Believes Management and the Board, Led by CEO and Chairman Mitch Francis, Are Not Aligned With Stockholders
Details Tix's Severe Underperformance While Management Is Paid Generously
Calls for a Reconstituted Board to Bring Greater Accountability to Tix
IRVINE, Calif., Feb. 6, 2019 /PRNewswire/ -- HSB Capital Partners, L.P. ("HSB Capital Partners"), who beneficially owns, together with its affiliates, approximately 4.85% of the outstanding common stock of Tix Corporation ("Tix") (TIXC), today issued a public letter to the independent members of the Board of Directors of Tix (the "Board"). In the letter, HSB Capital Partners outlines what it sees as the current Board's lack of accountability and failure to act upon opportunities to create long term value. HSB calls for the Board to be refreshed with new, independent voices and to meaningfully engage with HSB to identify new directors.
The full text of the letter is below:
Attn: Independent Members of the Board of Directors
12711 Ventura Blvd. Suite 340
Studio City, CA 91604
February 6, 2019
Dear Independent Members of the Board:
HSB Capital Partners, L.P. and its affiliates (collectively, "we" or "HSB Capital Partners") are long term shareholders, beneficially owning approximately 4.85% of the outstanding common stock of Tix Corporation ("Tix" or the "Company"). As a firm, we invested in Tix, beginning in October 2017, because we believed the Company was deeply undervalued with opportunities readily within the control of the Board of Directors (the "Board") to substantially increase shareholder value.
For the past 18 months, we have attempted to communicate constructively with the Company regarding these opportunities. Unfortunately, Tix's management and Board, led by CEO Mitch Francis, have shown themselves to be insular and resistant to shareholder input. Notwithstanding that shareholders have lost roughly 90% of their value since 2016, the Board and management remain unchanged. Rather than engage with one of their largest shareholders, the Company chose to issue a press release filled with mischaracterizations about us. We are writing this letter today to try to refocus the Board's attention on what shareholders truly care about – long term value creation. In order to drive long term value, we believe new, independent directors must be added to the Board to inject a culture of accountability.
Tix Has Severely Underperformed While Management Is Paid Generously Underscoring the Need for Change
During the three years ended December 31, 2018, $1,000 invested in Tix stock would now be worth a measly $116. In contrast, a $1,000 investment during the same period in the S&P 500 and Dow Jones Travel & Leisure Index would be worth over $1,300 and $1,370, respectively.
Notwithstanding this dismal performance, the compensation for Tix's CEO, COO and CFO over the past three reported years have aggregated $5.9 million! To put this in perspective, their salaries have represented 64% of the Company's Pretax Earnings over the same period and 164% of the Company's current market capitalization of $3.6 million.
In 2016, the Board awarded a bonus of $861,000 to these 3 executives despite a 9% decline in revenue, a 45% decline in operating income and a 27% decline in the Company's stock price. While logic would dictate management being fired for this performance, the Board awarded a bonus! Clearly there is a lack of alignment of interests with shareholders.
Tix's Management Structure is Troubling
Given the Company's prolonged underperformance, we would expect a CEO to be on the ground working to turnaround the Company. Yet, despite the fact that 100% of the Company's operations are located in Las Vegas, the CEO leases an office in Studio City with a staff of 5 or 6. What are his day-to-day duties and how exactly can he run the Company effectively from 300 miles away?
We have spoken to several employees at the Company's booths in Las Vegas. Some have been working full time for over a year and have never seen CEO Francis at any of these booths. Other longer-serving employees tell us that in the past 2 years, they only met CEO Francis twice at the Company's booths and a few more times at a Company event. For a 10-store operation, is this the type of hands-off CEO the Company needs? We think not.
As for the COO, Kimberly Simon, who is actually based in the Las Vegas office, we were informed by several full-time employees that they have never met her either. Others informed us of a culture based on intimidation and fear. Clearly Tix is not functioning well and change must be made from the top-down. Why was Kimberly Simon awarded a 5-year contract and a golden parachute in 2016? As the COO, what are her day-to-day duties if not to visit and oversee booths daily?
For the amount paid to management, why did the Company wait until 2017, 30 years after the invention of the internet, to offer tickets online or at least update the website to a mobile version? While the Company claims CEO Francis' relationships are vital to the Company's operations, under his leadership, the Company has lost their most important relationships with MGM and Cirque Du Soleil, no longer allowing the Company to sell these show tickets at the Company's booths.
Clearly, this Board is failing in its fundamental duty to effectively oversee management and the status quo is not a viable path to value creation for Tix shareholders.
We Question Whether the Company's NOL Poison Pill Is Really an Entrenchment Tool
The Company claims it implemented a stockholder rights agreement, or "poison pill," in 2014, with a trigger of 4.95% to protect the Company's valuable net-operating losses ("NOLs"). Yet, on July 6, 2017, the Board announced it had approved the request by CEO Francis to purchase up to two million additional shares, or 11.5% of the Company's outstanding stock, above his existing 3.1 million shares. When we sought the same opportunity to acquire up to 15% of the Company's outstanding stock, we were denied. It is peculiar that the Board would approve the request by its CEO to buy such a sizable block of shares but not HSB Capital Partners, a shareholder that has been outspoken regarding its concerns regarding the Company's underperformance. We question whether the poison pill has less to do with protecting the Company's NOLs and more to do with further entrenching the Board and management. If CEO Francis was previously permitted to buy an additional 11.5% of the Company's outstanding stock, so should we.
We believe the Board needs to be refreshed with new independent directors who can bring fresh perspectives, rigorous financial discipline, and who are able to evaluate and act upon opportunities for value creation. We believe a refreshed Board can:
- Reduce overall expense levels, especially corporate overhead;
- Move the Company's headquarters to Las Vegas, where all of its operations are located;
- Reduce layers of management and bring in a "hands on" type of management to improve the culture of the Company;
- Improve corporate governance practices, including greater shareholder engagement and the separation of the CEO and Chairman positions; and
- Better align compensation to performance from the CEO down to the Company's sales associates.
Our decision to put forward this letter was taken because we do not see any alternative catalyst for positive change. As a significant shareholder in Tix, we have a strong vested interest in seeing the Company enhance long-term shareholder value. We are committed to working constructively with the Board to identify new directors with the requisite skill set to achieve these goals. However, if this letter falls on deaf ears, we must reserve all our rights as shareholders to protect our investment.
Haren Bhakta, Managing Member
HSB Capital Partners, L.P.