Editor’s Note: This article was updated on Jan. 19 to correct Ideanomics’ cash situation.
Ideanomics (NASDAQ:IDEX) must be pretty confident that it can raise equity capital. It has made many agreements lately that all require much of the cash the company has raised and that could affect IDEX stock.
Ideanomics recently raised $150 million in equity in 6 tranches ending Dec. 9 under a Standby Equity Distribution Agreement (SEDA). In addition to that, they issued $37.5 million in a 4% convertible note due July 4, 2021. This $187.5 million burnt a hole in their pocket and much was quickly spent.
For example, based on my calculations, the company already has plans for at least $111.6 million and possibly as much as $140 million. This does not include the $40 million it just paid on Jan. 8 for Timios, a real estate title and escrow company. It also does not include $14.5 million it used to pay down a prior convertible note on Dec.18.
In fact, its total potential uses of cash, including projected $29 million in losses from its existing business, could be as much as $195 million. That uses up all the cash it has raised and more.
Total Uses of Cash
Here is how I figure this. As mentioned it spent $54.5 million on Timios and the note paydown. Next, it has to redeem the $37.5 million in convertible debentures unless IDEX stock is above $2 by July 4 (see below).
In addition, the company agreed on Dec. 28 to pay roughly $34.1 million for 2,000 Meihao Chuxing electric vehicles. It then acquired on Jan. 4 another company, WAVE, for $15 million and agreed to spend $25 million over two years in capex. All of these extra purchases will cost $111.6 million.
All together, these uses of cash will cost $166.1 million by my calculations And if you add in another $29.2 million in expected losses, the total forecast uses of cash is $195.3 million.
In effect, Ideanomics is going to use up all of the $187.5 million of cash it has raised in the last quarter. This may mean it will have to raise more money. However, if the convertibles do not have to be redeemed and the real estate company it bought makes profits, this may alleviate some of that pressure.
I suspect the way an equity raise will happen is that IDEX stock will get a traditional pump from its capital raise operator hands. Then the dump will happen. I have seen this all the time before. Hopefully IDEX stock will be higher once the back-end dump from the short-term hands in the stock tapers off.
Convertible Notes Might Not Have To Be Redeemed
At the end of Q3, the company had just $27.6 million in cash. But the agreements Ideanomics has made will require $166.1 million of cash to be paid out, unless the convertible notes are converted at $2 per share. In that case, the cash needed will be just $128.6 million.
We don’t have a good forecast yet of the profits that the Timios operation will provide if any. However, the WAVE acquisition and the ride-hailing operation will likely cause enough losses to cover up a good deal of that. This leaves its existing losses.
As of Sept. 30, the company had lost $21.918 million in cash flow from operations according to its 10-Q for 9 months. This works out to $29.2 million on an annualized basis.
Therefore, the total cash flow of capital will be: $195.3 million less $187.5 raised plus Q3 cash of $27.6 million. That leaves a balance of just $19.8 million, or roughly $20 million. If it does not have to redeem the convertible notes, the cash will be $57.3 million after all projected uses.
This could obviously change given any profits that Timios might make. Right now, as I said, the company has $27.6 million in cash. And IDEX stock is well above the price at which conversion is assured.
The convertible notes have to be redeemed by July 4, 2021. So, these will have to be refinanced, unless the holders convert.
However, the good news is that the conversion price is $2.00 per share. So most holders will likely convert their notes into shares by July since IDEX stock is at $2.96. In other words, the notes are in-the-money, and upon conversion, the owners have a built-in 50% profit.
Therefore, assuming that all the noteholders convert there will be 18.75 million more shares. That represents 7.8% of the existing 238.971 million shares outstanding as of Q3.
What To Do With IDEX Stock
Keep in mind that I expect the acquisitions that Ideanomics has made won’t be profitable anytime soon. Therefore, it’s in the best interest of the company to keep the IDEX stock dilution as low as possible.
Moreover, the company has to keep the stock well above $2.00 in order to eliminate the need to pony up $37.5 million in convertible redemption costs by July 4.
The problem is what happens after that. I have seen many of these kinds of situations where the stock moves up in tune with a company’s capital raise program. But when the newly bought shares try to leave after the stock stops rising, there is a huge dump effect.
Therefore, let the buyer beware with IDEX stock. Don’t fall for the typical pump and dump schemes that Wall Street loves to play.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.