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Note: I have covered SeaChange (NASDAQ:SEAC) previously, so investors should view this as an update to my earlier articles on the company.
Last week, Triller announced the mutual termination of its proposed reverse merger with ailing video solutions provider SeaChange due to “global macroeconomic conditions” having resulted “in the decision to pursue a direct listing“.
Trillerverz LLC (Triller Holdings, LLC), the AI-powered open garden platform for creators, announced its plan to pursue a filing with the U.S. Securities and Exchange Commission (“SEC”) a registration statement on Form S-1 to issue a direct listing and an initial public offering (IPO).
Upon approval by the SEC and Nasdaq stock market (“NASDAQ”), Triller is expected to be listed under the new ticker symbol “ILLR.” by September, subject to market conditions.
“The current market demands clear and disciplined thinking. After much deliberation, Triller has determined that the best course of action is a direct listing for Triller,” said Mahi de Silva, Triller’s Chief Executive Officer. “A Triller IPO is a cleaner transaction, allowing us greater control of our destiny. Today’s news is a clear commitment to our effort to build the world’s best platform for creators; artists, influencers, athletes, thought-leaders, and brands. The Triller IPO will be the largest creator IPO in history.”
Triller is responding to higher than expected demand for its convertible debt offering and a clear preference to go public via a direct listing from its current and future shareholders.
Quite frankly, it is somewhat difficult to believe in “higher than expected demand” for the company’s proposed convertible debt offering given current market sentiment towards social media and streaming stocks and the obvious failure to close on a proposed $100 million financing earlier this year.
The press release issued by SeaChange was much shorter and simply stated that the reverse merger was terminated because the June 30 closing deadline would have been missed:
BOSTON and LOS ANGELES, June 14, 2022 (GLOBE NEWSWIRE) — SeaChange International, Inc. (NASDAQ: SEAC), (“SeaChange” or the “Company”) a leading provider of video delivery, advertising, streaming platforms, and emerging FAST (Free Ad-Supported Streaming TV services) development, and Triller Hold Co LLC (“Triller”), the AI-powered open garden technology platform for creators, have mutually agreed to terminate their proposed merger that was contemplated by the agreement and plan of merger they signed on December 22, 2021 (the “Merger Agreement”).
The parties have mutually agreed to terminate the Merger Agreement today, as it is no longer possible to complete the merger prior to its termination date of June 30, 2022. The parties have also decided not to seek an extension to the Merger Agreement. The termination is effective immediately.
Given the mutual termination, SeaChange will neither be entitled to the $4 million termination fee specified in the merger agreement nor reimbursed for costs incurred in conjunction with the proposed transaction.
With the Triller reverse merger scrapped, SeaChange will be back on its own in an increasingly difficult market for the company’s core video and advertising products.
While recent Q1 results showed some top- and bottom line progress on a year-over-year basis, the company will likely be challenged to achieve sustainable growth and positive free cash flow going forward.
At the end of April, the company had $16.5 million in cash and cash equivalents with an estimated annual cash burn rate of $4-$5 million, so still plenty of time for management to turn SeaChange back into a viable business.
That said, I wouldn’t be surprised to see CEO Peter Aquino resign after the failed Triller reverse merger attempt.
Bottom Line
Tough times for SeaChange after the termination of its proposed reverse merger with Triller.
In its current iteration, the company doesn’t seem to be a viable business as also evidenced by a long history of decreasing revenues and cash burn.
Moreover, SeaChange will likely have to deal with an increasingly difficult market for the company’s core video and advertising products, particularly in case of a near-term recession.
On the flip side, remaining liquidity should be sufficient for up to another three years, so still plenty of time for management to engineer a sustainable turnaround.
Please note that the company might have to conduct a reverse stock split towards the end of this year to regain compliance with the Nasdaq’s $1 minimum bid price requirement.
After last week’s sell-off, the company’s market capitalization has decreased below $30 million. With $16.5 million in cash and no debt, I reiterate my “neutral” rating on the shares.
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