XOS

Business Context and Reporting Period

Xos, Inc. (XOS) is a fleet electrification solutions provider designing and manufacturing Classes 5 through 8 battery-electric commercial vehicles, charging infrastructure (Xos Hub), and fleet management software (Xosphere). The filing covers the fiscal year ended December 31, 2024. On March 26, 2024, Xos completed the acquisition of ElectraMeccanica Vehicles Corp., which was accounted for as an asset acquisition, providing approximately $50.2 million in net cash.

Key Financial Metrics

Revenue Composition (2024): Vehicle sales accounted for 76% ($42.8M), Powertrains & Hubs 16% ($8.7M), and Ancillary revenue 3% ($1.9M).

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 26% year-over-year, driven by higher deliveries of Hubs and powertrains and an increase in average selling prices for updated stepvans.
• Cost of Goods Sold (COGS): COGS increased 13% to $52.0 million. This was driven by $2.3 million in inventory reserves/write-downs, $2.3 million in unfavorable physical inventory count adjustments, and higher direct material costs.
• Operating Expenses: Total operating expenses decreased 22% to $49.8 million. Research and Development (R&D) expenses dropped 46% and Sales & Marketing expenses dropped 35%, primarily due to a 26% reduction in workforce completed in October 2024.
• Debt Repayment: The $35.0 million Convertible Debentures were fully repaid in December 2023. As of December 31, 2024, the primary debt obligation is a $20.0 million Convertible Note due August 11, 2025.

Guidance, Outlook, Risks, and Unusual Items

Going Concern Warning

The Company has concluded there is substantial doubt about its ability to continue as a going concern for the next 12 months. With only $11.0 million in cash and a net loss of $50.2 million in 2024, Xos requires additional capital to fund operations and service its $20 million Convertible Note due in August 2025.

Liquidity and Capital Resources

• SEPA Status: The Standby Equity Purchase Agreement (SEPA) with Yorkville has a remaining commitment of $119.4 million but is currently unavailable until a post-effective amendment to a registration statement is filed and declared effective.
• Cost Cutting: In Q4 2024, the Company reduced its workforce by approximately 26% and senior executives accepted temporary salary reductions of 20% to 50%.

Material Weaknesses in Internal Controls

Management identified material weaknesses in internal controls over financial reporting related to inventory management, revenue recognition, and IT general controls. These weaknesses were attributed to staff turnover and insufficient internal resources. The Company previously restated financial statements for 2022 periods due to inventory errors.

Other Risks

• Supply Chain: Continued disruptions in sourcing lithium-ion battery cells and semiconductors.
• Customer Concentration: Three customers accounted for 34% of total revenue in 2024 (13%, 11%, and 10%).
• Regulatory: Potential changes to U.S. trade policies and tariffs could impact component costs.

Investor Verification Checklist

• Cash Runway: Verify the timeline and probability of accessing the SEPA or securing new financing before the August 2025 Convertible Note maturity.
• Inventory Valuation: Review the $2.3 million in inventory write-downs and the physical inventory count adjustments to assess the quality of remaining inventory assets.
• Internal Controls: Monitor progress on remediation of material weaknesses in inventory and revenue recognition to ensure future financial reporting reliability.
• Customer Concentration: Assess the risk associated with the top three customers representing nearly one-third of revenue.
• Debt Covenants: Review the terms of the $20 million Convertible Note for any potential default triggers or conversion mechanics that could dilute shareholders.