Atomos locks in $13.7M cash boost with smart non-dilutive debt deal

ASX-listed video technology innovator Atomos Limited has struck a savvy new $13.7 million debt deal - wiping out its old facility and dodging any shareholder dilution in the process. 

The move also delivers a fresh shot of $5M in working capital, as the company eyes a return to positive cash flow within the next year.

Atomos develops versatile handheld video recorders and monitors. Its flagship Ninja device is designed to record directly into popular editing formats, such as Apple’s ProRes and Avid’s DNxHD platforms.

By decompressing data from memory size-restricted cameras onto the device users can transform low resolution digital data into high-quality video files.

In what appears to be a major vote of confidence in the business’s future, the secured funding has been provided by Monreii Pty, a private company associated with Atomos executive director Peter Barber.

The new deal means Atomos can immediately wipe the slate clean on $8.7M in existing unsecured loans, while the remaining funds offer the firepower needed to accelerate the company’s product development and provide the required working capital before returning to profit in 2026.

In return for the two-year deal, Atomos has agreed to pay a 16 per cent interest rate, which will be capitalised and paid out at maturity. On top is a 4 per cent annual fee, dished out monthly in arrears.

By deferring the interest cost until maturity, short-term cash flow should immediately improve, leaving the company with breathing room to focus on growth.

Notably, there are no early repayment penalties, giving Atomos full flexibility to pay down the facility ahead of schedule if things go better than expected. 

The company has also offered up security over itself and some selected operating entities. However, in what appears to be a further show of confidence from its lender, no heavy-handed covenants have been slapped on apart from the standard limits on dividends and capital returns.

Atomos Limited chairman James Joughin said: “The debt facility is a major step forward in our strategy to rebuild shareholder value in the Atomos business without requiring any equity dilution.” 

The Monreii facility emerged as the most compelling option after the company ran the ruler over alternative funding options such as equity raisings, convertible notes, hybrid securities and even trade sale opportunities. 

Management says the final financing route provided the best balance moving forward as it gives the company funding certainty, speedy execution and - protects shareholders from dilution.

Barber holds 8.2 per cent of the shares in Atomos and has a controlling interest in the lender, which would normally place him as associate of a related party under ASX rules. Since the loan is secured, the governance check would usually require a shareholder vote to approve the granting of protection over the company’s assets.

In this case, the deal was hammered out at arm’s length, backed by the full board and independent legal advisors. With all the safeguards in place, Atomos has successfully secured a crucial ASX waiver, allowing it to bypass the need for shareholder approval and fast-track the loan without the red tape.

Despite making solid progress in trimming costs and streamlining operations, Atomos’s cash flows have remained under pressure as the company has been weighed down by a string of legacy hangovers, including legal settlements, staff redundancies and catch-up payments to suppliers from the previous financial year.

The clean-up job is now nearly done and the company expects all legacy-related items will be wrapped up by June, paving the way for a significantly improved financial performance and a much clearer runway ahead.

And the timing couldn’t be better. Atomos is set to lift the curtain on a suite of new products and services at the NAB Trade Show in Las Vegas this month. The show is renowned as the ultimate event in the world of media, entertainment and technology and is a key focus point for entrepreneurs in the broadcasting, digital media and film sectors.

Atomos says its new product lineup is expected to spark a boost to sales from the last quarter of the year, which could bring the company back to a positive cash flow within 12 months.

Management’s efforts to restore company profitability in the past year appear to have been mostly hindered by one-off restructuring costs coupled with an unfortunate delay in the roll out of new products. 

With a cleaned-up balance sheet and the imminent launch of its new products, Atomos appears to have righted the ship to sail into calmer waters.

Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au