RE:RE:RE:RE:RE:RE:The importance of managing expectationsFTB: you brought up some good points, and I am sure others might have similar thoughts. Like my suggestions to others: why don't you bring the issues up with IR, and she will move up the chain-of-command if needed. But I will share my view on some of your issues:
1) "4 or 5 units last quarter"? What are you referring to? We sold 21 units in Q4, which is what Getinge sells in one year historically
2) Getinge contract: a proper take-or-pay would have solved the problem
We had a proper take-or-pay contract with clear penalties. Basically Getinge breached the contract by not accepting more VP4 units (because they can't sell them). So this is not a contract issue.
At the end, we bought all their VP4s back at $33k each (or $60-65k off from our ASP to them). Taking 238 x $65k = $15.5mm. This is inline or more than what was stipulated in the contract in case of a breach.
Another major point is time. If we forced Getinge to stay on and continue to buy units to sit in a warehouse, we will be wasting precious time when we could be pentrating the market for real, and saving patients' lives. Do we want <100 installed base by the end of 2020?
3) Failed partnerships (3M, Getinge) was on their watch
Yes, they are. But investors have to answer one question in their mind: given the cirucmstances at the time, were these partnerships the right decision for TSO3?
For 3M: we were basically broke with an unproven dual sterilant technology that was never approved by the FDA. 3M came in with timely cash and its stamp of approval help validate our technology platform
For Getinge: #2 player in the world that has a void in low-temp for the US. They also brought some much needed cash upfront as well, and to us into some key accounts. We all know selling the first initial units are the toughest to do, especially in a duopoly environment.
Personally, I would have signed these deals if I was running the company. Hence, I cannot blame RR for doing the same thing that I would.
4) Guidance vs. Aspirational Goal
Like I said in my previous post, I hope RR put out some type of formal guidance by our AGM. Technically, there is no formal guidance given by management so far.
So my question regarding their "200+ units" comment last year is how doable is that in management's eye (i.e.: soft guidance vs. a stretch/aspirational goal). I agree they should have done a better job communicating around the 200+ unit comment.
5) Sloppy Sell-side models
As a buy-side guy for almost 20yrs, we do NOT simply plug-in management's guidance and plans into our models when we are evaluating our investments. We have to come up with our own estimates and numbers, based on our industry and company due diligence. Yes, management comments are part of that, but a small part. If every investor just use management's guidance and comments, then all models would look the same, and that would be a futile exercise then. When I say sloppy, I mean they have not done the proper due diligence on the sector, hence they have to rely on management's comments. So when management don't give much color, these analysts are "lost". There is no excuse for a sell-side analyst who follow the company closely to have a consumable gross margin number of 50% vs. 80+% by competitors and a potential 90+% by TSO3.
6) Institutional Holders Selling
I gave my view of why they sold, and you have yours. No way of telling unless we know the people involved. Personally, I do not pay much attention of who buys/sells the stock, unless they are what I regard as "smart money" for the sector, like Baker Bros or T Rowe for healthcare. With no disrepect, I do not regard Fidelity, Gilder or Ninepoint to be smart money in healthcare. Hence I won't spend much time in figuring out why they sold
7) Should CEO serve on the Board
Like it or not, a majority of company CEOs hold a seat at the Board. Traditionally, CEOs were also Chairman. After the financial crisis, investors demand a seperation of those roles, and many did. But CEOs still sit on a majority of US companies' Boards. Personally I believe the CEOs should have a say in decisions surrounding the strategy or operations of the company since they know the company best, but not in matters that relate to their employment or status at the company
8) Withold your votes for RR
If you look at the charter, RR would actually be kicked off the Board if he has less positive votes than negative/abstained votes. Yes, this might send a signal, but it doesn't affect how the Board functions: CEO will still need to be present at every Board meeting because RR has to brief the Board on what is going on, and he knows the most about the company and the sterilizer industry.
Do we need to send a signal? I think it is too obvious to everyone involved (investors, RR, Board) that we need installs/sales--we are perfectly aligned. The Board will make their decisions about RR based on what is going on commercially, not the number of abstain votes there are.
Do these protest votes work? Look at all the advisory votes on compensation, etc...zero effect, to be honest. So I don't think these protest votes work unless we have a competing slate on the proxy.