From Seeking Alpha
Summary
Ayro once again has gained a bid, with the stock recently soaring to a 52-week high of $10.60.
It has been riding the increasingly bullish sentiment associated with the EV sector.
The company is attempting to carve out a unique niche in the space, especially in the EV delivery segment.
The question going forward is if the company will be able to generate sustainable growth in a sector where competition is heating up.
ayro has a great future ahead of it in the EV niche it serves in
Over the last 5 months, Ayro (AYRO) has had a lot of volatility, jumping from around the mid-$2s on June 26, 2020, to about $7.29 on July 8, before it started an incremental downward move that bottomed out in the $2.50s on September 16.
After that, it consolidated through November 11, trading in a range of around $2.50 to a little over $3.00 per share. From there, it once again took off, eventually reaching a 52-week high of $10.60 per share, primarily riding the positive outlook for industry leader Tesla (NASDAQ:TSLA).
In this article, we'll look at how the company is attempting to differentiate in the increasingly crowded space, and if it has the potential to generate sustainable growth over the long term, taking into account the company has only had two earnings reports since going public.
Latest earnings
With the company just getting going, its revenue in the third quarter came to $388,634, an increase of 46 percent year over year. Most of that came from an increase in vehicle sales.
Net loss for the third quarter was $3.11 million on a GAAP basis, or negative $0.13 per share, against the net loss of $2.14 million in the same quarter of 2019, or negative $0.77 per share in the third quarter of 2019.
The company increased the weighted average number of shares outstanding from 2.8 million in the third quarter of 2019, to 23.6 million in the third quarter of 2020.
Gross margin in the reporting period fell to 15.9 percent, against the 23.9 percent in the same reporting period of 2019. That was attributed to a one-time cost related to first production runs.
Sales and marketing expenses in the third quarter dropped by 29.5 percent from last year in the third quarter, finishing the quarter at a little over $304,000. Most of that was a result of cutting back on contracting of external marketing companies.
Concerning Research and Development expenses, that were up to $664,000, an increase of 123 percent year over year. That was "due to the increased professional services, design contracting and increased salaries dues to staff additions and related expenses as we've increased significantly the engineering base investment in our product portfolio."
I do like the fact the company is allocating more of its capital in the R&D segment of the company. It can always increase spending on sales and marketing as it further develops its pipeline.
General and administrative expenses ended the reporting period at $1.42 million, up 5 percent over last year in the third quarter.
Non-GAAP adjusted EBITDA in the quarter was a negative $2.09 million, against the negative $1.9 million year over year. That included "$150,000 in depreciation and amortization expense, $168,000 in stock-based compensation, $67,000 in amortization of a discount on debt, $29,000 in interest expense and $214,000 in loss on extinguishment of debt discount."
As of September 30, 2020, the company had about $27.9 million in cash, far above the $641,000 it had at the end of 2019, and the $7.9 million it had at the end of June 30, 2020. The increase came from registered direct offerings, a merger that closed on May 28, 2020, and the exercise of some warrants.
On November 23, the company reported it had raised another $10 million via another registered direct offering, which included 1,650,165 shares of common stock offered at a purchase price of $6.06 per share.
AYRO's Chief Executive Officer Rod Keller said this about the capital raise:
We believe that this strategic investment by Wanxiang and existing investors is a testament to our future potential. With this support, we plan to continue to build strong fundamentals, expand production capacity beyond our current 600 cars per month, drive stronger market penetration, and position AYRO to meet ever growing demand with a variety of EV products across our value chain. In particular, we believe that this capital can help us drive growth with our partners and customers that include Karma, Club Car, and Gallery Carts, among others.
At the end of September 30, 2020, the company had a backlog of orders valued at $624,000.
Its vehicles
Ayro has two vehicles it offers at this time: the Club Car 411 and AYRO 311. We'll look first at the Club Car 411, which is its light-duty truck.
The Club Car 411
the club car 411
The Club Car 411 is marketed on the company's website as "a compact all-electric vehicle designed for your campus." It's positioned as an offering between a full-sized truck and a small utility cart.
An interesting part of the Club Car 411 is customers can choose between three bed options based upon what is needed. There are choices between "a flatbed, pickup configuration with side, or a full van box with 123 square feet of cargo room and a half-ton payload capacity."
It is marketed as being attractive for use in low-speed logistics and cargo services.
The AYRO 311
the ayro 311
Ayro touts its 3-wheeled vehicle as the first of its kind. It definitely has a compelling and attractive look to it. This vehicle probably has far more uses for it in different circumstances and situations than the Club Car 411, so it is likely to drive more sales, although I could see them complementing one another at certain campuses or businesses, and probably even homes.
If it becomes a status symbol, it would almost certainly exceed sales expectations once the company is able to ramp up production.
Among the many uses suggested by the company on its website are parcel/mail delivery, security, public safety, cargo delivery, food delivery, parking enforcement, and personal use.
Among the institutions or businesses they would appeal to are education, corporate campuses, hotels & resorts, government areas, and food/beverage/retail, among others. One strong benefit would be the ability to travel in areas that have narrow passages and walkways. Looking at the customer base it's targeting, it's easy to see that COVID-19 could significantly reduce its pace of growth until current restrictions - which are at this time a moving target - are lifted or reduced.
Longer term, I do like how management is focusing on maintaining a strong balance sheet, even though it has had to increase dilution as a means to that end.
In the EV sector, most investors aren't overly concerned about dilution as long as the company shows it has a product, a market to sell it to, and the ability to grow sales.
Assuming it can continue to differentiate and win business at the various businesses and institutions it's targeting, Ayro could be on a nice, long-term growth trajectory, as the impact of the pandemic gradually dissipates.
Conclusion
Ayro Inc. has done a lot of things right and has positioned itself to carve out a nice niche in a variety of business sectors.
The question ahead is how long it'll take for the pandemic to subside to the point the businesses and institutions it is targeting are, for the most part, opened up for business.
For now, it's getting a nice boost from its focus on the business of delivery, but there are a lot more opportunities that'll come once a lot more customers are frequenting the various locations it's targeting. In other words, there'll be a lot more internal deliveries once more people are at work, school, or play.
Going forward, it appears some of the decentralization that accompanied COVID-19 will remain in place, and that means there will be delivery options to consumers, as well as businesses and campuses. The opportunities are only going to increase for Ayro in the months and years ahead. One thing it'll have to do is to wisely and efficiently allocate its capital in a way that balances R&D, sales and marketing, and boost its production capacity.
Something CEO Rod Keller said in its last earnings report gave me a lot of optimism concerning the potential of Ayro, in that it isn't attempting to design and produce a type of multi-purpose vehicle in this segment of the EV market, rather he considers the company to be in the delivery business, with the purpose of building vehicles to serve that end.
He said this:
So we're working from the ground up to ensure that we build a vehicle that solves a specific problem and not trying to build a general-purpose vehicle and I think as a result of that, you'll see from us I think a vehicle that will likely be accepted very well by restaurants and other delivery applications. So, hope that helps.
If the company maintains its vision and disciplines itself to continue on this course, I think it has a terrific chance to build up some nice market share over the long term.
If it successfully brands itself in this way, when it has enough production capacity, sales, and capital to scale, it should be able to accelerate and scale its growth.
It's going to take time, but Ayro really does have a good chance to do well in the segment of the EV market it has chosen to compete in.
Patient investors should reap nice returns, and day and swing traders will do well by playing the volatility.
For long-term investors, waiting for good entry points is the key, and with the potential of the company, I wouldn't be afraid to average down if you got in at a higher price point.
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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