Xos(XOS) - 2023 Q3 - Quarterly Report

Part I - Financial Information This part presents Xos's unaudited condensed consolidated financial statements and management's discussion and analysis of its financial condition and results of operations Glossary of Terms This section defines key terms central to Xos's fleet electrification business model, including proprietary offerings and strategic approaches - Energy Services: Infrastructure-as-a-service offering including charging infrastructure deployment, energy procurement and management, and the Xos Hub™ mobile charging unit[17] - Fleet-as-a-Service: Comprehensive suite of products and services facilitating commercial battery-electric fleet operations through proprietary technology and turnkey solutions, including X-Pack battery system, X-Platform modular chassis, Energy Services, service and maintenance, and digital fleet management products[17] - Flex Manufacturing Strategy: Leverages smaller, existing facilities and labor talent through strategic manufacturing partnerships to assemble vehicles, while the Company manages supply chain logistics, quality control, and manufacturing engineering[17] - X-Pack: Proprietary battery system[21] - X-Platform: Proprietary, purpose-built vehicle chassis platform[21] - Xosphere Intelligence Platform: Advanced connected vehicle ecosystem combining proprietary hardware and embedded software with a user platform[21] Item 1. Financial Statements (Unaudited) This section presents Xos's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets This section provides a snapshot of Xos's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $22,570 | $35,631 | $(13,061) | -36.65% | | Total current assets | $91,475 | $163,201 | $(71,726) | -43.95% | | Total assets | $114,185 | $189,936 | $(75,751) | -39.88% | | Total current liabilities | $27,169 | $45,766 | $(18,597) | -40.64% | | Total liabilities | $56,625 | $77,861 | $(21,236) | -27.27% | | Total stockholders' equity | $57,560 | $112,075 | $(54,515) | -48.64% | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines Xos's financial performance over specific periods, detailing revenues, costs, and net loss Condensed Consolidated Statements of Operations and Comprehensive Loss (3 Months Ended Sep 30) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $16,696 | $11,008 | $5,688 | 51.67% | | Cost of goods sold | $14,711 | $21,759 | $(7,048) | -32.39% | | Gross profit (loss) | $1,985 | $(10,751) | $12,736 | -118.46% | | Operating expenses | $14,610 | $20,388 | $(5,778) | -28.34% | | Loss from operations | $(12,625) | $(31,139) | $18,514 | -59.45% | | Net loss | $(14,107) | $(19,962) | $5,855 | -29.33% | | Basic EPS | $(0.08) | $(0.12) | $0.04 | -33.33% | | Diluted EPS | $(0.08) | $(0.13) | $0.05 | -38.46% | Condensed Consolidated Statements of Operations and Comprehensive Loss (9 Months Ended Sep 30) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $26,147 | $27,805 | $(1,658) | -5.96% | | Cost of goods sold | $28,764 | $49,859 | $(21,095) | -42.31% | | Gross loss | $(2,617) | $(22,054) | $19,437 | -88.13% | | Operating expenses | $50,520 | $63,375 | $(12,855) | -20.28% | | Loss from operations | $(53,137) | $(85,429) | $32,292 | -37.79% | | Net loss | $(62,016) | $(53,638) | $(8,378) | 15.62% | | Basic EPS | $(0.36) | $(0.33) | $(0.03) | 9.09% | | Diluted EPS | $(0.36) | $(0.34) | $(0.02) | 5.88% | Condensed Consolidated Statements of Stockholders' Equity This section tracks changes in Xos's equity, including accumulated deficit, over the reporting periods Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Dec 31, 2022 | Sep 30, 2023 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Total Stockholders' Equity | $112,075 | $57,560 | $(54,515) | -48.64% | | Accumulated Deficit | $(77,418) | $(139,434) | $(62,016) | 80.11% | Condensed Consolidated Statements of Cash Flows This section details the sources and uses of Xos's cash across operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(38,655) | $(105,597) | $66,942 | -63.40% | | Net cash provided by investing activities | $50,851 | $75,515 | $(24,664) | -32.66% | | Net cash (used in) provided by financing activities | $(27,509) | $60,376 | $(87,885) | -145.56% | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(15,313) | $30,294 | $(45,607) | -150.55% | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1 — Description of Business This note describes Xos's business as a fleet electrification provider, highlighting operational risks and going concern uncertainty - Xos designs and manufactures Class 5-8 battery-electric commercial vehicles for last-mile, back-to-base routes, offering charging infrastructure through Xos Energy Solutions™ and proprietary fleet management software, Xosphere™[36] - The Company faces significant risks from uncertain global economic conditions, geopolitical events (e.g., Russia-Ukraine and Israel conflicts), and supply chain disruptions, which could materially negatively impact its business, operating results, cash flows, liquidity, and financial condition[38][40] - As an early-stage growth company, Xos continues to incur net losses and cash outflows, leading to substantial doubt about its ability to continue as a going concern for the next 12 months and a critical need to raise additional capital[43][47] - Supply chain disruptions persist, impacting the sourcing of critical inventory items such as Power Electronics, Harnesses, battery cells, vehicle bodies, and aluminum, despite efforts to find alternative solutions and sources[48] Note 2 — Basis of Presentation and Summary of Significant Accounting Policies This note details the financial statement presentation, key accounting policies, and significant concentrations of risk Warranty Liability (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Warranty liability | $1,330 | $1,099 | $231 | 21.02% | - Customer Concentration (9 Months Ended Sep 30, 2023): Three customers accounted for 45%, 18%, and 12% of revenues For the three months ended September 30, 2023, one customer accounted for 70% of revenues[62] - Supply Risk: The Company is highly dependent on single-source suppliers, and any inability of these suppliers to deliver components on schedule, at acceptable prices, or quality levels could materially adversely affect operations and financial condition[64] - Adoption of ASU 2016-13: The Company adopted ASU 2016-13, Financial Instruments — Credit Losses, on January 1, 2023, using the modified retrospective approach, which had no material impact on its financial statements[65][66] Note 3 — Revenue Recognition This note disaggregates Xos's revenues by major source, primarily product and service offerings Revenue by Source (3 Months Ended Sep 30, in thousands) | Revenue Source (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :---------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Stepvans & vehicle incentives | $15,774 | $9,952 | $5,822 | 58.50% | | Powertrains | $220 | $382 | $(162) | -42.41% | | Fleet-as-a-Service | $129 | $285 | $(156) | -54.74% | | Total product revenue | $16,123 | $10,619 | $5,504 | 51.83% | | Ancillary revenue | $573 | $389 | $184 | 47.30% | | Total revenues | $16,696 | $11,008 | $5,688 | 51.67% | Revenue by Source (9 Months Ended Sep 30, in thousands) | Revenue Source (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :---------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Stepvans & vehicle incentives | $24,323 | $25,376 | $(1,053) | -4.15% | | Powertrains | $448 | $1,052 | $(604) | -57.41% | | Fleet-as-a-Service | $422 | $418 | $4 | 0.96% | | Total product revenue | $25,193 | $26,846 | $(1,653) | -6.16% | | Ancillary revenue | $954 | $959 | $(5) | -0.52% | | Total revenues | $26,147 | $27,805 | $(1,658) | -5.96% | Note 4 — Inventories This note provides a breakdown of Xos's inventory types and their changes over the reporting period Inventories (in thousands) | Inventory Type (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :---------------------------- | :----------- | :----------- | :--------- | :--------- | | Raw materials | $39,618 | $40,271 | $(653) | -1.62% | | Work in process | $2,894 | $4,618 | $(1,724) | -37.33% | | Finished goods | $6,391 | $12,651 | $(6,260) | -49.48% | | Total Inventories | $48,903 | $57,540 | $(8,637) | -15.01% | Note 5 — Selected Balance Sheet Data This note presents a detailed breakdown of selected prepaid expenses, other current assets, and liabilities Selected Balance Sheet Data (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Total prepaid expenses and other current assets | $7,827 | $8,100 | $(273) | -3.37% | | Total other current liabilities | $16,785 | $15,616 | $1,169 | 7.49% | | Customer deposits | $2,682 | $721 | $1,961 | 271.98% | | Total other non-current liabilities | $8,907 | $11,000 | $(2,093) | -19.03% | Note 6 — Earn-out Shares Liability This note details the fair value and changes in Xos's contingent earn-out shares liability Earn-out Shares Liability (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Fair value of Earn-out Shares liability | $115 | $564 | $(449) | -79.61% | Gain on Change in Fair Value of Earn-out Shares Liability (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gain on change in fair value of Earn-out Shares liability | $443 | $24,148 | $(23,705) | -98.12% | Note 7 — Convertible Notes This note describes Xos's convertible debt instruments, including principal balances and derivative liabilities - Convertible Debentures with Yorkville: Principal amount up to $35 million, bearing 6% annual interest (increasing to 7.5% or 10% under certain conditions), with a maturity date extended to February 11, 2024 Conversion price is the lower of $2.4733 or 97% of the lowest daily VWAP (not below $0.59 as of Sep 30, 2023)[79][80] - Prepayments on Convertible Debentures: During the nine months ended September 30, 2023, the Company made prepayments totaling $23.8 million in principal, $1.2 million in redemption premiums, and $1.4 million in accrued interest, triggered by the daily VWAP falling below the Floor Price[84] Convertible Notes and Derivative Liabilities (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Derivative liabilities on Convertible Debentures | $14 | $405 | $(391) | -96.54% | | Convertible Debentures outstanding principal (net) | $9,000 | $33,000 | $(24,000) | -72.73% | | Convertible Promissory Note outstanding principal (net) | $20,000 | $20,000 | $0 | 0.00% | Gain on Change in Fair Value of Derivative Liabilities (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gain on change in fair value of derivative liabilities | $525 | $9,125 | $(8,600) | -94.25% | Note 8 — Investments This note details Xos's marketable debt securities, showing a significant decrease in holdings Marketable Debt Securities (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Marketable debt securities, available-for-sale | $0 | $50,648 | $(50,648) | -100.00% | Note 9 — Equity This note outlines Xos's equity structure, Nasdaq compliance status, and Standby Equity Purchase Agreement - Nasdaq Listing Deficiency: The Company received a deficiency letter on December 28, 2022, for failing to meet the $1.00 minimum bid price requirement It was granted an additional 180-calendar day grace period until December 26, 2023, to regain compliance and plans to implement a reverse stock split[110][113] SEPA Remaining Commitment (in millions) | Metric (in millions) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :------------------- | :----------- | :----------- | :--------- | :--------- | | SEPA remaining commitment | $119.5 | $120.7 | $(1.2) | -0.99% | Note 10 — Derivative Instruments This note details Xos's outstanding warrants and embedded derivative liabilities, including their fair values Derivative Instruments (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Public Warrants (fair value) | $522 | $654 | $(132) | -20.18% | | Private Placement Warrants (fair value) | $5 | $7 | $(2) | -28.57% | | Derivative Liabilities (fair value) | $14 | $405 | $(391) | -96.54% | - Public Warrants: 18,633,301 outstanding with an exercise price of $11.50 per share, expiring on August 20, 2026 Redeemable by the Company under certain conditions[121][122] - Private Placement Warrants: 199,997 outstanding, identical to Public Warrants but non-transferable/assignable until September 19, 2021, and non-redeemable if held by initial purchasers[121][123] Note 11 — Share-Based Compensation This note describes Xos's share-based compensation plans and related expenses Total Stock-Based Compensation Expense (3 Months Ended Sep 30, in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total stock-based compensation expense | $2,242 | $1,281 | $961 | 75.02% | Total Stock-Based Compensation Expense (9 Months Ended Sep 30, in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total stock-based compensation expense | $6,308 | $3,751 | $2,557 | 68.17% | - As of September 30, 2023, there were 697,388 options outstanding under the 2018 Stock Plan and 6,739,555 shares available for issuance under the 2021 Equity Plan[132][138] Note 12 — Property and Equipment, net This note details the net value of Xos's property and equipment, including depreciation Property and Equipment, Net (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Property and equipment, net | $15,541 | $18,581 | $(3,040) | -16.36% | | Accumulated depreciation | $(6,978) | $(4,471) | $(2,507) | 56.07% | Note 13 — Commitments and Contingencies This note confirms the absence of material legal proceedings or significant commitments for Xos - No material legal proceedings: The Company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[142] Note 14 — Related Party Transactions This note details Xos's lease agreements and rent expenses with related parties Rent Expense (3 Months Ended Sep 30, in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Rent expense (Valley Industrial Properties) | $0 | $35 | $(35) | -100.00% | | Rent expense (Fitzgerald Manufacturing Partners) | $200 | $200 | $0 | 0.00% | Rent Expense (9 Months Ended Sep 30, in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Rent expense (Valley Industrial Properties) | $0 | $106 | $(106) | -100.00% | | Rent expense (Fitzgerald Manufacturing Partners) | $500 | $500 | $0 | 0.00% | Note 15 — Income Taxes This note outlines Xos's income tax provision and the valuation allowance against deferred tax assets Provision for Income Taxes (3 Months Ended Sep 30, in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Provision for income taxes | $3 | $0 | $3 | 100.00% | Provision for Income Taxes (9 Months Ended Sep 30, in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Provision for income taxes | $7 | $3 | $4 | 133.33% | - Valuation Allowance: The Company has provided a full valuation allowance against its net deferred tax assets as of September 30, 2023, and December 31, 2022, due to the unlikelihood of their realization[149] Note 16 — Net Loss per Share This note presents Xos's basic and diluted net loss per share, including anti-dilutive share exclusions Net Loss per Share (3 Months Ended Sep 30) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change | Change (%) | | :----- | :-------------------------- | :-------------------------- | :----- | :--------- | | Basic Net Loss per Share | $(0.08) | $(0.12) | $0.04 | -33.33% | | Diluted Net Loss per Share | $(0.08) | $(0.13) | $0.05 | -38.46% | Net Loss per Share (9 Months Ended Sep 30) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | Change (%) | | :----- | :-------------------------- | :-------------------------- | :----- | :--------- | | Basic Net Loss per Share | $(0.36) | $(0.33) | $(0.03)| 9.09% | | Diluted Net Loss per Share | $(0.36) | $(0.34) | $(0.02)| 5.88% | - Anti-dilutive Shares: Potential shares from contingent earn-out shares (16.4 million), warrants (18.8 million), restricted stock units (19.3 million), stock options (0.7 million), and convertible debt (59.1 million for Q3 2023, 71.0 million for 9M 2023) were excluded from diluted EPS calculations because their effect was anti-dilutive[152] Note 17 — Fair Value Measurements This note categorizes Xos's financial instruments by fair value hierarchy, focusing on Level 3 liabilities Level 3 Financial Liabilities (in thousands) | Level 3 Financial Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :------------------------------------------- | :----------- | :----------- | :--------- | :--------- | | Derivative Liabilities | $14 | $405 | $(391) | -96.54% | | Contingent Earn-out Shares liability | $115 | $564 | $(449) | -79.61% | - Fair Value Hierarchy: Financial instruments are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs) Derivative financial instruments and earn-out shares liability are measured using Level 3 inputs[156][155] - Significant Unobservable Inputs for Level 3 Liabilities (Sep 30, 2023): Stock price ($0.34), stock price volatility (80%), expected term (2.89 years for earn-out, 0.37 years for derivatives), and risk-free interest rate (4.8% for earn-out, 5.4% for derivatives)[161] Note 18 — Subsequent Events This note discloses Xos's convertible debenture prepayments made after the reporting period - Convertible Debentures Prepayments: The Company made prepayments of $3.2 million on October 4, 2023, and $3.2 million on November 6, 2023, to Yorkville, as the daily VWAP of its Common Stock fell below the Floor Price[162] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Xos's financial performance, liquidity, and operational challenges Overview This section provides an overview of Xos's business model, manufacturing strategy, and recent operational changes - Xos designs and manufactures Class 5-8 battery-electric commercial vehicles for last-mile routes, offering charging infrastructure (Xos Energy Solutions™) and fleet management software (Xosphere™) to provide a comprehensive 'Fleet-as-a-Service' offering[164][170] Vehicles and Powertrains Delivered (9 Months Ended Sep 30) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | Change (%) | | :----- | :-------------------------- | :-------------------------- | :----- | :--------- | | Vehicles delivered (including leases) | 171 | 211 | -40 | -18.96% | | Powertrains delivered | 3 | 6 | -3 | -50.00% | Vehicles and Powertrains Delivered (3 Months Ended Sep 30) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change | Change (%) | | :----- | :-------------------------- | :-------------------------- | :----- | :--------- | | Vehicles delivered | 104 | 84 | 20 | 23.81% | | Powertrains delivered | 1 | 4 | -3 | -75.00% | - Flex Manufacturing Strategy: The Company utilizes a capital-efficient Flex manufacturing strategy, leveraging strategic partners' existing facilities (e.g., Fitzgerald Manufacturing Partners, LLC) to assemble products, with a designed capacity of 5,000 vehicles per year[173] - Workforce Reduction: In October 2023, Xos conducted a reduction in force, cutting approximately 17% of its employees to reduce costs, streamline its organizational structure, and focus on key strategic initiatives and unit deliveries[176] Key Factors Affecting Operating Results This section discusses critical factors impacting Xos's operating results, including commercialization, capital needs, and supply chain issues - Successful Commercialization: Future revenue depends on sales of vehicles, battery systems, and Fleet-as-a-Service, requiring substantial additional capital for development and commercialization[178] - Supply Chain Disruptions: Ongoing global economic conditions and the COVID-19 pandemic continue to impact the procurement of critical inventory items, including semiconductor chips, battery cells, vehicle bodies, and aluminum, leading to increased lead times and supply limitations[181] - Mitigation Efforts: The Company's supply chain team is actively working with vendors to find alternative sources and placing orders in advance to mitigate disruptions, but uncertainty remains regarding timely inventory delivery for production plans[181] Components of Results of Operations This section defines Xos's revenue, cost of goods sold, and operating expense components, along with future outlook - Revenue Sources: Primarily from sales of electric step vans, stripped chassis vehicles, and battery systems, with expected expansion into chassis cabs and tractors, alongside service offerings like Fleet-as-a-Service, Xos Energy Solutions™, and Xosphere™[186] - Cost of Goods Sold: Includes direct materials, direct labor, manufacturing overhead, and reserves for warranty expenses and inventory write-downs Efforts are underway to find more cost-effective vendors[188][189][190] - Operating Expenses Outlook: General and administrative (G&A), research and development (R&D), and sales and marketing (S&M) expenses are all expected to decrease in the foreseeable future, primarily due to lower headcount resulting from the recent workforce reduction[192][193][194] Results of Operations This section analyzes Xos's financial performance, detailing revenue, gross profit, operating expenses, and net loss trends Results of Operations (3 Months Ended Sep 30, in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $16,696 | $11,008 | $5,688 | 52% | | Cost of goods sold | $14,711 | $21,759 | $(7,048) | -32% | | Gross profit (loss) | $1,985 | $(10,751) | $12,736 | -118% | | Total operating expenses | $14,610 | $20,388 | $(5,778) | -28% | | Loss from operations | $(12,625) | $(31,139) | $18,514 | -59% | | Net Loss | $(14,107) | $(19,962) | $5,855 | -29% | Results of Operations (9 Months Ended Sep 30, in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Revenues | $26,147 | $27,805 | $(1,658) | -6% | | Cost of goods sold | $28,764 | $49,859 | $(21,095) | -42% | | Gross loss | $(2,617) | $(22,054) | $19,437 | -88% | | Total operating expenses | $50,520 | $63,375 | $(12,855) | -20% | | Loss from operations | $(53,137) | $(85,429) | $32,292 | -38% | | Net Loss | $(62,016) | $(53,638) | $(8,378) | 16% | - Revenue Drivers: Q3 2023 revenue increase was primarily due to higher unit sales (104 stepvans vs 84 in Q3 2022) and an increase in average selling price 9M 2023 revenue decrease was due to lower unit sales (171 stepvans vs 211 in 9M 2022), partially offset by higher average selling price[200][201] - Operating Expense Reductions: General and administrative, research and development, and sales and marketing expenses all decreased significantly in both the three and nine months ended September 30, 2023, primarily due to lower headcount and personnel costs, as well as reduced professional fees and consulting costs[205][206][207][209][210][211] Liquidity and Capital Resources This section discusses Xos's cash position, capital access, going concern uncertainty, and cash flow trends - Liquidity Sources: As of September 30, 2023, principal liquidity sources were $22.6 million in cash and cash equivalents and access to capital under the Standby Equity Purchase Agreement (SEPA)[219] - Going Concern Uncertainty: Substantial doubt exists about the Company's ability to continue as a going concern for the next 12 months due to incurred net losses and cash outflows, requiring additional capital to fund and scale operations[220][221] Cash Flow Activity (9 Months Ended Sep 30, in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(38,655) | $(105,597) | $66,942 | -63.40% | | Net cash provided by investing activities | $50,851 | $75,515 | $(24,664) | -32.66% | | Net cash (used in) provided by financing activities | $(27,509) | $60,376 | $(87,885) | -145.56% | - Financing Activities: Net cash used in financing activities for 9M 2023 was $(27.5) million, primarily due to $25.0 million in payments for convertible notes (including prepayment premium), a significant shift from $60.4 million provided in 9M 2022[232][233] Contractual Obligations and Commitments This section confirms no material contractual obligations beyond previously disclosed information Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements for Xos Critical Accounting Policies and Estimates This section states no material changes to Xos's critical accounting policies and estimates Recent Accounting Pronouncements This section refers to Note 2 for details on recent accounting pronouncements Internal Control Over Financial Reporting This section details the remediation of a material weakness in Xos's internal controls and management's effectiveness conclusion - Material Weakness Remediation: The material weakness in internal controls related to inventory management, identified in the 2022 Form 10-K, was remediated as of June 30, 2023 Remediation efforts included adding controls, implementing new software, and partnering with external consultants[240][241] - Effectiveness Conclusion: Management concluded that its internal control over financial reporting was effective as of September 30, 2023[241] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Xos's exposure to market risks, specifically interest rate and inflation risks Interest Rate Risk This section details Xos's interest rate risk management, focusing on its investment portfolio and liquidity objectives - Investment Portfolio: The Company maintains a portfolio of fixed and variable rate debt securities, including corporate debt and asset-backed securities, but had $0.0 million in marketable debt securities available-for-sale as of September 30, 2023[245] - Risk Management: The primary objective is to maintain principal safety and future liquidity The Company does not use derivatives to manage interest rate risk and invests in highly-rated debt securities[245] Inflation Risk This section addresses the impact of inflation on Xos's costs and the potential adverse effects if not mitigated - Inflation Impact: Inflation increases the cost of goods and services The Company's inability to fully offset these higher costs through price increases or mitigation strategies could harm its business, financial condition, and results of operations[246] Item 4. Controls and Procedures This section outlines Xos's disclosure controls and internal control over financial reporting, including remediation efforts Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of Xos's disclosure controls and procedures, including remediated weaknesses - Effectiveness: As of September 30, 2023, the Company's disclosure controls and procedures were deemed effective at the reasonable assurance level, including the remediated controls for inventory management[249] Management's Annual Report on Internal Controls over Financial Reporting This section states management's conclusion on the effectiveness of Xos's internal control over financial reporting - Effectiveness: Management concluded that the Company's internal controls over financial reporting were effective as of September 30, 2023, based on the COSO 2013 framework[251] Material Weaknesses in Internal Controls Over Financial Reporting This section acknowledges a previously identified material weakness while affirming financial statement reliability - Identified Weakness: A material weakness in internal controls related to the ineffective operation of controls related to inventory management was previously identified[253] - Financial Statement Reliability: Notwithstanding the material weakness, management concluded that the unaudited condensed consolidated financial statements are fairly stated in all material respects[254] Remediation of Material Weakness in Internal Control Over Financial Reporting This section details the successful remediation of Xos's material weakness in inventory management controls - Remediation Actions: Remediation steps included adding additional internal controls over the inventory process, implementing new software tools for automated controls, and partnering with external consultants specializing in public company control compliance[255][256] - Completion: The material weakness was remediated as of June 30, 2023, following testing of the effectiveness of the remediated controls[257] Changes in Internal Control over Financial Reporting This section confirms no material changes in Xos's internal control over financial reporting during the period Part II - Other Information This part provides additional information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section confirms that Xos is not involved in any material legal proceedings - No Material Legal Proceedings: The Company is not a party to any legal proceedings that, individually or in aggregate, are reasonably expected to have a material adverse effect on its business, financial condition, or results of operations[260] Item 1A. Risk Factors This section highlights the substantial doubt about Xos's going concern ability due to capital needs and market conditions - Going Concern Doubt: There is substantial doubt about the Company's ability to continue as a going concern for the next 12 months due to ongoing capital requirements for operations and development programs[262][266] - Capital Access Risks: The ability to access additional capital is not assured and depends on factors like trading volumes and market price of Common Stock (for SEPA), with potential for dilutive equity financing or restrictive debt covenants Global economic and geopolitical conditions could further hinder fundraising efforts[262][263] - Consequences of Insufficient Capital: Failure to raise needed capital could force delays, scaling back, or abandonment of operations and development programs, materially harming the business and potentially leading to liquidation or bankruptcy[265][266] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section details Xos's unregistered common stock sales under SEPA and the use of proceeds - Unregistered Sales: During Q3 2023, the Company issued 1,176,844 shares of common stock under the SEPA, generating $0.3 million in cash proceeds[267] - Exemption and Use of Proceeds: The issuance relied on the Section 4(a)(2) exemption from registration under the Securities Act, with proceeds designated for working capital and general corporate purposes[268] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities for Xos during the period Item 4. Mine Safety Disclosures This item is not applicable to Xos's business operations Item 5. Other Information This section states that no other information is reported for this item Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q Signatures This section provides the official signatures for the report