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One Of Envivio's Largest Outside Individual Shareholders Seeks Board Seat At Upcoming Annual Meeting
Jun 06, 2013 (03:06 PM EDT)


MOUNTAIN VIEW, Calif., June 6, 2013 /PRNewswire/ -- Richard A. Karp, one of Envivio, Inc's. (NASDAQ-GS: ENVI) largest outside individual shareholders owning approximately 3.8% of the Company's shares outstanding, today announced he has submitted himself by letter dated April 19, 2013 as a nominee for election to the Board of Directors at the Company's upcoming annual meeting of shareholders on July 17, 2013. 

Mr. Karp believes his deep experience managing successful technology companies can be tremendously helpful at a time when these resources are needed most in Envivio's boardroom. 

Commenting on the decision to submit himself as a nominee for election to the Board, Mr. Karp said, "I have purchased over one million shares of Envivio with my own personal capital because I know the industry well and I believe the Company's technology can eventually dominate the market.  However, the business-as-usual attitude and frivolous spending practices cannot continue if Envivio is to realize the successful commercialization of its products over the next few years."

During the past year Envivio's stock has declined by more than 75%, losing over $160 million in value for shareholders. Collectively, four current board members control approximately 40% of the Company's shares, equating to a loss of more than $60 million for them and the investment funds that they manage.

Given the high concentration of ownership amongst certain Board members, Karp added, "While I am under no delusion that I will win a proxy contest for Board representation without the support of several insiders, given the staggering loss of value shareholders have endured over this past year, it is simply not conceivable that the current Board is content with the status quo.  I encourage them and ALL shareholders to join me in demanding that a new sense of urgency is embraced before the damage to the business is beyond repair."

Karp continued, "Since submitting my nomination in April, I have engaged constructively with the Board regarding my serious concerns and was hopeful that I would be included as a nominee in the Company's slate for election at the upcoming Annual Meeting.  While I am disappointed that the Company has refused to admit additional shareholder representation into the boardroom at this time, I believe that my involvement at Envivio has signaled to the Board that the status quo is unacceptable and that the Company should embrace in detail my initiatives for enhancing value.  Towards this end, I am keeping my name in nomination and will keep a watchful eye on management and its progress in executing on its strategic turnaround plan."

On May 22, 2013, Mr. Karp sent a letter to the Board highlighting several opportunities for consideration. 

The full text of the letter follows:

May 22, 2013

The Board of Directors
Envivio, Inc.
400 Oyster Point Boulevard
South San Francisco, CA 94080

Dear Members of the Board of Directors:

I enjoyed meeting Ned, David and Terry on May 8th at Sageview Capital's office in Palo Alto.  The conversation was pleasant and I left our meeting feeling reassured that we're all aligned in our desire to see Envivio achieve its full potential. 

As you know, over the past year, I have invested my own personal capital into Envivio's stock and currently own approximately 3.8% of the shares outstanding.  I made this investment primarily because I believe the Company has leading edge products in an industry that I am very familiar with.  Following this investment I began a constructive dialogue with several of you because I am confident that my direct relevant experience leading successful public technology companies over the past 25+ years can enrich the Board's dialogue during this critical time.  My only interest is to help the Company improve for the benefit of all stockholders and I stand prepared to do whatever is necessary to make this happen. 

As a follow up to our May 8th meeting, and for the benefit of the other Board members not in attendance, I'd like to provide you with a few relevant highlights from my background and summarize several of the suggestions I proposed to Ned, David and Terry for further consideration.

I received a B.S. degree in science from the California Institute of Technology, a M.S. degree in mathematics from the University of Wisconsin, and a Ph.D. in computer science from Stanford University.  Subsequent to this, I managed several private and publicly-traded companies, including Catapult Communications, a manufacturer of telecom test equipment, which I founded in 1985 and took through its IPO before it was sold to Ixia in 2009 for $105 million.

Based upon my extensive research and analysis, I firmly believe that Envivio's underlying technology can ultimately dominate its industry.  However, due to certain market dynamics and industry constraints that are beyond Envivio's control, many potential customers aren't ready to adopt Envivio's (or even a competitor's) solution just yet.  Hence, full commercialization is unlikely to be achieved for another two to three years.  Even if the Company is able to recognize decent revenues for a quarter or two (which would likely be derived from a small number of large sales), the continuing operation of the business under the current model will not produce more than limited value and fail to enhance outcomes in the longer run. 

Several things must drastically change at Envivio in order for shareholders to have a chance of realizing the latent value inherently tied to its technology.  The core issue facing Envivio is excessive spending in pursuit of growth initiatives that will not yield results for years to come.  I believe now is the time for the Board to take decisive action to address the alarming cash burn and hold management responsible for making substantial improvements to the Company's overall operating performance.  To address these issues I have outlined several opportunities that I believe will best position the business for long-term success. 

These include:

  1. Cease hiring until the Company has control over its excessive spending practices.  When hiring commences again, selectively hire only essential technical and engineering talent in France (a country notorious for complications related to workforce reduction) to maintain the flexibility necessary to right-size the business in the future.
  2. Reduce overall headcount to better align the Company's bloated overhead structure to better match its realistic revenue generation capabilities to ensure cash preservation.  The ultimate goal is for a profit-oriented discipline to take hold throughout the organization. 
  3. Shift the Company's sales structure to focus primary selling activity through a well-established distribution network.  Except for a few sales executives necessary to maintain and sell key customer accounts (almost entirely in the USA), this strategy will eliminate the need for much of the existing direct sales force.  It also enables maximum geographical coverage while maintaining a flexible, variable cost structure appropriate for Envivio's size.  
  4. Implement a cost restructuring plan to reduce G&A expenses to a level closer to their pre-IPO amount.  While some incremental costs are required simply because Envivio is now a publicly-traded entity, G&A expenses have swelled to more than $2.3 million following the IPO.  As someone who has managed a business both before and after an IPO, I see no conceivable reason why these costs cannot return closer to their historic levels.
  5. Eliminate non-core engineering activities (such as participation in standards committees) and develop a market-driven incentive program that ties R&D directly to the commercialization and monetization of new products.
  6. Thoroughly examine the Company's cost of goods for opportunities to improve the gross margin to a level north of 75%, a realistic target for a software-oriented company like Envivio.
  7. Develop a robust vendor-specific objective evidence (VSOE) methodology to enable the Company to accelerate the recognition of revenues. 
  8. Implement a new investor relations program to rebuild credibility with Wall Street.  Craft a new message for shareholders (current and potential) highlighting financial transparency, superior cost-management and a metric-driven plan toward achieving long-term, sustainable value through the careful implementation of key strategic initiatives.

These are initiatives I have undertaken with great success for stakeholders in the past and I remain hopeful that you will take me up on my offer to provide assistance now.   The goal should be that the Company will become cash flow neutral at or around current revenue levels; the Company should run its business as if it DOES NOT have a large cash reserve.

As you know, on April 22nd, I submitted myself as a nominee for election to the Board of Directors at the Company's next annual meeting.  It is my sincere desire to avoid a public proxy contest where the Company would unnecessarily spend shareholder capital fending off my bona fide efforts to make Envivio better.  I believe shareholders would see this action by the Company as costly and disruptive to the business at a time when management should be entirely focused on keeping costs low in an effort to minimize (preferably eliminate) its cash burn rate.  

As I mentioned earlier, I have enjoyed meeting many of you over the past few months and truly believe we can have a dynamic relationship focused on mapping out a plan to take full advantage of the Company's valuable assets - while also protecting its cash balance.  I remain hopeful that we will have a productive discussion relating to my nomination notice and that we continue to speak about creative ways to enhance long-term value for us all.

Sincerely,

Richard A. Karp  

Contact:
Richard A. Karp
Dick@TicTran.com
(650)396-8156

SOURCE Richard A. Karp