LMP Automotive Holdings, Inc. (NASDAQ:LMPX) has undergone a remarkable transformation in recent years, transitioning from a "Buy, Subscribe, Sell and Repeat" model to a diversified Franchised Dealership platform. Through a series of strategic acquisitions, the company has expanded its offerings to include new and used vehicle sales, finance and insurance products, service, body shop, and parts operations.

Business Overview

At the core of LMP Automotive's business is its network of franchised dealerships, which the company has been actively acquiring and integrating. In March 2021, the company acquired a majority interest in ten new vehicle franchises, including Buick-GMC, Chevrolet, and Kia dealerships, as well as a 100% interest in the related real estate at five of the locations. This was followed by the acquisition of a majority interest in one additional Subaru franchise in May 2021.

The company further expanded its footprint in March 2021 with the acquisition of a Chrysler Jeep Dodge Ram dealership in Tennessee and a KIA dealership in Florida. These acquisitions not only broadened LMP Automotive's geographic reach but also enhanced its product and service offerings, positioning the company as a comprehensive automotive retail platform.

In addition to its franchised dealership operations, LMP Automotive maintains its previous "Buy, Subscribe, Sell and Repeat" model, providing customers with the opportunity to buy, lease, and subscribe for automobiles both online and in person. This integrated approach allows the company to offer a seamless and convenient customer experience throughout the entire vehicle ownership lifecycle.

Financial Performance

LMP Automotive's financial performance has been impacted by its recent acquisition activity. For the nine months ended September 30, 2021, the company reported revenues of $314.5 million, a significant increase from the $26.4 million generated in the same period of the prior year. This growth was primarily driven by the addition of the new vehicle franchises, which contributed approximately $290.0 million in revenue since their acquisition.

Gross profit for the nine-month period ended September 30, 2021, was $60.0 million, or 19.1% of revenue, compared to $2.9 million, or 10.8% of revenue, in the prior-year period. The improvement in gross margin was largely attributable to the higher-margin new vehicle franchise operations.

However, the company's selling, general, and administrative expenses also increased substantially, from $4.5 million in the first nine months of 2020 to $53.0 million in the same period of 2021. This was due to the addition of the new franchises, as well as one-time acquisition-related expenses and compensation costs associated with redeemable noncontrolling interests.

For the full year 2021, LMP Automotive's financial results were not available at the time of writing. The company did not provide any specific guidance or outlook for the future.

Liquidity and Capital Resources

As of September 30, 2021, LMP Automotive had approximately $29.7 million in cash, including $10.9 million in restricted cash. The company has funded its recent acquisitions through a combination of debt and equity financing, including a $95.0 million term loan and $18.7 million in proceeds from the issuance of Series A Convertible Preferred Stock and warrants.

The company's balance sheet reflects a debt-to-equity ratio of 0.11 as of September 30, 2021, indicating a relatively conservative capital structure. However, the company's significant acquisition-related expenses and integration costs have put pressure on its liquidity and cash flow.

Risks and Challenges

LMP Automotive's rapid growth through acquisitions presents both opportunities and risks. The company's ability to successfully integrate and operate its growing network of franchised dealerships will be crucial to its long-term success. Failure to effectively manage the integration process or realize anticipated synergies could negatively impact the company's financial performance.

Additionally, the automotive retail industry is highly competitive, with established players and new entrants vying for market share. LMP Automotive's ability to maintain its competitive edge and adapt to changing consumer preferences will be critical in the years ahead.

The company's reliance on debt financing to fund its acquisitions also exposes it to interest rate risk and potential covenant violations, which could limit its financial flexibility and access to capital.

Conclusion

LMP Automotive has undergone a remarkable transformation, transitioning from a niche online automotive retailer to a diversified Franchised Dealership platform through a series of strategic acquisitions. The company's expanded product and service offerings, as well as its geographic footprint, have positioned it to capitalize on the growing demand for automotive retail solutions.

However, the company's rapid growth has also brought challenges, including integration risks, competitive pressures, and liquidity concerns. As LMP Automotive continues to execute its acquisition-driven strategy, it will need to carefully manage these risks and focus on driving operational efficiencies to deliver sustainable financial performance and shareholder value.