NEW YORK, Jan. 18, 2017 /PRNewswire/
-- Ancora Advisors, LLC (together with its
affiliates, "Ancora"), a 9.2% stockholder of Edgewater
Technology, Inc. ("Edgewater" or the "Company") (NASDAQ:
EDGW), announced today that it has issued a letter to
Edgewater stockholders in connection with its campaign to solicit
consents for a number of proposals, the ultimate effect of which,
if successful, would be to remove four current members of the Board
of Directors of Edgewater, and replace them with Ancora's four
highly-qualified director nominees.
January 18,
2017
Dear Fellow Edgewater Stockholders:
IT IS TIME FOR CHANGE AT EDGEWATER
TECHNOLOGY
Our Interests Are Directly Aligned
with ALL Edgewater Stockholders
Sign, Date and Mail
the WHITE Consent Card Today to Significantly Improve
Edgewater's Board and Enhance Stockholder Value
Ancora Advisors, LLC (together with its affiliates,
"Ancora" or "we") is a long-term stockholder of Edgewater
Technology, Inc. ("Edgewater" or the "Company") with ownership of
1,184,568 shares of Edgewater, representing 9.2% of the Company's
outstanding shares.
The Company issued a letter to stockholders yesterday, which
contained numerous mischaracterizations of the Company's
performance and attempted to belittle Ancora's clear plans for
change for the Company and the qualifications of Ancora's nominees
for Edgewater's Board of Directors (the "Board"). The
incumbent Board's transparent efforts to obfuscate the facts do not
surprise us. In private discussions with the Board
spanning many months, we have attempted to reach a compromise with
the Board that would reconstitute the Board in a manner that we
believe would give stockholders a voice in the boardroom. However,
after the Board's repeated failure to engage in a constructive
manner, we lost confidence in their ability to act in the best
interests of Edgewater's stockholders and have had to resort to the
extraordinary measure of launching a consent
solicitation.
Unfortunately, since the current Board does not believe it
can win on the merits, the Company has resorted to a campaign based
on false and misleading information. Rather than focusing on the
facts, Edgewater is trying to distract stockholder attention from
the Board and Ms. Singleton's failures. We have a high level of
confidence that stockholders will see through the Board's attempts
to wheel out tired and stale arguments, like referring to our
highly qualified nominees as "hand-picked candidates," or claiming
that we have no plan and will be disruptive for the business, or
cherry-picking a five-year performance period because it is the
only commonly referenced measurement period the Board can point to
where Edgewater has not drastically underperformed. In fact,
the two reasons that the Company's five-year performance appears
strong is due to just how poorly the Company performed in the
five-year period prior to 2012, and that the Company overstated its
actual performance over the five-year period in
question.
We believe that the Board's composition and governance
structures have served as an impediment to stockholder value
creation for far too long. Stockholders deserve a truly
independent board that will look out for stockholders' best
interests and will ensure management
accountability.
We are therefore seeking to replace four long-term
directors, Paul Flynn, Paul Guzzi, Michael
Loeb, and Wayne Wilson, who
we believe have failed to maximize stockholder value despite each
having served for more than ten years on the Board. We have
nominated four highly-qualified director candidates, Matthew Carpenter, Frederick DiSanto, Jeffrey Rutherford, and Kurtis Wolf, who have directly relevant
operating experience related to technology and consulting, and
experience developing strategies to increase stockholder value in
multiple areas such as capital allocation, expense management, and
corporate governance, including designing executive compensation
plans that align pay with performance.
In seeking minority Board representation, we have struck
what we believe is a careful balance between adding fresh
perspectives and needed expertise to the Board, and maintaining a
significant level of Board continuity. Our efforts are and will be,
for the benefit of all Edgewater
stockholders.
THE UNDISPUTED FACTS:
Under the failed stewardship of Paul Flynn, Paul
Guzzi, Michael Loeb, and
Wayne Wilson:
- Total stockholder returns have materially underperformed
peers and relevant market indices over almost any measurable time
period.
- The Board has overseen nearly $50
million in value destruction.
- The Company continues to have overhead expenses far in excess
of its peers.
- Poor compensation practices have siphoned
stockholder value to the CEO, CTO, and
directors.
- Poor corporate governance has
further depressed value.
What is the Board's answer to reversing the historic
value-destruction they have overseen and changing the failing
course of the Company?
In a recent open letter to stockholders on January 17, the current Board asked stockholders
to continue to put their faith in the Board's status quo strategy
because, they claim, this time it is going to finally deliver
positive results for stockholders and because adding new talent to
the Board will disrupt this (so far unsuccessful) status quo
strategy. Can stockholders really be expected to trust that
this Board, which has repeatedly failed to deliver value, will
finally step up to the plate and succeed in delivering better
results?
Stockholders should know the following
before making any decision in this important campaign.
SETTING THE RECORD
STRAIGHT
The Board claims: "If
successful, Ancora nominees will… [l]ikely replace senior
leadership, which the Board believes would cause significant
distraction and disruption."
The Facts:
The Board and management have dusted off the tired and stale
argument that many poorly run companies make when a stockholder
attempts to hold a board accountable: don't change horses
midstream.
The Board's claims that Ancora's nominees will
cause significant distraction and disruption to the Company are
overblown. The only senior leadership we are likely to seek
replacing is current CEO Shirley
Singleton, and possibly CTO David
Clancey.
Since taking leadership of the Company fourteen years ago, Ms.
Singleton and Mr. Clancey have guided the Company to significant
share price underperformance. Nonetheless, Ms.
Singleton and Mr. Clancey combined have been cumulatively
compensated (including cash, restricted stock, and options) over
$17 million, which astoundingly is
approximately 90.3% of
Edgewater's cumulative Earnings Before Interest and Tax ("EBIT")
and 172.3% of
cumulative Net Income (excluding one-time items) over the same time
period.
We believe these two executives, who, in our view, make
minimal contributions to driving revenue and client relationships,
retained a staggeringly disproportionate share of the Company's
operating profits. From our discussions with members of
Edgewater's management and other industry professionals, we have
learned that the Company's various products-based consulting
business lines, including the Ranzal (Oracle) practice and the
Fullscope (Microsoft) practice (including related software
revenues), deliver most of the value within Edgewater. These
businesses were acquired by Edgewater and are run as
independent silos with their own dedicated staff (including
consultants and sales & marketing staff). Further, both
the Ranzal and Fullscope business are physically located outside of
the Company's Massachusetts
headquarters.
Since the CEO and CTO are not involved in managing either
of the Company's two primary lines of business, yet nonetheless
receive exorbitant compensation, we believe getting rid of the CEO,
and possibly the CTO, would not cause distraction and disruption to
the Company. Instead, we believe their departure could potentially
invigorate Edgewater's performance by creating opportunity for
greater compensation for the remaining leadership and professionals
who we believe are most valuable to the Company.
The Board
claims: "Allowing half
of Edgewater's Board seats to be filled by Ancora's hand-picked
candidates who we believe, not only lack a reasonable plan to
create stockholder value but have limited, if any, related industry
or public board experience, is not in the best interests of all
stockholders" and "Ancora has not offered any specifics on how its
nominees would create stockholder value if they are unable to
negotiate a sale, which based on the Board's recent review, would
likely erode – rather than create – stockholder value. This
is especially worrisome given that three of Ancora's four nominees
have never worked at or been associated with any company in a
relevant industry and appear to lack the experience necessary to
guide the Company forward"
The Facts:
The Board and management have dusted off two more archaic
arguments from the typical activist defense playbook: the
dissident's nominees are not qualified, and the dissident does not
have a plan.
Contrary to the Board and management's false assertion, we
have offered a credible plan to maximize stockholder value. The
Board and CEO do not like our plan, however, as it entails many of
them losing their position with the Company. Moreover, the Board
and management have attacked our plan for not having sufficient
detail. We believe our plan has the appropriate level of detail
given our access only to public information. Offering any greater
level of detail would be imprudent, as it would be based on
imperfect information.
The Board and management's contention that our candidates
are unqualified is ridiculous. All of our candidates have the
requisite background and attributes to effectively begin addressing
the Company's problems, as all have run businesses, most have
significant entrepreneurial experience (they are comfortable
quickly evaluating and addressing issues), and have significant
experience generating returns for investors. Most
importantly, they do not have a long history with the current CEO
and CTO, and can independently evaluate their
performance.
Our candidates were selected to bring a variety of
critical viewpoints to the Board – Board and IT consulting
experience (DiSanto); financial, deal and compensation experience
(Rutherford); technology and entrepreneurial experience
(Carpenter); and consulting, capital allocation and investing
experience (Wolf):
- Since becoming CEO, Fred DiSanto
has grown Ancora Advisors, LLC, from $80
million of AUM in 2005 to $4.3
billion of AUM today; created jobs by increasing employees
from 7 in 2005 to 60 today.
- As CFO of Ferro (NYSE:FOE), Jeff
Rutherford helped the company reduce SG&A over
$30 million, expanded Gross Profit
Margin 600 bps (over $55 million) and
harvested non-strategic assets generating over $295 million of proceeds from the sale of
non-strategic assets.
- Matthew Carpenter has
successfully built multiple technology businesses, repeatedly
attracting significant venture capital and private equity funding,
and in the process creating jobs.
- Kurtis Wolf brings significant
consulting experience working for two premier global consulting
companies, and whose investment acumen has enabled him to
significantly outperform the S&P 500 since the inception of his
fund (February 1, 2009).
Conversely, the directors we look to replace have limited
leadership experience. Only one has been a CEO of a
for-profit company and one other was a COO/CFO. Further,
these incumbent directors lack "true" independence, having served
between 11-15 years on the Board, and are responsible for approving
the exorbitant compensation paid to the CEO and CTO.
The Board
claims: "241 percent total
shareholder return delivered over the past five years"
The Facts:
First, we note that the Board's total
stockholder return claim is exaggerated by 100% during the 5 year
span which the Board selected. According to FactSet, the 5
year return using the time period the Board selected is actually
141%. This is a simple mistake, yet is emblematic of the lack
of thoroughness on the part of the Board. Second, we point
out that the Board only highlights one time period – 5 years.
Total stockholder returns under the leadership of the incumbent
Board have materially underperformed peers and relevant market
indices over almost any measurable time period. Did the Board
only highlight the 5 year total stockholder return in an attempt to
mislead stockholders?
|
Cumulative Total Stockholder Return1
|
|
1 YR
|
3 YR
|
5 YR
|
10 YR
|
Since January 2002
(Singleton Appointed CEO)
|
Edgewater Technology, Inc.
|
-10.97%
|
-5.48%
|
124.76%
|
5.99%
|
74.69%
|
North American IT Consulting Peers –
Median
|
9.40%
|
52.07%
|
120.18%
|
65.50%
|
209.8%
|
Russell 2000 (TR)
|
17.97%
|
24.66%
|
94.47%
|
96.08%
|
237.78%
|
Nasdaq Composite Index Total Return
|
5.86%
|
36.08%
|
114.22%
|
144.35%
|
232.59%
|
S&P 500 (TR) / Software & Services –
IG
|
6.01%
|
46.32%
|
113.66%
|
161.22%
|
168.64%
|
EDGW Jan 9, 2017 Proxy Peers –
Median
|
12.07%
|
14.07%
|
36.34%
|
-0.14%
|
152.26%
|
The Board claims: "Improved
efficiency and streamlined cost structure"
The Facts:
EBITDA margin has been largely flat despite several
acquisitions. EBITDA margin was 5.6% in 2011 and was 5.7% LTM (as
of September 30, 2016).
Moreover, SG&A as a percentage of revenue is more than
50% greater than that of the Company's consulting peers. In
our view, it is clear that economies of scale have not been gained
through acquisition and costs have not been curtailed. One
major reason for this lack of scale is the "dead weight" of the CEO
and CTO. They generate very little value, given the largely
autonomous nature of Ranzal and Fullscope. Nevertheless,
their combined compensation between 2002 and 2015 has been equal to
90% of the Company's total EBIT. This compensation, alone,
accounts for most of the Company's underperformance. Granted,
some Edgewater employees would be promoted and receive higher
compensation, however, at least this compensation would be going to
"value creators" not individuals in largely administrative
roles.
The Board claims: "Invested
prudently to drive organic growth" and "Executed on a disciplined
approach to strategic acquisitions"
The Facts:
Capital allocation on the part of the Board and management
has been abysmal, in our view. The Board has overseen low revenue
growth, despite making numerous acquisitions, implying the
Company's organic revenue growth is poor or acquired companies
perform poorly post-acquisition, or both. Edgewater has spent
approximately $104 million on
acquisitions since 2002, while the current market capitalization of
the Company is $94.7 million. Since
2006, revenues have increased $58.4
million (excluding reimbursable expenses), and the Company
has spent $97.5 million on
acquisitions, which implies that management delivered meager
organic growth and has overpaid for its acquired businesses
(effectively paying 1.67x for acquired revenue yet being currently
valued at 0.75x LTM revenues). Simply put, the company is
worth less than everything it has bought over the past 10+
years.
The Board claims: "Further, we
believe [Ancora's] nominees lack the relevant experience to guide
the Company in executing its strategic plan"
The Facts:
The Company's Board, CEO and CTO have shown themselves to
be incapable of developing and executing a strategic plan which
creates value for stockholders, in our view. Our nominees
have a long track record of successful leadership,
entrepreneurship, and corporate governance, which will serve them
well in working with new executive leadership in developing and
executing on a new strategic plan.
The Board claims: "Edgewater's
CEO Shirley Singleton and Chief
Technology Officer David Clancey –
who have been subject to baseless attacks by Ancora – beneficially
own approximately 12.4 percent of the Company's common stock (and
our directors and management collectively beneficially own 21.8
percent), clearly aligning their interests with the interest of the
Company's stockholders"
The Facts:
The CEO and CTO have received compensation
totaling more than $17 million from
2002 – 2015. This is greater than the value of their stock
ownership. Furthermore, much of their stock ownership has
come from the issuance of stock and options, tied to their roles
with the company (over 40% of their ownership is in the form of
options and RSUs). Simply put, the CEO and CTO are fighting
to keep a paycheck at the expense of stockholders, in our
view. Management's (excluding the CEO and CTO) stake is
irrelevant, since they will likely remain with the Company and at
least several will likely be promoted to larger, better-paying,
roles. The Board's (excluding the CEO's) ownership, comes
largely from issuance of stock and options to them, for being on
the Board. Bottom line, the four board members we look to
replace, along with the CEO and CTO, have financial interests more
tied to retaining their positions than the performance of the
Company, in our view. Conversely, our singular incentive is
to maximize the return on our investment, and, thus, we have
selected candidates that we believe will best maximize stockholder
value.
IT IS TIME INCUMBENT DIRECTORS ARE HELD
ACCOUNTABLE
Edgewater's long-term underperformance, excessive executive
compensation packages that reward a select few, and poor corporate
governance practices are, in our view, symptoms of entrenched
incumbent directors who have failed in their duty to keep
stockholders' interests at the forefront in their decision-making.
Our highly-qualified candidates, who are fully aligned with
stockholders' interests, bring the fresh perspective, skill sets
and experience necessary to significantly improve Edgewater's
financial and operating performance, including by developing
equitable compensation structures that reward key performers and
remaining vigilantly engaged in an ongoing review of strategic
alternatives, including the use of cash for return on capital
purposes and as a tool to retain key talent within (and external
to) the Company. Sign, date and mail the WHITE consent card
today to let the Board know: "The time for change is now!"
SUPPORT OUR HIGHLY QUALIFIED SLATE OF DIRECTORS
TO CREATE VALUE AT EDGEWATER
PLEASE SIGN, DATE AND MAIL ANCORA'S WHITE
CONSENT CARD TODAY
Thank you for your support,
/s/ Frederick
DiSanto
Frederick
DiSanto
If you have any questions, or require assistance with your
vote, please contact our solicitor InvestorCom toll-free
at (877) 972-0090 (Stockholders). Banks and Brokers
may call collect at (203) 972-9300.
About Ancora:
Ancora Advisors, LLC, is a registered
investment adviser with the Securities and Exchange Commission of
the United States. Ancora offers comprehensive investment
solutions for institutions and individuals in the areas of fixed
income, equities, global asset allocation, alternative investments
and retirement plans. A more detailed description of the
company, its management and practices are contained in its "Firm
Brochure" (Form ADV, Part 2A). A copy of this form may be received
by contacting the company at: 6060 Parkland Boulevard, Suite 200
Cleveland, Ohio 44124, Phone:
216-825-4000, or by visiting the website, www.ancora.net/adv.
Investor Contact:
InvestorCom
John Glenn Grau,
203-972-9300 ext. 11
1 Source:
Price returns data from FactSet as of 12/06/2016 (day before Ancora's Schedule 13D
filing announcing intent to nominate directors).
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/ancora-advisors-delivers-letter-to-edgewater-technology-stockholders-300392699.html
SOURCE Ancora Advisors, LLC