LSYN - Liberated Syndication

[Guest Schwab711]

https://www.thestreet.com/story/12189340/1/ceo-with-uncanny-timing-takes-a-shine-to-a-penny-stock.html

 

As writser said previously, management is sketchy. The stock will always have a material discount so long as the current CEO remains at the helm. It's uninvestable to many.

 

If you like management, you might also be interested in FUTU - Future Healthcare of America. Same CEO, same CFO, same board of directors. Market cap is only $0.5m but in 2015 it was supposed to take over a "leader in industrial asset intelligence and 3D visualization". Of course the stock popped 5x and at that point a 10% holder from Liechtenstein shows up who is connected with dozens of pump & dumps. For mysterious reasons the deal was cancelled and the stock cratered over the next few weeks. Also they tried to do a share offering, had to restate financials a few times, the usual. But, you know, that was a few years ago, probably a subsidiary in China that management knew nothing about.

[valuedontlie]

https://www.thestreet.com/story/12189340/1/ceo-with-uncanny-timing-takes-a-shine-to-a-penny-stock.html

 

As writser said previously, management is sketchy. The stock will always have a material discount so long as the current CEO remains at the helm. It's uninvestable to many.

 

If you like management, you might also be interested in FUTU - Future Healthcare of America. Same CEO, same CFO, same board of directors. Market cap is only $0.5m but in 2015 it was supposed to take over a "leader in industrial asset intelligence and 3D visualization". Of course the stock popped 5x and at that point a 10% holder from Liechtenstein shows up who is connected with dozens of pump & dumps. For mysterious reasons the deal was cancelled and the stock cratered over the next few weeks. Also they tried to do a share offering, had to restate financials a few times, the usual. But, you know, that was a few years ago, probably a subsidiary in China that management knew nothing about.

 

I don't disagree... many have said the same of BBX and things there have gone (fairly) well... this is a better business and I do think cash will build quickly... as mentioned, my biggest concern is management issuing shares in an attempt to game their incentive comp... anyway, this seems like a name worth watching at the least...

[stockspinoffinvesting]

I've followed this one for a long time and owned it from $0.44 to $1.57. I sold after the Pair acquisition.  Here were my thoughts at the time:

https://stockspinoffinvesting.com/lsyn-closing-out-position-with-257-gain/

 

I am closely watching it and am tempted again, but don't think I will bite.

 

A couple thoughts for people who aren't as familiar with the story.

 

1. Management and the board of directors issued themselves 6.25 million shares of restricted stock in 2017, diluting equity holders by 30%! Some of the awards were tied to an eventual NASDAQ up-listing and some were tied to split adjusted share price targets but 2.7 million shares issued earlier in the year were tied to market cap goals which looked good at first blush but can be easily achieved by issuing additional restricted stock for equity compensation (which management did later in the year) and by issuing shares to make an acquisition (LSYN issued 1.6MM shares as part of financing for Pair).  Management hasn't issued themselves any shares in 2018, but I would bet that the share issuances continue in 2019 and 2020. So expect more dilution. Also, if the restricted stocks grants expire because targets aren't hit, management will just issue themselves additional restricted stock grants. Finally because management and the board of directors owns over 20% of the company (even though they didn't buy a single share in the open market), they have effective control of the company and activist involvement would be difficult.

 

2. You should think of the LSYN management team as anti-outsiders. They will make terrible capital allocation decisions and are focused on additional acquisitions. I attended the 2017 annual meeting and the CEO Spencer told me he wanted to get back to being a $200MM revenue company. He is an empire builder and he wants to build his company back up. His last company Fab Universal collapsed after a fraud was exposed. That means lots of acquisitions. The Pair acquisition wasn't a disaster but it is a much worse business than Podcast hosting. Prior to the Pair acquisition, I estimate that LSYN, a 20%+ revenue growth pure play podcasting company with ~40% EBITDA margins was trading at 6.7x '18 EBITDA. It was a steal. After the acquisition, the pro-forma company (LSYN + Pair) was trading at 6.9x '18 EBITDA. LSYN should have done a massive share buyback instead of buying Pair. Currently, the stock is trading at 5.4x '18 EBITDA. So definitely cheap. But this year, Pair revenue declines are offsetting podcast revenue growth, so net net, we are seeing no growth. Further, Spencer will make additional questionable acquisitions which will continue to dilute the exposure to the podcasting market.

 

On the Q2 conference call, Spencer said he is on the hunt for more acquisitions. Here's the replay:

https://www.investornetwork.com/event/presentation/37193?utm_campaign=in-migration&utm_source=ic

 

 

 

 

 

 

 

 

[Foreign Tuffett]

I've followed this one for a long time and owned it from $0.44 to $1.57. I sold after the Pair acquisition.  Here were my thoughts at the time:

https://stockspinoffinvesting.com/lsyn-closing-out-position-with-257-gain/

 

I am closely watching it and am tempted again, but don't think I will bite.

 

A couple thoughts for people who aren't as familiar with the story.

 

1. Management and the board of directors issued themselves 6.25 million shares of restricted stock in 2017, diluting equity holders by 30%! Some of the awards were tied to an eventual NASDAQ up-listing and some were tied to split adjusted share price targets but 2.7 million shares issued earlier in the year were tied to market cap goals which looked good at first blush but can be easily achieved by issuing additional restricted stock for equity compensation (which management did later in the year) and by issuing shares to make an acquisition (LSYN issued 1.6MM shares as part of financing for Pair).  Management hasn't issued themselves any shares in 2018, but I would bet that the share issuances continue in 2019 and 2020. So expect more dilution. Also, if the restricted stocks grants expire because targets aren't hit, management will just issue themselves additional restricted stock grants. Finally because management and the board of directors owns over 20% of the company (even though they didn't buy a single share in the open market), they have effective control of the company and activist involvement would be difficult.

 

2. You should think of the LSYN management team as anti-outsiders. They will make terrible capital allocation decisions and are focused on additional acquisitions. I attended the 2017 annual meeting and the CEO Spencer told me he wanted to get back to being a $200MM revenue company. He is an empire builder and he wants to build his company back up. His last company Fab Universal collapsed after a fraud was exposed. That means lots of acquisitions. The Pair acquisition wasn't a disaster but it is a much worse business than Podcast hosting. Prior to the Pair acquisition, I estimate that LSYN, a 20%+ revenue growth pure play podcasting company with ~40% EBITDA margins was trading at 6.7x '18 EBITDA. It was a steal. After the acquisition, the pro-forma company (LSYN + Pair) was trading at 6.9x '18 EBITDA. LSYN should have done a massive share buyback instead of buying Pair. Currently, the stock is trading at 5.4x '18 EBITDA. So definitely cheap. But this year, Pair revenue declines are offsetting podcast revenue growth, so net net, we are seeing no growth. Further, Spencer will make additional questionable acquisitions which will continue to dilute the exposure to the podcasting market.

 

On the Q2 conference call, Spencer said he is on the hunt for more acquisitions. Here's the replay:

https://www.investornetwork.com/event/presentation/37193?utm_campaign=in-migration&utm_source=ic

 

Thank you for taking the time to write that, it's very helpful.

[knight933]

Looks like someone else has realized how absurdly cheap this micro-cap had become. Yesterday, a 13D was filed as Camac Partners took their stake in LSYN over 5%. In the filing, they specifically referenced their concern with corporate governance, mgmt compensation and how best to utilize all of that cash flow - all common concerns to the bear thesis.

 

https://www.sec.gov/Archives/edgar/data/1516478/000114036119000583/formsc13d.htm

 

"The Reporting Persons intend to review their investments in the Issuer on a periodic basis and may from time to time engage in communications and discussions with management and the Board of Directors of the Issuer (the "Board") and other stockholders of the Issuer concerning, among other things, Board composition and corporate governance, appropriate compensation levels of management and the Board, and the proper utilization of cash flow."

The 13D was triggered now as more shares were purchased during the first week of January (~43K shares traded on Jan 3rd and 7th at about $1.34). The fund obviously must have owned the majority of its stake well before this time. Stock currently near that price today.

 

Does anyone know Camac, or what is their style? The PM looks to be formerly of Kingstown Capital, which itself came out of Gotham Ctapial a while back, so I figure this PM is probably special-situations focused.

 

Regardless, I take this as a positive development and a sign that the valuation (5x - 6x FCF) had become far too punitive for what is fundamentally a great business, with a not-so-great CEO/Board.

[EricSchleien]

Totally fucking disgusting:

 

RE: the 8K that just came out today.

 

https://fintel.io/doc/sec-lsyn-8k-liberated-syndication-2019-june-24-18071

[Tim Eriksen]

Get your popcorn and pull up a chair, this is getting interesting.

 

Camac fires back at Libsyn management

https://finance.yahoo.com/news/camac-comments-latest-entrenchment-efforts-203300486.html

 

[writser]

Carmac has sufficient support to request a special meeting and filed a preliminary proxy. Shots have been fired.

 

•

Management’s alarming track record: In 2012, the predecessor to Libsyn, Wizzard Software Corp., purchased a kiosk business now known as FAB Universal Corp. (“FAB”). Shortly after being acquired, FAB was accused of fraud, issuance of debt without disclosure, and was essentially abandoned. It was shown that only 10 percent of the kiosks that were claimed to be owned by FAB actually existed. At a bare minimum, this lack of due diligence is alarming. The management team that authorized the FAB acquisition is the same management team that is currently running Libsyn.

 

 

 

•

Runaway executive compensation: In 2019, Christopher J. Spencer, Libsyn’s chief executive officer, is slated to receive a $400,000 salary and an $800,000 bonus (for an astonishing $1,200,000 in total cash compensation), and John Busshaus, Libsyn’s chief financial officer, is slated to receive a $350,000 salary and a $700,000 bonus (for an astonishing $1,050,000 in total cash compensation). This amounts to over 59% of Libsyn’s 2018 income. We believe that these amounts, which are in addition to numerous equity grants totaling millions of shares, are wildly disproportionate for a company of Libsyn’s size. It does not appear that Libsyn or the Board uses an independent compensation consultant—a standard practice when setting executive compensation.

 

 

 

•

Massive dilution: Since April 2017, the Board has approved multiple massive stock awards to insiders. If vested, these awards would have the effect of diluting Libsyn’s original public stockholders by almost 50 percent. These awards represent a massive transfer of value from stockholders into the pockets of Libsyn management and directors. Further, the Board has recently taken a number of troubling actions to permit the vesting of certain awards where Libsyn management had not met the applicable performance thresholds, and extend the time to achieve the thresholds for other awards. For more information, see the section of this Proxy Statement captioned “Background of the Solicitation.”

 

 

 

•

Poor capital allocation: At the end of 2018, Libsyn had a healthy cash balance of $11 million, but also maintained borrowings of $8 million. These borrowings resulted in approximately $387,000 of interest payments by Libsyn just in 2018. This is a wildly inappropriate capital structure for a company of Libsyn’s size. If Libsyn would simply pay off all borrowings with its outstanding cash, it would eliminate all interest expense and still leave Libsyn with a robust cash balance.

 

 

At the Special Meeting, Libsyn’s stockholders will consider and act upon the following matters:

 

 

 

1A.

To remove, without cause, Christopher Spencer as a director of Libsyn (and any other person, other than the Nominees, who is elected, appointed or designated to fill a vacancy of such Board seat).

 

 

 

1B.

To remove, without cause, J. Gregory Smith as a director of Libsyn (and any other person, other than the Nominees, who is elected, appointed or designated to fill a vacancy of such Board seat).

 

 

 

1C.

To remove, without cause, Douglas Polinsky as a director of Libsyn (and any other person, other than the Nominees, who is elected, appointed or designated to fill a vacancy of such Board seat).

 

 

 

1D.

To remove, without cause, Denis Yevstifeyev as a director of Libsyn (and any other person, other than the Nominees, who is elected, appointed or designated to fill a vacancy of such Board seat).

[NeverLoseMoney]

Hi - Thank you for sharing that article, and yes I have read it. (Several folks have sent it to me)

 

No disrespect to you other the blogger, but the stock was at $+0.48 last year and now it is $1.50-$1.60 almost a year later, so clearly the author got a LOT of things WRONG here. Haha

 

I am happy to discuss any specific points anyone may have, but the business has grown and gotten a lot stronger since they wrote that blog post. If anyone wants to talk about the present and the accretive M&A deal they recently did, then I am all ears. But I don't see much value in critiquing an analysis that clearly was very flawed.

 

I think a lot of folks have read that blog posted, and never bothered to do any more work. Case in point - at the time of me writing this, this thread has been viewed 150 times but only 2 people bothered to download my spreadsheet which has the actual analysis. 

 

I think that is partly why this stock is still so cheap despite continuing to execute and build up cash; this is a Free Cash Flow machine.

I wrote the post on ValueInvestingBlog.net. I think I pointed out some important issues with this company and I am still happy about my decision not to invest. I ended up buying a major position in Bitcoin instead. Don't worry guys, I sold it all around the ~$19k level. Clearly buying BTC at the time was the right decision and selling near the top was the right thing to do as well. And don't any of you try to tell me otherwise with these flawed analyses I keep reading on this forum and elsewhere, the money in my bank account proves you wrong.

Yep, still like that post I wrote on my blog. Looks like the SEC is going after Spencer (CEO) and Busshaus (CFO) for their conduct during the FAB Universal days. The complaint can be found here: https://www.slideshare.net/HindenburgResearch/securities-and-exchangecommissionvspenceretalnysdce190907000010. I found that link on Twitter (an account called "Hindenburg Research"): https://twitter.com/HindenburgRes/status/1179026898749448193. There is no company press release or filing about this matter to be found anywhere though.

 

The stock is down ~15%. Ultimately it's great news for shareholders that these people will probably be gone soon. I think (haven't followed closely for a while) these guys were handed a lot of stock while doing very little. Hopefully Camac will be able to get some kind of clawback of these shares. That should have a decent chance with this SEC complaint in hand, no?

[Tim Eriksen]

CEO and CFO charged by SEC related to actions at FAB Universal.

 

 

[TBW]

How many shares could potentially be clawed back?  My read was maybe 10mil, but I am not sure of that.

[Tim Eriksen]

How many shares could potentially be clawed back?  My read was maybe 10mil, but I am not sure of that.

 

I skimmed but I didn't see any mention of LSYN or LSYN shares.  Focus was on ill gotten gains from sales of FAB Universal not the ridiculous grants of LSYN stock.  Hard for a board to keep them in place if they committed serious violations.  Of course the board is the same people too.

[Foreign Tuffett]

So management here is mainly concerned with enriching itself, right? Outside shareholders want management gone, right? So shouldn't the stock be UP on this news instead of down by ~20%?

 

Might be a knee jerk reaction by market participants conditioned to see this type of news as horrible for equityholders .

[NeverLoseMoney]

How many shares could potentially be clawed back?  My read was maybe 10mil, but I am not sure of that.

 

I skimmed but I didn't see any mention of LSYN or LSYN shares.  Focus was on ill gotten gains from sales of FAB Universal not the ridiculous grants of LSYN stock.  Hard for a board to keep them in place if they committed serious violations.  Of course the board is the same people too.

I don't think there was anything about LSYN stock in the SEC complaint either. But in my post above I meant that the activist (Camac), or any other large shareholder, could perhaps use this SEC complaint to start a lawsuit (I guess against the LSYN Board of Directors?) and to basically ask the judge to annul any stock and stock awards that the CEO and CFO have gotten. Since LSYN came out of FAB Universal perhaps you could make the argument that any stock awards given to them after the spin-off were essentially the fruits of their previous fraudulent behavior. Therefore those shares should be cancelled, which has the effect of compensating the LSYN shareholders (some of whom are original FAB Universal shareholders) for the damage done. That said, I'm not a lawyer.

[TBW]

To clarify, that was my question too. What can Lsyn board, if it changes, claw back. My quick read suggests maybe 10mil shares, but I could be v wrong on that.

 

I don't see a tonne of value here if share count is 29mil, but could be some if less shares are outstanding.

 

I would also be worried what will be discovered once a new board can take a look.

[Foreign Tuffett]

No statement whatsoever from the company on the SEC charges. I think that speaks volumes.

[Foreign Tuffett]

So management here is mainly concerned with enriching itself, right? Outside shareholders want management gone, right? So shouldn't the stock be UP on this news instead of down by ~20%?

 

Might be a knee jerk reaction by market participants conditioned to see this type of news as horrible for equityholders .

 

Judging by today's price action, there is at least one other person out there who agrees with this.

[Tim Eriksen]

Settlement with Camac.  Two board seats.

 

https://finance.yahoo.com/news/liberated-syndication-announces-settlement-agreement-200500147.html

 

[EricSchleien]

Settlement with Camac.  Two board seats.

 

https://finance.yahoo.com/news/liberated-syndication-announces-settlement-agreement-200500147.html

 

I'm surprised the stock isn't up on the news today. But then again, I was surprised the stock wasn't up (but down 20%) on the news of the CEO/CFO regarding FAB Universal. I ended up buying more in the 2.40's and 2.50's that day. Remember one of the big issues has been compensation and now the activists are chairing the compensation committee and also running the strategic review committee. I really like the long-term prospects of the business and if they can get the compensation issues in order, normalized earnings will go up quite a bit. And two years from now, I would imagine all the original board is gone and this either gets sold off or there are more ethical and competent people put in place to run this business.