Xos(XOS) - 2022 Q4 - Annual Report

PART I Item 1. Business Xos, Inc. electrifies commercial fleets with Class 5-8 battery-electric vehicles, charging, and fleet management software - Xos is a leading fleet electrification solutions provider focused on decarbonizing commercial transportation by designing and manufacturing Class 5-8 battery-electric commercial vehicles for last-mile, back-to-base routes[26] - The company utilizes a flexible manufacturing approach, leveraging partnerships for vehicle assembly, with its current facility in Byrdstown, Tennessee, designed to produce up to 5,000 vehicles per year[53][56][57] - Government programs and incentives, such as federal tax credits up to $40,000 per vehicle under the Inflation Reduction Act and state incentives like California's HVIP, are significant drivers for electric vehicle adoption[61][63] Total Full-time Employees and Revenue Concentration (as of Dec 31, 2022) | Metric | Value | | :----- | :---- | | Total Full-time Employees | 272 | | Revenue Concentration (one customer) | 42% | Overview Xos provides fleet electrification solutions, manufacturing Class 5-8 battery-electric commercial vehicles for last-mile routes - Xos is a leading fleet electrification solutions provider focused on decarbonizing commercial transportation by designing and manufacturing Class 5-8 battery-electric commercial vehicles for last-mile, back-to-base routes[26] - The company offers integrated charging infrastructure products and services, along with proprietary fleet management software, to provide cost-efficient vehicle ownership for commercial fleet operators[26] Our Products & Services Xos offers proprietary vehicle platforms, battery systems, powertrain solutions, charging infrastructure, and fleet management software - Xos manufactures Class 5-6 Medium Duty Rolling Chassis (MD X-Platform) for various customer use cases like stepvans and armored trucks, and launched a Class 7-8 Heavy Duty Chassis (HD X-Platform) in May 2022 for regional haul fleets[27][28][29] - The 'Powered by Xos™' business provides mix-use powertrain solutions for off-highway and industrial equipment, including high-voltage batteries, power distribution, and electric traction motors[31] - Xos Energy Solutions™ offers comprehensive charging infrastructure, including DC Fast Chargers and the mobile Xos Hub™, along with turnkey services to accelerate electric fleet transition[32][41][42] - Xosphere™ is a fleet management platform that integrates vehicle, maintenance, charging, and service data to minimize electric fleet Total Cost of Ownership (TCO) through real-time monitoring, cost reduction, and remote diagnostics[33] - The 'Fleet-as-a-Service' offering bundles charging solutions, vehicle telematics, service, risk mitigation, and financing to facilitate the transition to and operation of battery-electric fleets, aiming to increase lifetime revenue per vehicle[35] Technology Supporting Our Products & Services Xos leverages proprietary X-Pack battery systems, X-Platform chassis, and vehicle control software for modular, customizable, and integrated fleet solutions - Xos' proprietary X-Pack battery systems and X-Platform chassis are modular, allowing fleet operators to customize vehicle bodies and battery range (up to 270 miles) for specific commercial applications[36][37][38][39] - The company develops on-board vehicle control software that integrates proprietary powertrain and body controls, instrument cluster, infotainment, and Xosphere™ software for enhanced vehicle operation and safety[40][47] - Xos Energy Solutions™ provides a range of DC Fast Chargers (30kW to 300kW) and the mobile Xos Hub™ for flexible, on-demand charging, all monitorable via the Xosphere™ platform[41][42] Sales & Marketing Xos employs a dual sales strategy through direct representatives and dealer partnerships, supported by a dedicated sales force for charging infrastructure - Xos employs a dual sales strategy: direct sales representatives educate fleets on electric truck benefits, and partnerships with distributors and dealers provide established relationships and service support[43][44] - A dedicated sales force with expertise in charging and infrastructure installations assists customers in transitioning to electric vehicles, including project management, permitting, and securing funding[45] - The 'Powered by Xos' division actively seeks opportunities to supply OEMs with powertrain kits for industrial and off-highway equipment electrification[46] Customers Xos serves large national accounts and small-to-medium fleets, with one customer accounting for 42% of 2022 revenues - Xos serves large-scale national accounts and small-to-medium-sized fleets, including independent service providers for last-mile delivery, and partners with distributors like Thompson Truck Centers[48] 2022 Revenue Concentration | Metric | Value | | :----- | :---- | | One customer accounted for | 42% of total revenues | Competition Xos faces competition from traditional diesel OEMs transitioning to EVs and disruptive EV manufacturers, with key factors including TCO, emissions, and product performance - Xos faces competition from traditional diesel vehicle OEMs (e.g., Freightliner, Ford) transitioning to zero-tailpipe emissions solutions, and disruptive EV manufacturers (e.g., Nikola, Rivian, BYD Motors)[49][50] - Key competitive factors in the commercial vehicle market include total cost of ownership, emissions profile, effectiveness in target applications, ease of integration, product performance, quality, service, technological innovation, and fleet management[51][54] Service & Maintenance Xos is expanding its service network through field technicians, third-party partners, and full-line dealer partnerships for comprehensive after-sales support - Xos is expanding its service network through Xos field service technicians, third-party service partners (e.g., W.W. Williams, Hwy 7 & 50), and full-line dealer partnerships (e.g., Foley Equipment, Ventura Truck Sales) to provide comprehensive after-sales support[52] Manufacturing & Supply Chain Xos employs a flexible manufacturing approach leveraging partnerships for vehicle assembly and battery production, managing a supply chain with key single-source suppliers - Xos employs a 'flexible manufacturing approach' that leverages smaller, adaptable existing facilities and labor through strategic partnerships, coordinating supply chain, quality control, and manufacturing engineering[53] - The current flex facility in Byrdstown, Tennessee, operated with Fitzgerald Manufacturing Partners, LLC, is designed to manufacture up to 5,000 vehicles per year, complemented by a battery production line in Los Angeles[57] - Key suppliers include CATL (battery packs), BEL Power (power electronics), and Dana (motors & inverters), with efforts to qualify multiple suppliers and maintain safety inventory to mitigate production risks from single-source components[58] Governmental Programs, Incentives & Regulations Government programs like the IRA offer significant tax credits for EV purchases, while state incentives and regulatory compliance (EPA, CARB) also influence adoption and sales - The Inflation Reduction Act of 2022 (IRA) offers qualifying Xos customers up to $40,000 per vehicle in federal tax credits for electric vehicle purchases through 2032[61] - State programs like California's HVIP provide point-of-sale vouchers for zero-emission medium- and heavy-duty trucks and buses, with varying amounts based on vehicle type and location[63] - Xos vehicles, despite having zero tailpipe emissions, require EPA Certificates of Conformity and California Air Resources Board (CARB) Executive Orders for sales in respective states, with CARB approval expected in H2 2023[70][71] Seasonality The automotive industry typically sees higher revenue in spring and summer, with Xos expecting lower winter sales and a peak season for parcel and delivery customers - The automotive industry typically sees higher revenue in spring and summer. Xos expects lower commercial vehicle sales in winter, with a 'peak season' for parcel and delivery customers between Thanksgiving and Christmas leading to preparatory fleet expansions[77] - Deliveries of the 2023 Stepvan are expected to be weighted towards the second half of fiscal 2022[77] Intellectual Property Xos protects its intellectual property through patents, copyrights, trade secrets, trademarks, and non-disclosure agreements, with five awarded U.S. patents - Xos protects its intellectual property through patents, copyrights, trade secrets, trademarks, and non-disclosure agreements, with five awarded U.S. patents and 26 pending or approved U.S. trademark applications as of December 31, 2022[78][79] Facilities Xos's headquarters in Los Angeles serves for design and engineering, complemented by a flex manufacturing facility in Byrdstown, Tennessee - Xos' headquarters in Los Angeles, California, is an 85,142 sq ft facility for design, engineering, and development, under a lease expiring January 31, 2027[80] - The company also operates a flex manufacturing facility in Byrdstown, Tennessee, utilizing Fitzgerald Manufacturing Partners, LLC's facilities[81] Human Capital Xos focuses on a 'People Strategy' encompassing leadership, culture, and talent, committed to Diversity, Equity, and Inclusion, with 272 full-time employees - Xos focuses on a 'People Strategy' encompassing leadership, culture, and talent, with an 'Employee Experience Team' and 'Sustainability and Innovation Committee' overseeing human capital policies[82] - The company is committed to Diversity, Equity, and Inclusion, administering Employee Resource Groups and providing inclusive leadership training[83][84] Employee Count (as of Dec 31, 2022) | Metric | Count | | :----- | :---- | | Full-time employees | 272 | | Contractors | 25 | | Interns | 3 | | Unionized employees | None | Corporate Information Xos, Inc. became a publicly traded entity on Nasdaq on August 20, 2021, following its Business Combination - Xos, Inc. was initially incorporated as NextGen Acquisition Corporation in July 2020 and became the publicly traded entity listed on Nasdaq Global Market following the Business Combination on August 20, 2021[91] Available Information (Website) Xos's SEC filings are available free of charge on its Investor Relations website, used for disclosing material information - The company's SEC filings (10-K, 10-Q, 8-K) are available free of charge on its Investor Relations website (https://investors.xostrucks.com/), which is used for disclosing material information[92] Item 1A. Risk Factors Xos faces significant risks from its limited operating history, ongoing losses, substantial debt, supply chain dependencies, and internal control weaknesses, alongside market and regulatory challenges - Xos has a limited operating history, a history of losses, and expects to incur significant expenses and continuing losses for the foreseeable future, requiring substantial capital[97][98][159][160][162] - The company's novel offerings (Fleet-as-a-Service, Xos Energy Services™, Xosphere™) are untested long-term, and failure to commercialize them successfully could materially harm operating results and reputation[99][100] - Xos relies heavily on third-party contract manufacturing partners and single/limited-source suppliers for critical components like lithium-ion battery cells and semiconductors, exposing it to risks of delays, disruptions, and cost increases[108][112][117] - Xos recently restated financial statements for prior periods due to inventory accounting errors and identified a material weakness in internal control over financial reporting, which may affect investor confidence and ability to raise capital[176][177][178][180] - The company has substantial debt ($56.2 million as of Dec 31, 2022), which could impair financial flexibility and access to capital, and servicing this debt requires significant cash flow[187][188][189][190] - The price of Xos Common Stock has been volatile and currently does not meet Nasdaq's minimum bid price requirement, risking delisting[242][244][247] Summary of Risks Key risks include limited operating history, unproven novel offerings, history of losses, significant capital needs, substantial debt, and potential delays in product deployment - Key risks include limited operating history, unproven novel offerings (Fleet-as-a-Service), history of losses, significant capital needs, substantial debt, and potential delays in product deployment[97][98] - Other risks involve dependence on suppliers, challenges in building brand, managing growth, battery safety, supply chain disruptions (e.g., semiconductors), and potential product recalls[98] - Financial statement restatements and material weaknesses in internal controls are also highlighted as significant risks[98] Risks Related to our Business and Industry Xos faces risks from its limited operating history, unproven novel offerings, intense competition, and dependence on the evolving adoption of electric vehicles - Xos's limited operating history makes business evaluation difficult and increases investment risk, with no assurance of retaining existing or securing future customer business[98] - The company's novel offerings like Fleet-as-a-Service, Xos Energy Services™, and Xosphere™ are untested at scale, posing substantial risk due to significant expenditures before revenue generation[99][100] - Xos faces intense competition from both traditional and new electric commercial vehicle OEMs, many of whom have greater resources and brand recognition[146] - Growth is highly dependent on the adoption of electric vehicles in the last-mile and return-to-base segments, which is an evolving market influenced by technology, price, regulations, and charging infrastructure[148][149] Risks Relating to the Design, Supply and Manufacturing of our Products Xos faces significant delays in product design, manufacturing, and deployment due to reliance on third-party suppliers, untested flex manufacturing, and supply chain disruptions - Xos has experienced and may continue to experience significant delays in the design, manufacturing, and deployment of products, particularly due to battery production backlog and reliance on third-party contract manufacturers and suppliers[101] - The company's flex manufacturing approach is novel and untested at large scale, requiring significant capital expenditures and facing risks related to equipment installation, durability, compliance, and supply chain disruptions[104][105][107] - Dependence on single or limited-source suppliers for critical components like lithium-ion battery cells and semiconductors exposes Xos to supply disruptions, cost increases, and potential adverse impacts on business[112][113][117] - Delays in providing sufficient charging solutions have led to delayed vehicle deliveries, as customer demand and willingness to take delivery are contingent on adequate charging infrastructure[124] Risks Related to our Financial Condition Xos faces financial risks from significant capital requirements, uncertain cash flow, dependence on government incentives, recent financial restatements, and material weaknesses in internal controls Operating Loss (2022) | Metric | Amount (Millions USD) | | :----- | :-------------------- | | Operating Loss (Year Ended Dec 31, 2022) | (111.3) | Cash Flow from Operating Activities (2022) | Metric | Amount (Millions USD) | | :----- | :-------------------- | | Net Cash Used in Operating Activities (Year Ended Dec 31, 2022) | (128.0) | - Xos requires significant capital to develop and grow its business, with future capital needs potentially requiring additional equity or debt securities that could dilute stockholders or restrict operations[162][165][168] - The unavailability, reduction, or elimination of government and economic incentives (e.g., Inflation Reduction Act credits) could materially and adversely affect Xos's business and financial position[170] - Xos recently restated financial statements for several prior periods due to inventory accounting errors, incurring unanticipated costs and potentially eroding investor confidence and stock price[176][177] - A material weakness in internal control over financial reporting related to inventory management was identified, which could lead to failure in meeting reporting obligations or material misstatements[178][180] Total Indebtedness (as of Dec 31, 2022) | Metric | Amount (Millions USD) | | :----- | :-------------------- | | Total Indebtedness | 56.2 | Legal and Regulatory Risks Xos faces legal and regulatory risks from direct sales limitations, evolving environmental laws, data security breaches, intellectual property claims, and changes in tax laws - Xos faces regulatory limitations on direct vehicle sales to consumers, as state laws often require dealer licenses and may prohibit manufacturers from acting as dealers, potentially impacting sales and service[195][196][198] - The company is subject to substantial and evolving foreign, federal, state, and local environmental laws and regulations, with compliance costs and potential liabilities for non-compliance[199][223] - Compromises to information technology systems or data could harm Xos's reputation, expose it to liability, litigation, regulatory investigations, and disrupt business operations, with remote work increasing these risks[203][204][205][207] - Xos may need to defend against intellectual property infringement or misappropriation claims, which are costly and could limit its ability to commercialize products[231][232] - Changes in tax laws, such as the TCJA's requirement to capitalize R&D expenses, could adversely affect Xos's business operations and financial performance by increasing future tax obligations[214][215] Risks Related to Operating as a Public Company and Ownership of Our Securities Xos faces risks from its Common Stock bid price being below Nasdaq's minimum, stock price volatility, potential future resales of shares, and no anticipated dividend payments - Xos's Common Stock bid price has been below $1.00 for 30 consecutive business days, putting it at risk of delisting from the Nasdaq Global Market if compliance is not regained by June 26, 2023[244] - The price of Xos Common Stock and Warrants has been volatile and may fluctuate due to industry changes, competition, operating results, analyst reports, and macroeconomic conditions[247] - Future resales of Common Stock, especially after lock-up agreements expire (approximately 48% of outstanding shares as of March 28, 2023), could significantly depress the market price[249][250][251] - The company does not expect to declare dividends in the foreseeable future, intending to retain earnings for business development and expansion[248] General Risk Factors Xos is exposed to general risks including health epidemics, macroeconomic conditions (inflation, supply chain), and anti-takeover provisions that could limit stockholder influence - Xos has been and may continue to be adversely affected by health epidemics and pandemics, including COVID-19, which can cause volatility in the global economy, supply chain disruptions, and decreased demand for electric vehicles[261][263][264] - Macroeconomic conditions, such as rising inflation, uncertain credit markets, bank failures, supply chain disruptions, and geopolitical events (e.g., Russia-Ukraine war), make forecasting difficult and could reduce customer spending and strain suppliers[267][269] - Anti-takeover provisions in Xos's charter documents and Delaware law could make company acquisition more difficult and limit stockholders' ability to influence corporate decisions or replace management[273][274][275] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report for the fiscal year ended December 31, 2022 - No unresolved staff comments were reported[276] Item 2. Properties Xos's corporate headquarters in Los Angeles and three leased properties in Byrdstown, Tennessee, are used for design, engineering, manufacturing, and assembly - Xos's corporate headquarters is an 85,142 square foot leased facility in Los Angeles, California, expiring in 2027, dedicated to product design, engineering, and development[277] - The company leases three properties in Byrdstown, Tennessee, with leases expiring in 2026 and 2027, for raw material storage, manufacturing, and product assembly[277] - Existing facilities are considered well-maintained and adequate for current needs, with plans to obtain additional space for continued expansion[278] Item 3. Legal Proceedings Xos is not currently a party to any legal proceedings expected to have a material adverse effect on its business or financial condition - Xos 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[279] Item 4. Mine Safety Disclosures This item is not applicable to Xos, Inc - Mine Safety Disclosures are not applicable to the company[280] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Xos Common Stock and Public Warrants are listed on Nasdaq, with 61 record holders of Common Stock. The company has never paid cash dividends and issued convertible debentures in 2022 - Xos Common Stock and Public Warrants are listed on Nasdaq under the symbols "XOS" and "XOSWW" respectively[282] Common Stock and Public Warrants Holders (as of March 23, 2023) | Security | Holders of Record | | :------- | :---------------- | | Common Stock | 61 | | Public Warrants | 21 | | Public Warrants Outstanding | 18,833,298 | - Xos has never declared or paid cash dividends and plans to retain all future earnings for business operations, with debt instruments potentially restricting dividend payments[284] - In 2022, Xos issued $35.0 million in convertible debentures to Yorkville and 21,000 restricted shares to FON Consulting, LLC, relying on the Section 4(a)(2) exemption from registration[285][287][288] - No equity securities were purchased by the issuer or affiliated purchasers[289] Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[290] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Xos's financial condition and results for 2022 and 2021, highlighting revenue growth, gross losses, operating expenses, and liquidity strategies amid market challenges - Xos is a fleet electrification solutions provider designing and manufacturing Class 5-8 battery-electric commercial vehicles, offering charging infrastructure and fleet management software[292] Revenue Breakdown (Years Ended December 31) | Revenue Source | 2022 (Millions USD) | % of Total 2022 Revenue | 2021 (Millions USD) | % of Total 2021 Revenue | | :--------------- | :------------------ | :---------------------- | :------------------ | :---------------------- | | Vehicle & Powertrain Sales | 34.1 | 94% | 4.9 | 97% | | Fleet-as-a-Service | 0.6 | 2% | — | 0% | | Ancillary Revenue | 1.7 | 4% | 0.1 | 3% | | Total Revenue | 36.4 | 100% | 5.0 | 100% | - Total revenue increased by $31.3 million (from $5.0 million in 2021 to $36.4 million in 2022), driven by increased deliveries of 275 units (257 stepvans, 18 powertrains) in 2022, compared to 44 units in 2021[332] Key Financial Highlights (Years Ended December 31) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | % Change | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Revenues | 36.376 | 5.048 | 31.328 | nm | | Cost of goods sold | 66.405 | 7.410 | 58.995 | nm | | Gross loss | (30.029) | (2.362) | (27.667) | nm | | General and administrative expenses | 41.093 | 27.197 | 13.896 | 51% | | Research and development expenses | 30.679 | 20.077 | 10.602 | 53% | | Sales and marketing expenses | 9.547 | 3.519 | 6.028 | 171% | | Loss from operations | (111.348) | (53.155) | (58.193) | 109% | | Net (loss) income | (73.325) | 23.401 | (96.726) | nm | - Net cash used in operating activities was $128.0 million in 2022, primarily due to a cash-basis net loss of $96.3 million and $31.7 million in working capital movements for inventory build-up[354] - As of December 31, 2022, Xos had $86.3 million in cash, cash equivalents, and marketable debt securities, believing these resources are sufficient for planned operations for the next 12 months[346][347] Overview Xos provides fleet electrification solutions, designing and manufacturing Class 5-8 battery-electric commercial vehicles, charging infrastructure, and fleet management software - Xos is a fleet electrification solutions provider, designing and manufacturing Class 5-8 battery-electric commercial vehicles for last-mile routes, and offering charging infrastructure and fleet management software[292] - The X-Platform and X-Pack provide modular features for customization, aiming for a lower total cost of ownership compared to traditional diesel fleets[294][298] - In 2022, Xos sold 257 vehicles and 18 powertrains, totaling 346 combined units since inception, with current year sales below anticipation due to battery production delays[300] - The company's Flex manufacturing strategy, leveraging partners' facilities, aims for capital-efficient scaling, with the Byrdstown, Tennessee facility designed for 5,000 vehicles annually[301] Business Combination and Public Company Costs The Business Combination on August 20, 2021, made Xos a publicly traded entity, incurring increased annual expenses for personnel, insurance, and professional services - The Business Combination was consummated on August 20, 2021, with Legacy Xos merging into a NextGen subsidiary, and NextGen changing its name to Xos, Inc., becoming a publicly traded entity on Nasdaq[305] - Becoming a public company has required Xos to hire additional personnel and implement new procedures, incurring increased annual expenses for D&O insurance, director fees, and accounting/legal resources[306] Key Factors Affecting Operating Results Future revenue depends on successful product commercialization, customer demand, achieving positive gross margins, and effective supply chain management amid global economic disruptions - Future revenue depends on successful commercialization of products and Fleet-as-a-Service, requiring substantial capital for development and operations[308] - Customer demand and the ability to achieve positive gross margins by mid-2023 through strategic price increases, operational optimization, and cost reduction are critical performance indicators[309] - Supply chain management is crucial, with global economic conditions and the COVID-19 pandemic causing disruptions in sourcing critical items like semiconductor chips, battery cells, and vehicle bodies[310][311] - The COVID-19 pandemic's impact on business, operating results, and liquidity remains uncertain, though Xos continued full operations in 2022 with enhanced health and safety practices[314] Basis of Presentation The consolidated financial statements include Xos, Inc. and its wholly-owned subsidiaries, operating as one segment exclusively within North America - The consolidated financial statements include Xos, Inc. and its wholly-owned subsidiaries, with all significant intercompany accounts and transactions eliminated[315] - Xos operates as one segment, with activities conducted exclusively within North America as an early-stage growth company with minimal commercial operations[316] Components of Results of Operations This section details revenue sources, cost of goods sold, and operating expenses (G&A, R&D, S&M), along with other income/expense items, and their expected trends - Revenues are primarily from 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[316] - Cost of goods sold includes direct materials, labor, manufacturing overhead, and inventory write-downs, expected to increase with production volume[318][319][321] - General and administrative (G&A) expenses consist of personnel, professional services, facilities, and office costs, expected to decrease due to workforce reduction[322][323] - Research and development (R&D) expenses cover design and development of vehicles and battery systems, also expected to decrease due to lower headcount[324] - Sales and marketing (S&M) expenses include marketing, brand initiatives, travel, and personnel costs, anticipated to decrease due to workforce reduction[325][327] - Other income (expense), net, includes interest income/expense, and changes in fair value of derivative instruments and contingent earn-out shares liability reflect mark-to-market adjustments[328][329][330] Results of Operations Xos experienced significant revenue growth in 2022, but also incurred substantial gross losses and increased operating expenses, resulting in a net loss of $73.3 million Consolidated Statements of Operations (Years Ended December 31) | Metric (in thousands) | 2022 | 2021 | $ Change | % Change | | :------------------------------------ | :----- | :----- | :------- | :------- | | Revenues | $36,376 | $5,048 | $31,328 | nm | | Cost of goods sold | $66,405 | $7,410 | $58,995 | nm | | Gross loss | $(30,029) | $(2,362) | $(27,667) | nm | | General and administrative | $41,093 | $27,197 | $13,896 | 51% | | Research and development | $30,679 | $20,077 | $10,602 | 53% | | Sales and marketing | $9,547 | $3,519 | $6,028 | 171% | | Total operating expenses | $81,319 | $50,793 | $30,526 | 60% | | Loss from operations | $(111,348) | $(53,155) | $(58,193) | 109% | | Other (expense) income, net | $(4,835) | $38 | $(4,873) | nm | | Change in fair value of derivative instruments | $14,184 | $18,498 | $(4,314) | (23)% | | Change in fair value of earn-out shares liability | $28,682 | $72,505 | $(43,823) | (60)% | | Net (loss) income | $(73,325) | $23,401 | $(96,726) | nm | - Revenue growth in 2022 was primarily due to increased deliveries of 275 units (257 stepvans, 18 powertrains), up from 44 units in 2021[332] - Cost of goods sold increased by $59.0 million, driven by higher revenues, $5.7 million in inventory write-downs, $7.9 million in inventory adjustments, and $45.4 million in direct materials, labor, and manufacturing overhead[333] - General and administrative expenses rose by $13.9 million (51%) due to increased headcount, insurance costs, and consulting fees for ERP implementation and financial processes[335] - Research and development expenses increased by $10.6 million (53%) mainly due to higher personnel costs in engineering, including stock-based compensation[336] - Sales and marketing expenses grew by $6.0 million (171%) due to increased headcount and public relations/marketing efforts[337] - Other (expense) income, net, shifted to a $(4.8) million expense in 2022, primarily due to increased interest expense on convertible notes and debentures, and asset impairment[338] - Gain on change in fair value of derivative instruments decreased by $4.3 million, mainly reflecting changes in stock price valuation for warrants and convertible debenture derivatives[339] - Gain on change in fair value of contingent earn-out shares liability decreased by $43.8 million, primarily due to changes in stock price valuation[340] Liquidity and Capital Resources Xos, an early-stage growth company, requires robust access to capital to fund operations, relying on existing cash, marketable securities, and potential future equity or debt financing - Xos, as an early-stage growth company, continues to incur net losses and cash outflows, requiring robust access to capital through debt, equity, or other financing to fund and scale operations[344] Liquidity Sources (as of Dec 31, 2022) | Source | Amount (Millions USD) | | :----- | :-------------------- | | Cash and cash equivalents (excluding restricted cash) | 35.631 | | Investments in marketable debt securities, available-for-sale | 50.648 | | Total | 86.279 | - The company believes existing cash resources are sufficient for the next 12 months and plans to meet longer-term needs through operating cash flows, available balances, and advances under the Standby Equity Purchase Agreement (SEPA)[347] - Xos has a SEPA with Yorkville for up to $125.0 million in Common Stock sales, with $120.7 million remaining as of December 31, 2022, but subject to limitations due to convertible debentures[348] - In 2022, Xos issued $35.0 million in convertible debentures to Yorkville and a $20.0 million convertible promissory note to Aljomaih Automotive Co. for operational liquidity and working capital[349] - Nasdaq rules impose limitations on Common Stock issuance under SEPA and convertible debt without stockholder approval, which Xos's Board of Directors plans to seek[351] Cash Flow Summary (Years Ended December 31, in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(127,960) | $(88,895) | | Net cash provided by (used in) investing activities | $82,710 | $(155,143) | | Net cash provided by financing activities | $64,749 | $252,855 | | Net increase in cash, cash equivalents and restricted cash | $19,499 | $8,817 | Critical Accounting Policies and Estimates Critical accounting policies involve significant management estimates for revenue recognition, inventory valuation, income taxes, warranty liability, and fair value measurements of financial instruments - Critical accounting policies involve significant management estimates and judgments, particularly in valuing stock-based compensation, convertible notes, SAFE, and derivative liabilities[361] - Revenue recognition follows ASC 606, recognizing revenue when performance obligations are satisfied, typically upon product delivery and title transfer[364] - Inventories are valued at the lower of cost or net realizable value using average costing, with write-downs for damage, obsolescence, or price changes[366][368] - Income taxes are accounted for using the asset and liability method, with deferred tax assets and liabilities recognized for temporary differences and a valuation allowance established when realization is uncertain[370][371] - Warranty liability is accrued based on best estimates of projected repair/replacement costs under warranties and recalls, considering actual claims and future claim frequency/costs[373] - Public Warrants are classified as Level 1 financial instruments, and Private Placement Warrants as Level 2, with fair value changes included in earnings[378] - Contingent earn-out shares liability is a freestanding financial instrument classified as a Level 3 liability, adjusted to fair value at each reporting date with changes recorded in the income statement[379] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Xos is exposed to market risks from interest rate fluctuations, inflation, and foreign currency exchange rates, managing interest rate risk through investment in high-quality debt securities - Xos is exposed to market risks from changes in interest rates, inflation, and foreign currency exchange rates[385] - The company manages interest rate risk by investing in a portfolio of high-quality, investment-grade fixed and variable rate debt securities (e.g., U.S. treasuries, corporate debt), with a primary objective of principal safety and future liquidity[386] Impact of Interest Rate Changes on Fair Value of Investments (as of Dec 31, 2022, in thousands) | Change in Interest Rate | Approximate Change in Fair Value of Investments | | :---------------------- | :-------------------------------------------- | | 2% Decrease | $318 | | 1% Decrease | $159 | | 1% Increase | $(159) | | 2% Increase | $(318) | - There was no material foreign currency risk for the years ended December 31, 2022 and 2021, as all investments are denominated in U.S. Dollars[388] - Inflation increases the cost of goods and services; if significant inflationary pressures cannot be offset by price increases or alternative solutions, it could harm Xos's business and financial results[389] Item 8. Financial Statements and Supplementary Data This section presents Xos's audited consolidated financial statements for 2022 and 2021, prepared under U.S. GAAP, with detailed notes on accounting policies and financial instruments - The consolidated financial statements for Xos, Inc. and subsidiaries as of December 31, 2022, and for the years ended December 31, 2022 and 2021, are presented in conformity with U.S. GAAP[394][400][429] - Grant Thornton LLP served as the company's auditor for 2022, and WithumSmith+Brown, PC served as the predecessor auditor for 2021[399][404] - The company changed its method of accounting for leases on January 1, 2022, due to the adoption of ASC 842, Leases[395][495] Consolidated Balance Sheet Highlights (as of Dec 31, in thousands) | Asset/Liability | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Cash and cash equivalents | $35,631 | $16,142 | | Total current assets | $163,201 | $165,958 | | Total assets | $189,936 | $228,706 | | Total current liabilities | $45,766 | $15,983 | | Total liabilities | $77,861 | $54,313 | | Total stockholders' equity | $112,075 | $174,393 | Consolidated Statements of Operations Highlights (Years Ended Dec 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Revenues | $36,376 | $5,048 | | Gross loss | $(30,029) | $(2,362) | | Loss from operations | $(111,348) | $(53,155) | | Net (loss) income | $(73,325) | $23,401 | | Basic Net (loss) income per share | $(0.44) | $0.22 | | Diluted Net (loss) income per share | $(0.44) | $0.22 | Consolidated Statements of Cash Flows Highlights (Years Ended Dec 31, in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(127,960) | $(88,895) | | Net cash provided by (used in) investing activities | $82,710 | $(155,143) | | Net cash provided by financing activities | $64,749 | $252,855 | | Net increase in cash, cash equivalents and restricted cash | $19,499 | $8,817 | Report of Independent Registered Public Accounting Firm Grant Thornton LLP issued an unqualified opinion on Xos's 2022 consolidated financial statements, noting a change in accounting principle for leases - Grant Thornton LLP audited Xos, Inc.'s consolidated financial statements for the year ended December 31, 2022, and expressed an unqualified opinion that they present fairly, in all material respects, the financial position and results of operations[394] - The audit noted a change in accounting principle for leases on January 1, 2022, due to the adoption of ASC 842[395] Report of Predecessor Independent Registered Public Accounting Firm WithumSmith+Brown, PC issued an unqualified opinion on Xos's 2021 consolidated financial statements, confirming fair presentation of financial position and results - WithumSmith+Brown, PC audited Xos, Inc.'s consolidated financial statements for the year ended December 31, 2021, and expressed an unqualified opinion that they present fairly, in all material respects, the financial position and results of operations[400] Consolidated Balance Sheets The consolidated balance sheets present Xos's financial position as of December 31, 2022 and 2021, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (as of Dec 31, in thousands) | Asset/Liability | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Cash and cash equivalents | $35,631 | $16,142 | | Restricted cash | $3,044 | $3,034 | | Accounts receivable, net | $8,238 | $3,353 | | Marketable debt securities, available-for-sale — short-term | $50,648 | $94,696 | | Inventories | $57,540 | $30,883 | | Prepaid expenses and other current assets | $8,100 | $17,850 | | Total current assets | $163,201 | $165,958 | | Property and equipment, net | $18,581 | $7,426 | | Operating lease right-of-use assets, net | $6,555 | $— | | Marketable debt securities, available-for-sale — long-term | $— | $54,816 | | Other non-current assets | $1,599 | $506 | | Total assets | $189,936 | $228,706 | | Accounts payable | $2,896 | $10,122 | | Convertible debt, current | $26,849 | $— | | Derivative liabilities | $405 | $— | | Other current liabilities | $15,616 | $5,861 | | Total current liabilities | $45,766 | $15,983 | | Convertible debt, non-current | $19,870 | $— | | Earn-out shares liability | $564 | $29,240 | | Common stock warrant liability | $661 | $7,496 | | Other non-current liabilities | $11,000 | $1,594 | | Total liabilities | $77,861 | $54,313 | | Total stockholders' equity | $112,075 | $174,393 | | Total liabilities and stockholders' equity | $189,936 | $228,706 | Consolidated Statements of Operations and Comprehensive Income (Loss) The consolidated statements present Xos's revenues, expenses, and net income (loss) for 2022 and 2021, showing a net loss of $73.3 million in 2022 Consolidated Statements of Operations and Comprehensive Income (Loss) (Years Ended Dec 31, in thousands, except per share amounts) | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Revenues | $36,376 | $5,048 | | Cost of goods sold | $66,405 | $7,410 | | Gross loss | $(30,029) | $(2,362) | | General and administrative | $41,093 | $27,197 | | Research and development | $30,679 | $20,077 | | Sales and marketing | $9,547 | $3,519 | | Total operating expenses | $81,319 | $50,793 | | Loss from operations | $(111,348) | $(53,155) | | Other (expense) income, net | $(4,835) | $38 | | Change in fair value of derivative instruments | $14,184 | $18,498 | | Change in fair value of earn-out shares liability | $28,682 | $72,505 | | Net (loss) income | $(73,325) | $23,401 | | Total comprehensive (loss) income | $(73,683) | $23,020 | | Basic Net (loss) income per share | $(0.44) | $0.22 | | Diluted Net (loss) income per share | $(0.44) | $0.22 | | Weighted average shares outstanding (Basic) | 165,253 | 105,568 | | Weighted average shares outstanding (Diluted) | 174,382 | 107,786 | Consolidated Statements of Stockholders' Equity The consolidated statements detail changes in Xos's stockholders' equity for 2022 and 2021, including common stock, additional paid-in capital, and accumulated deficit Consolidated Statements of Stockholders' Equity (Years Ended Dec 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Common Stock Par Value | $17 | $16 | | Additional Paid-in Capital | $190,215 | $178,851 | | Accumulated Deficit | $(77,418) | $(4,093) | | Accumulated Other Comprehensive Loss | $(739) | $(381) | | Total Stockholders' Equity | $112,075 | $174,393 | - The statement details changes in stockholders' equity, including stock options exercised, RSU vesting, stock-based compensation expense, and the impact of the Business Combination and convertible note conversions[409] Consolidated Statements of Cash Flows The consolidated statements present Xos's cash flows from operating, investing, and financing activities for 2022 and 2021, showing a net increase in cash Consolidated Statements of Cash Flows (Years Ended Dec 31, in thousands) | Activity | 2022 | 2021 | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(127,960) | $(88,895) | | Net cash provided by (used in) investing activities | $82,710 | $(155,143) | | Net cash provided by financing activities | $64,749 | $252,855 | | Net increase in cash, cash equivalents and restricted cash | $19,499 | $8,817 | | Cash, cash equivalents and restricted cash, end of year | $38,675 | $19,176 | - Non-cash financing activities in 2022 included $7.7 million for ROU asset recognition upon ASC 842 adoption and $2.0 million for convertible debenture conversion to Common Stock[414] - In 2021, significant non-cash activities included $79.7 million for Legacy Xos Preferred Stock conversion to Common Stock, $17.9 million for warrant assumption, and $101.7 million for earn-out shares liability recognition[414] Notes to Consolidated Financial Statements Notes provide detailed information on Xos's business, risks, liquidity strategy, key accounting policies, and financial instruments, including derivative liabilities and stock-based compensation - Notes provide detailed information on Xos's business, including its role as a fleet electrification solutions provider and the Business Combination on August 20, 2021, which made it a publicly traded entity[417] - The company faces risks and uncertainties from global economic conditions, including inflation, interest rate increases, bank failures, supply chain disruptions, and geopolitical events like the Russia-Ukraine war[418][420] - Xos's liquidity strategy involves maintaining access to capital through debt, equity, and other financing, with existing cash and marketable securities totaling $86.3 million as of December 31, 2022, deemed sufficient for the next 12 months[424][425][426] - Key accounting policies include revenue recognition (ASC 606), inventory valuation (lower of cost or NRV), income taxes (asset and liability method with valuation allowance), and accounting for leases (ASC 842 adopted Jan 1, 2022)[434][442][447][495] - The company's financial instruments include Public and Private Placement Warrants (derivative liabilities), Convertible Debentures, and a Convertible Promissory Note, with fair value changes impacting earnings[460][461][463][467] - Stock-based compensation expense for 2022 was $5.2 million, primarily from RSUs under the 2021 Equity Plan, with $13.5 million in unamortized compensation remaining[608][610] Item 9. Changes In and Disagreement With Accountants on Accounting and Financial Disclosure Xos, Inc. reported no changes in or disagreements with accountants on accounting and financial disclosure for the fiscal year ended December 31, 2022 - There were no changes in or disagreements with accountants on accounting and financial disclosure[648] Item 9A. Controls and Procedures Xos's disclosure controls were not effective as of December 31, 2022, due to a material weakness in inventory management, with remediation efforts underway for 2023 - As of December 31, 2022, Xos's disclosure controls and procedures were deemed not effective due to a material weakness in internal control over financial reporting[650] - The identified material weakness relates to the ineffective operation of controls concerning inventory management, which led to errors in financial statements for prior periods[180][654] - Management is implementing remediation steps, including adding internal controls, implementing new software tools, and partnering with external consultants, with remediation expected during 2023[656][657] - Despite the material weakness, management concluded that the audited consolidated financial statements in the Form 10-K are fairly stated in all material respects[655] Item 9B. Other Information This item contains no other information - No other information is reported under this item[659] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Xos, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[660] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[663] - Xos has a Code of Conduct for directors, officers, and employees, accessible on its investor relations website[664] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Executive compensation information is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[665] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2023 Annual Meeting proxy statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[666] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Annual Meeting proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[667] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders[668] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements and exhibits filed as part of the Form 10-K, including corporate governance documents, equity plans, and debt agreements - The Index to Consolidated Financial Statements from Item 8 is included, and all financial statement schedules are omitted as not applicable or already presented[670] - A list of exhibits is provided, including the Agreement and Plan of Merger, Certificate of Incorporation, Bylaws, Warrant Agreement, various offer letters, and debt agreements (e.g., Convertible Promissory Note, Securities Purchase Agreement with Yorkville)[671][673][677] - Many exhibits are incorporated by reference from previous SEC filings, such as Current Reports on Form 8-K and Registration Statements on Form S-1[671][673][677] Item 16. Form 10-K Summary This item is not applicable to Xos, Inc - Form 10-K Summary is not applicable[676] Signatures The Annual Report on Form 10-K for 2022 was signed on March 31, 2023, by the CEO, CFO, and other directors and officers - The report was signed on March 31, 2023, by Dakota Semler (CEO and Principal Executive Officer) and Kingsley E. Afemikhe (CFO, Principal Financial Officer, and Principal Accounting Officer)[679][680][684] - Other directors and officers also signed, granting power of attorney to Dakota Semler and Kingsley Afemikhe for signing amendments and supplements to the report[682][683][684]