“…To recap, from Private Bank, they get $20M, spend $24M, reducing unrestricted cash by $4m. Also, they’re likely to burn another $4M as a result of “normal” business in Q2, resulting in a total free cash drop of $8M, from $22.5M to $14.5M. Factor in another $4M burn in Q2 to head them towards $10.5M at end of Q3. As the smoke will continue rise from MATR HQ, more cash burn in Q4 gets them pointed directly at $6-7M in free cash at end of the year.
They’ll most definitely need to get a cash injection no later than September. We’ll see how creative they are about it. Here are the options I see:
1-Outside sources seem expensive, and a 25%+ discount on common stock market price will be expensive, and may not be available as they might not be able to offer downside protection for investors even at that discount. At Friday’s close of $2.55/sh, you’re looking at a discounted $1.90/sh. I’d expect Friday’s new/filings will push the stock down to $2/sh with a continued trajectory to $1.50/sh at end of Q3. Who knows? There’s a lot of stupid money out there.
2-Bail-ins seem popular about the world these days, perhaps they’ll go to the employees? 10% cut for staff below VP level and 25% cut for VP and above, in exchange for stock? Averaging it out, they could get 15% or about $10M in reduced costs, slowing the cash burn. This doesn’t solve the big problem of the overall failure of the business model.
3-Bail-ins aren’t just for employees, in the distant past of ELOY/MATR history, they did a “rights offering”, where they issued “rights” to each common share giving the holder a “right” to purchase a share of new convertible preferred stock with with a liquidation preference and annual dividend. The big institutional investors many of whom own existing preferred might agree to it. The retail investor won’t bite on it and will see their common stock value crammed down to 25 cents per share or so. Subsequently, MATR would go through a reverse split (perhaps 20-1) to bring the price of common back up. (Yay! A $5 dollar stock again!). MATR would still have more than the minimum number of shares outstanding required to stay listed on NASDAQ..
4-A private-equity deal from a new player taking it private would take about $150M with today’s common share price. It would be made much easier if the stock price conveniently tanked to the 75 cents per share range. Perhaps they’d discuss with the largest few current investors about being part of the syndicate. Even then, the investors would want to see how MATR could start generating positive cash flow for the acquirer. If they kept the current management team in place, Conway and company identified $10M in cost savings and gave them new equity awards to ensure they were “properly”motivated. Perhaps they would also do an employee bail-in as part of the new arrangement.
Of course, in this 4th scenario, magically finding $15M-$20M cost savings in conjunction with a take-out and management equity protection, I suspect they’d have to prepare for shareholder lawsuits wondering why management didn’t take appropriate steps before — and only did so once their personal downside was protected. I’m not sure how they would afford it.
However, this is a downward spiral I don’t see stopping. Management is likely to have been and will continue to be distracted by the annual money chase, diverting their attention away from making the business successful (if they/it ever could). Nothing will change until Conway and Coxe are removed from the equation.
At some point, you just run out of other people’s money….”
Quite so, Bob…. And that point may well be September 2017, now… absent a completely shocking (huge win, at the sales line) blow out of a quarter here in Q 2017 results (i.e., not even remotely… possible).
Onward — there’s a train wreck to witness.