Xos, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Xos manufactures battery-electric commercial vehicles and offers fleet services and software. Financial amounts below are in U.S. dollars; millions unless stated otherwise. Interim results are unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $9.8 | $0.6 | $16.8 | $1.4 |
| Gross profit (loss) | $(5.1) | $0.0 | $(8.3) | $0.1 |
| Operating expenses | $22.7 | $7.9 | $43.0 | $13.5 |
| Operating loss | $(27.8) | $(7.9) | $(51.3) | $(13.4) |
| Net loss | $(9.5) | $(9.2) | $(30.7) | $(23.0) |
| Basic and diluted loss per share | $(0.06) | $(0.13) | $(0.19) | $(0.32) |
Q2 revenue was mostly stepvans and vehicle incentives ($8.6 million); six-month revenue included $15.4 million from stepvans and vehicle incentives. Xos sold 71 stepvans and 2 powertrains in Q2, and 127 stepvans and 2 powertrains in the first half. Gross margin remained negative, reflecting production costs, overhead and inventory reserves. Six-month inventory reserve expense was $2.2 million.
Operating expenses rose substantially year over year, driven by higher headcount and personnel costs, R&D materials and equipment, public-company insurance and professional fees, and sales and marketing investment. Net loss includes noncash fair-value gains: $14.9 million on the earn-out liability in Q2 and $17.5 million for the first half. These gains reduced reported net loss but did not improve operating performance or provide operating cash.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $4.3 million, restricted cash $3.0 million, and available-for-sale marketable debt securities $77.9 million. Cash and marketable securities, excluding restricted cash, totaled $82.1 million.
- Six-month operating cash use was $75.8 million, including a $33.1 million inventory build. Investing activities provided $60.1 million, primarily from $69.6 million of investment sales and maturities, offset by $9.5 million of property and equipment purchases. Financing activities provided $3.8 million, including $4.3 million from common-stock sales under the SEPA.
- Total liabilities were $57.4 million; current liabilities were $30.5 million. The filing reports $14.3 million of lease liabilities, including equipment finance leases. No material conventional borrowing balance is reported at June 30.
- Management stated that available resources were sufficient for at least 12 months past the financial statement issuance date, considering the subsequent financings described below. This is management’s assessment, not a guarantee.
Material developments, outlook and risks
- Versus the prior-year periods, revenue increased with vehicle sales, but operating losses and cash use also increased. Six-month net loss rose to $30.7 million from $23.0 million; the prior-year period included a $14.1 million debt-extinguishment loss that did not recur.
- Xos said its two contract-manufacturing facilities were tooled for approximately 2,000 vehicles annually in total, subject to supply constraints. It reported continued shortages and elevated costs affecting semiconductor chips, battery cells, vehicle bodies and aluminum, alongside inflation and possible further disruption from geopolitical events.
- Management expects capital and operating expenditures to increase as it develops products, expands production and service capacity, and grows sales and public-company functions. The filing provides no numerical revenue or profitability guidance.
- On August 9–11, 2022, Xos arranged up to $35 million in Yorkville convertible debentures, with $20 million issued and a further $15 million conditional on registration effectiveness. The debentures carry 6% annual interest (subject to specified increases) and a variable conversion price, with a $0.50 floor. Xos also issued a $20 million Aljomaih convertible note bearing 10% interest, payable in shares at maturity unless earlier converted or paid; an additional $20 million may be issued by mutual agreement. These financings create potential dilution and repayment/conversion exposure.
- The $125 million SEPA with Yorkville had $120.7 million of remaining availability at June 30, but advances were subsequently restricted pending mutual consent while Yorkville has conversion rights under the debentures. The filing also notes preliminary areas for improvement in internal financial controls; management was still building its control system, although CEO and CFO concluded disclosure controls were effective at quarter-end.
- Xos reported no material legal proceedings and no material change to the risk factors in its 2021 Form 10-K. Related-party arrangements include manufacturing and lease relationships disclosed in the filing.
Important facts for investors to verify
- Whether production volumes, vehicle deliveries and unit economics improve enough to reduce negative gross margins, particularly given inventory reserves and supply constraints.
- Actual cash burn and liquidity runway, including the availability and terms of Yorkville and Aljomaih financing and any constraints on SEPA draws.
- Potential dilution from variable-price convertible securities, the SEPA, warrants, equity awards and contingent earn-out shares.
- Progress on internal-control improvements and the company’s first required annual assessment of internal controls over financial reporting.
- Whether management’s 12-month liquidity assessment remains supportable as operating and capital expenditures rise.