Business Overview and History
Cheetah Net Supply Chain Service Inc. (CTNT) is a dynamic provider of logistics and warehousing services, with a rich history of adapting to industry changes and seizing new opportunities. Founded in 2016 as a parallel-import vehicle dealer, the company has undergone a strategic transformation, leveraging its expertise to diversify into the broader logistics and warehousing arena.
Cheetah Net was established on August 9, 2016, under the laws of the State of North Carolina as a limited liability company (LLC) named Yuan Qiu Business Group LLC. The company initially operated exclusively as a parallel-import vehicle dealer for luxury brand automobiles. On March 1, 2022, the company filed articles of incorporation, including articles of conversion, with the Secretary of State of North Carolina to convert from an LLC to a corporation, changing its name to Cheetah Net Supply Chain Service Inc.
From its inception in 2016 to the first half of 2022, Cheetah Net experienced significant growth in sales volume, revenue, and gross profit from its parallel-import vehicle business. This success was attributed to the company's core strengths and a favorable economic climate during that period.
However, since the second half of 2022, Cheetah Net's parallel-import vehicle business has faced significant challenges. The COVID-19 pandemic, lockdowns in China, and weakened customer demand due to deteriorating macroeconomic conditions have all contributed to a decline in this segment. The parallel-import vehicle market has been further impacted by price discounting from luxury import brands and a shift in consumer interest towards domestic electric vehicles (EVs).
In response to these challenges, Cheetah Net has embarked on a strategic transformation to diversify its revenue streams and capitalize on new opportunities in the logistics and warehousing sector. In February 2024, the company acquired Edward Transit Express Group Inc. (Edward), a provider of ocean and air transportation services, to expand its logistics and warehousing operations.
Following the acquisition, Cheetah Net increased its marketing efforts in the second quarter of 2024 to pursue new business opportunities and focus on international trade flows between China and the U.S. In a significant move to support its strategic shift, the company relocated its headquarters from Charlotte, NC to Irvine, CA in July 2024. This relocation positions Cheetah Net closer to the important Southern California market and allows the company to leverage the region's well-developed infrastructure and logistics networks, particularly its proximity to the crucial ports of Los Angeles and Long Beach.
Financial Performance and Ratios
Cheetah Net's financial performance has been mixed, with the parallel-import vehicle business segment contributing the majority of its revenue in the past. However, the company's strategic shift towards logistics and warehousing services is expected to drive future growth and profitability.
For the nine months ended September 30, 2024, Cheetah Net reported total revenue of $1.9 million, a significant decrease of 94.3% compared to the same period in 2023, primarily due to the continued decline in the parallel-import vehicle business. Gross profit during the same period decreased by 97.5% to $0.09 million, with a gross margin of 4.7%.
The company's net loss for the nine months ended September 30, 2024, was $3.0 million, compared to a net income of $0.2 million in the same period of 2023. This decline was driven by the significant reduction in the parallel-import vehicle business, as well as increased operating expenses related to the company's strategic transformation.
For the most recent fiscal year ended December 31, 2023, Cheetah Net reported revenue of $38.32 million, net income of $133,870, operating cash flow of $5.61 million, and free cash flow of $5.61 million. However, the company's financial performance has deteriorated significantly in recent quarters. For the quarter ended September 30, 2024, Cheetah Net reported revenue of $61,210, a net loss of $1.82 million, negative operating cash flow of $226,450, and negative free cash flow of $226,450. The year-over-year revenue decrease of 99.4% was primarily due to the continued decline in the parallel-import vehicle business.
The net loss of $1.82 million in the most recent quarter was largely driven by a $1.10 million allowance for credit losses on accounts receivable from the parallel-import vehicle business, as well as increased general and administrative expenses to support the newly acquired logistics and warehousing segment.
Liquidity
Cheetah Net's liquidity position remains strong, with cash and cash equivalents of $5.3 million as of September 30, 2024, and a current ratio of 14.86, indicating a healthy ability to meet short-term obligations. The company's debt level is relatively low, with a debt-to-equity ratio of 0.18 as of the same date.
As of September 30, 2024, Cheetah Net had $653,340 in long-term debt. The company also has access to a $15 million revolving line of credit facility, of which $0 was outstanding as of September 30, 2024. The current ratio stands at 14.86, and the quick ratio is also 14.86, further demonstrating the company's strong short-term liquidity position.
Business Segments
Cheetah Net operates in two main business segments:
1. Parallel-Import Vehicles Segment: This segment generates revenue from the sale of parallel-import vehicles to both domestic and overseas parallel-import car dealers. The company purchases automobiles from the U.S. market through its team of professional purchasing agents and resells them mainly to parallel-import car dealers in the U.S. and China. Revenue is recognized when the performance obligation has been satisfied and control of the vehicles has been transferred to the dealers. During the nine months ended September 30, 2024, sales in this segment decreased by 95% compared to the same period in 2023, with no revenue generated during the three months ended September 30, 2024.
2. Logistics and Warehousing Segment: This segment generates revenue from freight forwarding services, both export and import, as well as warehousing services. Revenue from freight forwarding services is recognized when the services are provided, based on the relative transit time. For warehousing services, revenue is primarily derived from storage fees, which are recognized based on the actual number of days the goods are stored in the warehouse. During the nine months ended September 30, 2024, the company reported total revenue of $231,600 from logistics and warehousing services, which it began recording following the acquisition of Edward Transit Express Group Inc. in February 2024.
Risks and Challenges
Cheetah Net faces several risks and challenges as it navigates the evolving logistics and warehousing landscape:
1. Continued Decline in Parallel-Import Vehicle Business: The company's parallel-import vehicle business has been significantly impacted by the COVID-19 pandemic, lockdowns in China, and weakened customer demand. Failure to diversify its revenue streams could further exacerbate the impact on the company's financial performance.
2. Competitive Landscape: The logistics and warehousing industry is highly competitive, with established players and new entrants vying for market share. Cheetah Net's ability to differentiate its services and maintain a competitive edge will be crucial for its long-term success.
3. Regulatory and Geopolitical Risks: Changes in government policies, trade agreements, and geopolitical tensions between the U.S. and China could disrupt the company's international operations and supply chain.
4. Integration and Execution Risks: The successful integration of the Edward acquisition and the execution of the company's strategic transformation initiatives are critical for Cheetah Net to realize the expected benefits and synergies.
Outlook and Conclusion
Cheetah Net's strategic shift towards the logistics and warehousing services segment represents a significant pivot for the company, as it seeks to diversify its revenue streams and position itself for long-term growth. The acquisition of Edward and the relocation of the company's headquarters to Irvine, CA, are key steps in this transformation.
While the company's parallel-import vehicle business has faced significant challenges, Cheetah Net's strong liquidity position and relatively low debt levels provide a solid foundation for its transition. The company's ability to execute its strategic initiatives, navigate the competitive landscape, and mitigate regulatory and geopolitical risks will be crucial in determining its future success.
As Cheetah Net continues to navigate the evolving logistics and warehousing industry, investors will closely monitor the company's progress in diversifying its revenue streams, improving its financial performance, and capitalizing on the growth opportunities in the broader logistics market. The company's focus on facilitating non-vehicle trade between the U.S. and China, in light of the continued weakness in the imported automobile market in China, demonstrates its adaptability and commitment to finding new avenues for growth.