the $1,400,000 loss resulting from the non-renewal of this contract in fiscal year 2017, the decline in subscription revenue in fiscal year 2017 totaled $538,000. The Company anticipates that the $538,000 decline in subscription revenue will be more than offset in fiscal year 2018.

...

they are really ramping up >> The Company has a sales office in Bloomington, Minnesota and McLean, Virginia.  The Company entered into a new five-year lease in December 2017 for a regional office in Irving, Texas, at an average annual rental rate of $60,000.

vs last year >> The Company has a sales office in Bloomington, Minnesota.

...

They called out a new product with heightened relevance >> A new product scheduled to be released Winter/Spring 2018: Regional Diversion Manager ("RDM") addresses the problem of highly disruptive large diversion events when a small set of airports get overwhelmed with diversions, while other airports have unused capacity. The result is extended delays, cancellations, and disrupted schedule recovery. Airlines need to know where everyone is diverting (not just their own flights) as well as the "capability status" of potential diversion airports (gates, fuel, deicing fluid, hardstands), airports, Customs and Border Patrol, and Ground Handlers. Airports need to know how many diversions are headed to them, what type of aircraft, which airlines, and whether crews are likely to time-out. PASSUR RDM addresses these challenges by creating the first-ever platform that ensures real-time information exchange and coordination between airports, airlines, and other key stakeholders during large-scale diversion events. It is designed to reduce cancellations related to diversions, and accelerate the recovery to normal operations.

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Thursday, February 1, 2018

Letter to Invuity Management ($IVTY)

There is no lacking for investment ideas, or the newsletters pitching them. Most of it is "noise" and it is enough to give anyone brain damage.

"Noise" not b/c they are bad ideas - who am I to say what is a good idea or bad idea - but b/c we all have limited capital and therefore must choose our investments wisely so as to get a return that compounds faster than the rate of inflation, perhaps even in excess of market returns over time and while still permitting a sound night of sleep.

So when I've already made a decision to become a part owner of a company, unless something materially changes, I intend to own that company indefinitely. I don't want to churn ideas. I certainly don't want brain damage, though this business can cause it for sure.

Safe to say, it is easiest to own companies whose values only go up. When their values go down, investors have three choices: Sell, buy more or do nothing. That decision should be based on a reassessment: Was I right or wrong with my initial consideration? And where are we now?

A good guide is the simple question: "What have I missed?" A most poor (though frequent) option is to seek out fellow investors who only reassert an initial thesis without comprehension or curiosity of what they're all doing wrong or what has changed for the worse. Better to focus on "what are we missing" than the company of misery.

I am writing this with Invuity in mind. It is now back to trading with a $4 handle and I am reassessing what to do.

I do not believe there is an intrinsic flaw with the product but I do believe management is entirely culpable. They have acted with the kind of behavior that I regard as "stupid". Short term focused. Capital destructive. I've written them a letter which I include below.

When I consider what to do, I reflect on the following:

A year ago, when I initially wrote about the company and started acquiring it, the stock traded with a $4 handle. However, back then, the company had $34M in net cash and therefore an EV substantially below its market cap.

As we revisit the same $4 handle today, it is important to keep in mind that the balance sheet is entirely different now. Currently, the company has $5M in net debt. Thus, despite a similar stock price, the EV is about 2x what it was a year ago.

I initially bought this a year ago at ~2x EV / GP when it had $21M in trailing GP. A price I considered a steal. Today they have $28M in trailing GP

Thus, for the stock to revisit my initial valuation - a potential scenario (what isn't a potential scenario?) - the stock would have to get to $3 on the nose. I expect it has the potential to get there when they report 4Q17 / year end earnings ... and miss guidance. I have no particular insight into whether or not they will miss guidance, but they have done so fairly consistently for quite sometime, so why shouldn't they again?

I continue to believe they have a winning product and evidence suggests as much. The letter below is intended to express my hope that they will get righteous for the customers first and foremost and then enrich themselves on their success, and not focus on the latter without due consideration for the former.

***

Dear Chairman:

It is my belief that a product that solves a long-standing problem for its customers, sold at a reasonable price, and at a margin that generates profits for its manufacturer is generally a good starting point for a winning investment, especially when that investment can be purchased at a low multiple.

At ~2x sales, I believe Invuity has these initial ingredients, which is why I and my clients are holders of roughly 35,000 shares.

But good products alone are not enough to weigh the odds favorably for long term success. The investment world is littered with the detritus of mismanaged companies that HAD terrific products. Rather, long term investment success requires executives and managers who make sound capital allocation decisions to generate growth and cash flow, towards the eventual goal of self-funding operations.

[I included here a footnote ... "I urge you strongly to read Amazon’s shareholder letter from 1997 to fully understand and internalize what it means to invest for the long term so you can reflect on the many ways Invuity can improve in this regard."]

I am writing because I want our company to avoid the fate of detritus that plagues so many other promising small companies simply on account of poor decisions by its executives and managers. With your public equity returns down nearly 70% since the IPO concurrent with a nearly +70% return for the IHI Medical Device ETF, I am certainly not alone in my concerns.

Fortunately, I do not believe there are many issues that need resolving. Unfortunately, the issues seem to emanate from the core and culture of the wrong ways of doing business: Short term-ism, impatience, “Wall Street” pandering, and disregard for customers and shareholders concurrent with overly generous compensation for executives and directors.

This must change.

You and the Board and the Executives must engage your full facilities of good capital allocation. Reverse the trends of short-term decision making and focus instead on the long-term growth of the company, for benefit of the company’s customers first and foremost. When your customers knock down the doors to get your product, you, your employees and your shareholders will all benefit.

The issues I observe that lead me to write this letter all reflect an absence of clear, simple thinking on the long-term development of the company and its markets:

1. Location. The decision to locate product assembly in one of the highest-cost regions in one of the highest cost cities in the country is inexplicable. This is not a tech company vying for high skilled talent.
2. Executive comp. Phil is wildly overpaid, both in comparison to similarly sized companies in the same industry and on an absolute basis. A company this size should not be paying $1.5M to its CEO, nor should it be compensating its Directors as generously as it does. I’m sure you could point to many small successes that you believe justifies this compensation, but until Invuity is on a path towards funding its own growth, you are not successful.
3. Sales strategy. In the last year, and despite the company’s infancy, Invuity has had two different heads of sales and embarked on two different sales strategies. I appreciate that the new sales strategy is intended to create a more durable selling-culture for the company. But if this is true, why did the company initially pursue a strategy of stuffing channels through experienced mercenary hires? I imagine you were trying to show a “fast start”, which leads one to wonder, for whose benefit? It appears like a decision driven by short term-ism.
4. Guidance. Personally, I see no reason to provide guidance at all but I accept that those without imagination cling to “business as usual”. That you consistently miss your own guidance however … what is there to say about that?

Were these failings simply examples of growing pains, this letter would not be warranted, for the patient investor endures these knowing that smart, self-reflective and adaptable management turns early missteps into future strides. Unfortunately, our management appears to be missing opportunities to adapt and improve. Rather it seems intent on continuing to promote its decisions as sound despite ample evidence to the contrary.

I am a shareholder of this company because the product solves a long-standing problem. Doctors I’ve talked with who have used the product overwhelmingly approve. Those who haven’t overwhelmingly respond: “If it does what they say it can do, that would be amazing.” (The two criticisms I most often hear from customers of your lighted yankauers and bovies are that they are too expensive or that the disposability creates unnecessary waste.)

I am also attracted to the optionality in this investment. First, despite so-called “obvious problems” such as …

The product is too expensive for cost conscious customers
The equipment doesn’t have a CPT code so it is not reimbursable
The environment is not ripe for hospitals to spend money on discretionary products

… you’ve grown sales from $7M / year in 2013 to $32M / year in 2016, or 65% CAGR, and over the same period, gross profits have grown 95% CAGR. Something is working.

Furthermore …

If you can generate +70% gross profit margins in Potrero Hill, I imagine what you can generate assembling in a low cost region and when you actually achieve scale.
If you’re doing 31k procedures / quarter selling an expensive item to just a few verticals, I imagine what you could be doing if you sought ubiquity, selling at a lower price but across many more procedures, and helping so many more patients as well.
Finally, I consider what $30M in gross profits and a novel new product portfolio might be worth to a company with an existent sales force, run by a management focused on wise capital allocation.

In short, I own this because I look beyond yesterday’s and today’s poor decisions, with the expectation that in the future, better stewardship of capital – by you or someone else - will unlock the value.

At the current rate, a new capital raise will be required in 12-18 months. I simply want to ensure that the allocation of current and future capital is put to its best and highest use, through a reorientation of goals and expectations towards a more long term focus, a more customer-centric focus and bounded by patient and wise capital allocation,

Sincerely

-- END -- 

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Saturday, January 6, 2018

Dear Chairman Letter to PSSR Management ($PSSR)

I think a private company would pay more for PASSUR than the public markets are affording it. I think the company has assets - in senior management, in its niche product, in its reputation - that aren't reflected on the balance sheet or in the stock price. Even the currently bloated sales force could have value to an acquirer.

But I've been wrong before. This is beginning to remind me one of the first companies that really blew up for me, a small closely held telecom svcs provider called Ace*Comm that had a good product but got left out in a market where customers were consolidating and small service providers that remained small missed out. Eventually they sold for $0.60 / share.

I hope the same doesn't happen here.

----

Dear Beck,

Over the past few quarters PASSUR has embarked on a strategy to spend money on new hires in order to ramp business development opportunities.

I’m writing this letter to request some kind of progress report on this effort and express my concerns that perhaps there are alternatives that might better address both the company’s recent lack of growth and improve its capital allocation.

There are two specific issues that I’d like to address around the strategy:

1. While I realize that paying industry veterans to grow the business pipeline is “business as usual” and a “tried and true” tactic, it doesn’t appear to be working. Obviously, the appearance of success and failure is incredibly binary - either orders come or they don’t – and the fact that thus far they haven’t doesn’t mean its failed, it simply remains unknown.

The question, as with all investment decisions, is whether or not to continue the spend towards an uncertain outcome or change tack. Part of answering that question is asking whether or not you can identify, in the absence of substantial new order announcements, if you are hitting pre-determined markers that might offer evidence that we are on the right path.

In short, what can you share with shareholders to demonstrate that in the absence of new orders, this increased spending on new hires / SG&A is actually working?

2. At the last annual meeting, there was some discussion of whether or not you had the right product suite to address the needs of your customers. Specifically, the question was whether or not you needed to add or acquire some skills / capabilities in order to broaden your solution set for customers who might be seeking more comprehensive solutions and also to better leverage your larger sales force, by giving them more to sell.

There is the risk that you are bulking up your sales staff to a sell a product that is too narrow. If this is the case, can you address this through acquisitions / partnerships or would you be better off selling the company to an entity that can plug you into a wider solution and enable you to access the market more efficiently?

In one of our first conversations, you told me that you enjoyed your independence because “it’s more fun to beat the big boys” as a small, nimble and independent company. I get that logic and appreciate that you’re having fun.

However, one should note that you might be having more fun because you’re the company’s highest paid employee. I assure you, it is no fun for your employees to have worthless stock options or for your investors to have worthless stock.

I urge you to please insure that your capital allocation decisions are driven to maximize value for all your stakeholders – your employees, customers and shareholders - and not merely to subsidize your independence, which you may value more than others.

Sincerely

-- END --

ALL RIGHTS RESERVED. PAST HISTORY IS NO GUARANTEE OF PRIOR RETURNS. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES TO AN INVESTMENT THESIS IN THE COMPANIES MENTIONED HERE, WHICH I MAY OWN.

Wednesday, January 3, 2018

SIFY Conf Call Dive: Q&A + Business Updates 3Q16 - 2Q18

There have been four question on SIFY's last eight quarterly conference calls going back to 3Q16. Here they are ...

3Q16: --
4Q16: Is there an increase in the dividend?
1Q17: --
2Q17: Just would like to repeat the Q2 earnings?
3Q17: --
4Q17: Analyst from Rodman: "The big question, it’s always been the room question and I know you touched on a little bit, but if it’s – the perception and the competitive action and the overall market against the heavyweight, Bharti, Tata, Reliance. I’m wondering if you could you share a little color on how you’ve seen competitive dynamics change over the past 12months?" (answer: "it's always competitive")
1Q18: An investor pissed off about the stock price: "... And I’m just sorry about my frustration. And I just don’t understand that you have good earnings again, and today who knows the stock. Are you going to merge? Are you going to have a stock buyback? Are you going to do anything positive in the company to show that this market – that your company deserves the respect that the technology and your company deserves?"
2Q18: --

... not much following here.

On each of those quarterly conference calls, CEO Kamal Nath gave his business updates. I've aggregated them all here.

SIFY 3Q16 BUSINESS UPDATE
Let me spend some time on the business highlights for the quarter, starting with Telecom business.

Revenue from the data business grew by 11% over the same quarter last year.

Revenue from internet grew by around 27% over the same period last year driven by the adoption of Cloud and Hybrid network by next generation companies.

Key wins in this category were from a Micro logistics company, a leading e-Commerce player in India and a slew of technology products.

The business signed up more than 130 clients during the quarter. Sify’s wide-area network transformation business continues to see traction with customers.

During the quarter, Sify won a contract to rollout a dealer network for a large auto major in India. This is the third such large win in the segment in the last 9 months.

Sify's Network Managed services business continues to grow, and Sify received industry and customer acclaim as the Best Managed Network Services Provider of the year at the fourth CIO Choice awards.

During the quarter, Sify handed over key projects to its customers including a high capacity network for a leading content player in India. Other projects handed over include a significant part of the deal won with Insurance filed in last quarter.

Sify kicked off its network up-gradation program designed to upgrade Data Center Interconnect multi-fold, both from a capacity and capability standpoint. The first phase of this new network upgrade will be available for commercial use by April 2016.

As far as the Data Center Services business is concerned,
revenue grew more than 14% over the same quarter last year. The business signed up 15 new clients during the quarter. Sify contracted to provide Data Centre services for a new age Payment Gateway Company of India.

A multi-national company providing home asset finance contracted with Sify for their hosting requirements.

Two nationalized banks also signed up for their Data Center requirement. Others who signed up for co-location services were a Mobile Value Added Services company and one of the country's leading online derivatives exchanges.

One of India's largest circulated English daily accorded Sify as the Best Enterprise Data Center award.

Cloud and Managed Services business.
This business revenue grew 24% compared to the same quarter last year.

Sify added a total of 14 new clients this quarter.

New contracts this quarter included a leading e-Commerce shopping website, an online wallet provider, one of the largest Home loan & housing finance companies in India, and a leading provider of Chemical and Cleaning supplies & services. An investment advisory platform also signed up for Managed Services objective.

Coming to Applications Integration Services business unit,
this business unit’s revenue recorded a 4% growth over the same quarter last year. We have acquired 7 new clients during the quarter. One of India's largest FMCG companies signed up for Managed SAP services with us. A State Government has signed up for Talent Management Solutions. A State Co-operative Bank signed up for Application Development project. And Sify also concluded three large deals with different players in the BFSI segment for Application Services.

The Technology Integration Services business
revenue grew by 86% over the same quarter last year. The Business added 20 new clients across Security, Collaboration and Network Integration business. A Public sector oil refining major signed up for a technology refresh across multiple plants pan-India. One of India's largest FMCG players signed up for a large scale infrastructure augmentation with Sify. There were multiple wins from the State governments in the area of Security services, Network services, Wi-Fi and Collaboration services.

SIFY 4Q16 BUSINESS UPDATE
To start with Telecom business, the revenue from this business – from the data business grew more than 15% over last year. Voice business grew 21% over the previous year.

The business launched the Cloud Interconnect services facilitating access to more than 10 leading cloud service providers across 30 global geographies. Enterprises now have perhaps the largest direct access to the cloud platform in India.

Business Internet saw a revenue growth of 25% with capacity almost tripling. This significant spike is on the back of explosive demand for bandwidth dependent applications.

Managed services strategy saw maturity with a 2x growth that saw the number of managed end points almost double. This was also recognized by the industry peers as the best network managed services at the CIO Choice awards 2016.

Among the biggest clients signed up were to build and manage a national banking network with multiple service providers with Sify as the primary network integrator for both infrastructure and managed services.

The eCommerce business across the country is also helping with the resultant signups to build the network for multiple large service providers. Other sign ups were a national sector telecom service provider, a national insurance provider, a total of three large public sector banks, a cement major, a non-life insurance player and a large private university. Three major international automobile manufacturers contracted the business to build their entire dealer management network and deliver comprehensive managed services to them.

Data Center Services business unit. The revenue from this business unit grew by 20% over the previous year. This business added more than 50 clients throughout the year. Our focused approach towards certain industry verticals paid rich dividends in this view. The fastest growing virtual wallet player contracted us for their complete hosting requirements in India.

A captive managed service provider for a national mobile services player has contracted the business for colocation services. During the year, the business also signed up two of the largest nationalized banks, a large format retail player, and a third-party medical insurance service player. One of the largest public sector bank has signed up for our Disaster Recovery services.

A world player in online search has signed up to park their PoP at our Noida facility, which will now enable multiple ISPs to host from here. This business has won awards for Data Center transformation services and Integrated Data Center services at the CIO Choice awards 2016.

The Cloud and Managed Services business revenue grew by over 45% over the previous year. Over the last 12 months, the business has seen increased demand from customers for cloud-aligned model of IT, including services leveraging cloud such as Backup on Cloud and Disaster Recovery on Cloud.

Content Delivery Network services has seen over 260% growth over the last year and has added more than 43 new clients in the last fiscal. The business recently signed up one of the largest power distribution companies in India to provide complete IT infrastructure on a business outcome driven “Pay per Bill” model generated from the platform. The platform is built to support over 5 million consumer bills per month and scale as needed.

Other clients added included a multinational financial subsidiary of an automobile major, a private bank, a multinational IT services player, and a pan-India housing finance company; to highlight a few. During the entire year, we transitioned more than 175 plus key customers onto our cloud platform.

The Applications Integration Services business has signed up over 25 clients for the eLearning business, while the Managed SAP services signed up more than 10 new clients across the industries like manufacturing, renewable energy, steel, and hosiery. The Managed SAP services acquired certifications like SAP Certified in Hosting Services, Cloud Services, HANA Operations, and in Application Management Services.

The business signed up multiple partnerships across India, Asia-Pac, and Middle East to enhance the service offerings and geographical reach in Talent Management businesses. The business has also won the National Education Excellence award for 2016 from ASSOCHAM.

Among the clients signed up were a multinational auto major’s financial arm, a cement major, two energy players, the national telecom player, a public sector power corporation, public sector oil exploration major, the regulatory agency for mines, a State Government’s testing and evaluation platform and one of India’s largest multi-mineral solutions provider.

Coming to the Technology Integration services business unit, the revenue of this business grew by 14%. The business added 85 new clients across Data Center IT infrastructure, Network Integration, Security and Collaboration services.

TIS Business has matured in terms of customer acceptability across customer segments of BFSI, Public Sector Unit, and Government and it helped customers setup robust IT infrastructure and services leveraging our strong service provider experience.

Business saw strong growth in focus areas with Network Integration Business growing by 23%. Data Center IT and Data Center Transformation business grew by 150%. Our Security and Collaboration Business also saw strong support from customers in BFSI and PSU and recognition of our skills in these areas.

SIFY 1Q17 BUSINESS UPDATE
I will start with the telecom business. The data business grew over 15% over the same quarter last year. The business has signed up more than 200 new clients during the quarter. Customer acquisition for the network managed services has accelerated, with over 100% growth over the last 12 months. Sify has signed contracts for wide area network transformation services with two ecommerce startups who were dealing with problems of scale and hyper growth.

During the quarter, Sify also completed implementation of Phase 1 of its network upgrade, tripling both domestic and global capacity. This capacity announcement specifically targets the new generation of internet traffic generated by a combination of information from the socials, mobile, analytics and cloud ecosystem.

During the quarter, Sify also commissioned more than 5,000 new sites for customers including successful project handovers for two wide area network transformation projects which were won earlier. The handover of these projects is a reflection of Sify’s commitment to deliver large complex transformational projects.

Some of the clients added this quarter included the Central Governments’ digital enablement platform, the global services of one of India’s largest public sector banks, a public sector insurance major, another public sector bank, a new-age payment bank, an online share trading portal, and a leading consumer finance provider.

Next comes the data centre services businesses unit. This business revenue grew over 17% over the same quarter last year. 12 new customer logos have been added during this quarter. The business has been awarded with contrast from both public sector and enterprise customers. Prominent among them was one to host the data centre and disaster recovery for the state run agricultural insurance institute.

A leading private life insurance company has partnered with Sify for data centre migration and hosting. Sify also has signed a contract with National Internet Exchange to set up a new point of presence in India.

Cloud and managed services business, the revenue from this business grew 25% over the same quarter last year. Customers from ecommerce, insurance, banking, manufacturing, healthcare, logistics, real Estate & government verticals have signed up with Sify for cloud and managed services. The business has signed up a leading real estate company for transformational IT and to build future ready IT infrastructure. The business has enabled a leading insurance company to launch new insurance products and create an online sales channel through Sify’s cloud services. Sify also signed up a leading FMCG company to host their new product campaigns and promotions.

Government of India’s Nodal ICT Agency has contracted with Sify for acceleration services as a part of their transformational portfolio. Another arm of the Government of India has contracted with Sify to accelerate end-user services for the Digital India Project. Other clients signed this quarter were a mobile services provider, a heavy engineering major, a prominent player in transactional data analytics and a private power distribution player.

As far as applications integration services deal is concerned, the business grew by over 30% over the same quarter last year. The business has signed up 16 new clients during the quarter. Sify partnered with the largest Government recruitment body in India to conduct computer-based examination for recruitment of police and paramilitary personnel for the first time. Sify conducted the examination smoothly for 345,000 candidates across 82 cities and 382 test centers.

One of the India’s largest PSUs has signed up with Sify to migrate their messaging and collaboration services on Microsoft Exchange platform. Some of the other wins for Sify’s Microsoft line of business include a co-operative bank, a large healthcare chain, a leading third-party logistics company, the online media services of an English daily, two major distributors of Indian spices, and a banking financial applications service provider. The SAP line of business has signed up with a major player in the electricity transmission line business, a large mining company, and a steel producing major.

For the technology integration services, the revenue of this business has grown 115% over the same quarter last year. The business has added 14 new clients across data center IT, network integration, security, and collaboration services.

A large public sector insurance company has contracted with Sify to establish a wide area network across their 1000 plus branches. The business also won a large contract from a state Government to establish an end-to-end data center infrastructure, which includes design and setup of IT, network and security, and managed services platform. The business also won a large campus network infrastructure project to design, implement, and manage the campus network infrastructure for video and voice services for a state High Court.

Sify has added seven new clients in security services and had two large wins in public sector banks. Sify also elevated its partnership with a leading security partner to gold partnership level.



SIFY 2Q17 BUSINESS UPDATE
I will start with the telecom business unit.
The data business revenue grew by over 17% over the same quarter last year. The business added more than 240 new clients this quarter, key wins included two banks in South India, network expansion for a public sector insurance company and a large Indian enterprise network build for a government institute.

Our network transformation approach enables Sify to achieve a win from a leading Indian conglomerate in the power infrastructure sectors. During the quarter Sify also completed implementation of a project to upgrade the citywide metro networks in Mumbai to provide webscale capable Data Center and Cloud Interconnection capabilities. This transformational software defined network will be the foundation of the next generation network services will launch soon.

Sify also launched its Managed Enterprise Mobility solution based on Wireless LAN technology as a part of its SMACnet strategy. The launch is towards building a portfolio of solutions that enterprises can leverage to build a Digital Transformation strategy.

The Data Center services business unit,
the Data Center services business unit revenue grew by 34% over the same quarter last year. The business signed up 18 new Data Center client this quarter.

The business migrated one of India’s leading private insurance companies to its Data Center at Noida. In a first among their peers, a leading Japanese automobile component manufacturer company outsourced their entire hosting requirement to Sify. One of the world’s leaders in online search and aggregation choose our Noida facility to host one of their interconnection nodes.

A valued added mobility services company also signed up for their Data Center requirement.

As for the cloud and managed services business unit is concerned,
the revenue from this business fell by 9% over the same quarter last year. The business added nine new clients during the quarter. The highlight of this quarter was a transformational infrastructure and cloud project implemented on behalf of a private IT major for a state government in under a week.

Another existing client migrated their non-SAP workloads to Sify Cloud, this is in addition to the SAP HANA migrated earlier.

India’s fastest growing hotel room aggregator picked Sify Cloud to host their customer-facing online web portal and also Content Deliver Network Services.

Some of the significant wins during this quarter also include two online fashion entrants, a cement major, a scheduled bank and a media services company.

As far as Applications Integration Services business unit is concerned,
the business grew revenue by 85% over the same quarter last year. The business added 10 new customers this quarter. In a first, Sify completely overhauled the recruitment process for India’s largest government run joint recruitment agency by taking the entire test process online.

This is a huge milestone in realizing the Prime Minister’s Digital India vision.

One of India’s largest fixed telephony and broadband services provider digitized their hiring process also using Sify Talent Management Services. Sify successfully conducted an on-line examination drive for one of the Navaratna, Fortune 500 energy companies.

Sify has also won a distributor management system order from a prestigious Mini Ratna Public Sector Enterprise. Sify has won a multiyear Talent Management contract from one of the leading banks in Malaysia.

Coming to the technology integration services business unit, the revenue of this business has grown 65% over the same quarter last year.

The business added 12 new clients across Data Center IT, Network Integration, Security and Collaboration Services.

A private insurance company has contracted Sify for a Data Center Transformation project to design, deploy, host and migrate existing Data Center services to new platform along with managed services for their entire Data Center and disaster recovery center.

A large public sector bank has contracted with Sify to establish a Data Center infrastructure and network infrastructure across all their locations.

The business also won a large contract from a public sector oil and gas company to establish a Data Center infrastructure.

During the quarter, Sify successfully completed a significant Data Center transformation project to a state government electricity company, large scale Data Center and Migration services to private insurance company and a security project for a private insurance company. These projects reflect Sify’s commitment to deliver large complex transformational projects.


SIFY 3Q17 BUSINESS UPDATE
I will start with the Telecom Services business.
The data and network managed services revenue grew by 11% over the same quarter last year. Revenue for the quarter was negatively impacted by a one-off adjustment pertaining to the impact of the cyclone in Chennai. The business added 265 new customers in the quarter.

During the quarter, Sify expanded operations to the neighbourhood SAARC countries and recorded its first win in the region.

Key wins include a large South based public sector bank and a retail fashion chain.

During the quarter, Sify launched a managed Wi-Fi offering that enables large distributed enterprises to deploy a secure, scalable wireless LAN solution across their network. Key wins in this segment include a deployment for a large offshore center for a U.S. multinational and a manufacturing company.

Data Center Services business unit;
the DC Services business continued its growth trend with 40% revenue growth over the same quarter last year. The business added 12 new customers in this quarter. Among those who signed up were an online search major, a private insurance major, one of India's largest private banks and a heavy engineering group. Sify continued to invest in DC capacity expansion across all strategic regions, Mumbai, Delhi and Bangalore.

As far as Cloud and Managed Services is concerned,
the business recorded negative 6% revenue growth over same quarter last year.

Sify added 14 new customers in this quarter. Sify won some marque projects and customers, including a health insurance major, a leading infrastructure finance company, one of India's leading broking houses, a state government's research and training division and another state government's development body.

Sify launched new enterprise-centric services around the AWS stack with direct connect capabilities providing near zero latency for Sify-hosted customers.

For the Web Acceleration and Security portfolio, Sify added four clients, one large global fast food delivery chain for accelerating and securing their online Web order management system as well as one of India's largest mobile-wallet companies. The business also concluded two large contracts from Government of India to accelerate their online engagement media.

As far as Application Integration Services business unit is concerned,
the revenue grew by 64% over the same quarter last year.

Sify has signed up 12 new customers for the quarter. A pan-India consumer healthcare company has signed up for dealer management services. Four reputed customers including a large PSU bank have signed up for the Microsoft Azure business.

The business has also signed up three new customers for talent management. In all, the business has enabled over 0.5 million online examinations just this quarter. Seven prestigious brands have signed up with Sify for Managed SAP Infrastructure services and Sify eLearning won the prestigious Brandon Hall Silver Award for excellence in eLearning. This is Sify's 12th Brandon Hall Award.

Lastly, the Technology Integration Services;
the revenue for this business has grown 45% over same quarter last year. Sify added 22 new clients across data centre IT, network integration, security and collaboration services. A large public sector insurance company has contracted with Sify for data centre infrastructure refresh to deploy and provide infra integration services for DC network, IT infra compute and storage, and security services. Another large public sector insurance company has contracted with Sify to refresh Wide Area Network infrastructure across India.

During the quarter, Sify successfully handed over projects for data center transformation to two private insurance companies, deployed IT infrastructure and network security and collaboration services for a state government department, a Wide Area Network rollout across public sector insurance company, and security rollout for a public sector [oil] [ph] company. The handover of these projects is a reflection of Sify's commitment to deliver large complex transformational projects on time.


SIFY 4Q17 BUSINESS UPDATE
Over the past year, we have booked new orders that represent an Annual Contract Value in excess of INR 10,000 million.

We’ll start with the telecom business;
The revenue from data services for the year grew by 15% over last year. A total number of 950 clients were added during the year.

During the year, Sify expanded its reach by adding 246 new sites.

The rollout of the next generation data network in Mumbai is now complete. The network was rolled out using the next generation DWDM equipment, providing customers with a highly resilient network to support data center-to-data center and cloud traffic.

Sify launched a unique Internet Exchange in partnership with global pioneer AMS-IX Internet Exchange. This multi-location Internet Exchange fabric will provide cloud and content players, as well as India service providers, a neutral interconnection platform for IP and private traffic.

This year saw Sify establish dominance in the nascent Payments bank industry in India. Sify also launched its Enterprise grade Managed Wi-Fi solution, offering New Age Connected Solutions to Enterprises going Digital.

Major wins this quarter included a Public-Sector bank in the South and another Payments bank in the North.

Multiple customers contracted for Managed Wireless LAN services, including a large global manufacturing company and a Public-Sector bank. Our SMACnet was chosen as the Most Innovative Offering of the year by a leading industry media.

Data center services business unit;

the revenue from this business unit services grew by 29% over last year. Sify added 36 new clients for data center services across various industries.

Sify commissioned a primary data center for a public sector insurance company along with near DR and far DC to be housed in Sify’s data centers. Sify’s data centers now host network POPs for several global content players. This has led to significant orders for peering from Indian telecom operators and ISPs.

A national level private insurance company’s data center was successfully migrated to Sify’s data center. Sify was awarded the CIO choice award 2016 for integrated data center solutions and data center transformation services.

Cloud and managed services unit;
the revenue from cloud and managed services business unit remained flat versus the prior year. One of the world leaders in medical devices and software for oncology signed up to set up their first facility in India on our private cloud. This contract includes software, infrastructure and connectivity.

A leader in creating and operating next generation technology-centric financial exchanges contracted for multiple cloud managed and security services, including the newly launched GoInfinit Acceleration services.

One of the largest luxury real estate players will migrate their entire database to our cloud environment. This contract also includes connectivity among different ongoing projects. A three-wheeler manufacturer signed up for a similar cloud setup to optimize and leverage their existing investments. 18 new clients were added during the last quarter and nine new partnerships were signed during the year.

Applications integration services;
applications integration services grew by 100% over the previous year.

The talent management line of business showed robust growth with over 10 million assessments conducted over the past year; largest among them was the nation-wide recruitment examination for the Government of India, for which 6.5 million candidates registered.

A total of 16 new clients signed up for forum, talent management and e-learning services. One of our major forward supply chain customers have extended their contract by three years.

Sify signed 12 new clients for the SAP business and six new clients for Microsoft Azure business. Sify also acquired their first SAP Business Warehouse on Cloud Client for the subsidiary of a major IT player.

Key wins include an engineering and construction arm of one of the largest Government employers and a public sector bank that contracted the business to upgrade and consolidate their database using a combination of open source and old SQL versions.

Sify was accorded the Hosting Partner of the year for 2016-2017 by Microsoft.

Transformation integration services unit; (THIS SHOULD BE "TECHNOLOGY INTEGRATION", THE DESIGN / CONTRACT SIDE OF THE BUSINESS)
the revenue for transformation integration services has grown 55% over last year. Sify added 62 new clients across data centers, IT, network integration, security and collaboration services. A large public sector insurance company has contracted with Sify to deploy and provide Infra Integration services for data center network, IT infra compute and storage, and security services.

Another large public sector insurance company and public sector bank has contracted with Sify to refresh WAN network infrastructure across India. A private insurance company has contracted with Sify for a data center transformation project to design, deploy, host and migrate existing data center services to a new platform along with managed services for DC and DR.

A large public sector bank has contracted with Sify to establish a data center and network infrastructure across all their locations.

Sify won a large contract from a public sector oil and gas company to establish a data center infrastructure.

Sify also won a large contract from a State Government to establish an end-to-end data center infrastructure, which includes design and setup of IT, network and security, and managed services platform.

SIFY 1Q18 BUSINESS UPDATE
I will start with Telecom centric services.
Revenue from Data business grew by 9% over the same quarter last year. Overall, revenue from Telecom centric services decreased by 5% versus the same quarter last year, primarily due to a reduction in revenue from India voice termination business.

Sify signed up approximately 200 new clients for Telecom centric services during the quarter.

Sify’s data network reached a milestone, covering 1,500 cities; this is approximately a 62% presence across India.

Sify also completely upgraded its international PoPs and capacities in Europe and Asia to deliver the next generation of scale and services for its global enterprise customers. As part of a multi-city Hyper-Scale network rollout, Sify’s Mumbai network was upgraded to 100G level to support scalability for Cloud and Data Center Interconnect services.

Our recently launched Managed Wifi services is gaining significant traction in the Banking industry with multiple Private and Public banks signing up.

During the quarter, Sify completed a pan-India wide data network for a Large Public Sector Insurance company, and expanded the wide data network for another Large Public sector Bank.

Data Center centric IT services,
revenue from Data Center centric IT services grew by 31% over same quarter last year. 98 customers were signed up for Data Center centric IT Services in this quarter.

Sify enhanced its Cloud services portfolio with India’s first All-Flash storage. This is the highest performance per-Terabyte available today in the country.

Sify partnered with SAP to roll out a quick-implementation solution for Enterprises migrating to the new indirect tax legislation, the Goods and Services Tax or GST.

Sify partnered with Enghouse to rollout Contact-Center-as-a-Solution, migrating all existing Contact Center customers to the new platform.

Significant wins for Colocation services were from a leading power transmission company and a world leader in logistics.

A large public sector general insurance company contracted with Sify for data center and disaster recovery infrastructure services and to provide infra integration services for data center network, IT infra compute and storage, virtualization and security services.

A large public sector bank signed up to virtualize its entire data center infrastructure and applications. Sify was also awarded Partner of the Year at the VMware Partnership Leader Forum.

SIFY 2Q18 BUSINESS UPDATE
I will start with telecom-centric services.
Revenue for the data network and managed services business grew 10% over the same quarter last year.

Investment in expanding the network infrastructure continues as Sify’s domestic network now reaches more than 1550 cities. The 7th Global PoP at Marseilles went live this quarter.

Hyperscale network now connects 45 data centers and network nodes and six public and private cloud nodes. The global capacity on the Sify network doubled over the last quarter.

Key wins during the quarter were from a power distribution company, a public sector insurance company, a public sector bank and a leading hyper local ecommerce player.

Other wins during the quarter include those from a large MSO, a leading private trust and a smaller banking player.

There were two key wins in the network transformation and outsourcing category. A leading IT/ITES company entrusted Sify with its network and security consolidation led network transformation.

A large single format European retailer awarded Sify a contract to manage the entire Wide area network, security and wireless local area network across their domestic retail footprint. Sify won its first commercial contract for IoT asset tracking during the quarter.

As far as our data center-centric IT services concerned the revenue from this business services grew 24% over same quarter last year.

Sify signed up 18 new data center customers during the quarter, including India Post, a power conglomerate, an Indian MNC, a housing finance company and a mobile engagement company.

Other key wins were from a pioneering online trading platform, an infrastructure finance company, a GCC based remittance company, an upcoming health insurance provider, two payment gateway players, a co-operative bank and a Fintech startup.

A large financial services company in India has contracted with Sify for complete strategic outsourcing and managed services, comprising of data center and disaster recovery infrastructure services, infrastructure integration services for data center network, IT infra compute and storage, virtualization and security services.

Sify signed five new national level talent management accounts for applications services. Sify signed two existing customers for Sify’s cloud and mobile solutions, and won a large order from Safescrypt which is our digital certification services.

Sify signed its first SAP S/4HANA implementation along with cloud infrastructure hosting. Sify made two more customer acquisitions for S/4HANA.

Sify signed three large customers for SAP digital compliance solutions. Sify also added 35 new clients for technology-led integration services across data center IT, network integration, security and collaboration services.

An umbrella organization for operating retail payments and settlement systems in India has contracted with Sify to expand and build network and security infrastructure with technology from a leading global partner.

A central government department responsible for providing data center services to key government ministries has contracted with Sify for a complete technology refresh of one of their large data centers and for managed services.

Another government of India department contracted to have their data center built by Sify. During this multi-year contract period, Sify will partner with global technology players to design, build and set up the data center, as well as offer managed services. This quarter Sify has been conferred gold level of partnership for acceleration and security services from Akamai.

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