IPO Preview: Smith Electric Vehicles

| About: Smith Electric (SMTH)

Based in Kansas City, MO, Smith Electric Vehicles (SMTH) scheduled a $77 million IPO with a market capitalization of $359 million at a price range mid-point of $17, for Friday, September 21, 2012.

Seven IPOs are scheduled for the week of September 17. Full IPO calendar available here.

  • SMTH S-1 filed September 6, 2012
  • Manager, Joint Managers: UBS Investment Bank/ Deutsche Bank Securities/ Barclays.
  • Co Managers: CRT Capital.

SUMMARY

SMTH designs, produces and sells commercial electric vehicles. SMTH suspended production in Q4 2011 to transition to newer technologies.

Without government subsidies IPOdesktop believes commercial electric vehicles are not competitive enough to develop a large, near-term market.

CONCLUSION

Looks like SMTH is an example of 'go public or go broke' and IPOdesktop's recommendation is to avoid.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing June 2012 6 mos

Cap (NYSE:MM)

Sales

Earnings

BookValue

TangibleBV

in IPO

Smith Electric Vehicles

$359

10.6

-24

5.9

9.3

21%

Click to enlarge

Financial Glossary

BUSINESS

SMTH designs, produces and sells zero emission commercial electric vehicles designed to be a superior performing alternative to traditional diesel trucks due to higher efficiency and lower total cost of ownership.

SMTH believes it is the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles.

Unlike companies that have introduced electric passenger vehicles, SMTH focuses on the production and sale of commercial electric vehicles that primarily address the needs of medium-duty commercial fleet operators with depot-based operations and predictable daily service routes of up to 120 miles.

GROWTH PLAN

Based on the order backlog of 444 vehicles as of August 31, 2012, SMTH expects to produce 380 vehicles during 2012, 60% to be produced in the fourth quarter.

During the year ended December 31, 2011 and the six months ended June 30, 2012, SMTH sold 270 and 90 vehicles, respectively.

PRODUCTION SUSPENDED Q4 2011

In the fourth quarter of 2011, SMTH completed the transition of the powertrain and battery system used in the U.S.-produced Smith Newton to the Smith Drive and Smith Power technologies.

In order to facilitate this transition, SMTH temporarily suspended U.S. production of the Newton in August 2011 and re-tooled the Kansas City production facility. SMTH began limited production of the second generation Newton, which includes the Smith Drive, Smith Power and Smith Link technologies, in November 2011 and is in the process of ramping production and integrating new vendors into the supply chain.

As a result of the transition to next generation technologies and the accompanying suspension of U.S. production, SMTH sold 28 vehicles in the U.S. during the last six months of 2011 compared with sales of 175 vehicles during the first six months of 2011.

SMTH sold 90 vehicles worldwide in the first six months of 2012, of which 69 were sold in the United States.

Although the decline in sales resulted in a concurrent decline in material costs, other operating and administrative costs have been stable or increasing. For example, to maintain the investment in the training of SMTH's assembled workforce, SMTH determined not to make reductions in the assembly workforce. SMTH also continued to expand its research and development function to support future technology enhancements and to build out its administrative workforce to position the company for future growth.

TO MAINTAIN LIQUIDITY

To maintain liquidity during the U.S. production suspension, SMTH issued $30.0 million of 2011 convertible notes and warrants in October 2011. All of the 2011 convertible notes converted into Series C preferred stock in November 2011.

Between January and April 2012, SMTH issued and sold in a private placement shares of Series D preferred stock and warrants to purchase shares of common stock for aggregate cash proceeds of $15.3 million. Between July and August 2012, SMTH entered into privately negotiated bridge notes having a maximum aggregate principal amount of $16.5 million.

Through September 6, 2012, SMTH borrowed $11.5 million under such bridge notes. SMTH expects to borrow up to an additional $2.0 million under the bridge notes during the third quarter of 2012, although SMTH may borrow additional amounts as business needs dictate.

USE OF PROCEEDS

SMTH expects to net $72 million from its IPO, with proceeds allocated to repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.