Frankly, my hurried post from last night, by train — and then quickly-edited while we waited for dessert — at a nice restaurant dinner, with my now grown sons (just into town, for the holiday weekend), is… a bit of a mess. But I wanted to get some word out, and quickly.
Forgive me for that.
Even so, I will let it stand.
Here are my more refined thoughts, on the documents disclosed after hours last evening, to the SEC — as I watch the luminous but clear dawn emerge — of Saturday, on Fourth of July Weekend 2017:
(1) Hercules played its cards well. It is a near certainty that we are seeing this take-out of Hercules’ lendings (plus maximum cash pre-payment gravy!), right on the quarter end — precisely because Hercules knew Messrs. Conway and Mullen were going to miss internal, undisclosed projections for Q2 2017. [More on the undisclosed part, of those lending covenants, in a future post.]
(2) So Hercules extracted its $4 million in cash, for making a line available for a little under a year — took its event risk off the table — and walked away.
(3) Hercules was likely able to do so, because as we’ve pointed out, it had Mr. Conway over a barrel — and any additional lendings were always subject to revenue covenants he likely could not meet. And likely… didn’t.
(4) We should not think of the new re-fi/lending as a “bank” lending in any traditional sense (despite the word bank in the name). The line is already overdrawn, and until we see the “Churn”, EBITDA (GAAP Losses actually) and Revenue figures for Q2 2017 (come mid August — which in turn will drive whether more money may be borrowed), we won’t know whether new equity will be sought by the company in September, or December of 2017. But the company likely STILL needs MORE new equity.
(5) It seems highly likely that this new lender has Mattersight over essentially the same barrel that Silicon Valley Bank in 2015-16 (and then Hercules 2016-17) had it over, in each of the past three summers.
(6) Given the lower nominal rate recited (at least for less than overdrawn amounts, should the company get back under limit), I must wonder… is this re-fi lending guaranteed by some affiliated shareholder(s) — ones with very deep pockets?
(7) If so, who are the guarantors? Mattersight will have to disclose them, in short order.
(8) If there are no guarantors, despite the documents providing for them, then some form of a going private transaction may be in the offing — and a take-out (this time, for the Private Bank), may loom in Q4 2017.
(9) Once again — this solves nothing — save the very near term liquidity crises. UGLY. I’ll note that it shows many word processing signs of being hastily drafted, and has been buried… into a long holiday weekend, with no fancy presser — from either party.
Finally, I will note — as Bob did quietly, in comments two posts ago, that executive management has now taken out aggregated amounts in cash salary and bonuses — essentially equal to the shareholders’ accumulated deficit over the period this has been a public company (coming up on 18 years).
That’s no business model at all. So I expect an ugly Q2 2017 results call, come mid-August. You should too.