Based on an assumed initial public offering price of $17.00 per share (the
mid-point of the price range listed on the cover page of this prospectus), we
estimate we will receive gross proceeds of approximately $71.8 million and the
selling stockholders will receive gross proceeds of approximately $3.9 million
from this offering. We estimate that we will pay approximately $8.2 million in
underwriting discounts and commissions and offering expenses, and we estimate
our selling shareholders will pay approximately $0.2 million in underwriting
discounts and commissions. As a result, we will receive net proceeds from
this offering of approximately $63.6 million and the selling stockholders
will receive net proceeds from this offering of approximately $3.7 million
We will not receive any proceeds from the sale of shares of common stock
by the selling stockholders, including any shares of common stock sold by
the selling stockholders in connection with the underwriters' exercise of
their over-allotment option. We will pay the offering expenses incurred by
the selling stockholders, and the underwriting discounts and commissions
payable by two of the selling stockholders, in connection with the sale
of these shares. The selling stockholders include certain of our executive
officers and entities affiliated with or controlled by members of our board
of directors.
We intend to use the net proceeds to us from this offering:
. to pay the entire principal and interest outstanding at closing of this
offering under our bridge notes. The bridge notes permit an aggregate maximum
principal of $16.5 million, bear interest at 8% per annum and require all
outstanding principal and interest to be paid upon the closing of this
offering. A portion of the proceeds of the bridge notes, which were issued
in July 2012, were used to pay $1.1 million outstanding under a promissory
note we issued to Jefferies in connection with litigation, which was settled
in August 2011, related to Jefferies' provision of financial advisory
services to us. This note bore interest at 9% per annum and matured on July
31, 2012.
• to pay $1.3 million owed by Smith Europe to HMRC.
• to pay Tanfield the remaining $0.5 million of the purchase price owed to
it in connection with our acquisition of our Smith UK business. The unpaid
portion of the purchase price accrues interest at a rate equal to 4% above
the base rate established by Barclay's Bank plc and all unpaid purchase
price and accrued interest thereon becomes due upon the closing of this
offering.
We intend to use the remainder of such net proceeds for capital expenditures,
working capital and other general corporate purposes, including the continued
development of our technology, the transition of our supply chain and the
establishment of our sales, service and assembly facilities. Such uses may
include the continuous development of our Smith Power, Smith Drive and Smith
Link technologies, the expansion of our research and development facilities,
including for battery testing and powertrain, gearbox and telemetry
development, the development of our current and anticipated vehicle
platforms, and the acquisition of businesses, products and technologies.
Other than purchase orders for inventory, we do not currently have any
agreements or commitments to acquire any such businesses, products or
technologies.
Some of the other principal purposes of this offering are to create a
public market for our common stock, increase our visibility in the
marketplace and provide liquidity to existing stockholders. A public
market for our common stock will facilitate future access to public equity
markets and enhance our ability to use our common stock as a means of
attracting and retaining key employees and as consideration for strategic
transactions. Depending on the future demand for our vehicles and the pace
at which we expand our production, sales and service capacity, we may seek
to raise additional capital to fund our expansion.
the
United States and Europe that exclusively produces electric vehicles. Our
vehicle designs and technologies leverage over 80 years of market knowledge
from selling and servicing electric vehicles in the United Kingdom. This
experience has led to the development of our advanced powertrain (Smith
Drive TM), power management (Smith Power TM) and telemetry (Smith Link TM)
technologies. We believe that these technologies will drive improved
vehicle performance, provide us with increased control over supply chain
quality and reduce the upfront cost of our vehicles.
Unlike companies that have introduced electric passenger vehicles, we
focus 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. We believe we are the only company focused on producing and globally
offering an all-electric commercial vehicle having a gross vehicle weight,
or GVW, of between approximately 14,000 and 26,400 pounds (the Smith Newton TM).
We also produce the Smith Edison TM, which is a lighter duty vehicle than the
Newton that is sold in the United Kingdom and in other selected markets
worldwide. As part of our continued focus on product development, in the
first quarter of 2012 we introduced a Newton model in the United States that
is configured as a step van.
We believe our vehicles provide a lower total cost of ownership, which
includes a vehicle's upfront cost as well as ongoing costs such as fuel
and maintenance, than that of conventional diesel vehicles. Our vehicles
feature a battery system that is scalable to meet the varying range and
economic needs of commercial fleets. We believe electric vehicles are
ideally suited for the return-focused commercial vehicles market because:
. lower cost per mile —on a per mile basis electric power to charge our
vehicles costs significantly less than diesel fuel;
• less volatility —the cost of electricity is considerably less volatile
than the price of diesel fuel;
• less maintenance —electric vehicles have an advantage in mechanical
simplicity, requiring less maintenance than diesel vehicles due to the
smaller number of moving parts in an electric powertrain than in a diesel
powertrain;
• minimal infrastructure requirements —most commercial vehicles in our
target market operate from the same location and follow specific routes,
eliminating the need for distributed charging infrastructure and concerns
over limited range; and
• fuel efficient with low environmental impact —commercial fleet operators
are under government and popular pressure to improve fuel mileage, cut
emissions and reduce noise associated with diesel powered trucks.
During the year ended December 31, 2011 and the six months ended June 30,
2012, we sold 270 and 90 vehicles, respectively. Based on our order backlog
of 444 vehicles as of August 31, 2012, customers' ordering forecasts and
anticipated supply chain capacity, we currently expect to produce
approximately 380 vehicles during 2012, approximately 60% of which we
expect will be produced in the fourth quarter. Based on similar factors and
our expectations for customer demand, we expect to significantly increase
our production in 2013 and in future years. These expectations do not,
however, represent guarantees that we will achieve our expected levels
of orders, production or sales. Our order backlog is not necessarily
indicative of future sales. As of June 30, 2012, we had produced 79 vehicles
during 2012.
For our fiscal years 2011, 2010 and 2009 and six months ended June 30, 2012,
we had revenue of $49.9 million, $35.6 million, $22.9 million and $16.8
million, respectively, and we incurred net losses of $52.5 million, $30.3
million, $17.5 million and $27.3 million, respectively. We have received a
report from our independent registered public accounting firm on our 2011
financial statements that contains an explanatory paragraph stating that
our recurring losses from operations, negative working capital, and
stockholders' capital deficiency, and the uncertainty around our ability to
raise sufficient capital, raise substantial doubt about our ability to
continue as a going concern.
Our current customers include operators of some of the largest fleets of
medium-duty commercial delivery vehicles in the world and leading early
adopters that are incrementally transitioning portions of their fleets to
commercial electric vehicles. We have focused on building deep relationships
with our customers to understand their needs and to develop vehicles that
satisfy those needs. Our goal is to provide these customers with high quality
vehicles that meet their range and operational needs, which we believe, over
time, will lead to repeat orders and sustainable order volume growth. We
expect that attaining higher order volumes will enable us to move production
of components from low-volume suppliers to medium-volume automotive grade
manufacturers which, in turn, will position us to accelerate our cost
reduction strategies and continue to expand sales to existing customers
and attract new customers.
We sell our vehicles through our direct sales force, as well as limited
third party distribution agreements. Our vehicles are utilized by commercial
fleet operators across multiple industries, including food & beverage,
utility, telecommunications, retail, grocery, parcel and postal delivery,
school transportation, military and government.
Our sales strategy is focused on industry-leading companies and government
entities that operate substantial, well-recognized, medium-duty commercial
vehicle fleets and that have the corporate or public commitment and resources
to support and sustain the development of the commercial electric vehicle
industry. We offer a differentiated approach to commercial vehicle sales and
service that departs from traditional truck sales and service models. Our
approach involves a comprehensive plan for the pilot and roll-out of our
electric vehicles, as well as the ongoing replacement of existing commercial
vehicles with our electric vehicles, which is tailored to the individual
needs of our customers. This plan includes assisting customers to identify
and take advantage of limited availability government assistance programs
in the near term, the development of a multi-year purchasing forecast to
help the customer systematically integrate our vehicles into its fleet and
analytics that project the expected economic and environmental impact of
fleet conversion. We believe that our strategy of targeting industry-leading
companies and providing them with individualized sales and service solutions
has elevated our public profile, enhanced the credibility of our vehicles in
the marketplace and turned our customers into advocates of our sales approach
and our vehicles, all of which enhance our ability to obtain repeat orders
and sell vehicles to new customers.
We intend to build Smith brand equity by seeking to deliver to customers
strong returns on their investment in our vehicles. Our current vehicle
price, which includes both the base vehicle and battery system, is, however,
higher than the price of a diesel-fueled vehicle with a comparable GVW.
Therefore, as a part of our sales strategy, we separately present to our
customers the base vehicle price and the battery system price, which allows
customers to compare the relative merits of a diesel truck's low cost energy
storage system (the fuel tank) and higher and more volatile energy cost (the
per gallon price of diesel fuel) with our vehicle's higher cost energy storage
system (the battery) and lower and more predictable energy cost (the per
kilowatt hour price of electricity). We believe these comparisons make our
vehicles more attractive to customers than traditional diesel options,
particularly during periods of rising fuel prices, even when the social
and environmental benefits of our vehicles are ignored.
We currently design, produce and sell vehicles based on two platforms, the
Smith Newton and the Smith Edison, both of which can be configured for
multiple applications. The Newton has a GVW of approximately 14,000 to
26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds
and a range of up to 40 to 150 miles on a single charge depending on vehicle
specification and battery configuration. The Newton, which is sold in the
United States and internationally, is used in a wide range of general
delivery applications, as well as in specialty applications such as
refrigerated delivery, military transport and boom truck. In November 2011,
less than 24 months after the first sale of the Smith Newton in the United
States, we introduced a second generation Newton, which incorporates our
Smith Drive, Smith Power and Smith Link technologies. During the first
quarter of 2012, we introduced a Newton model in the United States that
is configured as a step van. The Newton step van has a GVW of approximately
14,000 to 22,000 pounds and a payload capacity of approximately 2,700 to
10,000 pounds. We expect the vehicle will be used primarily for delivery
of parcels, uniforms and baked goods. We also are developing a Newton model
that will have a GVW of approximately 33,000 pounds to meet the needs of
delivery and transit customers, which we expect to be available in 2013.
The Smith Edison, which is a lighter duty vehicle than the Newton, is sold
in the United Kingdom and in other selected markets worldwide. The Edison
has a GVW of approximately 7,700 to 10,100 pounds, a payload capacity of
approximately 1,600 to 5,100 pounds and a range of up to 55 to 110 miles
on a single charge depending on vehicle specification and battery
configuration. The Edison is used in a wide range of service and delivery
applications, as well as specialty applications such as refrigerated
delivery, utility boom and shuttle service. We intend to continue to
develop and introduce a next generation Smith Edison that utilizes our
Smith Drive, Smith Power and Smith Link technologies.
During the year ended December 31, 2011 and the six months ended June
30, 2012, we had a gross loss of $19.6 million and $12.3 million,
respectively. We anticipate that we will continue to sell our vehicles
at a gross loss through the fourth quarter of 2012, turning to a positive
gross margin in the first quarter of 2013, although there are no assurances
that we will not continue to sell our vehicles at a gross loss after 2012.
Our gross loss as a percentage of revenue has increased in each of our last
three fiscal years. To improve the economic advantage of our vehicles over
diesel trucks and our gross margin, we are working to reduce our material,
operating and production costs, which we expect will enable us to further
reduce the prices of our vehicles while improving our sales volume. We have
implemented a global framework consisting of three interrelated cost reduction
strategies, which we refer to as our "cost down" initiative, that we believe
will help us achieve these goals and, in turn, achieve profitability.
The first strategy is focused on transitioning the highest cost portions of
our supply chain from low volume suppliers to a medium-volume automotive
grade supply chain. This strategy relates principally to the components
used in our battery system and powertrain. We have transitioned our U.S.
battery module supply to A123 Systems, Inc., or A123, and we are working
with Magnetic Systems Technology Limited, or MagTec, our development
partner for our Smith Drive system, to transfer production of our key
Smith Drive components to a medium-volume supplier, which we expect to
occur in the fourth quarter of 2012. In connection with this transition, we
have validated the technical capabilities and production capacity of
Alliance Contract Manufacturing Sdn Bhd, or ACM, a contract manufacturer
based in Malaysia, and have completed the technology transfer necessary for
ACM to begin production of the motor, gearbox and control electronics unit
that comprise our Smith Drive system. The second strategy involves the
transition from battery and powertrain systems produced by third party
suppliers to our Smith Power and Smith Drive systems and the implementation
of multi-source volume purchasing. We transitioned our U.S.-produced Newton
to our Smith Power and Smith Drive systems in the fourth quarter of 2011,
transitioned our U.K.-produced Newton to our Smith Drive system in the first
half of 2012 and expect to transition our U.K.-produced Newton to our Smith
Power system in the second half of 2012 and our Edison vehicles to these
systems in the first half of 2013. As we proceed in this transition, we
expect to qualify additional suppliers that can meet our specifications.
For example, we have qualified an alternative supplier for the battery
modules used in our U.S.-produced Newton vehicles and the battery systems
used in our U.K.-produced Newton and Edison vehicles. The third strategy
involves the transition of the supply chain for our ancillary components
to higher volume and lower-cost suppliers. This strategy relates principally
to certain components of our chassis and cab, such as battery control and
junction boxes, battery enclosures, compressors and harnesses. For many of
these components we have completed the engineering, specifications and
vendor selection.
We generally are pursuing all three cost down strategies concurrently and
expect to complete our current cost down initiative in the first quarter
of 2013 for the Newton and in the second quarter of 2013 for the Edison.
As a result of our cost down initiative, we expect our material cost to
decrease by approximately 30% and 18%, compared to the second quarter of
2012, by the end of the second quarter of 2013 for our Newton chassis cab
with an 80 kilowatt hour battery pack and our Edison platform, respectively.
Thereafter, we expect to pursue continuous improvements in our supply chain
and vehicle production costs. There is no guarantee, however, that our cost
down initiative will reduce our material costs to the extent or within the
timeframe we expect. Our ability to timely complete our cost down initiative
is largely dependent on our ability to raise sufficient capital to assure new
suppliers that we will have the ability to meet our financial commitments and
to fund necessary research and development, the purchase of tooling equipment
and pre-production activities, both internally and for our new suppliers, and
on our exhaustion of higher-cost components currently held in inventory.
We have production, research and development, sales and service facilities in
Kansas City, Missouri and outside of Newcastle, England. Our production
operations leverage our supply chain of component manufacturers and allow
us to focus on vehicle assembly. This focus contributes to our low capital
expenditure requirements and scalable capacity, which we believe will make
our decentralized production strategy financially advantageous. To execute
on our decentralized production strategy, we plan to open sales, service
and assembly facilities in targeted urban areas in the United States and
abroad, beginning with facilities on the east and west coasts of the
United States. We entered into a lease agreement for a New York facility in
August 2012 and anticipate opening this facility during the fourth quarter
of 2012. We also are pursuing joint ventures with local market participants
to produce, sell and/or service Smith-branded vehicles in promising
international markets where we see opportunities that we believe can be
better realized through joint venture arrangements than through Smith-owned
facilities. We have an established service base in the United Kingdom, where
we operate four service facilities and a fleet of approximately 100 service
vehicles. Our U.K. service teams maintain both electric and traditional
diesel vehicles.
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Smith Europe and its predecessor entities have existed since the early 1920s.
We were incorporated in Delaware in 2009 and have been operating on a
consolidated basis with Smith Europe since January 2011, when we acquired the
business of Smith UK from Tanfield. We believe our acquisition of the Smith
UK business provides us with:
• a platform on which we can expand our business internationally, particularly
in Europe and Asia, where fuel costs exceed those in the United States;
• enhanced product development capabilities as a result of access to Smith
UK's engineering division;
• access to recurring service-related revenues from Smith UK's fleet
management services; and
• Smith UK's existing vehicle technologies and the elimination of a royalty
obligation to Tanfield. Smith Europe now owns the intellectual property
rights we previously licensed from Tanfield.
We are headquartered in Kansas City, Missouri. Our principal executive
offices are located at 12200 N.W. Ambassador Drive, Suite 326, Kansas City,
Missouri 64163, and our telephone number at this location is (816) 464-0508.
Our website address is www.smithelectric.com.