Microvast Holdings, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Microvast develops, manufactures and sells lithium-ion battery components, systems and energy-storage solutions for electric vehicles and utility-scale energy storage. The unaudited results cover the three months ended March 31, 2024, with comparison to the same period in 2023. The Company operates across China, other Asia-Pacific markets, Europe and the United States, with one operating segment.
Management states that the Huzhou, China 2 GWh expansion was completed in the third quarter of 2023 and is generating revenue. The Clarksville, Tennessee Phase 1A expansion remains dependent on additional financing and is not expected to begin producing qualified 53.5Ah cells until approximately eight months after financing is secured.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $81.4 million | $47.0 million | Up 73.2% |
| Gross profit | $17.2 million | $4.9 million | Up $12.4 million |
| Gross margin | 21.2% | 10.3% | Up 10.9 percentage points |
| Operating loss | $23.1 million | $31.3 million | Improved $8.2 million |
| Net loss | $24.8 million | $29.6 million | Improved $4.7 million |
| Net loss per share | $0.08 | $0.10 | Improved |
| Net cash from operating activities | $2.0 million | $(11.2) million | Improved $13.2 million |
| Capital expenditures | $10.2 million | $35.9 million | Down $25.7 million |
Revenue growth was primarily volume-driven: sales increased from approximately 132.6 MWh to 353.3 MWh. Management attributed the gross-margin improvement to better capacity utilization, product mix and lower raw-material prices. Operating expenses increased 12.8% to $40.9 million, led by a 16.7% increase in general and administrative expense. Interest expense increased to $1.7 million from $0.5 million, while interest income declined to $0.1 million from $1.4 million.
At March 31, 2024, cash and cash equivalents were $39.5 million, restricted cash was $47.3 million, and total cash, cash equivalents and restricted cash were $86.7 million, compared with $88.2 million at December 31, 2023. Working capital was $11.5 million. Certain cash held by PRC and European subsidiaries may not be readily available to fund U.S. operations.
Total bank borrowings were $84.1 million, including $41.0 million classified as current. Long-term bonds payable were $43.2 million and are scheduled to mature in 2027. The Company reported compliance with material debt covenants as of March 31, 2024. Purchase commitments were $57.8 million, capital commitments were $65.0 million, and outstanding Tennessee-project payables totaled $60.2 million.
Material changes versus the prior comparable period
- Revenue increased 73.2%, with Europe and other Asia-Pacific markets contributing most of the growth. Europe revenue rose to $28.9 million from $10.2 million, while U.S. revenue remained limited at $1.9 million.
- Gross margin expanded to 21.2% from 10.3%, and the operating loss narrowed by 26.1%.
- Net loss attributable to shareholders decreased to $24.8 million from $29.6 million, although the Company remains loss-making.
- Operating cash flow turned positive, primarily reflecting collections of receivables and notes receivable, lower inventory balances and noncash charges.
- Cash, cash equivalents and restricted cash declined by $1.5 million during the quarter, after investing outflows of $4.5 million and financing inflows of $6.3 million.
- Accounts payable decreased to $83.1 million from $112.6 million, while accrued expenses and other current liabilities declined to $137.2 million from $148.3 million.
- Share-based compensation expense decreased to approximately $11.9 million from $18.1 million.
Guidance, outlook, risks and unusual items
As of March 31, 2024, the Company reported an order backlog of approximately $348.3 million, equivalent to approximately 1,765.8 MWh, with more than 80% attributable to Europe and the U.S. Management expects to fulfill most of the backlog during 2024 and 2025. The filing does not provide formal full-year revenue or earnings guidance.
Management disclosed substantial doubt about the Company’s ability to continue as a going concern for at least one year after issuance of the financial statements. Existing liquidity is not expected to fund operations and the remaining Clarksville capital requirements. Management estimates that an additional $150 million to $170 million is needed to complete the Tennessee expansion, including certain supplier payables.
The Company was negotiating a proposed $150 million, four-year term loan intended to fund the Tennessee expansion. Closing would depend on conditions including resolving supplier liens, obtaining required legal opinions and certifications, assigning certain assets to a U.S. subsidiary, paying fees, issuing warrants to the lender, and simultaneously obtaining a subordinated $30 million working-capital loan. The financing was not final as of the filing date, and management stated that these plans do not eliminate the going-concern uncertainty. Other alternatives include debt or equity issuance, asset sales, cost reductions and strategic alternatives through an investment bank.
Supplier disputes are significant: the Company had received $31.7 million of liens and $5.5 million of notices of non-payment as of March 31, 2024. Additional liens of $1.8 million and notices of non-payment of $3.4 million were received after quarter-end through the financial statement issuance date. Litigation includes securities, derivative, corporate-governance and Tennessee construction-related matters; potential losses cannot currently be reasonably estimated.
The Company’s disclosure controls and procedures were ineffective as of March 31, 2024 because of a material weakness in IT general controls, specifically privileged and user access controls over an ERP system. Remediation was underway but had not been completed and tested for a sufficient period.
Additional risks include dependence on access to capital, delayed Tennessee production, customer concentration, raw-material prices, competition, China operations and restrictions on repatriating cash, foreign-exchange exposure, regulatory and incentive changes, litigation, cybersecurity, product liability and execution of the backlog. A hypothetical 10% adverse movement in relevant RMB exchange rates would have produced an estimated $13.5 million foreign-currency loss as of March 31, 2024.
Most important facts for investors to verify
- Whether the proposed $150 million term loan and required $30 million working-capital loan were finalized, funded and available under their conditions.
- The Company’s ability to fund operations, supplier obligations and the estimated $150 million to $170 million remaining Tennessee expansion requirement.
- Status and financial consequences of supplier liens, non-payment notices and Tennessee construction litigation.
- Whether Clarksville Phase 1A reaches production on the estimated timetable and whether projected IRA-related benefits become available.
- Backlog conversion, customer concentration, geographic mix and the sustainability of the 21.2% gross margin.
- Progress in remediating the material weakness in ERP access controls.
- Cash availability at U.S. entities versus restricted or non-repatriable foreign cash, and upcoming debt maturities.
- Potential dilution from approximately 32.2 million stock-option shares, 28.4 million warrant shares, earn-out shares and other equity awards excluded from diluted loss-per-share calculations.