FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements which are
made pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be
identified by such forward-looking terminology as "may," "should," "expects,"
"intends," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable
terminology. Our forward-looking statements are based on a series of
expectations, assumptions, estimates and projections about our company, are not
guarantees of future results or performance and involve substantial risks and
uncertainty. We may not actually achieve the plans, intentions or expectations
disclosed in these forward-looking statements. Actual results or events could
differ materially from the plans, intentions and expectations disclosed in these
forward-looking statements. Our business and our forward-looking statements
involve substantial known and unknown risks and uncertainties. All of our
forward-looking statements are as of the date of this Quarterly Report on Form
10-Q only. In each case, actual results may differ materially from such
forward-looking information. We can give no assurance that such expectations or
forward-looking statements will prove to be correct. An occurrence of, or any
material adverse change in, one or more of the risk factors or risks and
uncertainties referred to in this Quarterly Report on Form 10-Q or included in
our other public disclosures or our other periodic reports or other documents or
filings filed with or furnished to the U.S. Securities and Exchange Commission
(the "SEC") could materially and adversely affect our business, prospects,
financial condition and results of operations. Except as required by law, we do
not undertake or plan to update or revise any such forward-looking statements to
reflect actual results, changes in plans, assumptions, estimates or projections
or other circumstances affecting such forward-looking statements occurring after
the date of this Quarterly Report on Form 10-Q, even if such results, changes or
circumstances make it clear that any forward-looking information will not be
realized. Any public statements or disclosures by us following this Quarterly
Report on Form 10-Q that modify or impact any of the forward-looking statements
contained in this Quarterly Report on Form 10-Q will be deemed to modify or
supersede such statements in this Quarterly Report on Form 10-Q.
Business Overview
LMP Automotive Holdings, Inc. ("LMP," the "Company," or "we") was formed as a
Delaware corporation on December 15, 2017. Samer Tawfik, our founder, Chairman,
President and Chief Executive Officer, contributed one hundred percent (100%) of
the equity interests in each of LMP Motors.com, LLC and LMP Finance, LLC to the
Company in December 2017, and in January 2018, 601 NSR, LLC and LMP Automotive
Holdings, LLC made the Company their sole member. We refer to these transactions
as the reorganization. As a result of the reorganization, the Company now owns
one hundred percent (100%) of the equity in each of these four entities. LMP
Motors.com, LLC currently operates our automobile sales business. LMP Finance,
LLC currently operates our rental and subscription business. 601 NSR, LLC and
LMP Automotive Holdings, LLC were formed to enter into future potential
strategic acquisitions, however, 601 NSR, LLC is inactive.
In March 2021, LMP Automotive Holdings, Inc. acquired a majority interest in ten
new vehicle franchises through its wholly-owned subsidiaries LMP Grande 001
Holdings, LLC, LMP Beckley 001 Holdings, LLC, LMP Beckley 002 Holdings, LLC and
LMP Greeneville 001 Holdings, LLC and purchased a 100% interest in the related
real estate at five of the dealerships through LMP Automotive Holdings, LLC.
In May 2021, LMP Automotive Holdings, Inc. acquired a majority interest in one
new vehicle franchise through its wholly-owned subsidiary LMP Beckley 002
Holdings, LLC.
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Through our subsidiaries, we currently offer our customers the opportunity to
buy, sell, lease, and subscribe for, and obtain financing for automobiles both
online and in person.
With the acquisition of majority ownership in eleven new vehicle franchises and
an automobile leasing company, we have transformed our business model from our
previous "Buy, Subscribe, Sell and Repeat" model and have expanded into a
Franchised dealership model that includes our prior offerings plus all the
offerings of franchised dealership operations including automobile sales,
service, financing and warranty products.
Our platform is designed to streamline the automobile transaction value chain by
digitizing a substantial part of the sales and transaction process. We believe
this will enhance the consumer experience by creating operational efficiencies
that are designed to improve our financial and business performance. We also
intend to centralize sales, title, tag, finance, insurance, and logistics
operations, to create additional financial and operational benefits, as well as
a positive consumer experience. We believe that bringing more of the vehicle
shopping and transaction experience online will provide consumers with a broader
range of purchase, rental and subscription options while eliminating time spent
in negotiation and haggling. Currently, we offer sales, leasing and
subscriptions of pre-owned and new automobiles along with the associated
financing and insurance products. In addition, we provide service and body shop
work and sales of accessories and automotive parts.
Critical Accounting Estimates
Business Combinations
Under the acquisition method of accounting, we recognize tangible and
identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values. We record the excess of the fair value of the purchase
consideration over the value of the net assets acquired as goodwill. The
accounting for business combinations requires us to make significant estimates
and assumptions, especially with respect to intangible assets. These estimates
are based upon a number of factors, including historical experience, market
conditions, and information obtained from the management of acquired companies.
Critical estimates in valuing certain intangible assets include, but are not
limited to:
? Forecasted revenue growth rates,
? Forecasted margin rates, and
? discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or
validity of such assumptions, estimates or actual results.
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Results of Operations
Third Quarter 2021 compared to Third Quarter 2020
Revenues
We generated revenues of approximately $141.4 million for the three months ended
September 30, 2021 as compared with revenues of approximately $13.4 million
during the three months ended September 30, 2020, an increase of approximately
$128.1 million. The revenue was generated from sales of new and used vehicles
totaling approximately $126.3 million, finance and insurance products totaling
approximately $4.9 million, service, body shop and parts sales totaling
approximately $9.6 million, and fleet and other totaling approximately $648,000
million. The increase was primarily the result of the acquisition of eleven new
vehicle franchises which generated approximately $128.1 million in revenue
during the three months ended September 30, 2021.
Cost of Revenues
We incurred total cost of sales of approximately $113.8 million for the three
months ended September 30, 2021 as compared to approximately $12.5 million for
the three months ended September 30, 2020. Cost of revenues consisted of the
cost of vehicles sold totaling approximately $108.1 million, and the cost of
parts and service body shop costs totaling approximately $5.2 million, and fleet
and other totaling approximately $555,000. These costs resulted in a gross
profit of approximately $27.6 million, or 19.5%, for the three months ended
September 30, 2021, as compared to a gross profit of approximately $877,000, or
6.6%, for the three months ended September 30, 2020. The increase was primarily
the result of the acquisition of eleven new vehicle franchises which increased
cost of revenues by approximately $105.9 million, offset by a reduction of
approximately $4.6 million in sales-type leases.
Selling, General and Administrative Expenses
We incurred selling, general and administrative expenses of approximately $20.5
million during the three-month period ended September 30, 2021 as compared with
approximately $1.4 million for the three months ended September 30, 2020. The
increase resulted from the Company's acquisition of eleven new vehicle
franchises which increased selling, general and administrative expenses by
approximately $16.6 million and compensation expense associated with redeemable
noncontrolling interests of approximately $1.5 million.
Depreciation and Amortization
We recognized depreciation and amortization of approximately $876,000 for the
three months ended September 30, 2021 as compared to approximately $167,000 for
the three months ended September 30, 2020, an increase of approximately
$709,000.
Net Income (Loss)
We had net income attributable to controlling interest of approximately $4.8
million for the three months ended September 30, 2021 as compared to net loss of
approximately $752,000 for the three months ended September 30, 2020 for the
reasons described above. Basic and diluted net earnings (loss) per share was
$0.47 and $(0.08) for the three months ended September 30, 2021 and 2020,
respectively, based upon weighted average common shares outstanding of
10,118,277 (basic), 10,188,803 (diluted) and 9,920,440 (basic and diluted),
respectively.
Non-GAAP Financial Measures
We have provided certain non-GAAP financial measures, including EBITDA, Adjusted
EBITDA and Vehicle Sales Margins, to supplement the financial results that are
prepared in accordance with U.S. GAAP. Management uses these financial metrics
internally in analyzing our financial results to assess operational performance
and to determine our future capital requirements. The presentation of this
financial information is not intended to be considered in isolation or as a
substitute for the financial information prepared in accordance with GAAP. We
believe that both management and investors benefit from referring to these
financial metrics in assessing our performance and when planning, forecasting,
and analyzing future periods. We believe these financial metrics are useful to
investors and others to understand and evaluate our operating results and it
allows for a more meaningful comparison between our performance and that of our
competitors. Our use of EBITDA, Adjusted EBITDA and Vehicle Sales Margins have
limitations as analytical tools, and you should not consider these performance
measures in isolation from or as a substitute for analysis of our results as
reported under GAAP. Because of these limitations, you should consider these
financial metrics along with other financial performance measures, including
total revenues, total gross profit and net loss presented in accordance with
GAAP.
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EBITDA
We define EBITDA as net loss before interest expense, income tax expense,
depreciation (including fleet vehicles and inventory impairment) and
amortization.
The following table provides a reconciliation of EBITDA to net income, the most
directly comparable GAAP financial measure, on a historical basis and for each
of the periods indicated.
For the Three Months Ended
September 30,
EBITDA 2021 2020 Change
Net income (loss) $ 5,492,793 $ (752,087 ) $ 6,244,880
Interest expense (1) 1,134,751 97,903 1,036,848
Income tax provision 468,802 - 468,802
Depreciation and amortization 876,428 167,103 709,325
Fleet vehicle depreciation 331,144 134,209 196,935
EBITDA $ 8,303,918 $ (352,872 ) $ 8,656,790
(1) Excludes floorplan interest
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, employee bonuses stock compensation,
adjustments to warrant liability, acquisition expenses, consulting, legal and
auditing expenses incurred in connection with the acquisitions during the
quarter, and equity based compensation.
For the Three Months
September 30,
Adjusted EBITDA 2021 2020 Change
EBITDA $ 8,303,918 $ (352,872 ) $ 8,656,790
Employee Bonuses & Stock Compensation 1,442,231 - 1,442,231
Adjustment in warrant liability (1,180,157 ) - (1,180,157 )
Acquisition expenses 1,206,583 - 1,206,583
Consulting, legal and auditing 1,919,018 - 1,919,018
Equity based compensation 191,104 - 191,104
Legal settlement - 113,752 (113,752 )
Adjusted EBITDA $ 11,882,697 $ (239,120 ) $ 12,121,817
Vehicle Sales Margins
We calculate vehicle sales margins by deducting vehicle sales cost of revenues
from vehicle sales revenue.
The following table provides a reconciliation of vehicle sales margins to
vehicle sales revenue, the most directly comparable GAAP financial measure, on a
historical basis and for each of the periods indicated.
For the
Three Months Ended
September 30,
Vehicle Sales Margin 2021 2020 Change
Vehicle sales $ 126,294,429 $ 7,732,648 $ 118,561,781
Cost of vehicle sales 108,090,440 7,552,672 100,537,768
Gross profit $ 18,203,989 $ 179,976 $ 18,024,013
Sales margin 14.4 % 2.3 % 12.1 %
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First Nine Months 2021 compared to First Nine Months 2020
Revenues
We generated revenues of approximately $314.5 million for the nine months ended
September 30, 2021 as compared with revenues of approximately $26.4 million
during the nine months ended September 30, 2020, an increase of approximately
$288.1 million. The revenue was generated from sales of new and used vehicles
totaling approximately $275.4 million, finance and insurance products totaling
approximately $10.9 million, service, body shop and parts sales totaling
approximately $21.2 million, and fleet and other totaling approximately $7.0
million. The increase was primarily the result of the acquisition of eleven new
vehicle franchises which generated approximately $290.0 million in revenue since
their acquisitions in March and May 2021.
Cost of Revenues
We incurred total cost of sales of approximately $254.5 million for the nine
months ended September 30, 2021 as compared to approximately $23.6 million for
the nine months ended September 30, 2020. Cost of revenues consisted of the cost
of vehicles sold totaling approximately $239.8 million, and the cost of parts
and service body shop costs totaling approximately $11.5 million, and fleet and
other totaling approximately $3.2 million. These costs resulted in a gross
profit of approximately $60.0 million, or 19.1%, for the nine months ended
September 30, 2021, as compared to a gross profit of approximately $2.9 million,
or 10.8%, for the nine months ended September 30, 2020. The increase was
primarily the result of the acquisition of eleven new vehicle franchises which
increased cost of revenues by approximately $241.2 million, offset by a
reduction of approximately $10.3 million in sales-type leases.
Selling, General and Administrative Expenses
We incurred selling, general and administrative expenses of approximately $53.0
million during the nine month period ended September 30, 2021 as compared with
approximately $4.5 million for the nine months ended September 30, 2020. The
increase resulted from the Company's acquisition of eleven new vehicle
franchises which increased selling, general and administrative expenses by
approximately $34.0 million and compensation expense associated with redeemable
noncontrolling interests of approximately $10.1 million. In addition, the
Company incurred acquisition related expenses of approximately $2.8 million and
one-time charges of approximately $1.4 million in fees associated with our stock
offering during nine months ended September 30, 2021.
Depreciation and Amortization
We recognized depreciation and amortization of approximately $1.4 million for
the nine months ended September 30, 2021 as compared to approximately $389,000
for the nine months ended September 30, 2020, an increase of approximately $1.0
million.
Net Income (Loss)
We had net income attributable to controlling interest of approximately $1.1
million for the nine months ended September 30, 2021 as compared to a net loss
of approximately $2.3 million for the nine months ended September 30, 2020 for
the reasons described above. Basic and diluted net loss per share was $(0.74)
and $(0.23) for the nine months ended September 30, 2021 and 2020, respectively,
based upon weighted average common shares outstanding of 10,082,073 and
9,724,385, respectively.
Non-GAAP Financial Measures
We have provided certain non-GAAP financial measures, including EBITDA, Adjusted
EBITDA and Vehicle Sales Margins, to supplement the financial results that are
prepared in accordance with U.S. GAAP. Management uses these financial metrics
internally in analyzing our financial results to assess operational performance
and to determine our future capital requirements. The presentation of this
financial information is not intended to be considered in isolation or as a
substitute for the financial information prepared in accordance with GAAP. We
believe that both management and investors benefit from referring to these
financial metrics in assessing our performance and when planning, forecasting,
and analyzing future periods. We believe these financial metrics are useful to
investors and others to understand and evaluate our operating results and it
allows for a more meaningful comparison between our performance and that of our
competitors. Our use of EBITDA, Adjusted EBITDA and Vehicle Sales Margins have
limitations as analytical tools, and you should not consider these performance
measures in isolation from or as a substitute for analysis of our results as
reported under GAAP. Because of these limitations, you should consider these
financial metrics along with other financial performance measures, including
total revenues, total gross profit and net loss presented in accordance with
GAAP.
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EBITDA
We define EBITDA as net loss before interest expense, income tax expense,
depreciation (including fleet vehicles and inventory impairment) and
amortization.
The following table provides a reconciliation of EBITDA to net income, the most
directly comparable GAAP financial measure, on a historical basis and for each
of the periods indicated.
For the
Nine Months Ended
September 30,
EBITDA 2021 2020 Change
Net income (loss) $ 2,636,645 $ (2,256,173 ) $ 4,892,818
Interest expense (1) 2,532,423 212,226 2,320,197
Income tax provision 1,098,003 - 1,098,003
Depreciation and amortization 1,422,934 388,631 1,034,303
Fleet vehicle depreciation 834,806 362,972 471,834
Vehicle impairment - 91,742 (91,742 )
EBITDA $ 8,524,811 $ (1,200,602 ) $ 9,725,413
(1) Excludes floorplan interest
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA, employee bonuses stock compensation,
adjustments to warrant liability, acquisition expenses, consulting, legal and
auditing expenses incurred in connection with the acquisitions during the
quarter, and equity based compensation.
For the Nine Months
September 30,
Adjusted EBITDA 2021 2020 Change
EBITDA $ 8,524,811 $ (1,200,602 ) $ 9,725,413
Employee Bonuses & Stock Compensation 10,553,421 - 10,553,421
Adjustment in warrant liability (1,188,772 ) - (1,188,772 )
Acquisition expenses 2,789,164 - 2,789,164
Consulting, legal and auditing 3,736,267 - 3,736,267
Equity based compensation 462,413 - 462,413
Legal settlement 3,000 113,752 (110,752 )
Adjusted EBITDA $ 24,880,304 $ (1,086,850 ) $ 25,967,154
Vehicle Sales Margins
We calculate vehicle sales margins by deducting vehicle sales cost of revenues
from vehicle sales revenue.
The following table provides a reconciliation of vehicle sales margins to
vehicle sales revenue, the most directly comparable GAAP financial measure, on a
historical basis and for each of the periods indicated.
For the
Nine Months Ended
September 30,
Vehicle Sales Margin 2021 2020 Change
Vehicle sales $ 275,350,701 $ 10,955,759 $ 264,394,942
Cost of vehicle sales 239,792,900 10,828,576 228,964,324
Gross profit $ 35,557,801 $ 127,183 $ 35,430,618
Sales margin 12.9 % 1.2 % 11.8 %
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Liquidity and Capital Resources
Cash Flow Activities
As of September 30, 2021, we had an accumulated deficit of approximately $14.7
million. We have sustained net losses since inception and have funded operations
primarily through sales of our common stock and issuance of debt. As of
September 30, 2021, we had approximately $29.7 million in cash, including
approximately $10.9 million in restricted cash pursuant to our debt agreement.
The net increase in cash was approximately $25.8 million during the nine months
ended September 30, 2021 as compared to an approximately $3.2 million decrease
for the nine months ended September 30, 2020.
Operating Activities
Net cash provided by operating activities was approximately $32.4 million for
the nine months ended September 30, 2021 as compared to net cash used in
operating activities of approximately $6.7 million the nine months ended
September 30, 2020. The approximately $39.0 million increase in net cash from
operating activities was primarily due to an increase in net income of
approximately $4.9 million, an increase in accounts payable and other
liabilities of approximately $17.1 million, an increase in net investment in
sales-type leases of approximately $20.0 million and an increase in deferred
compensation of approximately 9.5 million, which were offset by an increase in
accounts receivable of approximately $10.6 million and a decrease in net cash
provided by prepaid expenses and other assets of $4.0 million as compared to the
nine months ended September 30, 2020.
Investing Activities
Net cash used in investing activities was approximately $144.4 million for the
nine months ended September 30, 2021 as compared to approximately $8.6 million
for the nine months ended September 30, 2020. The increase in net cash used in
investing activities was primarily due to cash paid for new vehicle franchises
and related real estate acquisitions.
Financing Activities
Net cash provided by financing activities was approximately $137.8 million for
the nine months ended September 30, 2021 as compared to net cash generated of
approximately $12.1 million for the nine months ended September 30, 2020. The
increase of approximately $125.7 million in net cash from financing activities
was primarily due to cash received from the issuance of Series A Convertible
Preferred Stock and 2021 Warrants for an aggregate of approximately $18.7
million, proceeds of approximately $24.7 million from floorplan financing, and
approximately $94.8 million from a term loan, net of discount, and repayments,
during the nine months ended September 30, 2021, offset by proceeds received
during the first quarter of 2020 from issuing common stock of approximately
$17.3 million.
Use of Cash and Cash Requirements
During the first quarter of 2021, the Company financed the acquisition of a
controlling interest in ten new vehicle franchises and an automotive leasing
company totaling approximately $139.5 million through the issuance of 20,100
shares of Series A Convertible Preferred Stock and 2021 Warrants for an
aggregate of approximately $18.7 million, proceeds of approximately $52.9
million from floorplan financing, and approximately $95.0 million from a term
loan, net of discount.
During the second quarter of 2021 the Company financed the acquisition of a
controlling interest in one new vehicle franchise totaling approximately $4.4
million through additional term loan financing of approximately $3.1 million.
During the third quarter of 2021 there were no new financings or dealership
franchise acquisitions.
The Company intends to finance acquisitions with a mixture of debt and equity
offerings, including private seller debt.
Sources of Capital
In February 2020, we completed a follow-on public offering, selling 1,200,000
shares of common stock at an offering price of $16.00 per share. Aggregate gross
proceeds from the offering were approximately $19.2 million, and net proceeds
received after underwriting fees and offering expenses were approximately $17.3
million.
In February 2021, the Company received approximately $18.7 million, net of fees,
in exchange for the issuance and sale of 20,100 shares of Series A Convertible
Preferred Stock, convertible into shares of common stock at a conversion price
of $17.50 per share, and 2021 Warrants to purchase 861,429 shares of the
Company's common stock at an exercise price of $21.00 per share.
In March 2021, the Company received approximately $95.0 million, net of
discount, from a term loan and floorplan financing of approximately $53.7
million from Truist Bank.
In May 2021, the Company received an additional approximately $3.1 million, from
a term loan, and an additional floorplan financing commitment of approximately
$5.9 million from Truist Bank.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K
Item 303(a)(4).
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