SunCar Technology (US:SDA)2025-02-04 21:10markdown [Consolidated Financial Statements](index=2&type=section&id=Consolidated%20Financial%20Statements) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2024, SunCar's total assets increased to $252.1 million, with liabilities rising to $176.9 million Condensed Consolidated Balance Sheet Highlights (in U.S. Dollar thousands) | Balance Sheet Item | December 31, 2023 | September 30, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $175,197 | $196,472 | | **Total Assets** | **$223,235** | **$252,055** | | **Total Current Liabilities** | $124,392 | $152,494 | | **Total Liabilities** | **$155,245** | **$176,850** | | **Total Equity** | **$67,990** | **$75,205** | | Cash | $30,854 | $20,239 | | Accounts receivable, net | $56,043 | $77,131 | | Accounts payable | $26,641 | $54,995 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the nine months ended September 30, 2024, revenues grew to $312.7 million, but operating loss widened to $58.4 million Statement of Operations Summary (in U.S. Dollar thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | **Total Revenues** | **$250,463** | **$312,709** | | Auto service | $147,527 | $159,555 | | Auto eInsurance service | $78,842 | $119,108 | | Technology service | $24,094 | $34,046 | | **Total operating costs and expenses** | **($254,015)** | **($371,075)** | | General and administrative expenses | ($13,084) | ($44,079) | | Research and development expenses | ($5,464) | ($33,625) | | **Operating loss** | **($3,552)** | **($58,366)** | | **Net loss attributable to shareholders** | **($9,393)** | **($64,747)** | | **Basic and diluted loss per share** | **($0.11)** | **($0.68)** | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) For the nine months ended September 30, 2024, total equity increased to $75.2 million, driven by share-based compensation - Share-based compensation of **$61.8 million** for the company and **$1.7 million** for non-controlling interests was a major contributor to the increase in additional paid-in capital and total equity during the first nine months of 2024[11](index=11&type=chunk) - The company's accumulated deficit increased from **$126.7 million** at the end of 2023 to **$191.5 million** as of September 30, 2024, reflecting the significant net loss incurred during the period[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2024, operating activities generated $1.2 million in cash, a significant improvement Cash Flow Summary (in U.S. Dollar thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | ($31,093) | $1,182 | | Net cash used in investing activities | ($2,181) | ($9,792) | | Net cash provided by/(used in) financing activities | $34,069 | ($2,325) | | **Net change in cash and restricted cash** | **$54** | **($10,606)** | | **Cash and restricted cash, end of the period** | **$23,971** | **$22,989** | - A major non-cash adjustment in operating activities for the nine months ended September 30, 2024, was a **$62.0 million** share-based compensation expense, which was the primary reason for positive operating cash flow despite a large net loss[16](index=16&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Organization and Principal Activities](index=9&type=section&id=Note%201.%20Organization%20and%20Principal%20Activities) SunCar Technology Group Inc. provides auto, eInsurance, and technology services in the PRC - The Group's main business lines are auto service, auto eInsurance service, and technology service, all conducted within the People's Republic of China (PRC)[21](index=21&type=chunk) - The company completed a business combination on May 17, 2023, which was accounted for as a reverse recapitalization, with SunCar as the accounting acquirer[22](index=22&type=chunk)[23](index=23&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements are prepared under U.S. GAAP, with key policies for revenue recognition and credit losses - Auto service revenue is recognized at a point in time when the service is provided or the service coupon expires[40](index=40&type=chunk) - Auto eInsurance service revenue (commissions) is recognized when the insurance policy becomes effective and the premium is collected by the insurance company[42](index=42&type=chunk) - Technology services revenue is recognized over time during the service period based on a fixed monthly price[43](index=43&type=chunk) [Note 3. Segment Information](index=15&type=section&id=Note%203.%20Segment%20Information) The company operates Auto Service and Auto eInsurance segments, generating $159.6 million and $119.1 million in revenue respectively Segment Performance for Nine Months Ended Sep 30, 2024 (in U.S. Dollar thousands) | Segment | Revenues from external customers | Segment income (loss) before tax | | :--- | :--- | :--- | | Auto service | $159,555 | $8,660 | | Auto eInsurance service | $119,108 | ($3,474) | | Others | $34,046 | ($65,828) | | **Consolidated** | **$312,709** | **($60,642)** | Total Assets by Segment (in U.S. Dollar thousands) | Segment | December 31, 2023 | September 30, 2024 | | :--- | :--- | :--- | | Auto service | $136,387 | $165,521 | | Auto eInsurance service | $66,274 | $61,376 | | Others | $20,574 | $25,158 | | **Total segment assets** | **$223,235** | **$252,055** | [Note 10. Warrants](index=19&type=section&id=Note%2010.%20Warrants) As of September 30, 2024, the company had 12.4 million warrants outstanding, with varying classifications - The company has several types of warrants outstanding: GEM Warrants, Public Warrants, Private Warrants, Common Warrants, and PA Warrants[73](index=73&type=chunk)[77](index=77&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - Private Warrants are treated as liabilities and remeasured to fair value each period, while Public and other warrants are classified as equity[83](index=83&type=chunk) Warrants Outstanding as of September 30, 2024 | Metric | Value | | :--- | :--- | | Warrants outstanding | 12,431,674 | | Weighted Average Exercise Price | $10.72 | | Warrants exercisable | 12,431,674 | [Note 11. Share-based Compensation](index=21&type=section&id=Note%2011.%20Share-based%20Compensation) The company recognized significant share-based compensation expenses in 2024, primarily from the 2024 Equity Incentive Plan - On March 28, 2024, the company approved the 2024 Equity Incentive Plan, authorizing **8,800,000** Class A ordinary shares[96](index=96&type=chunk) - All **8.8 million** shares under the 2024 plan were issued and fully vested upon grant, leading to a share-based compensation expense of **$62,040 thousand** for the nine months ended September 30, 2024[97](index=97&type=chunk) - The company also recognized **$1,121 thousand** in compensation expense in the first nine months of 2024 related to a subsidiary's (Shengda Automobile) 2020 Share Incentive Plan[101](index=101&type=chunk) [Note 12. Taxation](index=23&type=section&id=Note%2012.%20Taxation) PRC subsidiaries are subject to EIT rates of 25% or 15%, and the company has $66.9 million in net operating loss carryforwards - The statutory enterprise income tax (EIT) rate in the PRC is **25%**, but certain subsidiaries qualify as High and New Technology Enterprises (HNTEs) and are entitled to a reduced rate of **15%**[106](index=106&type=chunk) Deferred Tax Assets and Valuation Allowance (in U.S. Dollar thousands) | Item | December 31, 2023 | September 30, 2024 | | :--- | :--- | :--- | | Total deferred tax assets | $23,818 | $25,686 | | Valuation allowance | ($11,820) | ($12,796) | | **Deferred tax assets, net** | **$11,998** | **$12,890** | - As of September 30, 2024, the Group had net operating loss carryforwards of approximately **$66.9 million**, which will begin to expire in 2025[109](index=109&type=chunk)[110](index=110&type=chunk) [Note 14. Related Party Transactions](index=25&type=section&id=Note%2014.%20Related%20Party%20Transactions) The company has $30.2 million due to Shengda Group, a related party, with partial non-cash repayment - A significant payable exists to Shengda Group, an entity controlled by CEO Mr. Ye Zaichang, related to the 2021 transfer of SunCar Online[112](index=112&type=chunk)[113](index=113&type=chunk) - During the nine months ended September 30, 2024, the Group repaid **$6.2 million** of the debt to Shengda Group by transferring shares of SunCar Online, resulting in a non-cash gain of **$4.5 million** recorded in additional-paid-in capital[114](index=114&type=chunk)[116](index=116&type=chunk) Amount Due to a Related Party (in U.S. Dollar thousands) | Item | December 31, 2023 | September 30, 2024 | | :--- | :--- | :--- | | Current | $4,751 | $6,569 | | Non-current | $29,688 | $23,675 | | **Total** | **$34,439** | **$30,244** | [Note 15. Concentration Risk](index=26&type=section&id=Note%2015.%20Concentration%20Risk) The company faces significant customer concentration, with top customers accounting for 50% of revenue and 40% of receivables - For the nine months ended September 30, 2024, the top three customers accounted for a combined **50%** of the Group's total revenue[120](index=120&type=chunk) - As of September 30, 2024, the top three customers accounted for a combined **40%** of the Group's total accounts receivable[120](index=120&type=chunk) [Operating and Financial Review and Prospects](index=28&type=section&id=Operating%20and%20Financial%20Review%20and%20Prospects) [A. Operating Results](index=28&type=section&id=A.%20Operating%20Results) Revenue grew from auto service and eInsurance, but operating loss widened due to significant share-based compensation [Business Overview](index=28&type=section&id=Business%20Overview) - SunCar is a cloud-based provider of digitalized enterprise auto services and auto eInsurance in China[128](index=128&type=chunk) - The company's business is divided into three segments: - **Auto Service:** Offers customized service solutions (e.g., car wash, maintenance) to enterprise clients like banks and insurance companies for their customer loyalty programs - **Auto eInsurance:** Facilitates the sale of auto insurance products from major insurers through a network of over 64,000 external sales partners - **Technology Service:** Provides software and consulting (e.g., CRM, order management) to enterprise clients, with plans to develop a SaaS model[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Results of Operations Comparison](index=33&type=section&id=Results%20of%20Operations%20Comparison) Revenue by Segment (in U.S. Dollar thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Change % | | :--- | :--- | :--- | :--- | | Auto service | $147,527 | $159,555 | 8% | | Auto eInsurance service | $78,842 | $119,108 | 51% | | Technology service | $24,094 | $34,046 | 41% | | **Total revenues** | **$250,463** | **$312,709** | **25%** | - The **51%** increase in Auto eInsurance revenue was driven by a rising number of policies sold, particularly for Electric Vehicles (EVs), where the company ranks first in China for premium facilitation[167](index=167&type=chunk) - General and administrative expenses increased **237%** YoY, primarily due to a **$31.0 million** share-based compensation expense from the 2024 Equity Incentive Plan[164](index=164&type=chunk)[173](index=173&type=chunk) - Research and development expenses surged **515%** YoY, also primarily due to the **$31.0 million** share-based compensation expense[164](index=164&type=chunk)[174](index=174&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) Reconciliation of Net Loss to Adjusted EBITDA (in U.S. Dollar thousands) | Line Item | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | **Net loss** | **($4,673)** | **($61,573)** | | Depreciation and amortization | $3,828 | $3,320 | | Financial expenses, net | $3,650 | $3,463 | | Share-based compensation | $1,147 | $63,161 | | Other adjustments | ($1,848) | ($10) | | **Adjusted EBITDA** | **$3,144** | **$8,194** | | **Adjusted EBITDA Margin** | **1.3%** | **2.6%** | - Despite a significant increase in GAAP net loss, **Adjusted EBITDA** grew **161%** YoY to **$8.2 million** for the nine months ended September 30, 2024[175](index=175&type=chunk)[180](index=180&type=chunk) [B. Liquidity and Capital Resources](index=37&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) As of September 30, 2024, the company held $20.2 million in cash, with operating activities generating $1.2 million Cash Flow Summary (in U.S. Dollar thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | ($31,093) | $1,182 | | Net cash used in investing activities | ($2,181) | ($9,792) | | Net cash provided by/(used in) financing activities | $34,069 | ($2,325) | | **Net change in cash and restricted cash** | **$54** | **($10,606)** | - Capital expenditures for the nine months ended September 30, 2024, were **$9.9 million**, primarily for software, equipment, and cloud systems[199](index=199&type=chunk) Contractual Obligations as of September 30, 2024 (in U.S. Dollar thousands) | Obligation | Within one year | 1-3 years | Total | | :--- | :--- | :--- | :--- | | Lease commitment | $85 | - | $85 | | Capital commitment | $8,480 | - | $8,480 | | Short-term borrowings | $83,362 | - | $83,362 | [C. Research and Development, Patents and Licenses, etc.](index=39&type=section&id=C.%20Research%20and%20Development%2C%20Patents%20and%20Licenses%2C%20etc.) R&D expenses surged to $33.6 million for the nine months ended September 30, 2024, driven by share-based compensation - R&D expenses were **$5.5 million** and **$33.6 million** for the nine months ended September 30, 2023 and 2024, respectively[209](index=209&type=chunk)