Thread regarding SAS Institute layoffs

Here is an archive of the article...

https://archive.ph/cDCfW

Talk talk talk...sizzle and no steak.

Thanks for the article!

I never could take the Triangle Business Journal very seriously. It's little more than a gossip magazine pushing sensational headlines to middle managers and the same people who pay for LinkedIn Premium because they want to know who viewed their profile. The "biz" in its name gives it the odor of a link farm or affiliate site serving clickbait to people who don't know how to use an ad blocker, better ignored for having arrived so late to the Internet party. It reeks of failure and desperation.

But that article was well written, even though Lauren is a bit of a SAS apologist, especially concerning its recent history (no mention of the five percent "workforce reduction" per year beginning in 2019, for example). There's no denying the impact Goodnight and SAS have had on Cary and the entire Triangle. SAS made Cary the town it is today, it made a lot of people millionaires, and gave others an opportunity to live comfortably for twenty years or more. Multi-generation SAS families are common, with kids who went to Children's House or the lake parties growing up to take a desk in building R in the office their mother or father worked in (metaphorically, and in a few cases coincidentally).

That's why it's so sad that it's all coming to an end.

SAS' NEXT MOVE

After years of carrot-dangling and showing limited interest in selling, 80-year-old Jim Goodnight and his multibillion software company may soon have to make a decision on the company's future.

By Lauren Ohnesorge – Senior Staff Writer, Triangle Business Journal
Sep 1, 2023

A vast nothing.

That's how multiple longtime Triangle business people describe the empty swath of land cornering Interstate 40 and Harrison Avenue in the 1970s – the acreage today that houses one of the Triangle's largest companies, homegrown analytics behemoth SAS Institute.

"It was basically just farmland," developer Tim Smith said of the land.

Then came a high-stakes bet that started with an out-of-the-blue phone call from a "sharp" professor and entrepreneur running an analytics startup on Raleigh's Hillsborough Street.

As that professor, Jim Goodnight, now one of the richest businessmen in America with a $7.4 billion net worth, would say in a 1999 interview archived as part of the Southern Or-l History Program, the nothingness was part of the appeal.

"We thought it would be really neat to get out of the city, move out this way," Goodnight said. So he picked up the phone and cold-called Smith – the start of a decades-long friendship and business partnership. And for Cary, it was the start of a technological transformation.

"He bought a one-acre tract from me and built his first office building," said Smith, referring to an area where the Umstead Hotel & Spa is located today. "A year later, he bought another tract. ... Another year, he bought another tract."

And with each tract, he built buildings, filling them with employees. When the state of North Carolina auctioned off acreage adjacent to nearby Umstead State Park, SAS snapped that up too.

And eventually, Goodnight bought all of Smith's acreage – including Smith's Landmark Engineering office, now the employee parking lot for the Umstead Hotel. SAS had looked at other places, a tract behind Crabtree Valley Mall in Raleigh, for example, nixed because it "was going to cost way too much to grade," Goodnight would later say.

But in Cary he found more than an office site – he found a community. And it was one he wasn't shy about connecting to through his real estate purchases and investments, from Cary Academy to the Prestonwood Country Club.

The trickle-down effect became a tidal wave.

But change is coming.

Goodnight released a video in July 2021, saying the firm would "take the appropriate steps to prepare our business for entry into the public markets."

It would refine its financial reporting structure, streamline operational processes – and target growth areas to prepare for a public offering.

The company would "continue to invest significant sums in – and further develop – its AI capabilities and advanced analytics software and solutions, to continue to meet customer needs and extend its leadership in a growing, highly competitive and increasingly dynamic market," Goodnight said at the time.

In an interview, Jay Upchurch, chief information officer at SAS, said a May announcement to invest another $1 billion into analytics and artificial intelligence is evidence that the plan is on track.

That's as – despite its behemoth status – growth has slowed in recent years. But the impact and importance of SAS in the market is clear.

SAS has grown to become the top taxpayer in Cary and the third biggest taxpayer in Wake County – funneling in nearly $2.2 million and $4.4 million to the town and county, respectively, in 2022.

Kyle Greer, president of commercial real estate firm Mackenan and a previous vice president of economic development at the Cary Chamber of Commerce, said it "would be hard to think about Cary without SAS."

"His fingerprints are all over town," he said of Goodnight.

Howard Johnson, who led the Cary Chamber of Commerce from 1986 to 2022, agrees, calling SAS "a thread through the community, whether it's a restaurant, a hotel, a citizen relocating, real estate."

For 47 years, SAS has been fiercely independent – and a force in Cary and the surrounding region.

The company has not filed public papers with the U.S. Securities and Exchange Commission. Nor has it released a lot of details about what a public SAS might look like.

But time is running out – as Goodnight said last year the plan is to be IPO ready by the end of 2024, a move that would give the region a new, flagship public company.

An IPO is seen as an ideal exit – one that could keep the company in the region for decades to come. While acquisition rumors – most recently Broadcom in 2019 – bring shudders ("I just worry what would happen," Greer said), the thought of an IPO brings enthusiasm.

"It could be huge for Cary," Smith said.

But that's if it happens – and Goodnight can again pull off a big move in the face of an uncertain market.
‘When the timing is right'

Upchurch says SAS, which recorded more than $3 billion in annual sales in 2022, will be ready to go as soon as Goodnight gives the order – but that it's not dependent on IPO capital.

"We are not constrained by a previous investment or a set of investors looking for an exit," Upchurch said. "We are not outrunning debt. … So we are watching and seeing, how is the market doing? How are they valuing companies? Is capital moving freely again?"

And it's tightening its ship to make sure it's ready from a business operations standpoint, having recently revamped its sales operation, a move that meant a 1 percent workforce reduction.

Upchurch is quick to say the goal is "IPO readiness," not necessarily ringing the bell next year.

"We'll let the market see when it feels right," he said. "[Goodnight] will make the right decision and tell us when the timing is right."

But there are challenges in getting there – even when it comes to a company as established and respected as SAS.

IPO investors crave growth markers – and SAS is no longer the biggest player in terms of growth trajectory. Its revenue is on par with what it was in 2020, about $3 billion.

Kevin Quinn, a research analyst with Gartner, remembers when SAS dominated the now-defunct Magic Quadrant rating.

"They remained the leader … but while remaining a leader, they were losing market share, growing slower than the overall market," he said of the Magic Quadrant rating.

Challengers such as Microsoft (Nasdaq: MSFT), Amazon (Nasdaq: AMZN) and Google (Nasdaq: GOOG) were making significant gains. And new players, such as DataIQ, are grabbing market share today.

The market is becoming commoditized, he said, which is why Gartner stopped the Magic Quadrant.

SAS is stalled, its overall growth rate down 2.9 percent year-over-year, according to Gartner.

SAS wouldn't confirm the numbers, Upchurch noting that the firm has stopped sharing detailed growth numbers and revenue information since declaring its IPO readiness intent. But Upchurch said that in the strategic areas of investment, "we are enjoying substantial growth." In cloud computing, for example, SAS is in its fourth year of double-digit growth, he said. "In areas of intentional focus and investment, we are enjoying exceptional growth as a company," Upchurch said.

Investments in AI could keep moving the needle.

The company has considered selling before. In 2007, for example, Goodnight reportedly refused a pair of offers from an unidentified firm to buy SAS outright. Then in 2009, he told Bloomberg "the word is out that we aren't interested in being acquired."

Insiders have told TBJ several times over the years that there have been multiple offers for the company, followed by multiple rejections.

This isn't the first time SAS has been the subject of IPO talk, as Goodnight confirmed back in 1998 that there had been discussions with Morgan Stanley and Goldman Sachs.

Tech challengers

SAS has been playing up its SAS Viya platform, migrating one-premise customers to the cloud solution. But it's expensive, Quinn said. It's an end-to-end platform in a world where many of the competition have pay-as-you-go plans.

"To a certain extent, the industry is going in the opposite direction… letting people invest in the components they need to," he said.

At the same time, SAS is opening up its technologies to other languages – a move Upchurch says provides flexibility, particularly to up-and-coming firms built on languages such as Python.

He said he's not worried about customers leaving SAS for cheaper players, because SAS is best-in-class.

"We believe very strongly in the power of our technologies," he said. "We know that competition exists … so why not open ourselves up and embrace that and then prove that our technology can outperform those competitive products on equal footing?"

But Quinn said some of it comes down to the complexity of an exit.

"Companies have invested in this SAS language and they've built tremendous parts of their application infrastructure in SAS, so now they're going to the Viya platform," he said, even though prices have increased. "User organizations are up in arms. They're not happy about it."

But they also worry about the cost of transitioning to a new system, Quinn said. In some cases, that means "biting the bullet" for now and transitioning to Python or another supported programming language, one that opens up future options for vendors down the line.

"It's, why don't we start slowly converting off of SAS… to a language that's more open," he said.

Quinn said successful conversions may look appealing from a revenue perspective, as in some cases prices have tripled.

"But I don't know how long it will stay like that," he said.

For some customers, however, the cost savings could outweigh the price tag – a scenario SAS is counting on. At industry events, it's using customer testimonials from firms such as Georgia Pacific, which relies on SAS Viya to optimize its shipping logistics and improve efficiency. The company claimed to have saved millions with the platform.

Add in the competitiveness of SAS' solutions business, such as its fraud detection and customer intelligence solutions, and SAS continues to be a power player, Quinn said.

SAS' Upchurch said the AI investment only increases the opportunity.

A public SAS could pack an even bigger punch – armed with the prestige of a ticker. A more high-profile presence could mean even more opportunities, particularly if SAS is able to capture AI attention. And as Upchurch said, it already is in some areas.

SAS tops the 2023 Forrester Research AI Decisioning Platforms leaderboard for the second quarter, for example. The report calls out its "stronger strategy," which eclipses that of fellow leaders FICO and IBM (NYSE: IBM).

And if investors buy into the SAS growth story, what would an IPO look like?
Answering to the public

Jeff Zell, a partner at IPO advisory service IPO Boutique, said many times the market wants to see a longtime CEO stay on board for at least a set period of time "just to navigate the first few quarters as a public company."

It's also possible Goodnight could take on a chairman role. The liquidity created from a public offering could help a company like SAS survive its founders, however. Goodnight is 80-years-old and has not publicly named a successor – something that is often ironed out before an IPO.

Insiders – both former and current- have told TBJ they find it difficult to imagine a SAS without Goodnight, who has maintained tight control at the top, even while delegating more of the day-to-day operation in recent years.

It was Goodnight who spearheaded the IPO plan, with the intention, according to SAS, of helping employees share in the company's success. To date, employees are not a party to stock option plans at SAS. But the company is exploring ways employees could directly profit from an IPO.

SAS spokeswoman Shannon Heath said in July that "right now our leadership team is evaluating what that looks like and we have not nailed down what program that is going to be."

"They're still evaluating what's going to be the best option that allows our employees to participate in the manner that will support them in the best way," Heath said.

Goodnight, according to Bloomberg, owns two-thirds of SAS, and would be the biggest beneficiary of an IPO. Co-founder John Sall owns the rest.

Zell said SAS has several options, and that an IPO could bring more flexibility. A public company can introduce a stock option plan, for example, where employees can feel like owners.

While he's not sure what options SAS could pursue retroactively, he said companies have been creative in the past to help employees profit from an IPO. Sometimes companies can put in stock purchase plans where employees can buy shares at a discount.

SAS has responded to the trend of remote work by offering more flexibility – allowing for partial or fully remote work options. The change-in-work is evidenced by the fact that, for the first time in its history, the firm has advertised two buildings at its Cary headquarters for sublease, a "direct result of remote work post-Covid," according to a company spokeswoman.

One question employees have expressed is whether a public SAS could offer the same benefits. Goodnight has not shied on spending on his employees – evidenced by the on-site amenities at the SAS headquarters, where benefits include an on-site barber shop and childcare. Zell said companies have managed to keep employee amenities through IPO transitions in the past – and that they're particularly important from a recruitment perspective.

"In Silicon Valley they're able to do the right things, press all the right buttons to make sure their employees are satisfied. … I don't think that when you go public that kind of stuff is going to go away," Zell said.

Upchurch said it's a "natural question," but that SAS has no plans to change its culture.

"That's not our intent," he said. "We know the culture and community we have at work. It's very special."

The plan is to continue to operate the company "as we have," he said, noting that the team culture drives innovation in his division and "we don't want to see that go away."

But post-IPO, for the first time, SAS will be answering to someone other than Goodnight. As a private company, SAS can take on the long-term view and avoid stock-driven analyst downgrades. But an IPO changes the game.

"You're answering to a whole new set of ownership, a new structure," Zell said.

SAS may well get its shot to find out, as, for the first time in two years, the IPO market is starting to open.

Rising interest rates have narrowed the IPO window.

According to IPO Boutique, 328 IPOs raising at least $25 million each closed in 2021. A year later, it was only 20. For the first half of 2023, it was at 23.

"We're certainly behind pace," said Zell, noting that if the July interest rate hike is the last one, the markets will stabilize. "Then you'll see a lot more IPOs go to market."

There are signs that opportunity has already returned. Oddity, a beauty company out of Israel, went public with a 35 percent debut pop in July. Shares debuted July 19 at $35 a share and by July 26 were opening on the Nasdaq for $49.61.

Zell said its success could be a "taste" of what's coming.

And as IPO-minded companies wait for markets to stabilize, they'll be ramping up their revenue, he said.

"Growth investors are obviously chasing growth and software technology stocks, historically over the last ten years, have been the IPO darlings," Zell said. "Those are the ones that can show exponential growth and those are the ones that investors are certainly willing to take a chance on."

And, as Upchurch said repeatedly, growth is the motive behind the latest AI investment pledge.

"It's a fantastic market opportunity for SAS to take advantage of the hype that is behind AI and hopefully what ends up being a catalyst for our continued growth for another 47 years," Upchurch said. "I think we're really well-positioned for that."
Cary's public darling

A public company could do more than beef up the SAS prestige. It could also bring more attention to Cary – and more investment, both to the town and the surrounding region.

Some of that investment could come from Goodnight himself. With public offerings, there's typically a lock-up period, six months to a year where founders and other major shareholders are prohibited from selling stock.

Scot Wingo, who led Morrisville-based ChannelAdvisor through its IPO in 2013, said it was four to five years "before it really had an impact on me" and he could put the capital to work – in his case, investing in local startups.

In addition to lockup periods, going public heightens transparency. Suddenly everyone knows when a founder sells shares – and it can impact a stock's public perception, and even trading outlook.

IPOs create primary shares – new shares – and secondary shares, those that exist already and are resold. And the S-1, a mandatory filing when a company intends to go public, could hammer out some of those details, including whether Goodnight might be able to liquidate some of those assets, perhaps for estate planning.

But when and if additional capital comes into his hands, he can invest it in the community.

That's what Wingo did through startups, including Get Spiffy, the car care firm he founded in RTP, and his investment firm, the Triangle Tweener Fund.

"The capital sitting in cash doesn't do much for you," Wingo said. "A big liquidity like [a SAS IPO], there's a lot that could be done with it."

And in the past, Goodnight has invested in multiple sectors, including real estate.

Goodnight has never been above buying a property to keep it from being developed in a way that would offset the SAS vibe. But an example of Goodnight's broader impact in the world of real estate is Preston, a golf course community that, when its owner went insolvent, was taken over by the federal Resolution Trust Corp.

Goodnight helped real estate developers Smith and Bubba Rawl of what would become Preston Development Company bankroll the purchase – leading an investor group that paid $11.2 million for the 1,400-acre development.

And he kept investing in transformative projects with Smith and Rawl – in Cary and beyond. Deals included Wakefield Plantation in north Raleigh and the high-impact Chatham Park.

Smith, the same man who sold Goodnight that original tract and now president of Preston Development, said Goodnight's appetite for real estate has not changed with the uncertainty in the economy. Smith said he wouldn't be surprised to see Goodnight use some of his IPO proceeds to increase that activity.

"He likes real estate, so I would say that's a possibility," he said.

But Goodnight also isn't afraid to experiment outside of his comfort zone with his capital. While many of his bets have paid off – say the Umstead Hotel & Spa and Cary Academy, which he helped start with SAS co-founder John Sall after a disagreement with his son's public school teacher – others have failed completely.

Yet, even after losing millions on some of those bets, he hasn't stopped investing – evidence that post-IPO, he could bankroll innovation across multiple industries. That's because he's always been quick to cut off investment when it goes awry, meaning he'd likely be anything but a passive investor. In 1995, for example, SAS started a gaming group. By 2000, SAS had become a major player, with $55 million, though expenses were a reported $85 million. Goodnight sold off the unit.

"I didn't see a projection that would say, at a certain point, this is going to break even," he would later say.

Goodnight also funneled millions into Midway Airlines. He led a group that raised $22 million to buy a majority stake in the then-struggling carrier in 2006. The dot-com bubble broke and he soon saw the writing on the wall, stopping his investment. Goodnight would later say, "When you've dug a hole deep enough, get out of it."

More of Goodnight's bets have paid off than not, which is why he ranks 305th on the Forbes World's Billionaires List with an estimated net worth of $7.4 billion.

Investments mean more jobs – and more customers for businesses like Ashworth Dr-gs.

When Ralph Ashworth bought the storefront that would become Ashworth Dr-gs in the one-stoplight town of Cary in 1957, it was a gamble on "a sleepy little town, [where] everybody every day went to Raleigh to work."

But soon after 1980, when Goodnight and the team moved in, a new clientele came with them.

Curtis Westbrook Sr., longtime leader of real estate developer Westbrook & Associates, predates SAS and remembers when "if you were building eight or 10 or 12 houses a year, that was considered a pretty good-sized builder."

But then SAS planted its roots and started to grow, its employees attracting national builders that changed the landscape.

The company's tax dollars, too, help to transform Cary, Westbrook said. With more money, "the schools were new, and it became very attractive to people." It was a very, very positive thing in those early days," Westbrook said.

New SAS employees had money to spend. Their business, in turn, attracted other entrepreneurs, people such as Gillian Zonruiter, who opened the Streets of London Antiques on Chatham Street in 2008.

"We just found our way here, looking at the cost of living compared to where we were and opportunities for employment and the housing market … it was a no-brainer," she said.

And Ashworth's is still going strong decades after Ashworth – and later Goodnight – bet on the town.

"It paid off," Ashworth said.

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