Post by
dt_core on Jan 30, 2024 1:21pm
Recap - What's Next for THNK?
Investors have been left with a very interesting predicament with THNK. A summary of the main positives and negatives.
The Good
1. Management indicating that the SaaS pipeline is strong and more importantly "mature" implying a catalyitc news release(s) could occur any day now.
2. Beedie has provided bridge financing which implies they also believe a catalytic news release will occur over the short term
3. Management comments suggest that the company is well positioned in 2024 and the CRO issues of Q3 and somewhat Q4 should dissipate
4. Assuming all the above, then positive cash flow after interest and capex/R&D/intangibles should also occur
5. THNK has indicated that in the competitive RFP's they've entered into and also won THNK is the best positioned or ONLY firm capable of delivering what the clients are looking for (first mover advantage).
6. Many Canadian provinces are getting very active with respect to engaging private companies to improve health delivery. THNK is really well positioned to benefit. Add in the potential for a Conservative federal government in a few years and you have a very favourable political environment for the company.
7. Still lots of hiring occuring at THNK with most being new positions rather than the result of people leaving. Recent job posting also suggest an expansion into Australia (a new market).
The Bad
1. News releases about business wins have not materialized since management began commenting on how mature their pipeline was back in late August (5 months ago). Was management blowing smoke?
2. The balance sheet is getting very precarious as THNK continues to draw on its Beedie Capital facilitiy. Interest payments are also incredibly high, now near $6 million in total annually to all creditors (Beedie and Scotia). Worst still a lot of the debt is convertible into dilutives shares at relatively low strike prices between 35 cents and 40 cents for the most part. Also the covenant breaches continue (which management said would be the case over the "short term")
3. Management's transparency leaves a lot to be desired as we witnessed last quarter when the company knew they were facing an issue with the CRO business during their Q2 call but didn't communicate it to investors until the Q3 report and call.
4. There has been virtually zero insider buying of shares (though if material news releases are around the corner, insiders may be restricted outside of "tax planning" share sales)
5. With the share price at current levels the financing market is essentially closed to management outside of a ridiculously dilutive issuance (or convertible debt facility draw with Beedie which would have a 20 cent strike).
6. Overall aquisitions have not performed as expected particularly Biopharma and Clinic 360. Better results have been had in the SaaS space.
So where does the company go from here? It really seems to be binary (it'll be a home run or a strike out). Having said that the market is currently pricing in the worst case scenario - either continued draws from Beedie at highly dilutive conversion prices, a straight equity issuance again at highly dilutive prices, or possibly a distressed sale of the company. On the other hand its possible that management was telling the truth and that any day now we could see a material news release(s) and the stock price could soar even considering potential dilution from convertible debt which candidly has been more than priced into the current share price.
My best guess: We have seen consecutive months of THNK drawing on their Beedie capital line to maintain covenants with Scotia Bank. Each draw has been around the 15th of the month. The Beedie Capital line was re-negotiated at a set 35 cent conversion price for a total of $5M which we have now seen fully drawn. Presumably $4M remains available at a conversion price of 20 cents. So it seems we will know what direction we're heading in by mid-February. We'll either get the big news releases and the company's financial position and prospects will improve tremendously, or we'll see a highly dilutive capital raise either in the form of more convertible debt or an equity issuance. There is also a possibility, which I think is growing everyday, that management could be working with private equity sponsors behind the scenes in hopes of arranging an MBO especially given that valuation remains in the gutter. I guess we'll see what happens but the next 2-3 weeks could be very interesting or very telling.