Canoo (GOEV) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents the unaudited interim financial statements, management's analysis, and disclosures on market risk and internal controls Item 1. Financial Statements (Unaudited) This section contains the unaudited condensed consolidated financial statements and accompanying notes for the reported periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $6,815 | $224,721 | | Total current assets | $40,412 | $291,306 | | Property and equipment, net | $301,974 | $202,314 | | Total assets | $444,786 | $523,074 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $183,194 | $136,192 | | Contingent earnout shares liability | $6,188 | $29,057 | | Total liabilities | $216,915 | $179,075 | | Total stockholders' equity | $227,871 | $343,999 | | Total liabilities and stockholders' equity | $444,786 | $523,074 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share values) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $— | $— | $— | $— | | Total costs and operating expenses | $109,338 | $107,006 | $423,629 | $308,422 | | Loss from operations | $(109,338) | $(107,006) | $(423,629) | $(308,422) | | Net loss and comprehensive loss | $(117,705) | $(80,875) | $(407,464) | $(208,656) | | Net loss per share, basic and diluted | $(0.43) | $(0.35) | $(1.62) | $(0.92) | | Weighted-average shares outstanding, basic and diluted | 275,455 | 228,477 | 250,783 | 226,747 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statement of Stockholders' Equity (in thousands) - Nine Months Ended September 30, 2022 | Metric | Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance as of December 31, 2021 | 238,578 | $24 | $1,036,104 | $(692,129) | $343,999 | | Net loss and comprehensive loss | — | — | — | $(407,464) | $(407,464) | | Balance as of September 30, 2022 | 299,868 | $29 | $1,327,435 | $(1,099,593) | $227,871 | - Total shares outstanding increased from 238,578 thousand at December 31, 2021, to 299,868 thousand at September 30, 2022, reflecting various equity issuances including under SEPA, PIPE, PPA, and legal settlements[32] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) - Nine Months Ended September 30 | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(329,863) | $(180,621) | | Net cash used in investing activities | $(58,377) | $(100,110) | | Net cash provided by (used in) financing activities | $181,271 | $(5,377) | | Net decrease in cash, cash equivalents, and restricted cash | $(206,969) | $(286,108) | | Cash, cash equivalents, and restricted cash, end of period | $20,523 | $416,314 | - The company experienced a significant increase in net cash provided by financing activities in 2022 ($181.3 million) compared to net cash used in 2021 ($(5.4) million), primarily due to proceeds from PPA, PIPE, and SEPA agreements[40] Notes to Condensed Consolidated Financial Statements 1. Organization and Business - Canoo Inc is a mobility technology company focused on developing an electric vehicle (EV) platform for rapid innovation, lower costs, and multiple use cases[44] 2. Basis of Presentation and Summary of Significant Accounting Policies - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP for interim reporting, with certain disclosures omitted if they duplicate annual report information[45] Liquidity and Capital Resources - The Company has incurred losses since inception and had negative cash flow from operating activities of $329.9 million for the nine months ended September 30, 2022, raising substantial doubt about its ability to continue as a going concern for the next twelve months[47][49] - Management is exploring additional capital through debt, non-dilutive, and/or equity financing, but cannot conclude that these plans are probable of successful implementation[48] Macroeconomic Conditions - Adverse macroeconomic conditions, including heightened inflation, slower growth, higher interest rates, supply chain challenges, and COVID-19 impacts, could negatively affect the business[50] Property and Equipment, net - Construction-in-progress is recorded at historical cost and depreciated once placed into service, requiring significant judgment in useful life determination[52] Fair Value of Financial Instruments Fair Value of Financial Instruments (in thousands) | Liability | September 30, 2022 Fair Value | December 31, 2021 Fair Value | | :--- | :--- | :--- | | Contingent earnout shares liability | $6,188 | $29,057 | - The contingent earnout shares liability is measured at fair value using Level 3 inputs, reflecting unobservable and significant inputs[54] Earnout Shares Liability - The contingent earnout shares liability decreased by $22.9 million during the nine months ended September 30, 2022, from $29.1 million to $6.2 million[59] Convertible Debt - Convertible debt is classified as a liability at amortized cost using the effective interest method, with discounts and issuance costs amortized to interest expense[60] Warrants - Warrants are classified as either liability or equity based on specific terms and accounting guidance (ASC 480 and ASC 815), with liability-classified warrants requiring fair value accounting at issuance and subsequently[61] 3. Recent Accounting Pronouncements - The Company adopted ASU No 2021-10 (Government Assistance disclosures) in Q1 2022 and is assessing ASU No 2022-04 (Supplier Finance Programs disclosures) for future impact[64][65] 4. Prepaids and other current assets Prepaids and other current assets (in thousands) | Asset | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Receivable from VDL Nedcar | $— | $30,440 | | Deferred battery supplier cost | $18,300 | $18,300 | | Short term deposits | $2,977 | $7,030 | | Prepaid expense | $6,021 | $4,865 | | Other current assets | $809 | $3,179 | | Total | $28,107 | $63,814 | - Total prepaids and other current assets decreased from $63.8 million at December 31, 2021, to $28.1 million at September 30, 2022, primarily due to the return of prepayment from VDL Nedcar[66] 5. Property and Equipment, net Property and Equipment, net (in thousands) | Asset Category | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Tooling, machinery, and equipment | $31,309 | $18,040 | | Construction-in-progress | $267,830 | $176,162 | | Total Property and equipment, net | $301,974 | $202,314 | - Construction-in-progress significantly increased from $176.2 million to $267.8 million, reflecting ongoing investment in manufacturing lines, equipment, and tooling for vehicle production[67] - Depreciation expense for property and equipment increased to $9.0 million for the nine months ended September 30, 2022, from $6.3 million in the prior year period[68] 6. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Expense Category | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accrued property and equipment purchases | $26,331 | $34,375 | | Accrued research and development costs | $23,398 | $23,994 | | Accrued professional fees | $14,174 | $9,239 | | Accrued battery supplier costs | $— | $10,000 | | Other accrued expenses | $10,215 | $6,317 | | Total accrued expenses | $74,118 | $83,925 | - Total accrued expenses decreased from $83.9 million at December 31, 2021, to $74.1 million at September 30, 2022, primarily due to the absence of accrued battery supplier costs[69] 7. Convertible Debt - Canoo entered into a Pre-Paid Advance Agreement (PPA) with Yorkville for up to $300 million, receiving $49.5 million and $39.6 million in advances; as of September 30, 2022, $12.5 million remained outstanding[70][72] - Interest expense under the PPA for the nine months ended September 30, 2022, was $2.2 million, including effective interest, debt issuance costs, and debt discount amortization[72] 8. Commitments and Contingencies - The Company issued a $9.5 million standby letter of credit for its Bentonville, Arkansas facility lease, included in non-current restricted cash[76] - Canoo is involved in several legal proceedings, including class action complaints, a stockholder derivative complaint (dismissed), an SEC investigation, and an action against DDG for Section 16(b) profits, but does not consider them material to its business or financial condition[78][80][81][82][84] - A confidential arbitration with a former employee was settled by issuing 2,033,864 shares of Common Stock[83] 9. Operating Leases - Canoo entered into a 10-year operating lease for its Bentonville, Arkansas industrialization facility in Q1 2022[86] - A Michigan R&D lease commenced in August 2022, expiring in January 2033, with a standby letter of credit of $1.1 million[89] - As of September 30, 2022, the operating lease ROU asset was $28.5 million and the operating lease liability was $29.3 million, with a weighted average discount rate of 6.96%[91] 10. Related Party Transactions - Aircraft reimbursement to CEO Tony Aquila for business-related travel was approximately $0.6 million for the nine months ended September 30, 2022, down from $1.5 million in the prior year[95] - The Company paid Aquila Family Ventures, LLC (controlled by Mr Aquila) $0.8 million for shared services support in its Justin, Texas corporate office facility for the nine months ended September 30, 2022[95] - In May 2022, the Company completed a PIPE offering, selling 13.7 million shares for $50.0 million to special purpose vehicles managed by entities affiliated with Mr Tony Aquila[96] 11. Stock-based Compensation - Total stock-based compensation expense for the nine months ended September 30, 2022, was $60.9 million, a decrease from $89.7 million in the prior year[102] - The Company granted 13.8 million RSUs and 4.3 million PSUs during the nine months ended September 30, 2022, with PSUs vesting based on operational milestones[97][99] - Unrecognized compensation cost as of September 30, 2022, was $86.8 million[102] 12. Equity - The Company terminated its SEPA with Yorkville on August 26, 2022, after issuing 14.2 million shares for $32.5 million in cash proceeds during the nine months ended September 30, 2022[105] - Canoo entered into a Wainwright ATM Program to sell up to $200 million of Common Stock, but had not sold any shares under this program as of September 30, 2022[106][107] 13. Warrants - As of September 30, 2022, there were 23.8 million public warrants outstanding, exercisable at $11.50 per share, expiring December 21, 2025[109] - In February 2022, the Company issued a warrant to VDL Nedcar to purchase 972,222 shares at exercise prices from $18 to $40, classified as equity[111] - In July 2022, Canoo issued a warrant to Walmart to purchase 61.2 million shares at $2.15 per share, with 15.3 million shares immediately vested; this warrant is considered consideration payable to a customer and measured at fair value using the Black-Scholes-Merton model[113][114][115] 14. Net Loss per Share Potential Shares Excluded from Diluted Net Loss per Share (in thousands) - September 30 | Category | 2022 | 2021 | | :--- | :--- | :--- | | Restricted and performance stock units | 33,257 | 15,086 | | Convertible debt | 7,451 | — | | Restricted common stock shares | 3,019 | 5,123 | | Early exercise of unvested stock options | 870 | 3,146 | | Options to purchase common stock | 197 | 285 | 15. Income Taxes - The Company has not generated taxable income since inception, resulting in a full valuation allowance against cumulative deferred tax assets and no income tax benefit[118] 16. Subsequent Events - As of October 5, 2022, the Company entered into a PPA Side Letter requiring weekly payments of $1.0 million to Yorkville to enable sales under the Wainwright ATM Program[119] - From October 1, 2022, through the filing date, Canoo sold 22.1 million shares for $30.5 million net proceeds under the Wainwright ATM Program[121] - The Company entered into EV Fleet Purchase Agreements with Zeeba (at least 3,000 EVs by 2024) and Kingbee (at least 9,300 EVs over five years) in October 2022[123][124] - Canoo agreed to purchase a 630,000 sq ft manufacturing facility in Oklahoma City for $35.9 million and leased a 100,000 sq ft facility in Pryor, Oklahoma, for battery module assembly[122][125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Canoo's financial condition, operational results, and key performance factors Overview - Canoo is a mobility technology company developing an EV platform for rapid innovation, lower costs, and multiple use cases, with a focus on sustainability and manufacturing in Arkansas and Oklahoma[130][134] - The business model is multi-layered, built on a Multi-Purpose Platform (MPP) architecture, featuring proprietary electric drivetrain, battery systems, steer-by-wire technology, and a modular design for various vehicle types[131][132] - The Company is developing a software platform, the Canoo Digital Ecosystem, to aggregate car data and provide valuable insights and services across the vehicle lifecycle, targeting a market opportunity estimated to exceed $1 trillion[133][135] Key Factors Affecting Operating Results Availability of Financing Sources and Commercialization of Our EVs - Canoo requires substantial additional capital to develop EVs, fund operations, and invest in manufacturing capacity, marketing, and infrastructure, expecting significant increases in capital and operating expenditures[139][140][142] - Management believes substantial doubt exists about the Company's ability to continue as a going concern for the next twelve months[142] Macroeconomic Conditions - Adverse macroeconomic conditions, including inflation, slower growth, higher interest rates, and supply chain issues (e.g., semiconductor chip shortages), could negatively impact the business, potentially leading to increased costs and production delays[143][144][145] Key Components of Statements of Operations - Research and development expenses include salaries, benefits, stock-based compensation, materials, and third-party consulting for design, engineering, and manufacturing personnel[147] - Selling, general and administrative expenses primarily consist of salaries, wages, benefits, stock-based compensation, travel, and professional services fees[148] - Depreciation is calculated on a straight-line basis for property and equipment, with no allocation to R&D, cost of revenue, or SG&A[149] Results of Operations Key Operating Results (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $— | $— | $— | $— | | Research and development expenses, excluding depreciation | $57,063 | $59,387 | $255,009 | $158,033 | | Selling, general and administrative expenses, excluding depreciation | $48,826 | $45,510 | $159,600 | $144,072 | | Depreciation | $3,449 | $2,109 | $9,020 | $6,317 | | Total costs and operating expenses | $109,338 | $107,006 | $423,629 | $308,422 | | Loss from operations | $(109,338) | $(107,006) | $(423,629) | $(308,422) | | Net loss and comprehensive loss | $(117,705) | $(80,875) | $(407,464) | $(208,656) | - Net loss increased by 46% to $(117.7) million for the three months ended September 30, 2022, and by 95% to $(407.5) million for the nine months ended September 30, 2022, compared to the prior year periods[150] Research and Development Expenses, excluding Depreciation - R&D expenses decreased by $2.3 million (4%) to $57.1 million for the three months ended September 30, 2022, primarily due to lower engineering and design costs, offset by increased salary and stock-based compensation[151] - R&D expenses increased by $97.0 million (61%) to $255.0 million for the nine months ended September 30, 2022, driven by higher salary and benefits ($40.6 million), R&D costs ($39.6 million), travel ($4.9 million), and professional fees ($4.0 million)[152][153][154] Selling, General and Administrative Expenses, excluding Depreciation - SG&A expenses increased by $3.3 million (7%) to $48.8 million for the three months ended September 30, 2022, mainly due to higher IT expenses, salaries, professional fees, and occupancy costs, partially offset by decreased stock-based compensation[155] - SG&A expenses increased by $15.5 million (11%) to $159.6 million for the nine months ended September 30, 2022, primarily due to increases in salary and benefits ($19.3 million), IT expenses ($10.6 million), professional fees ($9.6 million), and occupancy costs ($3.6 million), offset by a $29.6 million decrease in stock-based compensation[156][157][158][159][160][161] Interest (expense) income - Interest expense of $2.2 million was recognized for the three and nine months ended September 30, 2022, primarily from the PPA, including effective interest, debt issuance costs, and debt discount amortization[163] (Loss) Gain on Fair Value Change in Contingent Earnout Shares Liability - A non-cash loss of $2.1 million was recognized for the three months ended September 30, 2022, while a non-cash gain of $22.9 million was recognized for the nine months ended September 30, 2022, due to remeasurement of the contingent earnout shares liability[164] Loss on Fair Value Change of Private Placement Warrants Liability - A non-cash loss of $1.6 million was recognized for the nine months ended September 30, 2021, related to the fair value change of private placement warrants liability, which were converted to public warrants in March 2021[165] Loss on Extinguishment of Debt - A $4.1 million loss on extinguishment of debt was recognized for the three and nine months ended September 30, 2022, resulting from convertible debt repayments to Yorkville through share issuance[166] Non-GAAP Financial Measures - EBITDA and Adjusted EBITDA are presented as supplemental non-GAAP measures to evaluate operational performance, adjusting for items like stock-based compensation and fair value changes[167][168] Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(117,705) | $(80,875) | $(407,464) | $(208,656) | | EBITDA | $(112,077) | $(78,799) | $(396,255) | $(202,418) | | Adjusted EBITDA | $(80,830) | $(85,799) | $(348,097) | $(212,347) | Liquidity and Capital Resources - As of September 30, 2022, unrestricted cash and cash equivalents were $6.8 million; the Company had an accumulated deficit of $1.1 billion[172][173] - Existing cash resources and additional liquidity sources are not sufficient to support planned operations for the next 12 months, raising substantial doubt about the Company's ability to continue as a going concern[176] - The Company expects continued net losses and negative operating cash flows, with increasing capital and operating expenditures for R&D, manufacturing, marketing, and personnel[173][174][175] Cash Flows Summary Consolidated Cash Flow Statements Data (in thousands) - Nine Months Ended September 30 | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(329,863) | $(180,621) | | Net cash used in investing activities | $(58,377) | $(100,110) | | Net cash provided by (used in) financing activities | $181,271 | $(5,377) | Cash Flows from Operating Activities - Net cash used in operating activities increased to $329.9 million for the nine months ended September 30, 2022, from $180.6 million in the prior year, driven by higher R&D and SG&A expenses[179][180] Cash Flows from Investing Activities - Net cash used in investing activities was $58.4 million for the nine months ended September 30, 2022, primarily for property and equipment purchases ($88.8 million), partially offset by a $30.4 million repayment from VDL Nedcar[182] Cash Flows from Financing Activities - Net cash provided by financing activities was $181.3 million for the nine months ended September 30, 2022, mainly from proceeds under the PPA ($89.1 million), PIPE ($50.0 million), SEPA ($32.5 million), and VDL Nedcar share purchase ($8.4 million)[184] Critical Accounting Estimates - The preparation of financial statements requires significant estimates and assumptions, particularly for warrants, which are classified as equity or liability based on specific terms and accounting guidance[186][188] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Canoo's exposure to market risks, primarily interest rate and inflation, which are currently not material Interest Rate Risk - Canoo is exposed to interest rate risk on its cash and cash equivalents ($6.8 million as of September 30, 2022), primarily invested in low-risk money market funds, thus a sudden change in rates is not expected to materially affect their fair value[191] Inflation Risk - Inflation has not materially affected the business to date, but inflationary factors like increased material costs or overhead could adversely impact financial condition and operating costs upon commercial operations[192] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - Management, including the CEO and Interim CFO, concluded that Canoo's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022[193][194] Changes in Internal Control over Financial Reporting - There were no material changes in internal control over financial reporting during the three months ended September 30, 2022[195] PART II — OTHER INFORMATION This part provides information on legal proceedings, risk factors, unregistered equity sales, and other required disclosures Item 1. Legal Proceedings This section refers to Note 8 for a description of material pending legal proceedings - For details on legal proceedings, refer to Note 8, Commitments and Contingencies, in the financial statements[198] Item 1A. Risk Factors This section updates key risks, emphasizing going concern doubts, customer commitment uncertainty, and potential equity dilution Risks Related to Our Business and Financial Results - Management has identified substantial doubt about Canoo's ability to continue as a going concern, as existing cash and liquidity sources are insufficient for planned operations over the next 12 months[200][201] - The Company's ability to obtain additional capital is uncertain, and failure to do so could lead to termination or significant curtailment of operations[201][203] - Customers like Walmart, Zeeba, and Kingbee may purchase fewer vehicles than anticipated or terminate agreements if performance criteria are not met, adversely affecting revenue and financial condition[205] - Exclusivity granted to Walmart restricts sales to competitors like Amazon, potentially limiting business opportunities[206] Risks Related to Our Securities - The exercise of outstanding warrants (23.8 million public, 1.0 million VDL Nedcar, and 61.2 million Walmart) will dilute existing stockholders and could negatively impact the stock price[208][209] - Substantial sales of Common Stock from financing instruments (67.5 million shares issued as of November 7, 2022) or the perception of such sales could cause the stock price to decline[210][211] General Risk Factors - As a 'smaller reporting company,' Canoo relies on reduced disclosure requirements, which may make its Common Stock less attractive to investors and potentially lead to greater difficulty in raising equity capital or increased stock price volatility[214][217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered sales of equity securities and recent repurchases of unvested common stock - During Q3 2022, Canoo issued 2,033,864 shares of Common Stock to a former employee as part of a confidential arbitration settlement, exempt from registration under Section 4(a)(2) of the Securities Act[215] Repurchases of Unvested Common Stock (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1 - July 31, 2022 | 51,680 | $0.01 | | August 1 - August 31, 2022 | 45,290 | $0.02 | | September 1 - September 30, 2022 | 79,668 | $0.02 | - All repurchased shares were unvested shares from employees/service providers, exercised under the Company's right of repurchase, not part of a publicly announced program[218] Item 3. Defaults Upon Senior Securities This section states that no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred[219] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[220] Item 5. Other Information This section states that there is no other information to report - No other information to report[221] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents and key agreements - The report includes various exhibits such as the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Warrant Issuance Agreement with Walmart, Pre-Paid Advance Agreement with YA II PN, Ltd, and Equity Distribution Agreement with Evercore Group LLC and HC Wainwright & Co, LLC[223] SIGNATURES This section contains the required signatures of authorized officers for the Quarterly Report on Form 10-Q - The report was signed on November 9, 2022, by Tony Aquila, Chief Executive Officer and Executive Chair of the Board, and Ramesh Murthy, Interim Chief Financial Officer and Chief Accounting Officer[227]