What happened
Shares of frozen-food company Tattooed Chef (TTCF) fell 13.9% in February, according to data provided by S&P Global Market Intelligence. During the month, the company redeemed all of its outstanding warrants and pre-announced full-year 2020 financial results.
So what
Tattooed Chef went public via a special purpose acquisition company (SPAC) in 2020. SPACs have a unique feature called public warrants. The holder is entitled to redeem each warrant for a share of common stock at a set price, usually $18 per share.
Image source: Getty Images.
Let's say you decide to redeem your Tattooed Chef warrants. In that case, you simply pay Tattooed Chef $18 per share. Considering the stock is worth more than that right now, that's a good deal. However, SPAC companies like Tattooed Chef can set a final redemption date if pre-determined criteria are met. In that case, you either go through with the transaction or forever forfeit the right to redeem your warrant.
On Jan. 14, Tattooed Chef announced its redemption date would be Feb. 16. Over 10.7 million warrants had been redeemed voluntarily before that date. More than 9.1 million were then redeemed by Tattooed Chef on Feb. 16, taking total exercised warrants to almost 19.9 million. It appears that more than 3 million warrant holders missed out. By the way, if you hold warrants in a SPAC stock, it's worth your while to keep track of redemption dates.
Thanks in large part to redeemed warrants, the Tattooed Chef's cash balance is now over $200 million -- excellent for investing in future growth. However, it's possible investors aren't too happy with there being 81.4 million shares now. It's not really shareholder dilution since the warrants are a known factor when these SPAC companies go public. But not all investing services track the possible diluted share count, making it look bad when warrants are finally redeemed.
Tattooed Chef has been a market beater since going public via a SPAC. TTCF data by YCharts
Now what
Leaving these details behind, investors can now fully focus on Tattooed Chef's business. The company already provided preliminary financial results for shareholders to consider. For 2020, it expects to report revenue growth of 76% year over year to $149 million. Fourth-quarter revenue slowed somewhat, "only" up 47% from the fourth quarter of 2019. However, its preliminary Q4 revenue of $39.5 million is slightly ahead of previous guidance of $39 million.
With new public companies like Tattooed Chef, it's important for management to establish a track record with investors. To me, the company is off to a good start by delivering results slightly ahead of guidance. Now, shareholders will get to hear more about the company's plans for 2021 when it reports earnings on March 10.
