XL Fleet Corp. — Form 10-Q for the quarter ended June 30, 2021
Entity note: The request identifies Spruce Power Holding Corp., but the supplied filing is for XL Fleet Corp. (NYSE: XL). This summary reflects the supplied filing.
Business context and reporting period
XL Fleet provides electrification systems for commercial vehicles (Drive Systems) and, following its May 17, 2021 acquisition of World Energy, energy-efficiency, renewable-energy and EV-charging services (XL Grid). Financial statements are unaudited. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3.694 | $1.912 | $4.369 | $3.144 |
| Gross profit (loss) | $0.962 | $0.044 | $0.246 | $(0.008) |
| Operating loss | $(12.669) | $(3.596) | $(22.755) | $(7.153) |
| Net income (loss) | $(10.469) | $(13.499) | $51.445 | $(19.953) |
| Operating cash flow | Not provided for quarter | $(20.544) | $(7.824) |
- Q2 gross margin was approximately 26.0%; six-month gross margin was approximately 5.6%. Operating losses widened as operating expenses increased.
- Six-month 2021 net income included a noncash $74.731 gain from revaluing warrant liabilities. Excluding that gain, the company reported a $23.286 net loss for the six months.
- At June 30, cash and cash equivalents were $384.143 and restricted cash was $0.657. Working capital was $389.4.
- Total debt was approximately $0.652, excluding lease liabilities; lease liabilities totaled $4.386. The World Energy PPP loan of $0.507 was forgiven in July 2021.
- Six-month investing cash use was $9.886, including $8.112 for World Energy and $1.774 for property and equipment. Financing provided $85.439, principally from public warrant exercises.
- Total assets were $423.948 and stockholders’ equity was $376.382 at June 30, 2021.
Material changes versus prior period
- Q2 revenue increased 93.2% year over year, principally from $2.412 of XL Grid revenue contributed by World Energy. Drive Systems revenue declined; management attributed disruption to OEM vehicle shortages.
- Six-month revenue rose 39.0%, while Drive Systems revenue fell by approximately $1.2 million. The filing attributes the overall increase to World Energy/XL Grid revenue.
- Q2 R&D expense rose to $2.809 from $0.637; SG&A rose to $10.822 from $3.003. For the half year, R&D was $4.221 and SG&A was $18.780, with increases tied to hiring, product development, public-company costs and acquisition activity.
- The World Energy acquisition added approximately $2.4 million of revenue in the reported period and was recorded with preliminary goodwill of $8.781. Total stated purchase consideration was $12.077, including cash, shares and contingent consideration.
- Public warrant exercises generated $85.555 in cash and increased issued shares. The company had no public warrants outstanding at June 30, 2021.
Outlook, risks and unusual items
- Management expects near-term net losses and higher R&D, sales, staffing and public-company costs, but stated that existing liquidity should fund the current business plan for at least 12 months without additional capital.
- The global microchip shortage and OEM chassis constraints disrupted Drive Systems orders and may continue to affect 2021 and potentially 2022. COVID-19-related shutdowns, supplier delays and operating restrictions remain risks.
- Purchase commitments included $8.1 million of batteries due by December 2021, $2.3 million of motors due by July 2022 and an open-ended $2.7 million battery commitment. The company was negotiating additional time to use the $8.1 million battery commitment.
- Other commitments included a $4.1 million electric-bus purchase (with a $0.8 million nonrefundable deposit) and a three-year sponsorship at approximately $0.5 million annually.
- A consolidated securities class action alleges violations related to certain public statements; the company disputes the claims but could not estimate potential losses.
- Disclosure controls were assessed as ineffective at June 30, 2021. The filing cites a material weakness in warrant accounting and continuing material weaknesses reported previously; a CFO was hired in April 2021 and additional monitoring controls were introduced.
- On July 15, 2021, XL Fleet invested $3 million in eNow convertible notes and entered into a development and supply arrangement, with specified acquisition rights. Utility incentives, subcontractor performance, customer concentration and fair-value estimates are also relevant risks.
Important facts for investors to verify
- Confirm the issuer: the supplied document is XL Fleet Corp.’s filing, not a Spruce Power Holding Corp. 10-Q.
- Assess underlying operating performance separately from the $74.731 million noncash warrant-liability gain, including cash burn and gross margins.
- Track OEM/chassis availability, Drive Systems orders and the company’s ability to convert XL Grid projects into sustained revenue and margin.
- Review the status and terms of battery and motor commitments, including any amendment to the $8.1 million battery obligation.
- Monitor remediation of the material weakness and the progress, potential costs and disclosures relating to the securities litigation.
- Verify the World Energy earnout conditions and deferred share obligations, and the subsequent eNow investment and related rights.