DW8 Growth, page-14071

@PVOZ



I don't know what covertibles deals are being floated by other companies, but cap structure options and decisions are highly company specific. What may be crap and inappropriate for one firm may actually be a much better option for another. Devil's as always in the detail.

If DW8 was forced to raise money -- in this specific case hard cash for OpEx (i.e. not pay for a transaction which could be scrip fybded) to cover burn rate until they're positive -- then a convertible note with specific call/put features detailing the convertibility may actually be in to the benefit of not only the company, us common shareholders, but it also would be much more attractive to investors as it provides a risk floor with optionality which at the current SP levels and market (and IR) environment may actually be needed.

Say DW8 is (hypothetically) within 1-2 years of breaking even / being EBIT positive (on conservative assumptions using the current high probability pipeline/MOUs), then using a convertible would make a lot more sense than a CR at this moment as long as the tenor of the note is say 4-5 years out. There's reasonable predictability of how much interest payments would be until the business is CF positive which would allow reconciliation of needs vs. the current cash balance to avoid potential convenant breaches. In case of a 5 year tenor the firm would have 3-4 years to recoup the capital portion from CF once it turns CF positive (assuming no conversion OR alternatively no CR to raise the capital to retire the convertible).

This not only keeps future financing options open, but also may substantially reduce the actual incurred cost to the firm if it indeed manages to grow revenue and EBIT substantially over the coming years which would be reflected in a rising SP. And with a 5 year tenor there's plenty of time so the firm's not using a CR as a last option now, instead they defer this until a more suitable future time IF they choose to put the convert/retire it via a CR or the investor calls it. In that sense, the amount raised -- by CR or via a note (in effect in retrospect) -- would be substantially lower if the SP is even 50% higher, even if there's an additional conversion benefit for the holder. And that's before going into other benefits of debt that may be beneficial to the firm. Note that this all depends on the specifics of the firm, its financial situation and outlook, but in this specific case a convertible note may actually be in the firm's best interest considering all aforementioned intrinsic and exogenous factors. It all comes down to the specifics of the note, the conversion terms/optionality, covenants, etc, which would have to be crafted carefully. But doing one with a call/put type collar attached that places a floor value around it (and with specific time terms) would be in the benefit of everyone, even if the note is a floating rate instrument in which case final terms could be even better for the firm/equity holders as we offer additional compensation / less risk to the note holders.

As an equity owner you simply wouldn't object to this deal as it minimizes additional dilution risk atm and doesn't really have an impact on payouts to equity holders as the firm's stated growth mission is already implying that all free cash to equity holders (for the foreseable future) will be reinvested into the business to propel growth forward towards reaching the $1B of GMV goal the firm aims for.

Looking at the numbers right now and even reasonable forecasted growth and cost metrics this makes a lot more sense than a CR while the SP is at the current level and the market is what it is / what it will be for the foreseeable future. No brainer...and that's before going into the benefits the company and management's credibility will gain from using effective and efficient financing tools to operate the company when it comes to interacting with institutional capital later down the road to attract new investors which will be required to raise the SP (and is in retail investors' best interest). This is a multi-factor/dimensional play impacting more than dilution and how this is being handled will carry lots of signal effects that will impact future engagements with stakeholders. And I am pretty sure that DT and the CFO as well as the board are aware of that.