Days after the ousting of its founder, digital research company Pure Profile is facing a boardroom showdown in an attempt to oust its chairman.
In an announcement to the ASX this morning, the company revealed that a former owner of Cohort Global, which Pure Profile bought in 2016, is seeking to eject executive chairman Andrew Edwards from the board.
As part of the sale, Cohort’s sellers received shares in Pure Profile. Under ASX rules, those who hold more than 5% of a company can trigger a meeting to seek the removal of an existing director. They are seeking to replace Edwards on the board with Cohort founder Marcelo Ulvert.
Edwards stepped up from non-executive chairman to executive chairman late last year. Shortly afterwards, Pure Profile’s founder and CEO Paul Chan moved aside to become chief innovation officer, before departing altogether a few weeks later.
He has been replaced as CEO by Nic Jones.
Meanwhile, a flurry of share trading arrested the company’s declining share price late last week, with around 1.7m shares being traded. Yesterday, the ASX was informed that Jones had bought just under 1.1m shares for $140,000, while Edwards had bought half a million shares in an on-market trade.
According to today’s announcement: “The company will proceed to call a general meeting of shareholders in compliance wioth the Corporations Act. In addition, the company is considering its legal position and will keep the market informed of all material developments concerning the requsition received and the previously disclosed dispute with the Cohort vendors.”
At the weekend, Mumbrella, Tim Burrowes covered Pure profile’s recent history in our Best of the Week email. His article is recapped below:
Pure Profile’s low share price and big debt Thursday saw Pure Profile share some bad news with the ASX.
It had made a loss of $10.2m, depending how you calculate it.
If the wisdom of the crowd is anything to go by, the moment things began to go wrong for Pure Profile was actually a year and a half ago.
That was the day the company’s share price peaked, valuing it at nearly $80m.
Since then, the founder has left, the company has a new CEO, new chairman, a new auditor, a new chief financial officer and a fully drawn $10m loan expiring late next year. Its market capitalisation has fallen to less than a quarter of its high point
First though, a bit of history as the somewhat ironically named company has never really had the profile it deserved.
Pure Profile is an interesting firm, thanks to the vision of its founder Paul Chan, who left last month after more than 15 years at the helm.
Chan was one of the first to see the opportunities around advertising retargeting – and what it would mean for brands to be able to send tailored messages to consumers based on their online behaviour, likes and preferences.
Where his vision went further than many though, was the idea that consumers might be persuaded to share more information about themselves, in turn making what they see from brands more relevant. His means of persuading them to do so was to create online survey panels.
Customers would be rewarded with a few cents of credit for filling out surveys.
Unusually for technology startups, that was the vision from the beginning. Chan patented his idea for “a method and system for permission-based communication and exchange of information by means of a neutral and unified database in which consumers remain anonymous” all the way back in 2003.
While most successful startups end up pivoting away from their vision in order to make money, it could be said that Pure Profile did the opposite. Early on, it fell upon a strong business model by being an early player in online research.
Brands came flocking to online research offers like Pure Profile’s, attracted to the fact that asking questions of the panels came at a fraction of the cost of paying market researchers to stand in shopping centres with clipboards.
Meanwhile, Chan spent the next decade and a half trying to pivot back towards his vision.
Half of the battle though was that it wasn’t an easy vision to explain, and not necessarily what his clients wanted to buy.
About five years ago, some of the Mumbrella team met with Chan on a number of occasions. We’d had an idea for our print title Encore – an annual survey of the public’s level of recognition and feelings towards media personalities. We called it The Encore Score, and we used Pure Profile’s online panels to provide the survey data.
We ended up running it a few times – if memory serves, Hugh Jackman was always the best known and most liked, Kyle Sandilands the least. The first time we did it, the results were top item on both A Current Affair and Today Tonight.
But it felt like it could be something much bigger, which was why we kept meeting with Paul.
Yet he’d say very little in the meetings. I had the sense of somebody very clever, but no matter what we asked, it felt impossible to elicit a clear picture of what he was thinking. He may have had a vision, but he wasn’t great at sharing it.
Meanwhile, Pure Profile was mostly growing. Ahead of its ASX float in 2015, it shared some numbers. Australian revenues rose from $7.1m in 2012, fell back to $6.6m in 2013 before rising again to $7.2m in 2014. Meanwhile the company fluctuated between a profit of $690,000 in 2013 and a small loss of $80,000 the following year.
By now Pure Profile had overseas operations too. 2014 saw it lose $418,000 in the US and $122,000 in the UK.
Then Chan and his board, chaired by lawyer Fred Swaab (who later passed away), made a transformative move. They took the company public, onto the ASX. As part of the deal, they bought programmatic agency Sparc Media.
The float was successful and suddenly, Pure Profile had scale, even if ASX investors didn’t seem to know what to make of it.
Its share price pinged around from 49c on its July 31 2015 debut, down to 35c a couple of months later, then back up to 59c the following May 2016, which it hit one more time in July 2016.
From the outside, it’s hard to tell from the available ASX documents how the company was really faring.
The Sparc acquisition meant that when Pure Profile’s first set of numbers came out, it was hard to get a picture of like-for-like progress. Revenues were up, but you’d expect that when two companies have effectively been brought together.
But again, with hindsight, you can see glimpses of the bigger picture that Chan saw. Imagine being able to deliver ads programmatically to a big pool of consumers who have chosen to share information about what they like.
Meanwhile, the company had begun to work with News Corp in Australia and doing more with its own audience. You can see the potential for News Corp, with its growing cadre of easily identifiable digital subscribers.
Yet for all the information on the ASX, Pure Profile appeared to share little about how it was going on developing a deep pool of opted-in consumers.
I think there may have been a flaw in Chan’s vision on this point.
In truth, I suspect those who choose to spend hours filling out online surveys in exchange for a few cents are not typical of the wider public. Which raises the question of how big that pool of people could ever be. (And that’s without even opening up the Pandora’s Box of the debate about the quality of online survey pools), Plus, I suspect, these people don’t really think of themselves as having volunteered for retargeting, I suspect. They just think they’ve filled in some surveys.
Meanwhile though, Pure Profile kept doing its best to give good news to the ASX.
In September 2016 it announced it was buying lead generation company Cohort Digital for $15m in cash and $3m worth of shares. Thanks to earnout provisions, this would later rise by a further $4.6m and 8.9m shares.
With Cohort boasting revenues of $27m and profit of $3.7m at the time, it would add to Pure Profile’s financial performance.
Yet it doesn’t look a bargain for Pure Profile shareholders when the owners of Cohort received about $25m from a company whose market capitalisation is as of today $18m. Such acquisitions are supposed to increase the market cap, not shrink it.
I suspect, things began to go properly wrong shortly after the deal was signed, although Pure Profile was slow to let on.
New chairman Andrew Edwards became executive chairman. When we reported last year that this meant Chan would now report in to him, it triggered a flurry of phone calls from within Pure Profile, with some insisting this was incorrect, and others the opposite.
Meanwhile, Matt Berriman resigned as director after just a year.
It certainly felt like power was shifting.
A few days later came the news that Chan was moving from CEO of the company he founded to chief innovation officer, which sounded like an odd career progression. He was to be replaced by digital industry veteran Nic Jones.
The first order of business once Jones got behind the desk a few weeks ago, was to announce that Chan would actually be leaving.
Which brings us to this week, and the first market update under the new management.
The very first bullet point of the six monthly investor presentation from Edwards promised “improved communications with stakeholders, including clarity around our value proposition and key drivers of financial performance”.
The accompanying presentation was not particularly clear. Revenue was down 12%, it revealed. And EBITDA profits – earnings before interest, taxation, depreciation and amortisation were just $100,000. But “underlying EBITDA” was actually a $1.3m profit, the company said.
Except it didn’t when one turns to the company’s official Appendix 4D report. (There’s a terrific backgrounder on Big Un’s own ASX shenanigans in today’s Weekend AFR – it calls the ASX appendix the “truth serum” of the stock exchange, the document where the real situation has to be outlined.)
In the case of Pure Profile, the truth looks a bit ugly.
The loss after income tax was $8.8m.
That includes an “impairment of assets” of $6m. They don’t say what it was, but I suspect it’s their way of saying Cohort isn’t worth what they paid for it.
They also report a $1m “loss on disposal of intangible assets”. That one has me stumped.
And another number leaps out. The company’s finance costs shot up to $766,000.
I suspect that’s connected with another announcement late last year, which represented Chan’s final deal.
In its previous annual report, the company had said it was in talks with CommBank about extending its loan facility, which it would need in order to pay what it owed in earnouts to the former owners of Cohort.
The talks obviously failed, because Pure Profile signed a $10m loan facility with “a global funds manager”, with a fixed interest rate of a whopping 9.5%.
In addition, the lender has first ranking security over all of the company’s assets. The loan becomes repayable late next year.
The truth serum appendix also mentioned that the $10m loan facility has already been fully drawn, which doesn’t appear to leave much room for manoeuvre.
When the company next updates the market, I’ll be going straight to its cash situation, curious about whether it’s on track to have enough in the bank to repay the loan in about 18 months.
On Friday, Mumbrella’s Paul Wallbank chatted to the new boss Jones. Although he’s been away in a global role for Vevo, Jones is a familiar face in this market including big sales roles back in the day with the likes of Fairfax Media, News Corp, Yahoo and ninemsn. He’s also chairing the board of advisers for the Advertising Week conference in Sydney later this year.
The challenge for Jones is that he has not only inherited a mess, but he’s also inherited somebody else’s vision. In a progamatic sector dominated by much larger US-based operations, the only point of difference Pure Profile will be able to offer is a distinctive vision, and that will need to be developed – quickly – by Jones.
Or as he put it in this week’s investor presentation “I was excited to take on the opportunity. I’m even more excited now.”
I suspect he’s got a lot more excitement ahead of him.
Tim Burrowes
Tim Burrowes is the founder and content director of Mumbrella. He's written about media and marketing in Australia, the Middle East and the UK.
