Scandal-hit WANdisco wants to raise $30 million in equity to avoid running out of working capital by mid-July as the business embarks on a “deep transformation recovery program”, including sustained efforts to reduce expenses and bolster trade.
The data replicator biz risks running out of cash in the wake of falsified sales reporting that was revealed on March 9. The AIM-listed company reported revenues of $24 million for 2022 when they should have been $9.7 million, and sales bookings were also grossly inflated at $127 million rather than the actual $11.4 million. An investigation is ongoing but so far WANdisco has laid the blame for the fake sales at the feet on one unnamed salesperson.
Share trading in WANdisco stock was immediately suspended following the discovery of the incorrect sales data. Co-founder, CEO and chairman Dave Richards subsequently quit along with CFO Erik Miller, and new C-suite hires were made including a board chairman, interim CEO and CFO.
Interim chair Ken Lever said: “Having now been in the business for some six weeks, there is no doubt in my mind that the company should have a very bright future given its differentiated technology. However, improvements across sales and marketing need to be made to properly take advantage of the opportunity.
“To do this, the business needs to be urgently properly capitalized and so today we are announcing our desire to raise $30 million towards the end of June.“
He said the decision to raise equity “is a direct result of the issues that led to our announcement on 9 March.” The company is cutting costs with 30 percent of its staff leaving, and trying to reduce its annualized cost base from $41 million to around $25 million, but it only has an $8.1 million cash left in the bank. It could run out of working capital by mid-July unless the finances are shored up, WANdisco said.
A Proposed Fundraise is deemed the most suitable way to rebuild the balance sheet and fund operations, yet given the uncertainty of the share price, WANdisco might have insufficient shareholder authorities to issue the required number of Ordinary Share to deliver the new ordinary shares, it said.
“The Board strongly believes there are significant benefits in asking for shareholder authority to issue shares for the Proposed Fundraise in advance, rather than following the announcement of the Proposed Fundraise with the admission of the New Ordinary Shares subject to approval. This is because the Board cannot realistically launch the Proposed Fundraise until it is confident that the suspension in the Company’s shares will be lifted at the point in time the New Ordinary Shares are issued, or shortly thereafter,” the company said.
Trading in WANdisco stock won’t happen again on AIM until after the audit of 2022 company accounts are concluded, which is expected at the end of next month. Resident execs will, as such, seek approval from requisite shareholder authorities before launching the Proposed Fundraise.
Management said it intends to try to issue the New Ordinary Shares at a price that “minimises dilution for existing shareholders whilst also ensuring the Company raises sufficient capital”. Pricing the new shares will be done by contacting potential investors and asking them how much they’d be prepared to pay; this is called a bookbuild process.
Potential investors will need to think the company has a future, and Interim CEO Stephen Kelly is developing a turnaround plan with six elements:
- Go-to-market structure – this will include sales, marketing, pipeline creation and partnerships to build the foundations towards consistent sales execution.
- Enhanced board and management to run the company properly.
- Better investor engagement with improved disclosures and transparency.
- Headcount and organization cost reductions to achieve the milestone of cash flow break-even with progress to sustainable profitable growth.
- Market validation with a realistic view of the obtainable market based on product/market fit, competitive differentiation, proof of value, commercial pricing, and branding.
- Excellence in the Company’s Governance and Control environment – meaning no more incorrect sales reporting
Product market strategy
The existing strategy – replicating live data from edge and core data centers up to the public cloud – will be given added data migrator capabilities, and there will be a new target market. This is Application Lifecycle Management (APM), which means selling WANdisco product and also services, SaaS, to help distributed software development organizations collaborate more efficiently. This relies on using WANdisco’s replication and load-balancing technology to provide a globally-distributed active-active configuration across wide area networks.
Enhancing data migrator sales means adding support for more targets via agreements with Microsoft, Google, AWS, IBM and Oracle, plus integration with cloud-centric data analytic platforms including Databricks and Snowflake. The product will be enhanced with more performance, scale, and ease of use, we’re told.
WANdisco’s new management says its Data Migrator technology lies in the Data Integration Software tools segment of Gartner’s Data Management market. The total addressable market (TAM) for such software tools is $4.4 billion in 2023 with a forecast average annual growth rate of 8.7 percent taking it to a $6.3 billion TAM in 2027.
We note that WANdisco competitors include Cirrus Data (block) and Atempo, Datadobi, Data Dynamics and Komprise in the file moving area.
Time is tight and WANdisco’s runway limited. Tom Kennedy, analyst at Megabuyte, said: “This certainly looks like a final throw of the dice for WANdisco, and the odds do not look in its favour.”
“For one, we struggle to believe it can complete a funding round in a matter of weeks, particularly with the added complexity of its share suspension. While, even if it does manage to organise the round, we struggle to see how shareholders have even a remotely positive reaction to being asked for money yet again given its dismal track record – it has already almost entirely wasted the proceeds from its IPO in 2012 and follow-on placings in 2013, 2015, 2016, 2017, 2019 (twice), 2020, 2021, and 2022.
“Moreover, even if it miraculously manages to pull it off, its new annualised $25.0m cost base will quickly burn a hole into the new funds, and it’s limited in further cost-cutting as additional headcount reductions will come at a significant price. Frankly, this looks like a last-ditch attempt to extend its life long enough to complete an asset / IP sale process and return some value back to shareholders, albeit at pennies on the pound, but we just can’t see it happening,” added Kennedy.
