By Raghuraman Raman of Snowball ResearchA compilation of letters sent by Roumell Asset Management.

Introduction – Roumell Asset Management

In the past eleven years, Mr. Roumell has sent very few public letters to the Board and the CEO. Nevertheless, the letters sent by Mr. Roumell are rich with insights gathered through field check (“Scuttlebutt research”). It is apparent from his letters that he attends trade conference, speaks with competitors and customers to gather information about the company’s business. In one of his letters he wrote, “I personally sat in a commercial compressor distribution store to witness first-hand the strength and persistency of the Company’s after-market business”.

In fact, his fund’s website has a dedicated page named “company visit” (very rare practice among investment funds). You can see a few pictures taken during his field visit.

I’ve compiled the list of “interesting” excerpts from his letters. Also, the complete letters can be found in the “exhibits” section.

The purpose of reading this? Readers can use it for “idea generation” and to improve their research skills.

13F Portfolio, as on March 31, 2016

Roumell Asset Management

  • “Our research process is relentless and includes regular travel to see management teams, assets, customers, and competitors firsthand.”
  • “We typically do not get involved in situations where we do not have solid industry and/or company contacts.”

Source: Fund website

Roumell Asset Management – Excerpts From Eight Letters

Covisint Corp

June 15, 2016

Upon returning from last week’s TU-Automotive Telematics conference in Novi, Michigan, it is our belief that the company will warrant a significant premium to its current stock price in a sale to a strategic buyer. Underscoring the company’s belief in the strength of its Identity Management tools and its IoT platform, we confirmed that industry leaders, partners and customers remain very positive in the platform’s capabilities. Industry contacts who are deeply familiar with competing platforms – Telit, Aeris, PTC’s ThingWorx, GE’s Predix and IBM’s Bluemix (the company’s chief competitor, as we understand, in last year’s Jaguar Land Rover contract win) – indicate to us the superior depth, complexity and sophistication of the company’s platform. A key industry participant said flatly that the Covisint platform was the best platform among these leading IoT platforms. We spoke directly to key customers who underscored their positive view of the platform’s capabilities, including a major automobile manufacturer who expects to expand its relationship with the company. We were also happy to learn that a major beverage manufacturer appears to be a likely new portal customer.

Nonetheless, the primary reasons put forth for the lack of new subscription revenue were a lack of brand awareness and insufficient marketing heft. Additionally, the 6 month delay in introducing the company’s IoT platform, finally rolled out in January of 2016, appears to have been a costly event. Competitors with less robust platforms are described as possessing superior marketing and brand strength. In the absence of new subscription revenue, we believe the company’s platform would be far better leveraged in the hands of a stronger, better capitalized entity. Recent comparable transactions suggest a sales price would likely be meaningfully higher than the current share price. To wit, in 2013, PTC purchased the IoT platform, and Covisint competitor, ThingWorx for $112 million, plus a possible earn-out of up to $18 million. ThingWorx was reported to have only $10 million in revenue in the 12 months following the acquisition. Multiple industry contacts inform us that the ThingWorx platform is two notches below Covisint’s platform’s capabilities.

May 18, 2016

To be clear, Covisint boasts some compelling attributes. First, the company’s technology platform is strong and highly recognized in the automobile industry, underscored by longterm contracts. Second, it possesses a highly recurring subscription revenue stream, with 95% renewal rates, coupled with gross margins now over 50%, thanks to the company’s successful decision to outsource low-margin service work under the leadership of the company’s Chairman, Mr. Sam Inman III. Nonetheless, while it is true that the company has effectively replaced the revenue of the healthcare business it exited two years ago, the company has been unable to grow its subscription revenue sufficiently to justify its cost structure as a public company. Given the very high retention rate of its current revenue stream, we have little doubt that the company would be highly attractive to a strategic or financial investor.

Rosetta Stone Inc.

June 22, 2015

Lexia now has eight consecutive quarters of double-digit year-over-year revenue growth with mid-90% renewal rates. The company’s decision to combine Lexia Reading and K-12 language learning into Language Arts (LA), under the direction of proven education builder Mr. Nick Gaehde, makes great sense. Our field checks indicate that Lexia is being very well received in the marketplace and winning business as a result of its demonstrated efficacy through measureable results and consequently becoming more widely known among educators purchasing reading software. Lexia’s revenue has grown from $15 million at the time of purchase to today’s $25 million run rate. Through discussions with knowledgeable investors in the education space, we believe the LA segment itself, roughly $65 million in revenue, is worth more than the company’s current enterprise value. M&A transactions in the space are known to the board and don’t need to be reiterated here.

We were pleased to learn that the company does not view Fit Brains as core to its mission. Given that Fit Brains’ revenue has grown from $2 million to $5 million, it is our belief that selling it for at least its $12 million purchase price should be attainable and provide a nice cash infusion.

In summary, we are very pleased with the Management team’s renewed focus on returning RST to growth and profitability.

SeaChange International Inc.

January 28, 2015

Since Mr. Samit’s arrival, the company has clearly identified its pure OTT software offering, RAVE, to the marketplace. We believe RAVE will build on its recent contract with BBC and secure additional important customer wins this year. SeaChange’s OTT offering is differentiated given its ability to not just stream content, but to also leverage the company’s video-on-demand (VOD) expertise that enables consumers to easily access content libraries by combining Adrenaline back-office software with Nitro’s front-end user interface.

We are impressed with SeaChange’s recent acquisition of Timeline Labs, introduced by Mr. Samit. Timeline’s initiative with NewCoin augments the company’s OTT offering. NewCoin, which partners with industry giants Univision, Tribune and Fox to address measurement deficiencies in the local TV advertising market, leverages Timeline’s data gathering capabilities and adds additional clarity to the logic behind that purchase. Non-linear, multi-screen viewing is growing and local broadcasters need new tools to measure not just TV but the full viewing audience in order to better monetize their content. Currently, broadcasters are concerned that they are not being properly compensated for non-linear viewing, something NewCoin seeks to address in conjunction with the analytics developed at Timeline. These announcements underscore Mr. Samit’s vision to exploit SeaChange’s unique industry position and deep industry contacts to grow the company beyond serving traditional cable companies to now serve consumers in whichever format they choose to view content.

September 30, 2014

We invested because we believe the company is exceptionally well-positioned to take advantage of a major secular shift in how consumers view content. SeaChange sits squarely in front

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