Greenhaven Road Capital presentation on Halogen Software Inc (HGN.CA) from the ValueX Vail, June 2015.
Executive Summary Of Greenhaven Road
Operating Background
- Managed a paper bag factory after graduating college
- Co-Founder of Acelero Learning. Several roles including CFO, CTO, Chief Strategy Officer, and currently board member. Acelero has grown from three co-founders in a tiny office to 1,100+ employees
Who We Are
- A long-biased, value focused hedge fund. Intensive up-front research, concentrated positions and then…patience.
What We Believe
- Fundamentals matter – the market will recognize this over time.
- Diversifying away risk also means diversifying away returns – invest in only the best ideas..
- Stakeholder interests must be aligned – a meaningful personal investment in the fund and LP-friendly investment terms are just
the starting point. - There is power in simplicity – no need to over-complicate the investment process and leverage isn’t necessary to generate returns
Halogen Software
Basics
Business Description
- The Company’s Words: Halogen Software Inc. is a provider of cloud-based talent management solutions. The Company’s software offers an organically built cloud-based talent management suite that reinforces and drives employee performance across all talent programs whether that is recruiting, performance management, learning and development, succession planning or compensation.
- Glass Half Empty View: Busted small cap Canadian Tech IPO with limited volume – No Thanks.
- My View: Personnel and Benefits are most operating businesses largest expenses. For service businesses they are typically greater than 70%. Optimizing these expenses is a big deal. Tell me more.
Case Study: Leading Early Education Provider (Non Halogen Customer)
Silo Specific Solutions are Sub Optimal
None of these Systems Speak to Each Other
- There are multiple systems to maintain. An employee gets married and changes her name – the change has to be made in eight places
- 25% Turnover means hundreds of new employees are getting up in 8 systems per year.
- To conduct an effective performance review requires accessing multiple systems.
Limited Transparency and Flawed
There is limited to no transparency to see if key activities such as 1:1 meetings. Are they happening? What is being discussed? If there is a change in managers, the new manager is often flying blind when using a paper based system, unless it is a very smooth and thoughtful transition.
Halogen Organically Developed for Interoperability
Typical Halogen Customer
Has 500 Seats
Buys 2 .3 Pro ducts out of 8 Offered
- Almost all customers use Performance Review Offering
- Multi-rater (360 review) is next most popular followed by Learning and Compensation
- Performance is the most expensive – generally 2X the other offerings
Spends $25K+ on Halogen > $30M On Personnel/Benefits
- The average spend per customer is approximately $25K on Halogen to help optimize over $3oM+ in Personnel spend or less than 1/10 of 1%
Solved Real Problems / Gets More Valuable Over Time
- Spends more each year
- As the offerings get populated with critical data, the applications become more useful over time.
- Switching is possible, but relative to the product cost should not be an attractive proposition
See full presentation below.
