Xos, Inc. Form 8-K Summary
Business context and reporting period
Filed August 26, 2021, reporting events beginning August 20, 2021. Xos completed its business combination with NextGen Acquisition Corporation following NextGen’s August 19 domestication into Delaware. Xos Fleet, Inc. is the accounting predecessor, and the combined company became a Nasdaq-listed operating company under the symbols XOS and XOSWW.
Xos develops Class 5–8 battery-electric commercial vehicles, battery systems, fleet software and Fleet-as-a-Service offerings for last-mile commercial fleets. As of June 30, 2021, the company reported binding and non-binding arrangements representing a backlog of more than 6,000 vehicle units, including more than 2,000 contracted units and options for approximately 4,000 additional units.
Financial metrics
| Six months ended June 30 | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1.389 million | $0.573 million | +142% |
| Gross profit | $0.132 million | $0.095 million | +39% |
| Gross margin | Approximately 9.5% | Approximately 16.6% | Down approximately 7.1 percentage points |
| Loss from operations | $(13.398) million | $(3.767) million | Loss increased $9.631 million |
| Net loss | $(23.008) million | $(5.082) million | Loss increased $17.926 million |
| Adjusted EBITDA | $(13.472) million | $(3.607) million | Loss increased $9.865 million |
| Cash used in operating activities | $(20.153) million | $(4.040) million | Use increased $16.113 million |
| Cash used in investing activities | $(0.702) million | $(0.143) million | Use increased $0.559 million |
| Cash provided by financing activities | $34.113 million | $13.036 million | Increased $21.077 million |
Revenue comprised approximately $2.6 million from vehicle sales and $2.9 million from Fleet-as-a-Service for the period referenced in the filing’s business discussion; the filing text does not clearly reconcile these amounts to the reported six-month revenue table. The company sold three vehicles and six powertrains during the six months ended June 30, 2021, versus five powertrains in the comparable 2020 period. Cumulative deliveries since inception totaled 32 vehicles and powertrains combined.
Cash and cash equivalents were $23.6 million as of June 30, 2021. The Business Combination generated net cash proceeds of approximately $216.7 million, including proceeds from the NextGen trust account and PIPE investment, net of transaction costs and redemptions. Total non-recurring transaction costs were expected to be approximately $55.4 million. The filing states that the company had no material contractual obligations or off-balance-sheet arrangements beyond those disclosed in its financial statements.
Material changes versus the prior comparable period
- Revenue increased 142%, primarily from higher vehicle and powertrain deliveries.
- Cost of goods sold increased 163%, causing gross margin to decline despite higher gross profit.
- Research and development expense increased 112% to $3.630 million as the company developed battery designs and refined vehicle platforms.
- General and administrative expense increased 387% to $9.369 million, driven by hiring, Business Combination costs, ERP implementation, legal and accounting services, and the new headquarters.
- Net loss expanded materially, partly because of a $14.104 million realized loss on debt extinguishment and a $4.964 million gain from the change in fair value of derivatives.
- Convertible debt and accrued interest were converted into preferred stock during the first quarter of 2021, reducing interest expense to approximately $0.013 million from $1.319 million.
- Operating cash burn increased substantially as the company expanded research and development, inventory and public-company infrastructure.
Guidance, outlook, risks and unusual items
- Management expected to deliver 116 units in 2021 and more than 90% of contracted non-option orders, representing more than 1,800 vehicles, by the end of 2022. Some optional orders may not be produced or delivered until 2023.
- Two Flex manufacturing facilities had combined capacity of up to approximately 10,000 vehicles annually once fully ramped. Management expected current facilities to support projected production through 2023.
- Management stated that current financial resources, including Series A and Business Combination proceeds, were sufficient to support planned operations for at least 12 months from the financial statement issuance date. However, recurring operating losses and cash outflows had raised substantial doubt about the company’s ability to continue as a going concern.
- Key risks include limited commercial production history, dependence on converting backlog into deliveries, continued losses and capital requirements, scaling and manufacturing execution, customer and market acceptance, supply-chain constraints, semiconductor and aluminum shortages, inflation, COVID-19 and its variants, regulatory changes, intellectual-property matters, litigation, and retention of critical personnel.
- One PIPE investor failed to fund its committed $4.0 million investment at closing; the company stated that it was in discussions with the investor.
- The PIPE investment involved 19.6 million newly issued shares and 2.0 million shares sold by founders for an aggregate purchase price of $216.0 million.
- Legacy Xos securityholders received or had reserved an aggregate of 127.6 million shares, and certain eligible holders may receive up to 16.4 million additional shares based on specified share-price targets through August 20, 2026.
- As of closing, 162.2 million common shares were outstanding, with approximately 18.8 million warrants outstanding. Warrants generally have an $11.50 exercise price.
- Registration rights were granted for certain securities, while specified stockholders were subject to 180-day lock-ups. Founder trading restrictions continued beyond that period through the second anniversary, subject to specified Rule 10b5-1 plan requirements.
- WithumSmith+Brown, PC replaced Marcum LLP as the company’s independent registered public accounting firm. Marcum’s prior report included substantial doubt regarding NextGen’s ability to continue as a going concern; the filing reported no accounting disagreements with Marcum.
Important facts for investors to verify
- Reconcile the business discussion’s $5.5 million revenue split with the reported six-month revenue of $1.389 million and determine the applicable period.
- Review the unaudited June 30, 2021 financial statements and pro forma information incorporated as Exhibits 99.1 and 99.2.
- Assess liquidity after the $216.7 million Business Combination proceeds, transaction costs, redemptions and the unfunded $4.0 million PIPE commitment.
- Evaluate the company’s ability to convert the more than 6,000-unit stated backlog into production, deliveries and cash receipts.
- Model dilution from warrants, options, earnout shares, registration rights and equity compensation plans.
- Monitor gross-margin performance, production costs, supply-chain availability and the timing of Flex facility ramp-up.
- Review the going-concern disclosure and the company’s expected funding needs as operating losses and capital expenditures increase.