On Line Medical Company Ontrak Re-opening Preferred Issue–UPDATED

UPDATE–Ontrak has announced they are selling 1.73 million shares in this follow on offering. They will also have 259,500 shares available for overe allotment. The offering price is $24.75. The pricing term sheet can be found here.

Ontrak (OTRK) has announced a reopening of their 9.50% cumulative preferred stock which originally was issued in August.

Pricing and the number of shares to be sold have not been announced, but I assume it will be in the $25 area.

The preliminary prospectus is here.

This is a relatively young company and just taking a quick peek at their financials their revenue growth has really ramped up—of course no income at this stage.

Current outstanding shares are trading at $24.72 right now after being as high as $25.50 in the last few days preannouncement.

18 thoughts on “On Line Medical Company Ontrak Re-opening Preferred Issue–UPDATED”

  1. for what its worth, this was said on cnbc yesterday

    On CNBC’s “Fast Money Halftime Report,” Tiffany McGhee advised a viewer to think long term about Ontrak Inc (NASDAQ: OTRK). She owns the stock and she loves the AI power behind the company.

    1. Yes Bob–I think this is one of the few situations where even I might buy a little–a growth company with some potential–forget about current financials to some degree, but keep it on a short leash.

      1. Picked up a few shares to start at $24.13. Be sure to look at the section concerning dividend payments. Thanks.

        1. David, where in the prospectus is that–I do not see it in the table of contents?
          Thanks.

          1. David P, I found it:
            Our ability to pay cash dividends on the Series A Preferred Stock requires us to have either net profits or positive net assets (total assets less total liabilities) over our capital, and that we have sufficient working capital in order to be able to pay our debts as they become due in the usual course of business. Based on our net assets as of September 30, 2020, after giving pro forma effect to the offering of the Series A Preferred Stock, we will have limited net assets over our stated capital and future net losses we may incur would reduce the limited amount available. Accordingly, until such time as we generate significant net income from operations or otherwise increase our net assets over stated capital by means of, among other things, raising additional equity financing, we may not be able to pay cash dividends on the Series A Preferred Stock. Our ability to pay dividends may also be impaired if any of the risks described in this prospectus, including the documents incorporated by reference herein, were to occur. Also, payment of our dividends depends upon our financial condition and other factors as our board of directors may deem relevant from time to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to make distributions on our common stock, if any, and preferred stock, including the Series A Preferred Stock to pay our indebtedness or to fund our other liquidity needs.

            We have established a segregated account that will be funded with a portion of the proceeds received from this offering sufficient to pre-fund dividend payments on the Series A Preferred Stock until August 2022, although the payment of such amounts on deposit to holders of the Series A Preferred Stock is subject to compliance applicable laws and with the foregoing limitations. Additionally, once the funds in the segregated account are exhausted, there can be no assurance that we will have sufficient cash flow from operations to continue such dividend payments.

            1. Thanks for posting, furcal. In a way, the language reminds me of what many municipal bond issuers do when funding projects. As scary as the language may seem, it’s not much different from funding a reserve fund to handle debt service from projects until the project is up and running. I’m in for a tiny amount at 24.13 as well… I’d say it’s a “starter” amount but I could quickly stop instead of restart on this one……

              1. 2WR, MTBCP had the same formula of segregated funds to pay the first year or two after initial IPO.

                1. Grid – Yes, I know I’ve seen it before in preferred land but it’s not common – didn’t know about MTBCP. imho, the language is a plus, not cautionary, because it provides the shareholder with assurances of payments for the next year and a half while this (hopefully) growth company grows into its balance sheet………

                  1. My opinion, is which isnt worth much, is its a nothing burger. It is what it is, the issuing yield identifies the risk. As far as the impounded money goes, I rarely see any crap company with no protection like that suspend dividend immediately anyways. This isnt a totally obscure issue, the market knows about it. Markets are aware, and forward looking, if the company gets into problems or doesnt turn the corner, the remaining money in reserves will serve as no ballast anyways. The price would crater even while it paid the dividend near term.
                    Keep in mind this is no comment concerning buying the issue as I may buy a flip myself. Just a comment that the reserve for a short duration of time such as this for dividend payment is largely immaterial either way.

                    1. I picked up 200 shares around $24.14. I think that’s a “full” position for me on this one. Seems like this could have a good shot of getting back to $25.

                    2. I’m hearing the nothing burger chain is struggling under the strain of covid… not enough meat on the bone……. groan……..

                    3. 2WR, I wouldnt be surprised if it doesnt recover quickly to previous price based on just reissue pressure. But that being said, It violated every metric I use to buy higher yielders so its a pass for me also. But, obviously based on those requirements, that means I dont own a lot of them, ha.

                    4. Grid – If I had actually read the OTKRP prospectus I bet I would have passed too, but instead, I followed Dick’s approach and bot what will probably be a full position of 200 at 24.13 to see what happens since it had been trading at 25.50 before the add-on and was originally priced at 24.75. There’s a gigantic cost of issuance on this one.. I thought 24.13 would leave just enough left for underwriters to sell at a quick profit, but they actually have a lot more room to maneuver than my assumed 3%.

                      I did make the mistake of beginning to read the ALTG-A prospectus pre-pricing and saw enough to say buh bye not even knowing if it’s better or worse than OTRKP…

                    5. 2WR, Also another thing that overrides anything is idle cash. I have none, as I trade to buy. I just dont have anything from the high risk bucket I want to sell in order to buy either. Short term, if common is doing well and preferred was prior to a reissuance it usually climbs back. It does have the look of a potential good trade.

                  1. Ha, Furcal, you are right, its been a couple weeks already…Time for a new one, lol.

                    1. Sooner or later they will be able to get cheaper financing:

                      MTBC anticipates its 2020 revenues are likely to be in the range of $104 to $106 million, which represents year-over-year growth of approximately 61% to 64%, and expects adjusted EBITDA to be $10 to $12 million for the full year 2020, representing growth of 23% to 48%.

                      MTBC’s long-term outlook remains unchanged.

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