Articore's Annual Meeting is on 24 October
2024
Osmium Urges Shareholders to Vote "FOR"
Resolution 4, 10, 11, 12 on the Proxy Card.
Osmium Partners today issued Letter #1 to Articore
shareholders.
Dear Fellow Shareholders:
Osmium is the second largest shareholder of Articore (ASX:ATG)
and has been so for over seven years. Given Articore's persistent underperformance, dramatic
share price deterioration, and the long overdue need to maximize
and unlock shareholder value, we believe it is time for a board
shakeup. Sadly, the board appears to be opposed to
adding more than one Osmium nominee and asks shareholders to trust
that they can eventually figure out how to right the ship. We
believe trust is earned and not given. So, after five CEO
appointments over the last seven years, strategic misfires that
caused over $40M in losses, three years of declining revenue, and a
share price that has underperformed the ASX200 by approximately
-100% since 2019, it is our strong belief the current board cannot
guide Articore to a sustainable future and fulfill its mission.
We think Articore has tremendous potential, given it has
generated aggregate revenue of ~$3 billion since the IPO despite
the bottom line generating a cumulative EBITDA loss for the same
period. Still, we think the company's operating results suggest
this board failed investors. We don't believe the board is on track
to reach the company's potential, given management's previous
guidance of 13-18% adjusted EBITDA margins "at scale" and 20%
revenue growth seem very disconnected from current sell-side
consensus estimates of 2% adjusted EBITDA margins and 3% revenue
growth for 2025.
Osmium's Experience at Leaf Group
Osmium led a successful 9-month activist campaign against Leaf
Group (NASDAQ: LEAF), a competitor to Redbubble, which resulted in
Leaf being acquired by Graham Holdings Company (NYSE: GHC) in 2021
for $323 million or 1.4x EV/Sales. Additionally, we have appointed
nearly 20 directors to public companies. Finally, approximately 20
of our public companies have been acquired; in many cases, we were
actively involved in the process.
Osmium campaign updates can be found at
www.unlockshareholdervalue.com
Everyone is Winning EXCEPT Shareholders!
Osmium believes a company's board approves a business strategy
to drive shareholder value, and management executes against the
strategy to deliver operating results. Given that Articore's share price has declined by -73% since the IPO
and by -44% year-to-date, we believe it is clear that
based on the company's abysmal operating results, the
board-approved strategy, especially the "turnaround strategy," has
failed shareholders expectations. These share price declines appear
to sharply contrast Articore's CEO, Mr. Martin Hosking's fortuitous
foresight to sell $65 million worth of stock above $4 or 10x the
current share price and the $1 million cash compensation
Chairperson Ms. Anne Ward has taken home in the last four years.
Since the IPO, Articore has paid its artists royalties north of
$600 million and its employees nearly $500 million. According to
this scorecard, shareholders appear to be the only losers, left
owning a company with an uncertain future and contracting revenue
for the last three years. We believe the
Articore Board has destroyed value and trust, and the severe
imbalance requires wholesale board change.
Our Experience with Articore's Board and Management has been
"Trust Us."
In early 2022, when Articore's share price was roughly $1.70, or
nearly 5x the current share price, Osmium publicly urged the board
to start a sale process. Mr. Hosking and Chairperson Ward rebuffed
Osmium and asked us to "trust" them again, and over the next 12
months, Articore set record losses of $40
million amid declining revenue. Afterward, unbeknownst
to Osmium, the board explored an emergency offering in March 2023
to raise more capital at roughly .40 cents per share and EXCLUDED
Osmium in the potential offering. Again, this violated our trust.
Instead of a dilutive offering, Mr. Hosking reenlisted and started
his 3rd tour of CEO duty, cutting staff by 37% to return the
company to cash flow breakeven. Six months later, at the October
2023 AGM, Mr. Hosking stated, "We are now moving into phase 2 and
shifting our focus to delivering sustainable, profitable revenue
growth in our existing operating companies." Since Mr. Hosking's return, year-over-year revenue from
4Q23 to 4Q24 is -8%, -6%, -12%, -11.7%, and -6%.
Articore's Rock-Bottom Valuation
We believe that Articore's 0.17x EV/Sales valuation for a
digital marketplace is among the lowest in public equity.
Articore's peers - Kogan (ASX: KGN) is 1.1x, Temple & Webster
(ASX: TPW) is 2.9x, and Etsy (NASDAQ: ETSY) is 2.6x - have
significantly higher valuations. Articore's closest public comp,
Leaf Group, was acquired for 1.4x EV/Sales or $323 million.
Articore's EV/Sales valuation is -92% less
than its average peer; we strongly believe this is due
to a lack of investor confidence resulting from the board's poor
decisions.
Redbubble: A Mismanaged Marketplace
Since Teepublic's acquisition in 2018, Redbubble has managed a
4.7% CAGR, growing revenue from approximately $183 million to $241
million in 2024. At last year's annual meeting, Chairperson Ward
disclosed that Teepublic managed 36% organic CAGR since its
acquisition. Redbubble's massive underperformance relative to
Teepublic does not end there. Teepublic's revenue per artist is
$1,340, or 215% greater than Redbubble's revenue per artist of
$420. Last year, Redbubble's consumer transactions fell more than
15%, from 5 million to 4.2 million. We believe it is inconceivable
and inexcusable that the board watched Teepublic dramatically
outperform Redbubble over the last seven years without applying
Teepublic's success criteria to Redbubble.
Does Chairperson Ward Have a Strong Record of Public Company
Value Creation?
Since Chairperson Ward was appointed to
Redbubble/Articore, Star Entertainment, and Symbio Holdings, these
companies' share prices have declined by -80%, -90%, and -50%,
respectively. Trading in Star Entertainment's shares had
been suspended, with recent headline news suggesting potential
solvency and liquidity issues. On September 26th, Star reopened for
trading, and its share price fell by -43% that day. Chairperson
Ward was also a director at MYOB Group, which was acquired for
$3.40 in 2019 after its IPO of ~$3.80 in 2015. Lastly, Chairperson
Ward was a director at Humm Group from January 2013 to August 2015,
during which time the share price declined by -18%.
Does Articore Require Three CEOs?
We believe most investors would find it staggering and baffling
that Articore, a company with a $65 million enterprise value,
requires three CEOs: Mr. Martin Hosking
(Group CEO), Mr. Adam Crouch (Redbubble CEO), and Mr. Vivek Kumar
(Teepublic CEO). In our opinion, it appears to us upon
Mr. Hosking's return to the company, he negotiated a pay package as
Redbubble's CEO; however, within five months, he was appointed
"Group CEO," and we believe the board outsourced the Redbubble CEO
position to Mr. Crouch. We believe Mr. Hosking's new role
effectively makes him an executive chairman; therefore, we believe
his pay package should be substantially less. We want to see Mr.
Hosking and Chairperson Ward cut their compensation to $1 annually
until the company can generate 7%+ revenue growth and 7%+ EBITDA
margins, a charitable half-measure of "at scale" adjusted EBITDA
margins of 13-18%.
Osmium Letter #2: The Plan to Maximize and Unlock
Value
Next week, we intend to release Letter #2, laying out our
strategy and specific operating initiatives we believe are best
suited to maximize shareholder value. If elected, we would ask that
the board work to immediately cut operating expenses from $100 to
$75 million or less, target 7% adjusted EBITDA margins in the near
term, substantially increase the share repurchase program, target
executable ideas that meet the bar for growth and margin, and spend
more time on the user experience instead of a heavy focus on the
artist experience.
Vote "FOR" Resolution 4, 10, 11, 12 on
the Proxy Card
On October 24, please vote for the Osmium slate - John H. Lewis (Resolution 4), Adam Hoydysh (Resolution
10), Daeyoung Choi (Resolution 11), and Oliver Richner (Resolution
12).
We also urge shareholders to vote
"AGAINST" Resolution #1 Remuneration Report on the proxy
card to hold the board accountable and protect your
investment and the company's future.
Osmium's Articore campaign can be found at
www.unlockshareholdervalue.com
Sincerely, John H. Lewis Founder and CEO Osmium Partners
DISCLAIMER:
Certain factual and statistical (both historical and projected)
industry and market data and other information contained herein was
obtained by Osmium Partners from independent, third-party sources
that it deems to be reliable. However, Osmium Partners has not
independently verified any of such data or other information, or
the reasonableness of the assumptions upon which such data and
other information was based, and there can be no assurance as to
the accuracy of such data and other information. Further, many of
the statements and assertions contained herein reflect the belief
of Osmium Partners, which belief may be based in whole or in part
on such data and other information.
The analyses provided may include certain statements,
assumptions, estimates and projections prepared with respect to,
among other things, the historical and anticipated operating
performance of the companies. Such statements, assumptions,
estimates, and projections reflect various assumptions by Osmium
Partners concerning anticipated results that are inherently subject
to significant economic, competitive, and other uncertainties and
contingencies and have included solely for illustrative purposes.
No representations, express or implied, are made as to the accuracy
or completeness of such statements, assumptions, estimates or
projections or with respect to any materials herein. Actual results
may vary materially from the estimates and projected results
contained herein. Osmium Partners disclaims any obligation to
update this letter. We also reserve the right to add, hold, or sell
our position at any time without updating this site.
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version on businesswire.com: https://www.businesswire.com/news/home/20241013290427/en/
Adam Hoydysh ah@osmiumpartners.com
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