This past week Kronos announced it had acquired Empower Software Solutions. If you missed the news, you can read Kronos’s official press release here. The press release is light on specifics, but from my perspective (and it should be noted that “my perspective” is based on my experience following the workforce management market, not on any official conversations with either company), there are three reasons why Kronos bought Empower.

1. Seth Bernstein Empower Software Solutions Inc Login
2. Seth Bernstein
3. Lake Capital

1. View Seth Bernstein's business profile and see work history, affiliations and more.
2. Information for Empower Customers. General Information. On January 15, 2016, Kronos Incorporated announced that it had acquired Empower Software Solutions. For Empower Sales. To speak with a Sales Representative or to order a capacity upgrade for your existing Empower solution, please call 914-385-1251.

The first reason is technology. Empower has a highly configurable scheduling engine that can handle complex union rules and unique policies that other scheduling solutions struggle with. This is one of the big reasons why big retailers like Kroger, Safeway and The Home Depot licensed Empower even though they used other vendors for time and attendance, and a big reason why Kronos purchased Empower.

Seth Bernstein serves as the Chief Executive Officer and President of Stromberg LLC. Company Overview of. Empower Software Solutions, Inc. Empower Software Solutions, Inc. Appoints New. Empower founder and CEO, Seth Bernstein. About Empower Software Empower Software Solutions is a.

The second reason is customers, although it may not be the customers you are thinking about. If you are reading this blog, you probably think about Empower as an enterprise, retail workforce management vendor. In fact, Empower has another part of the business that you may not be aware of. Empower offers a human capital management suite that provide HRMS, payroll, time tracking and talent management solutions to more than 1,000 small and mid-sized businesses (SMB).

Kronos takes the SMB space very seriously. Nearly three years ago, it acquired SaaSHR, rebranding it as Workforce Ready and investing heavily in the product and its growth. Today, when you read a press release that it has more than 16,000 customers in the cloud, the vast majority of these customers are using Workforce Ready. Acquiring Empower increases this customer base by 5 to 6 percent and provides a channel to sell other Kronos solutions targeted at SMBs.

The third reason is competitive. There have been steady rumors in the WFM industry that Empower was looking for a buyer. Those rumors got substantially louder when Empower CEO Jim Hoefflin and WFM General Manager Joe Olsen left the company last year. Empower had to be attractive for a HCM vendor looking to enter the WFM market or a WFM vendor looking to enter the retail scheduling market. Kronos’s acquisition makes the path for either potential competitor longer.

Looking ahead, it will be interesting to see how Kronos and Empower customers are impacted on two fronts. First, how will Kronos leverage Empower’s scheduling technology? Existing Kronos customers could benefit if Kronos can integrate Empower’s rule engine into Workforce Central’s Advanced Scheduler. Second, will Empower’s customers take advantage of a much broader suite of HCM and WFM solutions that Kronos has to offer? This is a question for both enterprise and SMB customers, and the answer could make this deal very profitable for Kronos very quickly.

Last week, we profiled our short thesis on NCR Corp. (NYSE:NCR), a company we believe has limited strategic alternatives, as it struggles to execute a levered acquisition transformation strategy, a history of bad capital allocation, aggressive accounting, and a management team with a questionable legacy at Symbol Technologies. In our follow-up report, we will profile a blatant example of poor judgment and capital allocation to support our opinion that NCR's shareholders should demand immediate change at the executive level. But first, let's review NCR's recent quarter and further dispel any notion that value-enhancing alternatives are imminent and that NCR had a stellar quarter where it 'beat' Street estimates

Dissecting NCR's Lackluster Q1 2015 Results

First off, contrary to a hasty and 'recycled' news story by the Wall St. Journal last week that NCR was seeking strategic alternatives, the company sent a somber message to overly optimistic investors that nothing imminent is brewing. As Spruce Point suggested earlier, NCR has few (if any) alternatives and that the mostly like path forward will be a slow decline of its business. NCR outlined its view of the situation with the following quote:

'There would be, if you pull the business apart significant dyssynergy for example, all of my divisions here of a common services delivery infrastructure around the world, I don't have a separate services business for retail and financial and hospitality. All of them share a common supply chain infrastructure; plants, distribution centers, and of course we get lots of value from that scale. And they all share a common G&A infrastructure and it will also -it'd be very difficult if not value destructive to rather pull it apart.'

To support our view that NCR's business is declining, consider that it reported $1.47 billion and $0.23 GAAP / $0.43 non-GAAP for Q1. Street analysts were calling for $1.49 billion and $0.39 non-GAAP. So NCR missed revenues by ~1%, but on the surface, beat bottom-line estimates by $0.04. We will dissect this $0.04 non-GAAP earnings beat further, but first we must point out the following.

Consider that all of NCR's GAAP financial results produced significant YoY declines:

1. Gross margin contracted from 27.4% to 26.4% (100bps)

2. Segment operating income declined from $155m to $146m ( 5.8% decline / margin contracted 30bps from 10.2% to 9.9%)

3. Income from operations declined from $108m to $95m (12% decline / 70bp margin contraction)

4. GAAP diluted EPS declined from $0.31 to $0.23 (26%)

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NCR can try to blame all its problems on currency movements, but digging beneath the surface shows there's much more to the story. Getting back to NCR's magical $0.04 earnings beat, let's take a closer look at its bridge between GAAP / non-GAAP results.

Consider that this quarter NCR took a $16m restructuring charge, and says that $0.07 should be added back to get to non-GAAP EPS.

Now, in just the prior quarter, Q4'14, NCR took a $33m restructuring charge, and it added back $0.10 to get to non-GAAP EPS.

So, if investors and analysts are to believe that a $33m charge is equal to a $0.10, add back in Q4'14, why should they believe that in Q1'15 a $16m charge (approximately 50%) should be equal to a $0.07 add-back? Crack solidworks 2013 sp0. The diluted share count barely budged between quarters from 171.3m to 171.6m this quarter. The only other variable would be the effective tax rate, which Spruce Point believes should be normalized and applied consistently.

Therefore, we estimate the real add-back should be approximately $0.05 and not $0.07. In other words, NCR appears to have picked up a $0.02 benefit from a fuzzy and opaque calculation.

NCR Still Appears To Be Overstating Operating Cash Flows

On the conference call, NCR's CFO made the following comment:

'The AR facility - that was really a better way to finance then our revolver. So we're using our AR base to effectively borrow and that's treated similar to the revolver as part of the financing cash flows. So that's part of financing.'

However, it is quite clear that something seems fishy at first glance of NCR's financials. Consider that in 2014, it reported that 'Payments on revolving credit facilities' were ($1,050)m while 'Borrowings on revolving credit facilities' were +$1,146m.

Therefore, the net inflow from revolving credit borrowings was $96m.

Curiously, this $96m borrowing amount is stated in the notes as having been drawn on the A/R securitization facility of its financials, not its revolving credit facility. NCR lists its ending revolving facility balance at zero for both 2013 and 2014. So why didn't NCR clearly lay out a line item that showed the $96m coming from the A/R facility?

If investors and analysts are confused by this, they certainly aren't alone. Either NCR has clearly made an error in its financial reporting, or it is attempting to obfuscate results.

It's also worth taking a closer look at NCR's 8-K filing on the establishment of the A/R facility on November 21, 2014. NCR makes the following disclosure:

'The Company is independently liable for its own customary representations, warranties, covenants and indemnities as the originator and as the servicer of the receivables, and to the extent additional originators become party to the A/R Facility, will be obligated to guaranty the performance of the obligations of such originators. The Company will include NCR Receivables' assets, liabilities and results of operations in its consolidated financial statements.'

So here we have a statement that says NCR is running the results of NCR Receivables through its results of operations in its consolidated financial statements. Could it be any clearer now that the company's operating cash flow is indeed benefiting from the A/R facility?

Cloud Sales Growth Of 20% Matched With Zero Growth In Deferred Revenue…Seriously

NCR continues to tout that is 'Cloud' (formerly software-as-a-service) revenue grew from $113m to $134m year over year, or 20% on a constant-currency basis. When analyzing cloud companies, it's important to look at deferred revenue as a key measure for the health of the business. In this case, NCR reported Q1'15 'deferred revenue and customer deposit' of $588m. Curiously, in Q1'14 NCR reported 'deferred revenue and customer deposit' balance sheet account was listed as $587m. In other words, NCR's cloud revenue growth of 20% was matched with virtually zero growth in deferred revenue. We challenge investors to find another SaaS/Cloud company with this sort of financial profile.

Also, NCR focused investors on its improved operating cash flow results for the quarter. A closer look reveals that NCR recorded an enormous benefit of $110m from change in its 'deferred service revenue and customer deposit' - this was the single biggest contributor that allowed NCR to grow its YoY operating cash flow from $31m to $79m. However, a closer look at the QoQ balance sheet account change would indicate that the operating cash flow should have gone up only by $94m ($588m - $494m). This would make adjusted operating cash flow $63m, and not $79m.

Be Careful, Leverage Is Rising And Intangible Amortization Is Most Of The Non-GAAP Adjustment

NCR's Adjusted EBITDA declined in Q1'15, and while its debt declined, so did its excess cash. The net result is that NCR's leverage ratio ticked higher QoQ from 3.1x to 3.2x. We still argue this leverage is understated due to its unfunded pension liability, capital leases, etc., and is closer to 5x.

A majority of NCR's non-GAAP EPS 'beat' came from a $0.12 add-back due to acquisition-related amortization of intangibles. These are real costs related to the company's recent acquisition spree, but have been capitalized on the balance. We argued before that we believe it has made terrible recent acquisitions. What we find unusual is that NCR splits these costs among three income statement categories: Cost of products, services, and SG&A.

Pattern Of Bad Capital Allocation And Leadership:

As disciplined investors, we take every precaution to understand the executive team in charge of guiding the strategic decisions of the company, and make sure they are diligent, and focused on creating long-term value. We avoid investing in companies that are excessively promotional with 'Celebrity CEOs.' There is ample evidence to suggest that companies with Celebrity CEOs are bad for companies (here). A research reported entitled 'Understanding and managing CEO celebrity' (here) offers both pros and cons, and suggested a matrix with four types of CEOs based upon degree of fame and reputation. In our initial report, we provided evidence to suggest that NCR's CEO had among the worst reputations (here). NCR may not be a household brand name, and it receives a low score on Ranking The Brands (here); therefore, we believe its CEO's fame score is low. According to the matrix, and in our opinion, NCR's CEO is best classified among the 'Silent Killers.'

One way in which we believe the company's CEO has been a Silent Killer is by engaging promotional deals and wasteful capital allocation decisions with his 'buddies' that don't appear to benefit NCR's shareholders.

For example, in 2011, NCR announced (with no financial details) that 'NCR and Empower Software Solutions sign referral agreement.' Empower is described as having a Workforce Management software designed to provide customers, particularly in the retail industry, with a strategic resource to help them deploy staff more effectively.

Commenting on the announcement, EVP John Bruno said:

'Empower's technology can create new value for customers, especially when combined with our assisted- and self-service solutions, and is highly aligned with our hardware-enabled, software-driven business model.'

Now, if you're confused as to why a workforce management product has any synergy with NCR's retail point-of-sale checkout devices, you're not alone!

Commenting on the deal from Empower's side, its CEO Seth Bernstein said:

'We are pleased to create a dynamic new sales channel for Empower while providing NCR's customers with an opportunity to leverage their technology investments.'

Who Is Seth Bernstein And What Do People Think Of Him?

Seth Bernstein is currently listed as both a Director of Outerwall (NASDAQ:OUTR), a $1.3 billion market cap company known for its Redbox kiosks, as well as a Director of Lighting Science Group (OTCPK:LSCG), a penny stock that has burned $165m in the past three years and has an accumulated shareholder deficit of $487m as of its last Annual Report on March 30, 2015.

There are various public biographies available for Mr. Bernstein. According to LSCG's proxy statement filed August 1, 2014, Mr. Bernstein is 38 years old and:

'Seth Bernstein serves as Global Vice-President for Business Development and Strategy for NCR Corporation, a global technology company. He is also a Senior Advisor to Craig Cogut and Pegasus Capital and Pegasus Capital and Mr. Bernstein have entered into a general consulting agreement pursuant to which Mr. Bernstein provides consulting services to Pegasus Capital. Prior to joining NCR, from 2007 to 2011, Mr. Bernstein was owner and chief executive officer of Empower Software Solutions, a leading national provider of innovative and state-of-the-art human resources solutions. Mr. Bernstein is also a member of the Board of Advisors of KPMG LLP, a director of Forstmann Little and Company, a member of the University of Central Florida's Board and Athletic Board, and the Board of the American Spectator. He and his wife founded the Kids House organization where he currently serves as a board member. He is also the Chairman of the Compound Foundation. Mr. Bernstein is a graduate of the University of Connecticut. Pegasus Capital intends to elect Mr. Bernstein to serve as a director pursuant to certain rights set forth in the Series I Certificate of Designation and described elsewhere in this Proxy Statement.'

According to Outerwall, Mr. Bernstein was elected to its Board on December 4, 2014 (8-K Filing) and sits on its Compensation Committee (here).

Seth Bernstein Empower Software Solutions Inc Login

'Seth Bernstein was named as a director of Outerwall in December 2014. He has served as the president of Pegasus Advisory Group (a private equity firm) since October 2014. Mr. Bernstein served as global vice president for business development and strategy for NCR Corporation (a global technology company) from 2012 to 2014. Prior to joining NCR, he was owner and chief executive officer of Empower Software Solutions (a national provider of human resources solutions) from 2007 to 2011. Mr. Bernstein is also a director of Lighting Science Group Corporation (a provider of light emitting diode lighting technology), and serves on the board of directors of Spirit Music Group (a music publishing company), Six Senses Hotels Resorts Spas (a hospitality management company) and several other private companies.'

There are various other public references that detail Mr. Bernstein's past, such as the Orlando Business Journal where he says he attended University of Connecticut (here), an article about Stromberg where he was appointed CEO in Jan. 2003, and prior to that was described as 'one of the pioneers' of Zurich Payroll. There are also Internet articles (here) and (here) that suggest Mr. Bernstein is a billionaire, part-time sports agent/advisor (here), and a fixture on the Hamptons social scene (here).

However, most interesting is that Mr. Bernstein appears to be a close social friend of NCR's CEO Bill Nuti. In the Pinterest picture (here), Bernstein (second from left) can be seen with Nuti. There are other public photographs (here) and (here) showing Mr. Nuti and Mr. Bernstein attending various social events with athletes and entertainers. Mr. Bernstein appears to have a history of associating himself with professional athletes such as former Celtic Dee Brown, who he hired as COO of Stromberg in 2003, but appears to have 'left the firm just a few weeks later,' according to a Bernstein quote.

Having later sold Stromberg in April 2004 to Paychex (NASDAQ:PAYX), a multi-billion-dollar company, it would appear to be a deal to lend credibility to Bernstein's career. Paychex reported in its Annual Report that it paid $13.6m for the business while the press release indicated Stromberg had sales exceeding $20m. A sales multiple of just 0.7x revenues may indicate that Stromberg was struggling at the time of the sale, or a very low margin business. One review of Stromberg on Glassdoor.com indicates that:

'The salary was decent and good benefits…until the house of cards crashed. Seth Bernstein pointed it towards a volcano and lept off before anyone was able to look out the window.'

Mr. Bernstein would next get involved with a company called Empagio, the predecessor of Empower Software via a name change, and stay there through June 29, 2012, when a new CEO was appointed, and Mr. Bernstein was given the title of 'Founder and Chairman Emeritus.' During this period, it appears that Mr. Bernstein created a loyal following of detractors. In fact, a blog was created called 'Seth Bernstein - Bad Capitalism.' A selection of quotes are provided below:

Our background checks on Mr. Bernstein suggest the following:

1. His description that he was a 'pioneer' of Zurich, a small payroll services company, appears to be embellishment, and that his role was as a salesman, not the CEO, founder, or business strategist that would lead one to believe he was the pioneer.

2. The media's characterization of him as a 'billionaire' may be exaggerated. He has never appeared on any of the Forbes billionaire lists we can find (here). Also, does it stand to reason that a billionaire would need to take the job of Vice President of Business Development role for NCR?

3. His description as to having served as a member of the Board of Advisors of KPMG may not be accurate. We cannot find any indication that KPMG even has a Board on its website (here).

4. His description as first being a Senior Advisor to Pegasus Capital and then later President of Pegasus Advisory Group offer conflicting descriptions of his role.

5. His description of being approximately 38 or 39 years old may not be accurate. His work history dates back to at least prior to 1997 when he was with Zurich, and further states that he won awards with ADP for two consecutive years. This suggests he would have been in the work force by at least 1995 at the young age of 19 or 20, an age range where most kids are completing their early college years. Our background check indicates Mr. Bernstein may be closer in age to 47 or 48 years old.

6. Our attempt to verify that Mr. Bernstein graduated from the University of Connecticut came back with the following comment: 'Applied, Never Attended.'

Source: UCONN degree and enrollment verification (here) and National Student Clearinghouse (here)

Seth Bernstein

Now we pose the million dollar questions to NCR's management:

1. Why was Mr. Bernstein hired as Global Vice President for Business Development and Strategy for NCR Corporation - a very senior role within the organization - in the face of publicly available evidence that suggests Mr. Bernstein's past business experiences were problematic.

2. Why didn't NCR issue a press release announcing the hiring of Mr. Bernstein or the creation of a very senior role.

3. What role did Andrea Ledford, NCR's Senior Vice President of Human Resources, have in approving the hire of Mr. Bernstein? Andrea's career has followed Mr. Nuti's career very closely. According to her biography, before joining NCR in February 2006, Ms. Ledford was EMEA Leader, Human Resources, at Symbol Technologies, Inc. from 2002 to February 2006 and held a variety of leadership roles at Cisco Systems, Inc. (NASDAQ:CSCO) in EMEA, Asia/Pacific and Latin America

4. Why has NCR never disclosed any tangible business resulting from the Empower Software / NCR 'referral alliance.'

5. Mr. Bernstein recently left to become a director at another public company called Outerwall. Is there a connection or coincidence with the fact the NCR has done business with Outerwall in the past, and sold its money-losing entertainment division to it in 2012 (here).

About Spruce Point Capital Management LLC

Spruce Point Capital Management LLC is a New York-based investment manager founded in 2009. The firm focuses on short-selling, special situations, and value investment opportunities. The firm conducts in depth forensic fundamental research and takes an activist approach to investing. Our research challenges conventional thinking with deep fundamental analysis, analytical rigor, conclusions rooted in objective facts, and a passion for investing. For more information visit us at http://www.sprucepointcap.com and follow us on Twitter @Sprucepointcap.

Disclaimer

This research presentation report expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly available information, and all of which are set out in this research presentation report. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. You should assume these types of statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond Spruce Point Capital Management LLC's control. This is not investment or accounting advice nor should it be construed as such. Use of Spruce Point Capital Management LLC's research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein.

Lake Capital

You should assume that as of the publication date of any presentation, report or letter, Spruce Point Capital Management LLC (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our subscribers has a short position in all stocks (and/or are long puts/short call options of the stock) covered herein, including without limitation NCR Corporation ('NCR') and Outerwall ('OUTR'), and therefore stand to realize significant gains in the event that the price of its stock declines. Following publication of any presentation, report or letter, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation.

This is not an offer to sell or a solicitation of an offer to buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Spruce Point Capital Management LLC is not registered as an investment advisor, broker/dealer, or accounting firm.

To the best of our ability and belief, as of the date hereof, all information contained herein is accurate and reliable and does not omit to state material facts necessary to make the statements herein not misleading, and all information has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer, or to any other person or entity that was breached by the transmission of information to Spruce Point Capital Management LLC. However, Spruce Point Capital Management LLC recognizes that there may be non-public information in the possession of NCR Corporation or Outerwall other insiders of NCR Corporation or Outerwall that has not been publicly disclosed by NCR Corporation or Outerwall. Therefore, such information contained herein is presented 'as is,' without warranty of any kind - whether express or implied. Spruce Point Capital Management LLC makes no other representations, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All rights reserved. This document may not be reproduced or disseminated in whole or in part without the prior written consent of Spruce Point Capital Management LLC.

Management LLC makes no other representations, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use.

Disclosure:The author is short NCR, OUTR.The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.