Twin Vee PowerCats Co. — Q2 2022 Form 10-Q
Business and period: Unaudited results for the quarter and six months ended June 30, 2022, compared with the same 2021 periods. Twin Vee designs and manufactures gas-powered catamaran boats and is developing electric boats through Forza X1; Fix My Boat is developing a marine-mechanic franchise business. The filing reports three operating segments: gas-powered boats, electric boats and development, and franchise.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $8.52 million | $3.30 million | $14.41 million | $6.51 million |
| Gross profit | $3.45 million | $1.32 million | $5.88 million | $2.80 million |
| Gross margin | 41% | 40% | 41% | 43% |
| Operating expenses | $3.92 million | $1.43 million | $7.40 million | $2.77 million |
| Operating income (loss) | ($472,000) | ($117,000) | ($1.52 million) | $38,000 |
| Net income (loss) | ($539,000) | $51,000 | ($1.73 million) | $183,000 |
| Basic and diluted EPS | ($0.08) | $0.01 | ($0.25) | $0.05 |
Q2 sales grew 158% year over year; six-month sales grew 121%. Management attributed growth to stronger demand, higher production, increased selling prices, and reduced discounts and rebates. Q2 boat units sold rose 90% year over year; management reported six-month units sold rose 70%, and average revenue per unit increased about 17%.
Higher spending more than offset sales growth. Six-month operating expenses rose 168%, including higher production payroll, public-company costs, research and design, and depreciation. The electric boat and development segment had no revenue and a six-month loss of $1.11 million; the gas-powered segment recorded a $554,000 six-month loss.
Cash, liquidity, and debt
- At June 30, cash and cash equivalents were $5.91 million and marketable securities were $3.95 million, totaling $9.86 million. Working capital was $8.34 million, down from $10.92 million at year-end 2021.
- Six-month operating cash flow was negative $1.20 million, primarily reflecting a $2.57 million inventory build. Investing activities provided $273,000, including marketable-security sale proceeds, while capital expenditures were $1.81 million. Cash declined $1.06 million to $5.91 million.
- Total liabilities were $5.52 million, including a $499,900 SBA EIDL loan and $1.43 million in operating lease liabilities. EIDL payments of approximately $2,437 per month were scheduled to begin October 2022; the loan bears 3.75% interest and is secured by substantially all company property.
- Management stated that available cash and cash equivalents were expected to fund operations for at least 12 months from the filing date. Cash balances above FDIC limits were $4.85 million at June 30.
Material changes, outlook, and risks
- Production increased from one boat per week after the July 2021 IPO to about 4.75 boats per week; management’s goal was five per week. The company started production of the 260GFX and unveiled the 400GFX in July 2022. It reported adding 20 dealers and 26 locations.
- Management expected operating income for the core gas-powered segment to moderate toward breakeven, while the electric division would continue incurring development losses. The company expected to begin producing and selling its FX1 electric boat in Q2 2023; this is a target, not assured guidance.
- Forza X1 priced an IPO after quarter-end: 3 million shares at $5 each, or $15 million gross proceeds before expenses, with closing scheduled for August 16, 2022, subject to customary conditions. Forza also received conditional approval for a North Carolina grant of up to $1.37 million over 12 years, contingent on investment exceeding $10.5 million and job creation requirements.
- The company reported a $6.92 million maximum dealer-floor-plan repurchase obligation covering 39 units, up from $4.27 million and 24 units at year-end. No repurchases occurred in the six months. Five dealers accounted for 64% of boats sold; separately, three customers represented 46% of six-month sales.
- Management cited supply-chain delays, component availability and cost pressures, inflation and economic uncertainty, dealer financing and concentration, and execution risks for the electric-boat program. The filing notes a prior prototype fire that delayed development by six months.
- Disclosure controls were deemed ineffective because of a material weakness involving insufficient experienced staffing or outside support for GAAP reporting and controls. A full-time controller had been retained and remediation was underway, but the weakness had not been remediated as of June 30.
- The company reported no material litigation and no off-balance-sheet arrangements. Six-month stock-based compensation expense was $527,000. A 2021 insurance recovery boosted the prior-year comparison; 2022 also included a $113,000 fair-value loss on marketable securities.
Important facts for investors to verify
- Whether production can reach the five-boats-per-week target while controlling labor, overhead, and quality costs.
- Whether the FX1 reaches production and market on schedule, and whether Forza’s IPO closed and provides the expected funding.
- Whether Forza satisfies the North Carolina grant’s investment and hiring conditions.
- Dealer inventory, access to floor-plan financing, customer concentration, and potential exposure under the $6.92 million repurchase commitment.
- Progress in remediating the material weakness in internal controls and any subsequent changes to reported financial information.
- Inventory conversion, operating cash use, liquidity, and the effects of supply-chain costs and marketable-security valuations.