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Dear Valued Readers,

In the March 2013 issue of the Ultimate Value Finder, I cover three very different companies: Aurcana Corporation, which is a victim of the recent industry’s sell off; Marchex, which is just crazy how cheap it is; and Premier Exhibitions, which is being sold off because shareholders are exhausted again.

INVESTMENT SUMMARY

When I started Classic Value Investors, the financial markets were collapsing. During the last few months of 2008, I was sitting at my job at a commercial real estate brokerage company, and I walked into my boss’s office and I said, I am quitting. I said I was starting an investment firm because this was

the time to invest. At that time, I was screaming to all my friends and family about all the investment opportunities that I saw. Did anyone listen? Yes, they but did anyone do anything about it? No, not even a single person became my client. Long story short, I was up 360 percent in 2009 on my personal account. I received my first client in the middle of 2009, but this was after

AURCANA CORPORATION (AUN, AUNFF)CONSIDERED TOXIC LIKE ALL THE MINERS

Mariusz Skonieczny

1 Editor’s Comments

1 Aurcana Corporation - Considered Toxic with All the Mining Stocks

8 Marchex - I Cannot Believe This Opportunity Exists 16 Premier Exhibitions - Ok, Let’s Do It Again

CONTENTS

Ultimate VALUE FINDER | MARCH 20132

I was already up by more than 100 percent.

Now, I am SCREAMING again. I can’t make it any louder. THE MINING STOCKS ARE SO CHEAP YOU HAVE TO STOP SUCKING ON YOUR THUMB AND LOOK AT THEM. They are so cheap and so hated we haven’t seen these kinds of opportunities in the mining sector since 1992. If we get returns that are anything close to what happened between 1992 and 1996, some people will make fortunes. The following is a quote from a recent interview with Rick Rule from Sprott Global Resource Investments.

“My net worth is a consequence at having the courage to buy markets like 1992 and 1999 very, very, very aggressively … from the bottom of 1991 to top in 1996, in terms of my own portfolio, in 1996, I paid more in capital gains tax than my net worth was in 1992. That’s the type of wealth that can be created by aggressive speculators in what are regarded by the public as toxic markets. These are opportunities. These are not times of terror for people who think.”

To listen to Rick Rule’s interview, click the following link.

h t t p : / / w w w . k i n g w o r l d n e w s .com/k ingwor ldnews/Broadcast/Entries/2013/2/28_Rick_Rule.html

This brings me to Aurcana Corporation, which is cheap. No, it is not as cheap as Veris Gold or Monument Mining. Nothing is as cheap as Veris or Monument, but I can’t be writing about these two in every issue of the newsletter, which I really should. I bought Aurcana a couple of years ago and the market

cap was about $300 million. At that point, the company was producing about 1 million ounces of silver from one of its mines. Fast forward to today and Aurcana is producing at a run rate of 5 million ounces of silver equivalent per year. This is a significant increase, don’t you think? Well, this is why I was buying it. The company was expanding one of its mines and was putting a brand new mine into production.

Even though the management has been extremely successful at executing, the stock price is pretty much at the same level as what I paid for it. In other words, you are getting a 5-million-ounce producer for the price that I had to pay for a 1-million-ounce producer. But, the story does not end here. The second mine that the company put into production just went into commercial production in December 2012. It is not operating at full capacity. In about 12 to 15 months, Aurcana will be a 10-million-ounce producer when the production ramps up. How is it possible for the price to be so cheap? Well, if the sellers think that mining companies in general are toxic investments, then yeah, you can get it for this price.

COMPANY’S DESCRIPTION

Aurcana Corporation is a Canadian junior mining company listed on the TSX Venture Exchange, symbol AUN, and US Pink Sheets, symbol AUNFF. The company just announced a future reverse split to uplist on a higher exchange. Many investors are throwing a fit about this reverse split.

The principal business of the company is the acquisition, exploration, production, and development of mineral properties, primarily silver-

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copper-zinc-lead mines. Since 2007, the company has been operating La Negra Mine, in which it holds a 99.9 percent interest. La Negra Mine is in the state of Queretaro, Mexico. In addition, in 2008, the company purchased a 100 percent interest in Shafter Mine in Texas, USA. In December 2012, the company announced commercial production at Shafter Mine.

La Negra Mine

The La Negra silver-copper-lead-zinc mine is located in the state of Queretaro, Mexico. The mine was discovered and developed by Industriales Penoles S.A. de C.V. and it was in production from 1970 until 2000. Historically, it produced 36 million ounces of silver, 323 million pounds of zinc, 70 million pounds of copper, and 161 million pounds of lead. Aurcana acquired La Negra Mine in 2006.

Shafter Mine

Shafter Mine is a silver mine in Presidio County, Southwest Texas. From the late 1800s to 1942, it produced more than 35 million ounces of silver. In April 2012, Shafter was put into production two months ahead of schedule and under budget. In December 2012, Shafter was put into commercial production at a rate of 600 tons per day. Currently, it is in the ramp-up phase and should be operating at 1,500 tons per day by the third quarter 2013 (I am sure something will delay it as it always does with the miners).

AURCANA’S PROGRESSION

Aurcana Corporation is truly one of the most remarkable turnaround stories in the mining sector. In 2008, under the previous management, Aurcana was not able to operate profitably. It was on the brink of bankruptcy. The board of directors was dissatisfied, fired the previous CEO, and asked Lenic Rodriguez, who at that time was one of Aurcana’s shareholders and board members, to turn the company around. Since he took over on May 19, 2009, positive things have started to happen. The company became profitable while continuing to increase production.

The following is Aurcana’s progression since I got involved in the company.


When I acquired Aurcana (Point A), the company was only producing silver from one of its projects, La Negra Mine. Because the plant capacity was only 1,000 TPD (tonnes per day), the company was only marginally profitable, producing approximately 1 million ounces of silver. By July 2010, the company expanded La Negra’s capacity to 1,500 TPD. By March 2012, the company expanded La Negra’s capacity to 2,000 TPD. By April 2012, the company expanded it again to 2,500 TPD. Today, La Negra is almost operating at 3,000 TPD and producing approximately 3 million ounces of silver, which is significantly higher than the 1 million it was at when I bought it.

In April 2012, the company put its second mine, Shafter Mine, into production. This was a very big accomplishment. In December 2012, the company announced that Shafter Mine had reached commercial production at a rate of 600 TPD. This was another big accomplishment. Because December is the last month of the year, production from Shafter is not really showing up in the financials yet.

What is next?

The next step that the company is planning to achieve is to expand La Negra Mine to 3,000 TPD and ramp up Shafter Mine to 1,500 TPD. This should happen in 2013. At that point, the company will be producing approximately 7 million ounces of silver per year.

As of the date of this report, La Negra is pretty much at 3,000 TPD and Shafter is at about 900 TPD. Based on this, the current production run rate is about 5 million ounces of silver. The company

estimates that next quarter, Shafter will be at 1,200 TPD and the following quarter at 1,500 TPD. When Shafter reaches 1,500 TPD, Aurcana will be a 7-million-ounce producer.

Then, when Shafter reaches 1,500 TPD, the company will immediately start the expansion towards 2,500 TPD. The estimate is that from 1,500 TPD, it should take about a quarter to reach 2,000 TPD and another quarter to reach 2,500 TPD. So, in total, it should take about 12 months for Shafter to go from 900 TPD to 2,500 TPD.

With La Negra operating at 3,000 TPD (it already is there) and Shafter at 2,500 TPD, Aurcana will be a 10-million-ounce producer. It will have made the transition from being a junior miner when I bought it to a senior miner. As a senior miner, it will not only be generating lots of cash flow, it will also attract institutional investors who will reprice the stock significantly.

VALUATION

A few days ago, Aurcana’s market cap was approaching $300 million after being crushed almost 50 percent from its high. As I am typing this paragraph on Sunday, February 24, 2013, the stock has recovered a bit and now, the market cap is about $350 million. I am just going to stick with the 300-something market cap because I can’t keep up with the market seesawing this thing day in and day out. Who knows where it is going to be by the time I wake up on Monday.

To value Aurcana, let’s look at it from two angles. One, let’s compare it to other silver producers, and two, let’s estimate the kind of cash flow that the

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company can generate based on the current silver production and future silver production.

As I mentioned before, Aurcana’s production is at a run rate of 5 million silver equivalent ounces.

Comparable Company Number 1: Fortuna Silver Mines

Fortuna Silver Mines is silver producer with two low-cost operating mines and landholdings of more than 87,000 hectares in Peru and Mexico. Fortuna produces about 5 million ounces of silver per year. The market cap is slightly more than $500 million. Aurcana’s current run rate is also 5 million ounces per year while its market cap is closer to $300 million. While Fortuna is also a growing company, it doesn’t have the same growth potential. Aurcana is on its way to becoming a 10-million-ounce producer. Don’t you think it should have a higher market cap than Fortuna? I think so.

Comparable Company Number 2: Endeavour Silver Corporation

Endeavour Silver Corporation is a mid-tier silver mining company in Mexico. Currently, the company has three producing mines and five exploration projects. In 2012, Endeavour’s silver production was 6.4 million ounces. The current market cap is almost $600 million but this is because Mr. Market has had its emotional breakdown when it comes to the miners. In September 2012, Endeavour’s market cap was $1 billion. While Endeavour’s current production is higher than Aurcana’s, it doesn’t have the same growth potential. When Aurcana reaches a 10-million-ounce-production mark, it should surpass Endeavour’s valuation

pretty quickly.

Comparable Company Number 3: First Majestic Silver Corporation

First Majestic Silver Corporation is a silver-producing mining company with a portfolio of projects focused on silver in Mexico. First Majestic produces approximately 9 million ounces of silver and has a market cap of $2 billion. While First Majestic’s goal is to produce 16 million ounces by the end of 2014, its valuation just gives you an idea of where Aurcana’s valuation can be once it achieves its 10-million-ounce silver production target.

Comparable Company Number 4: Hecla Mining Company

Hecla Mining Company is a silver producer in the U.S., with exploration properties and operating mines in four world-class silver mining districts in the U.S. and Mexico. Hecla produces approximately 11 million ounces of silver per year and has a market cap of $1.3 billion. Just a few months ago, the market cap was $2 billion, but this was before Mr. Market went crazy.

All of these comparable companies have higher valuations than Aurcana even after the recent meltdown in the mining sector. Yes, they are all different. Some have more growth potential than others. Some have more projects or resources than others. There is no single silver producer identical to another silver producer. I just wanted to show you what kind of valuations Aurcana can get once it reaches its production target. Actually, Aurcana should already be revalued based on the current production rate of 5 million ounces. However, the


problem is that the current production is a run rate production meaning that it is not showing up in the financials yet because financials are backward-looking. In 2012, Aurcana produced only 2.5 million ounces of silver. This is significantly less than the current 5-million-ounce production rate. However, this is because Shafter Mine was barely producing anything in 2012 and also La Negra was being expanded. Shafter was put into commercial production in December 2012, which means that the bulk of its production will show up in the 2013 and 2014 financial statements.

The following is the income statement and balance sheet (next page) of Aurcana.

As you can see, these financials are not very meaningful because they show that Aurcana is not very profitable.

Actually, what they show is that Aurcana has not been very profitable in the past. Of course Aurcana has not been very profitable in the past – it was a turnaround in the making. Here is a good illustration of the turnaround.

Now, with La Negra’s capacity at 3,000 TPD and Shafter ramping up to 1,500 TPD and then to 2,500 TPD, the magic will start happening.

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Current Production of 5 million ounces

Based on the current production of 5 million ounces per year, the company should generate the following cash flows from mining operations.

As you can see, if the price of silver stays around $30 per ounce, Aurcana can generate $100 million of cash flow from mining operations. Notice that cash flow from mining operations is not the ultimate bottom line. It does not include general and administrative. With that being said, mining companies usually trade at some kind of multiple of mining cash flows. Obviously, the magnitude of the multiple depends on the future growth.

Now that we know that Aurcana’s current earning power is $100 million of mining cash flows, what kind of multiple can we assign it? Well, the market is assigning it a multiple of about 3. Is this reasonable considering Aurcana is on track to grow its production to 10 million? I don’t think so. I believe that the multiple should be at least between 6 and 8. Consequently, Aurcana should be trading for between $600 and $800 million today.

Future Production of 10 million ounces

Based on the future production of 10 million ounces, the company should generate the following cash flows from mining operations.

As you can see, if the price of silver stays around $30 per ounce, Aurcana can generate $200 million of cash flows from mining operations. By that time, the market cap should be higher than $1 billion.

Obviously, the current and future cash flows will depend on the price of silver. I will not be discussing silver in this report, but investing in Aurcana makes the most sense for investors who believe that silver prices are either going to stay at the current price levels or increase in the future. I believe that it will increase because of the continuous money printing by our government, but at this point, I am in the minority. Everybody else seems to believe that our economy is improving and that the Fed will stop with its QE experiment.


CONCLUSION

Aurcana went from almost going bankrupt, to being a profitable junior mining company, to being a mid-tier mining company. It is now on track to being a senior mining company. Even though the current CEO saved the company and turned it into what it is today, he is still down on his investment. In order for him to break even, the stock has to double from the current levels. And, I can tell you that he is not just interested in breaking even. He is set on making Aurcana one of the major silver mining companies and making a killing on his investment.

Disclosure: I, or persons whose accounts I manage, own shares of Aurcana Corporation. This report is not a solicitation to buy or sell securities. Neither Mariusz Skonieczny nor Classic Value Investors, LLC, is responsible for any losses resulting from purchasing or disposing shares of Aurcana Corporation. You are advised to consult your financial advisor or conduct the due diligence yourself.

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MARCHEX, INC. (MCHX) - I CANNOT BELIEVE THIS OPPORTUNITY

IS STILL AVAILABLE

INVESTMENT SUMMARY

As an investor in the stock market, you have the ability to invest in companies of all sizes. However, most investors prefer to invest in large cap companies because Wall Street successfully persuaded them that small companies are risky. As a result of this, the kind of mispricing that can be found in the small cap space can be jaw-dropping. For this reason, I focus on these kinds of companies when writing ideas for Ultimate Value Finder.

Marchex is the kind of investment opportunity that makes you want to say, “Is this for real? What is Mr. Market thinking?” Marchex is a company that has two separate business segments. One of the segments is growing fast and has a tremendous future. The second business segment is profitable, but due to the growth of the first business, was neglected until now.

To unlock value, the management has decided to separate these two business segments through a tax-free spinoff. The first business will continue to be run in the same fashion, but the second business will get its own management team that will focus on growing and developing it. When you look closely at each of these businesses, it is obvious that the combined value is more than the company’s current market capitalization. Actually, the value of second business, which is being spun out, is probably more than the company’s current market cap, which means that you are essentially

getting the first business for free. And, it is really the first business that is the crown jewel.

COMPANY’S HISTORY

Marchex was founded by Russ Horowitz and three other executives who successfully built another company called Go2Net, which they sold at the peak of the Nasdaq bubble to InfoSpace for $1.5 billion. Actually, Go2Net merged with InfoSpace, but the transaction was valued at $1.5 billion.

The founders of Marchex

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Upon the merger with InfoSpace, they all joined the newly formed company. Little did they know that they were joining forces with one of the biggest con men of the Internet bubble days. Naveen Jain was the founder of InfoSpace, which was nothing but a big illusion of success created by lies and deception. At one point, Wall Street was in love with Jain and his company, pricing InfoSpace higher than Boeing. To hide the behind-the-scenes problems of InfoSpace, Jain engaged in all kinds of shenanigans such as creative accounting and dubious deals. The merger with Go2Net was one of his ways of covering the revenue shortfalls of InfoSpace.

After Horowitz and his team joined InfoSpace upon the merger, they soon learned how dire the situation was under Jain’s leadership. Long story short, Wall Street woke up to what was going on, the stock price collapsed, and investors and employees lost a lot of money. After realizing that the situation was hopeless, Horowitz and his team left InfoSpace and began their search to start another company.

MARCHEX IS BORN

Because of their previous success with building Go2Net, they did not have much trouble raising money for another company. In 2003, they raised $20 million and used this money to acquire two companies which would form the basis for Marchex. Then, in 2004, the company held an IPO through which it raised an additional $27 million, which was used to buy more companies. Unlike other technology companies, Marchex was not about innovation but about identifying underperforming assets and acquiring them on the cheap.

MARCHEX PROGRESSION

In some ways, companies are like people meaning that they change and evolve over time. When Marchex was started the company was focused on connecting businesses to potential customers mainly through the Internet. In other words, Marchex was the middleman between clients and businesses.

To accomplish this, Marchex acquired various businesses that would enable the company to make these connections. For example, Marchex acquired more than 200,000 domain names with addresses such as Beijing.com, Corporations.com, Cuisine.com, and Remodeling.com. Because these domain names were generating millions of visitors, Marchex was able to funnel them to various businesses and be paid advertising fees. Clients usually paid Marchex fees based on performance meaning that they paid a certain rate per click.

To build its network of domain names and other advertising services, Marchex acquired a handful of companies. But one particular acquisition was so instrumental that it completely changed the company’s business model. That acquisition was VoiceStar, and Marchex acquired it on September 29, 2007, for $28 million.

VoiceStar was one of the largest providers of call-based advertising services including pay-per-call and call-tracking. Pay-per-call is a way for advertisers to market their products or services and only pay when a potential customer calls them. Call-tracking is a way to analyze phone calls in ways such as how often they convert into final sales.

At first, it wasn’t apparent that call-based advertising was going to be a winner, but in 2009, it took off. It was


so successful that the company basically stopped focusing on other parts of the business and concentrated on building call-based advertising. Today, call-based advertising generates more than 80 percent of its revenues. COMPANY DESCRIPTION

Marchex has evolved into an advertising company that helps businesses reach their potential clients. To achieve this, the company offers performance-based digital call advertising and non-call advertising.

Digital Call Advertising

Digital call advertising is the company’s main business which, as mentioned before, was born out of the VoiceStar acquisition. To provide digital call advertising, the company offers two products: Marchex Call Marketplace and Marchex Call Analytics.

Through Marchex Call Marketplace, clients are able to reach potential customers and only pay for advertising when they actually receive phone calls. Here is how it works.

Step Number 1: Potential client searches on the mobile device for a particular product or service.Step Number 2: Various results are generated on the mobile device.Step Number 3: Potential client calls the business that fits his or her search criteria.

Marchex Call Analytics is a technology platform that measures and analyzes phone calls.

This platform helps advertisers get data and insights needed to accurately measure advertising performance, including the number and type of calls driven from mobile, online and offline ad campaigns. The idea behind this product is to help advertisers make more informed ad campaign optimization decisions to drive quality customer phone calls and maximize their return on investment.

Why is Digital Call Advertising Successful?

If you have ever run a business, you know very well that getting clients is key to generating revenues. With no clients, you have no business no matter how good you are. To get clients, most businesses have to do some kind of advertising. However, the problem with advertising is that in many instances, it does not generate meaningful results. For example, I used to run a ballroom dance company where we taught people how to dance. We ran a phone book ad that cost $3,000 for one year. You know what we got in return? Five phone calls. I kid you not. If you do the math, we paid $600 per phone call and you know very well that a phone call does not necessarily mean a new client. After one year of this rip-off, we stopped advertising.

There are thousands and thousands of business owners out there who are not happy with the return on their advertising dollars. They are willing to pay for advertising as long as it

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generates meaningful results and this is where performance-based advertising comes in. This is exactly why digital call advertising has been so successful over the last several years – businesses are desperate for a pay-for-call advertising model. They want and need to receive informational phone calls from potential clients, but they don’t want to pay for advertising that doesn’t deliver results.

With the invention and acceptance of smartphones, the world changed because smartphones allowed people to search the Internet without the need of a desktop computer. While you realize that searching on the phone is a little different than searching on a desktop computer, you might not realize that mobile searching is more important for advertisers. When people search on their desktop computers, they are more likely to do a lot of clicking and visiting websites. Because the screens on smartphones are so tiny, Internet browsing is cumbersome. Consequently, people are more likely to call the businesses to find out what they want and phone calls are much more valuable to advertisers than clicks. Because of the human contact, phone calls have a conversion rate 10 times greater than the rate generated by clicks. These dynamics are understandable because if someone calls me about ballroom dance lessons, I can explain things better and most importantly I can use my sales skills to convince them to sign up for lessons.

Non-Call Advertising

While digital call advertising is the main business, Marchex provides non-call advertising products and services. Non-call advertising is what Marchex was all about before the VoiceStar acquisition which transformed the company and took it into a completely different direction.

Non-call advertising products and services include pay-per-click advertising and proprietary website traffic (people typing in website addresses directly into the browser) from the 200,000 domain names that the company owns. Similar to pay-for-call advertising services, pay-per-click advertising services are all about performance-based advertising, meaning that advertisers pay a fee when someone clicks on their advertisements.

To provide pay-per-click advertising services, Marchex built a distribution network that gets lots of Internet traffic. This distribution network consists of website publishers, distribution partners (Google, Yahoo, etc.), and more 200,000 domain names. When a particular ad is clicked on by an Internet user, the owner of the ad pays a fee. This fee is split between Marchex and the website publisher or distribution partner. If the Internet user clicks on a the ad located on a Marchex-owned domain, the entire fee goes to Marchex. SPINOFF TO UNLOCK VALUE

When you listen to the company’s conference calls, you will hear the CEO say that if you add up the values of the company’s assets, which include the digital call advertising business and 200,000 domain names, the company is undervalued. Because of this undervaluation, the insiders are buying the stock for their personal accounts and the company itself is buying shares.

To unlock value, the management decided to separate its two businesses into two distinct, publicly-traded entities: Marchex and Archeo. Marchex will be a pure play mobile advertising company and Archeo will include the non-call advertising business with more than 200,000 domains. For more information about Archeo, visit www.marchex.com/


archeo. Archeo shares will be distributed to existing Marchex shareholders on a pro rata basis.

Marchex will continue to be run by the same management and the focus will be on digital call advertising which is still relatively new. Most businesses are not even aware that there such a thing as pay-for-call advertising.

Archeo will be run by a completely different management team that will focus on growing this business. As mentioned before, the non-call advertising business has been neglected because Marchex was mainly focused on its fast-growing digital call advertising. With the new management team, Archeo has the potential to deliver superior value to shareholders.

Currently, the non-call advertising business mainly comprises more than 200,000 domain names such as Beijing.com, Corporations.com, Cuisine.com, and Remodeling.com. The domain inventory also includes more than 75,000 U.S. ZIP code sites, including 98102.com and 90210.com.

If you visit some of these websites, you will notice that they are not really developed to their full potential. On the next page are the screenshots of Remodeling.com and Cuisine.com.

As you can see, these two websites have the same layout with some kind of picture in the middle and various links around it. If you click on some of these links, you get various advertisements.

When people click on these advertisements, Marchex gets paid a fee by the advertiser.

The goal for Archeo will be to sell off some of these domains, selectively develop

some of them, and opportunistically buy other domain names to grow the pay-per-click business.

In real estate terms, these domain names are like parking lots. They generate revenues, but when they are developed with buildings, they will generate more revenues. But developing these domains requires resources and focus because websites don’t develop themselves. The reason why the company is planning to selectively develop some of the domains is because it is not cost effective to develop them all. In certain instances, it is better to sell them to someone else or just keep them as parking lots.

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VALUATION

The following is Marchex’s income statement and balance sheet.

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Currently, Marchex has a market cap of about $140 million. As of September 30, 2012, the company had $35 million in cash so the enterprise value is $105 million. Let’s see what we get for this.

Non-Call Advertising Business (Archeo)

Let’s first start with the non-call advertising business which is in the process of being spun out. This business mainly includes over 200,000 domains. What are they worth? We don’t know exactly but we can get an idea.

In February 2005, Marchex acquired more than 100,000 domain names from Name Development. The price that the company paid was $164 million. Notice that this is just for 100,000 domains. Before the acquisition, Marchex already owned 100,000 domain names. If we use this transaction as a comparable, we can conclude that these domains

are worth about $300 million. Let’s not forget that the enterprise value is only $105 million, which means that the domain names alone could be worth three times as much as the price tag of the company and we didn’t even get to the call advertising business. But let’s not get ahead of ourselves here because just because the company paid a certain amount to acquire domain names does not mean that they are worth this much. It is not uncommon for companies to overpay for acquisitions.

Let’s look at it another way. When I looked through the company’s domain names, I was particularly interested in one domain: Salsa.com. I like Latin dancing and I thought it would be cool to own this domain. So, I went to this domain name and clicked “This domain may be for sale. Click here for more information.” This is the page that I got.


Notice two things. One is the price ranges that Marchex wants possible buyers to check and second is the statement saying that most generic domain names sell for a minimum of $50,000. I filled out my information and said that I am interested in buying this domain, and here is the e-mail that I received.

“Thanks for your interest in the domain Salsa. I wanted to personally follow up with you on your inquiry.

Domains similar to this domain have sold in the 6 figure range. Do you mind me asking what your budget is for this domain? We receive many inquiries a day for our domains so it’s important to us to verify if we can meet your pricing expectations prior to initiating the appraisal and sales processes.

I look forward to hearing back from you.”

There is absolutely no way in the world that I would pay 6 figures for this domain, but this is how much some people are willing to pay to get prime digital real estate. The way I responded to this e-mail is the following.

“If domains like this sell in the range of 6 figures, we can just stop our conversation here. It is not even close to what I am willing to pay. The top I would pay is $2,000.”

Obviously, there is no chance that I can get this domain for $2,000. But for illustration purposes, let’s say that the company could get $2,000 on average for domain names that they own. This translates into $400 million ($2,000 x 200,000 domains). This is about four times the current price tag of Marchex.

Let’s look at the valuation in another way. Over the last several years, Marchex sold about 5 percent of its domain names

to people who contacted the company the same way I did, meaning that they visited the website and saw that it was for sale. The company received $30 million for less than 5 percent of its domains and the management stated that the most valuable domains are still owned by the company. Here is the list of some historical domain sales.

http://www.marchex.com/assets/pdf/marchex_historical_top_500_domain_sales.pdf

If the company received $30 million for 5 percent, then the remaining domains can be worth as much as $600 million. This is six times the current price tag.

Let’s look at it in a final way. On the income statement, there are two revenue sources: Partner and Other Revenue Sources and Proprietary Website Traffic Source. The second revenue source, proprietary website traffic source, is from the domain portfolio. This source generates about $20 million in annual revenues. This business model is very high margin (higher than 50 percent), and the income that it generates is about $10 million per year. So, how much is $10 million per year worth? Let’s say $100 million, but remember this income stream is based on the “parking lot” business model. These websites are barely developed. With that being said, let’s just stick with our $100 million valuation.

I don’t know if the domain portfolio is worth $100 million, $300 million or $600 million. But, it doesn’t matter considering the enterprise value is only about $100 million. Actually, even if the domain portfolio was only worth $100 million ($500 per domain = highly unlikely), the stock is still extremely cheap because we didn’t even start talking about the digital call advertising business.

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Digital Call Advertising Business

Based on the current stock price and the valuation of 200,000 domains, the digital call advertising business is being thrown in for free. Yes, you read that right. It is free even though this business is profitable and growing.

Currently, the digital call advertising business generates revenues at a rate of $120 million per year. EBITDA is about $13 million, so based on this information alone, it has to be worth about $100 million. It could be worth more because the management states that once this business gets bigger, margins will grow to as high as 20 percent.

One can argue that the digital call advertising business is worth less than $100 million. I disagree, but even if it is only worth $50 million, you are getting it for free so it doesn’t really matter. I believe that this business has the potential to be worth north of $300 million considering its growth potential. Businesses are only at the early stages of accepting pay-for-call advertising models, and Marchex is one of the leading companies that will be benefiting from this trend.

One other thing that I did not mention is that there are approximately $50 million of deferred tax assets on the balance sheet that can be used to offset future income taxes. Because we already have plenty of value, I don’t even feel like discussing it.

CONCLUSION

Any way you slice it, Marchex’s stock is undervalued. The management knows it and this is why they are buying the stock for their personal accounts and using the company’s cash to buy back shares. They want to unlock value and this is why they are separating Marchex into two separate

businesses. The stock is way too cheap in relation to the underlying value.

Disclosure: I, or persons whose accounts I manage, do not own shares of Marchex, Inc. This report is not a solicitation to buy or sell securities. Neither Mariusz Skonieczny nor Classic Value Investors, LLC, is responsible for any losses resulting from purchasing or disposing shares of Marchex, Inc. You are advised to consult your financial advisor or conduct the due diligence yourself.

Why Don’t I Own This Stock?

I am asked this question on every single company that I don’t own but write about so I decided to include the answer here. And, the answer is simple – I cannot own everything I write about even though I like it. I only own 8 to 10 positions and when I buy something, I commit to it for several years. I can’t be changing my portfolio every week just because I found something “better.” If I did this I would only be investing in potentials and never riding them. When one of my positions reaches my target, I will sell it, and then, I will go back to the ideas that I wrote about and pick one that will take its place.


PREMIER EXHIBITIONS (PRXI) - OK, LET’S DO IT AGAIN

INVESTMENT SUMMARY

If you are a long-time subscriber to Ultimate Value Finder, you will remember that I launched the newsletter in December 2011. Originally, I planned to release the first issue on January 1, 2012, but I rushed the release because of major news that took place during the last few days in December 2011. Premier Exhibitions made an announcement that it was putting its Titanic Artifacts collection for auction, and this was a timely decision because 2012 was the 100th anniversary of the sinking of the ship. Amazingly, the stock price did not move up immediately because there were some hedge funds that were liquidating it. I quickly realized that once these hedge funds ran out of stock to sell, the price would skyrocket. So, I released the newsletter early.

It turned out that I was right even though I am almost always 100 percent wrong on the price movement in the short term. The stock price increased from $1.65 per to $3.75 per share by March 29, 2012. This was an increase of 127 percent in just three months. Not bad. At that point, I was sitting at my computer thinking that at $3.75 per share, there was not much upside left, but that the downside was huge

because they might not close on the transaction or the closing might take too long for investors. Consequently, I sold my position not that far from the peak.

Since then, the auction produced a buyer of the Titanic Artifacts collection who signed a non-binding letter of intent for $189 million. You might think that this is great – you put your item on the auction, the buyer shows up, and you close the transaction. There is one problem, though. The closing part of transaction is taking time and you know how much Mr. Market enjoys waiting around.

Anyway, by now, investors are simply worn out from waiting even though the letter of intent was signed only four months ago. When they were excited about the news of the auction, they drove up the stock price to almost $4 per share. Now that they are mentally exhausted, they are driving it down to almost $2 per share. The market cap is approaching $100 million while the buyer is willing to pay $189 million for Titanic Artifacts collection. So I say, ok, we made money on it before because previous market participants lost patience. Now, they are doing it again. Fine, let’s do it again.

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COMPANY DESCRIPTION

On September 29, 2011, the management separated Premier Exhibitions into two operating divisions: an exhibition management subsidiary and a content subsidiary. The purpose of this separation was to monetize its content subsidiary, which holds the Titanic Artifacts collection.

Exhibition Management Subsidiary

Through the exhibition management subsidiary, the company is in the business of presenting museum-quality touring exhibitions around the world. They are presented at exhibition centers, museums, retail locations and other high-traffic venues. The company makes its money through admission ticket sales, co-production agreements, third-party licensing, merchandise, and sponsorships. The two most well-known exhibitions are the Bodies and Titanic Exhibits.

Bodies

The Bodies Exhibition, which shows preserved human bodies dissected to display bodily systems, has been viewed by more than 15 million people worldwide. The following photographs are a sample of what the Bodies

Exhibition has to offer.

Titanic

The Titanic Exhibition has been viewed by approximately 20 million visitors. It features artifacts recovered from the wreck of the famous ship and tells the Titanic’s story from construction through sinking, discovery and conservation.

Content Subsidiary

Through its content subsidiary, the company owns the Titanic Artifacts collection. Premier Exhibitions has two sets of Titanic artifacts: the “1987 Artifacts” and the “Post-1987 Artifacts.” The “1987 Artifacts” set consists of 2,000 pieces that were recovered from the wrecked ship in 1987. The “Post-1987 Artifacts” set consists of more than 3,000 artifacts that were salvaged during expeditions in 1993, 1994, 1996, 1998, 2000 and 2004. Until August 12, 2011, the company did not have the title to the “Post-1987 Artifacts.”


The company fought in court for 17 years to resolve the ownership issue of the “Post-1987 Artifacts” and finally, on August 12, 2011, the United States District Court for the Eastern District of Virginia, Norfold Division, issued an opinion granting an in specie salvage award of the “Post-1987 Artifacts” to Premier Exhibitions with a value of approximately $110 million ($2.13 per share) as compensation for the recovery and conservation of more than 3,000 artifacts salvaged from the Titanic wreck site.

DARLING OF WALL STREET

The stock of Premier Exhibitions used to be a darling of Wall Street as shown in the following graph.

As you can see, the stock price went from $0.08 to $18.00 per share in a matter of four years. How could Wall Street not have loved this company considering one could have turned $100,000 into $22.5 million in four years assuming one got in at the bottom and sold at the top?

COLLAPSE

Unfortunately, on Wall Street, there is no such thing as unconditional love. If your stock price continues to go up, they love you even if your underlying business is struggling. However, when

the stock price starts falling, then the romantic affair comes to an end. This is exactly what happened as shown in the following chart.

The stock of Premier Exhibitions completely collapsed because the company was mismanaged by the previous CEO. He spent a lot of money to chase growth initiatives at all costs. As a result, operating expenses increased significantly and when revenues started trending downward in 2008, profits collapsed. If he had not been ousted, the company would have gone bankrupt.

TURNAROUND

About four years ago, Mark Sellers, a major shareholder, replaced the former CEO with a turnaround CEO, to help stop the bleeding and get the company back on its feet. Since then, the new CEO was able to save the company from bankruptcy and gain control of expenses. However, turnarounds are similar in a way to the rehabilitation of houses. You never know what you are going to find until you open up the wall, and usually it costs more money and time than originally anticipated. Premier Exhibitions was no exception. The turnaround efforts were not supposed to take as long at they did. As you can imagine, investors did not hold back their criticism. In the end, that’s what

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investors are best at – complaining and telling managers how they should be running their companies.

After four years of hard work, the turnaround is finally showing very good results, although the market is completely oblivious to it. The following is the company’s income statement from Fiscal Year 2008 through the first nine months of Fiscal Year 2013. The fiscal year ends in February.

As you can see, Fiscal Year 2013 will be the first year in four years that the company will be profitable. EBITDA for the first nine months was $6.5 million with the third quarter being the slowest. By the time the fourth quarter is reported, EBITDA should be approaching $10 million. I will address the valuation later.


IT IS NOT ABOUT THE EXHIBITION BUSINESS

The turnaround that I just described is about the exhibition management subsidiary, but this is not why investors have been investing in Premier Exhibitions for the past four years. Since Mark Sellers brought in the new CEO to turn the company around, the investment thesis has been all about the Titanic Artifacts collection, which were appraised at $189 million while the market cap of the company was much lower than that.

Because this was an asset play, the stock price fluctuated based on what investors believed was going to happen with the Titanic Artifacts collection. At one point, many believed in the value of the Titanic Artifacts collection so they bid up the stock price. Then, they lost patience so they sold it off. Then, the company announced that it was putting the Titanic Artifacts collection up for auction so they got excited and bid up the stock price again. Soon, they realized that the auction is not the same as the final sale so they got bored and sold it off. Then, the company signed a letter of intent with the buyer for $189 million, and they bid up the stock price again. Now, they are realizing that the letter of intent is not the same as the final sale and they are selling it off again. This is so ridiculous that you could not write a better movie script if you wanted to. Why can’t they just take a seat and wait until the investment thesis plays out? If they could, I would not be writing about it because prices would be efficient.

Anyway, where we are now is the company put Titanic Artifacts up for auction last year. As a result of the auction, several potential buyers

showed interest in the artifacts, and on October 15, 2012, the company announced that it had entered into a non-binding letter of intent to purchase the Titanic Artifacts collection for $189 million. After this news, the stock price increased 32 percent from $2.20 to $2.90 per share. However, it didn’t take too long for investors to get bored again. We are now at the end of February and the transaction has not closed yet. So, what are they doing? They sell it off again back to the $2 something level as if the letter of intent never happened.

Obviously, I do not have a crystal ball so there is no way to be 100 percent certain whether the transaction will close because there are several contingencies. With that being said, picture this. You have a house on the market for $200,000, which is what a realtor told you to list it at. After a week, you get an offer for this amount. Soon, you learn that the buyer cannot get his or her financing and has to walk away from the transaction. What do you do? Do you throw in the towel and decide that your house is worthless or do you put it back on the market with the intention of finding a new buyer? Of course, you put it back on the market.

It is the same situation with the Titanic Artifacts collection. I don’t know if the transaction with the current buyers will close, but even if it falls apart, the Titanic Artifacts collection is still worth about $189 million. If it is not this buyer, there will be another buyer. It might not be at $189 million, but considering that the market has thrown in the towel and driven the market cap back to almost $100 million, I think there is enough margin of safety.

Also, everybody is so tired of waiting on the sale of the Titanic Artifacts collection

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that they completely forgot that Premier Exhibitions also has an operating business. Remember, the management has been diligently working on turning the exhibition business around, which according to Greggory Schneider, 6 percent owner of Premier Exhibitions, is worth $75 million or $1.50 per share. In other words, at a price of almost $2 per share, the crazy market is not too far away from giving away the Titanic Artifacts collection for free because the buyer is taking too long to close the transaction.

VALUATION

As mentioned before, for several years, the investment thesis in Premier Exhibitions was the following – the value of Titanic Artifacts is higher than the market cap of the company.

This is the valuation that I presented when I wrote about Premier Exhibitions in the January 2012 issue.

• “Post-1987 Artifacts” = $110 million or $2.13 per share• “1987 Artifacts” = $35 million or $0.75 per share (based on an outdated 2007 appraisal; it should be much higher)• Intellectual Titanic Property (Film footage, digital archives, etc.) = $44 million or $0.94 per share (based on an outdated 2007 appraisal; it should be much higher) • Exhibition business = $0 (even though it has value, I completely ignore it)

Total Value = $189 million or $3.82 per share. This is the amount that the buyer signed the letter of intent for.

Notice one thing – I assigned zero value to the exhibition business. At

that time, the exhibition business was in the middle of being turned around and it was just breaking even. The management’s ability to turn this business from losing money into breaking even was a big milestone, but I didn’t feel that at that point it had much value. But now, more than a year later, the exhibition business is doing much better. In other words, the turnaround efforts are finally showing results. The interesting thing is that investors are so tired of waiting for the closing of the Titanic Artifacts collection sale that they are not even bothering to look at the progress that has been made with the exhibition business. As I mentioned previously, the exhibition business will be profitable in Fiscal Year 2013 which ends on February 28, 2013. I estimate that EBITDA will be around $10 million. Consequently, the exhibition business is probably worth between $70 and $80 million. If the company continues with its progress, this business could be worth even more next year. But, let’s not get ahead of ourselves. The following text is taken from Form 13D filed on November 14, 2012, by Greggory Schneider.

“Mr. Schneider believes Premier Exhibitions’ common stock is dramatically undervalued at current levels. With a $189 million ‘tax efficient’ sale of the Titanic assets (RMS Titanic Inc.) underway, which will likely net the company $3.30-3.50/share, and a profitable operating business that has experienced a successful turnaround, the sum of parts value can easily exceed $4.50/share. Given the seasonality of the operating company it should not remain a public entity. The company suggested in its most recent conference call that it will be profitable in its current (slowest due to seasonality) quarter and expects


to be profitable going forward, and is working on interesting/exciting new content/exhibitions. The company managed to earn nearly two times as much EBITDA (nearly $5,000,000) in the quarter ending August 31st which occurred after the 100th anniversary of the Titanic buzz (quarter ending May 31st) had settled, which speaks to its substantial operational improvement and makes the timing ideal for a sale of the remainder of the company. Mr. Schneider believes the operating segment of the company can easily fetch $75 million ($1.50+/share) using a conservative EBITDA assumption for the next two quarters without adding value for the upcoming new exhibitions and content which the company mentioned in its most recent conference call. While the company has indirectly hinted that it may seek to sell the operating subsidiary during various press releases, Mr. Schneider would like the company to initiate a public and formal process for monetizing the operating company so as to ensure shareholders that they are receiving maximum value. Mr. Schneider believes the market is completely ignoring the value of the operating business and also misunderstanding the tax consequences of the Titanic transaction. With the Titanic assets well on their way to being sold for an amount that far exceeds the company’s current market capitalization, Mr. Schneider believes the best way to reflect the company’s true value is to immediately initiate a formal process to privatize or sell the operating portion of the business (Premier Exhibitions).”

While you might argue whether the exhibition business is worth $75 million, at these price levels you don’t

have to be that precise. If you add $75 million to $189 million from the Titanic Artifacts collection, you get $264 million, which is significantly higher than the current market cap. In other words, there is enough room to be wrong on the valuation and still come out ahead.

Here is the balance sheet for informational purposes.

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CONCLUSION

I doubled my money on Premier Exhibitions because I was patient and did not get exhausted like others did. I sold my entire position because investors happily bid it up so high that it didn’t make much sense to hold it anymore. Right after I sold it, investors got exhausted again and drove the stock price so low that it is becoming ridiculous again. At this point, there is a lot more value in Premier Exhibitions than what the market is assigning to it. Now, what you have to decide is whether the value that you are getting is enough for the price that you are paying. Obviously, the best case scenario would be if the market drove the stock price to as low as $1.50 per share. This way, the price tag would be covered by the exhibition business, and the Titanic Artifacts collection would be given away for free. I don’t know if the market will get crazy enough to send it this low, but it might. Just give it a few more weeks and we might see it there. Or, if the buyer of the Titanic Artifacts collection does not close the sale, investors will likely sell it off this low saying something like this, “See, I told you no one wants these Titanic artifacts. They are worth nothing. Sell, sell, sell.” If this ever happens, I think I will back up the truck. In the meantime, I am just going to be watching, but this does not mean that it is not a good deal to buy shares at these levels.

Disclosure: I, or persons whose accounts I manage, do not own shares of Premier Exhibitions. This report is not a solicitation to buy or sell securities. Neither Mariusz Skonieczny nor Classic Value Investors, LLC, is responsible for any losses resulting from

purchasing or disposing shares of Premier Exhibitions. You are advised to consult your financial advisor or conduct the due diligence yourself.

Why Don’t I Own This Stock?

I am asked this question on every single company that I don’t own but write about so I decided to include the answer here. And, the answer is simple – I cannot own everything I write about even though I like it. I only own 8 to 10 positions and when I buy something, I commit to it for several years. I can’t be changing my portfolio every week just because I found something “better.” If I did this I would only be investing in potentials and never riding them. When one of my positions reaches my target, I will sell it, and then, I will go back to the ideas that I wrote about and pick one that will take its place.


Subscribe Todaywww.classicvalueinvestors.com/newsletter.html

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