Today before the opening bell, Chief Executive Officer Jim Holbrook issued the following letter to EMAK’s stockholders and those interested in the company.
Dear Fellow EMAK Stockholders,
The purpose of this letter is to provide you with an update on EMAK Worldwide’s business performance and my vision for the future.
EMAK has transformed into a differentiated and nimble network of marketing agencies, offering a better alternative to the big ad agency holding companies and a more reliable marketing partner than small mom and pop agencies.
Where We Are:
The management team has worked hard to rationalize, upgrade, build, integrate and renegotiate every aspect of how we operate across our businesses. No stone has been left unturned, all while taking significant and deliberate steps to maximize EMAK’s cash from operations.
I have made annual promises to stockholders about the profits we would make, and I have delivered on every one of them. I hope you find this letter to be informative about our future as well.
From a corporate perspective, EMAK has been through a difficult time recently, fraught with expensive and distracting legal assaults by my predecessor.
From a business perspective, the reality is that our legacy promotional products segment is a declining one. Our Burger King business was a good cash generator for a long time, but today’s kids are getting older younger, costs are rising in China and the quick service restaurant industry is touting value menus over kids meals, thereby creating a low-margin, low-volume and low value-added opportunity for the marketing of kids premiums. Due to these factors, along with declining volumes and diminished margins industry-wide, our margins in the promotional products business have plummeted by more than two-thirds over the past decade. Our Burger King relationship ended with no reasons given for our dismissal, without so much as even a formal agency review after a 25-year relationship.
Strategically, the management team recognized the shift in the promotional products segment and worked diligently to build up a new and more attractive platform for EMAK. This platform emphasizes the agency services business, with higher margins and significantly better prospects for growth. It is a $400 billion industry, and it’s growing. Going forward our promotional products segment must take a supporting role to the marketing services segment.
As proof of our attractiveness in the marketing services industry, our lead agency Upshot was able to land two new clients in the beer and spirits category, Corona and Wild Turkey, almost immediately after losing the Miller beer business following its merger with Coors. Further, we launched the agency Neighbor, which has attracted power clients like Safeway and Jamba Juice, and it, too, continues to grow.
Where We Are Going:
EMAK’s future can certainly be very bright. We will strive to double the business again in the next several years, to well over $50 million in revenues, and to generate 20% EBITDA margins and commensurate levels of cash flow.
My financial objectives are based on the assumption that we can put the corporate disruptions behind us, and that we can get EMAK to one common equity ownership class, thus becoming a viable investment again. This is my goal in working with the preferred stockholder and trying to negotiate a preferred conversion to common that is fair to all.
So what will EMAK look like?
EMAK has the foundation to be a network of potent marketing services agencies. Upshot is the cornerstone, with more than 15 years in business and an impressive client roster. The agency we started two years ago, Neighbor, will contribute strong growth and profits, as well. We have recently added to our network a digital agency Emerge, which has been accretive since day one and which puts us firmly into the white-hot digital space. And we continue to manage Equity Marketing and Logistix.
We will be well-positioned against the big ad agency holding companies. These dinosaurs are vulnerable because of their over-reliance on the TV ad business, high fees and crushing overhead. Their clients want smart marketing, marketing that delivers results, at a fair price and with no added bureaucracy. That’s what our teams do – “marketing that works.” That’s what this management team has built.
My view of the future is based on a very disciplined EMAK platform:
• EMAK functions as a team of marketing agencies
• EMAK’s agencies engineer marketing that works
• EMAK is relevant because most marketing is ineffective; our agencies do “marketing that works”
• EMAK is different because we put our agencies first, unlike the big holding companies
• EMAK is different because we help grow our agencies, and we launch new agencies, rather than overpaying for them
• EMAK is different because we invest to teach our people how to be client catalysts and consumer advocates
In Conclusion:
Our strategy is clear: EMAK uniquely fills the need for “marketing that works” – engaging consumers and building clients’ businesses.
Our positioning is relevant: EMAK’s platform of “marketing that works” is in demand by smart marketers.
Our model is uncommon: EMAK’s approach of “agencies first” will attract the best people and, thus, the best marketers.
We have the resources: EMAK’s current core team and infrastructure are in place to support aggressive growth.
I pledge my commitment to you, the stockholders. My priorities are:
To continue the successful EMAK transformation and growth agenda,
To work hard to get to one ownership class and a simplified capital structure, in a way that is fair to all shareholders, and voted on by all sharehold ers,
To list EMAK on the OTCQX exchange as soon as warranted,
To continue to communicate with you in a timely manner, following our historical reporting schedule, and
To build lasting value for all shareholders.
Thank you for your continued interest and support of EMAK. Please feel free to send me your questions and comments at jim.holbrook@emak.com.
Jim Holbrook
Chief Executive Officer
EMAK Worldwide, Inc.
