At-the-market (ATM) offering

How an ATM works

A company signs an agreement with a broker-dealer, usually called an equity distribution agreement or sales agreement, and files a prospectus supplement under an effective shelf registration (typically a Form S-3). From then on, the agent can sell new shares into ordinary market trading on the company's instruction, at whatever the market price is at the time. There is no single offering date and no fixed offering price.

The agent earns a commission on each sale, commonly a low single-digit percentage of gross proceeds. The program has a stated maximum size, such as "up to $50 million", but the company decides how much of it to use and when.

Why companies use them

ATMs are flexible and comparatively cheap. A company can raise small amounts when its stock is liquid and stop when it is not, without the discount and warrants that often come with a negotiated offering.

What to watch for

• The program size against the company's market value. A $50 million ATM is a footnote for a large company and a large share of the float for a small one.
• Usage reported later. Sales under an ATM are usually disclosed after the fact, in the next 10-Q or 10-K, or in a new prospectus supplement. The share count can rise between announcements.
• Shelf limits. A company with a public float under $75 million is generally limited by the baby shelf rule (General Instruction I.B.6 of Form S-3) to selling one-third of its public float in a 12-month period off a Form S-3.

Hypothetical example: Company X, with 50,000,000 shares outstanding, sells 2,000,000 shares through its ATM over a quarter at an average of $1.80. It raises $3,600,000 before commissions, and its share count rises 4% without a separate press release. See warrant overhang for the other main source of creeping share count growth, and the full guide to ATM offerings for the documents behind a program and how fast one can be used.