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XCHG Limited(XCH) - 2024 Q4 - Annual Report
XCHG LimitedXCHG Limited(US:XCH)2025-04-23 12:30

PART I ITEM 3. KEY INFORMATION XCHG operates as a holding company, relying on subsidiary dividends, and completed IPO filings while managing regulatory and market risks - The company operates as a holding company, relying on subsidiary dividends subject to local regulations, particularly in the PRC2829 - The company completed required CSRC filings for its initial public offering on December 27, 2023, with future overseas offerings also requiring CSRC approval3540 - The company does not expect to be identified as a Commission-Identified Issuer under the HFCAA due to its PCAOB-inspected auditor45138 Risk Factors The company faces business, regulatory, international, and ADS-specific risks, including growth management, EV market dependency, and data security - Business risks include managing growth, high dependency on EV adoption, rapid technological changes, and intense competition51 - Regulatory risks stem from uncertainties in PRC laws, particularly new overseas securities and data security regulations53124 - International operations are exposed to unfavorable regulatory, political, and trade policy changes, especially U.S.-China tensions53150152 - ADS-specific risks include price volatility, potential PFIC classification, and concentrated voting power from a dual-class share structure52192198 - Two material weaknesses in internal control were identified for FY2024: insufficient U.S. GAAP/SEC accounting expertise and inadequate general information technology controls (GITCs)112113 Information on the Company XCHG, a Cayman Islands holding company, provides global EV charging solutions, including battery-integrated systems, relying on OEMs for manufacturing and navigating extensive regulations - The company offers comprehensive EV charging solutions, including DC fast chargers (C6/C7) and advanced battery-integrated systems (NZS/GridLink)210219 - NZS and GridLink integrate DC fast chargers with lithium-ion batteries and EMS, enabling fast charging and Battery-to-Grid (B2G) functions212213214 - The company employs a 'charger-as-a-service' model, generating initial product sales and growing recurring service revenue216 - Production primarily relies on OEMs for quality and speed, with plans for a new manufacturing facility in Texas for localized output218243329 History and Development of the Company XCHG Limited, incorporated in Cayman Islands in 2021, traces its origins to 2015 and completed its Nasdaq IPO in September 2024 - XCHG Limited was incorporated in the Cayman Islands on December 16, 2021, originating from X-Charge Technology founded in PRC in 2015205206 - The company completed its initial public offering in September 2024, with ADSs trading on Nasdaq under 'XCH'208 Business Overview The company offers advanced EV charging solutions, leveraging proprietary technologies, serving global customers, outsourcing manufacturing, and navigating extensive regulations Charging Product Portfolio | Model | Peak Output | Number of Charging Guns | Battery Storage | Bi-directional Charging | | :--- | :--- | :--- | :--- | :--- | | C6 | 200 kW | Two | No | No | | C7 | 420 kW | Two | No | No | | NZS | 210 kW | Two | 466 kWh | Yes | | GridLink | 194 kW / 300 kW | Two | 430 kWh | Yes | - Key technologies include proprietary heat treatment for battery safety, adaptive smart charging, and an advanced Energy Management System (EMS) supporting bi-directional charging like B2G236237238 - As of December 31, 2024, the R&D team comprised 88 personnel in Germany and China, holding 60 patents, 20 copyrights, and 53 trademarks246247 - The company is subject to extensive regulations in key markets, including product safety, data protection (GDPR), and antitrust in Germany, and foreign investment, cybersecurity, and data security in the PRC257258272 Property, Plant and Equipment The company leases 2,669 square meters of office space and plans a new US manufacturing plant by 2026, costing $5-7.5 million - The company leases approximately 2,669 square meters of office space across Germany, the PRC, and the United States as of December 31, 2024328 - A new U.S. manufacturing plant is planned for construction around 2026, with an estimated cost of US$5 to US$7.5 million, to enhance production capacity329 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS In FY2024, revenue grew to $42.2 million and gross profit increased, but surging operating expenses led to a wider net loss of $11.9 million, with liquidity supported by IPO proceeds Operating Results In FY2024, revenues increased 9.6% to $42.2 million and gross margin improved to 50.3%, but a 35.8% surge in operating expenses led to an $11.9 million net loss Consolidated Results of Operations (2022-2024) | | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Revenues | $29.4M | $38.5M | $42.2M | | Gross Profit | $10.7M | $17.6M | $21.2M | | Gross Margin | 36.4% | 45.6% | 50.3% | | Total Operating Expenses | $9.1M | $24.5M | $33.3M | | Operating Income (Loss) | $1.7M | ($6.5M) | ($12.0M) | | Net Income (Loss) | $1.6M | ($8.1M) | ($11.9M) | Revenue Breakdown (2022-2024) | Revenue Source | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Product revenues | $28.7M | $38.1M | $41.5M | | Service revenues | $0.7M | $0.5M | $0.7M | | Total | $29.4M | $38.5M | $42.2M | Operating Expenses Breakdown (2022-2024) | Expense Category | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Selling and marketing | $3.5M | $6.4M | $10.3M | | Research and development | $2.8M | $4.1M | $12.2M | | General and administrative | $2.7M | $14.0M | $10.8M | | Total | $9.1M | $24.5M | $33.3M | - Research and development expenses surged 199.4% from 2023 to 2024, driven by a $5.6 million increase in outsourcing and a $2.3 million rise in share-based compensation379 Adjusted Net Income (Loss) Reconciliation (2022-2024) | | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net income (loss) | $1,610K | ($8,084K) | ($11,941K) | | Share-based compensation | — | $7,457K | $7,031K | | Changes in fair value of financial instruments | $191K | $1,472K | $88K | | Gain on extinguishment of convertible debts | — | — | ($233K) | | Adjusted net income (loss) | $1,801K | $845K | ($5,055K) | Liquidity and Capital Resources As of December 31, 2024, the company held $26.8 million in cash, with net cash used in operations at $7.2 million, offset by $19.1 million from IPO financing Consolidated Cash Flow Data (2022-2024) | (in thousands USD) | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $849 | ($5,576) | ($7,202) | | Net cash from investing activities | $1,222 | $2,266 | ($534) | | Net cash from financing activities | $2,278 | $10,743 | $19,150 | | Net increase in cash | $3,842 | $7,022 | $11,081 | | Cash at end of year | $8,670 | $15,693 | $26,774 | - As of December 31, 2024, the company held $26.8 million in cash and equivalents, primarily in RMB ($12.0M), USD ($10.1M), and EUR ($4.7M)391 - Net cash used in operating activities increased to $7.2 million in 2024 from $5.6 million in 2023, driven by higher prepayments and related party receivables396397 - Net cash from financing activities in 2024 was $19.1 million, primarily from initial public offering proceeds401 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES The company's leadership, compensation, and governance are shaped by its dual-class share structure, with founders controlling 81.9% of voting power and 184 employees as of FY2024 - The company's leadership includes Yifei Hou as CEO and Rui Ding as Chairman and CTO419424 - For FY2024, aggregate cash compensation was US$0.5 million for executive officers and US$0.05 million for non-executive directors427 - Multiple share incentive plans (2023, 2023 II, 2025) have been adopted to grant equity awards to key personnel431439441 - As of March 31, 2025, founders Yifei Hou and Rui Ding control 81.9% of aggregate voting power through Class B shares, making the company a 'controlled company'193195 - As of December 31, 2024, the company had 184 employees, with 88 in Research and Development455 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The company engaged in related party transactions, including interest-free advances with founders and dealings with affiliated entities, with founders controlling 81.9% of voting power - The company provided interest-free advances to founders Yifei Hou ($0.4 million) and Rui Ding ($0.3 million) in 2023, fully collected by early 2024468470 - Transactions with affiliated entities included $0.4 million in inventory purchases from Zhichong Technology and $1.7 million in product sales to Beijing Zhichong New Energy in 2024473478 - A RMB30.3 million ($4.2 million) loan was provided to Beijing Puyan Enterprise Management Co., Ltd in 2021, with $0.3 million outstanding as of December 31, 2024475477 ITEM 8. FINANCIAL INFORMATION The company's consolidated financial statements are appended, with no material legal proceedings or plans for future dividend payments, retaining earnings for growth - The company is not currently a party to any material legal or administrative proceedings483 - The company has no present plan to pay cash dividends, intending to retain earnings for growth, with future distributions subject to board discretion and legal restrictions484485 ITEM 10. ADDITIONAL INFORMATION XCHG, a Cayman Islands company, has a dual-class share structure and faces potential PRC resident enterprise tax status and PFIC classification risks for U.S. investors - The company's share structure includes Class A (one vote) and Class B (ten votes) ordinary shares, with Class B convertible to Class A502504 - The Cayman Islands does not levy taxes on profits, income, capital gains, or withholding taxes on dividends561 - The company risks classification as a PRC resident enterprise, potentially incurring a 25% enterprise income tax on worldwide income and withholding tax on dividends566569 - The company does not believe it was a Passive Foreign Investment Company (PFIC) for 2024, though status is annually determined and PFIC classification would have adverse U.S. tax consequences199585 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces foreign currency risk from global operations, manages credit risk through financial institutions and customer evaluations, and deems interest rate risk immaterial - The company's U.S. Dollar reporting currency, alongside Euro and Renminbi functional currencies, exposes it to foreign currency translation and transaction risks603 - Credit risk in cash and receivables is mitigated by using high-rated banks and performing customer credit evaluations605606607 - Interest rate risk is minimal due to immaterial floating rate debt exposure and no use of derivative financial instruments for hedging608 PART II This section details the use of $15.0 million IPO proceeds, identifies two material weaknesses in internal controls, and outlines corporate governance practices as a foreign private issuer Use of Proceeds The company received $15.0 million net proceeds from its September 2024 IPO, using $10.8 million by year-end for R&D, market expansion, and offering expenses - The company received US$15.0 million in net proceeds from its September 2024 IPO after US$6.5 million in expenses622 - By December 31, 2024, approximately US$10.8 million of net proceeds were used for R&D, global market expansion, and IPO-related professional expenses623 Controls and Procedures As of December 31, 2024, two material weaknesses in internal control were identified: insufficient U.S. GAAP/SEC expertise and inadequate GITC policies, with remediation underway - A material weakness was identified due to insufficient financial reporting and accounting personnel with U.S. GAAP and SEC expertise627 - A second material weakness involves the failure to establish formal policies for general information technology controls (GITCs), including user access and SaaS provider oversight627 - Remediation plans include hiring financial staff, training, formalizing IT policies, enhancing access controls, and reassessing SaaS providers628632 Corporate Governance and Other Disclosures The company has an audit committee financial expert, follows Cayman Islands corporate governance as a foreign private issuer, and maintains a cybersecurity risk management program - The board designated Rodney James Huey as the audit committee financial expert633 Principal Accountant Fees (2023-2024) | (in thousands USD) | 2023 | 2024 | | :--- | :--- | :--- | | Audit Fees | $987 | $227 | | Tax Fees | $56 | — | | Total | $1,043 | $227 | - As a foreign private issuer, the company adheres to Cayman Islands corporate governance, exempting it from certain Nasdaq rules like majority-independent board requirements642 - A cybersecurity risk management program is in place, overseen by the board and management, with no material threats identified in 2024647648650 PART III This section presents the company's consolidated financial statements for fiscal years 2022-2024, prepared under U.S. GAAP, along with a comprehensive list of exhibits - This part includes the company's consolidated financial statements prepared in accordance with U.S. GAAP, as required by Item 18 of Form 20-F653 - A comprehensive list of exhibits, including corporate governance documents, material contracts, and certifications, is provided654 Financial Statements The consolidated financial statements for FY2022-2024 show total assets of $57.1 million and liabilities of $27.6 million as of Dec 31, 2024, reflecting increased cash post-IPO and widening net losses Consolidated Balance Sheet Highlights (As of Dec 31) | (in thousands USD) | 2023 | 2024 | | :--- | :--- | :--- | | Total Current Assets | $39,745 | $54,411 | | Cash and cash equivalents | $15,661 | $26,774 | | Total Assets | $40,960 | $57,138 | | Total Current Liabilities | $30,728 | $26,188 | | Total Liabilities | $30,980 | $27,629 | | Total Shareholders' (Deficit) Equity | ($30,037) | $29,509 | - The company completed a corporate restructuring in June 2023 to establish an offshore shareholding structure for its IPO, accounted for as a recapitalization696701 - In 2023, 150,000,000 immediately vested shares resulted in a $7.5 million share-based compensation expense, followed by a $7.0 million expense in 2024 under the 2023 Plan II873877 Revenue by Geographic Area (2022-2024) | (in thousands USD) | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Europe | $18,181 | $30,212 | $19,411 | | PRC | $4,256 | $4,751 | $6,067 | | Others | $6,986 | $3,549 | $16,725 | | Total | $29,424 | $38,512 | $42,204 |