Cenntro Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited U.S. GAAP consolidated results. Cenntro designs and manufactures purpose-built electric commercial vehicles for delivery and industrial uses. Comparative period is Q1 2023.
Financial highlights
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $3.39 million | $3.47 million |
| Gross profit / margin | $14,271 / 0.4% | $194,744 / 5.6% |
| Operating loss | $9.39 million | $10.60 million |
| Net loss | $9.23 million | $11.11 million |
| Net loss per share, basic and diluted | $0.30 | $0.36 |
| Operating cash flow | $(8.86) million | $(17.36) million |
| Cash and cash equivalents | $20.26 million | $29.38 million at Dec. 31, 2023 |
| Working capital | Approximately $67.5 million | Approximately $75.6 million at Dec. 31, 2023 |
| Total liabilities | $60.50 million | $63.67 million at Dec. 31, 2023 |
Net investing cash flow was positive $0.31 million, mainly reflecting proceeds from equity securities, partly offset by property and equipment purchases. There was no financing cash flow in Q1 2024. Cash, cash equivalents and restricted cash declined by $8.99 million to $20.58 million. The company also reported $4.20 million in short-term investments, including wealth-management products and a currency swap.
Current liabilities included $9.96 million of convertible notes. The balance sheet also included $19.78 million in operating lease liabilities and $15.64 million in warrant derivative liabilities. These are distinct obligations; total liabilities were $60.50 million.
Changes versus Q1 2023 and year-end 2023
- Revenue declined 2.3%. Vehicle sales fell about $0.33 million as average selling price decreased from approximately $22,000 to $15,000; spare-parts revenue rose about $0.23 million.
- Cenntro sold 165 ECVs versus 129 a year earlier. Vehicle sales were $2.51 million; parts were $0.83 million.
- Overall gross margin contracted to 0.4% from 5.6%, despite vehicle gross margin improving to 6.34% from 1.63%. Management attributed the lower total gross profit chiefly to weaker gross profit on parts and other sales.
- Operating expenses declined 12.9% to $9.41 million: selling and marketing and general and administrative costs decreased, while R&D expense increased 10.1% to $1.73 million.
- Net loss narrowed from $11.11 million to $9.23 million. Q1 2023 included a $1.15 million impairment of a long-term investment and other differing fair-value and financing items; Q1 2024 included a $0.36 million foreign-exchange loss.
- Operating cash use improved year over year, but cash and working capital declined from year-end 2023. Inventory remained substantial at $43.77 million.
- Revenue mix shifted geographically: Europe represented 49.0% of Q1 2024 revenue versus 88.2% a year earlier; North America and Asia were 18.5% and 32.5%, respectively.
Outlook, risks and notable matters
- Management said cash and cash equivalents should fund the strategy for the 12 months following the issuance date of its annual report. This depends on sales, collections, manufacturing and facility costs, new-model launches, litigation and other factors; the filing provides no specific revenue, margin or earnings guidance.
- Near-term plans include rolling out ECV models and green-energy products in North America and Europe, building distribution channels, controlling costs and strengthening internal controls. Management expects selling and marketing and G&A costs not to increase in 2024; it expects R&D spending to rise over the long term.
- The company relies on future cash flows, cash on hand, credit lines and potential additional equity or debt financing for planned operations. It identifies uncertainty around demand, production costs, supply chains, ability to collect revenue and access to capital.
- Material weaknesses in internal control over financial reporting remained unresolved at March 31, 2024. Management concluded disclosure controls and procedures were not effective; remediation is underway but is not complete.
- Notable legal matters include a Belgian injunction concerning distribution of the METRO model and related potential penalties; a former executive’s lawsuit seeking $19 million; supplier/customer litigation and arbitration; and competing claims with MHP, which demanded approximately $5.06 million and was sued by Cenntro. Outcomes and potential financial effects remain uncertain. The company says it does not expect its legal proceedings in aggregate to materially adversely affect its financial position, results or liquidity, while acknowledging unfavorable outcomes could have material effects.
- Convertible notes carry an 8% stated rate and are reported at fair value; the filing lists a January 2025 maturity and describes redemption and conversion provisions. Warrant and note valuations rely on significant unobservable inputs.
Investor facts to verify
- Whether vehicle pricing and product mix can improve consolidated gross margin, given the 0.4% Q1 margin and lower average selling price.
- Cash burn, customer collections, inventory conversion and funding needs; management’s liquidity outlook is conditional and cash declined by about $9.0 million during the quarter.
- Recoverability and valuation of inventory, prepayments and investments, including $25.82 million in equity securities and $43.77 million in net inventory.
- Progress in remediating internal-control material weaknesses and the effect of the reported accounting and disclosure-control deficiencies.
- Developments in the legal cases, potential penalties and claims, and the terms and repayment or conversion outcomes of the notes and warrants.
- Share count and potential dilution: 30,828,795 common shares were outstanding as of May 14, 2024; the filing also describes substantial outstanding warrants.