Xos, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited. Xos manufactures medium- and heavy-duty battery-electric commercial vehicles and offers fleet services. Its business combination with NextGen closed August 20, 2021; the statements reflect Legacy Xos as accounting predecessor.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0.357m | $1.125m | $1.746m | $1.698m |
| Gross margin | $(0.061)m | $(0.036)m | $0.071m | $0.059m |
| Operating expenses | $14.245m | $3.056m | $27.775m | $6.918m |
| Operating loss | $(14.306)m | $(3.092)m | $(27.704)m | $(6.859)m |
| Net income (loss) | $34.896m | $(3.959)m | $11.962m | $(9.041)m |
| Cash used in operations | — | — | $(53.135)m | $(9.849)m |
Q3 gross margin was approximately negative 17%; nine-month gross margin was approximately 4%. Net income was not driven by profitable operations: it included a $48.2m noncash gain from revaluing contingent earn-out shares. Nine-month results also included a $14.1m loss on extinguishing convertible debt and a $6.0m gain from derivative fair-value changes. Adjusted EBITDA was a loss of $14.1m for Q3 and $41.6m for the nine months.
At September 30, cash and cash equivalents were $207.4m, current assets $246.6m, and current liabilities $15.5m. Total liabilities were $89.8m, including $1.0m of equipment loans, $20.0m of warrant liabilities and $53.5m of contingent earn-out liability. The company received approximately $216.7m net cash from the business combination; nine-month financing cash inflow was $253.5m. Investing cash outflow was $3.3m. Inventory increased to $20.8m from $1.9m at year-end 2020.
Changes versus the prior comparable period
- Q3 revenue fell 68%, reflecting fewer sales amid battery-production delays and supply-chain disruption. The company sold three powertrains in Q3 2021, versus six powertrains and two stepvans in Q3 2020.
- Nine-month revenue rose 3%, but operating loss increased to $27.7m from $6.9m as R&D, sales and marketing, and G&A spending expanded.
- Cash rose substantially following the business combination and PIPE financing. Legacy convertible notes were converted into preferred stock and then common stock; equipment loans remained outstanding.
Outlook, risks and notable items
- No specific financial guidance is provided. Management expects significant increases in operating and capital expenditures as it develops products, expands service and sales capabilities, and scales manufacturing.
- Management reported that available cash was sufficient to fund planned operations for at least 12 months from the financial statement issuance date. The filing also says recurring operating losses and cash outflows raise substantial doubt about the company’s ability to continue as a going concern; investors should consider both statements.
- Battery production delays have created a vehicle assembly backlog and reduced sales. Supply risks include battery cells, semiconductors, vehicle bodies and aluminum. Current Flex facilities were tooled for approximately 2,000 vehicles annually in total, subject to supply constraints; planned eventual capacity is up to 10,000 annually across two partner facilities.
- The company began producing its Lyra battery packs, targeting installation on new vehicles beginning in Q4 2021. Management described improved energy density, but future production and delivery execution remain uncertain.
- Principal risks include early-stage losses, unproven high-volume contract manufacturing, customer cancellations, dependence on suppliers and partners, product and battery safety, competition, and access to capital. COVID-19 and inflation may add cost and supply pressure.
- The business combination generated material accounting volatility: the $48.2m earn-out fair-value gain boosted reported earnings, while earn-out and warrant liabilities totaled $73.5m at quarter-end. The company disclosed six shareholder demand letters and a lawsuit concerning merger disclosures; it considered the demands and complaint moot.
- Management concluded disclosure controls were effective and stated that a previously identified material weakness related to warrant accounting had been remediated by September 30, 2021. The company continues developing internal controls for its public-company reporting.
Important facts for investors to verify
- Reconcile the MD&A statement that vehicle sales and Fleet-as-a-Service had generated $2.6m and $2.9m, respectively, with the financial statements’ reported total revenue of $1.746m for the first nine months; the filing text does not clearly explain the periods or basis for these figures.
- Track cash burn, inventory conversion into delivered vehicles, production backlog, and whether the stated 12-month funding runway remains adequate.
- Monitor battery-cell and semiconductor availability, partner manufacturing capacity, Lyra pack ramp-up, and actual vehicle deliveries versus plans.
- Assess the effect of earn-out and warrant liability remeasurements on reported earnings, and distinguish these noncash items from operating performance.
- Review customer order bindingness and cancellation rights, potential dilution from warrants, earn-out shares and equity awards, and any developments in the merger-related litigation.