XL Fleet Corp. — Q1 2021 Form 10-Q
Company identity: The request metadata names Spruce Power Holding Corp., but the filing is for XL Fleet Corp. Investors should verify the intended issuer. The filing covers the unaudited quarter ended March 31, 2021; financial statement amounts below are in U.S. dollars unless noted.
Business context and reporting period
XL Fleet provides electrification solutions for commercial vehicle fleets, primarily hybrid and plug-in hybrid powertrain systems. It reported more than 4,300 systems sold, over 150 million miles driven, and more than 200 fleets served as of quarter-end. The company completed its business combination in December 2020 and was operating as a public company during this quarter.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior period |
|---|---|---|
| Revenue | $0.675 million | $1.232 million |
| Gross profit (loss) | $(0.716) million; gross margin approximately (106%) | $(0.052) million; gross margin approximately (4%) |
| Operating expenses | $9.370 million | $3.505 million |
| Operating loss | $(10.086) million | $(3.557) million |
| Net income (loss) | $61.914 million | $(6.454) million |
| Operating cash flow | $(9.962) million | $(4.511) million |
| Investing cash flow | $(1.104) million | $(0.094) million |
| Financing cash flow | $85.557 million | $8.134 million |
At March 31, cash and cash equivalents were $404.1 million; current assets were $420.4 million and current liabilities $11.0 million, yielding working capital of $409.4 million. Total assets were $427.5 million and total liabilities $42.9 million. Reported debt was approximately $0.168 million, excluding lease liabilities. Lease liabilities totaled approximately $4.2 million. The company also reported $23.5 million of warrant liabilities.
Material changes versus the prior comparable period
- Revenue declined 45%, which management attributed mainly to OEM vehicle supply interruptions associated with the global microchip shortage, as well as delayed customer purchases amid municipal budget constraints.
- Gross loss widened to $0.716 million, reflecting lower sales, obsolete and slow-moving inventory charges, and fixed production labor costs.
- Research and development expense rose 39% to $1.412 million. Selling, general and administrative expense rose 220% to $7.958 million, driven by public-company costs, increased staffing and infrastructure.
- Net income swung from a loss to a profit, but the $61.9 million profit primarily reflected a noncash $72.0 million gain from remeasuring warrant liabilities. Operating loss and operating cash use both increased.
- Cash increased by $74.5 million, substantially due to $85.6 million of proceeds from public warrant exercises. Those exercises also increased shares outstanding.
Outlook, risks, contingencies and unusual items
- Management expects near-term net losses as it invests in production scale, sales and channel teams, and product and service expansion. It stated that, based on current liquidity, it expects no additional capital will be needed to execute its current business plan over the next 12 months. No numerical revenue or earnings guidance was provided.
- Management expects the microchip shortage and COVID-19-related OEM or supplier disruptions to adversely affect 2021 results. It also cited risks from customer demand, municipal budgets, component sourcing, product development and its ability to scale.
- Two putative securities class actions filed in March 2021 allege violations relating to public statements. The company disputes the allegations and intends to defend the cases; potential losses could not be estimated.
- Disclosure controls were deemed ineffective as of March 31, 2021. The company reported a material weakness related to accounting for warrants and restated previously issued 2020 financial statements following its warrant accounting reassessment.
- Warrant fair-value changes can produce material noncash earnings volatility. The quarter’s large warrant gain should not be treated as operating profit or cash generation.
- Subsequent to quarter-end, on May 17, 2021, XL Fleet acquired World Energy Efficiency Services for $8.0 million cash and shares valued at $7.0 million, subject to adjustments and a possible earn-out. The filing also disclosed a $4.1 million commitment to purchase six electric buses and a three-year sponsorship costing approximately $0.5 million annually.
- Customer concentration is notable: three customers represented approximately 79% of Q1 revenue, and one customer represented approximately 80% of receivables at quarter-end.
Most important facts for investors to verify
- Confirm that XL Fleet, rather than Spruce Power Holding Corp., is the intended issuer.
- Review the warrant-liability accounting, restatement, and remediation of the material weakness; distinguish the noncash fair-value gain from operating performance.
- Track vehicle and component availability, customer order timing, and whether revenue recovers after the reported supply and municipal-budget disruptions.
- Assess cash burn, planned investments, and the effect of warrant exercises and other potential dilution on share count.
- Follow the securities litigation and the World Energy acquisition, including integration, customer concentration, and earn-out terms.