Insider activity, NCIBs and moreFrom time to time, I see comments here which indicate that the commenter is not aware of certain tools and information which are freely available to them.
Here are a few pointers so you can guess less and know more:
1. NCIB purchases by the company
There are lots of rules set by regulators about how NCIBs (share buybacks) are conducted. I will only point out a few here.
a. The company is not allowed to purchase shares from insiders under its NCIB. The company must take steps to ensure this does not take place. These steps can include halting the NCIB on days when insiders are sellers and/or ensuring that insider selling is only taking place above the maximum bid of the company under its NCIB on those days. All employees of Input, including those who are technically not insiders (ie. not SEDI filers) must get written permission from myself or our Corporate Secretary prior to conducting any purchases or sales of INP shares to ensure these and other rules are followed.
b. There is no need to speculate on how many shares the company is buying back and the price it is paying, nor is there any need to wait for quarterly financials to be released to find out this information. Under an NCIB, the company is required to do a SEDI filing every month, by the 10th day of the following month, which lists each day's buying activity - how many shares and at what volume weighted average price. The SEDI.ca website is among the worst I have ever seen or used, but the information is there if you are a bit persistent. Our next NCIB-related SEDI filing is due by APril 10.
2. Insider buying and selling over the last year
I see comments regarding recent selling activity by some insiders, including myself. I recommend that if you have questions as to why these transactions take place that you contact me. It beats speculating as to motive. For privacy reasons, I may not be able to give you every last detail - each seller or buyer will tell me how much of their personally affairs they are comfortable discussing - but I will do my best to get you some colour.
Today, I was working on my personal tax return, so I was reminded of some of my transactions during 2017. I'm happy to discuss them here:
March 2017 - I contributed 10,000 INP shares to my RRSP from an unregistered account. At a loss, and thus no capital gains deduction here. But an opportunity to put some additional INP shares in my registered account. On SEDI, this takes on the appearance of a share sale.
April 2017 - I borrowed a lot of money to buy 750,000 shares of INP at $1.80. This transaction was completed at the same time that our CEO and co-founding VP purchased an additional 3.5 million shares at the same price. They also borrowed a lot of money.
June 2017 - I borrowed $100,000 to exercise 100,000 options at $1.00, donated 50,000 shares to charity and sold the remaining 50,000 shares @ about $2.00 to pay back the loan. This was a trial run to see how efficiently this process could be used. A constant challenge in 2017 was trying to figure out how to exercise a significant number of in-the-money options that I was issued when the company was founded. (A first world problem, to be sure.) I wanted to minimize my sales and hold as many shares as possible, but I didn't have the cash to do it.
September 2017 - borrowed $200,000 to exercise another 200,000 options. During the narrow period in which I was not blacked out from selling (more on blackouts below), I tried to sell some, but failed because the bids just weren't there.
December 2017 - facing the need to raise over $500K to finish exercising options that were due to expire, I finally sold the 200,000 shares from September and borrowed some additional money to exercise the last of my soon-to-expire options less than a week later. In order to avoid just placing them on the market, I called a brokerage firm that knows INP well and got them to find me an institutional block buyer for these shares so they didn't weigh on the open market. (By my count, we had only 14 trading days between the end of one blackout period and the start of the next one to conduct any transactions. This was also during tax loss selling season and over Chrismas, when trading volumes are light, so it was not a good time to be forced to be a seller.) I continue to hold all the shares that resulted from the option exercise in December.
A few additional comments:
- Many of my colleagues were in a similar boat in 2017 - scrounging up credit and cash to exercise options. Over the last 12 months, INP insiders (including non-SEDI filers) have purchased about 6.85 million shares and sold about 450,000 shares (going from memory here). That means we've collectively spent about $10 million of our own (and borrowed) money increasing our position in the company. We've got big plans for Input, and we're putting our money where our mouth is.
- As you know, borrowing money generates interest costs. Occasionally, we have to make payments, and this may mean that somebody has to sell a few shares to stay current and maintain some liquidity. We don't like doing it at these prices, but sometimes we have no choice, and we try to do it in an orderly way.
- Selling is sometimes further complicated by the fact that we are often in blackout. Blackout is a company imposed restriction on when we can sell or buy shares, and the standard blackout periods take up substantially more than half of the calendar year. This significantly narrows the time periods during which insiders can sell, sometimes forcing sales at times that we ourselves do not like.
- One last challenge to managing any selling is that INP's trading volume is sometimes low. This is particularly relevant when it comes to exercising options. We are highly cognizant that exercising 100,000 options AND trying to sell the resulting shares the same day can be detrimental to the share price. We use an option administration service to assist us manage option exercises and administration, and if an option holder placed an order to exercise and sell all at once, that sell order hits the market as a market order, taking whatever bids are available at the moment. If you have Level 2 quotes for INP, have a look at the market depth and you will see that this would be bad for all shareholders. This is rather different than the situation faced by option holders in large cap, highly traded companies. An option holder at Google never worries that exercising their 50,000 options and selling the resulting shares could take the share price down 5%. But at INP, we have to pay attention to these details.
So why have I gone to the trouble of telling you all this? Because I want to communicate to you as shareholders that the founders and insiders at INP care deeply about the company, we are highly committed to it and increasing our commitment, and that we work very hard to protect shareholders from unintended consequences that might result from something we do, sometimes to the point of personal sacrifice by carrying more debt for longer than we would otherwise be comfortable. We're not looking for sympathy in any way, but you need to know that we take our obligations to shareholders very seriously.
I trust this has been helpful. If you have questions, feel free to reach out. My email address and phone # are in every press release.
Have a good weekend.
Brad Farquhar
Executive VP & CFO
Input Capital Corp.