2019 Year End Letter to Shareholders

“Talent sets the floor, character sets the ceiling” -- Bill Belichick

This time last year I said to the organization in not so many words: “fasten your seat belts and tighten your chin straps” in anticipation of a frenetic 2019. Quite honestly, the pace of play Xenon arc experienced exceeded my expectations.  

Think about what we’ve accomplished. Starting with our financial performance – we increased Sales by more than 30% – with an accelerating trajectory. Profitability nearly doubled as we continue to drive toward our double-digit EBITDA margin target. I’m guessing the 2019 stock option strike issued in 2019 will look like a tremendous bargain in the not-to-distant future. More importantly, however, let’s look at how we fueled the engine and created this value.

The efforts of client development yielded 4 new, highly recognized branded clients to our already 10-deep, world-class portfolio. The patience and persistence required incredible tenacity to work through the dynamics at each client to get each deal across the line.

New launches don’t happen automatically. With only 24 hours in a day, our technology, supply chain and implementation teams managed to seamlessly set-up each Exterprise on time and ahead of our clients’ expectations. Really well done!

Our ability to secure new clients, until now, has only occurred thanks to the efforts of the teams delivering the Xa-Direct, Exterprise model. It’s the referrals and testimonials from existing clients and related customers that inspired comfort and confidence for new clients to partner with Xenon arc. Our ability to execute and fulfill the promise of our value proposition is the fundamental reason why we continue to win. Congratulations to all of the teams for your continued success.

We also took some very bold steps starting with an organizational realignment. We managed our change capital judiciously and created a “spheres of influence” structure designed to leverage every team members’ relative strength – from top-to-bottom and from left-to-right. Blending idiomatic expressions - everyone has “a seat at the table” in our “need to have” environment.

As we look ahead toward 2020 and beyond, from where I sit, the prospects for Xenon arc are incredible. Yes, encouraging are our financial and operating outlooks and our mounting new client pipeline. But adding to this enthusiasm are the strategic investments poised to yield strong outcomes in the very near future.

We wrapped up our first formal Voice of the Customer study where we challenged the fundamental assumptions of the xa-Direct model. The high-level findings of over 70 hours of intense, thoughtful interviews weren’t simply confirmation of our disruptive model founded nearly 10 years ago, but the identification of areas of investment to further extend the competitive attributes and advantages of our business. Aside from demonstrating Xenon arc’s clear thought leadership, our clients are listening carefully as we collaborate to further enhance all aspects of service levels, and drive loyalty and growth.

In conjunction with our VoC learnings, on the launch pad is our Personalization 5.0 initiative, or P5.0. One of the key industry buzzwords is “digitization” though it has a wide range of interpretations from clients, customers and vendors alike. Customers were very clear, they continue to demand personal interactions and digital solutions, should augment, or be additive, to service levels – not substitutive. Launching in the first quarter, our P5.0 solution will enable each customer to seamlessly interface with their respective Exterprise team throughout every stage of the customer journey, either digitally or via analog - from research, pricing, product availability, order, order status, etc. Our integrated approach is the first and only solution of its kind, as far as we can tell, in the market.

Finally, building on the success of the profile published by Bain Consulting in October, throughout 2020 we will embark upon a comprehensive awareness campaign targeting industry thought leaders and a wide range of stakeholders designed to elevate Xenon arc’s profile for the benefit of Exterprise customers, prospective and current clients, and current and prospective shareholders.

Talent Sets the Floor

This brings me to current and prospective shareholders. I am fortunate having spent time in all of our locations in 2019 and listened carefully to questions, comments and suggestions. A common question was something to the effect of the leading indicators of success and value creation for Xenon arc. The answer is unequivocally people and culture. In other words: YOU.

From a headcount perspective, in 2019 we nearly doubled. DOUBLED! We added almost 40 new shareholders with, once again, minimal turnover. Our ability to attract and retain top-quality talent requires a tremendous investment of time and patience from those of who met and carefully interviewed each potential candidate AND the efforts of each candidate. Our process is purposefully time consuming and comprehensive and the end result is incontrovertible.

Supporting the influx of high-caliber talent continues to be a strong core of shareholders, focused on identifying, developing and growing the commercial acumen of the rest of the team and the business. The combination of the new with the legacy talent has created an essential new core as we prepare to likely double in size over the next 12 to 18 months, so get ready.

Character Sets the Ceiling

Aside from the desire to be a part of something big, the opportunity to pursue a passion, and to hopefully have a substantial financial outcome, what unites us are the tangible and intangible aspects of our culture that can be defined by one simple word: CHARACTER.

Look around the floor of your respective office locations and/or listen to other shareholders in meetings and conference calls. You are surrounded by smart, team-oriented, inquisitive, coachable, ambitious people who innately operate with respect and integrity. We are an early stage company blazing a new trail that thrives in the adventure of discovery while applying a common-sense approach that is fixated on doing what is right for our customers, clients and colleague shareholders.

I want to personally thank each and everyone of you for contributing to a phenomenal 2019 and helping provide the basis for what promises to incredibly productive 2020. Have a great holiday and a safe and prosperous New Year!

Paul Warburg

CEO

Xenon arc