Osmium Partners today issued Letter #1 to Articore shareholders.
Dear Fellow Shareholders:
Osmium is the second largest shareholder of Articore (ASX:ATG, Financial) 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 believethe 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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