Xos, Inc. annual report, FY2022

Xos, Inc. — FY2022 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. This is an annual report, not a standalone Q4 report. Xos designs and manufactures medium- and heavy-duty electric commercial vehicles and also offers powertrains, charging infrastructure, fleet software and related services.

Key financial results

Metric	FY2022	FY2021
Revenue	$36.4 million	$5.0 million
Gross loss	$30.0 million	$2.4 million
Gross margin	Approximately -82.5%	Approximately -46.8%
Operating expenses	$81.3 million	$50.8 million
Loss from operations	$111.3 million	$53.2 million
Net income (loss)	$(73.3) million	$23.4 million
Net cash used in operating activities	$(128.0) million	$(88.9) million

Revenue comprised $31.8 million from stepvans and vehicle incentives, $2.2 million from powertrains, $0.6 million from Fleet-as-a-Service and $1.7 million of ancillary revenue. Xos reported 275 deliveries (257 stepvans and 18 powertrains), versus 44 units in FY2021. One customer represented 42% of FY2022 revenue.

Gross loss included $5.7 million of inventory reserves/write-downs and $7.9 million of unfavorable physical-inventory and other adjustments. The net loss reflected substantial noncash gains from fair-value changes: $28.7 million on contingent earn-out shares and $14.2 million on derivative instruments. These gains reduced the reported net loss but did not eliminate the operating loss.

Liquidity, debt and balance sheet

• At December 31, 2022, cash and cash equivalents were $35.6 million, restricted cash was $3.0 million, and short-term available-for-sale debt securities were $50.6 million. Management cited $86.3 million of cash and investments, excluding restricted cash, as principal liquidity.
• Total assets were $189.9 million; total liabilities were $77.9 million; stockholders’ equity was $112.1 million. Inventory was $57.5 million, up from $30.9 million a year earlier.
• The filing states total indebtedness of approximately $56.2 million, including convertible notes, equipment notes, finance leases and insurance financing. Yorkville convertible debentures had $33.0 million principal outstanding and Aljomaih’s convertible note had $20.0 million outstanding at year-end.
• Operating cash outflow increased to $128.0 million. Financing provided $64.7 million, principally from convertible debt, equipment financing and SEPA share sales. Investing activities provided $82.7 million, largely because of net sales and maturities of marketable securities; capital expenditures were $14.1 million.
• Management said existing cash resources were sufficient for planned operations for the next 12 months, subject to execution of cost, pricing and manufacturing initiatives and access to financing. The $120.7 million remaining SEPA commitment was subject to restrictions, including Nasdaq share-issuance limits and Yorkville consent provisions.

Material changes, outlook and significant items

• Revenue grew sharply with increased stepvan deliveries, but gross loss and operating loss widened as production and operating costs rose. The company attributed lower-than-anticipated delivery performance to battery-production delays and an assembly-line backlog.
• Management’s stated operational focus was achieving positive unit-level gross margins by mid-2023 through price increases, operational optimization, lower direct material costs and delivery scale. This is a target, not a guarantee.
• Xos launched its Class 7–8 heavy-duty chassis in May 2022. It expected Xos Hub mobile charging production to begin scaling in Q3 2023 and introduced a next-generation 2023 Stepvan intended to reduce unit costs and improve total cost of ownership.
• Management expected operating and capital expenditures to remain significant, while also stating that G&A, R&D and sales and marketing expenses were expected to decrease following workforce reductions. The filing provides no quantified forward revenue or earnings guidance.
• After year-end, Xos made Yorkville debenture prepayments of $3.7 million and $3.2 million in January 2023 and received notice of a further $3.5 million payment due March 31, 2023. Further monthly prepayments could be required under the debenture terms.
• Xos restated its unaudited financial statements for Q1, Q2 and Q3 2022 due to inventory-count and inventory-recording errors. Management identified a material weakness in inventory-management controls and concluded disclosure controls and internal control over financial reporting were ineffective at year-end; remediation was underway. The auditor’s opinion on the FY2022 financial statements was unqualified, but the auditor did not audit or opine on internal-control effectiveness.
• Nasdaq notified Xos in December 2022 that its share price had failed the $1 minimum bid-price requirement. The filing stated a compliance deadline of June 26, 2023 and noted that a reverse stock split could be considered.
• Key risks include continued cash burn and financing needs; customer and supplier concentration; battery-cell, semiconductor and other supply constraints; charging-infrastructure delays; unproven high-volume manufacturing; product warranty, recall and battery-safety exposure; and dependence on government incentives and regulatory approvals. The filing also reports that no material legal proceedings were pending at year-end.

Most important facts for investors to verify

• Subsequent cash, debt and prepayment developments, including the effect of Yorkville’s monthly payment provisions and the practical availability of SEPA funding.
• Whether the company delivered on its mid-2023 unit gross-margin target, improved gross margins and reduced inventory write-downs and unfavorable adjustments.
• Production capacity, battery supply, customer delivery timing and conversion of customer commitments into completed sales; check dependence on the customer contributing 42% of FY2022 revenue.
• Progress in remediating the inventory-control material weakness and any further restatements or reporting issues.
• Nasdaq listing compliance and any dilution from convertible-debt conversions, SEPA issuances or other equity financing.