Lordstown Motors Plummets On 3Q 2021 Earnings Release
On November 11, Lordstown Motors Corp. (NASDAQ: RIDE) reported 3Q 2021 results about in line with expectations. While the equity responded positively the day of the results, once results were released in after hours trading it plummeted to return to prior price levels.
The two most important elements of the release were probably: 1) the company’s announcement that commercial production and deliveries of the Endurance all-electric pickup truck will not begin until 3Q 2022, about a quarter later than management’s previous guidance; and 2) 3Q 2021 represented the first reported quarter in 2021 where management did not ratchet down full-year 2021 financial guidance.
|Year 2021 Guidance Issued on 11-11-2021||Year 2021 Guidance Issued on 9-30-2021||Year 2021 Guidance Issued on 8-11-2021|
|Start of Endurance Commercial Production||3Q 2022||2Q 2022|
|Selling and Administrative Costs||US$105-US$120 million||US$105-US$120 million, primarily due to higher legal and professional fees||US$95-US$105 million|
|Research & Development Costs||US$320-US$340 million||US$320-US$340 million, due to increased prototyping and pre-production expenses||US$310-US$320 million|
|Capital Spending||US$330-US$350 million, down due to timing issues||US$375-US$400 million||US$375-US$400 million, largely related to prepayments for hard tool purchases|
|Dec. 31, 2021E Cash Balance||US$150-US$180 million, incl. US$100 million from Foxconn|
|Implied Full Year 2021 Cash Burn||US$755-US$810 million||US$800-US$860 million||US$780-US$825 million|
Make no mistake, the 3Q 2021 results should not be considered positive, but it appears that things at Lordstown are no longer getting worse. For example, the company’s operating income and operating cash flow were negative US$99 million and negative US$75 million in the quarter, respectively, but less than the US$110 million and US$100 million shortfalls, respectively, in 2Q 2021.
Lordstown’s cash balance at September 30, 2021 was US$234 million, also down from US$366 million at mid-year 2021 and US$630 million at year-end 2020.
|(in thousands of US $, except for shares outstanding)||September 30, 2021||June 30, 2021||March 31, 2021||December 31, 2020|
|Operating Cash Flow||($74,866)||($99,854)||($71,520)||($64,320)|
|Cash – Period End||$233,831||$365,900||$587,043||$629,761|
|Debt – Period End||$0||$0||$1,015||$1,015|
|Shares Outstanding (Millions)||182.1||176.6||176.6||168.0|
On November 10, Lordstown finalized the agreement in principle it reached in late September with Hon Hai Technology Group (better known as Foxconn, the assembler of Apple’s iPhones). Under the deal, Foxconn will purchase Lordstown’s 6.2 million square foot production and assembly plant in Lordstown, Ohio (excluding the hub motor assembly line and the battery module and pack lines) for US$230 million.
Foxconn will pay US$100 million on November 18; US$50 million on February 1, 2022; US$50 million by April 15, 2022; and the balance, or US$30 million, at a targeted April 30, 2022 closing date.
In addition, Lordstown and Foxconn will pursue a contract manufacturing agreement so that Foxconn will manufacture Lordstown’s Endurance all-electric pickup truck.
Foxconn purchased about 7.25 million shares of Lordstown Motors in early October at a price of US$6.90 per share, resulting in an additional cash influx to Lordstown of US$50 million. Foxconn also received warrants with a three-year duration to purchase 1.7 million Lordstown shares at a price of US$10.50 per share.
Lordstown expects its year-end 2021 cash balance to be US$150 – US$180 million. This figure includes the US$100 million to be received from Foxconn in mid-November. The projected cash level implies a 4Q 2021 cash burn, defined as cumulative SG&A, R&D and capital expenditures, of US$170 – US$200 million.
Clearly, Lordstown will need to raise more equity in the first half of 2022 to bridge it until the time that Endurance revenue begins to flow in 2H 2022. Some (most?) of this could come from the U.S. hedge fund, YA II PN, LTD. In late July 2021, YA agreed to purchase up to US$400 million of newly issued Lordstown stock over a three-year period. The YA purchases will be made from time to time over that period and, surprisingly given Lordstown’s fairly tenuous financial condition, will be done at Lordstown’s — not YA’s — discretion.
Lordstown faces many challenges. It will likely be bleeding cash for three more quarters until it begins to deliver its electric pickup trucks to customers in 3Q 2022. Further equity issuances are likely. Moreover, by the time Lordstown begins delivering the Endurance to customers, it will be competing against well-reviewed electric pickup trucks from Ford Motor Company and Rivian Automotive.
On the other hand, if Rivian’s US$90+ billion enterprise value is the new standard in the electric vehicle industry, Lordstown, with an enterprise value of only around US$1.25 billion, could be an interesting speculation, particularly if the news surrounding Lordstown has actually stopped getting worse.
Lordstown Motors Corp. last traded at US$5.68 on the NASDAQ.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.