Addressing the Liquidity & Funding Acquisitions…I disagree with you Mountainpose both on your stance on needed another equity raise and I don’t like your chances of getting a chance to add back at lower prices. Friday was your shot.
Here’s I see it;
Before we look at cashflow I think you are off on your assessment of working capital position and cash needs of the company because the Q1 Balance sheet is a little misleading.
From Q1 Balance Sheet
Current Assets = $42,119,370
Current Liabilities = $47,178,758
NEGATIVE WORKING CAPITAL of $(5,059,388)
*However, this does not consider 2 significant factors that you are overlooking.
Adj. Working Capital Position
Current Assets = $51,320,635 (Add: $9,201,265 April Bought Deal @ 1.55/share)
Current Liabilities = $30,727,358 (*Subtract: $16,451,400 Operating Line @ PRIME + 1.5%)
POSITIVE WORKING CAPITAL of $20,593,277
*I feel very confident netting out the operating line from Silicon Valley Bank because they have demonstrated the ability to work with and grow with AcuityAds and it is listed as current as its payable March 2020. However, I believe this credit agreement will be extended again and upsized as AcuityAds continues to grow.
Lets look at Note 18 from Q1 Financials;
18. Revolving line of credit
On November 13, 2015, the Company secured a US$3.5 million (approximately CA$4.6 million) revolving line of credit from Silicon Valley Bank (“SVB”). On September 1, 2016, the Company secured an addendum to the revolving line of credit increasing the total borrowing limit to US$6.5 million (approximately CA$8.5 million). On March 30, 2017, the Company secured an addendum to the revolving line of credit increasing the total borrowing limit to US$10.0 million (approximately CA$13.3 million).
On October 18, 2018, the Company and Silicon Valley Bank agreed to increase its line of credit to US$15,000,000 from US$10,000,000 and extend the maturity date to March 2020. In addition, the applicable interest rate has been reduced from prime plus 3.0% to prime plus 1.50%.
At March 31, 2019, the prime rate was 5.50%. The revolving line of credit is calculated based on a maximum total amount of 80% of the Company’s accounts receivable and 80% of investment tax credits receivable.
End Quote;
Silicon Valley has continued to upsize and bring down the borrowing cost for AcuityAds. Now you don’t do that if you think the company is a credit risk…
Operating Cashflow
If you look at Q1 as the slowest Q of the year and ex out working capital balance changes Operating Cashflow was $(36,505) essentially breakeven.
You will see a big expansion in cashflow as the gross margin normalizes back closer to 50% which will flow directly down the income statement. You could easily see them generating over $5,000,000 in operating cashflow this year. Q4 will be a MONSTER
Funding Accretive Acquisitions
The kicker is I think they can continue to fund their acquisition program still without that dilutive equity raise you are talking about. Within the programmatic ad space many of the acquisitions are structured with very little cash up front with back end earnout payments. This results in cash preservation and only dolling out cash if the acquisition is effectively integrated and continues to grow.
Just look at how the 2 Deals were structured in 2018 ;
Magnetic Media Online Holdings Inc. – Total Consideration – US$2,256,207 ($0 Cash, US$2,256,207 Performance Earnout Payments)
Adman – Total Consideration – $12,111,681 CAD ($2,964,458 Cash, $713,523 in Shares & $8,433,700 Performance Earnout Payments)
That’s close to $15,000,000 used in its acquisition program with under $3,000,000 in front end loaded cash payments.
Look for more of this in the back half of 2019.
They have more then enough capital to fund both internally generated organic and acquisitive growth for the remainder of 2019.
LONG