Description
As a result of the deep bear market money-burning pre-revenue companies, it is becoming a decent hunting ground for today for potential liquidation special situations opportunities.
One to add to the list is Embark Technology. This one is also a busted SPAC. Someone talked the SPAC promoter into buying Embark at a value of $5 billion in 2021. Today, the EV is around $60 million. So down 99%. As part of the SPAC transaction, EMBK did a $200 million PIPE with backing from Sequoia Capital, Knight-Swift Transportation, and others. Some of this cash still exists, $158 million as of 12/31/22.
EMBK’s business was to develop a self-driving system that could be retrofitted onto existing trucks. The SPAC presentation showed the company ramping to $900 million plus in revenue by 2024. This has proven to be a bridge too far. Management recently shifted course and tried to sell the company. This also failed. Turns out autonomous driving is a lot harder project and probably takes billions and many more years instead of the millions EMBK had to work with.
EMBK is now very likely to liquidate. Here is the CEO’s letter to employees in early March.
Embark Team,
I am writing to you today with a heavy heart. The last 9 months have been tough for the autonomous trucking industry, and for Embark — the capital markets have turned their backs on pre-revenue companies, just as slipping manufacturer timelines have delayed the prospect of scaled commercial deployment. Across Embark, we have been working very hard to find a path forward in the face of these challenges, including:
• Refining our existing plan
• Exploring alternative markets
• Attempting to find a buyer for the company
Unfortunately, after thoroughly evaluating all alternatives, we have been unable to identify a path forward for the business in its current form. Although there are many external things we wish had gone differently, ultimately, this outcome is my responsibility. In challenging times, it is the whole company’s job to be flexible and optimistic in pursuing a sometimes-changing direction — and it is the job of the CEO to navigate the challenges and make sure those directions ultimately get the team to the other side. You held up your end of that bargain; I was not able to hold up mine — for that, I am profoundly sorry.
Today, having exhausted all alternatives, we are taking the incredibly difficult step of laying off ~70% of the company and shutting down our SoCal and Houston offices. A majority of employees will receive an email in the next 30 minutes that your role has been impacted, which will include detailed instructions on severance and next steps.
The remaining 30% of Embark will be undertaking two efforts in parallel:
1. Orderly wind-down:
• Focus on respectfully supporting our colleagues who have been let go and helping them land on their feet
• Begin winding down our day-to-day operations.
2. Over the next handful of weeks, we will work closely with the Embark Board of Directors to evaluate our options, including selling assets, restructuring the company or shutting down completely
To those departing -
I’m sorry that myself and Brandon weren’t able to find a way. You are an amazing team and it has been the highlight of my life to get to work with all of you. This is not a reflection on you, but rather the nature of attempting something that has never been done before is that it is risky and even with incredible amounts of hard work, creativity and passion (which this team certainly has in spades!) success is not guaranteed.
If your role is impacted today, provided that you sign your separation agreement, you will receive:
• Severance — Base salary through June 2, 2023, or equivalent lump-sum payment
• Benefits — Embark will cover the cost of keeping your current company-sponsored medical, dental, and vision benefits through August 31, 2023
• Equity — If you are part-way through a month of RSU vesting, your vesting will be accelerated to the next upcoming vesting date following today. Likewise, if you were promised a 2022 refresh grant as part of the 2022 comp cycle then, subject to board approval, that grant will be made and vested up to the next upcoming vesting date following today
• Laptop — You can keep your company-provided laptop for personal use, as long as you coordinate with our IT team to wipe it in the next week.
• Career support — Embark is establishing an internal Placement Team for the next 6 weeks to help connect departing employees with new opportunities.
• Immigration support — Embark has worked with our external immigration attorneys to provide immigration support for those on visas and will pay the cost of up to 2 consultation sessions for any employee currently working at Embark on a visa.
I believe that solving autonomous trucking will one day be a huge benefit to society, and while Embark may not be there to see the vision through in its current form, I hope you know that your work made a difference in pushing the industry forward. As a leader, founder, coworker, and friend, this is a day I never hoped to see, but I want to say thank you to all of you from the bottom of my heart for being on this journey with me.
Alex
It’s a sad event for employees and has already been for investors. However, I think it is an attractive opportunity for bottom feeders at this point and does not rely on general near-term stock market conditions. While EMBK has not formally announced liquidation, I think you can ascertain from above that that path is highly likely. In addition to the comments above, the investor base is such, lots of VC’s and a recent 13D filer, BML Investment Partners (a special sit fund), that management will not be in any position to risk the remaining cash on a new adventure.
If we start with Q4 2022 numbers, net cash was $156 million versus a market cap of $60 million. So great odds here of getting your money back and really good odds of a nice return on that money. I can only ballpark liquidation costs at this point, but I could be off by a lot and still be profitable.
Here is my stab at it. Millions
Cash $158
Debt $ 2
Cash Burn 1st QTR 2023 $ 13 90% 2022 run rate
Cash Burn 2nd QTR 2023 $ 7 50% 2022 run rate.
Cash Burn 3 QTR 2023 $ 6 40% 2022 run rate.
Cash Burn 4 QTR 2023 $ 2 13% 2022 run rate.
Restructuring Costs $ 11 That is the upper limit of $7-$11 given by management related to the 70% reduction in workforce.
Restructuring Costs $ 4 Remaining Employees
Current cash Liabilities $ 6
Lease Termination $ 5 Using a settlement of about 1-year rent.
Wind Down Costs /Cushion $ 10 Other expenses, legal, etc.
This leaves about $92 million versus $58 million current stock value or a 58% return, with the bulk of that money being returned, I would think, by late 2023. As an additional cushion, I am not giving any value to any noncash assets of the company. These include current assets and prepaid expenses of $8 million, property of $20 million, about half software and half vehicles (at cost), and $6 million of long-term deposits. Precision is not possible at this point, but the broad numbers point to recovery, and I think the odds are high of a very high IRR with a near-term payout.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
Liquidation