Xos(XOS) - 2023 Q4 - Annual Report

FORM 10-K General Information Essential identification details for XOS, Inc., covering incorporation, offices, Nasdaq listings, and filing status Registrant Information This section provides essential identification details for XOS, Inc., including its incorporation state, principal executive offices, and securities listed on the Nasdaq Capital Market. It also confirms the company's filing status as a non-accelerated filer, smaller reporting company, and emerging growth company Registrant Details | Detail | Value | | :--- | :--- | | Exact Name | XOS, INC. | | Jurisdiction of Incorporation | Delaware | | Principal Executive Offices | 3550 Tyburn Street, Los Angeles, CA 90065 | | Telephone Number | (818) 316-1890 | | Common Stock Trading Symbol | XOS | | Warrants Trading Symbol | XOSWW | | Exchange Registered | Nasdaq Capital Market | | Well-known seasoned issuer | No | | Required to file reports | Yes | | Filed all required reports (past 12 months) | Yes | | Submitted Interactive Data File (past 12 months) | Yes | | Filer Status | Non-accelerated filer, Smaller reporting company, Emerging growth company | | Common Stock Outstanding (as of March 26, 2024) | Approximately 7,750,258 shares | | Market Value of Non-Affiliate Common Stock (June 30, 2023) | Approximately $14,476,000 | Documents Incorporated by Reference Portions of the registrant's definitive proxy statement for the 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K - Portions of the 2024 Annual Meeting of Stockholders' definitive proxy statement will be incorporated by reference into Part III of this Form 10-K, to be filed within 120 days of December 31, 2023[10] PART I Glossary of Terms This section provides definitions for key terms and acronyms used throughout the Annual Report on Form 10-K, ensuring clarity and consistent understanding of the company's business, products, and corporate transactions - Key terms defined include 'Business Combination', 'Class 5 to 8 Vehicles', 'Fleet-as-a-Service', 'Xos Energy Solutions', 'X-Pack' (proprietary battery system), 'X-Platform' (proprietary chassis), and 'Xosphere' (fleet management platform)[16][17] Cautionary Note Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements, which are based on current expectations and projections and are subject to known and unknown risks, uncertainties, and assumptions - Forward-looking statements are identified by terms such as 'anticipate,' 'believe,' 'expect,' 'plan,' 'will,' and similar expressions[19] - Key factors that could cause actual results to differ include the impact of the ElectraMeccanica acquisition, ability to commercialize Fleet-as-a-Service, delays in product deployment, market share growth, strategic relationships, changes in business/market conditions, regulatory changes, legal proceedings, financial performance, internal control effectiveness, growth management, profitability, capital access, brand maintenance, supply chain issues, and global economic/political conditions[20][24] Summary of Risks This section provides a concise overview of the principal risks facing the company, emphasizing that these are not exhaustive and investors should review the full 'Risk Factors' section - Principal risks include: limited operating history, unproven novel offerings (Xos Energy Services™, Xosphere™), history of losses, negative operating cash flow, significant capital requirements, substantial debt, delays in product design/manufacturing/deployment, unproven large-scale manufacturing, dependence on suppliers (some single-source), lithium-ion battery safety concerns, and macroeconomic impacts[27][28] - The company previously restated financial statements and identified material weaknesses in internal control over financial reporting, which could affect investor confidence and future capital raising[27] - The acquisition of ElectraMeccanica may not realize expected opportunities and could lead to contractual modifications or litigation[28] Item 1. Business Xos, Inc. provides fleet electrification solutions, including Class 5-8 battery-electric vehicles, charging, and software, recently acquiring ElectraMeccanica to boost capital and growth Overview - Xos, Inc. is a leading fleet electrification solutions provider focused on decarbonizing commercial transportation[29] - The company designs and manufactures Class 5-8 battery-electric commercial vehicles for last-mile, back-to-base routes up to 200 miles per day[29] - Xos offers charging infrastructure (Xos Energy Solutions™) and proprietary fleet management software (Xosphere™) to support electric vehicle fleets[29] - On March 26, 2024, Xos completed the acquisition of ElectraMeccanica Vehicles Corp., receiving 1,766,388 shares of Common Stock as total consideration[30] Our Products & Services - Xos manufactures Class 5-6 Medium Duty Rolling Chassis (MD X-Platform) with multiple body options for parcel delivery, linen, food & beverage, and armored trucks[32][34][35] - The Class 7-8 Heavy Duty Chassis (HD X-Platform) was launched in May 2022, intended for regional haul fleets with box trucks, refrigerated units, and flatbeds[36] - Powered by Xos™ provides mix-use powertrain solutions for off-highway, industrial, and specialty vehicles, supporting manufacturers like Winnebago and Blue Bird Bus[38][53] - Xos Energy Solutions™ offers mobile and stationary multi-application chargers, mobile energy storage (Xos Hub™), and turnkey energy infrastructure services, including a next-gen Xos Hub™ with 280kWh storage and up to 160kW charging rates[39][40] - Xosphere™ is a fleet management platform integrating vehicle, maintenance, charging, and service data to minimize electric fleet Total Cost of Ownership (TCO) through real-time telematics, charging cost reduction, energy optimization, and maintenance management[41] Technology Supporting Our Products & Services - The X-Pack (proprietary battery system) and X-Platform (proprietary chassis) are modular, allowing customization for vehicle body and battery range to meet specific commercial use cases and provide up to 200 miles of range[42][43][44][45] - Vehicle control software integrates third-party software with proprietary powertrain controls, body controls, instrument cluster, infotainment, and Xosphere™ software, including ADAS and OTA update capabilities[47][52] - Xos Energy Solutions™ offers DC Fast Chargers (60kW and 120kW) and the mobile Xos Hub™ for rapid deployment, capable of simultaneously charging up to four EVs[48][49] Sales & Marketing - Sales efforts include direct sales representatives educating fleets on zero-tailpipe emission commercial vehicles and Xos products/services[50] - Xos partners with select distributors and dealers in key markets to supplement direct sales, offering access to skilled technicians for maintenance and service across the U.S. and Canada[51] - A specialized sales force for charging infrastructure installations assists customers with project management, permitting, and funding options to facilitate fleet electrification[52] Customers - Xos serves large-scale national accounts and small-to-medium-sized fleets, including independent service providers (ISPs) for last-mile routes[54] Customer Revenue Concentration (Year Ended December 31, 2023) | Customer | % of Company's Revenues | | :--- | :--- | | Customer 1 | 54% | | Customer 2 | 10% | Competition - Xos faces competition from existing commercial diesel vehicle OEMs (e.g., Freightliner, Ford, General Motors) and disruptive EV manufacturers (e.g., Nikola, Rivian, Workhorse)[55][56] - Primary competitive factors in the medium- and heavy-duty last-mile and return-to-base segments include total cost of ownership, emissions profile, effectiveness in target applications, ease of integration, product performance/uptime, quality, reliability, safety, service/support, technological innovation, and fleet management[56][57] Service & Maintenance - Xos is expanding its service network with field service technicians, third-party service partners, and full-line dealer partnerships to provide comprehensive after-sales services and ensure maximum uptime[57] Manufacturing & Supply Chain - Xos assembles its X-Platform electric chassis and battery systems at its Byrdstown, Tennessee plant, which also handles prototyping and powertrain installation[58] - Battery production and remanufacturing capabilities, along with R&D initiatives, are maintained in Los Angeles[59] - The company relies on single or limited-source suppliers for critical components (e.g., CATL for battery packs, BEL Power for power electronics, Dana for motors & inverters) and mitigates risk by qualifying multiple suppliers and maintaining safety inventory[60] Governmental Programs, Incentives & Regulations - Xos' business is influenced by government programs, credits, incentives, and regulations aimed at promoting clean energy and electric vehicles[61] - Qualifying Xos customers may receive up to $40,000 per vehicle in federal tax credits through 2032 under the Inflation Reduction Act of 2022 (IRA)[63] - State incentives, such as California's HVIP, provide point-of-sale vouchers for qualifying ZEVs, with approximately 100 Xos vehicles subsidized by HVIP to date[64][65] - Xos vehicles are subject to EPA and CARB regulations, requiring Certificates of Conformity and Executive Orders, respectively, despite having zero tailpipe emissions[71][72] - Vehicles must comply with NHTSA's Federal Motor Vehicle Safety Standards (FMVSS) and battery packs conform to 'dangerous goods' transport regulations[73][76] Intellectual Property - Xos protects its intellectual property through patents, copyrights, trade secrets, trademarks, and contractual agreements[79] - As of December 31, 2023, the company had seven awarded U.S. patents and 24 pending or approved U.S. trademark applications[80] Facilities - Xos' headquarters in Los Angeles, California, is an 85,142 square foot facility for design, engineering, and development, with a lease expiring in January 2027[82] - A manufacturing facility is located in Byrdstown, Tennessee, utilizing Fitzgerald Manufacturing Partners, LLC's facilities[83] Human Capital - Xos' human capital strategy focuses on leadership, culture, and talent, with a commitment to diversity, equity, and inclusion, including Employee Resource Groups and inclusive leadership training[84][85][86] - The company emphasizes talent attraction, growth, and capability assessment through targeted learning experiences and leadership standards[87][88] - Employee well-being initiatives address financial, social, mental/emotional, physical, and professional needs, using programs to understand employee sentiment[89][90][91] Employment Data (as of December 31, 2023) | Category | Count | | :--- | :--- | | Full-time employees | 161 | | Contractors | 25 | | Unionized employees | None | Corporate Information - Xos, Inc. was initially incorporated as NextGen Acquisition Corporation on July 29, 2020, and became the publicly traded entity listed on Nasdaq following the Business Combination on August 20, 2021[93] Available Information (Website) - The company's SEC filings (10-K, 10-Q, 8-K) and other material information are available free of charge on its Investor Relations website: https://investors.xostrucks.com/[94](index=94&type=chunk) Item 1A. Risk Factors This section details various risks that could materially and adversely affect Xos's business, financial condition, growth prospects, liquidity, and results of operations Risks Related to our Business and Industry - Xos has a limited operating history, making it difficult to evaluate its business and future prospects, which increases investment risk[97] - Novel offerings like Xos Energy Services™ and Xosphere™ are untested long-term, and failure to commercialize them could materially harm operating results and reputation[98][99] Risks Relating to the Design, Supply and Manufacturing of our Products - Significant delays in product design, manufacturing, and deployment, particularly in battery production, could harm business and growth prospects[100][101] - The ability to develop and manufacture high-quality products on schedule and at scale requires significant capital expenditures and is unproven[103][105] - Xos has no experience in high-volume manufacturing, posing risks of delays, cost overruns, and quality control issues[106] - Dependence on single or limited-source suppliers for key components (e.g., battery packs, semiconductors) creates supply chain risks and potential disruptions[109][110][111] - Lithium-ion battery cells used in Xos products have a risk of catching fire or venting smoke/flame, which could lead to litigation, recalls, and negative publicity[112][113] - Increases in costs or shortages of materials, especially lithium-ion battery cells and semiconductors, have harmed and could continue to harm the business[114][117][118] - Delays in providing sufficient charging solutions have resulted in delayed vehicle deliveries to customers, impacting demand[122] - A significant portion of revenues comes from a small number of customers; a decrease in purchases from these customers could negatively affect results[124] Risks Related to our Financial Condition - Xos is an early-stage company with a history of significant operating and net losses ($65.0 million operating loss in 2023) and expects continuing losses[158][159] - The company has yet to achieve positive operating cash flow (negative $39.3 million in 2023) and requires significant capital to develop and grow its business[160][161] - Future capital needs may require selling additional equity or debt securities, potentially diluting stockholders or imposing restrictive covenants[163][165] - The unavailability or reduction of government and economic incentives could materially harm the business[167] - Xos previously restated financial statements for several prior periods due to inventory and accounting errors, incurring unanticipated costs and potentially affecting investor confidence[173][174] - Material weaknesses in internal control over financial reporting related to inventory management and revenue recognition were identified, which could lead to misstatements or failure to meet reporting obligations[175][177] Risks Related to Our Indebtedness - As of December 31, 2023, Xos had approximately $25.3 million in total indebtedness, which could impair its flexibility and access to capital[184] - Servicing this debt requires significant cash flow, and insufficient cash flow could force the company to reduce investments, seek additional capital, or restructure debt[187][188] - Conversion of convertible notes may dilute existing stockholders' ownership interests or depress the Common Stock price[189] Risks Related to our Acquisition of ElectraMeccanica - Xos may not realize the expected growth, operational enhancement, and financial flexibility opportunities from the ElectraMeccanica acquisition[190] - Contractual counterparties may seek to modify or terminate relationships post-acquisition, harming business operations[191] - Litigation challenging acquisition disclosures could result in damages, divert management attention, and adversely affect financial condition[192][193] - Significant and potentially unanticipated costs have been incurred and are expected in connection with the acquisition and integration[194] Legal and Regulatory Risks - Regulatory limitations on direct vehicle sales, varying by state, could materially affect Xos's ability to sell vehicles and increase business costs[195][196][197][198] - Xos and its partners are subject to extensive and evolving foreign, federal, state, and local regulations, with non-compliance potentially leading to substantial harm[199][200][201][202] - Compromises to information technology systems, those of third parties, or data could lead to regulatory actions, litigation, fines, business disruptions, and reputational harm[203][217][219] - Changes in tax laws or regulations, such as the capitalization of R&D expenses under TCJA, could adversely affect business operations and financial performance[221][222] - Stringent and evolving data privacy and security obligations (e.g., CCPA, GDPR) pose risks of regulatory investigations, litigation, fines, and business disruptions[223][224][225][226][227][228][229][230][231][232][233][234][235][236] - Expansion into international markets would expose Xos to additional regulatory, political, tax, and labor risks[239][240] - Changes in U.S. trade policy, including tariffs, and export/import controls could adversely affect business and financial results[241][242][243][244] - Xos is subject to anti-corruption and anti-money laundering laws, with violations potentially leading to criminal liability and serious consequences[245] - The company may face intellectual property infringement claims, which could be costly and limit its ability to commercialize products[246][247] - Failure to obtain, maintain, enforce, and protect intellectual property rights could result in competitors offering similar products and loss of competitive advantage[248][249][250][251][252][253][254] - Patent applications for proprietary technology may not issue, or issued patents may not provide sufficient protection[255] - Labor and union activities, though not currently affecting Xos directly, could impact the business through increased costs or work stoppages[256] Risks Related to Operating as a Public Company and Ownership of Our Securities - Failure to establish and maintain proper internal control over financial reporting as a public company could impair accurate and timely financial statements, leading to loss of investor confidence and regulatory actions[257][258][259][260][261] - The price of Xos Common Stock and Warrants has been volatile and may continue to fluctuate due to various market and industry factors[262][263] - Xos does not expect to declare any dividends in the foreseeable future, retaining earnings for business development and expansion[264][265] - Warrants may expire worthless if not in the money at the time of exercise, and their terms can be amended adversely to holders with sufficient approval[266][267][268] - Xos may redeem unexpired Warrants prior to their exercise at a disadvantageous time for holders, potentially making them worthless[269][270] - Warrants are accounted for as derivative liabilities, with changes in fair value impacting earnings and potentially the market price of securities[271][272] - Issuance of additional shares of Common Stock or Preferred Stock, including under equity incentive plans, would dilute existing stockholders' interests[273][274] - Concentration of ownership among executive officers and directors (approximately 38% as of March 26, 2024) may prevent other investors from influencing significant corporate decisions[274] - Investments may be subject to U.S. foreign investment regulations (CFIUS) or other foreign direct investment (FDI) regimes, potentially imposing conditions or limitations on certain investors[275] General Risk Factors - Xos has been and may continue to be adversely affected by health crises, epidemics, and pandemics, which can cause volatility in the global economy and disrupt supply chains[276][277][278] - Catastrophic events such as labor discord, geopolitical events, natural disasters, or cyber-attacks may disrupt business operations, leading to system interruptions, reputational harm, and data security breaches[279] - Macroeconomic conditions, including rising inflation, uncertain credit markets, potential bank failures, supply chain disruptions, and geopolitical events (e.g., conflicts in Russia-Ukraine and Israel), can negatively impact customer spending and supplier stability[280][281][282][283] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and limit stockholders' ability to influence corporate decisions or receive a premium for their shares[287][288][289] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[290] Item 1C. Cybersecurity Xos has established policies and processes to assess, identify, and manage cybersecurity risks, integrating them into its overall risk management - Xos employs manual and automated tools, threat analysis, and internal/external audits to routinely assess material cybersecurity risks[291] - Safeguards include data encryption, network security controls, cybersecurity insurance, asset management, and employee training[292] - The Director of IT, with over 15 years of experience, is primarily responsible for cybersecurity risk management and reports to the COO[295] - The Board and Audit Committee receive periodic briefings on cybersecurity risks and activities[294][297] - No cybersecurity challenges have materially affected the company's business strategy, results of operations, or financial condition to date[293] Item 2. Properties Xos maintains its corporate headquarters in Los Angeles, California, for design, engineering, and development, and leases three properties in Byrdstown, Tennessee, for manufacturing, assembly, and raw material storage - Corporate headquarters: 85,142 sq ft facility in Los Angeles, California, for design, engineering, and development; lease expires in 2027[298] - Manufacturing facilities: Three leased properties in Byrdstown, Tennessee, for raw material storage, manufacturing, and assembly; leases expire in 2026 and 2027[298] - The company does not currently own any real property[299] Item 3. Legal Proceedings Xos is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently involved in any legal proceedings that would individually or in aggregate have a material adverse effect on its business, financial condition, or results of operations[300] Item 4. Mine Safety Disclosures This item is not applicable to Xos, Inc.'s operations - This item is not applicable[301] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section provides information on the trading market for Xos's common stock and public warrants, the number of record holders, and the company's dividend policy - Xos Common Stock and Public Warrants are listed on Nasdaq under symbols "XOS" and "XOSWW" respectively[304] Stockholder and Warrant Holder Information (as of March 26, 2024) | Item | Count | | :--- | :--- | | Holders of record of Common Stock | 55 | | Public Warrants outstanding | 18,833,298 | | Holders of record of Public Warrants | 2 | - The company has never declared or paid cash dividends and intends to retain future earnings for business development and expansion[306] Item 6. Reserved This item is reserved and contains no information - This item is reserved[309] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Xos's financial condition and results of operations, highlighting its business model, recent acquisition, key factors affecting performance, and detailed financial comparisons for 2023 and 2022 Overview - Xos is a fleet electrification solutions provider, manufacturing Class 5-8 battery-electric commercial vehicles for last-mile routes, and offering charging infrastructure (Xos Energy Solutions™) and fleet management software (Xosphere™)[311] - The company delivered 277 vehicles (including leases), 5 powertrains, and 1 hub in 2023, compared to 257 vehicles and 18 powertrains in 2022[316] Revenue Breakdown (Year Ended December 31) | Revenue Source | 2023 Revenue (in thousands) | % of Total 2023 Revenue | 2022 Revenue (in thousands) | % of Total 2022 Revenue | | :--- | :--- | :--- | :--- | :--- | | Vehicle and Powertrain Sales | $42,200 | 95% | $34,100 | 94% | | Fleet-as-a-Service | $1,200 | 3% | $600 | 2% | | Ancillary Revenue | $1,100 | 2% | $1,700 | 4% | - Growth is supported by increased focus on climate change, e-commerce growth, and last-mile delivery, with commercial trucks being major greenhouse gas emitters[319] Recent Developments - On March 26, 2024, Xos completed the acquisition of ElectraMeccanica Vehicles Corp., converting each ElectraMeccanica share into 0.0143739 of an Xos Common Stock share, totaling 1,766,388 shares[320] - The acquisition is expected to supplement Xos's liquidity with an estimated $48.0 million from ElectraMeccanica's cash balance[320] Business Combination and Public Company Costs - The Business Combination was completed on August 20, 2021, resulting in Xos becoming an SEC-registered and Nasdaq-listed company[321] - Becoming a public company has required and will continue to require additional personnel and expenses for regulatory compliance, insurance, director fees, and accounting/legal resources[322] Key Factors Affecting Operating Results - Successful commercialization of products and services, including vehicles and battery systems, is crucial for future revenue[324] - Customer demand for vehicles and services is a key performance indicator[325] - Effective supply chain management is critical, especially given disruptions in semiconductor chips, battery cells, vehicle bodies, and aluminum, which impact procurement and production[326][327] Basis of Presentation - Consolidated financial statements are prepared in accordance with U.S. GAAP and include Xos, Inc. and its wholly-owned subsidiaries[329] - The company operates as one segment, primarily in North America, with minimal commercial operations as an early-stage growth company[330] Components of Results of Operations - Revenue is primarily generated from sales of electric step vans, stripped chassis vehicles, and battery systems, with expected expansion into chassis cabs and tractors, and service offerings like Fleet-as-a-Service[331][332][333] - Cost of goods sold includes direct materials, labor, manufacturing overhead, warranty expenses, inventory reserves, and freight costs[334][335][336] - General and administrative (G&A) expenses cover personnel, professional services, facilities, and other operating costs, expected to decrease due to workforce reduction[337][338] - Research and development (R&D) expenses, primarily for vehicle and battery system design, are expected to decrease due to lower headcount[339][340] - Sales and marketing (S&M) expenses, related to brand initiatives and sales force, are also expected to decrease due to lower headcount[341] - Other expense, net includes interest income, interest paid on leases, and interest expense on financing obligations[342] - Changes in fair value of derivative instruments and contingent earn-out shares liability are recognized due to remeasurement at each reporting period[343][344] Results of Operations Consolidated Results of Operations (Years Ended December 31, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $44,523 | $36,376 | $8,147 | 22% | | Cost of goods sold | $45,813 | $66,405 | $(20,592) | (31)% | | Gross loss | $(1,290) | $(30,029) | $28,739 | (96)% | | General and administrative | $37,698 | $41,093 | $(3,395) | (8)% | | Research and development | $19,589 | $30,679 | $(11,090) | (36)% | | Sales and marketing | $6,388 | $9,547 | $(3,159) | (33)% | | Total operating expenses | $63,675 | $81,319 | $(17,644) | (22)% | | Loss from operations | $(64,965) | $(111,348) | $46,383 | (42)% | | Other expense, net | $(12,047) | $(4,835) | $(7,212) | 149% | | Change in fair value of derivative instruments | $671 | $14,184 | $(13,513) | (95)% | | Change in fair value of earn-out shares liability | $519 | $28,682 | $(28,163) | (98)% | | Loss before provision for income taxes | $(75,822) | $(73,317) | $(2,505) | 3% | | Provision for income taxes | $21 | $8 | $13 | 163% | | Net loss | $(75,843) | $(73,325) | $(2,518) | 3% | - Total revenue increased by 22% to $44.5 million in 2023, driven by increased stepvan deliveries (283 units in 2023 vs. 275 in 2022) and higher average selling prices[347] - Cost of goods sold decreased by 31% to $45.8 million in 2023, primarily due to decreases in direct materials ($3.1 million), direct labor ($1.8 million), inventory reserves ($7.7 million), and physical inventory adjustments ($6.8 million), offset by increased warranty reserves and overhead[349][350][351] - Operating expenses decreased by 22% to $63.7 million in 2023, with G&A down 8% ($3.4 million), R&D down 36% ($11.1 million), and S&M down 33% ($3.2 million), largely due to lower headcount and cost efficiencies[352][353][354] - Net loss increased by 3% to $75.8 million in 2023, primarily due to a 149% increase in other expense, net, driven by higher interest expense on convertible notes and redemption premiums[346][355] Liquidity and Capital Resources - As of December 31, 2023, Xos had $11.6 million in cash and cash equivalents, with access to capital under the SEPA (Standby Equity Purchase Agreement) of $119.5 million, though SEPA access is currently unavailable pending SEC filings[359][366][367] - The company has incurred net losses and negative cash outflows since inception, raising substantial doubt about its ability to continue as a going concern[360][361] - To address liquidity concerns, Xos plans to raise additional capital through debt, non-dilutive, and/or equity financing, including asset-based lending and receivable financing[362] - The acquisition of ElectraMeccanica on March 26, 2024, is expected to supplement liquidity with approximately $48.0 million in cash[363][364][365] Cash Flow Summary (Years Ended December 31, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,286) | $(127,960) | | Net cash provided by investing activities | $50,630 | $82,710 | | Net cash (used in) provided by financing activities | $(38,379) | $64,749 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(27,035) | $19,499 | - Net cash used in operating activities decreased significantly from $128.0 million in 2022 to $39.3 million in 2023, primarily due to favorable working capital changes related to inventory usage[372][373] - Net cash provided by investing activities was $50.6 million in 2023, mainly from the sale of marketable debt securities, compared to $82.7 million used in 2022 for property/equipment and marketable debt securities purchases[375][376] - Net cash used in financing activities was $38.4 million in 2023, primarily due to payments for convertible notes ($34.4 million) and equipment leases, offset by proceeds from common stock issuance under SEPA ($1.2 million)[377] Contractual Obligations and Commitments As of December 31, 2023, Xos had no material contractual obligations or commitments other than those disclosed in Note 14 (Commitments and Contingencies) and Note 6 (Leases) - As of December 31, 2023, Xos had no material contractual obligations or commitments other than those disclosed in Note 14 (Commitments and Contingencies) and Note 6 (Leases)[379] Off-Balance Sheet Arrangements Xos does not have any off-balance sheet arrangements - Xos does not have any off-balance sheet arrangements[380] Critical Accounting Policies and Estimates Critical accounting policies involve significant management judgments and estimates, including valuation of stock-based compensation, fair value of common stock, convertible notes payable, and derivative liability - Critical accounting policies involve significant management judgments and estimates, including valuation of stock-based compensation, fair value of common stock, convertible notes payable, and derivative liability[381][382][383] - Revenue recognition follows ASC 606, involving identifying contracts, performance obligations, transaction price allocation, and recognizing revenue as obligations are satisfied[384][385][386] - Inventories are valued at the lower of cost or net realizable value using average costing, with periodic evaluations for damage, obsolescence, and write-downs[388][389][390] - Income taxes are accounted for using the asset and liability method, with deferred tax assets and liabilities recognized for temporary differences and net operating losses, and a valuation allowance established when realization is not more likely than not[391][392][393] - Warranty liability is accrued based on the best estimate of projected costs to repair or replace items under warranties and recalls, considering actual claims and future claim estimates[394][395] - Investments in marketable debt securities are classified as available-for-sale and recorded at fair value, with interest and amortization included in other expense, net[396][397] - Public and Private Placement Warrants are recognized as derivative liabilities and measured at fair value (Level 1 for Public, Level 2 for Private)[398][399][400] - Contingent earn-out shares liability is a freestanding financial instrument classified as a liability and adjusted to fair value at each reporting date using Level 3 inputs[401][402][403] - Convertible debt is accounted for under ASC 815, with embedded features evaluated for bifurcation and separate periodic valuation[404] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section outlines Xos's exposure to various market risks, including interest rate risk and inflation risk - Xos is exposed to market risks from changes in interest rates, inflation, and foreign currency exchange rates[407] - The company maintains a portfolio of fixed and variable rate debt securities (e.g., U.S. treasuries, corporate debt), with a primary objective of principal safety and future liquidity, not for trading or speculation[408] - As of December 31, 2023, the fair value of investments in marketable debt securities, available-for-sale, was $0.0 million[408] - Xos monitors inflation, which increases the cost of goods and services, and an inability to offset higher costs through price increases or alternative solutions could harm the business[409] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements of Xos, Inc. and its subsidiaries for the years ended December 31, 2023, and 2022, along with the independent auditor's report and detailed notes Report of Independent Registered Public Accounting Firm - Grant Thornton LLP, the independent registered public accounting firm, issued an unqualified opinion, stating that the consolidated financial statements for 2023 and 2022 present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with U.S. GAAP[413] - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement but not expressing an opinion on the effectiveness of internal control over financial reporting[415] Consolidated Balance Sheets Consolidated Balance Sheets (as of December 31, in thousands) | Asset/Liability/Equity | 2023 | 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11,640 | $35,631 | | Restricted cash | $— | $3,044 | | Accounts receivable, net | $15,142 | $8,238 | | Marketable debt securities, available-for-sale | $— | $50,648 | | Inventories | $37,843 | $57,540 | | Prepaid expenses and other current assets | $7,070 | $8,100 | | Total current assets | $71,695 | $163,201 | | Property and equipment, net | $14,660 | $18,581 | | Operating lease right-of-use assets, net | $4,991 | $6,555 | | Other non-current assets | $2,338 | $1,599 | | Total assets | $93,684 | $189,936 | | Liabilities | | | | Accounts payable | $2,756 | $2,896 | | Convertible debt, current | $— | $26,849 | | Derivative liabilities | $— | $405 | | Other current liabilities | $16,817 | $15,616 | | Total current liabilities | $19,573 | $45,766 | | Convertible debt, non-current | $19,920 | $19,870 | | Earn-out shares liability | $39 | $564 | | Common stock warrant liability | $395 | $661 | | Other non-current liabilities | $8,561 | $11,000 | | Total liabilities | $48,488 | $77,861 | | Stockholders' Equity | | | | Common Stock | $1 | $1 | | Additional paid-in capital | $198,456 | $190,231 | | Accumulated deficit | $(153,261) | $(77,418) | | Accumulated other comprehensive loss | $— | $(739) | | Total stockholders' equity | $45,196 | $112,075 | | Total liabilities and stockholders' equity | $93,684 | $189,936 | - Total assets decreased by 50.7% from $189.9 million in 2022 to $93.7 million in 2023, primarily driven by reductions in cash, marketable debt securities, and inventories[419] - Total liabilities decreased by 37.7% from $77.9 million in 2022 to $48.5 million in 2023, mainly due to the repayment of current convertible debt[419] - Total stockholders' equity decreased by 59.7% from $112.1 million in 2022 to $45.2 million in 2023, largely due to an increase in accumulated deficit[419] Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss (Years Ended December 31, in thousands, except per share amounts) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $44,523 | $36,376 | | Cost of goods sold | $45,813 | $66,405 | | Gross loss | $(1,290) | $(30,029) | | Total operating expenses | $63,675 | $81,319 | | Loss from operations | $(64,965) | $(111,348) | | Other expense, net | $(12,047) | $(4,835) | | Change in fair value of derivative instruments | $671 | $14,184 | | Change in fair value of earn-out shares liability | $519 | $28,682 | | Loss before provision for income taxes | $(75,822) | $(73,317) | | Provision for income taxes | $21 | $8 | | Net loss | $(75,843) | $(73,325) | | Total comprehensive loss | $(75,104) | $(73,683) | | Net loss per share (Basic) | $(13.11) | $(13.31) | | Net loss per share (Diluted) | $(13.11) | $(13.32) | | Weighted average shares outstanding (Basic) | 5,787 | 5,508 | | Weighted average shares outstanding (Diluted) | 5,787 | 5,812 | - Revenues increased by 22% to $44.5 million in 2023, while gross loss significantly narrowed by 96% to $(1.3) million[421] - Loss from operations improved by 42% to $(65.0) million in 2023, but net loss slightly increased by 3% to $(75.8) million due to higher other expenses[421] - Basic and diluted net loss per share were $(13.11) in 2023, a slight improvement from $(13.31) and $(13.32) respectively in 2022[421] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (Years Ended December 31, in thousands) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Balance at December 31, 2021 | $174,393 | $174,393 | | Stock based compensation expense | $7,863 | $5,313 | | Issuance of Common Stock under SEPA | $1,201 | $4,372 | | Net and comprehensive loss | $(75,104) | $(73,683) | | Balance at December 31, 2023 | $45,196 | $112,075 | - Total stockholders' equity decreased from $112.1 million in 2022 to $45.2 million in 2023, primarily due to a net and comprehensive loss of $(75.1) million[423] - Stock-based compensation expense increased from $5.3 million in 2022 to $7.9 million in 2023[423] - Proceeds from the issuance of Common Stock under the Standby Equity Purchase Agreement (SEPA) decreased from $4.4 million in 2022 to $1.2 million in 2023[423] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Years Ended December 31, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,286) | $(127,960) | | Net cash provided by investing activities | $50,630 | $82,710 | | Net cash (used in) provided by financing activities | $(38,379) | $64,749 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(27,035) | $19,499 | | Cash, cash equivalents and restricted cash, end of year | $11,640 | $38,675 | - Net cash used in operating activities significantly decreased from $(128.0) million in 2022 to $(39.3) million in 2023, primarily due to favorable working capital changes related to inventory[425][426] - Net cash provided by investing activities was $50.6 million in 2023, mainly from the sale of marketable debt securities, a shift from net cash used of $(82.7) million in 2022[425][426] - Net cash used in financing activities was $(38.4) million in 2023, primarily due to payments for convertible notes and equipment leases, contrasting with $64.7 million provided in 2022 from convertible debt and equipment financing[425][426] - Cash, cash equivalents, and restricted cash decreased by $27.0 million in 2023, ending the year at $11.6 million[425][426] Notes to Consolidated Financial Statement Note 1 — Description of Business - Xos is a fleet electrification solutions provider, designing and manufacturing Class 5-8 battery-electric commercial vehicles and offering charging infrastructure (Xos Energy Solutions™) and fleet management software (Xosphere™)[428] - The company's business combination was completed on August 20, 2021, with NextGen Acquisition Corporation merging into Xos, Inc. (now Xos Fleet, Inc.)[428] - Xos faces risks and uncertainties from global economic conditions, including recessions, inflation, supply chain disruptions, and geopolitical events (e.g., conflicts in Russia-Ukraine and Israel), which could materially impact its business[429][430][431] - The company has incurred net losses and cash outflows since inception, raising substantial doubt about its ability to continue as a going concern, but plans to secure additional funding and the ElectraMeccanica acquisition are expected to provide sufficient liquidity for the next twelve months[434][435][436][437][438][439] - Supply chain disruptions, particularly for power electronics, harnesses, and battery components, continue to impact the company, despite mitigation efforts[440][441][442][443] Note 2 — Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements - Consolidated financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions in areas like inventory valuation, lease liabilities, stock-based compensation, and derivative valuations[444][445] - Revenue recognition follows ASC 606, identifying contracts, performance obligations, transaction price, allocation, and recognizing revenue upon transfer of control, typically at product delivery to the carrier[446] - Inventories are carried at the lower of cost or net realizable value using average costing, with write-downs for damage, obsolescence, or when carrying value exceeds NRV[454][456][457] - Income taxes use the asset and liability method, recognizing deferred taxes for temporary differences and NOLs, with a valuation allowance applied when realization is not more likely than not[460][461][462] - Property and equipment are stated at cost less accumulated depreciation, calculated using the straight-line method over estimated useful lives, with construction in progress not depreciated until ready for use[463][465][466] - A warranty reserve is accrued for products sold, based on estimated costs to repair or replace items under warranties and recalls[468][469] - Public and Private Placement Warrants are recognized as derivative liabilities (Level 1 and Level 2, respectively) and contingent earn-out shares liability as a freestanding financial instrument (Level 3 liability)[470][472][473][474][475][476][477] - Convertible debt is accounted for under ASC 815, with embedded features evaluated for bifurcation and separate periodic valuation[478] - Leases are recognized as right-of-use (ROU) assets and lease liabilities, measured at the present value of unpaid lease payments, with lease expense recognized straight-line over the lease term[479][480][481][482][483][484] - Stock-based compensation is recognized as expense based on fair value for equity-classified awards, using Black-Scholes for options and grant date closing price for RSUs[487][488][489][490] - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2023, with no material impact, and is evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) for future impact[498][500][501][502][503] Note 3 — Revenue Recognition Disaggregated Revenues by Major Source (Years Ended December 31, in thousands) | Revenue Source | 2023 | 2022 | | :--- | :--- | :--- | | Stepvans & vehicle incentives | $41,385 | $31,829 | | Powertrains | $795 | $2,226 | | Fleet-as-a-Service | $1,206 | $606 | | Total product and service revenue | $43,386 | $34,661 | | Ancillary revenue | $1,137 | $1,715 | | Total revenues | $44,523 | $36,376 | - Stepvans & vehicle incentives revenue increased by 30% in 2023, while Powertrains revenue decreased by 64%[504] - Fleet-as-a-Service revenue nearly doubled in 2023, growing by 99%[504] - The company recognized $37,000 in operating lease revenues and $1.5 million in sales-type leasing revenue (with $1.3 million in associated costs) in 2023[506][507] Note 4 — Inventories Inventory Breakdown (as of December 31, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Raw materials | $30,357 | $40,271 | | Work in process | $3,033 | $4,618 | | Finished goods | $4,453 | $12,651 | | Total inventories | $37,843 | $57,540 | - Total inventories decreased by 34.2% from $57.5 million in 2022 to $37.8 million in 2023[508] - In 2023, the company recorded inventory recoveries of $1.9 million, compared to write-downs of $5.7 million in 2022, reflecting inventories at their net realizable values[509] Note 5 — Selected Balance Sheet Data Prepaid Expenses and Other Current Assets (as of December 31, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Prepaid inventories | $1,745 | $2,372 | | Prepaid expenses and other | $2,796 | $1,299 | | Contract assets | $811 | $290 | | Financed insurance premiums | $1,310 | $2,289 | | Assets held for sale | $408 | $1,850 | | Total prepaid expenses and other current assets | $7,070 | $8,100 | Other Current Liabilities (as of December 31, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Accrued expenses and other | $7,435 | $7,589 | | Contract liabilities | $690 | $193 | | Customer deposits | $2,364 | $721 | | Warranty liability | $1,306 | $1,099 | | Equipment notes payable, current | $350 | $303 | | Short-term insurance financing notes | $1,003 | $2,065 | | Operating lease liabilities, current | $1,664 | $1,530 | | Finance lease liabilities, current | $2,005 | $2,116 | | Total other current liabilities | $16,817 | $15,616 | Other Non-Current Liabilities (as of December 31, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Accrued interest expense and other | $2,985 | $784 | | Equipment notes payable, non-current | $593 | $942 | | Operating lease liabilities, non-current | $3,511 | $5,174 | | Finance lease liabilities, non-current | $1,472 | $4,100 | | Total other non-current liabilities | $8,561 | $11,000 | - Customer deposits increased significantly from $721 thousand in 2022 to $2.4 million in 2023[512] - Accrued interest expense and other non-current liabilities increased from $784 thousand in 2022 to $3.0 million in 2023[513] Note 6 — Leases Lease Assets and Liabilities (as of December 31, in thousands) | Category | 2023 | 2022 | | :--- | :--- | :--- | | Operating lease right-of-use assets, net | $4,991 | $6,555 | | Equipment finance leases (Property and equipment, net) | $5,931 | $7,979 | | Total lease assets | $10,922 | $14,534 | | Operating lease liabilities, current | $1,664 | $1,530 | | Equipment finance leases, current | $2,005 | $2,116 | | Operating lease liabilities, non-current | $3,511 | $5,174 | | Equipment finance leases, non-current | $1,472 | $4,100 | | Total lease liabilities | $8,652 | $12,920 | - Total lease assets decreased by 24.8% to $10.9 million in 2023, and total lease liabilities decreased by 33% to $8.7 million[515] - Total operating lease expense was $2.2 million in 2023, down from $2.5 million in 2022[516] - Finance lease cost was $1.8 million in 2023, up from $1.3 million in 2022, including amortization and interest accretion[518] Weighted-Average Lease Terms and Discount Rates (as of December 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Weighted average remaining operating lease term | 2.9 years | 3.9 years | | Weighted average remaining equipment finance lease term | 1.5 years | 2.4 years | | Weighted average operating lease discount rate (IBR) | 5.5% | 5.5% | | Weighted average equipment finance lease implicit rate | 6.5% | 6.9% | Note 7 — Earn-out Shares Liability - Xos has a contingent obligation to issue 540,000 Earn-out Shares and grant 8,700 Earn-out RSUs based on achieving specific volume-weighted average share price (VWAP) milestones or a change of control within five years of the Business Combination[524][525] - The Earn-out Shares liability is classified as a Level 3 fair value measurement liability, with fair value estimated using a Monte Carlo simulation[525] - The fair value of the Earn-out Shares liability decreased from $0.6 million in 2022 to $39,000 in 2023, resulting in a gain on change in fair value of $0.5 million in 2023[526] Note 8 — Convertible Notes - Xos issued Convertible Debentures totaling $35.0 million to Yorkville in 2022, which were fully repaid on December 4, 2023, including $32.8 million in principal payments and $1.6 million in redemption premiums[528][534][539] - The Convertible Debentures had a 6% annual interest rate (increasing to 10% upon default or 7.5% during a 'Registration Event') and a conversion right into Common Stock at a price based on VWAP, subject to a floor price[531] - Xos also issued a $20.0 million Convertible Promissory Note to Aljomaih Automotive Co. on August 11, 2022, maturing on August 11, 2025, with a 10.0% annual interest rate payable in Interest Shares[543][544] - As of December 31, 2023, the principal balance outstanding on the Convertible Promissory Note was $20.0 million[551] - Interest expense related to the Convertible Promissory Note was $2.0 million in 2023, up from $0.8 million in 2022[551] Note 9 — Investments in Marketable Debt Securities, Available-for-Sale - As of December 31, 2023, Xos had no investments in marketable debt securities available-for-sale[552] Marketable Debt Securities, Available-for-Sale (as of December 31, 2022, in thousands) | Type of Security | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :--- | :--- | :--- | :--- | :--- | | Corporate debt security | $40,177 | $— | $(612) | $39,565 | | U.S. treasuries | $2,201 | $— | $(21) | $2,180 | | Asset-backed security and other | $5,324 | $— | $(76) | $5,248 | | Non-U.S. government and supranational bonds | $3,685 | $— | $(30) | $3,655 | | Total | $51,387 | $— | $(739) | $50,648 | - Gross realized losses from sales of marketable debt securities were $91,000 in 2023, down from $147,000 in 2022[554](ind