JC Bruckman Research Report 1 Lyris Ad

8/7/2019 JC Bruckman Research Report 1 Lyris Ad

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Lyris sells an online marketing suite for SMBs.Lyris offers a suite with mobile marketing, web analytics, searchmarketing, email marketing, social media marketing

(such as Facebook and Twitter), and web pageoptimization, www.Lyris.com

Huge Insider BuyingBig time private equity investors have been buying Lyris. Why?They have purchased $7 million of Lyris common stockin last 12 months. They now own more than 50%.

Lyris is an emerging Omniture, focused onmediumsized businesses with a Stellar Client List.

Lyris target market is medium sized business but its strongfeatures, integration and ease of use have attracted stellarblue chip companies (Oracle, NYSE) as clients. See page 2.

New CEO ran Omnitures US SalesLyris hired Wolfgang Maasberg in August 2010. Maasbergran Omnitures North American sales from 2006 to August 2010.Adobe acquired Omniture for $1.8 billion in 2010 at 5.3 timesrevenues.

LYRI.ob $0.24

Accumulate

Price targetsNear term: $2.50Mid term: $7.00

BruckmanTechnologResearch- Insider

BuyingReports

L ris, Inc. Online Marketin SaaS

Huge Insider Buying

Insiders are Professional Private Equity Investors

New CEO ran Omniture US Sales

How the Rich get Richer

Lyris, Inc. Online Marketing

Stock Data

Symbol: LYRI.ob

Price $0.2452 Wk $.13/.44Shares Out 121mMrkt Value $29 m

Bruckman Technology Research publishes this opinion for informational purposes only and it is not, andshould not be relied upon in any way as, advice for any person or entity to buy or sell any security. See alldisclosures herein.
http://www.lyris.com/http://www.lyris.com/http://www.lyris.com/


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Blue Chip Clients. For technology companies, the bestvalidation of their technology is the purchase by other toptechnology companies. Lyris has superior clients from thetechnology sector as well as the financial and publishing sectors.The purchase of Lyris product by these clients isalso noteworthy because the product is primarily designed

for mid-sized businesses but the integration and easeof use makes it appealing for enterprise clients.

Technology Clients

Oracle, Intuit, San Disk, McAfee, nVidia

Financial Services Clients

New York Stock Exchange - NYSE

TIAA-CREF, Lloyds

RBC Capital Markets, Silicon Valley Bank

Publishing Clients

Morningstar, Investors Business Daily

Thomson Reuters, IDG, Wiley, CNET, Forbes.com

www.lyris.com/solutions/industry/technology

yris, Inc. Online Marketing (SaaS)

Stellar Client ListBruckmanTechnologResearch- Insider

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Why ? Why are big time professional private equityinvestors who are insiders in Lyris investing their personalmoney to buy more stock of Lyris? These professional investorsspend their days investing billions of dollars in private equityinvestments, including technology companies. They are insidersin Lyris. What do they see and know about Lyris that is leadingthem to buy $ millions more common stock of Lyris for their

personal accounts?

Most Recent Purchases of Lyris Common Stock

William T. Comfort, III $ 4 million in June 2010

James Urry $ 2 million in June 2010

(See filings for Lyris at www.sec.gov)

Insider Ownership.

William T. Comfort, III 46.2% Comfort is the Chairman of the BoardJames Urry 6.2% Urry is a director

Big Time Professional Private Equity Investors

James Urry, a director of Lyris, is a managing director of CourtSquare CapitalInvestors. (www.courtsquare.com).

Courtsquare manages more than $ 6 billion in private equity. Courtsquare invests intechnology companies (and other sectors). Urry is on the board of Intersill (a $ 2billion revenue chip company). Courtsquare claims their professionals have invested$ 4 billion and returned $14.5 billion to investors on their investments.

Comfort runs Conversion Partners, an investment fund. He has worked as aprofessional investor at CVC Capital Partners, and for Citicorp Venture Capital.

Huge Insider Buying - Why?

Big Time Private Equity Investors


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http://www.courtsquare.com/http://www.courtsquare.com/http://www.courtsquare.com/http://www.courtsquare.com/


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Investment Thesis

Big time private equity investors do not commit $ millions of their ownmoney to an investment without doing their homework and being confidentin their investment analysis and thesis. Here is a likely investment thesis

for Lyris:

1. Great Growth Industry. Online marketing has been and continuesto be one of the greatest growth sectors in the market. Online marketingrevenues grew even during the great recession. (www.iab.net). Onlinemarketing is expected to continue great growth (www.emarketer.com)

2. Great Company. Top clients like Oracle and the NYSE would not buyLyris if it did not have a great product. Lyris products have strong featuresets, integration and ease of use.

3. Great M&A Target. Two public online marketing companies that sellintegrated suites have been acquired in 2009 and 2010. Adobe boughtOmniture for $1.8 billion and IBM bought Unica for $480 million. Adobepaid 5.3 times revenue for Adobe and IBM paid 4.5 times revenue for Unica.

4. Hotshot CEO. Hire a hotshot CEO who helped build the leader Omniture. Maasberg ran North American sales for Omniture and grew theirUS revenues from $37 million to $244 million (72% of their global revenues).Maasberg was hired by Lyris in August 2010 directly from Omniture (Adobe).

5. Results. Let new CEO build Lyris the way he helped build Omniture andsell for a multiple of revenue near the same as Adobe paid for Omniture (5.3times revenue) or even the multiple IBM paid for Unica (4.5 times revenue).


Huge Insider Buying - Why?

Investment ThesisBruckmaTechnoloResearch- Insider

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Omnitures North American Sales Growth.

Maasberg was in charge of North American sales for Omniturefrom 2006 thru August 2010. In the United States, Omnitures US

sales grew from $37 million to $244 million for the period of 2005thru the 2009 acquisition of Omniture. Sales increased a total of 6.6times over that 5 year period for a CAGR of 61%.

The private equity investors have gotten themselves the Hotshot CEO can he buildLyris revenue the way he grew Omnitures US revenue?

2005 2006 2007 2008 2009

US Sales 37 66 106 212 244

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50

100

150

200

250

300

Omniture US Sales($ millions)


How the Investment ThesisPlays Out Great Sales Growth Bruckman

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Lyris Sales Growth

Maasberg started before at Omniture with $37 million in U.S. revenue and grewit to $244 million. With Lyris, he is starting with $44 million in revenue. Whatdoes Lyris revenue growth look like if Maasberg can grow Lyris as fast as he grewOmniture US revenues? What does Lyris look like if Maasberg only grows Lyris

at 50% (1/2) of the growth rate he had at Omniture?

The graph and chart below show Lyris revenue if Maasberg grows Lyris at ratesequal to 50% and 100% of his Omniture growth rate (in $ millions):

The Omniture sales figures in the above charts are for 2005-2009.

0

50

100

150

200

250

300

350

2011 2012 2013 2014 2015

Lyris Sales Growth Curves

Omniture

Lyris Sales Growth50% of Omni

Lyris Sales Growth100% of Omni

(in $ millions) Fiscal Year 2011 2012 2013 2014 201537 66 106 212 244

44 57 74 97 126

44 71 118 182 292

Lyris Sales Growth 50% of Omni

Omniture

Lyris Sales Growth 100% of Omni

Lyris, Inc. Online Marketing (SaaS)

How the Investment Thesis Plays

Out - Lyris Revenue Growth

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Sale. Private equity pros like to exit an investment by sellingat the right time at the right price. Lyris will likely try to sell thebusiness after Maasberg gets the sales growth curve headed inthe right direction. If Lyris can be sold after 4 years of salesgrowth at a multiple equal to Adobe / Omniture (5.3 X revenues)or IBM/Unica (4.5) (or an average of the 2 multiples, 4.9), theCompanys enterprise value will have grown substantially.

New Lyris Enterprise Values (in $ millions):

New Lyris Enterprise Values ($ millions)

Multiple of Sales 4.5 4.9 5.3

Sales 50% of Omni Growth Yr 4 $ 567 $ 617 $ 668

Sales 100% of Omni Growth Yr 4 $ 1,314 $ 1,431 $ 1,548

To put these numbers in perspective, Omniture began with total (US and global)

revenue of $43 million in revenue in 2005, grew to $338 million in revenue in 2009and was sold for $1.8 billion. The enterprise value of Lyris could rise to between$567 million and $1.5 billion.

Lyris Share Price. Lyris has 121 million shares fully diluted. At theseenterprise values, Lyris share prices would be:

Lyris share price would increase to between $4.69 and $5.52 if Maasberg does only50% of what he did before. If he can equal what he did before, the share price wouldrise to between $10.86 and $12.79.


4.69$ 5.10$ 5.52$

10.86$ 11.82$ 12.79$

New Lyris Stock Prices

Sales 50% of Omni Growth Yr 4


Lyris, Inc. Online Marketing (SaaS)

How the Investment ThesisPlays Out The Rich Get Richer

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The Rich get Seriously Richer. How theProfessional Investors Do it.

William T. Comfort, III, the Chairman of the Board of Lyris and aprofessional investor, recently invested another $4 million in Lyris. He now owns(jointly) a total of 55 million shares of Lyris stock. Here is what Comforts 55 million

Lyris shares would be worth if Maasberg can do 50% or 100% of what he did atOmniture:

New value for Comfort shares on sale: between $258 million and $704 million.

If Lyris shares trade just at the near target we have placed on the Lyris stock, the newvalue for Comfort shares at $2.50 per share would be $138 million; at the midtarget of $7 per share the value of the Comfort shares is $386million.

James Urry, a director of Lyris and a professional private equity investor, recentlyinvested an additional $2 million in Lyris. He now owns (jointly) a total of7,500,000 shares of Lyris. If Maasberg can do what is discussed, Urrys shares wouldbe worth:

New value for Urry shares on sale: between $35 million and $95 million. If theytrade at the near target of $2.50, the Urry shares would be worth $18 million and atthe mid target of $7 would be worth $53 million.


258,075,617$ 281,015,672$ 303,955,727$

598,080,001$ 651,242,668$ 704,405,335$

New Values of Comfort Shares: 55,074,338




35,144,628$ 38,268,595$ 41,392,562$

81,446,281$ 88,685,950$ 95,925,620$

New Values of Urry Shares: 7,500,000




How the Investment ThesisPlays Out The Rich Get Seriously

Richer BruckmaTechnologResearch- Insider

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Valuation: Near Term TargetLyris light has been under a bushel. The current share price ($0.24)for Lyris does not reflect (1) Lyris current value in online marketing;(2) the hiring of a hotshot CEO, or (3) any potential for growth. Thenew CEO will likely want to increase the public mindshare of Lyris.We believe the following may move the stock higher in the next 12 months (near term):Maasberg charging revenue growth, comparing Lyris to many comparable companies,recognition of Lyris product and market strength, hiring of a hot shot CEO and huge insiderbuying.

Lyris Compared to Peers in Online MarketingMany small public online market companies trade at multiples to sales equal to 2.16 to 5.22times revenues.

If Lyris traded at a multiple equal to 3.9 times revenues, it would have an enterprise valuetoday of $172 million and a share price of$1.42. Our view is that when investors look atthese factors, particularly the hot new CEO and the huge, professional insider buying, and ifthere is quick revenue growth to $50m+ Lyris will relatively quickly trade to a multiplecloser to the top of its peers: a 5+ multiple of sales at $50 m+ This would give Lyris a stockprice of approximately $2.50 per share.

Internet Marketing Price to Sales

Companies Ratios

Constant Contact 5.22

LivePerson 5.06Rightnow 4.8

Digital River 3.69

Marchex 3.15

Vocus 4.74

ReachLocal 2.16

web.com 2.5

Average 3.915


Valuation

Near and Mid Term BruckmanTechnologResearch- Insider

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Mid term Valuation

We look out approximately 3 years for our mid term valuation.Our valuation target is premised on our view (1) that the professionalinvestors have a huge incentive to ensure Lyris success; and

(2) that Maasberg, based on his track record, is a CEO worth backing.

If Maasberg can do what he did before not asking him to do more and put up 2 to3 years of growth numbers, we believe investors will begin to look to a possible saleafter 4 years of growth and probably toward the upper end of the range.

Here is the range of share prices assuming a sale after 4 years of either 50% or 100%of Omniture growth.

The midpoint of this range is $8.75. We believe that investors are likely to look, atthat point toward the upper end of this range - $10.86 to $12.79. Doing so anddiscounting back (and providing for some possible acquisition dilution) provides us

with a price target of: $7.00 per share for Lyris in the mid term.

4.5 4.9 5.3

4.69$ 5.10$ 5.52$

10.86$ 11.82$ 12.79$

Multiple of SalesNew Lyris Stock Prices




ValuationNear and Mid Term

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Additional Information

Our View on Important Information

In the last 10 years or so, there has been a lot of new research published on the valueof information related to insider buying and selling. Much of this evidence points tothe value of insider buying as opposed to insider selling. The old saying guides ourresearch: Insiders sell for a lot of different reasons. They buy for only one reason.

We focus our research in the tech area on insider buying. We look for the followingcriteria:

1) A company in technology with strong products/services/technology2) A small or microcap company (much research points to the value of insiderbuying information in this subset of stocks)3) Insider buying They buy for only one reason. But not just all insider

buying4) We look for large, substantial purchases in the Millions of dollars5) We really want to see large substantial purchases by professional investors

hedge fund managers, private equity investors, venture capitalists,proprietary investors for large investment houses

6) Significant motivation on the part of the buyers to see the stock do well evenreally well. Can they make a huge amount of money for themselves?

7) Our ability to discern a clear and understandable path to substantial valuecreation for the professional insiders. If what they are up to is toocomplicated for us to discern, we generally view this as not worth following.We want to be able to figure out why the pros are buying

8) We prefer to see a cluster of insider buying. We like to see more than oneprofessional investor putting substantial cash into a stock

Investor Duties and Warnings

Our research reports are not intended to be, and should not be relied upon in anyway as, advice for any person or entity to buy or sell any security. It is not and shallnot be considered an offer, or invitation to make an offer, for any security. Thisresearch report is for general informational purposes only. We obtained theinformation in this report from public sources and do not guarantee in any way itsaccuracy or completeness. We will not, and make no promises to, update any


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information in this research report. We make no representation or warranties inany way for anything in this report.

In particular, do not come back to us and say I bought a stock based on your report.Our strongest possible view is that an investor should never, ever read one report

and go buy a stock. DO NOT DO IT ! ! ! Its foolish; the SEC recommends against it;your broker recommends against it, and common sense dictates against it. Wedictate against it.

What we intend: we try to offer research that triggers peoples interest. Does ourresearch make sense to you? Have we missed anything? Are we wrong? How are wewrong? Where are we wrong? Did we get any facts wrong? Is our analysis wrong?Did we get the industry wrong? Product demand wrong? Product strengths andweakness? Did we misjudge the management? Directors? Insiders? Did we rely toomuch on insider activity?

In our view, we hope that this report if you find it interesting is a spur to get youto do your own first hand research. Do not ever buy a stock unless you do your ownresearch, including reading all of the relevant filings the company has made with theSEC.

If you are not familiar with stocks and stock markets, we recommend you read theinformation on website of the SEC concerning investing and its dangers and risks.We also recommend going to Amazon and getting a number of books on investing,including everything you can read about how Warren Buffett invests and also howsuccessful tech investors invest.

Even if you are familiar with investing, stocks and markets, we recommend readingall of the following before buying any stock, including Lyris:

The SECs website on investing in general and in particular in smaller, microcapcompanies and those with large, possibly controlling investors;

All filings going back several years for the stock you are researching. For this report,that would be Lyris. Pay particular attention to all risk factors listed.

All filings going back several years for competitors and others in relevant markets foryour research target. Again, be sure to read all risk factors

Analyst reports and other research on your research target, competitors andadjacent companies.

Analyst and technology research reports on the relevant industries and technologies.

Blogs and other online sources of information about your research target,competitors, industry, markets, and technologies.


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There is a lot of information available online on the risks of investing, the risks ofinvesting in equities, the risks of investing in tech companies, the risks of investing insmall tech companies, the risks in investing in companies with large possiblycontrolling insiders. We recommend and incorporate by reference, all of theinformation discussed above and all information on risks atwww.sec.gov(including

all relevant company filings), all of the information on risks in investing that anyreasonable person could uncover by doing Google searches on stocks investingrisks and all combinations and derivatives thereof, including the risk factors listedby all of the relevant tech companies in their SEC filings.

Do not even consider investing in a stock until you have done all of this research andthen consulted with your broker, lawyer, tax accountant and other relevant experts.

We also urge anyone considering investing in a stock of a company to call thecompany directly and speak to executives there, including directors and substantialstock holders.

DisclosuresWe may seek to do business with any company in any report. We may own, buy orsell any securities listed in any of our reports at anytime and without notice toanyone. You should assume that we do or may own, buy and/or sell the securitiesthat are the subject of this report.

In any report, the authors have to make certain opinions, judgments and otherdecisions. We may have made many judgments, decisions and opinions in thisreport. Some or all of them may be wrong. We point out that our opinions aboutwhat we think may happen in the future are very derivative: we are giving opinionsabout what other people may do in the future and how others may react to that.Needless to say, these opinions are speculation piled upon conjecture.

We also want you to know that there areas areas of the report where we may havehad difficulty getting precise facts or made judgments, including without limitation:

It is not clear from the public releases we reviewed, the exact date Maasberg tookover US Sales for Omniture. It looks like it could be late 2005 or in 2006. If this isimportant to you, ask Maasberg. It was not clear in the Omniture filings exactly thedifference between North American and US sales. Presumably, North American also

includes Canadian sales but it was not easily apparent when Maasberg got US vsNorth American sales and what the differences between the numbers were. Some ofthe Omniture growth can be attributed to acquisitions. We have not tried to quantifythis. It appears that Omniture did some minor acquisitions and then also boughtVisual Sciences as of January 2008. Visual had about a $60 million revenue businessbefore acquisition. The way we analyze it, Omnitures organic growth over theperiod reviewed would still be approximately 40- 50%. (let us know if you get a
http://www.sec.gov/http://www.sec.gov/http://www.sec.gov/http://www.sec.gov/


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different number) 40- 50% is still terrific. Maasberg gets further credit for being onthe team that clearly managed well through an acquisition.

While Lyris and Omniture share a number of product categories, Omniture has addedsome incredibly sophisticated services much more than Lyris. Omniture acquired

many of these sophisticated services through mergers/acquisitions. It is not clearwhat Maasberg will do in this regard. Will he keep Lyris more focused on themedium business and not go buy or build the very sophisticated services? IfMaasberg follows Omniture, he may do some acquisitions which may be dilutive toshareholders.

Information about Comfort and Urry was sourced from Lyris filings, Google searches,and the website for Courtsquare. We generally find 13ds to be less than userfriendly. It is not clear whether or to what extent Comfort has all of the beneficialownership of shares that are listed under the LDN entity or other shares. Also thesame is true of Urry and the entity on some of his filings not sure if he owns jointly

with others, or there are other beneficial owners. Anyone interested should contactLyris, Comfort and Urry.

It is absolutely only an opinion that there is even a possibility that Maasberg couldgrow Lyris revenues at the rates suggested herein. It could be wrong. Very wrong.

All valuation projections are complete opinions and could be wrong, includingcompletely wrong. The comparable companies list is not a complete list of all smallinternet marketing companies. There are others. Some of the others may be bettercomparables. You are advised to do your own comparable research.

Stock go down in value. For lots of reasons. Do not buy stocks based on readingsomeones research opinion. It is only an opinion. It could be very wrong. Do yourown research.

Report dated as of late February 2011

Documents

JC Bruckman Research Report 1 Lyris Ad