Microvast (MVST) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2022 Financial Statements (Unaudited) This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets As of September 30, 2022, total assets slightly decreased to $972.9 million, driven by a reduction in cash and cash equivalents, while total liabilities increased and shareholders' equity decreased Condensed Consolidated Balance Sheet Data (in thousands of U.S. dollars) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $295,816 | $480,931 | | Inventories | $82,262 | $53,424 | | Property, plant and equipment, net | $286,346 | $253,057 | | Total Assets | $972,928 | $995,291 | | Liabilities & Equity | | | | Total Current Liabilities | $231,835 | $175,594 | | Total Liabilities | $357,072 | $308,593 | | Total Shareholders' Equity | $615,856 | $686,698 | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2022, revenue increased by 64.0% to $139.7 million, resulting in a gross profit of $6.8 million and a narrowed net loss of $124.5 million Statement of Operations Highlights (in thousands of U.S. dollars, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Revenues | $139,698 | $85,204 | | Gross (loss)/profit | $6,847 | $(43,896) | | Loss from operations | $(125,320) | $(146,471) | | Net loss | $(124,502) | $(159,844) | | Net loss per share (Basic & Diluted) | $(0.41) | $(1.27) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities increased to $58.6 million, while net cash from financing activities significantly decreased from the prior year Cash Flow Summary (in thousands of U.S. dollars) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(58,595) | $(24,653) | | Net cash used in investing activities | $(84,719) | $(40,718) | | Net cash generated from financing activities | $34,226 | $634,370 | Notes to Unaudited Condensed Consolidated Financial Statements This section details the company's business, accounting policies, significant events, and capital commitments, including a new loan facility and a DOE grant - The company's primary business involves developing, manufacturing, and selling electronic power products for electric vehicles, mainly in the Asia & Pacific region and Europe[29] - In September 2022, the company secured a new $111 million (RMB 800 million) loan facility to fund manufacturing capacity expansion in Huzhou, China[61] - Capital commitments for construction and purchase of property, plant, and equipment totaled $260.5 million as of September 30, 2022[117] - In October 2022, the company was selected by the U.S. Department of Energy (DOE) to negotiate and receive $200 million in grant funding for a new polyaramid separator manufacturing facility in the U.S[118] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial performance, liquidity, and capital resources, highlighting revenue growth, gross margin improvement, and strategic initiatives - The company's order backlog increased to approximately $140.6 million (477.4 MWh) as of September 30, 2022, indicating strong customer demand[123] - The company plans to spend an additional $90.0 million to $120.0 million on capacity expansions for the remainder of 2022, funded by proceeds from the 2021 Business Combination[144] Revenue by Geography (Nine Months Ended Sep 30) | Region | 2022 Revenue (in thousands) | 2021 Revenue (in thousands) | | :--- | :--- | :--- | | Asia & Pacific | $125,746 | $73,360 | | Europe | $11,062 | $11,466 | | U.S. | $2,890 | $378 | | Total | $139,698 | $85,204 | Results of Operations This section analyzes the drivers behind the 64% revenue growth and the significant improvement in gross margin for the nine months ended September 30, 2022 Comparison of Nine Months Ended Sep 30, 2022 vs 2021 (in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $139,698 | $85,204 | $54,494 | 64.0% | | Gross Profit/(Loss) | $6,847 | $(43,896) | $50,743 | 115.6% | | Total Operating Expenses | $(133,400) | $(105,251) | $(28,149) | 26.7% | | Net Loss | $(124,502) | $(159,844) | $35,342 | (22.1)% | - The increase in gross margin for the nine months ended Sep 30, 2022, was primarily due to better economies of scale from higher sales volume and the absence of a $40.8 million additional warranty accrual from 2021[181] - R&D expenses for the nine-month period increased by $9.8 million (42.3%) year-over-year, driven by higher share-based compensation, increased personnel costs, and more material usage for experiments[185] Quantitative and Qualitative Disclosures About Market Risk The company identifies its primary market risks as interest rate risk, foreign currency risk, and credit risk, with foreign currency risk being the most significant - The company's primary market risk is foreign currency exchange risk, particularly with the Chinese Renminbi (RMB), where a hypothetical 10% adverse change would result in a foreign currency loss of $2.3 million as of September 30, 2022[192] - Interest rate risk is not considered significant, as a 100 basis point change would not materially affect operating results or financial condition[191] - The business has historically experienced seasonality, with higher sales in the third and fourth quarters compared to the first and second, partly due to the Chinese Spring Festival holiday[195] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[196] - No material changes to the company's internal control over financial reporting occurred during the quarter ended September 30, 2022[197] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and details on unregistered sales of equity securities Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, and a previously disclosed lawsuit was dismissed in its favor - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition[199] - The lawsuit filed by former employee Matthew Smith was resolved in September 2022 with a unanimous jury verdict in favor of Microvast, and all claims were dismissed with prejudice[116][199] Risk Factors The company directs investors to consider the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and its Registration Statement on Form S-3 - The report refers to previously filed documents, including the Annual Report on Form 10-K and a Registration Statement on Form S-3, for a comprehensive discussion of risk factors[200] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of its equity securities during the three months ended September 30, 2022 - There were no unregistered sales of equity securities during the third quarter of 2022[201]