Blink Charging Co. — Q3 2018 Form 10-Q
Business context and period. Blink owns and operates EV charging stations and provides charging equipment and network services through turnkey, hybrid and host-owned arrangements. This unaudited filing covers the three and nine months ended September 30, 2018, compared with the corresponding 2017 periods. As of October 24, Blink reported approximately 14,606 deployed stations, including 6,919 operating on the Blink Network; 412 sold stations awaited installation and activation.
Financial results and liquidity
- Revenue: Q3 revenue was $546,844, down 10% from $606,899. Nine-month revenue was $1.77 million, up 2% from $1.74 million.
- Profitability: Q3 gross profit was $106,763, down from $301,289; gross margin fell to about 19.5% from 49.6%. Nine-month gross profit was $449,359 versus $607,427, with gross margin of about 25.4% versus 35.0%. Operating losses widened to $3.52 million in Q3 from $1.23 million and to $9.21 million for nine months from $5.24 million.
- Net loss and EPS: Net loss was $2.15 million in Q3 versus $93.62 million in Q3 2017, and $1.16 million for nine months versus $101.13 million. The prior-year results included substantial noncash and other unusual charges. For nine months 2018, preferred dividends and a deemed dividend of $23.46 million increased the loss attributable to common shareholders to $25.23 million; basic and diluted loss per share were $1.33 and $1.47, respectively.
- Cash flow: Operating cash use was $10.58 million for nine months, compared with $2.02 million in 2017. Investing cash use was $37,711. Financing provided $31.74 million, principally from the public offering and warrant exercises. Cash rose to $21.30 million from $185,151 at year-end 2017.
- Margins and costs: Nine-month compensation expense rose 89% to $7.72 million, including $3.7 million of noncash compensation. Warranty, repair and maintenance costs rose to $271,686 from a prior-year credit of $26,325; management cited third-party work to address a warranty backlog.
- Liquidity and debt: At September 30, cash was $21.30 million, working capital was $16.96 million, and total liabilities were $6.49 million. Gross notes payable were $337,966; no convertible notes remained outstanding. Operating lease liabilities totaled approximately $283,414. Management said cash on hand should cover operating and capital needs for at least 12 months from the filing date, but indicated additional financing may be needed thereafter.
Material changes versus the prior period
- Q3 revenue declined, mainly as product sales fell 35%; company-owned charging-service revenue increased 9%. Nine-month revenue edged higher as charging-service revenue and product sales grew.
- Operating costs and expenses outpaced revenue: nine-month cost of revenue rose 17%, while total operating expenses rose to $9.66 million from $5.85 million. Compensation was the largest increase, reflecting hiring and stock-based awards.
- Cash and working capital improved substantially following the February 2018 public offering and warrant exercises. The offering generated $14.88 million net proceeds, and warrant exercises generated $17.14 million.
- Debt and legacy obligations were reduced or settled through cash payments and equity issuances. The company issued Series D preferred stock to settle approximately $17.8 million of JMJ obligations and recorded a $5.8 million gain on settlement.
Outlook, risks and unusual items
- Outlook: No specific revenue, earnings or operating guidance was provided. Management expects continued losses and says future financing needs depend on commercialization, market developments and operating requirements. It cautioned that financing may not be available on acceptable terms and that a shortfall could force cuts to development, marketing and promotional activity.
- Unusual accounting and comparability: Q3 and nine-month 2017 losses were heavily affected by noncash fair-value changes and settlement-related charges. The 2018 nine-month common-shareholder loss included a $23.46 million deemed dividend; it is distinct from the company’s $1.16 million net loss. ASC 606 adoption had no material impact. The company early adopted lease accounting in July 2018, recognizing operating lease assets and liabilities.
- Commitments and contingencies: Remaining purchase commitments for second-generation charging stations were $2.51 million, payable upon delivery. The company had not filed federal and state income tax returns for 2014–2017 and accrued about $177,000 for delinquent sales taxes; previously delinquent payroll taxes had been remitted. Litigation included a disputed claim for approximately $53,000 and legacy 350 Green matters; the filing also said a $75,000 settlement payment to former 350 Green principals remained unpaid.
- Controls and governance: Management concluded disclosure controls were not effective because previously identified material weaknesses in internal control over financial reporting continued. Remediation included hiring additional finance personnel and a new CFO. After quarter-end, the CEO became SVP of Sales and the President assumed COO duties.
- Dilution and cash concentration: As of November 9, 2018, the company reported 25.72 million common shares outstanding, 6.85 million warrants and 1.75 million shares issuable upon conversion of Series D preferred stock. At September 30, $20.67 million of cash exceeded FDIC insurance limits.
Important facts for investors to verify
- Whether operating cash use and spending growth can be sustained by the reported cash balance, and whether the company raises further capital.
- Whether revenue growth, station installations and network utilization improve enough to offset operating expenses and declining gross margin.
- The reconciliation of reported net loss, common-shareholder loss and EPS, particularly the preferred-stock deemed dividend and other noncash valuation items.
- Execution and cash requirements for the $2.51 million station purchase commitment, and progress clearing the warranty backlog.
- Status of tax filings, sales-tax obligations, litigation and the outstanding 350 Green settlement payment.
- Remediation of internal-control material weaknesses and the potential dilutive effect of warrants, preferred stock and equity compensation.