Microvast (US:MVST)2023-03-16 21:03PART I Business Microvast is a vertically integrated battery technology company specializing in battery components and systems for electric commercial vehicles and utility-scale energy storage - Microvast is a vertically integrated battery technology company designing, developing, and manufacturing battery components and systems for electric commercial vehicles and utility-scale energy storage systems (ESS)2730 Key Financial and Operational Metrics (FY 2022) | Metric | Value | | :--- | :--- | | Revenue | $204.5 million | | Revenue Growth (YoY) | 35% | | Total Battery Systems Delivered (since 2009) | ~3,347.9 MWh | | Order Backlog (as of Dec 31, 2022) | $410.5 million (~1,599.7 MWh) | - The company's strategic focus includes expanding ESS solutions, shifting operations towards Europe and the U.S., and increasing manufacturing capacity to a target of 11 GWh per year by 20256162 - In October 2022, Microvast received a $200 million grant from the U.S. Department of Energy (DOE) in collaboration with General Motors for a new polyaramid separator manufacturing facility in the U.S55 Risk Factors The company faces substantial risks across its business, operations in China, intellectual property, and stock ownership, including market adoption, regulatory compliance, and stock volatility - Business and Industry Risks: Growth is highly dependent on electric vehicle market adoption, with risks from battery safety incidents, a limited customer base (top five customers were 36.1% of 2022 revenue), a history of net losses ($158.2 million in 2022), and intense competition115119124129 - Risks of Doing Business in China: Operations are subject to extensive PRC government regulation, including cybersecurity and data laws, with a risk of securities delisting under the Holding Foreign Companies Accountable Act (HFCAA) if PCAOB cannot inspect auditors112252267 - Intellectual Property Risks: A significant portion of the company's technology relies on unpatented trade secrets and know-how, which may be difficult to protect, alongside the risk of costly litigation for intellectual property infringement claims275285 - Ownership and General Risks: Stock price may be volatile, future stock issuances could cause dilution, and the company is exposed to risks from health epidemics and geopolitical events289306313 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable325 Properties Microvast's physical properties include owned and leased facilities across the U.S., Germany, the U.K., and China, supporting various operations Key Company Facilities | Location | Country | Function | Ownership | | :--- | :--- | :--- | :--- | | Stafford, TX | United States | Corporate HQ | Leased | | Lake Mary, FL | United States | R&D | Owned | | Clarksville, TN | United States | Manufacturing (cell, module, pack) | Owned | | Denver, CO | United States | ESS HQ | Owned | | Berlin | Germany | European HQ, Manufacturing (module, pack) | Leased | | Huzhou | China | Asia Pacific HQ, Manufacturing (full scope) | Owned | Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - As of the filing date, Microvast is not involved in any legal proceedings anticipated to have a material adverse impact on the company329 Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable330 PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Microvast's common stock and warrants trade on NASDAQ, with the company intending to retain earnings for growth rather than paying dividends - The company's common stock and warrants trade on NASDAQ under the symbols MVST and MVSTW333 - The company intends to retain all available funds for business development and does not anticipate paying cash dividends in the foreseeable future335 Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2022) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 60,466,526 | $6.08 | 16,490,228 | Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, Microvast's revenue grew 35% to $204.5 million, with gross margin improving to 4.4% due to non-recurring warranty costs, maintaining strong liquidity Comparison of Results of Operations (FY 2022 vs. FY 2021) | Metric (in thousands) | 2021 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $151,976 | $204,495 | $52,519 | 34.6% | | Cost of revenues | ($194,719) | ($195,422) | ($703) | 0.4% | | Gross (Loss) Profit | ($42,743) | $9,073 | $51,816 | 121.2% | | Gross Margin | -28.1% | 4.4% | - | - | | Total operating expenses | ($157,448) | ($170,691) | ($13,243) | 8.4% | | Operating Loss | ($194,064) | ($159,946) | $34,118 | -17.6% | | Net Loss | ($206,483) | ($158,200) | $48,283 | -23.4% | - Revenue growth was driven by an increase in sales volume from 489.2 MWh in 2021 to 694.2 MWh in 2022383 - The significant improvement in gross margin was primarily due to the non-recurrence of a $46.5 million warranty cost accrual for a legacy product recorded in 2021, combined with better economies of scale385387 - As of December 31, 2022, the company had $327.7 million in cash, cash equivalents, restricted cash, and short-term investments, with capital expenditures for 2022 at $150.9 million mainly for facility expansions395406412 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk on China loans, significant foreign currency risk from RMB fluctuations, and credit risk on trade receivables - The company's project finance loans in China are exposed to interest rate risk as they are tied to the Loan Prime Rate431 - Significant foreign currency risk exists due to operations in China; a hypothetical 10% adverse change in the RMB exchange rate would result in a $2.8 million loss as of December 31, 2022433 - Credit risk is primarily related to trade receivables, with the company actively monitoring customer creditworthiness and overdue debts to mitigate this risk434 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2020-2022, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account (in thousands) | 2021 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $706,606 | $545,067 | | Cash and cash equivalents | $480,931 | $231,420 | | Inventories, net | $53,424 | $84,252 | | Total Assets | $995,291 | $984,957 | | Total Current Liabilities | $175,594 | $252,409 | | Total Liabilities | $308,593 | $371,980 | | Total Shareholders' Equity | $686,698 | $612,977 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2022) | Account (in thousands) | 2021 | 2022 | | :--- | :--- | :--- | | Revenues | $151,976 | $204,495 | | Gross (loss)/profit | ($42,743) | $9,073 | | Loss from operations | ($194,064) | ($159,946) | | Net loss | ($206,483) | ($158,200) | | Net loss per share (Basic and diluted) | ($1.26) | ($0.52) | - In 2021, the company recorded an additional $46.5 million warranty accrual for a legacy product due to a faulty component, which was a major driver of the gross loss420572 - The company adopted new accounting standards for leases (ASC 842) and credit losses (Topic 326) on January 1, 2022, with ASC 842 adoption resulting in $18.8 million in operating lease right-of-use assets and liabilities523545 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None696 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2022, with a previously identified material weakness remediated - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective697 - A material weakness identified in 2021, related to a lack of sufficient skilled staff with U.S. GAAP and SEC reporting knowledge, was remediated as of December 31, 2022700701702 PART III Directors, Executive Officers and Corporate Governance This section details the company's executive officers and board of directors, including their biographical information, board structure, and committee compositions - The company's leadership includes founder Yang Wu as President and CEO, Craig Webster as CFO, Shane Smith as COO, and Dr. Wenjuan Mattis as CTO710 - The Board of Directors is divided into three classes and includes notable members such as Nobel Prize winner Stanley Whittingham, an expert in lithium-ion batteries741747 - The Board has three standing committees: Audit, Nominating & Corporate Governance, and Compensation, with the Audit Committee chaired by Arthur Wong, designated as the audit committee financial expert755757 Executive Compensation The company's 2022 executive compensation for NEOs included base salary and equity awards, with no short-term cash incentives paid out, and non-employee directors receiving cash and RSU awards 2022 Summary Compensation for Named Executive Officers (NEOs) | Name and Principal Position | Salary ($) | Stock Awards ($) | Option Awards ($) | All other compensation ($) | Total Compensation ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Yang Wu, President and CEO | 542,895 | 439,997 | — | — | 982,892 | | Sascha Rene Kelterborn, Chief Revenue Officer | 384,772 | 159,993 | 2,552,000 | 68,653 | 3,165,418 | | Craig Webster, Chief Financial Officer | 309,908 | 159,993 | 3,190,000 | 13,330 | 3,673,231 | - The 2022 short-term incentive (STI) cash bonus did not pay out to NEOs because the pre-determined revenue performance threshold was not achieved766 - Non-employee directors receive an annual cash retainer of $70,000, with additional retainers for committee chairs, and an annual RSU award valued at $80,000798801 Security Ownership of Certain Beneficial Owners and Management As of March 10, 2023, founder Yang Wu is the largest individual beneficial owner with 27.5% of common stock, while all directors and executive officers collectively own 30.1% Beneficial Ownership as of March 10, 2023 | Beneficial Owner | Percent Beneficially Owned | | :--- | :--- | | Yang Wu (President & CEO) | 27.5% | | All directors and executive officers as a group (13 persons) | 30.1% | | Cede & Co (>5% Holder) | 35.1% | | Evergreen Ever Limited (>5% Holder) | 10.2% (based on last filing) | Certain Relationships and Related Transactions, and Director Independence The company has key related party agreements, including a Stockholders Agreement and Registration Rights, with five of its seven directors determined to be independent - A Stockholders Agreement provides founder Yang Wu the right to nominate directors proportional to his beneficial ownership of common stock808809 - The company entered into a Registration Rights and Lock-Up Agreement with pre-merger stockholders and insiders, including a two-year lock-up for 75% of Mr. Wu's shares811812 - The Board has determined that five of its seven directors are independent under NASDAQ listing rules818 Principal Accountant Fees and Services The company's principal auditor is Deloitte Touche Tohmatsu, with aggregate fees of $1.6 million in FY2022, primarily for audit services, all pre-approved by the Audit Committee Accountant Fees (in millions) | Fee Category | 2021 | 2022 | | :--- | :--- | :--- | | Audit fees | $1.3 | $1.6 | | Audit-related fees | $0.1 | - | | Tax fees | — | — | | All other fees | — | — | | Total | $1.4 | $1.6 | - All audit and non-audit services provided by the principal accountant were pre-approved by the Audit Committee in accordance with its policies823 PART IV Exhibits and Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents and material contracts - This section contains the index to financial statements and lists all exhibits filed with the annual report, including corporate governance documents, material contracts, and required certifications827828829 Form 10-K Summary No summary is provided under this item - None833