Twin Vee PowerCats Co. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results include Twin Vee, wholly owned Fix My Boat, and majority-owned Forza X1. Forza’s August IPO reduced Twin Vee’s ownership and introduced noncontrolling interests.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $8.81 million | $4.12 million | $23.22 million | $10.62 million |
| Gross profit / margin | $3.33 million / 37.8% | $1.61 million / 39.1% | $9.22 million / 39.7% | $4.41 million / 41.6% |
| Operating expenses | $4.19 million | $1.93 million | $11.59 million | $4.70 million |
| Operating loss | $(0.86) million | $(0.32) million | $(2.38) million | $(0.28) million |
| Net loss | $(0.89) million | $(0.38) million | $(2.62) million | $(0.20) million |
| Net loss attributable to Twin Vee stockholders | $(0.70) million | $(0.38) million | $(2.43) million | $(0.20) million |
- Sales increased 114% in Q3 and 119% for the nine-month period. Management attributed growth to higher production and demand, increased selling prices, fewer discounts and rebates, and new larger models. Q3 unit sales rose 65%; average revenue per unit for the nine months rose about 35%.
- Gross margin declined year over year. Nine-month operating expenses increased 147%, including higher staffing and production costs, public-company costs, stock compensation, and Forza development spending.
- Q3 gas-powered boats generated $160,025 of segment net income, while Forza’s electric boat and development segment recorded a $1.04 million loss and had no revenue. For the nine months, management reported a $2.16 million Forza loss.
- Operating cash use was $2.58 million for the nine months, versus $0.74 million a year earlier. Investing activities provided $0.69 million, including $3.00 million from marketable-security sales, while property and equipment purchases were $2.39 million. Financing activities provided $14.90 million, principally from Forza’s IPO.
Balance sheet and liquidity
- At September 30, cash and cash equivalents were $19.98 million and marketable securities were $2.91 million, together $22.89 million. Cash included $13.94 million related to Forza’s IPO. Current assets were $26.25 million; current liabilities were $4.00 million; working capital was $22.25 million.
- Total assets were $35.22 million and total liabilities were $5.44 million. The company had a $499,900 SBA EIDL loan and $1.34 million of operating lease liabilities. Management stated available resources were sufficient for at least 12 months from filing.
- Inventory rose to $4.39 million from $1.80 million, which management linked to production growth and efforts to buffer supply-chain delays. Customer deposits increased to $1.03 million from $14,100.
Outlook, risks, and notable items
- Management expects core gas-boat operating income to moderate toward breakeven; Forza is expected to continue incurring development losses. The company anticipated electric-boat revenue beginning in late 2023. It also anticipated initial LFG Marine boat revenue in Q1 2023.
- Forza’s October 28 prototype trial was described as successful. Forza’s commercial prospects remain dependent on completing development, testing, production capacity, and market acceptance.
- After quarter-end, Twin Vee sold 2.5 million shares at $2.75 per share on October 3, raising $6.875 million gross, before offering costs, and issued underwriter warrants. As of November 7, 9.52 million Twin Vee shares were outstanding.
- Potential dealer floor-plan repurchase obligations were approximately $11.83 million, covering 68 units, versus $4.27 million and 24 units at year-end 2021; no repurchases were reported during the period. Three customers accounted for 37% of nine-month sales. The company also relied on a single engine supplier for its boats during the period.
- Management identified disclosure controls as ineffective because of material weaknesses related to insufficient experienced financial-reporting resources. Remediation efforts were underway, but testing was continuing and the weaknesses were not yet considered remediated.
- Risks discussed include inflation and economic uncertainty, dealer financing and concentration, supply availability and costs, potential repurchase obligations, Forza’s development and commercialization, and the conditions attached to a potential North Carolina grant of up to $1.37 million. Ordinary-course litigation was not considered material.
Important facts for investors to verify
- Reconcile reported loss per share: the financial statements show $(0.35) for the nine months, while MD&A states $(0.37); the Q3 MD&A also contains a net-loss figure that differs from the financial statements.
- Confirm the appropriate accumulated-deficit figure: the balance sheet reports $4.45 million, while the liquidity discussion gives $4.50 million.
- Track whether production growth converts to sustainable margins and operating cash flow, given rising costs and inventory investment.
- Monitor Forza’s development schedule, funding use, ownership/noncontrolling-interest effects, and the conditions for obtaining the North Carolina grant.
- Assess dealer concentration, floor-plan repurchase exposure, supplier dependence, and progress in remediating internal-control weaknesses.