As part of our effort to improve portfolio quality without sacrificing our conservative standards on valuation, we initiated a position in Cision Ltd. (NYSE:CISN) during the first quarter. At the time of underwriting, CISN was just six months removed from its IPO, poorly covered by the street, and was trading at a significant discount to other vertical software peers.
The company is the clear leader in an otherwise fragmented (point solution driven) market and provides the only comprehensive SaaS platform for public relations and marketing communication professionals at 91 of the top 100 worldwide brands and 96 of the top 100 PR companies in the U.S. Our research suggests that CISN can generate attractive long-term organic cash flow growth by converting customers away from a typical infrastructure of disparate point solutions, to its closed-loop SaaS platform, allowing it to grow well beyond its 20% share of the PR Software and Services market. Further, the company recently launched the first monitoring tools that truly quantify ROI on earned media campaigns (i.e. Nike can track spending online and at retail stores that stems from a marketing campaign coordinated with a widely followed Instagrammer). Our survey work covering current and potential customers clearly indicates that this could make CISN's software offering more of a necessity. It could also significantly increase the company's total addressable market by enabling it to enter the much larger Marketing Software market. It's important to understand that there's a clear consensus view that earned media generates significantly higher ROIs than the dominant paid media category (i.e. banner ads, etc.), yet earned media marketing budgets remain very small because reliable attribution tools were previously unavailable.
Finally, we believe that CISN has a great cash-flow profile. The company has predominantly recurring revenues, EBITDA margins gravitating to the high 30s, and the majority of that EBITDA is converted to free cash flow because of low capital investment requirements.
From FPA Capital's second quarter 2018 shareholder letter.
