Faraday Future Intelligent Electric Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results. The company designs and develops electric vehicles, had not begun vehicle sales, and reported no revenue.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $137.5m | $27.7m | $286.5m | $47.1m |
| Operating loss | $137.5m | $27.7m | $286.5m | $47.1m |
| Net loss | $141.7m | $52.8m | $294.8m | $128.3m |
| Net loss per share | $0.44 | $0.32 | $0.91 | $0.79 |
| Cash used in operations | Not separately presented for the quarter | $235.1m | $52.3m | |
| Capital expenditures | Not separately presented for the quarter | $90.2m | $1.4m |
Figures are in U.S. dollars; financial statement amounts have been converted from thousands to millions. Gross margin and profit margin are not meaningful because the company had no revenue. Q2 operating expenses were led by research and development ($98.0m), including engineering, design and testing costs. The six-month net loss includes a $6.3m gain from fair-value changes, compared with a $37.6m loss in the prior-year period.
At June 30, cash was $120.6m, down from $505.1m at December 31, 2021; restricted cash was $0.9m. Current assets were $175.1m against current liabilities of $257.7m, a working-capital deficit of approximately $82.6m. Total liabilities were $286.8m. Notes payable totaled $79.2m principal, including $40.0m due in 2022 and $33.9m in 2023; related-party notes payable were $13.0m, all due on demand. The company disclosed a default on a related-party note with $8.9m principal.
Changes versus the prior comparable period
- Six-month operating expenses rose to $286.5m from $47.1m, driven mainly by higher R&D spending as suppliers were re-engaged for FF 91 development. R&D alone increased by $197.6m.
- Six-month net loss more than doubled to $294.8m from $128.3m. Operating cash use increased to $235.1m from $52.3m.
- Investing outflows rose to $90.2m from $1.4m, principally for property and equipment. Property and equipment, net, increased to $387.1m from $293.1m, mostly construction in progress.
- Financing activities used $85.8m in the first half of 2022, versus providing $111.5m in 2021, reflecting repayment of notes payable. The company repaid $87.3m, including a $2.1m payment premium.
- Lower interest expense and related-party interest expense partly offset operating cost growth, reflecting reduced debt balances. Higher foreign-exchange losses contributed to increased other expense.
Outlook, risks and unusual items
- Management planned FF 91 testing, validation, certification and initial deliveries in Q3 or Q4 2022. This was a plan, not a guarantee; the filing says the company had not yet produced or sold vehicles. It reported 399 fully refundable, non-binding preorders at June 30.
- The company concluded that recurring losses and operating cash outflows raised substantial doubt about its ability to continue as a going concern for one year after issuance of the statements. It projected it would need additional funds by early September 2022 to continue operations, and said further financing was needed for the FF 91 launch and production ramp.
- The company projected approximately $368m of cash use from July through December 2022 and said it was seeking $325m in fundraising. It warned that failure to raise sufficient capital could delay the launch, force spending cuts, or lead to restructuring, bankruptcy or cessation of operations.
- Post-period financing: On August 14, 2022, the company entered an agreement for $52m of senior secured convertible notes, subject to closing conditions, with potential for another $248m of incremental notes that were not committed. The notes carry a 10% original issue discount, 10% interest, conversion terms and warrants; issuance and conversion could materially dilute existing shareholders. Do not treat the potential incremental amount as secured funding.
- Supplier payment delays and the company’s financial condition had led some suppliers to threaten termination or seek accelerated payments, potentially putting deliveries at risk. Supply-chain disruption, material inflation, COVID-19 effects, execution and production-ramp risks also remained.
- Material weaknesses in internal control over financial reporting remained unremediated, and disclosure controls were deemed ineffective as of June 30. The company continued remediation and said full remediation could extend beyond December 31, 2023.
- The filing describes an SEC formal investigation related to matters reviewed by the Special Committee and a preliminary DOJ information request; the company said it was cooperating and could not estimate potential losses. Securities and derivative litigation and a Delaware stockholder lawsuit were also disclosed. Accrued legal contingencies were $14.8m.
- The Special Committee found, among other matters, that prior statements about more than 14,000 FF 91 reservations were potentially misleading: only several hundred were paid, with the remainder unpaid indications of interest. It also identified disclosure, related-party, compliance and governance deficiencies. Remedial actions included management and board changes.
Important facts for investors to verify
- Whether the August 2022 financing closed, how much was actually funded, and what additional financing was obtained on what terms.
- Actual cash burn, cash runway, near-term debt payments and the status of the defaulted related-party note.
- Whether FF 91 certification, production, deliveries and conversion of non-binding preorders into sales occurred as planned.
- Whether suppliers continued to provide parts and services, and whether payment terms or delays affected production.
- Progress in remediating control weaknesses and developments in SEC/DOJ inquiries, litigation and related-party governance matters.
- Potential dilution from convertible debt, warrants, outstanding share commitments and future fundraising.