What a week… after a slew of investor and customer calls, I thought I’d jot down a few comments and reactions. As you know, we announced our Q2 results last Tuesday, along with an investment by KKR – preceded by Monday’s announcement with Intel. So we’ve been pretty busy – and lest some of the questions I’ve heard go unanswered, here’s a quick overview.
1. What did you think about the quarter?
As I said yesterday, I’m satisfied with the team’s performance. Now, what I said to folks internally was that I was “freaking over the moon with our progress,” but our investor relations team said the financial community might have a hard time parsing that (PR said my Mum might be upset, as well), so we scaled it back to a more dignified, “I’m satisfied with the team’s performance.”
Honestly, it was a good quarter, we over achieved many of our internal objectives, and the strategic announcements drove a ton of awareness and momentum. Which are now rippling across the globe. If I haven’t recommended it before, I’ll do so now – the Tipping Point is a good airplane read.
2. Now, what’s up with KKR?
For those that don’t know who KKR are, they’re a (very) large private investor, one of the smartest and most successful in the history of investing. They’re less well known outside of financial circles, but their track record is one notch above stellar.
3. Why did you want them investing in Sun?
First, their investment is a big endorsement – they clearly see our potential. Second, we wanted their wisdom, perspective, access to their portfolio companies, engagement from some incredibly smart people – frankly, we didn’t see a downside. And in terms of the financial transaction, here’s a crude summary: (and as a caveat, this is a crude summary – if you want the exact details, please refer to this filing with our friends at the SEC.)
They loan us money at an extremely low interest rate, in exchange for the right to buy our shares if they rise above 25% of their original price. It’s called “a convertible.”
4. Do you need the money?
Heavens, no. With more than $4 billion in cash prior to the deal, one of the strongest balance sheets of any technology company, we didn’t need the money.
5. If you didn’t need the money, why are you raising it?
Because you raise money when it’s cheap, and when you don’t need it. Trust me, I’ve raised money when I needed it, I’m not doing that again. We have one of the strongest balance sheets on the planet, with $4.8b in cash and marketable debt securities prior to the deal. That opens a world of opportunity.
6. Are you going private?
7. Are you going on an acquisition binge?
We’re interested in growing the value of Sun. I’m neutral on how we achieve the best returns – organically or inorganically. But growth and volume = operating leverage.
8. Are they a hostile investor?
Absolutely not, I and the board want them involved – they’re incredibly good at what they do, which is generate value for shareholders. To make that point clear to everyone, they signed a standstill agreement agreeing not to purchase more than a small amount of the company.
9. Aren’t they just a short term investor?
Try this on for size – KKR’s average holding period for the companies in which they invest is seven years. Seven. As the CEO of any other public company will tell you, they’d love it if *every* investor behaved like KKR. Other than Scott, I’m not sure we’ve had any other significant investor hold for that period of time. What drives CEO’s and CFO’s nuts are folks who hold the stock for 7 minutes. As one of the most highly traded stocks on Wall Street, we have a lot of those types of investors. So it’s good to have stability in the investor base.
10. What other value do they bring?
First, as noted above, they have a portfolio of companies in which they’re significant investors – take a look at the list, and tell me if having an introduction from KKR might be helpful. Second, we invited (yes, invited – early on, we said it was a precondition of their involvement) one of their members to join our board – stay tuned on that. We’re hoping that’ll bring a ton of insight and expertise to the team.
11. Is it true James Gosling threw a spontaneous celebration (known locally as a beer bust) in Menlo Park, CA last Friday?
I’m sorry, that’s confidential information, and I can neither confirm nor deny the rumor. But if we had, it would’ve been the first in… well, years. Such festivities might even ripple (in their appropriate cultural equivalent) across the globe.