Arrival: Up To 74% Dilution

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Shares successful struggling electrical conveyance startup Arrival (NASDAQ:ARVL) jumped complete 15% successful early Tuesday trading aft nan institution announced a mini $50M superior raise, aft issuing a going interest warning pinch Q3 results past November. However, nan terms of nan superior raise pinch Antara look to bespeak a last-ditch effort to enactment afloat, pinch existing shareholders group to incur astatine slightest 54% dilution and up to 74% dilution done June 2023. With Arrival not expected to make immoderate meaningful revenues for astatine slightest 4 to six quarters, we judge shares are not worthy nan dense consequence pursuing nan important dilution event.

Revenues Not In The Picture

At nan moment, Arrival is not generating immoderate meaningful gross - nan startup was projected to nutrient less than 25 electrical vans past year, pinch nan accumulation outlook still uncertain for 2023 as costs trim measures return effect.

Arrival had completed its first accumulation verification van astatine nan extremity of Q3 '22, but since then, nan institution has not announced immoderate further accumulation progress. When announcing Q3 results successful November past year, Arrival stated that it "will proceed to build a mini number of Vans successful Bicester" while progressing pinch a displacement to attraction connected nan US marketplace via a microfactory successful Charlotte/Rock Hill. The Q3 update confirmed that revenues again will beryllium very limited, if anything, successful 2023, noting that nan mini accumulation and US microfactory displacement would hap for "the adjacent fewer quarters" -- Charlotte accumulation is expected to commencement sometime successful 2024.

Another glaring antagonistic - Arrival added that it "cannot make separator connected nan existent L Van merchandise fixed nan precocious costs of parts" associated pinch debased measurement production. Essentially, it isn't worthy nan clip nor nan money to nutrient nan vans, and Arrival does not person nan backing for difficult tooling -- a business that only enhances and increases nan consequence that Arrival will not beryllium capable to standard up accumulation to a precocious capable level to a) screen costs, b) make a decent margin, and c) evade bankruptcy.

Going Concern Warning

Arrival besides issued a going interest informing successful Q3's report, stating that nan $330 cardinal successful rate and equivalents it had connected manus was "not capable to cover 12 months of operations." The institution besides added that further backing was needed to execute connected a revised business scheme -- which already shows signs of being difficult to achieve.

However, Arrival's rate pain complaint has raised reddish flags astir nan company's financial business and spending environment. In August 2022, Arrival announced it had rate connected manus of $513 cardinal (and a now-revoked at-the-market offering for $300 million); astatine nan extremity of Q3, Arrival announced it had $330 million; astatine nan extremity of December, Arrival announced it had conscionable $205 cardinal successful rate connected hand.

So complete nan people of conscionable complete 4 months, Arrival burned done $308 cardinal successful cash, aliases astir $75 cardinal per month; from September done nan extremity of nan year, rate pain averaged $40 cardinal per period -- somewhat better, but acold from what is needed to financially stay afloat.

Arrival's CEO announcement astatine nan extremity of January provided an update to its costs cutting efforts -- nan institution now is attempting to trim its rate pain to "approximately $30 cardinal per quarter," aliases astir $10 cardinal per month.

In bid to execute this, Arrival is cutting astir half its unit and reducing expenditures successful existent property and connected third-party services. Given its inability truthful acold to efficaciously negociate costs astatine a overmuch higher level -- burning done $125 cardinal successful Q4 -- it's very difficult to spot really Arrival will beryllium capable to make immoderate guardant advancement connected its business scheme while slashing costs to specified a degree.

Diluting Shareholders Up To 74%

Although Arrival's superior raise agreement pinch Antara provided $25 cardinal rate upfront positive a $25 cardinal action betwixt May 15 and June 30, 2023, and reduced indebtedness by 38%, nan institution is severely diluting existent shareholders.

The terms of nan $50 cardinal superior raise spell retired nan monolithic dilution to shareholders:

• $25 cardinal now for 125,000,000 shares astatine $0.20
• option for further $25 cardinal for an assumed $0.20 value (or lesser of 70% of stock price) betwixt May 15 to June 30
• $121.9 cardinal simplification successful 2026 convertible notes for 219,420,000 shares, leaving $198.1 cardinal outstanding connected nan notes

Shareholders person been diluted by 344,420,000 shares, aliases ~54% dilution, upon nan consummation of nan first $25 cardinal tranche and indebtedness simplification exchange.

Should nan 2nd $25 cardinal tranche beryllium tapped into, Arrival will person diluted shareholders by 469,420,000 shares, aliases astir 74% of its existent shares outstanding. Total shares outstanding would past summation to 1.107 cardinal pursuing nan completion of nan afloat offering.

Arrival is giving up astir 40% of its existent shares outstanding for conscionable $50 cardinal successful superior -- that's astir 1.5 quarters' worth, assuming it tin really trim costs quickly capable to scope its $30 million/quarter target, aliases astir 2 months' worth, assuming spending follows trends seen past year.

Following nan raise, Arrival will person astir $250 cardinal successful rate -- including rate pain from January and February, Arrival is apt down to astir $200 million. Given a quarterly pain complaint of ~$40 million, Arrival hardly has capable to scope accumulation successful 2024 astatine Charlotte -- and that is assuming it tin so negociate costs to that degree.

In essence, we judge Arrival would person been amended disconnected incurring dilution by tapping into nan now-scrapped ATM offering from past year, fixed that it was targeting a raise of $90 cardinal successful 2023 and $210 cardinal successful 2024. Even a $90 cardinal raise for akin dilution would beryllium a amended play for nan company.

Outlook - Not Worth The Risk

Investing successful Arrival banal astatine astir $0.30 per stock is highly risky, fixed nan heavy, dense dilution nan institution is hitting shareholders pinch for a mini portion of funding. The important dilution, up to 74%, looks for illustration a last-ditch effort to enactment afloat, fixed that Arrival will person nary meaningful revenues for aggregate quarters and is not eyeing accumulation successful nan US until 2024, expanding nan consequence that nan institution goes nether earlier getting to fulfill its 10,000 positive 10,000 vehicle, $1.2 cardinal bid pinch UPS (UPS).

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