XL Fleet Corp. Form 10-K Summary — Fiscal Year Ended December 31, 2021
Company identification: The supplied filing is for XL Fleet Corp. (NYSE: XL), not Spruce Power Holding Corp. It reports a fiscal year, not a standalone fourth quarter.
Business context and reporting period
XL Fleet provided commercial-fleet electrification systems (“Power Drive”) and energy-efficiency, renewable-energy, and EV-charging services (“XL Grid”). In May 2021, it acquired World Energy Efficiency Services, expanding XL Grid into New England. At year-end, the company reported more than 4,450 systems sold, over 181 million vehicle miles, and more than 245 fleet customers.
Key financial metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $15.6 million | $20.3 million |
| Gross profit (loss) | $(0.7) million | $2.7 million |
| Operating loss | $(58.9) million | $(15.3) million |
| Net income (loss) | $28.8 million | $(60.6) million |
| Cash used in operating activities | $48.5 million | $19.9 million |
| Cash and cash equivalents at year-end | $351.7 million | $329.6 million |
- Revenue fell 23.3%. Power Drive sales declined by $17.5 million amid chassis shortages and the global microchip shortage; World Energy contributed $12.8 million of revenue from 349 projects.
- Gross margin was approximately negative 4.5%, compared with positive 13.5% in 2020. The company cited reduced Power Drive sales, inventory reserves, and higher warranty costs.
- Reported net income included a $90.1 million non-cash gain from a decrease in the fair value of warrant liabilities. Excluding that gain, the company reported a net loss of approximately $61.3 million.
- Working capital was $358.0 million. Year-end debt was approximately $99,000; most prior bank and convertible debt had been repaid or converted in 2020. Operating cash outflow increased as operating expenses and inventory grew.
Material changes versus the prior comparable period
- Power Drive revenue contracted sharply, while World Energy’s acquired XL Grid business partially offset the decline. SG&A increased to $47.4 million from $13.6 million, and R&D rose to $10.8 million from $4.4 million.
- The company acquired World Energy for approximately $12.5 million. It also invested $3.0 million in an eNow convertible note, then fully impaired that investment in 2021.
- Cash increased by $22.0 million, primarily reflecting $85.6 million in proceeds from public warrant exercises, partly offset by operating and investing cash outflows.
Outlook, risks, contingencies, and unusual items
- Management was conducting a strategic review and planned to narrow Power Drive offerings to applications it considered most scalable and profitable, while continuing to develop XL Grid. In February 2022, it eliminated 51 positions, with approximately $1.3 million in severance charges.
- The company expected near-term losses to continue, but stated that available liquidity was sufficient for its current business plan for the next 12 months. It did not provide specific revenue or earnings guidance. Management expected R&D and SG&A to decline in 2022 following the refocus.
- Supply-chain and microchip constraints, limited OEM chassis availability, and Ford’s cancellation of the eQVM program were expected to weigh on 2022 results. Two customers represented 78% of 2021 revenue, creating customer-concentration risk; certain key components also depended on limited or single-source suppliers.
- The company disclosed securities and stockholder lawsuits and an SEC fact-finding investigation seeking information about, among other things, the business combination, sales pipeline, purchase orders, suppliers, CARB approvals, and product fuel economy. The company said it intended to defend the lawsuits and cooperate with the SEC; potential losses were not estimable.
- Management reported material weaknesses in internal controls, including IT access and segregation-of-duties controls and management review controls. Disclosure controls were deemed ineffective, and the auditor issued an adverse opinion on internal control effectiveness. The auditor nevertheless gave an unqualified opinion on the financial statements.
- The CEO changed in December 2021, and the CFO resigned in January 2022. Other notable items included a $965,000 additional warranty accrual for identified product faults and a $2.9 million increase in the inventory obsolescence reserve.
Important facts for investors to verify
- Confirm the issuer identity: this filing is XL Fleet Corp., not Spruce Power Holding Corp.
- Reconcile reported net income with the substantial non-cash warrant fair-value gain and the underlying operating loss and cash burn.
- Track Power Drive performance after the strategic reduction, and assess whether XL Grid can grow profitably and offset lost Power Drive sales.
- Monitor liquidity use, customer concentration, inventory and warranty exposure, and the impact of continued supply constraints.
- Follow remediation and auditor assessment of the material weaknesses, as well as developments in the SEC inquiry and pending litigation.