Richmond-based used vehicle retailer CarLotz already is at risk of having its stock delisted from a major Wall Street index. And now the company CarLotz plans to merge with is faced with a similar threat.
Shift Technologies, the California-based used car online retailer that hopes to absorb CarLotz later this year, received a warning last week from Nasdaq that its lagging stock price has caused it to fall out of compliance with the market’s $1 minimum price per share threshold and could be delisted if not remedied in the next six months.
The Nasdaq notice came after Shift’s stock had closed at below $1 per share for more than 30 consecutive trading days.
The stock closed Tuesday at $0.58 per share, down 4 percent for the day and down 84 percent year-to-date. It hasn’t closed at above $1 since Aug. 18 and is down around 60 percent since the CarLotz deal was announced in early August.
CarLotz has seen a similar stock price decline and scrutiny from Nasdaq in recent months. The Scott’s Addition-based firm disclosed its warning from Nasdaq in the spring, prior to the announcement of the Shift deal.
CarLotz stock hasn’t closed at above $1 since April 25. The company has until Dec. 5 to find a way to increase the price or face delisting, although the Shift deal is potentially supposed to close before year’s end.
As part of the stock-for-stock merger, CarLotz shareholders will receive 0.69 shares of Shift stock for each of the CarLotz shares. Shift stockholders will own 52.9 percent of the combined company and CarLotz stockholders will own 47.1 percent. The combined stock will trade on Nasdaq under the symbol SFT.
It’s unclear how Shift’s declining stock price and a potential delisting might affect the merger plans. Shift did not respond to a request for comment Tuesday afternoon.
But Shift said in an SEC filing last week it holds out hope that the merger could help its stock price turn around. That’s if it can close the deal and complete a planned reverse stock split within a range of 1-for-5 and 1-for-10, aimed at increasing the share price by shrinking the number of outstanding shares.
“The Company believes that, if stockholders approve the Shift Reverse Stock Split Proposal, the Company’s board of directors will be able to effect a reverse stock split that would raise the bid price on the Company’s Class A common stock above $1.00,” the company said in the filing.
Should the deal close, the merger would combine companies that have much in common, both good and bad.
Both sell used vehicles, though Shift’s focus is more on online sales, while CarLotz is more centered on transactions at its stores.
Both companies went public through SPAC deals – Shift in 2020 and CarLotz in 2021 – and both have struggled to maintain momentum after their IPOs.
CarLotz’s stock has lost nearly 100 percent of its value since it went public at $11.92 in January 2021. CarLotz’s market cap now stands at $29.9 million, down from $1.3 billion at its IPO. Shift went public at a valuation of $700 million. Its market cap is now $49 million.
Both companies have gone through CEO transitions this year. CarLotz founding CEO Michael Bor, a former Richmond investment banker, was replaced earlier this year by Lev Peker. Shift replaced co-founder and CEO George Arison with its president, Jeff Clementz in conjunction with the merger announcement.
Both have also faced mounting losses. CarLotz posted a net loss of $35 million in the second quarter and has lost $60 million so far this year. That’s after losses of $40 million in 2021, $6.5 million in 2020 and $12.6 million in 2019.
Shift posted a loss of $52 million for the second quarter and has lost $109 million this year to date. That follows losses of $166 million and $59 million in 2021 and 2020, respectively.
But both companies say the deal is expected to combine the two sides’ strengths with the hopes of curing some of those financial woes.
For CarLotz, the deal is expected to accelerate efforts it had already sought in improving its online sales process by being folded into Shift’s already-developed online storefront.
For Shift, CarLotz brings more geographical retail reach, which hasn’t been Shift’s focus. CarLotz said it expects its 11 remaining locations to be part of the combined company. That includes two stores in Richmond. The companies say the CarLotz brand has better reach in the eastern U.S., while Shift is more known out west.
If it reaches the finish line, the combined companies will be based at Shift’s headquarters in San Francisco and will use Shift as the surviving brand.
CarLotz has said it’s too soon to say how exactly the deal will affect its workforce and its physical locations. Last year it moved its headquarters from Manchester to 20,000 square feet at 3301 W. Moore St.
CarLotz, meanwhile, is feeling increased pressure from one of its lenders. The company disclosed last month in a regulatory filing that its credit line with Ally Bank will be reduced from $40 million to $25 million, while also increasing certain cash on-hand covenants of the agreement. CarLotz said it has outstanding debt under the Ally line of $5.2 million.
Ally also told CarLotz that if its deal with Shift does not close by Dec. 31 of this year, the lender would ask CarLotz to provide it with a business plan by Jan. 10, 2023, “at which time the Lender will revisit the facility arrangement and communicate additional go forward plans at that time,” the filing stated.