September 5, 2013
Solta Medical, Inc.
Attn: Members of the Board of Directors
25881 Industrial Boulevard
Hayward, CA 94545
Ladies and Gentlemen:
This is my second letter to the board. My first letter went without response or
acknowledgement, as did several calls to both Mark Sieckarek and Jack Glenn. I
interpret this as further evidence of your unwillingness to properly perform your
duties. The Chairman believes hiring a replacement for Stephen Fanning and
some marketing tweaks are sufficient. I suggest a bolder strategy is now
required. Yes, this may result in some uncomfortable moments in your board
meetings but your duties require you to be skeptical of the strategy being
presented to you by a Management that has continually failed in its efforts to turn
the company around.
I recently listened to Mr. Sieckarek’s presentation at the Canaccord Growth
conference on August 15, 2013. I had a particular issue with slide 24 where Mark
disclosed: “leverage potential”. Mark stated that when doing $185M in sales,
Solta Medical will generate $0.23/share of net income. This is exactly what I
imagine he presented to this board as reason to either over inflate the true value
of the company, to not sell the company and/or reason to continue as an ongoing
stand-alone entity. More concerning is the fact that Mr. Sieczkarek is presenting
these figures as the interim CEO, the “want to be” CEO (in my opinion), as well
as Chairman of the Board, which is an obvious conflict of interest. Per my original
letter where I described my personal experience with another company (which
resulted in my filing of a 13D with the SEC), this is sadly an almost identical
action to what I would expect from another entrenched Management team
attempting to further their self serving interests at shareholder expense without
challenge from independent directors.
Rather than argue my belief that these figures are completely inaccurate, I will
leave this to the professional analysts that cover the company. Your analysts
forecast that next year you will do just over $183M, and yet make only $0.06/
share based on the same accounting principles. I don’t think I would be out of
line to call that a major difference from $.23/share!
Since nobody at the company would take the time to discuss this with me directly,
I took it upon myself to speak to several of your analysts. Not one of them had a
basis to support these numbers and had no plans to change their forecasts. Their
opinions of the company and the Management are consistent with mine; while
the company prospects are positive, there is a seeming inability to execute on
them properly. Looking back at these numbers, I think they are unrealistic and
frankly question whether there is any reasonable basis for them. I also question
why such an important projection was made public only at this conference when
it is so obvious it has never been publicly discussed elsewhere, disclosed to the
shareholders or filed with the SEC. This is guidance that if it were realistic, should
have been discussed on the quarterly conference call to excite the general public
about a stellar 2014 to look forward to, and filed with the SEC.
As the analysts, shareholders, attendees at the presentation, and general public
do not believe these numbers (stock down approximately 4% since presentation),
I can only hope you are not blinded to the reality everyone else has seen in the
past and lack of any measurable change to positively effect trends for the future.
In my first letter to you I described why we no longer have the luxury to “wait and
hope” that future earnings trend will be different than past trends. This economy,
both in the U.S. and internationally, remains far too fragile to bear false hope on
the same people with the same theories and plans to change the dynamics and
future results. This board needs to weigh the risk exposure by continuing along
the same failed course of action at shareholder expense. More disappointing to
all at the conference was that there was no mentioning the fact that the company
has the “mechanisms to explore strategic options” (as stated “somewhere” in the
quarterly press release). Announcing that this strategy will be formally explored
by no means indicates the company is desperate for a sale, but simply that it
continues to remain undervalued and in order to maximize shareholder value, the
board feels it is in the best interest to explore its’ options. The numbers presented
at the conference in my opinion are actually extremely low when in the hands of
many suitable acquirers.
This company cannot and should not wait and hope to see if you can correct
years of failed efforts to create value for your shareholders. Not only do I
personally think this is exercising bad business judgment, but much of the
investment community feels the same. They fear exactly what I fear, that there is
the chance of continuing operational loss (for internal reasons or circumstances
outside company control) as opposed to planned profit. This would financially
stretch this company too far which could result in either negotiating the sale of
the company from a weak position, or a costly attempt to raise capital at levels
further depressed from where you already have us today. While this may or may
not be the case, it is your responsibility to mitigate our risk. This is coming from
Wall Street professionals, as well as your shareholders. At what point will you
recognize you are placing your shareholders and employees in further danger
each and every day you do not form a special committee, hire a professional
M&A bank, and announce that to maximize shareholder value you will explore
strategic alternatives? The company’s history does not provide confidence that
the Chairman’s business as usual strategy will succeed. I will remind you all
again that you have a fiduciary responsibility to use your best business judgment
to protect the company and your shareholders.
The obvious remaining factor that keeps everyone positive on the company is
that it is extremely undervalued with regard to its’ product lines, the scalability in
the hands of a larger firm, and demand and growth of the aesthetics sector, as
well as the margins for profitability. I have reached out to both colleagues in the
medical field, as well as the investment community, and have confirmed there
would be significant interest from private equity, foreign investment from places
like China, and the obvious competitors that could take this company to levels
never seen or within reach with the current Solta team and strategy in place.
There is a history of successful acquisitions in your industry, and the time has
come to hand Solta Medical off to a company or group that can take this
company, the products, and its employees to the next level of success.
In closing, it is in the best interest of shareholders to explore the potential sale of
Solta Medical, Inc. Companies that are looking to make acquisitions through full
or partial methods of debt financing are extremely aware of the changing
economic climate and rise of interest rates now, and going forward. The window
for some suitors may be closing should you continue to neglect your
responsibilities to maximize shareholder value immediately. The action of the
stock and your lack of action, is extremely telling, so this is not just my opinion.
If you continue to be unwilling to protect us and want to continue to ignore your
fiduciary responsibility, I suggest you step down from your duties to shareholders
in order to prevent further loss. The significant defeat of the proposed increase in
the authorized share count of Solta Medical on June 5, 2013 is clear evidence
that shareholders have no confidence in this board. Your sole purpose is to
serve shareholder needs and immediate bold action on our behalf is required
now.
Of course, you and your management team are certainly allowed to purchase the
company on your own accord if you are so inclined to ignore your shareholder
requests and needs. In fact, most would welcome your offer measured along side
with the others!
Respectfully,
David Callan
Private Investor
Cc: Joel Bernstein, Esquire
What do you think about it?
i agree with it