QuantumScape(QS) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) QuantumScape, a development-stage company, reported a net loss of $123.0 million for Q2 2024, with total assets of $1.40 billion as of June 30, 2024 Condensed Consolidated Balance Sheets As of June 30, 2024, total assets decreased to $1.40 billion from $1.50 billion, while total liabilities increased to $214.7 million from $161.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $196,388 | $142,524 | | Marketable securities | $741,467 | $928,284 | | Total current assets | $973,469 | $1,083,517 | | Total assets | $1,396,783 | $1,501,978 | | Liabilities & Equity | | | | Accrued liabilities | $66,530 | $10,180 | | Total current liabilities | $112,401 | $57,095 | | Total liabilities | $214,702 | $161,801 | | Total stockholders' equity | $1,180,269 | $1,338,407 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q2 2024, the net loss increased to $123.0 million from $116.5 million in Q2 2023, primarily due to higher research and development expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $97,746 | $86,453 | $181,593 | $163,394 | | General and administrative | $36,711 | $37,089 | $84,765 | $70,126 | | Loss from operations | $(134,457) | $(123,542) | $(266,358) | $(233,520) | | Net loss | $(122,953) | $(116,507) | $(243,581) | $(221,138) | | Net loss per share (Basic & Diluted) | $(0.25) | $(0.26) | $(0.49) | $(0.50) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for the first six months of 2024 was $123.1 million, while investing activities provided $171.8 million Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(123,096) | $(119,994) | | Net cash provided by investing activities | $171,810 | $110,448 | | Net cash provided by financing activities | $5,150 | $6,993 | | Net increase (decrease) in cash | $53,864 | $(2,553) | | Cash at end of period | $214,436 | $250,363 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, the company's pre-revenue status, a new Collaboration Agreement with PowerCo SE, and a $24.5 million litigation settlement charge - The company has not yet derived revenue from its principal business activities of developing and commercializing solid-state lithium-metal batteries[23] - In July 2024, the company terminated its joint venture (QSV) with Volkswagen and entered into a new Collaboration Agreement with PowerCo SE (a Volkswagen subsidiary) to industrialize its QSE-5 battery technology, also removing restrictions on $134.0 million of previously reserved funds[137][138] - The company reached an agreement in principle to settle the Securities Class Action Litigation, recording a net charge of $24.5 million for the six months ended June 30, 2024, representing a gross settlement of $47.5 million offset by a $23.4 million insurance receivable[92] - For the six months ended June 30, 2024, the company recorded a credit in stock-based compensation expense of $14.8 million related to the EPA Program, primarily due to the reversal of $16.9 million in previously recognized expense for forfeited options[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's pre-revenue status, focus on QSE-5 development, increased operating loss, and belief that $937.9 million in cash resources will fund operations into 2028 Key Trends, Opportunities and Uncertainties The company's success depends on advancing QSE-5 development, scaling manufacturing, and commercialization, with a new Collaboration Agreement with PowerCo and sufficient cash to fund operations into 2028 - Current R&D focuses on improving energy density, cathode technology, quality, consistency, and throughput for its prototype cells, with the first targeted commercial product being the QSE-5[144][145] - On July 5, 2024, the company entered into a Collaboration Agreement with PowerCo SE (Volkswagen) to industrialize its QSE-5 battery technology, superseding the previous joint venture[154] - Based on the current business plan, the company believes its cash resources will last into 2028, bolstered by $288.2 million net proceeds from an August 2023 public offering[157] Results of Operations For the six months ended June 30, 2024, total operating expenses increased by 14% to $266.4 million, driven by higher R&D and a $24.5 million litigation settlement accrual Comparison of Operating Results (in thousands) | | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $181,593 | $163,394 | $18,199 | 11% | | General and administrative | $84,765 | $70,126 | $14,639 | 21% | | Total operating expenses | $266,358 | $233,520 | $32,838 | 14% | | Loss from operations | $(266,358) | $(233,520) | $(32,838) | 14% | | Net loss | $(243,581) | $(221,138) | $(22,443) | 10% | - The increase in G&A expenses for the six months ended June 30, 2024, was primarily due to a $24.5 million net litigation settlement accrual and an $11.5 million increase in other legal and professional fees, partially offset by a $22.3 million decrease in stock-based compensation expense[175] Liquidity and Capital Resources As of June 30, 2024, the company had approximately $937.9 million in cash, cash equivalents, and marketable securities, believed sufficient to fund operations into 2028 - Principal sources of liquidity as of June 30, 2024, were cash, cash equivalents, and marketable securities totaling approximately $937.9 million[178] - The company believes its cash on hand is sufficient to meet working capital and capital expenditure requirements for at least twelve months and that its cash resources will last into 2028[182] Summary of Cash Flows (in thousands) | | For the Six Months Ended June 30, 2024 | For the Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(123,096) | $(119,994) | | Net cash provided by investing activities | $171,810 | $110,448 | | Net cash provided by financing activities | $5,150 | $6,993 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states there have been no material changes to its market risk exposure during the three months ended June 30, 2024 - There have been no material changes to the Company's market risk during the three months ended June 30, 2024[198] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[200] - There were no material changes to the company's internal control over financial reporting during the three months ended June 30, 2024[201] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section directs readers to Note 7 of the condensed consolidated financial statements for information regarding the company's legal proceedings - Information regarding legal proceedings is available in Note 7, Commitments and Contingencies, to the condensed consolidated financial statements[204] Item 1A. Risk Factors The company outlines significant risks across technology development, customer relationships, business operations, and financial aspects, including challenges in scaling production, dependency on PowerCo, and stock price volatility Technology Development and Scale-Up Risks The company faces substantial challenges in developing its solid-state battery and scaling production to high volumes while meeting performance, quality, cost, and safety targets - The company faces significant challenges in developing a solid-state battery cell and producing it at high volumes with acceptable performance, quality, consistency, reliability, and cost[207] - The company may not be able to establish supply relationships for necessary materials and equipment or may face higher than anticipated costs, which could delay product introduction[217] - The company relies on complex machinery that has not yet been qualified for large-scale manufacturing, posing risks of unexpected malfunctions, delays, and additional costs[226] Customer and Volkswagen Relationship Risks The critical relationship with Volkswagen's PowerCo carries risks, including no guarantee of meeting IP License Agreement milestones, potential deterrence of other OEMs, and dependency on broader EV adoption - The collaboration with PowerCo (Volkswagen) is subject to risks, and there are no assurances that the company will meet the milestones required to enter into the planned IP License Agreement[235][237] - The strong relationship with Volkswagen may deter other automotive OEMs from working with the company, and over-dependence on this single partner could harm the business[238] Business and Operational Risks The company operates in a highly competitive and evolving battery market, has a history of financial losses, and faces risks related to cybersecurity, litigation, and global disruptions - The battery market is highly competitive, and the company may not be successful in competing against established lithium-ion manufacturers and other companies developing solid-state batteries[254] - The company is an early-stage entity with a history of financial losses (accumulated deficit of approximately $3.1 billion as of June 30, 2024) and expects to incur significant and continuing losses for the foreseeable future[259] - The company is involved in various litigation and regulatory matters which could have an adverse impact on its financial position and profitability[270] Stock Ownership and Financial Risks Ownership of the company's stock involves significant price volatility, the capital-intensive business may require dilutive additional funding, and the dual-class structure concentrates voting power - The trading price of the Class A Common Stock has been and may continue to be subject to extreme volatility[295] - The company's business is capital-intensive, and it may need to raise additional capital, which may not be available on attractive terms and could be dilutive to stockholders[305] - The dual-class structure of the common stock concentrates voting control with holders of Class B Common Stock, limiting the ability of other stockholders to influence corporate matters[311] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[340] Item 5. Other Information During the last fiscal quarter, two company insiders adopted Rule 10b5-1 trading plans for the sale of Class A Common Stock - On June 4, 2024, Director Prof. Dr. Jürgen Leohold adopted a Rule 10b5-1 trading plan for the sale of up to 100,236 shares of Class A Common Stock[343] - On June 6, 2024, CFO Kevin Hettrich adopted a Rule 10b5-1 trading plan for the sale of up to 570,641 shares of Class A Common Stock[344]