MS Word Format

590 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
590
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

MS Word Format

  1. 1. FINANCIAL STRATEGIES AND INVESTING, INC. 1905 Beacon Street Phone: 617.332.3323 Waban, Massachusetts 02468 Fax: 617.964.6943 July 31, 2000 Richard Geist Speculative Buy 12-month price target: $8 SYMPOSIUM CORPORATION SSM, AMERICAN EXCHANGE http://www.symposiumcorp.com Recent price $2.50 Trailing 12 months sales $61.8 million Shares outstanding 27.5 million Long Term debt Zero Fully Diluted Shares 40 million Market cap $80 million Est. float 4.56 million Cash and equivalents $2.5 million Insider 44.3% Working capital $7.2 million hold Av. Daily volume 33,000 Shareholders’ Equity $8.9 million Fiscal Year Ends Dec. 31 Investment Rationale Symposium is poised to become a leading cross media marketing company. The Company has a solid customer base, acquires those customers profitably, and then capitalizes on its own customer base by selling them additional products and services Symposium is poised to through a multi-channel off-line and web based marketing become a leading cross system. At the same time Symposium is establishing a strong media marketing company. financial brand that should bring it significant investor attention. Because of its ability to market multiple products without significant additional costs, its fully integrated e-commerce business model, and its lone occupation of the cross media market space (with accompanying first mover advantage), we believe Symposium provides an exceptional long term opportunity in the direct marketing arena. Based on our expectation that the Company could achieve a revenue run rate of over $100 million by the end of 2000 with accompanying operational profitability, we rate the stock a buy for high risk speculative investors with an initial 12 month stock price of $8 per share. Investment Highlights • Symposium has translated a set of direct marketing skills into the only public cross media marketing company that leverages its demographic data base to create life-time value 1
  2. 2. customers. • The Company has created a potentially powerful and fully integrated e-commerce business model that will exploit the Internet as the main engine of it direct marketing efforts while maintaining personal, on-going contact with clients. • Symposium will be one of a select group of Internet A powerful and fully companies that demonstrates profitability and revenues of integrated e-commerce over $100 million in its first year as a public company. business model to complement personal • Symposium speaks directly with one million potential contact. customers per month, allowing the Company to use the sale of a primary product to induce them to come to the Symposium website where the company can market other products and services without significant additional costs • Because the direct marketing space is huge and highly fragmented, Symposium has a significant opportunity to consolidate the market. Company management has a strong background in acquisitions; and they intend that each acquisition will be accretive in earnings, add operating expertise, and be synergistic in terms of sales. This may result in upward revenue and earnings per share projections as the Company executes its acquisition strategy. Company Profile Symposium was founded to acquire successful direct marketing companies whose databases and customer contacts it can leverage to attain significant market presence in the web-based economy. The company’s goal is to acquire through telemarketing a large customer base and to increase the income per customer by selling them additional products and services. Direct market holding As a first step toward this goal Symposium, through its wholly company that can leverage owned subsidiary Media Outsourcing, Inc. (MOS), acquired customer contacts in the web Direct Sales International (DSI), one of the largest magazine based economy. subscription sales agencies for consumer magazines, based in Atlanta, Georgia. DSI works on behalf of U.S. magazine publishers to generate new magazine subscriptions. In 1999 DSI reported pre-tax earnings of $8.0 on revenues of $61.8 million. DSI is now operated through MOS, and it represents a prototype for Symposium’s holding companies. What is exciting about MOS, beyond DSI’s very profitable history, is their access to customer demographics. MOS, through a series of approximately 35 call centers, makes about 4 million outbound telemarketing calls a month to consumers who appear 2
  3. 3. on lists purchased either by MOS or its exclusive agencies. One out of four calls results in a conversation with a consumer. The lists are focused on people who have used a credit card to purchase products or services offered on television or through other special discount offers. They are folks who like special First purchase was a offers and are constantly looking for value shopping. profitable company with access to customer MOS is not an ordinary magazine seller. It is a high-end demographics. marketer that currently sells primarily $600 packages of magazines. For the same amount of money you pay at a newsstand for one magazine, you can get 4 or 5 of your favorite magazines for 4 years. The consumer is charged $50 per month for one year. At $600 per year, that’s a high-ticket item. As a result the monthly sell is between 12,000-15,000 new subscribers per month. In addition MOS generates additional revenues through participation in special promotions by magazine publishers to spur the sale of subscriptions and by earning a commission when one of its customers enrolls in an off-line discount buying club recommended by MOS. Strategies Going Forward: Internal Growth Symposium has a major opportunity to build on its MOS demographic database by taking advantage of the capacity to sell additional products to existing customers without a corresponding increase in expenses. Most direct marketing companies spend enormous amounts of money on advertising. In contrast, Symposium utilizes its existing MOS customer base to capitalize on each customer’s lifetime value. Can sell additional products to existing customers without Building on its base business of magazine sales, Symposium a corresponding increase in plans additional incremental expansion that doesn’t require expenses. material expense to build revenues and profits. For example, the company has an arrangement with publishers to supply them with additional customers through a bonus magazine program. In addition, in the same phone call as the final magazine sales call, they are able to sell memberships in a discount buying club to their customers with no additional costs. The basic business thus enables internal growth in several related areas. We estimate that our projected $3 million MOS EBITDA for the core business this year will allow Symposium to do another $7 million EBITDA with no material incremental costs. Internet Strategy Symposium’s large number of consumer contacts allows them to leverage their marketing platform to take advantage of this group’s documented desire to buy something. The company plans to launch an online discount buying club in September 3
  4. 4. 2000. Netmarket Group Inc. (NGI), an independent company created by Cendant Corporation (NYSE: CD), will create, host, and maintain the Symposium Marketplace, as well as provide customer care and fulfillment. The site will offer over 800,000 products ranging from electronics to exercise equipment, sports Launching web site— equipment, toys, health products, and computers all at a savings Symposium Marketplace-- in of 10%-50% off retail pricing. Symposium and NGI will share partnership with Netmarket membership fees (Symposium receives approximately $26-$28 Group in September 2000. of the $69 membership fee), merchandise revenue, and advertising revenue associated with the site. Because Symposium will deliver their own Media Outsourcing customers to the site, they will spend very few marketing dollars to populate the site. Customers will be attracted to the site by a Sweepstakes and offered free trial memberships in the club through an e-mail campaign (30% of the one million MOS magazine subscription customers have e-mail addresses). We estimate that on-line cash flow for the first full year of Symposium Marketplace could approach $3.5 million. Symposium will also own the members and have the ability to market additional goods and services to those members. Symposium Marketplace will be the first step toward building an on-line database and developing e-mail and on-line sweepstakes expertise. Strategies Going Forward: Acquisition Strategy Symposium’s acquisition strategy is aimed at finding companies that have complimentary skills and large databases. Although the company does intend to make some smaller acquisitions in their core business—outbound telemarketing and magazines, their Acquisition strategy aimed at main focus will be on companies that have complimentary finding profitable companies expertise in direct marketing, data base management, list with complimentary skills management, and targeted selling. This will allow Symposium to and databases. combine these skills and assets to develop additional revenue opportunities by leveraging existing databases using new technologies. Symposium’s acquisition approach will require that targeted companies have several characteristics directly aimed to benefit shareholders. 1) Companies must have a history of profitability. 2) Companies must be accretive to earnings to add value for shareholders. 3) Companies must reach millions of consumers annually. 4
  5. 5. 4) Companies must have the potential for significant growth within their present business. Marketing Symposium’s marketing strategy is aimed at creating continuity customers—individuals who after buying one product, continue to buy additions or enhancements to that product every month for the next year. Once the Company has a customer in its data base, they plan to contact these consumers through e-mail, direct mail (print), interactive voice messaging, and via their Aim to create continuity Symposium Marketplace website. For example, Symposium is customers with lifetime currently implementing a program with talk.com selling long value. distance services to customers. Using their extensive database, Symposium is able to generate revenue in the form of a percentage of dollars the phone company is willing to spend to acquire a new customer by inducing a customer to switch their telephone service. If Symposium has in their database 100,000 subscribers to magazines focused on babies, parenting, and home, in their phone contact with those customers they would ask permission to contact them whenever there’s an offer related to children that customers are likely to want. This notification might be by e- mail, interactive voice messaging or “wink”—an eyeball winking on someone’s screen when there is something that corresponds to a customer’s profile. All marketing is customized and targeted and will use whatever technology is appropriate at the time. Symposium is also aggressively publicizing their company. Fact sheets are being circulated to known micro-cap buyers and individuals who have purchased products from other sites. A road show is planned, and European investors are being made aware of the company’s progress. We also expect Symposium to be listed on a major national exchange within the next few months. Competition and Industry There are many companies whose activities overlap Symposium’s market. Message Media does e-mail marketing on behalf of third parties. Memberworks has an offline and online No direct competition in their discount-buying club, although they depend on others to bring industry. them customers. Within the magazine industry there are two large private companies competing with Symposium. New Sub Services is reported to have annual revenues between $200-$300 million. National Publishers Exchange, a private company for which we have no financial information, was purchased in 1998 by Chicago venture group Willis Stein, and the name has been changed to USA Publishers.com. Publishers Clearinghouse and 5
  6. 6. Synapse also participate in the $4 billion magazine subscription business. On the Internet side there are also a number of public companies that compete with Symposium: Cybergold (CGLD: Nasdaq), Netcentives (NCNT: Nasdaq), myPoints (MYPT: Nasdaq), and Buy.com (BUYX: Nasdaq). Buy.com recently came public and actually sells products. Cybergold and Netcentives don’t sell product. Rather consumers come to the site, become members, and then click through to other sites. Consumers receive points or money for having first come to those sites. One of the only companies in the direct marketing space Despite competition in isolated segments of Symposium’s shoes strategy is to capitalize market, there are no direct competitors who have a systems on their own customer base approach to cross media marketing. We’ve been unable to find by selling additional products another company that has a customer base, which acquires those and services. customers profitably, and then can exploit its own customer base by selling additional products and services. Symposium’s strategy includes several aspects that give it a strong competitive advantage. First, they use a hybrid model of personal contact and the Internet, which promotes customer loyalty. This provides Symposium with a potential buyer of multiple products whenever it acquires a new client. Second, Symposium is intent on exploring the lifetime value of its customers. We expect future acquisitions to capitalize on this goal by targeting companies skilled in database management, list management and targeted selling. Third, the company’s basic business allows it to generate significant added revenue without material incremental costs. Can generate significant added revenue without Reinforcing these factors are major internet trends that favor material incremental costs. targeted, customized marketing, the collection and use of demographic data to sell products in niche markets, and the use of increasingly inexpensive technologies for cross marketing. Revenue Streams Symposium has the advantage of selling through multiple channels. Initially the primary revenue streams will emanate from selling magazine subscriptions, membership in both on-line and off-line clubs, up-selling long distance telephone services, and selling products through the discount-buying club. Going forward, however, further acquisitions will lead to new segment growth in additional areas such as collectibles and brand name products. 6
  7. 7. The real goal is to create revenue streams from continuity products that have the potential to be more than one time sales. For example, in the up-selling of long distance telephony services, the Company gets paid for inducing the customer to switch phone companies. In addition, Symposium may now have Multiple revenue streams. sold the customer a magazine subscription, directed the customer to the Company’s website, and generated revenues from telephone services, all for the same marketing cost. The demographics collected while generating revenue can then be used for further targeted marketing to generate additional revenue. Financials On January 28, 2000 Symposium, through its wholly owned subsidiary Media Outsourcing, Inc. (MOS), acquired the assets of Direct Sales International (DSI) for approximately $27.6 million. Symposium paid $25 million in cash to the Seller. Financing was accomplished by borrowing $16 million under a credit facility provided by Coast Business Credit, and by using proceeds totaling approximately $9.2 million from the issuance Acquisition of Direct Sales of common stock, warrants, convertible preferred stock, and International. convertible debentures. A series of preferred stock, A, B, and C was issued to complete the acquisition of DSI in January 2000. The series A preferred has been has been converted into common shares. The holders of the Series B were either converted or redeemed. The series C, originally due on July 26, 2000, has been extended to Dec. 26, 2000. The Company has also issued a new series A convertible preferred and a five year warrant to purchase 225,000 shares of common stock at an initial exercise price of $1.4850 per share. Issuance of Preferred Stock. The initial aggregate face amount of the New Series A shares is approximately $3 million; the aggregate purchase price for the series A and the Warrant was $2.3 million. The Company also granted the purchaser of the New Series A shares an option, exercisable at the purchasers sole discretion, during the sixty day period following June 9,2000, to purchase up to an additional $2 million face amount of New Series A shares and a Warrant to purchase an additional 150,000 shares of common stock for the same purchase price per share. Initially, there is a schedule of conversion floors, but after the 270th day following the date of issuance, there is no conversion floor, which creates a risk of dilution to holders of the common stock. But importantly for Series A preferred shareholders, the preferred shareholders are not allowed to short shareholders not allowed to the Company’s common stock as long as the New short the stock. Series A convertible Preferred shares or warrants remain outstanding. 7
  8. 8. Because the company is generating significant cash (approximately $1 million per month), they have been paying down their $20 million revolver (currently at $13 million). If Symposium continues to pay down the revolver, they may have Company is generating about the option to use the revolver to substantially retire the new $1 million cash flow per Series A or the Series C. It is the Company’s intention that the month. capital structure be cleaned up by the beginning of 2001. We expect that Symposium will need to raise additional money to pursue acquisitions until Symposium stock reflects its real value of $8 per share. At that time we expect acquisitions will be completed by a combination of stock and cash. Previous to the DSI purchase there is no relevant financial operating history. Revenues for the first quarter of 2000 were Revenue up 33% to $17.2 derived primarily from the sales of magazine contracts at MOS million in the second quarter. from January 28, 2000, the date of the acquisition, through March 31, 2000. Revenues for these two months totaled $12.7 million. Net loss to stockholders was $2 million excluding a one time non-cash charge of $20.4 in the form of preferred dividends. In the second quarter revenues grew 33% to $17.2 million and net income was $1.5 million before non-cash, non recurring dividends of $11.4 million paid to preferred stockholders. The majority of the Preferred dividends are non-cash charges All preferred stock expected required for accounting purposes, most of which relate to to be redeemed by the end of beneficial conversion features. To the extent that the beneficial 2000. conversion features on the preferred shares are immediately convertible, the Company must recognize the economic value of that as a preferred dividend. Although we expect additional deemed dividends to be reported in the next few quarters, it is the Company’s intent to have the balance sheet clear by the beginning of 2001. Because of these non-cash charges (the preferred dividends), we believe that EBITDA currently reflects more accurately the Company’s operations. At the end of the first quarter EBITDA EBITDA up 63% in second was a positive $244,708 or $0.015 per share. If we exclude or quarter. add back in non recurrent or non-cash other charges, that number rises to approximately $1.9 million or $0.12 per share. In the second quarter EBITDA, excluding non-cash charges was $3.1 million or $0.12 per share, up 63% from the first quarter. We believe these numbers more accurately reflect the company’s operations. For 2000 we are estimating revenues could rise to $75 million with a net income of $6.3 million or $0.19 per share. And in fiscal 2001, we are expecting revenues of $126.3 million with $10.7 million net income or $0.27 per share. Gross margins should be above 30%. 8
  9. 9. Table I. Selected Annual Data (assuming 1 acquisition in 2000) FY 12/31 1999A 2000E 2001E 2002E (000) Revenue1 $61.8 $75.0 $126.3 $151.5 EBITDA NM $10.6 $21.1 $27.9 Net $8.0 $6.3 $10.7 $14.4 Income EPS2 NM $.19 $0.27 $0.36 P/E NM 9.9 7 5.2 Source: Company documents and FSI estimates (1) 1999 numbers refer to DSI as a private company. (2) EPS 2000 excludes one time non-cash/non-recurring charges of approximately $3.5 million. Valuation Symposium is currently a speculative growth stock for investors. While we expect a rapid ramp up of revenue and anticipate the Company being profitable on an operating basis in their first year following the DSI purchase, the stock price should also reflect their first mover advantage, the Profitability expected within the implementation of an e-commerce business plan, and their first year of operation as a ability to increase sales without a material incremental public company. increase in costs. The Company has direct contact with 11 million consumers annually and has a present database of 1 million customers. By 2002 we expect the number of consumers contacted annually will triple and the database will grow to five million. They will also be one of the few 9
  10. 10. companies to take advantage of the cross media marketing space. We also expect that Symposium will become a significant consolidator of a highly fragmented industry. National Exchange listing If we assume a conservative multiple of 22x 2002 earnings expected by year-end. per share of $0.36, that would give us a stock price of about $8.00 per share in 2001. Because we expect listing on a National Exchange by year end, the added potential marginability and additional potential institutional investments could lead to a higher stock price than our valuation measures indicate. Thus the $8.00 stock price could be higher if the Company exceeds expectations. During the second quarter of 2000 Symposium issued $2.25 million in redeemable Convertible Preferred and an additional $750,000 in Series C bridge financing used to redeem Series B ($1.5 million) and repay $300 thousand bridge financing. They also paid down $3 million on their credit line, leaving $13.4 million outstanding. As the Company continues to generate $1 million per month cash flow, we expect the pay down to continue, and this cash flow should give investors some comfort that the company will be able to redeem their series C Preferred by the Dec. 26, 2000 date. Because we expect an aggressive acquisition strategy during the next year, we believe additional financing may be Aggressive acquisition strategy. necessary. Such a financing would allow Symposium to spend more aggressively to capture market share quickly, and because market share for this company can be leveraged to higher earnings per share, the bottom line should also benefit. The balance sheet at the end of the second quarter reflected cash and cash equivalents of $2.5 million, current assets of $36.1 million and current liabilities of $28.9 million. The Company had no long-term debt, but current liabilities included a revolving credit facility (currently down to $13.4 Balance sheet strengthened in million) and $5.8 million due to publishers. In addition there second quarter. was mandatorily redeemable preferred stock of $5.3 million. Current ratio was 1.25, and shareholders’ equity was $8.95 million. Total assets were $43.1 million at the end of the second quarter. Working capital was $7.2 million. We expect that by the end of 2000 Symposium will eliminate the series C preferred stock and that the Company will start the new year with a clean balance sheet. In fact, the capital structure was strengthened in July 2000 when the holders of the Series C Preferred agreed to reduce the shares issuable upon conversion from a maximum of 24 million to approximately 7.5 million. It is also important to remember 10
  11. 11. that as of 2001 there is a potential accounting rules change designed to eliminate pooling of interests as a method of accomplishing acquisitions. As a result, large amounts of goodwill, which is not good for earnings per share numbers, could begin appearing on financial statements. Therefore it might become more important to look closely at EBITDA to determine the value of a company. EBITDA expected to grow 62.2% annually through 2002. Assuming one acquisition, we are projecting EBITDA to grow at 62.2% compounded annually through 2002. Revenues should increase 41.9% per year and net income (excluding non cash charges in 2000) should increase 37.7% per year through 2002. Table II. Selected Consolidated Balance Sheet (June 30, 2000) Assets Liabilities Cash and equivalents $2.5 mm Current liabilities $28.9 mm Accounts receivable $29.0 mm Long term liabilities $0.00 Current assets $36.1 mm Common stock $26,150 Total assets $43.1 Ad. Paid in capital $51.6 mm Total Equity $8.95 mm Total liabilities & equity $43.1mm Risks Symposium has an opportunity to achieve first mover advantage in the cross media marketing niche, it is close to launching its website, and revenues should ramp up quickly. However, there are still risks which could threaten the company’s expected growth. First, we expect there to be legislation that narrows the scope of telemarketing, and such legislation could affect Symposium’s direct marketing approach. As the company does not engage in abusive telemarketing practices, however, it could also work in their favor by impacting some of the competition. Second, the Company does not own their telemarketers, so in theory these workers could find other relationships that would equal Symposium’s. Third, Symposium is a young company without a history of integrating acquisitions. As part of their growth strategy is dependent on such successful selection, integration and management of acquisitions, any major failure would materially impact the Company’s growth. Fourth, there is no guarantee that Symposium’s website will capture enough visitors to be successful, although if this shortfall occurs, the company will continue to capture e-mail addresses and up-sell them to other marketers. Fifth, Symposium will need additional financial muscle to go to the next level quickly. While we feel confident this financing will be available, there is no guarantee 11
  12. 12. that such monies will be raised in the needed time period. A final risk for the company involves redeeming the outstanding convertible preferred series C. If the Series C is not redeemed, it converts to equity at a low price and that would mean substantial dilution to shareholders. Because of these factors, and the fact that Symposium is a micro-cap company, we suggest that this investment is for investors willing to assume substantial risk. Management Symposium is fortunate to have recruited a talented management team that has extensive experience in both the direct marketing and its ancillary services, as well as in the financial world. Ronald Altbach, Chairman of the Board and CEO, has served Strong, experienced, and as Vice Chairman of Rosecliff, Inc., a New York based committed management. merchant banking operation. Previously he was Chairman of Paul Sebastian, Inc., one of Rosecliff’s portfolio companies. Richard Kaufman, President and Chief Operating Officer, has been President and owner of 21st Funding Corporation. In this capacity he arranged more than $300 million in financing for middle market businesses. Mr. Kaufman also founded computer company Applied Digital Data, which became a New York Stock Exchange Company that was subsequently sold to National Cash Register. Tim Ledwick, Chief Financial Officer since September 1999, was formerly Senior Vice President and Chief Financial Officer for Cityscape Financial Corp., a specialty financial services company with operations in both the U.S. and the U.K. Mr. Ledwick also has held management positions with River Bank America, GTE Corporation, and Peat Marwick Mitchell & Co. Mr. Ledwick is a certified public accountant. Richard Prochnow, DSI’s former owner, is an active consultant for Symposium, and owns 2.5 million shares. Outlook Opportunity to invest in a unique Symposium offers investors an opportunity to invest in a combination of old and new unique combination of an old and new economy company—a economy company. rapidly growing cross media marketing company. The Company has a business model that should produce strong growth and substantial profits in the near term. First mover advantage, brand building, and customer loyalty are important factors that will contribute to Symposium’s success. More specifically there are several important attributes that should 12
  13. 13. stimulate progress over the next few years. The ability to leverage its demographic data base to create life-time value customers, the potential for consolidating a highly fragmented market, the use of multiple Internet related technologies to sell multiple products to the same customer, and its direct marketing expertise all lend support to Symposium’s becoming one of the largest cross media marketing companies in the industry. Finally, Symposium will be one of the few publicly traded Internet companies to be profitable in its first year as a public company. Because Symposium’s rapid growth has just begun, the stock should still be considered speculative, but with the potential for significant gains in the next two years. As such we recommend purchase in growth accounts with a 12 month price of $8 per share. Disclosure Statement Financial Strategies and Investing, Inc. (FSI) is an independent research firm that produces investment research reports for compensation. The information contained herein is based on FSI’s independent analysis and judgment, but relies on material supplied by the subject company and other sources believed to be reliable. We have made no independent verification and do not guarantee the information’s accuracy or completeness. The information contained in this report is subject to change without notice and FSI assumes no responsibility to update the information contained in this report. Financial Strategies and Investing, Inc. does not act as individual investment advisors, or advocate the purchase or sale of any security or investment. No statement or expression of opinion or any other matter herein contained is, or is deemed to be, directly or indirectly, an offer or a solicitation of an offer to buy or sell the security referred to above. Any investment should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The author of this report has been paid indirectly a $12,000 fee for producing this report and has received indirectly options to acquire 12,000 shares of free trading stock in the company at $1.88 per share. The author, principals, employees, and affiliates of Financial Strategies and Investing, Inc., and their family members may actively trade in Symposium securities or hold positions in Symposium stock at any time. The reader is cautioned that investing in micro-cap stocks carries a high risk and that a portion of or all investment dollars can be lost. This report should serve only as a starting point for your own due diligence. Please consult a professional investment advisor before purchasing any stock. Except for historical information contained herein, the matters set forth in this report are forward-looking statements within the meaning of the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. Factors that could cause actual results to differ include a change in the trend toward Internet usage, the company’s ability to fund its growth, competition from larger direct marketing companies, and a failure to be able to redeem their preferred stock, resulting in dilution to shareholders. This document may be quoted in context, provided that proper credit is given, including the address of the publisher, and that no risk or disclosure statements are deleted. © July 2000 by FSI, Inc. 13
  14. 14. 14

×