Author Topic: LSYN - Liberated Syndication  (Read 3717 times)

knight933

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Re: Liberated Syndication - LSYN
« Reply #10 on: February 07, 2018, 11:26:15 AM »
Hi Scwab711 – Let me be 150% clear, I am ok with criticism. Fraud/shady/whatever – Word choice aside, I 100% realize some do not trust management and thus why we have the low multiple. You don’t find stocks trading at 6x -8x earnings unless there’s some hair on it.

Now…Thank you for discussing the actual business. To your points:

1-You are correct - Management did not mention any synergies in the press release, but as someone who works in corporate finance and has written similar press documents, that is a common practice in corporate etiquette. In the PR they said they plan to host a conference call “sometime in Q1” to discuss the deal. Synergies will likely be discussed there. (Also another catalyst less than 2 months away). The goal is to get in before they announce the synergies.

If you turn to page 142 of this PDF, you will see the historical financials for Pair Networks. I came up with the $2.2M savings target after reading their financials. When you combine 2 small companies in very similar businesses, located in the same city, there will be a lot of duplicate costs. Management will not always just “tell” this to you. I think my assumption that ~$2 million of costs can be removed is conservative, but feel free to judge for yourself. Also – notice that I give them zero credit for revenue synergies, which I think they can achieve by cross-selling products, so there’s that.

2. Extrapolating the last quarter is a very common/correct forecasting method when evaluating subscription businesses. I cannot stress this point enough – about ~70%-80% of the revenue is recurring. If you are a new client and join in Q3, looking at Q1 – Q2 will cause you to understate the revenue going forward. If customers are billed monthly, then it is far more correct to annualize from the latest period. This is not immediately intuitive – yet another reason I think this is cheap.

3. I am a little confused by your statement, so I will just explain my logic and hopefully this answers your question. Yes, I am aware that mgmt. comp was elevated for the reasons you mentioned. However issuing stock are 1 time, non-cash expenses. If you look at the Cash Flow statement that is why the costs are added back. That is why I use the latest quarter because that is a cleaner look at the business when there were no share grants. Run-rate G&A expense SHOULD be less than actual G&A expense for 9m YTD for precisely that reason. These were periodic grants, and not everyday occurrences.

4. No I did not ignore the new shares. If you look at my share count of 26 million, that is the latest share count that includes the new stock issued to Pair Networks for the deal. Here is where I respectfully disagree. Management’s stock rewards are based on per share targets LSYN must hold for at least 10 days. They only get the shares if the stock touches $3, $5, or $7 for 10 days. The stock is below those thresholds, so you do not include those shares in your calc until they reach them. But by that point, the stock will be 2x – 5x higher than today and this point is moot, you still win big.

5. My revenue assumptions are just that – assumptions. Yes, I fully expect old LSYN to grown by 20%+ because podcasting still has a LONG ways to take market share from radio. Libsyn is a dominant hosting platform. They recently changed the reporting standards for ratings to make them IAB (Interactive Advertising Bureau) compliant which I think will bring more advertisers to podcasting now that they have more reliable/universal ratings metrics.

As I said multiple times I did not give them any credit for cross-selling opportunities or other synergies with their larger scale. Do not just focus on margins, but focus on INCREMENTAL margins. The next incremental dollar in the door is higher margin than the average because this is a digital product and it does not take much extra to host more podcasts. So for that reason, I think my assumption of gross margin weighted revenue being flat is conservative, because I believe the 2 companies can operate more profitably together than separately. From the line of business where I work, I think that is a reasonable assumption but again feel free to disagree.


NeverLoseMoney

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Re: Liberated Syndication - LSYN
« Reply #11 on: February 07, 2018, 11:28:42 AM »
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.

writser

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Re: Liberated Syndication - LSYN
« Reply #12 on: February 07, 2018, 11:46:47 AM »
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.

Look, I agree with you that LSYN is probably a real, profitable business. I do think the bank did their due diligence. However, I still wouldn't touch this as I absolutely don't believe management has your best interests at heart. It looks nice, their compensation vests when the stock hits $5 and/or goes to the NASDAQ. If that happens: great! But can you trust management to follow up on these promises? And can you expect them not to change their compensation scheme in the future and/or loot the company? I wouldn't bet on it. If these guys were just incompetent: sure. But after some quick armchair research it seems to me there is a big chance these guys are actually malignant. That's also what the blogpost I linked to tried to point out and whether the stock is at $0.50 or $1.50 at that point doesn't really matter for that as far as I am concerned.
« Last Edit: February 07, 2018, 12:04:08 PM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

knight933

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Re: LSYN - Liberated Syndication
« Reply #13 on: February 07, 2018, 12:35:06 PM »
I have to say I find it ironic that (to paraphrase) someone basically said “this company is too shady….let me buy Bitcoin”. I guess irony is dead in 2018. Anyways. Let’s actually think through what it would take to actually “loot” said company. It is more than just changing the comp agreement. Let us walk through the steps:

1-How is this like a “pump and dump” if the company has done absolutely ZERO self-promotion? If you look at the website and all their public info, the company pretends like they are private. How can you “pump” if you don’t even have an investor relations website? There are no earnings calls. I had to actively search the SEC website to even find their financials. If this is a pump and dump, you have to admit they are doing a horrible job at it.

But again, agree to disagree. I think the risks here are more than priced into the multiple.

2- “Sure, it looks nice, their compensation vests when the stock hits $5” – Again, this would be a reasonable question to bring up were the stock anywhere near close to $5. It is not. The stock could double to $3, and you would get out long before your theory. There is only 1 class of stock. If management juices the business to $5 /share, you go along for the ride. Again, agree to disagree.

3. Full disclosure – I work in the media industry and am not a full-time investor. Sometimes I think stock investors fail to think like a corporate buyer. If you believe the financials (you said you trust the bank DD) – there would be a LONG list of corporations who would love to buy this asset. They could pay far above what the market would ever give LSYN.

In fact, if I were in management’s shoes and trying to “loot” this company, I would do the following:

A) I would grow earnings organically, do M&A to buy out smaller competitors, and grow my earnings (Ongoing)
B) I would grant myself less cash, and more shares. (Check) If you do the math, the dilution you get for growing the company 2x – 5x is quite reasonable relative to the value created. 
C) Lastly, I would sell the business to a larger digital media company. If you take out management’s salaries (which I admit are high), then this is even MORE profitable than it looks.
 
Podcasting is hot, and a lot of companies want to get involved. The business would sell itself and you could fire management, and have a growing, high margin, recurring revenue business for way less than 10x earnings.

I expect management to be selfish. Selling to a larger Media company (Spotify, iHeart Radio) or an internet hosting company (Go Daddy, etc) would give them the biggest possible payday. I do not assume management is ethical...but I assume they are rational. They know their tainted reputation means this stock will never get the full earnings multiple it probably deserves otherwise.

I see the endgame as selling to a strategic that could rip out costs and pay way more than $5-$7. At $1.50 I see very little downside from here.   

Tim Eriksen

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Re: LSYN - Liberated Syndication
« Reply #14 on: February 07, 2018, 01:10:01 PM »
CEO and CFO comp has been high for a number of years.  I don't know if they are actively involved or milking a valuable stub they just happened to own after their previous screw ups.  They don't even report comp consistently.  Fiscal 2015 shows a $400k bonus for the CEO in the prospectus but only a 150k bonus in the 2016 proxy statement.  Which is it?? 

Please don't make it sound like management is not getting much additional comp until the stock hits $5.  It is not true.  They are getting additional comp at that level, but they just received huge share grants a year ago.  They trigger 25% for hitting market cap of 25mm, 50mm and 75mm, plus NASDAQ listing. 

Management drove the stock into the toilet by making a bad acquisition, which they received a huge bonus for at the time.  They spin off a stub which trades at a depressed level and then issue stock to themselves at 2x earnings net of cash.  Is that acting in shareholder interests or their own?  They get paid when they fail and paid when something good happens.  Good gig.

There are better managed companies trading at 8 times earnings than this.

iambagman

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Re: LSYN - Liberated Syndication
« Reply #15 on: February 07, 2018, 05:53:34 PM »
I want to like this - I owned it for a few minutes and made some money on it.  LSYN has all of the trappings of an overlooked nano cap - jewel that was hidden within a fraud that could rise like a phoenix.  Maybe it all goes down that way - but there is an issue of management taking a lot of the economics between comp and equity issuance. 

I kind of made peace with the crony board and management over compensating themselves - and maybe this is a small thing, but I could not let it go.   This company is trying to overcome the stench of fraud because of everything that happened in China that may or may not have been their fault.  Let's put fault aside and just say establishing legitimacy should be important and would improve the multiple. 

Here is the address of the auditor they hired - 4397 South Albright Drive, Salt Lake City, UT 84124 - put it in google maps and look at the picture of the office they operate out of.

Here is the Audit Oversight board report on the firm - they have 3 clients

https://pcaobus.org//Inspections/Reports/Documents/2015-Gregory-LLC.pdf

I am not saying that you have to use a big 4 firm, but if you are trying to overcome the stench of fraud and you are totally clean - why would you possibly pick this audit firm??

There is a real product here, real customers, a tailwind for podcasts, and a non-demanding valuation which are all great - but if this is anything more than a trade - buyer beware.  Look at the returns for all of the other companies the CEO and CFO have been involved with - their track record is horrible.  You are literally betting that this will be the one - the non zero - and they will let you keep some of the economics - stranger things have happened - but is this the best risk-adjusted bet you can find?


Foreign Tuffett

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Re: LSYN - Liberated Syndication
« Reply #16 on: February 07, 2018, 06:26:15 PM »
I want to like this - I owned it for a few minutes and made some money on it.  LSYN has all of the trappings of an overlooked nano cap - jewel that was hidden within a fraud that could rise like a phoenix.  Maybe it all goes down that way - but there is an issue of management taking a lot of the economics between comp and equity issuance. 

I kind of made peace with the crony board and management over compensating themselves - and maybe this is a small thing, but I could not let it go.   This company is trying to overcome the stench of fraud because of everything that happened in China that may or may not have been their fault.  Let's put fault aside and just say establishing legitimacy should be important and would improve the multiple. 

Here is the address of the auditor they hired - 4397 South Albright Drive, Salt Lake City, UT 84124 - put it in google maps and look at the picture of the office they operate out of.

Here is the Audit Oversight board report on the firm - they have 3 clients

https://pcaobus.org//Inspections/Reports/Documents/2015-Gregory-LLC.pdf

I am not saying that you have to use a big 4 firm, but if you are trying to overcome the stench of fraud and you are totally clean - why would you possibly pick this audit firm??

There is a real product here, real customers, a tailwind for podcasts, and a non-demanding valuation which are all great - but if this is anything more than a trade - buyer beware.  Look at the returns for all of the other companies the CEO and CFO have been involved with - their track record is horrible.  You are literally betting that this will be the one - the non zero - and they will let you keep some of the economics - stranger things have happened - but is this the best risk-adjusted bet you can find?

Gregory & Associates is the same one man accounting firm that audits Armanino Foods. Odd that of the three "issuer audit" clients Gregory has, two of them have threads on this board.

Someone should call Alan Gregory and see if he will make a special guest appearance on the board since he's basically a COBF celebrity at this point.



Schwab711

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Re: LSYN - Liberated Syndication
« Reply #17 on: February 07, 2018, 07:04:22 PM »
The CEO of AMNF is the father of Robert Pera, CEO of UBNT. AMNF is a really interesting company for the wrong reasons.

rpadebet

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Re: LSYN - Liberated Syndication
« Reply #18 on: February 08, 2018, 05:47:51 AM »
The CEO of AMNF is the father of Robert Pera, CEO of UBNT. AMNF is a really interesting company for the wrong reasons.

Schwab711 could you pls elaborate
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voyager

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Re: LSYN - Liberated Syndication
« Reply #19 on: February 09, 2018, 04:01:42 PM »
I know someone who tried to take this company private.  It's a nice business.  I can confirm that management is a little bit off their rocker though.