Microvast Holdings, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Microvast develops and manufactures lithium-ion battery components, systems and energy-storage solutions for electric commercial vehicles and utility-scale energy storage. The unaudited filing covers the three and nine months ended September 30, 2023, with comparisons to the same 2022 periods.
- As of September 30, 2023, backlog was approximately $678.7 million, representing approximately 2,526.1 MWh; more than 90% was attributable to the U.S. and Europe.
- The Huzhou, China Phase 3.1 expansion for 53.5Ah cells, modules and packs was completed during Q3 2023 and is expected to reach its 2 GWh annual design capacity by year-end.
- The Clarksville, Tennessee 2 GWh expansion is expected to enter trial production by the end of Q1 2024, with customer shipments anticipated in Q2 2024.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Change |
|---|
| Revenue | $80.1 million | $38.6 million | Up 107.5% |
| Gross profit | $17.9 million | $2.0 million | Up $15.9 million |
| Gross margin | 22.3% | 5.2% | Up 17.1 percentage points |
| Loss from operations | $(26.3) million | $(37.1) million | Improved $10.7 million |
| Net loss attributable to shareholders | $(26.1) million | $(36.5) million | Improved $10.4 million |
| Basic and diluted loss per share | $(0.08) | $(0.12) | Improved |
| Metric | Nine months 2023 | Nine months 2022 | Change |
|---|
| Revenue | $202.0 million | $139.7 million | Up 44.6% |
| Gross profit | $34.2 million | $6.8 million | Up $27.4 million |
| Gross margin | 16.9% | 4.9% | Up 12.0 percentage points |
| Loss from operations | $(84.5) million | $(125.3) million | Improved $40.8 million |
| Net loss attributable to shareholders | $(81.8) million | $(124.5) million | Improved $42.7 million |
| Basic and diluted loss per share | $(0.26) | $(0.41) | Improved |
- Q3 sales volume increased to approximately 319.2 MWh from 112.2 MWh. Nine-month sales volume increased to approximately 722.0 MWh from 478.7 MWh.
- Gross-margin improvement reflected higher utilization and economies of scale, a more favorable product mix and lower raw-material prices.
- Nine-month operating expenses declined 10.1% to $119.9 million, primarily because of lower share-based compensation in general and administrative expense. Research and development expense was broadly stable.
- Nine-month operating cash flow was negative $70.4 million, compared with negative $58.6 million in 2022. Investing cash flow was negative $153.1 million, primarily due to facility and equipment expansion.
- Nine-month financing cash flow was positive $12.2 million, consisting primarily of $18.4 million of borrowings less $6.3 million of repayments.
- Cash, cash equivalents and restricted cash declined to $89.2 million at September 30, 2023 from $302.6 million at December 31, 2022. Including $25.5 million of short-term investments, reported liquidity was approximately $114.7 million.
- Working capital was $67.5 million. Inventories increased to $126.9 million from $84.3 million at December 31, 2022, while accounts payable and accrued liabilities also increased.
- Bank borrowings totaled $55.7 million, and long-term bonds payable totaled $43.9 million. The filing states that the company was in compliance with material debt covenants.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by substantially higher battery-system sales volume and increased European and other Asia-Pacific sales.
- Revenue mix shifted toward Europe and other Asia-Pacific countries. Europe represented 24% of Q3 revenue versus 9% in the prior-year quarter; the U.S. represented less than 1% versus 3%.
- Q3 gross margin expanded materially to 22.3%, but the company remained loss-making because operating expenses exceeded gross profit.
- Nine-month accumulated deficit increased to $873.0 million, and shareholders’ equity declined to $567.3 million from $613.0 million at December 31, 2022.
- Property, plant and equipment increased to $549.5 million from $335.1 million, reflecting continued capacity expansion.
- The Department of Energy declined to award the previously announced $200 million grant for a Kentucky separator facility. Management stated that it remains committed to U.S. investment and Clarksville completion, while focusing near term on its core business.
Outlook, risks, contingencies and unusual items
- Management expects existing liquidity, operating and financing resources to fund operations and investing activities for at least the next 12 months. The company also identified approximately $70.4 million of undrawn capacity under its Huzhou project-finance facility, extended through June 9, 2024, and $21.7 million available under a working-capital credit line.
- Total capital expenditures for the Huzhou and Clarksville expansions are estimated at $460 million to $490 million. Capital commitments were $95.9 million at September 30, 2023, with additional purchase commitments of $65.7 million.
- Management expects to rely on borrowings and other third-party debt financing for expansion and may require additional equity or debt capital. U.S. operations had no bank or third-party debt as of the filing date.
- Material risks include continued operating losses and negative operating cash flow, execution and funding of capacity expansions, customer order changes or cancellations, raw-material price volatility, intense competition, China and foreign-exchange exposure, regulatory and trade restrictions, cybersecurity, product liability and dependence on government incentives.
- A 10% adverse foreign-exchange movement affecting Renminbi-denominated accounts would have resulted in an estimated $8.3 million foreign-currency loss as of September 30, 2023.
- The company is defending litigation related to the former Tuscan acquisition. Any potential loss could be material, but the amount cannot currently be reasonably estimated.
- The company recorded $52.1 million of share-based compensation during the first nine months, including $35.0 million in general and administrative expense, reducing reported operating results but not cash flow.
- Management stated that disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the backlog converts into shipments and cash collections on the stated 2023–2024 timetable.
- Progress, cost and financing of the Clarksville and Huzhou expansions, including Clarksville trial production and Q2 2024 shipment expectations.
- Cash-burn trends, working-capital requirements and the availability and terms of additional debt financing.
- Whether gross-margin gains persist after changes in product mix, raw-material prices and manufacturing utilization.
- Customer concentration, receivable collectability and the increase in inventories and purchase commitments.
- The effect of the DOE grant denial and any revised plans for the Kentucky separator facility.
- Developments and potential exposure in the Delaware litigation and other legal proceedings.
