Osmium Partners Unveils Four-Step Strategy to Unlock and Maximize Shareholder Value at Articore

Dear Fellow Shareholders,

We are reaching out ahead of the important vote on October 24th to explain why your support is critical. Osmium believes that Articore’s board lacks a clear strategy for driving profitable growth and has failed to demonstrate meaningful progress in managing the business effectively. Since 2016, despite generating $3 billion in revenue, Articore has reported a cumulative EBITDA loss. Had the company achieved its target adjusted EBITDA margins of 13-18% during this period, it could have generated approximately $500 million in EBITDA. We strongly believe that Articore needs fresh perspectives, with a high sense of urgency, to unlock its full potential and maximize shareholder value.

Osmium’s 4-Step Plan

Our team brings the right experience and tools to position Articore for success and unlock value for shareholders. A few years ago, we led a successful activist campaign at Leaf Group, which resulted in a $323 million acquisition by Graham Holdings and a nearly 100% appreciation in shareholder value. We believe that our strategic plan offers Articore investors the best opportunity for value maximization.

Step 1: Diagnose

In the first phase, from October to December, we will conduct a thorough diagnostic review of Articore’s operations. Our aim is to determine whether existing costs are essential for value creation or merely nice-to-have expenses. We will focus on eliminating inefficiencies and redundancies, particularly where Articore and its subsidiaries may be duplicating efforts. This assessment will identify opportunities to achieve “at scale” margins more rapidly without harming the business.

Step 2: Restore

In January and February, we plan to restore Articore’s operational health, aiming for a steady-state adjusted EBITDA margin of at least 7%. Based on current sales estimates of $437 million, this would translate into $25-30 million in adjusted EBITDA. Achieving this would likely result in Articore being revalued at 10x adjusted EBITDA, or around $1.00 per share.

We view Articore as a utility-like digital marketplace with a take-rate model, similar to companies like Etsy or Uber. We believe the business can achieve more with fewer people, focusing on essential skill sets like technology development, marketing, and support. By optimizing headcount and restoring operational efficiencies, we believe Articore could return to its 2021 performance levels, when it achieved significantly higher revenue per employee and profitability.

Step 3: Profitable Growth

In early 2025, we will implement initiatives to accelerate profitable growth, including:

  • Expanding into new countries.
  • Launching paid digital ads for artists to promote their work.
  • Introducing new licensing revenue streams.
  • Offering subscription services for artists to enhance their success on the platform.
  • Exploring strategic partnerships and outsourcing to reduce R&D costs.
  • Enhancing customer loyalty programs and new product rollouts.

Our goal is to pursue high-margin, low-startup-cost initiatives that can quickly drive growth while delivering value to all stakeholders.

Step 4: Explore Value Maximization

Once the first three steps are executed, and we achieve $25-30 million in adjusted EBITDA, we will explore options to maximize Articore’s value. This could include testing the market to gauge interest from strategic buyers. While there is no obligation to sell, we believe that Articore could be revalued at over $1 per share, especially if it attracts buyers with the potential to unlock synergies and drive significant growth.

Several potential strategic buyers could find Articore attractive due to its strong market position and potential for margin expansion. Companies like Etsy, Shopify, and Cimpress, among others, could bring synergies that enhance revenue and profitability. For instance, Etsy’s larger customer and artist base could benefit from acquiring Articore, potentially increasing the valuation to 3x sales or more, compared to its current valuation of 0.17x EV/Sales.

Vote for Change

On October 24, we urge you to vote for the Osmium slate, including John H. Lewis, Adam Hoydysh, Daeyoung Choi, and Oliver Richner, and vote “AGAINST” Resolution #1, the Remuneration Report, to hold the board accountable and protect your investment.

Together, we can unlock Articore’s potential and deliver the shareholder value that has been missing for too long.

Sincerely,
Osmium Partners

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