Ann: Connexion Telematics OnTRAC Renewal with General Motors, page-195

You are exactly right, @sigmadelta. Being cash flow positive, with no debt and cash in the bank, CXZ is not at the mercy of the markets to raise capital from instos at depressed prices. As a shareholder, that puts a smile on my face. If an insto wants to join the CXZ register, they will have to do it like all of us, by buying on market.

The best business leaders have long recognised a company’s share price is a function of long-term business performance. Solve for the latter, and in time, the share price will look after itself. The two of us have witnessed this play out with ASX:QPM, Sigma.

• “Investors and executives need to realise that the creation of shareholder value is an outcome — not an objective.” — Terry Smith
• “Stock price is an outcome. You can’t manage the outcome. You manage the inputs.” — James Gorman
• “We want corporate management to solve for value creation, not security price.” — Dan Loeb
• “Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.” — Morgan Housel
• “Some would claim that maximising profits is a business’s ultimate purpose. Yet it is often when companies become exclusively profit orientated – and explicitly define this as their objective - that things go wrong. The end result of what investors seek, good shareholder returns, is invariably better achieved obliquely.” — Nick Train
• “We’ve been suspicious of companies that place a whole lot of emphasis on the price of their stock. When we see the price of a stock posted in the lobby of the headquarters or something, things like that make us nervous.” — Warren Buffett

Of all the books on great businesses I’ve read, I can’t recall one where a company’s share price featured so prominently. Great businesses are all about empowering people, innovating, delighting customers, tolerating mistakes, focusing on the long term, upholding values, embracing change and remaining humble, to name but a few.

The best investors have a long-term orientation, focused on where a business might be in three to five years or more, rather than next quarter’s result. Luckily for us, Aaryn has a long-term business-focused mindset. He is understated, transparent, and neutral in his style. Aaryn does not worry about the stock price in the short run, and does not worry excessively about quarterly earnings. His mindset is to consistently build the company — if he does the right things, the stock price will take care of itself.

CXZ is playing the long game. “Come for the tool, stay for the network” is an incredibly powerful strategy when executed well (Shopify and Instagram are classic examples), and we know that the size of the US automotive market presents a worthwhile prize. When playing this game, the tool is like the kindling. It is first the distribution (+stickiness) of the tool that is critical, rather than early (or, in some cases, any) optimisation of its profitability. There is always room for optimisation later, particularly if the product is generating revenue for the customer (as is CXZ's long-term goal by connecting dealers with consumers).

Connexion elected to “optimise” (i.e. decimate) its cost-base over the past three years to repair its balance sheet, rather than raise equity with a depressed share price. This was a short-term (3-year) tactic. So, whereas most investors are familiar with the classic journey of Growth Phase followed by Optimisation Phase — Connexion has had Growth Phase #1 (Inception to 2017 with founding Board), Optimisation Phase #1 (2017-2020 with investor-led Board), Growth Phase #2 (2021-? with current Board), with Optimisation Phase #2 still in the distance (likely not before 2024).

“We suspect that business leaders who are busy promoting themselves or their stock are not properly focused on running their companies. We go out of our way to look for management that cares about shareholder value but doesn't hype its stock.” — Marathon Asset Management

T.E.P.