What shares are actually being sold in "ATM" format release?

Question

I recently invested in $HMNY, a listed company and the owner of MoviePass. I invested it simply because that I love the MoviePass idea.

Then, rumors says that the company wouldn't last long for the business model is a bad idea (that may lose lots of money to buy tickets for its subscribers)

Then, I read an article here on BusinessInsider. It says

"So the SEC approved for Helios and Matheson the ability to sell up to $300 million of its stock in the format of what is called an ATM. An ATM essentially means you can put on the market shares on a daily, weekly basis, and feed them into the market, and as long as people want to buy them, then that money can go into the coffers of HMNY and therefore go into MoviePass to fund our growth — to fund our ticket purchasing and our acquisition of subscribers.

"It's kind of a science in that you can't put all $300 million out there. You put a little bit every day. If you look at how many shares are sold every day, I think there are some days 25 million shares, 10 million shares — I think the average is 6 million shares — so you can imagine you can put four or five hundred thousand shares out there without having much impact on the demand.

"I have no idea. It's a third party that manages it on behalf of HMNY, but essentially some days they might sell, some days they might not sell. It's all kind of based on what they believe will have the least impact on the valuation."

If they start to sell the stocks, then who will get the money (of stock sales)? Since they said to sell stocks to meet the needs of company usage, does this mean they are not selling their personal shares? Then what kind of shares are they selling? And will the other shareholders (like me) get diluted?

Answer 1

"If they start to sell the stocks, then who will get the money (of stock sales)?"

The corporation issuing under the "At The Market" itself will get the money, and it will use that money to fund its operations. For a business concept like Moviepass, that likely means the money is needed to fund the immediate cashflow needs of buying the 'inventory' of movie ticket packages with various theaters. A company asking for additional funding in this way may indicate a pretty crucial need for cash, implying that if they don't get it, they may need to simply close down. More often, cash is needed to fund long term capital expenditures, ie: buying major assets, etc.

"Since they said to sell stocks to meet the needs of company usage, does this mean they are not selling their personal shares? Then what kind of shares are they selling?"

Correct, these are not personal shares of current shareholders, these are new shares being created by the company.

"And will the other shareholders (like me) get diluted?"

Yes, the creation of new shares will dilute the % of the company owned by current shareholders. However per my point above, lacking this cash they may no longer be able to function. So in that sense the cash is crucial to your shares having any value at all, and therefore the dilution itself is not necessarily a bad thing. Remember if the company is worth $100M, and there are 1M shares, then each share is worth $100. If new shares are issued for $100 each, then each share (old + new) would still be worth $100, because the pie is bigger, even if your % piece of it is smaller.

The negative impact of dilution is really if/when a discount is given to new buyers (often indicating that the current shares are overvalued, otherwise other market participants would pay full value). ie: if the shares truly are worth $100, then subscribing for new shares at $80 means that old shares will be losing overall value. That may not be happening here, it's a bit of a judgment call.