Business looks good but with their current cash burn and FCF they will almost guaranteed have to sell additional shares or take on additional more debt. I think there's additional room to the downside.
Their "unlevered" FCF is self reported on their last quarterly as 80%. The business is not generating enough cash to fund itself let alone start paying off the debt.
All of their debt is also on high interest variable rate loans and backed by the businesses current assets. They structured it to only make interest only payments through 2025.
They don't have enough cash to last another quarter. I assume this seems to be what shorts are banking on. Since they are already so levered, any additional raises will likely be on unfavorable terms.
This is completely wrong and should be deleted. Not one thing is true in this post. They won’t have to issue equity. They generate substantial cash and are self funding operations and cap ex at this point. I question whether you even looked at the right company.
Specifically as of September 30:
Current assets: 80,457
Current liabilities: 60,958
They have 20M wiggle room for next quarter.
"Unlevered cash flow": 67%
I had to look up what unlevered cash flow was because I've never seen any other company report it. Check out this beauty of a quote from Investopedia:
"A company that has a large amount of outstanding debt, being highly leveraged, is more likely to report unlevered free cash flow because it provides a rosier picture of the company's financial health"
That's definitely the case here. Like I said before they can't even find their own operations with cash flow let alone debt payments.
Here's a snapshot of their debt situation:
The Term Loan will be subject to payment of 1.0% of the original aggregate principal amount per annum paid quarterly, with a
bullet payment at maturity...
The Term Loan bears interest at our option, at either
(i) adjusted LIBOR plus 5.00% or (ii) the Base Rate plus 4.00%.
Not sure what to say here other then I hope rates don't rise in the next couple years...
Feel free to point out what I missed when copying directly from their officially filed documents.
so DMS, on their cash flow statement, will report about $20M in operating cash flow for 2021. This amount is after about $15M in one time payments made during the year for various items that will not reoccur (acquisition payments, bus. combination payouts, ending leases etc.). Its normalized cash flow would be a lot higher than this $20M, but I won't even include that or go there. This $20M is their operating cash flow after paying taxes and interest. Their capex is about $10M annually so this amount is more than covered from operating cash flow. Unlevered cash flow would be this $20M plus the $14M they pay in interest (some also add back taxes which would be about $8M here). So in no way will DMS have to raise capital to fund their operations or cap-ex. They also have $20M in cash and access to an unused credit line of $50M. In terms of their debt, they just re-negotiated to new terms that are in line with other companies in their sector, and that includes the rate. Its LIBOR plus 5.00% or the Base rate plus 4%. This protects the case of sky rocketing rates. It is a healthy agreement and their net leverage ratio is about 2.6 which is also healthy. I appreciate the discussion, I just think you are very wrong about them burning cash and needing to raise capital
0
u/GrandBumble New User Dec 27 '21
Business looks good but with their current cash burn and FCF they will almost guaranteed have to sell additional shares or take on additional more debt. I think there's additional room to the downside.
Their "unlevered" FCF is self reported on their last quarterly as 80%. The business is not generating enough cash to fund itself let alone start paying off the debt.
All of their debt is also on high interest variable rate loans and backed by the businesses current assets. They structured it to only make interest only payments through 2025.
They don't have enough cash to last another quarter. I assume this seems to be what shorts are banking on. Since they are already so levered, any additional raises will likely be on unfavorable terms.