|
|
| |
Vol. 12 - January 13, 2014
|
|
|
16th Annual Needham Growth Conference
| |
The Needham Funds team will attend the 16th Annual Needham Growth Conference on January 14-16 in New York City. We attend a number of investor and industry conferences throughout the year, and the Needham Growth Conference provides a great kickoff for the year and a sense for how companies are viewing 2014.
Management teams of approximately 300 public and 100 private companies will present at the conference. A number of our small and midcap holdings will present, and we will meet with about 75 companies over the three days. The private companies that present tend to be within a few years of going public. We like to get to know companies while they are still private so we can make informed decisions about investing in them as newly public companies.
We highlight three of our new holdings from 2013 that are presenting at the Conference - Black Diamond, Inc. (BDE), Clean Harbors, Inc. (CLH) and World Wrestling Entertainment, Inc. (WWE) and Reis, Inc. (REIS) from the class of 2011. We see long-term, multi-bagger potential from these investments. We also highlight four private companies, Actifio, Roku, SugarCRM and Wayfair. We include presentation times and note those companies that will webcast.
|
|
Black Diamond, Inc. - Salt Lake City, UT
Peter Metcalf, CEO - January 14 at 10:40am ET (webcast)
| |
Black Diamond was a new holding for the Needham Funds in 2013. Black Diamond supplies technical outdoor equipment and has a great brand for outdoor recreation enthusiasts including hikers, bikers, climbers, mountaineers and skiers. In 1989, Peter Metcalf led a group of employees, friends and customers in the buyout of Chouinard Equipment (founded by Yves Chouinard in 1957). The company went public in 2010 in a merger with a shell company controlled by Warren Kanders, Executive Chairman and now 22% owner of Black Diamond. Mr. Kanders is a private equity investor and previously built Armor Holdings which he success fully sold to BAE Systems for $3.1 billion in 2007. We
 | | Peter Metcalf, CEO |
are pleased to be partners with Messrs. Metcalf and Kanders.
In fall 2013, Black Diamond introduced its first apparel line through limited distribution channels. We believe they have the potential to grow to $100 million in apparel sales over the next few years. In 2012, Black Diamond had total revenue of $176 million, so a successful apparel product line could have a significant impact on Black Diamond.
On its November earnings conference call, Black Diamond spoke of focusing on its Black Diamond and POC Sports brands. POC markets helmets and body armor for the outdoors.
We will look for commentary on the apparel launch, product focus and distribution channels for the 2014 season.
The  Black Diamond website has some very cool outdoors videos. On a final note, we could have used a Black Diamond Hoody on our commute in the New York snow last Friday, January 3.
The webcast of the presentation will be on Tuesday, January 14 at 10:40am and is available here.
|
|
Clean Harbors, Inc. - Norwell, MA
Jim Rutledge CFO/Vice Chairman and Jim Buckley, Investor Relations - January 14 at 3:30pm (webcast)
| |
Clean Harbors, Inc. was also a new holding in 2013. Clean Harbors is the leading provider of environmental, energy and industrial services throughout North America. Alan McKim, CEO
 | | Alan McKim, CEO |
founded the company in 1980. He started driving a truck and grew the business from the ground up. He still owns near 8% of this $3.6 billion market cap company. We believe Clean Harbors' assets, including hazardous waste landfills, incinerators, regulatory approvals, experienced personnel and its information technology management system provide the company with significant barriers to entry.
Clean Harbors end markets include general manufacturing, refineries and oil sands, automotive, chemical and oil and gas. We believe these sectors are well-positioned for growth in the United States and Canada over the next few years.
In early 2013, Clean Harbors bought Safety-Kleen, a leader in collecting and processing recycled oil. The market for re-refined oil was weak in 2013 due to regional supply/demand imbalances. Clean Harbors is estimated to earn $1.99 per share in 2013, down from $2.40 in 2012.
 | |
Onsite at a Clean Harbors service center in Manitoba
|
Alan McKim has opportunistically purchased companies and assets at attractive valuations. We are pleased to invest alongside Mr. McKim during a period when the market was concerned about the short-term impact of a difficult recycled oil market. The stock was +9% in 2013 and underperformed the S&P 500, which was up 32%.
We will listen for commentary on the re-refining market and Clean Harbor's plans to improve pricing and costs in this market.
The webcast will be on Tuesday, January 14 at 3:30pm and is available here. |
|
Reis, Inc. - New York, NY
Lloyd Lynford, CEO and Mark Cantaluppi, CFO - Thursday, January 16 at 2:10pm (webcast)
| |
Reis provides proprietary, SaaS-based (software-as-a-service) information on the commercial real estate market information for 275 metro areas across the United States. We believe content is an attractive area for investment in 2014.
Institutional lenders and real estate investors have subscriptions to Reis information. Reis has high visibility to its revenue and cash flow with a renewal rate which was 91% in 2012.
 | |
Lloyd Lynford, CEO
|
Lloyd Lynford started Reis as a real-estate newsletter in 1992. In 2000, it was a private newsletter with about $2 million of revenue. Lloyd's newsletter company merged into a property company run by Jeffrey Lynford (Lloyd's brother) in 2007. In the summer of 2008, when the financial world was imploding, Reis turned down several acquisitions offers from CoStar Group (CSGP) at $8.75 per share.
The Needham Aggressive Growth Fund first invested in Reis in 2011 when the stock was near $10 per share. We were attracted by the near 40% EBITDA margins for information services and Reis' strong new product potential. In 2012, Reis introduced Reis SE 2.0, a redesign of its core product, new coverage of the self-storage market and Reis for Small Business.
Most exciting is the new Mobiuss Portfolio CRE for credit risk, stress testing and portfolio surveillance which was developed in conjunction with Opera Solutions, a leader in Big Data predictive analysis. We believe Mobiuss has the potential over time to more than double Reis' size from the $8.8 million revenue achieved in the September 2013 quarter. 
Long term, we believe Reis belongs as part of a larger information services company. In the meantime, we are pleased to be financial partners with Mr. Lynford, Jonathan Garfield, co-founder and now EVP and Board Member and Mark Cantaluppi, CFO. Mr. Lynford owns about 12% of Reis' equity and Mr. Garfield owns about 8%.
|
|
World Wrestling Entertainment - Stamford, CT
George Barrios, CFO - January 16 at 12:05pm (webcast)
| |
WWE was another new holding of the Needham Aggressive Growth Fund in 2013. We believe WWE has great, undervalued content.
 | |
Vince McMahon, CEO
|
Vince McMahon, Sr. took over World Wrestling Entertainment's predecessor company in 1954. Vince McMahon, his son, now serves as Chairman and CEO. He still works ringside at live events. His son-in law, Paul Levesque (known as Triple H, Hunter Hearst Helmsley in the wrestling ring), is EVP, Talents and Live Events. McMahon's daughter, Stephanie, is EVP, Creative. Vince's wife Linda was WWE's CEO until she ran for the United States Senate from Connecticut in 2010.. George Barrios, CFO, will present at the conference. He joined the company in 2008 and has experience with The New York Times and Praxair. The McMahon family owns the Class B shares which have a 10:1 voting preference to the publicly traded Class A shares. Mr. McMahon controls approximately 83% of the voting interest.
WWE is an amazing brand. Its demographics and reach are better than NASCAR, and its TV contracts are currently up for renewal. We believe live wrestling content could earn a television contract along the lines of NASCAR. NASCAR's most recent TV contract begins in 2015 for seven to nine years and will bring $0.90 of rights fees per viewer hour. We believe the current WWE contracts are for approximately $0.05 per viewer hour. A new contract could double operating income before depreciation and amortization (OIBDA) for this segment.
On January 8, to much fanfare, WWE launched the WWE Network as the first ever 24/7 streaming network as an over-the top video channel. For several years, WWE has invested in curating archives and in production equipment and personnel leading up to the launch of the WWE Network. Investors feared that WWE would try to buy its way onto cable systems. We believe that the network might contribute significantly to OIBDA. WWE Network will launch on Monday, February 24.
WWE has migrated from a risqué brand, perhaps inappropriate for most audiences and advertisers, to family oriented entertainment. We believe Wall Street has yet to credit the company with this transformation and the opportunities that we see.
At the Needham Growth Conference, we will look for discussion of the TV and network opportunity.
The company is followed by just one analyst, despite its market cap of over $1 billion.
For those looking to do first-hand research, tune in for Monday  Night Raw, Old School on USA Network at 8pm and SmackDown on SyFy network on Friday at 8pm. Also, WWE:Live will be at Madison Square Garden on March 8 at 7:30pm. WrestleMania 30, the Super Bowl of professional wrestling, will be at the Superdome in New Orleans on April 6 at 5:30pm. In 2013, WrestleMania 29 was at a sold-out MetLife Stadium.
The webcast will be on Thursday, January 16 at 12:05pm and is available here.
|
| Private Companies at Needham Growth Conference | |
We'd like to highlight four private companies with disruptive technology or business models. These companies have made a mark disrupting billion dollar markets.
1) Actifio - Radically simple copy data management. Its technology may reduce the need for data storage capacity by 90%, which would dramatically alter the market for today's leading storage vendors such as EMC, HP, IBM, NetApp and others.
2) Roku - Manufactures and sells Roku streaming media players. Along with Apple, Roku has become the co-leader of the market, making internet channels easy to view on a television.
3) SugarCRM - The SugarCRM suite brings a disruptive business model built on open source to the sales, support and marketing automation markets that have been led by legacy systems from Oracle, SAP and other on-premise software companies.
4) Wayfair - Wayfair is an e-tailer of all things for the home, including furniture. It had $600 million revenue in 2012 and is disrupting all types of brick and mortar retailers including department and specialty stores.
|
Actifiio - Waltham, MA
Ash Ashutosh, Founder & CEO and Peter Minihane, CFO - January 15 at 10:40am | |
Actifio has a big vision to radically change the data storage market. The company provides enterprise data storage technology, which enables a single data copy to be used for backup, disaster recovery, development, test data management and other applications. Today these siloes all require their own storage and are responsible for the explosion in storage capacity. Actifio has hundreds of enterprise customers.
Actifio is backed by top-tier venture capital firms including North Bridge Venture Partners, Advanced Technology Partners, Greylock IL, Andreesen Horowitz and Technology Crossover Ventures.
 | | Ash Ashutosh, CEO |
CEO Ash Ashutosh was most recently Chief Technologist at HP Storage and was founder of AppIQ, which was acquired by HP in 2005. He was also founder of Serano Systems, sold to Vitesse Semiconductor in 1999.
CFO Peter Minihane was with Acme Packet from pre-IPO until the sale to Oracle in 2013.
|
Roku, Inc. - Saratoga, CA
Erik Bardman, CFO - Tuesday, January 14 at 2:50pm | |
Roku and AppleTV share the market for streaming video players. Founded in 2002 by Anthony Wood, inventor of the digital video recorder, Roku (Japanese for sixth) is Anthony's sixth company. As of March 2013, Roku had sold over 5 million Roku boxes. In May 2013, Anthony said sales were "strongly accelerating" and raised $60 million from Fidelity, Hearst Corp. and previous investors including BSkyB, News Corp and Dish.
Roku boxes make it easy to view Internet channels on a television. The Roku-3 costs $99.99 with a product line of other streaming boxes starting at $49.99. Roku has close to 1,000 channels including the new WWE Network, MLB.TV, Fox News, Netflix, Amazon instant video and PBS Kids and is adding channels every day. Many of these are subscription channels and generate additional revenue for Roku.
 | |
A Roku 3 box
|
Roku has signed with Time Warner Cable, which offers its content as a channel on the Roku box. As Roku's installed base grows, we believe it will strike increasingly favorable deals with additional content providers. Roku is also working to become the industry standard operating system for smart TVs capable of viewing Internet video. Anthony would like all TVs to be Roku ready. On January 6, 2014 Roku announced RokuTV with Hisense and TCL. TVs by these makers will be Roku enabled and don't require a set-top or Roku box. The TVs debuted at CES 2014 (Consumer Electronics Show) in Las Vegas.
|
SugarCRM - Cupertino, CA
Larry Augustin, CEO - January 15 at 2:50pm | |
We believe SugarCRM is disrupting the $2 billion customer relationship management market. The SugarCRM suite is built on the Sugar open-source technology. The suite includes integrated sales, support and marketing automation software at a low entry price. While the market opportunity includes displacing many legacy on-premise solutions, we believe Sugar's enterprise opportunity can be seen as disruptive to market leaders including Oracle.
In 2012, Sugar had 60% revenue growth with enterprise growth of 250%. The enterprise market is key to the company's success.
 | |
Larry Augustin, CEO
|
CEO Larry Augustin has been a long-time leader in open source. He founded VA Linux in 1993, served as a director of The Linux Foundation, Open Source Development Lab and the Free Standards Group. He was an advisor and angel investor in JBoss (acquired by Red Hat), XenSource (acquired by Citrix) and a number of other companies.
SugarCRM's investors include Goldman Sachs, Draper Fisher Jurvetson, Walden International and New Enterprise Associates.
|
Wayfair, Inc. - Boston, MA
Niraj Shah, Co-Founder & CEO - January 14 at 3:10pm | |
Wayfair, Inc. is an e-tailer of all things for the home, including furniture. It had $600 million in revenue in 2012 and is disrupting all types of brick and mortar retailers including department and specialty stores such as Lowes, Macy's, Home Depot, Raymour & Flanigan and Bob's Discount Furniture.
 | |
Steve Conine, Chairman & Co-Founder
|
It has 12 million products and carry 11,000 brands. It established its own Joss & Main brand and acquired Dwell Studios for an upmarket brand.
Wayfair gets paid by their customers before they pay their suppliers. It operates with minimal inventory and has a significant logistics competitive advantage. Wayfair has the skills to pack and deliver large furniture with the same confidence that Amazon delivers books.Wayfair was self-funded until 2011, when it raised branding and expansion capital of $165 million from Spark Capital, HarbourVest Partners, Great Hill Partners and Battery Ventures.
 | |
Niraj Shah, CEO & Co-Founder
|
Wayfair was founded in 2002 by Niraj Shah, CEO and Steve Conine,
Chairman. Wayfair is their third startup together. They've established a positive, fun, collaborative culture. The company was ranked the 19th best place to work in America by its employees as shown on glassdoor.com.
CFO Michael Fleisher joined in 2013 and brings public company experience. He was previously CFO at Gartner Group (IT).
|
|
* The Needham Funds aggregate ownership as a percentage of net assets in the stated securities as of 12/31/13: BDE 0.71%, CLH 0.35%, REIS 1.03%, WWE 0.46%.
The information presented in this commentary is not intended as personalized investment advice and does not constitute a recommendation to buy or sell a particular security or other investments.
This message is not an offer of the Needham Growth Fund, the Needham Aggressive Growth Fund or the Needham Small Cap Growth Fund. Shares are sold only through the currently effective prospectus. Please read the prospectus and consider the investment objectives, risks, and charges and expenses of the Fund carefully before you invest. The prospectus contains this and other information about the Fund.
Investment returns and principal value will fluctuate, and when redeemed, shares may be worth more or less than their original cost. Shares held 60 days or less are subject to a short-term redemption fee of 2%. Past performance does not guarantee future results and current performance may be higher or lower than these results. Current month-end performance and a copy of the prospectus is available at www.needhamfunds.com or by contacting the Fund's transfer agent, U.S. Bancorp Fund Services, LLC at 1-800-625-7071.
Funds holding smaller capitalized companies are subject to greater price fluctuation than those of larger companies. Also, the Fund's use of short sales, options, futures strategies and leverage may result in significant capital loss. Total return figures include reinvestment of all dividends and capital gains. Needham & Company, LLC, member FINRA/ SIPC, is the distributor of The Needham Funds, Inc.
|
|
|
