Ideanomics(US:IDEX)2021-11-22 16:00PART I Financial Statements The company's financial statements for the period ended September 30, 2021, reflect a significant increase in total assets to $595.9 million and revenue to $87.8 million due to acquisitions, alongside a widened net loss of $64.5 million from increased operating expenses and expansion costs Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $256,930 | $165,764 | | Total current assets | $356,307 | $179,759 | | Goodwill | $111,458 | $1,165 | | Total assets | $595,879 | $234,412 | | Total current liabilities | $44,661 | $13,061 | | Total liabilities | $62,013 | $32,643 | | Total equity | $532,604 | $193,022 | Condensed Consolidated Statements of Operations Data (in thousands) | Metric | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :--- | :--- | :--- | | Total revenue | $87,832 | $15,690 | | Gross profit | $24,671 | $1,014 | | Loss from operations | $(74,874) | $(37,702) | | Net loss attributable to Ideanomics, Inc. common shareholders | $(64,526) | $(47,212) | | Basic and Diluted EPS | $(0.15) | $(0.25) | Condensed Consolidated Statements of Cash Flows Data (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,238) | $(21,918) | | Net cash used in investing activities | $(191,787) | $(486) | | Net cash provided by financing activities | $325,291 | $45,737 | | Net increase in cash and cash equivalents | $91,166 | $24,972 | - The company restated its previously issued financial statements for Q1 and Q2 2021 due to errors in revenue recognition for its Timios subsidiary, accounting for its TM2 investment, purchase price allocation for acquisitions, and income tax calculations616263 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights the company's strategic transformation into Ideanomics Mobility and Capital, with revenue surging to $87.8 million primarily from acquisitions, despite a widened net loss due to higher operating expenses, while liquidity remains strong with $256.9 million in cash, bolstered by $325.3 million from financing activities, focusing the outlook on vertically integrating Mobility and recovering Capital - The company operates through two business units: Ideanomics Mobility (focused on EV vehicles, charging, and energy) and Ideanomics Capital (a fintech unit)236 Nine-Month Revenue Comparison (in thousands) | Category | Nine Months 2021 (in thousands) | Nine Months 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $87,832 | $15,690 | +459.9% | | Gross Profit | $24,671 | $1,014 | +2333% | - The increase in revenue was mainly driven by the acquisition of Timios, which generated $62.4 million in title and escrow services revenue in the first nine months of 2021283 - Operating expenses for the nine months of 2021 increased to $99.5 million from $38.7 million in 2020, driven by costs from newly acquired businesses, a $21.0 million impairment loss, and a $5.0 million litigation settlement276 - As of September 30, 2021, the company had $256.9 million in cash, with net cash used in operating activities at $42.2 million, while net cash provided by financing activities was $325.3 million, primarily from the issuance of convertible notes and common stock314316319 Results of Operations For the nine months ended September 30, 2021, revenue dramatically increased to $87.8 million from $15.7 million, driven by acquisitions, with gross profit surging to $24.7 million at a 28.1% margin, though offset by a significant rise in operating expenses to $99.5 million, including a $21.0 million impairment loss, leading to a widened net loss of $64.5 million Revenue Breakdown - Nine Months Ended Sep 30 (in thousands) | Product/Service | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Title and escrow services | $62,429 | $0 | | Electric vehicles | $18,322 | $9,622 | | Charging, batteries and powertrains | $6,850 | $0 | | Combustion engine vehicles | $0 | $5,160 | | Digital advertising services and others | $231 | $908 | | Total | $87,832 | $15,690 | Gross Profit Breakdown - Nine Months Ended Sep 30 (in thousands) | Product/Service | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Title and escrow services | $23,030 | $0 | | Electric vehicles | $613 | $964 | | Charging, batteries and powertrains | $989 | $0 | | Total | $24,671 | $1,014 | - Selling, general and administrative (SG&A) expenses increased by 166% to $53.7 million for the nine months of 2021, up from $20.2 million in 2020, due to costs from acquisitions, stock-based compensation, and increased headcount292 - Professional fees rose to $22.0 million in the first nine months of 2021 from $8.1 million in 2020, largely due to M&A activity, including advice on the contemplated acquisition of Via Motors295 Liquidity and Capital Resources As of September 30, 2021, Ideanomics held $256.9 million in cash, primarily bolstered by $325.3 million from financing activities, while operating activities used $42.2 million and investing activities used $191.8 million largely for acquisitions, with the company anticipating continued equity and debt financing to support its plans - The company held $256.9 million in cash as of September 30, 2021, with approximately $30.5 million held outside the United States314 Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(42,238) | $(21,918) | | Net Cash from Investing Activities | $(191,787) | $(486) | | Net Cash from Financing Activities | $325,291 | $45,737 | - Cash used in investing activities of $191.8 million was primarily for the acquisitions of Timios, WAVE, Solectrac, and US Hybrid, and investments in Energica, TM2, and Via Motor318 - The company expects to continue raising both equity and debt finance to support its investment plans and operations320 Outlook The company's outlook focuses on expanding its Ideanomics Mobility and Capital units, with Mobility aiming for vertical integration in commercial EVs offering VaaS and CaaS, and Capital recovering Timios and relaunching DBOT as JUSTLY for ESG investments, anticipating continued investment to capture market share and achieve profitable operations - Ideanomics Mobility: The company aims to build a vertically integrated commercial EV company, leveraging its acquisitions (WAVE, US Hybrid, Solectrac) to offer solutions like Vehicle-as-a-Service (VaaS) and Charging-as-a-Service (CaaS)324325327 - Ideanomics Capital: The focus is on deploying technology to disrupt financial services, with key initiatives including recovering and growing Timios after a cybersecurity incident and relaunching DBOT as JUSTLY, a FINRA-registered broker-dealer for ESG investments344345346 - The company plans to close its acquisition of VIA Motors in Q1 2022 and increase its investment in Energica to approximately 70%330331 - A new 48,000 sq. ft. facility in New Jersey will serve as a center of excellence for Ideanomics Mobility, expected to come online in 2022328 Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item - As a smaller reporting company, Ideanomics is not required to provide quantitative and qualitative disclosures about market risk350 Controls and Procedures Management concluded that as of September 30, 2021, the company's disclosure controls and procedures were not effective due to identified material weaknesses in internal control over financial reporting, including issues with valuation models, revenue recognition, personnel expertise, and non-routine transactions, with the evaluation excluding recently acquired entities - The CEO and CFO concluded that as of September 30, 2021, the company's disclosure controls and procedures were not effective351 - Material weaknesses were identified in several areas: - Controls over valuation models and specialist outputs - Revenue recognition process, specifically principal vs. agent evaluation - Lack of sufficient personnel with U.S. GAAP and SEC expertise - Controls for evaluating non-routine transactions352353 - The evaluation of internal controls excluded the 2021 acquisitions of Timios, WAVE, Solectrac, and US Hybrid, which collectively represented 33.6% of total assets and 79.4% of revenue355 PART II - OTHER INFORMATION Legal Proceedings The company is involved in several legal matters, including a $5.0 million class action settlement in principle, an ongoing securities class action with a filed motion to dismiss, a settled shareholder derivative action involving corporate governance reforms, and an ongoing SEC investigation with which the company is cooperating - A class action lawsuit (Rudani v. Ideanomics) has reached a settlement in principle for $5.0 million, which is subject to final court approval217 - The company is facing another consolidated securities class action (In re Ideanomics, Inc. Securities Litigation) regarding alleged misstatements in 2020, for which a motion to dismiss has been filed218 - A shareholder derivative action has been settled in principle, with the company agreeing to corporate governance reforms that are not expected to have a material financial impact219 - The company is subject to an ongoing investigation by the SEC and is fully cooperating with their requests220 Risk Factors This section highlights significant risks, including those from financial statement restatement and internal control weaknesses, which could erode investor confidence, alongside substantial risks from cybersecurity incidents like the one at Timios, and industry-specific risks for real estate services and wireless charging, such as dependency on market activity and intellectual property protection - Restatement and Internal Controls: The restatement of prior financial statements and identified material weaknesses could erode investor confidence, negatively impact the stock price, and lead to litigation358360 - Cybersecurity: The company faces significant risks from malicious cyber-attacks, which could disrupt business, disclose confidential information, and cause financial losses, with the recent incident at the Timios subsidiary noted as a key example369223 - Real Estate Services (Timios): Revenues are highly dependent on real estate activity levels, mortgage interest rates, and regulatory conditions, particularly in California, which is a substantial source of revenue376381 - Wireless Charging (WAVE): The business depends on protecting proprietary technology and intellectual property through patents and other legal means, which provide only limited protection388389 Unregistered Sales of Equity Securities and Use of Proceeds During the fiscal quarter ended September 30, 2021, there were no unregistered sales of equity securities other than those previously disclosed in the company's Current Reports on Form 8-K - No unregistered sales of equity securities occurred during the quarter beyond what was previously reported on Form 8-K393 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the fiscal quarter ended September 30, 2021 - There were no defaults upon senior securities during the quarter394 Mine Safety Disclosures This item is not applicable to the company - Not applicable394 Other Information This item is not applicable to the company - Not applicable394 Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements related to the VIA Motors acquisition, a framework agreement, employment agreements, equity offering agreements, and various officer certifications and XBRL data files - Key exhibits include the Agreement and Plan of Merger for VIA Motors International, Inc., a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co., and officer certifications pursuant to the Sarbanes-Oxley Act396