Good Life Networks (GOOD.V) is a programmatic digital advertising technology company. GOOD provides the infrastructure for advertisers to connect with publishers. This allows brands to get their advertisement in front of the consumers they feel suit their brand.
Good Life Networks makes money be retaining a percentage of advertiser’s fees. The third slide from GOOD’s recent investor deck provides the best visual of what the company does.
Note: I continue to own shares of Good Life Networks (GOOD.V)
Good Life Networks: Pros and Cons Analysis
This article is a follow up to my original article titled “Good Life Networks Analysis”. In my original article, I did a Pros and Cons analysis of Good Life Networks. After writing the article I received an email from Cliff Dumas of GOOD. Mr. Dumas is their Chief Communication Officer. Mr. Dumas read my article and saw my comment that I had previously reached out to GOOD but had not received a response.
Mr. Dumas offered to ensure that my questions would be answered. He also stressed that GOOD takes communication with their shareholders very seriously. They had transitioned their Investor Relations communications to their own in house team for more efficient communications.
I was extremely impressed that 1) Mr. Dumas would take the time to read my blog, and 2) that he would reach out to ensure any questions I had were answered. As a result, I sent some questions to GOOD which were answered by Ron Shuttleworth. Mr. Shuttleworth is listed as an advisor to GOOD. He also has 25 years of experience investing in technology and is the current CEO of the company Internet of Things.
Questions for Good Life Networks
Question #1: Stock Option Issuance Under Market Value
On December 27th, 2018, GOOD issued 1.7 million stock options to directors, officers, employees, and consultants of the company. The exercise price of the stock options was $0.15 cents while the stock traded at $0.20 on that day. This meant the stock options were already 25% in the money.
The reaction from investors on Twitter was not good and I agreed. I expressed this concern to GOOD with my thought that it is unfair and dilutive to shareholders to issue options under market value. Retail investors like myself never have the opportunity to buy shares at a 25% discount and I felt insiders shouldn’t either.
Mr. Shuttleworth replied and informed me that these options were issued as a result of exceeding revenue and earnings targets for the year. As for the discount, Mr. Shuttleworth advised that the discount is permitted by TSX policy 4.4 section 3.6A.
He also brought to my attention that stock options have only been issued on one other occasion. A quick search of SEDAR showed that on February 27th, 2018, 5.5 million stock options were granted with an exercise price of $0.25. On that day the stock closed at $0.275.
I simply don’t like that the company has issued stock options that are immediately in the money by 25%. Admittedly I am new to investing so maybe this is the norm but it seems unfair. I hope this practice doesn’t continue even though it is allowed by TSX policy. It would show much greater alignment with shareholders to issue options at market value.
Question #2: Ability to Cover Liabilities
I asked for some clarity on how they would be servicing their obligations in 2019. Since GOOD was unprofitable and cash flow negative in 2018 the debt and acquisition obligations cause me some concern.
Mr. Shuttleworth explained that the $4.3 million debt due in 2019 is related to the revolving portion of debt provided by Scotiabank. This debt is designed to support accounts receivable. Since the company has $20 million of high-quality accounts receivables and growing, this facility has room to expand if required.
I then asked about the $5.5 million and $1 million due to 495 Communications and Impression X. This money is dependent on EBITDA performance of both companies. Mr. Shuttleworth said that the vast majority of these payments will be covered by the cash contributions of 495 and Impression X themselves. CEO Jesse Dylan does explain this in his interview on Midas Letter starting at the 8:30 mark.
As for the mPlore acquisition, the company should have sufficient working capital to pay the $2.85 million due on closing. Since the end of 2018 GOOD has collected half of the $20 million in account receivables. They anticipate collecting the remainder by summer.
My take away from Mr. Shuttleworth’s response is this: if GOOD, and its acquired companies, can meet expectations then there should be no issue covering their liabilities. As a result, I would expect the market to reward GOOD and the stock should appreciate if they are able to meet their projections.
In contrast, if GOOD is unable to collect on all of its account receivables, or they underperform in 2019, they could face a serious cash crunch in January 2020. If GOOD announces that they need to take on more debt or issue equity to raise money this will be a major red flag for me.
Question #3: Insider Purchases
One of the issues I have with GOOD is the lack of insider buying on the open market. I have been following GOOD on Canadian Insider but don’t recall seeing any insider buying.
There could be numerous reasons that are personal to insiders why the would not be purchasing shares. What really draws my attention to lack of insider buying is the continued communication from Mr. Dylan that GOOD shares are extremely undervalued. Mr. Dylan references a Tormont Group report that values GOOD at a minimum of $1.00 per share. Mr. Dylan then references Tormont’s belief that GOOD shares will be worth $3.25 by the end of 2019. Mr. Dylan must firmly believe in this report or he would not have referenced it in his presentation at the Cantech Conference.
Two Questions for GOOD
- Why has there been no insider buying that I can recall? It seems like a no brainer to be gobbling up shares if they feel the fair price of the shares is $1 and possibly $3.25 in one year.
- What is their affiliation with Tormont Group, if any?
Mr. Shuttleworth replied that GOOD insiders purchased 600,000 shares in the open market during the fall of 2018. Any insider purchases on the open market are a good sign and I hope to see more in 2019. If management thinks the stock is worth $1 at this very moment and $3.25 (or anywhere near it) by the end of 2019 I’d be buying as many shares as I could get my hands on.
As for their affiliation with Tormont Group, Mr. Shuttleworth explained that the author, Jim McFadden, wrote this article and are his opinions alone. The article and forecast were presented to management at GOOD to check for accuracy however GOOD had no influence on the report. Again the report and follow-up report can be found here.
Question #4: Accounts Receivable Blockchain Solution
I asked for some clarity on the accounts receivable blockchain solution that is being developed. Since sending the email GOOD has released some news that they are making progress on their A/R product. The questions I asked consisted of the readiness of the A/R program, will it assist GOOD to shorten their A/R cycle and do they anticipate generating revenue for GOOD with the blockchain solution itself?
Mr. Shuttleworth’s response contained a lot of good information. Here is his response:
“The extended accounts receivable periods are endemic to the advertising industry and have been this way for generations. The historical purpose of that extension was to reconcilliate between what was paid for, and what was actually produced and placed in print, radio or TV. Obviously, since much placement can be done in milliseconds, and dashboarded in seconds – there is a much smaller reconciliation period.
Advertisers & brands choose to pay on extended terms anyway. Why not? They typically own the power in the relationship. A factoring industry has emerged to bridge the cash gap, which typically costs between 18% and 20% to manage. GLN has chosen to solve this problem by disintermediating the factoring agencies with a token network. If they solve this problem for themselves, they benefit in four ways: 1. Reduce the cost of receivable management 2. Help attract quality targets that value better receivable management 2. Sell the solution to the industry in general (another revenue stream) 4. Receive a transaction fee for managing the token network.”
In my previous article, I looked at the accounts receivable blockchain solution as a bit of a wildcard. This response makes me believe that the A/R solution is now incredibly important to GOOD and could be a huge advantage if it works out the way they hope it will. In his most recent video, Mr. Dylan explains their most recent news release regarding their A/R solution. I will be keeping a much closer eye on the blockchain A/R solution
Question #5: Financial Post Article
In the Cantech Conference presentation, Mr. Dylan referenced an article published by the Financial Post. The article describes how GOOD does not use personally identifiable information in its ad technology. Look closer at the article and you will see that it was provided by Market One Media Group and not authored by anyone at the Financial Post. GOOD has contracted out communication work to Market One Media Group.
My question to GOOD was to confirm that his was the case.
Their response was “Yes.” I may be up on my high horse on this one but it seems misleading to reference an article in the Financial Post that you have paid to have written. Not a huge issue but more of an observation.
Good Life Networks Conclusion
The potential of Good Life Networks is undeniable. They are growing revenue like crazy but have taken the acquisition approach to do so. If they can execute in 2019 and pay their obligations they will have a much cleaner balance sheet and much less risk. I do have a positive view of the company even though these questions may appear to focus on the negatives. I think it is important to understand the risk being taken on by an investor.
There is a lot of risk with GOOD and I think investors need to acknowledge this. If GOOD has to issue equity to raise money or take on more debt this will be a red flag and must be looked at closely. I will point out the distinction that the debt they have taken on is being used to grow the business and not just for working capital.
I really appreciate the attention paid by Mr. Dumas to reach out to me and Mr. Shuttleworth for taking the time to respond to my questions. It is reassuring to know that they are available to even the smallest investor.
Q1 is typically their slowest month while almost half of their revenue is generated in Q4 so we won’t get a great feel for how they are doing in 2019 until this time next year. Here’s hoping GOOD executes in 2019.
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