Ann: Investor Presentation-TCN.AX, page-2

Disappointed.

When I last posted I was hoping that the half yearly estimates were trying to err on the low-balling but would deliver on the upside. Looks like this will not be the case. I am also completely disappointed in the presentation and future direction. Seems nebulous with limited detail.

The share price was sitting at 2-3 cents for a long time which I think was undervalued for a listed tech company that had historic losses on its books. I always thought someone would pick it up for that alone  and thought it would be a bargain. Hence my original interest some time ago.

Then the Statseeker JV seemed to be the catalyst for something exciting. Seemed to come out of the blue  along with the board changes about the same time. Either way it was encouraging.

Now I see this and my initial thoughts are it will continue the slide....

- since the October high its down 27%. Looks to have stabilised but I have nothing to base that on.

- No idea why drove it to 9.3 cents  (+18%) in one day....  other than the speculated insider action that was posted at the time (ghttp://www.fool.com.au/2015/10/07/are-our-regulators-on-the-ball-when-it-comes-to-insider-trading/).... Would be most curious to know what that was at it was bizarre as its been a steady decline since.

- That does not mean the fundamentals are a wash though.  

- Looking at this presentation and the recent interview with David Nelson - the new CEO - I think he's trying hard to focus the business but not sure the building blocks are there and would be curious what people think. (My own background is in tech, and management accounting, so I see the building blocks a bit differently to investors so any education is appreciated).

- Slide 11 states YonY will be down. We've been speculating this and hoping for the upside but management has not been able to deliver it appears. This would mean run rate has not been maintained.

- To me that is always bad and bodes ill for Urgent and the lactlustre Statseeker.  When I see things like this I consider maybe there are bigger issues issues in a company. Looking a little on the web: https://www.reddit.com/r/networking/comments/4dni2z/statseeker_issues_after_upgrade/
(look at the last comment about triple pricing. Whilst I have no idea about whether the product was undervalued (as many Aust tech products seem to be), a 300% is a lot for any customer base to handle; and I note that in 2 years the marketing blurbs do not indicate the customer base growing in size or geographic expansion)

- The presentation states what the future direction is to be, and the offering/focus is... this is good. I think this was needed and the new CEO seems to have focus and determination. Normally it might take a couple of years to do this, and the cash position is good, but the M&A person has been in there for some time now, along with the new Statseeker CEO and the replacement for Urgent as well as new products in each.  So I expected more.

--> The result I that I find the direction lackluster and simply a rehash in a nicer set of slides. Can anyone help me understand what might be driving this? I truly think the new guy might be the right person, but not sure he's been given the tools he needs.

- related to the above, I am not sure I understand the dividend? if the focus is now to invest in Australian tech companies that are undervalued and readily expand with the right teams, or bolt on acquisitions,  then why dividend? To me companies only do this to buy investor sentiment, or because they have nothing on the investment or acquisition horizon.  I might be naive here, but it does not add up to me if the priority it an aquisition then why dividend, unless to reduce the pain of the annual result that was not what the market expected and to counter the share price drop.  

- In 2013 the share price jumped and I was excited. The JV in Statseeker looked very interesting and I wish I'd jumped in a few months earlier. But there really has not been anything since then except a big exchange rate movement and what looks like price increases. Some initial calculations on winding the exchange rate back show less than impressive performance - especially if YOY is going to be down this year. What normally happens with share price with this kind of investment? (ie. how much should this figure into my buy/not buy?).  I like to know the businesses I invest into and I am not sure I see consistency here...

- Statseeker's new versions and new management are not even mentioned in this presentation and that is the most disturbing. In fact, there seems to be no strategy at all for Statseeker from TCN's side. Has Questra or NBC taken control? I know its a JV but there is no mention in this presentation and it's never been positioned as a cash cow has it? It would be most bizarre to see a PE firm invest in a buy and hold... but then again NBC seemed to change their approach with the Questra structure last year so perhaps this business is not easily expanded so the strategy changed?

- The other businesses are again looking to change product route to market/delivery (which in itself is dangerous) and add bolt on acquisitions.... hopefully they have something lined up.... but this is not the first time this has been mentioned either. there has been a M&A person on this for more than 12 months and nothing seems to be happening...

- In the new TCN' CEO's recent interview he comments Statseeker is SAAS like - however looking at their website they are old school on premise with zero SAAS offering. The renewal business in these businesses is something like 25-30% of new sales revenue but at high retention rates (- its how their listed competitors report earnings so I assume its the same for them), so i wonder if the new sales channel/indirect model is not working?

- A quick look at linked in seems to show that all the original Statseeker executives and most of the senior sales people have left since the sale. The new industry veteran CEO has been in almost 18 months so I expect results by now if he was capable. This sector is saturated with some major VC companies owning huge amounts of the market per my last post - something like 50% of the marketspace by one VC alone. It would need a clever strategy. They have had US customers and focus for years (with US Govt contracts for more than a decade, and big sustained growth rates in the US client base according to the web) so the US based staff should be accelerating it I would have thought. Perhaps it needs more investment and this will come now the debt is paid off. Would be great to see something on this.

-  Does anyone know how much revnue Statseeker added to the TCN group? I wonder if investing in that business is a better option than the funds set aside for the the bolt-ons that seem to be getting focus since this acquisition seemed to drive the share price growth?

- As mentioned in my previous post I was curious to see what would happen with Urgent.... probably more than with any other company. The CEO that left/was replaced seemed to be transforming the business and left very quickly for no apparent reason? I see nothing new in the news on this business, however previous presentations said the investment phase was over and we should be seeing a return from the new release. it looks like its now a bolt on acquisition and a go to market product strategy realignment. To me that reads uncertainty.

- Bolt on acquisitions is an interesting approach as a priority. My opinion is that merging tech companies takes a lot of time due to culture, disparate OS, business models, code bases etc. It seems that these would have long term impacts and low growth benefits. Curious what other people think here. Tech is more fickle that it seems and even the giants and specialists get is wrong 80% of the time. Even with $3-$4million, once the acquisition is made there does not seem to much in the way of funding to make that work. Was Statseeker ever considered a bolt on or its client base an upsell/cross sell opportunity? I never saw much communication on that.

I think I will stay out and maybe look for something else. If someone can let me know what I would be missing I would appreciate it. I still really like the portfolio, despite the fact its incoherent/misaligned... but I can't really see how it will work.

-FW