Xos, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Xos manufactures Class 5–8 battery-electric commercial vehicles and offers related fleet services, software, and charging solutions. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $11.0 million | $0.4 million | $27.8 million | $1.7 million |
| Gross profit (loss) | $(10.8) million | $(0.1) million | $(19.0) million | $0.1 million |
| Operating expenses | $20.4 million | $14.2 million | $63.4 million | $27.8 million |
| Net income (loss) | $(23.3) million | $34.9 million | $(53.9) million | $12.0 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(105.6) million | $(53.1) million |
Gross margin was approximately negative 98% in Q3 and negative 69% for the first nine months of 2022. Nine-month sales included 211 stepvans and 6 powertrains, compared with 3 stepvans and 9 powertrains in the prior-year period. Q3 sales were 84 stepvans and 4 powertrains.
At September 30, 2022, cash and cash equivalents were $46.4 million, restricted cash was $3.0 million, and available-for-sale marketable debt securities were $59.7 million. The company reported total assets of $226.2 million, current liabilities of $26.0 million, and total liabilities of $98.4 million. Net inventory was $66.3 million, including $6.6 million of reserves.
Nine-month investing cash flow was a $75.5 million inflow, primarily reflecting $87.4 million of investment sales and maturities, partially offset by $11.9 million of capital expenditures. Financing cash flow was $60.4 million, including $54.3 million from convertible debt and $4.3 million from share sales under the Standby Equity Purchase Agreement (SEPA).
Debt included $35.0 million principal of Yorkville convertible debentures and a $20.0 million Aljomaih convertible note. The balance sheet carried $53.7 million of convertible debt, net; the filing separately describes total indebtedness of approximately $64.3 million. The Yorkville debentures carry 6% interest and mature in November 2023, with conversion pricing tied in part to the stock’s trading price. The Aljomaih note carries 10% interest, payable in shares unless converted or paid earlier, and matures in August 2025.
Changes, outlook, and risks
- Revenue growth reflected higher vehicle deliveries, but cost of goods sold rose faster. Management cited inventory reserves and write-downs, unfavorable inventory adjustments, direct costs, labor, and manufacturing overhead as contributors to losses.
- For the first nine months, operating expenses increased 128% year over year, including higher personnel, engineering, insurance, and professional-services costs. Xos conducted a workforce reduction of approximately 16% during the period.
- Management said existing financial resources were sufficient to support planned operations for at least 12 months from the financial-statement issuance date. It also stated an operational goal of delivering gross-margin-positive units by the end of the second half of 2023, including through price increases. No numerical revenue or earnings guidance was provided.
- The SEPA provides up to $125 million of potential equity financing, subject to conditions; $120.7 million remained available at quarter-end. Use of SEPA advances was restricted absent mutual consent while Yorkville retained conversion rights under its debentures.
- Management highlighted supply constraints affecting semiconductor chips, battery cells, vehicle bodies, and aluminum; inflation and cost pressures; execution and customer-deployment risks; and dependence on access to additional capital. Convertible-debt conversion may materially dilute shareholders. The Yorkville debentures also contain a monthly prepayment mechanism under specified conditions.
- Net results include substantial non-cash gains from remeasurement of derivative and earn-out liabilities: $8.5 million combined in Q3 2022 and $29.3 million for the first nine months. These gains helped offset operating losses and should not be treated as operating performance.
- The filing revised previously issued 2021 diluted EPS calculations, deeming the error immaterial: Q3 2021 diluted EPS was corrected from $(0.08) to $0.30, and nine-month 2021 diluted EPS from $(0.28) to $0.14, principally due to correcting treatment of warrants and earn-out shares.
- No material adverse legal proceedings were reported. Management concluded disclosure controls were effective at quarter-end, while also describing ongoing work to establish and improve internal controls over financial reporting.
Key facts for investors to verify
- Whether vehicle deliveries, pricing, production efficiency, and inventory quality support the stated goal of gross-margin-positive units in the second half of 2023.
- Cash burn and liquidity runway, including the availability and terms of further financing and any restrictions on SEPA use.
- Convertible-debt repayment, conversion, interest, and share-dilution exposure, particularly under the Yorkville debentures’ variable conversion price and prepayment provisions.
- The drivers and potential recurrence of inventory write-downs and unfavorable inventory adjustments.
- The corrected 2021 diluted EPS figures and the impact of non-cash fair-value gains on reported earnings.