XOS

Business Context and Reporting Period

Xos, Inc. (XOS) is a fleet electrification solutions provider designing and manufacturing Class 5-8 battery-electric commercial vehicles and charging infrastructure. This Form 10-Q covers the quarterly period ended June 30, 2024. The company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company. A significant corporate development during the period was the consummation of the acquisition of ElectraMeccanica Vehicles Corp. on March 26, 2024, accounted for as an asset acquisition.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 227% year-over-year for the three months ended June 30, 2024, and 204% for the six-month period. This was driven by higher unit sales (78 vehicles in Q2 2024 vs. 37 in Q2 2023) and increased average selling prices.
• Profitability Improvement: The company moved from a gross loss of $(3.7) million in Q2 2023 to a gross profit of $2.0 million in Q2 2024. The net loss narrowed significantly to $(9.7) million in Q2 2024 compared to $(23.6) million in the prior year period.
• Expense Reduction: Total operating expenses decreased 20% year-over-year for the quarter, primarily due to reduced headcount and lower R&D spending. General and Administrative expenses fell 7%, while R&D expenses dropped 42%.
• Acquisition Impact: The acquisition of ElectraMeccanica contributed approximately $50.2 million in net cash and added lease liabilities of approximately $17.2 million to the balance sheet.

Guidance, Outlook, Risks, and Contingencies

• Going Concern Warning: Management has concluded that there is substantial doubt about the company's ability to continue as a going concern for at least 12 months from the filing date. The company has incurred losses since inception and requires additional capital to fund operations.
• Liquidity Constraints: As of June 30, 2024, cash and cash equivalents were $19.7 million. The Standby Equity Purchase Agreement (SEPA) with Yorkville, which could provide up to $125 million, is currently unavailable until a post-effective amendment to a registration statement is filed and declared effective.
• Debt Obligations: The company has a $20.0 million convertible promissory note with Aljomaih Automotive Co. maturing on August 11, 2025. Previous convertible debentures were fully repaid in December 2023.
• Internal Controls: The company identified a material weakness in internal controls related to payroll accruals in Q1 2024, which caused liabilities and expenses to be understated. Remediation is in progress. A previously identified material weakness regarding revenue recognition was remediated as of June 30, 2024.
• Supply Chain: The company continues to face supply chain disruptions, particularly regarding power electronics and harnesses, though mitigation strategies are in place.

Investor Verification Checklist

• Capital Raise Status: Verify the status of the post-effective amendment for the SEPA registration statement, as access to this funding source is critical for operations.
• Debt Maturity: Confirm the company's plan to refinance or repay the $20.0 million convertible note due in August 2025.
• Internal Control Remediation: Monitor progress on the remediation of the payroll-related material weakness in internal controls.
• Revenue Concentration: Review customer concentration risks; two customers accounted for 25% and 10% of revenue in the first six months of 2024.
• Inventory Valuation: Assess the valuation of inventory ($41.4 million) and the potential for write-downs given the company's history of inventory reserves.