Cenntro Electric Group Limited — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The condensed consolidated financial statements are unaudited. The registrant is Cenntro Electric Group Limited, an Australian company that designs and manufactures purpose-built electric commercial vehicles (ECVs); the filing describes the company as Cenntro.
Financial and operating performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $4.24 million | $3.20 million | $7.71 million | $5.04 million |
| Gross profit | $1.15 million | $0.17 million | $1.34 million | $0.53 million |
| Operating loss | $13.02 million | $14.77 million | $23.63 million | $24.14 million |
| Net loss | $14.08 million | $13.71 million | $25.19 million | $23.05 million |
| Operating cash used | Not reported by quarter | $35.50 million | $29.07 million |
- Q2 revenue increased 32.2% year over year; first-half revenue rose 53.1%. Vehicle sales drove most revenue, and the company reported 364 ECVs sold in the first half versus 337 a year earlier.
- First-half gross margin was 17.4%, up from 10.6%; vehicle gross margin was 16.7%, compared with 8.7%. Q2 overall gross margin was 27.1%, versus 5.3%. Management attributed improvement partly to higher selling prices, model mix and the absence of the prior-year inventory write-down.
- First-half operating expenses were $24.97 million, broadly flat year over year: lower general and administrative expense was offset by higher selling and marketing and research and development costs. First-half other expense included foreign-exchange losses and a $1.15 million impairment of a long-term investment.
- At June 30, cash and cash equivalents were $60.39 million, down from $153.97 million at December 31, 2022. Working capital was approximately $97.0 million. Current assets were $123.49 million and current liabilities $26.53 million.
- First-half investing cash use was $9.99 million, including plant and equipment, land-use rights and property, and the remaining CAE acquisition. Financing cash use was $45.58 million, primarily redemption of convertible notes. Cash, cash equivalents and restricted cash decreased by $93.61 million in the half.
- Convertible promissory notes were carried at $11.90 million at June 30, down from $57.37 million at year-end after $45.58 million of redemptions. The company also reported $15.66 million of warrant derivative liabilities and $20.31 million of operating lease liabilities.
- Inventories rose to $41.80 million from $31.84 million at year-end; net accounts receivable increased to $2.65 million from $0.57 million. Total liabilities were $59.16 million and total equity $146.89 million.
Changes, outlook and risks
- Revenue growth was concentrated in Europe: first-half sales there were $5.53 million, or about 71.8% of revenue, compared with $2.96 million, or 58.9%, a year earlier. Asia contributed $2.08 million; America contributed $0.10 million.
- Management is pursuing new ECV rollouts, local assembly facilities in the United States and European Union, and expansion of the Changxing factory. It said cash, together with planned efficiency and working-capital initiatives, should support its strategy for the 12 months following issuance of the report. This outlook is subject to execution, sales, facility costs, collections and access to financing; no quantified revenue or earnings guidance is provided.
- After quarter-end, on August 11, 2023, the company amended the maturity date of $9.95 million of outstanding note principal, extending it from July 19, 2023 to January 19, 2024. The notes bear 8% interest and include redemption and conversion provisions.
- Material risks include continuing cash burn, inventory and working-capital growth, foreign-exchange exposure, customer and supplier concentration, manufacturing and market execution, and dependence on future financing. One customer represented 18% of first-half revenue; three suppliers together represented 64% of purchases.
- Litigation includes a Belgian injunction against distribution of the METRO model, with potential per-violation penalties and stated caps; the company says no METRO models had been sold in Belgium, accrued the judgment-related liability and intends to appeal. A former executive seeks $19 million in a stock-option lawsuit; defendants moved to dismiss the amended complaint. Supplier-related litigation and arbitration in China and the United States are also pending. The filing says other legal matters are not expected in aggregate to materially affect the company, but outcomes are uncertain.
- Management concluded disclosure controls were not effective as of June 30 because previously identified material weaknesses in internal control over financial reporting remained unresolved. Remediation is underway but is not considered complete until controls have operated effectively and been tested.
- The filing identifies plans to regain Nasdaq listing compliance, potentially including a reverse stock split, among forward-looking matters. It does not provide a specific implementation timetable here.
Important facts for investors to verify
- Whether cash burn and the company’s stated 12-month liquidity outlook remain consistent with actual operating and investment needs.
- Whether the amended note maturity was satisfied or further amended, and the cash, dilution and redemption consequences of the note and warrants.
- Inventory turnover, recoverability of receivables and prepayments, and whether vehicle margins can be sustained as sales scale.
- Developments in the Belgian injunction, the $19 million former-executive claim and the other disclosed legal disputes, including accrued amounts and potential exposure.
- Progress on internal-control remediation and any Nasdaq compliance actions or reverse-stock-split decision.
- Share count and potential dilution: 304,449,091 ordinary shares were outstanding at June 30 and August 11, 2023.