Some details from a conversation with David McPhail...(Pardon any bad formatting, pasting in from notepad seems to maybe not work so well.)
I spoke with David McPhail on the phone last week and thought I would pass
along some of the highlights. I've put this into a Q&A form, but it was
actually just more of a free discussion, and all of this is from memory.
So, don't take this Q & A as absolute direct quotes, but I've tried to be
careful about making it accurately reflect the discussion, and tried not
to project any personal opinion into it. I imagine David would contact me
if I appear to be putting any egregiously incorrect words in his mouth.
Q: In forum discussions there's a bit of disappointment due to a
perception of a miss (< 100% "promised" growth) on last quarter's
earnings, and some anxiety over a seeming lack of sales announcements
recently - is this reason for concern?
A: Memex has many large leads (ongoing discussions) in the pipeline, but
due to the nature of this business, the sales cycle is long and therefore
sales are always going to be lumpy, both QoQ and YoY. He is completely
unconcerned about any short term fluctuations in sales and purely focused
on execution - Memex has plenty of cash in the bank, healthy sales, and
there is no need to about micro-managing quarterly sales numbers or
expectations (they've never done news releases for every sale and have no
plans to).
He did however offer some ideas for potential contributions to lower sales
in the recent quarter:
- Customers waiting for release of Merlin Tempus
- Customers waiting for IMTS (International Manufacturing Technology Show, held only every 2 years) in order to speak directly with Memex
- General market uncertainty due to the US election
Q: Does Memex have a binding agreement with Cisco / Mazak with respect to
Merlin inclusion in the SmartBox?
A: No, and it's not a concern. Memex introduced these companies to each
other, and it was only after significant due diligence that Merlin was
chosen to be bundled in the SmartBox. While the agreement and sales
derived from the bundling is obviously a great opportunity, David isn't
really counting on the SmartBox agreement as a huge *direct* contributor to sales, but
rather considers the importance to be more so about expediting the
adoption of IIOT within manufacturing *in general*, and then within that
environment Memex will win sales based on the merits of their platform.
The legacy (non-SmartBox/MTConnect, 70% of all deployed machines) market
that would benefit from OEE analytics is far larger than sales of new
machines with MTConnect or SmartBox technology built in.
Q: Will Mazak be doing a rollout of their Smart Factory (SmartBox) concept
across all its factories in Japan, as was implied by a company
representative in a YouTube video?
A: Maybe, maybe not, not overly concered. Mazak currently runs its own
home grown software and seem to be happy with that for the time being -
Japanese companies have a tendency to prefer Japanese solutions whenever
possible (being quite personally familiar with Japanese culture, this does
not surprise me at all.) Yes it would probably be nice from an optics
perspective, but in the big scheme of things it doesn't mean much.
Q: Lately I've noticed a few new startups that claim to possess technology
that offers similar features to Merlin. I don't perceive Memex as having
a substantial moat, is this something to worry about?
A: (paraphrased heavily) The Merlin platform is much more than just some
charts based on machine data, it is an integrated, open (API-based)
platform with several forms of functionality beyond simple charting, and
was designed based on decades of working hands on in the machining
industry. So while many other products can easily do some of the things
Merlin can do, they can't hope to approach the full spectrum of
functionality Merlin offers. (If I recall correctly, David admitted this
isn't well communicated and expected this should be improved on the new
website when released.)
My personal comment/complaint here: despite having an IT background, I
still am not terribly clear on *exactly* what the Memex platform consists
of, so hopefully the new website will communicate that much better. That
being said, despite how much we investors would prefer this to be
explained to us, the decision makers in manufacturing are ell
knowledgeable about the specifics of their industry, causes of lost
efficiency, etc - so unlike us, they don't need their hands held when this
stuff is explained. Better educating investors might be beneficial to a
short-term boost in the stock price, but doesn't really affect long term
success in any meaningful way, so it's pretty low on the priority list for
David.
Q: There has been some mention on Memex becoming more of an SAAS company,
perhaps using cloud and edge computing (Machine Learning), possibly for
things like real-time predictive analysics - comments?
A: (Heavy paraphrasing) Yes, definitely on the radar, but a relatively
long ways off for most companies. In the shorter term, less exotic forms
of predictive intelligence will be much more immediately beneficial, just
one example being automated notification of inefficient job scheduling
(two concurrently scheduled high labor / low OEE (based on historic data)
tasks) - this is a common problem, and can be very expensive. The sexier
ML stuff is still a ways off in the future.
Other miscellaneous tidbits:
- Major website improvements coming in the near future - reduced clutter and better communication of the Merlin functionality & vision
- Hiring 3 new sales people
- Merlin Tempus is still in beta testing, will be RTM "soon"
- Merlin does support industries other than machining, and in fact has an
implementation with a packaging company of some sort (I can't recall the
specific industry at the moment)
One thing I can say is David was very careful on telling me anything that
would be non-public information. He seems to be a very by the book kind
of guy that lets the execution and numbers speak for themselves, rather
than putting out a new release for every accomplishment. I would also
add, I think it would be "fair to say" that his personality type has
little patience for petty, insincere questions, commentary, and that sort
of thing, in case some recent criticism by certain members of this board
are a concern (not mentioning any names).
As I had indicated in the last few days, I had been selling down my
position, the main reason being that I was (and still am) incredibly
overweight in this stock, but also due to impatience and worries about
competition, lack of news, etc. At least for me, this conversation has
more than satisfied the concerns I had, and while I won't immediately be
buying back what I've sold, I am going to sit tight with my current
position, and fully expect at some point in the not too distant future I
will be upping my position bigly, most likely at higher prices.
GLTA