Well, The Private Bank Lending Is Not 90 Days Old Yet… And Q3/Q4 WAIVER Likely Needed.

I won’t unduly belabor this — except to say that it is additional proof that this company has never been able to, and cannot at present forecast (or equally likely, so deeply drinks its own Kool-Aid!), that it is forever (metaphorically) engaged in a self-loathing series of “one-night stands” with predatory (and some occasionally good-natured)… lenders. Crazy. Cra-cra-crazy.

Private Bank is at least the fourth replaced lender in just over five years. As each of the recent lenders leave, in the gray early morning light — they take about $1.8 million in cash, as an exit fee, off the dresser — for these metaphorical one-nighters.

So it is likely to be, with Private Bank. As Bob pointed out just yesterday morning, Mattersight is likely to show net losses, on a GAAP basis of $4.7 million in Q3 — and $4.6 million in Q4. Owing to the fact that the company may need to issue shares in one or both of these quarters, it makes little sense to convert the losses to a per share number, as the ever increasing denominator tends to obscure the severity of the trend.

For example, in Q2 the company lost $6.8 million on a GAAP basis (that. on sales of $10.5 million). We expect some improvement in the back half of the year, but on a GAAP basis it is still likely to lose about another $9.3 to $9.4 million overall.

Meanwhile, it has promised Private Bank that “Adjusted EBITDA” will come in no worse than $1.25 million in Q3, and be… Zero, in Q4 2017. See page 53 of that SEC filed link.

Private Bank will extract a waiver fee, for these misses. And they will occur — to a near certainty. [How on Earth will the CFO save his way to an additional $300,000 per quarter — while paying $600,000 per quarter in third party tech fees, that he “didn’t expect/plan for”?]

Note also that it was only by re-valuing the warrant liability that the company avoided blowing the covenant, in Q2 2017 — adding back $260,000 to get under the promised $2 million top end, on EBITDA losses under the shiny new Private Bank covenant.

Bob is right: at a company like this (one that is bleeding cash — and constantly hitting the public equity bailout button), it makes no sense at all to look at any EBITDA loss level, at least not one the company may “adjust” at will. [As it just did, in Q2 2017.]

The good news is that the Private Bank lending tests EBITDA pretty tightly, and so… Mattersight is likely to have to leave some money on the dresser, in the morning, for its nightly visitor — as she leaves.

It has always been so. Will Mr. Singer put an end to all this nonsense?

We shall see.

But I now think this is a sub-$2 per share NASDAQ stock — for the foreseeable future.

[I am not now, nor have I ever been — nor will I ever be — long or short this stock.]


3 thoughts on “Well, The Private Bank Lending Is Not 90 Days Old Yet… And Q3/Q4 WAIVER Likely Needed.”

  1. The next few months will be very interesting. They’re banking pretty heavily on customers in the pipeline to turn on revenue in the fall. You have to think that their very precarious financial position will cause customers in the pipeline to think long and hard before signing on the dotted line and it may in fact be this financial situation that has caused the sales cycles to extend so long as the clients’ financial types do a due diligence dive on Mattersight.

    As to a stock sale, Mattersight going to have to raise enough money to pay off the private bank loan as well as raise enough cash for operating purposes. Right now they owe Private Bank 13.7 million at the end of Q2 they’ve likely drawn more on that by now. Let’s say they need 16 million dollars to pay off private bank and they’d like to put another 16 million dollars in cash on the books. That’s 32 million dollars they’d have to raise at what is likely to be a significant discount to the stock price at that moment. Let’s say the stock price settles in and around $2 a share and they go and sell stock at a 1/3 discount. That means they’d be selling stock at a 1.33 a share and they’d have to sell 24 million shares of stock.

    Of course none of that goes to address the core problems of the business which would likely persist on after such a highly dilutive stock sale. They’d have to achieve some real magic in their sales cycle to up revenue and hope that it can be much faster than the attendant increase in costs.

    There is a path out of this that doesn’t require selling more stock and allows them to pay off their debts without being acquired. I’ll see if they can stumble on the answer.

    1. Indeed. I am given to understand that a draft derivative action, and federal securities complaint will reach the CEO and CFO today.

      And the stock is at $2.22 at the NASDAQ open. Ugly.

      We will save your “solution” for when and where the company is willing to engage in constructive dialogue.

      Grin — great stuff man!

    2. I agree. And I just thought I’d wave all friendly like, at Winston & Strawn — nice of you to stop by, and repeatedly load pages here — at 11:15 AM CDT this morning — almost exactly at the same time as Mattersight set a new all time NASDAQ low of $2.15 per share.

      That is now below the bottom hit in the financial crisis of late 2008.

      Good going, Messrs. Conway and Mullen!

      UPDATE: I should also mention that the company’s ex-bankers at Silicon Valley Bank have been visiting more often than usual, ever since Q2 2017 results were disclosed. Everybody likes watching a train-wreck, in slow motion, it would seem.


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