LMP Automotive Holdings, Inc. (LMPX) is a diversified automotive retail and leasing platform that is revolutionizing the way consumers buy, sell, lease, and finance vehicles. With a unique business model that combines traditional dealership operations with innovative digital solutions, the company is carving out a distinctive position in the highly competitive automotive industry.
Business Overview and History
LMP Automotive Holdings, Inc. was formed as a Delaware corporation on December 15, 2017. The company's founder, Samer Tawfik, contributed 100% of the equity interests in LMP Motors.com, LLC and LMP Finance, LLC to the company in December 2017. In January 2018, 601 NSR, LLC and LMP Automotive Holdings, LLC made the company their sole member. Through these transactions, LMP Automotive Holdings, Inc. became the 100% owner of these four entities.
LMP Motors.com, LLC currently operates the company's automobile sales business, while LMP Finance, LLC operates the rental and subscription business. 601 NSR, LLC and LMP Automotive Holdings, LLC were formed to enter into future potential strategic acquisitions, with 601 NSR, LLC currently being inactive.
In March 2021, LMP Automotive Holdings, Inc. acquired a majority interest in ten new vehicle franchises through its wholly-owned subsidiaries. This included acquiring franchises in West Virginia and Florida. The company also purchased a 100% interest in the related real estate at five of the dealerships.
In May 2021, LMP Automotive Holdings, Inc. acquired a majority interest in one additional new vehicle franchise through its wholly-owned subsidiary. This expanded the company's existing markets and access to new customers, while also creating revenue and cost synergies that management believed would contribute to future profits.
The company's acquisitions in the first half of 2021 transformed its business model, enabling it to offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle, including new and used vehicles, finance and insurance products, and automotive repair and maintenance. This marked a significant expansion from the company's previous "Buy, Subscribe, Sell and Repeat" model.
Financials
As of the latest 10-Q filing, LMP Automotive reported total assets of $214.24 million and total liabilities of $166.37 million, resulting in a debt-to-equity ratio of 0.11. The company's cash and restricted cash position stood at $29.70 million, providing ample liquidity to fund ongoing operations and strategic initiatives.
For the nine months ended September 30, 2021, the company generated total revenues of $314.48 million, a significant increase from the $26.44 million reported in the same period of the prior year. This growth was primarily driven by the company's acquisition of the new vehicle franchises, which contributed approximately $290 million in revenue. However, the company's net income for the nine-month period was $2.64 million, compared to a net income of $2.26 million in the prior-year period.
In the third quarter of 2021, LMP Automotive reported revenue of $141.43 million, a substantial increase from $13.37 million in the same period in 2020. This dramatic growth was primarily driven by the acquisition of 11 new vehicle franchises in March and May 2021, which contributed approximately $128.10 million in revenue during the third quarter.
The company's net income for Q3 2021 was $4.77 million, compared to a net loss of $752,090 in Q3 2020, reflecting the significant revenue growth and profitability improvements from the recent dealership acquisitions. Operating cash flow (OCF) for the quarter was $21,119,782, while free cash flow (FCF) was $21,377,471.
Operational Efficiency and Growth Initiatives
LMP Automotive's strategic shift towards the franchised dealership model has allowed the company to leverage its digital capabilities to enhance the overall customer experience. By integrating its online platforms with traditional dealership operations, the company is able to streamline the vehicle purchase and ownership process, providing customers with a more efficient and seamless transaction experience.
The company's recent acquisitions have also enabled it to achieve greater economies of scale, as it can now centralize various back-office functions, such as sales, finance, and logistics. This operational efficiency is expected to translate into improved financial performance and profitability going forward.
Furthermore, LMP Automotive is actively pursuing additional acquisition opportunities to further expand its geographic footprint and diversify its revenue streams. The company's management team has a proven track record of identifying and successfully integrating strategic acquisitions, which has been a key driver of the company's growth.
Business Segments
LMP Automotive Holdings, Inc. operates in two main segments: Retail Fleet and Subscription.
Retail Fleet Segment
The Retail Fleet segment consists of LMP's retail automotive locations that sell new vehicles manufactured by General Motors, Subaru, and KIA Motors, as well as used vehicles. These franchised dealerships also sell automotive parts and services, and provide automotive finance and insurance products.
In the third quarter of 2021, the Retail Fleet segment generated $141.43 million in total revenues, a significant increase from $13.37 million in the same period in 2020. Cost of revenues for the Retail Fleet segment was $113.84 million in Q3 2021, up from $12.49 million in Q3 2020, leading to a gross profit of $27.59 million (19.5% gross margin) compared to $877,070 (6.6% gross margin) in the prior year period.
Selling, general and administrative expenses for the Retail Fleet segment were $20.54 million in Q3 2021, up from $1.36 million in Q3 2020, primarily due to the addition of the 11 new franchised dealerships. Depreciation and amortization also increased to $876,430 from $167,100 in the year-ago quarter.
Subscription Segment
The Subscription segment includes LMP's vehicle subscription and leasing business. Revenue from this segment comes from subscription fees and interest income from sales-type leases.
In the third quarter of 2021, the Subscription segment generated $157,390 in net leasing income, down from $788,970 in Q3 2020. This decline was primarily due to a reduction in sales-type lease activity. LMP's vehicle subscription revenue was $30,000 in Q3 2021, down from $69,000 in the prior year period. As of September 30, 2021, the company had a subscription liability balance of $48,000, which is included in other current liabilities on the consolidated balance sheet.
The Subscription segment did not contribute significantly to LMP's overall financial performance in the third quarter, as the company has been shifting its focus more towards the Retail Fleet business through the recent dealership acquisitions.
Liquidity
As of the latest financial reporting, LMP Automotive Holdings, Inc. maintained a strong liquidity position. The company reported a cash balance of $18,850,000 and restricted cash of $10,850,000. The debt-to-equity ratio stood at 0.11, indicating a relatively low level of leverage.
The company's current ratio was 8.32, while the quick ratio was 5.54. These ratios suggest that LMP Automotive has a strong ability to meet its short-term obligations and maintain financial flexibility.
Risks and Challenges
While LMP Automotive's transformation has been largely successful, the company faces several risks and challenges that warrant consideration. The highly competitive nature of the automotive industry, coupled with the ongoing supply chain disruptions and semiconductor chip shortages, could pose challenges to the company's ability to maintain its growth trajectory.
Additionally, the integration of acquired dealerships and the management of multiple business segments within a centralized platform present operational complexities that the company must effectively navigate. Failure to seamlessly integrate these operations could impact the company's financial performance and operational efficiency.
Furthermore, the company's reliance on debt financing to fund its growth initiatives exposes it to interest rate risk and the potential for higher financing costs, which could squeeze profit margins.
Conclusion
LMP Automotive Holdings, Inc. has transformed itself from a small online vehicle subscription platform to a diversified automotive retail and leasing powerhouse. By strategically expanding its operations to include franchised dealerships and leasing solutions, the company has positioned itself to capitalize on the evolving needs of modern consumers.
The company's recent financial performance, particularly in the Retail Fleet segment, demonstrates the success of its acquisition strategy and the potential for continued growth. The significant increase in revenue and profitability in Q3 2021 compared to the previous year underscores the positive impact of the new vehicle franchises on LMP Automotive's business.
While the company faces some risks and challenges, its innovative business model, strong financial position, and experienced management team suggest that LMP Automotive is well-equipped to navigate the dynamic automotive landscape and continue its growth trajectory. As the company continues to execute on its strategic initiatives, it could emerge as a prominent player in the rapidly evolving automotive retail and leasing industry.