Be aware: I’ve coated Nikola Company (NASDAQ:NKLA) beforehand, so buyers ought to view this as an replace to my earlier articles on the corporate.
Final month, zero-emission transportation start-up Nikola Company (“Nikola”) reported unimpressive fourth quarter and full-year 2022 outcomes.
On the next convention name, administration offered disappointing 2023 steerage with projected revenues of $140 million to $200 million lacking the $300 million analyst consensus by a mile. As well as, gross margins are anticipated to stay deeply within the purple with a projected vary of damaging 75% to damaging 95%.
Adjusted for $95 million in anticipated stock-based compensation, Nikola’s projected money utilization for this 12 months calculates to a variety of $580 million to $705 million:
On the mid-point of the vary, Nikola would use nearly $650 million in money in 2023, nearly thrice the quantity of unrestricted money left on the stability sheet on the finish of December.
On the decision, administration was fast to level to its varied sources of capital for this 12 months:
Sadly, the corporate’s approved shares will not be enough to totally make the most of the corporate’s varied equity-linked funding sources.
Nikola completed 2022 with 800 million approved shares and roughly 512.9 million shares excellent.
Because the starting of the 12 months, the corporate has issued 17.0 million shares below its Fairness Distribution Settlement with Citigroup (C) and 27.4 million shares below the Tumim Stone fairness line of credit score.
As well as, Nikola transformed $75 million in excellent convertible notes into 28.4 million new frequent shares.
Because of this, the variety of excellent shares had elevated to a minimum of 585.7 million by March 24. The corporate additionally disclosed the issuance of a further 1.6 million shares subsequent to March 28 thus bringing complete excellent shares to a minimum of 587.3 million.
After the shut of Thursday’s session, the corporate introduced a $100 million underwritten fairness providing which can be totally backstopped by hedge fund Antara Capital LP (“Antara”) which additionally holds a minimum of $213 million of the corporate’s senior convertible notes.
Concurrently with the general public providing, we have now entered into the Buy Settlement with the Investor, pursuant to which the Investor has agreed to buy as much as $100.0 million of shares of our frequent inventory in a registered direct providing. Below the phrases of the Buy Settlement, the Investor will buy as much as $100.0 million of our frequent inventory, with the precise quantity of shares of frequent inventory to be bought within the concurrent direct providing to be lowered by the extent of the entire public providing quantity. Within the occasion that the entire public providing quantity within the public providing is a minimum of $100.0 million, the Investor won’t buy any shares of frequent inventory within the concurrent direct providing.
Antara additionally agreed to launch 43.2 million shares beforehand reserved for conversion of the notes and exchanged $100 million of its holdings into new convertible notes with a considerably lowered conversion value:
On March 29, 2023, we entered into an trade and funding settlement, or the Trade Settlement, with Antara Capital LP, or the Investor, to trade $100.0 million combination principal quantity of the 8.00%/11.00% convertible senior paid-in-kind, or PIK, toggle notes due 2026, or the Notes, for a similar quantity of 8.00%/11.00% collection B convertible senior PIK toggle notes due 2026, or the Sequence B Notes, with a conversion value equal to 130% of the general public providing value. The Sequence B Notes should not convertible till the sooner of six months from the difficulty date and the date on which the required stockholder approval is obtained. In reference to the Trade, the indenture governing the Notes can be amended to, amongst different issues, (i) take away the requirement that we reserve shares of frequent inventory for conversion of the Notes till we obtain stockholder approval to extend the variety of our approved shares and (ii) present for a similar restrictions on conversion because the Sequence B Notes. The closing of the Trade just isn’t contingent upon the closing of the general public providing or the concurrent direct providing.
As well as, conversion will now be permitted within the very close to future (“the sooner of six months from the difficulty date and the date on which the required stockholder approval is obtained”) as in comparison with February 28, 2026 beforehand.
Assuming an providing value of $1.30 and full train of the $15 million over-allotment choice, Nikola must problem roughly 88.5 million new frequent shares.
After giving impact to shares reserved for worker choice workout routines, the corporate’s inventory incentive plans, restricted inventory models and varied different commitments, Nikola’s remaining shares obtainable for issuance can be all the way down to roughly 47 million.
As of March 28, the corporate’s unrestricted money was all the way down to roughly $123 million. Assuming full train of the over-allotment choice, I might estimate internet proceeds of $109 million to Nikola.
After giving impact to the corporate’s $1.75 million day by day money burn run fee, Nikola would begin Q2 with barely under $230 million in unrestricted money and 47 million shares obtainable for issuance which ought to be enough to maintain the lights on till the corporate’s annual stockholder assembly in June (emphasis added by writer):
We don’t imagine we at the moment have enough unissued shares of frequent inventory for future issuances to lift funds essential to execute on our marketing strategy. (…)
We intend to solicit the approval of our stockholders to amend our restated certificates of incorporation to extend the variety of approved shares of our frequent inventory at our annual assembly of stockholders in June 2023, however we have now up to now encountered difficulties acquiring stockholder approval for related proposals and there may be no assurance that our stockholders will approve the contemplated modification or any future modification, notably since we have now a big retail stockholder base.
A delay in securing, or a failure to safe, stockholder approval to amend our restated certificates of incorporation may trigger a delay in our future capital elevating, together with pursuant to present financing agreements, collaboration, partnership or different strategic transactions, and would have a cloth hostile impact on our enterprise, prospects, operations, liquidity and monetary situation.
Final 12 months, it took the corporate two months to win enough stockholder votes for rising approved shares from 600 million to 800 million after Nikola’s founder and former CEO and chairman, Trevor Milton, voted towards the proposal.
This time, Nikola will not have the ability to afford a prolonged delay as the corporate would merely run out of funds on this case.
Nikola is shortly operating out of each funds and choices.
Even the anticipated internet proceeds from Thursday’s $100 million fairness providing will solely purchase the corporate time till the annual stockholder assembly in June. Ought to Nikola once more face difficulties to win enough votes for an additional huge improve within the firm’s approved shares, chapter would probably be the only real remaining choice for the ailing firm.
Nikola’s pitiful shareholders stay caught between a rock and a tough place. Even when they approve one other improve in approved shares in a well timed method and the corporate by some means manages to lift the capital required to make it into 2024, they are going to be saddled with outsized dilution.
Given the apparent lose-lose state of affairs, buyers ought to take into account promoting present positions and shifting on.