CVT - Massive Share Unlock on Monday, June 6

Today I caught some Twitter wind about a massive share unlock on #CVT Cvent. They’re a deSpac through DGNS from Q4 2021.

I’m doing some digging now. Here’s what I found.

TL;DR

  • Shares Outstanding = 481,140,000
  • Shares Unlocked on Monday, June 6 = 461,392,605 — that’s 96% of the shares outstanding!

Links:

Lock-Up Expiration DD

On page 70 of the 10-K under the Risks section:

In connection with the consummation of the Reverse Recapitalization Transaction, Vista received approximately 397.7 million shares of Company Common Stock. The Company also entered into a registration rights agreement with Vista and certain other stockholders, pursuant to which it granted certain registration right to Vista and the other stockholders party thereto. Following the expiration of any lockup period applicable to shares of Company Common Stock held by Vista, it or its affiliates may sell large amounts of Company Common Stock in the open market or in privately negotiated transactions. The registration and availability of such a significant number of shares of common stock for trading in the public market may increase the volatility in the Company’s stock price or put significant downward pressure on the price of its stock. In addition, the Company may use shares of its Common Stock as consideration for future acquisitions, which could further dilute its stockholders. After the applicable lock-up periods expire, an additional 461,392,605 shares of Common Stock (including 37,389,301 shares issuable upon exercise of options) will be eligible for sale in the public market. If our existing stockholders sell substantial amounts of our Common Stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our Common Stock, even if there is no relationship between such sales and the performance of our business.

As of December 31, 2021, Vista owned approximately 82.7% of our outstanding Common Stock. Accordingly, the Company is a “controlled company” for purposes of the Nasdaq listing requirements. As such, the Company is exempt from the obligation to comply with certain corporate governance requirements, including the requirements that a majority of its board of directors consists of independent directors, and that it has nominating and compensation committees that are eachcomposed entirely of independent directors. These exemptions do not modify the requirement for a fully independent audit committee. If the Company ceases to be a“controlled company,” it must comply with the independent board committee requirements as they relate to the nominating and compensation committees, subject tocertain “phase-in” periods.

According to this tweet, Vista Equity acquired their stake in April 2016 when $CVT was valued at 1.65B. The current marketcap is 2.4B. That’s about a ~1.5X return. I found the source of the timeline here.

This is an interesting sale opportunity as typically with deSpac unlocks, it’s PIPE investors that formed part of the SPAC merger deal that are unloading. This time it’s a legacy shareholder, who may be itching to exit with profits especially in this macro environment that punishes unprofitable debt-heavy companies.

S-1/A notes The Offering:

The “certain exceptions” of a sale earlier than June 6 relate to the stock trading above a certain price for a certain time, which never happened as the stock basically traded below $10 the entire time:

Each party to the Investor Rights Agreement (other than the Sponsor and certain of its affiliates) has agreed that such party shall not transfer, or makepublic any intention to transfer, any Lock-Up Shares (as defined below) for 180 days following the Closing Date (until June 6, 2022); provided that, such restrictions applicable to 33% of the Lock-up Shares received by each such person at Closing shall terminate (but not earlier than the three-monthanniversary of the Closing) if the volume-weighted average price of the shares of Common Stock equals or exceeds $13.00 per share for any 20 trading days within any 30-trading day period after the Closing Date (such restrictions are referred to as the “Investor Lock-Up”). The Investor Lock-Up applies to all 397,745,049 shares issued to Vista in connection with the Closing of the Business Combination.

In addition, the Sponsor and certain of its affiliates have agreed that they shall not transfer, or make a public announcement of any intention to transfer, any Lock-up Shares until December 8, 2022, provided that such restrictions will terminate if the closing price of the shares of Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading period commencing on or after April 7, 2022.

Some Fundamentals DD

  • Revenue growth is miniscule from 2020 to 2022.
  • Negative EBITDA
  • Gross Profit Margins are somewhat declining.
  • Debt = 300M. Cash = 193M
  • They just announced a 500M debt refinancing on May 31, 2022, which means they are taking on new debt to pay off their old debts, and take on a better interest rate.

Trading DD
Typical trading volume is around ~300K to 400K. An unlock of 460M is relatively massive.

Options flow is clearly puts heavy.
image

July 5p is popular.

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$EMBK was a similar play that fell from $5+ to around $1.50, in May of this year.

Old EMBK DD https://www.reddit.com/r/wallstreetbetsOGs/comments/ujegxw/embk_has_one_of_the_crazier_market_caps_out_there/

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Looks like they beat the last two earnings and are projected to have positive EPS for the current quarter. I think there will be a drop in price but I don’t think it will be a spectacular drop like EMBK.

Also this doesn’t really mean anything but analysts are pretty bullish on the stock with a median price target of $8 and a low PT of $6.

Source

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Director has also been buying :thonk:

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Picked up some July 5p, these PIPE unlocks have been pretty consistently profiable. Thanks Kevin. Could be a good company but I’ve seen plenty of SPACS drop dollars on unlock only to pump back above afterwards.

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Went for the thrill and took June 5p instead of July, at 0.59.

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If you have a margin account you may want to consider selling calls on this piece of junk, since the premiums are kind of high.

If you buy puts, you’ll probably want to buy shares and exercise the puts as opposed to selling the puts. There’s barely any liquidity on this stock, let alone the options.

This does not seem to be moving much today. Does the selling typically happen the day of the share unlock, or the day after?

Looking at EMBK it started trending down on 4-28 and did not hit its bottom until 5-10

Current volume is around 260K so far. Average volume has been around 360K.

460M shares were unlocked today.

Hard to say whether Vista has started dumping or not. I’m currently still in my position but am starting to feel slight regret taking June instead of July. This might need time to play out given the low volume. I may look to roll my position out.

BZFD just dumped 33% today. Their share unlock was last Wednesday.

Not sure if it was a different catalyst for today though but I just saw it.

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BZFD Share Unlock was on Wednesday June 1. Took 3 days for insider selling to kick in, at least I would assume today is insider selling.

Here is CVT. Volume is not particularly high yet.

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That is a good point, the insiders might need some time to transfer their shares to a brokerage, make the appropriate filings, etc before the sales actually begin.

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Thanks for the great DD, @Kevin!

Limit order filled, am in for the ride with 7/15 5P at $1.05 ea.

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From a rudimentary TA standpoint, looks like volume is steadily increasing on the daily and it’s looking increasingly bearish, could see a double bottom at 4.50 and push back up to the 20 EMA (green) but I’m feeling fairly comfortable holding July puts.

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Picked up some more 5p at .90.

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Comparatively, BZFD unlock day was on June 1, and the dump happened on June 6 (4 trading days). The equivalent for CVT would be tomorrow… but we’ll see. It is taking longer than I anticipated. I was thinking the dump would be today to account for possibly T+2 settlement of unlocked shares in the insider brokerage account and then some.

July would probably be the best risk/reward on this in case the selling keeps stalling.

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Agree that July 5p are the best bet, and I am expecting fireworks Thursday and Friday.

Today provided some great entries.

I’m in with a large July 5p position, and small June 5p and 2.5p lottos. The 2.5p are especially risky (with a 0.00-0.05 bid ask spread) but given the number of shares being unlocked it’s not out of the question that they could be ITM next week.

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So these are the top shareholders of this company. Almost all the shares are owned by Vista Equity Partners. They seem to be a private equity / hedge fund (and a PE fund makes a lot of sense here, given that this was a private company prior to the SPAC deal). Maybe if you can find out how much they put in to the company when it was private, you can get an idea of what they think the valuation is and how hard (or if) they’ll dump.

For whatever reason ZM owns a bunch of shares in this company. That’s a weird one to see on the top holders list.

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One thing to consider here is that with 1 huge concentrated holder, they may actually not dump.

Consider this

You’re the portfolio manager, you own 400MM shares of this thing @ $5. That’s 2 billion.
If you sell 10MM shares @ average of $3 and run the price down to $2 in doing so (and I don’t think they can even sell that much, this piece of crap has a 6 digit daily volume). You got 30MM cash… and a more than 1 billion mark to market loss on the rest of your position.

No portfolio manager in the world is going to take a billion dollar loss on their portfolio to raise 30 million in cash. If anything, there’s a chance they’re buying shares to support the price and hodling until the market improves and they can offload a more significant portion of their shares w/o driving down the price drastically. This is a private equity fund we’re talking about here, by definition they’re patient investors since PE investments can take decades to pay off.

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