Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 1. Organization and Description of Business
Description of Business: XL
Fleet Corp. and its subsidiaries (“XL Fleet” or the “Company”) is a leading provider of fleet electrification
solutions for commercial vehicles in North America, offering solutions for vehicle electrification (“Drive Systems”) and
infrastructure solutions such as vehicle charging stations through its XL Grid programs, as further described below. XL Fleet has over
4,400 electrified powertrain systems sold and driven over 160 million miles by over 235 fleets, as of June 30, 2021. XL Fleet’s
vision is to become the world leader in commercial fleet electrification solutions, with a mission of accelerating the adoption of fleet
electrification systems through cost effective, customer tailored and comprehensive solutions.
Merger and Reorganization: On
December 21, 2020, privately held XL Hybrids, Inc., a Delaware corporation, (“Legacy XL”) consummated the merger pursuant
to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger Agreement”), by and among
Pivotal Investment Corporation II (“Pivotal”), PIC II Merger Sub Corp., a Delaware corporation and wholly owned subsidiary
of Pivotal (“Merger Sub”), and Legacy XL. Pursuant to the terms of the Merger Agreement, a business combination between Legacy
XL and Pivotal was effected through the merger of Merger Sub with and into Legacy XL, with Legacy XL surviving as a wholly-owned subsidiary
of Pivotal (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business
Combination”). In connection with the closing of the Business Combination, Pivotal Investment Corporation II changed its name to
XL Fleet Corp.
Acquisition of World Energy: On May 17, 2021
(“Closing Date”), the Company acquired 100% of the membership interests of World Energy Efficiency Services, LLC
(“World Energy”). World Energy provides turnkey energy efficiency, renewable technology, electric vehicle charging
stations and other energy solutions throughout New England. The Company completed the acquisition to further the strategy of its XL
Grid business to provide a suite of charging and power solutions to support fleet electrification (See Note 4).
Investment in eNow: On
July 15, 2021, XL Fleet purchased a minority interest in eNow Inc. (“eNow”), a provider of solar and battery power systems
that enable fully-electric transport refrigeration units (eTRUs) for Class 8 commercial trailers. In connection with this investment,
XL Fleet entered into a development and supply agreement with eNow (See Note 15).
COVID-19 Worldwide Pandemic: On March 11, 2020, the World Health
Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended containment
and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and
governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions include
travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily
activities and for many businesses to curtail or cease normal operations.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 1. Organization and Description of Business, continued
COVID-19 Worldwide Pandemic, continued:
Consistent with the actions taken by governmental authorities,
the Company has taken appropriately cautious steps to protect its workforce and support community efforts. As part of these efforts,
and in accordance with applicable government directives, beginning in late March 2020, the Company implemented work from
home policies where practical at its facilities. Effective June 30, 2021 all 150 employees were working
full-time from one of the Company’s five offices or from home. Current COVID-19 policies include universal
facial covering requirements if not vaccinated, rearranging facilities to follow social distancing protocols, employees
self-screening before going into the office, enhanced cleaning procedures, ability to go mask-free if proof of vaccination is
provided to Human Resources, and strict quarantine protocols for any suspected or confirmed employee cases. However, the COVID-19
pandemic and the continued precautionary actions taken related to COVID-19 have adversely impacted, and are expected to continue to
adversely impact, its operations, its contractors and the automotive original equipment manufacturers.
The Company has experienced, and expects to continue to experience,
reduced operations and production line shutdowns at vehicle OEMs due to COVID-19, limitations on travel by the Company’s personnel
and personnel of the Company’s customers, and future delays or shutdowns of vehicle OEMs or the Company’s suppliers.
The COVID-19 pandemic and the protocols and procedures the Company
has implemented in response to the pandemic have caused some delays in operational activities. The full impact of the COVID-19 pandemic
on its business and results of operations subsequent to June 30, 2021 will depend on future developments, such as the ultimate duration
and scope of the outbreak and its impact on its operations and impact on its customers and industry partners.
Note 2. Summary of Significant Accounting Policies
Basis of consolidated financial statement presentation: The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) for interim financial information and Article 10 of Regulation S-X. The accompanying
unaudited condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries and variable
interest entities, for which the Company is the primary beneficiary. Because the Company holds certain rights that provide the power to
direct the activities of variable interests that most significantly impact the VIE economic performance, as well as to potentially receive
benefits or the obligation to absorb potentially significant losses, the Company has a controlling interest in such VIEs. The Company
reports its consolidated financial information as a single segment. All significant intercompany transactions have been eliminated in
consolidation.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Use of estimates: The preparation of financial statements in
conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses
during the reporting period. The Company’s most significant estimates and judgments involve deferred income taxes, valuation of
share-based compensation, including the fair value of common stock, the valuation of warrant liability, and the valuation of business
combinations, including the fair values and useful lives of acquired assets and assumed liabilities and the fair value of purchase consideration.
Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which
form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates,
and such differences could be material to the Company’s financial statements.
Concentration of Credit Risk: Financial instruments which potentially
subject the Company to concentrations of credit risk consist of cash and trade receivables. At times, such cash may be in excess of the
FDIC limit. At June 30, 2021 and December 31, 2020, the Company had cash in excess of the $250 federally insured limit. The Company believes
it is not exposed to any significant credit risk on cash and cash equivalents.
With respect to trade receivables, the Company routinely assesses the
financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited. As of June 30,
2021, two customers accounted for approximately 34% and 29% of accounts receivable. As of December 31, 2020, one customer accounted for
approximately 82% of accounts receivable. For the three months ended June 30, 2021 and 2020, three customers and one customer accounted
for approximately 57% and 52% of revenues, respectively. For the six months ended June 30, 2021 and 2020, three customers and one customer
accounted for approximately 49% and 55% of revenues, respectively.
Cash, cash equivalents, and restricted cash: The Company considers all highly
liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents include
cash held in banks and money market accounts. Cash equivalents are carried at cost, which approximates fair value due to their short-term
nature. The Company’s cash and cash equivalents are placed with high-credit quality financial institutions and issuers, and at times
exceed federally insured limits. To date, the Company has not experienced any credit loss relating to its cash and cash equivalents.
Restricted cash held at both June 30, 2021 and December 31, 2020,
consists of $150 for a bank deposit required for a letter of credit which is reserved for the Company’s California lease. In
addition, restricted cash held at June 30, 2021 includes $507 held in escrow in connection with the acquisition of World Energy. The
funds held in escrow were released to the sellers of World Energy in July 2021 upon the Small Business Administration’s
forgiveness of the World Energy PPP Loan.
The following table provides a reconciliation of cash, cash equivalents,
and restricted cash in the condensed consolidated balance sheets to the total amount shown in the condensed consolidated statements of
cash flows:
|
|
As of June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash and cash equivalents
|
|
$
|
384,143
|
|
|
$
|
4,907
|
|
Restricted cash
|
|
|
657
|
|
|
|
150
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
384,800
|
|
|
$
|
5,057
|
|
Accounts receivable, net: Accounts receivable are stated at the gross
invoice amount, net of an allowance for doubtful accounts. The allowance for doubtful accounts is maintained at a level considered adequate
to provide for potential account losses on the balance based on management’s evaluation of the anticipated impact of current economic
conditions, changes in the character and size of the balance, past and expected future loss experience, among other pertinent factors.
As of June 30, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was $487 and $0, respectively.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Inventory, net: Inventory is comprised of raw materials, work in
process and finished goods. Inventory is stated at the lower of cost or net realizable value. Cost of raw material inventories include
the purchase and related costs incurred in bringing the products to their present location and condition. The Company uses consistent
methodologies to evaluate inventory for net realizable value and periodically reviews inventories for obsolescence and any inventories
identified as slow moving or obsolete are initially reserved for and then written-off. As of June 30, 2021 and December 31, 2020, the
Company’s inventory reserve for obsolescence was $331 and $58, respectively.
Fair value measurements: The Company follows the guidance in
ASC Topic 820, “Fair Value Measurement”, for its financial assets and liabilities that are re-measured and reported at fair
value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities
reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid
in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection
with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained
from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price
assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs
and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices (unadjusted) for identical assets
or liabilities in active markets that the Company can access at the measurement date.
Level 2: Significant other observable inputs other than level
1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are
observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the
Company’s judgment about the assumptions that market participants would use in pricing an asset or liability.
An asset’s or liability’s fair value measurement level
within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation
techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
See Note 8 for additional information on assets and liabilities measured
at fair value.
The Company believes its valuation methods are appropriate and consistent
with other market participants, however the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
The Company’s financial instruments consist of cash and
cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, contingent consideration liability
and warrant liability. The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses
approximates fair value because of the short-term nature of those instruments.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Prepaid expenses and other current assets: Prepaid expenses
and other current assets include prepaid insurance, prepaid rent, and supplies, which are expected to be recognized or realized within
the next 12 months.
Revenue: The Company’s revenue is derived from the sales
of hybrid and plug-in hybrid electric powertrain systems, our Drive Systems, and turnkey energy efficiency, renewable technology, electric
vehicle charging stations and other energy solutions (“XL Grid”). The Drive Systems products are marketed and sold to end-user
fleet customers and channel partners in the United States and Canada. The Company’s XL Grid solutions are marketed and sold to
municipalities, corporations and other businesses and principally funded through energy incentives provided through public and private
utilities. The XL Grid business consists of the operations acquired through the May 2021 World Energy acquisition. Sales
of products and services are subject to economic conditions and may fluctuate based on changes in the industry, trade policies and financial
markets.
Revenue is recognized upon transfer of control to the customer, which
occurs when the Company has a present right to payment, legal title has passed to the customer, the customer has the significant risks
and rewards of ownership, and where acceptance is not a formality, the customer has accepted the product or service.
For the Drive Systems products, in general, transfer of control is
upon shipment of the equipment as the terms are FOB shipping point or equivalent, as the Company has no other promised goods or services
in its contracts with customers. In limited instances, the Company provides installation services to end-user fleet customers related
to the purchased hybrid electric powertrain equipment. When provided, these installation services are not distinct within the context
of the contract due to the fact that the end-use fleet customer is purchasing a completed modification to its vehicles and therefore,
the installation services involve significant integration to integrate the hybrid electric powertrain equipment with the customer’s
vehicle. As a result, the hybrid electric powertrain equipment and installation services represent a single performance obligation within
these contracts with customers. The Company recognizes the revenue for the equipment sale and installation service for Drive System products
at the same time, which is after the installation is complete. The Company has elected to treat shipping and handling activities related
to contracts with channel partner customers for Drive System products as costs to fulfill the promise to transfer the associated equipment
and not as a separate performance obligation.
For the XL Grid solutions, in general, transfer of control is upon
the acceptance and certification of project completion by both the end customer and the utility who is funding the energy incentives,
representing a single performance obligation of the Company. Due to the short-term nature of projects (typically two to three weeks),
the Company recognizes revenues from all XL Grid solutions activities at a point in time, when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable and the Company has the right to payment for the transferred asset. The Company
also assesses multiple contracts entered into by the same customer in close proximity to determine if the contracts should be combined
for revenue recognition purposes. During the duration of a project for XL Grid solutions, all direct material and labor costs and those
indirect costs related to the project are capitalized, and customer deposits are treated as liabilities. Once a project has been completed
and the energy efficiency upgrades have been deemed to meet client specifications, capitalized costs are charged to earnings.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Revenue, continued:
For both Drive Systems and XL Grid solutions, when the Company’s
contracts with customers contain multiple performance obligations, which is infrequent, the contract transaction price is allocated on a relative standalone
selling price (SSP) basis to each performance obligation. The Company determines standalone selling prices based on observable selling
prices for the sale of its systems. For extended warranties, the Company determines SSP based on expected cost plus margin. The Company
establishes the margin based on review of market conditions and margins obtained by market participants for similar services. Any allocation
of the transaction price required is determined at the contracts’ inception.
The transaction price is the amount of consideration to which the
Company expects to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the
transaction price, which is solely made up of fixed consideration for its products and services. The Company does not adjust
transaction price for the effects of a significant financing component when the period between the transfer of the promised good or
service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company has not
identified any significant financing components to date. The Company’s sales can in certain instances include non-cash
consideration in the form of the customer transferring to the Company, the customer’s rights to cash incentives from programs
administered by municipalities related to hybrid vehicle programs that a customer is entitled to as a result of its purchase. The
incentives are fixed amounts that are readily determinable. The Company values the non-cash consideration at its fair value, which
generally is the amount of the incentive.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Revenue, continued:
Payment terms on invoices range from 30 to 60 days. The Company excludes
from revenue any sales tax and other government-assessed and imposed taxes on revenue generating activities that are invoiced to customers.
The Company has elected to apply the practical expedient to expense
costs to obtain contracts, which principally relate to sales commissions, at the time the liability is incurred when the expected amortization
period is one year or less.
Warranties
Customers who purchase the Drive Systems are provided
limited-assurance-type warranties for equipment and work performed under the contracts. The warranty period typically extends for 3
years following transfer of control of the equipment. The warranties solely relate to correction of product defects during the
warranty period, which is consistent with similar warranties by offered by competitors. Therefore, the Company has determined that
these warranties are outside the scope of ASC 606 and will continue to be accounted for under ASC 460, Guarantees. At the
time of purchase of the equipment, customers may purchase from the Company an extended warranty for its equipment. The extended
warranty commences upon the end of the assurance-based warranty period and is considered a separate performance obligation that
represents a stand-ready obligation to perform warranty services after the assurance-type warranty expires. The transaction price
allocated to the extended warranty is recognized ratably over the extended warranty period.
Customers of XL Grid solutions are provided limited-assurance-type
warranties for a term of one year for installation work performed under its contracts. Warranties for equipment sold to customers are
provided by the original equipment manufacturers.
For both Drive Systems and XL Grid solutions, the Company accrues the
estimated cost of product warranties for unclaimed charges based on historical experiences and expected results. Should product failure
rates and material usage costs differ from these estimates revisions to the estimated warranty liability would be required. The Company
periodically assesses the adequacy of its recorded product warranty liabilities and adjusts the balances as required. Warranty expense
is recorded as a component of cost of product revenue in the statements of operations.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Share-based compensation: The Company accounts for its share-based
compensation awards in accordance with ASC Topic 718, Compensation-Stock Compensation. The Company issues stock-based awards to acquire
common stock to employees, directors and non-employee consultants. Awards issued under the Company’s stock-based compensation plans
include stock options, restricted stock units and restricted stock awards. Stock options, restricted stock units and restricted stock
awards typically contain service based vesting conditions.
Stock Options
The Company accounts for stock-based compensation related to these
awards based on the fair value of the awards. The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based
awards, and recognizes the compensation cost on a straight line basis over the requisite service period of the awards for employee, which
is typically the four-year vesting period of the award, and effective contract period specified in the award agreement for non-employee.
The fair value of common stock is determined based on the closing price
on the New York Stock Exchange at each award grant date.
The determination of the fair value of share-based payment awards
utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected
life, risk- free interest rate and expected dividends. The Company does not have a history of trading in its common stock as it was not
a public company until December 21, 2020, and as such volatility was estimated using historical volatilities of comparable public entities.
The expected life of the awards is estimated based on a simplified method, which uses the average of the vesting term and the original
contractual term. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected life of the
awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are accounted for as they
occur.
The fair value of stock options issued for the six months ended June
30, 2021 and 2020 was measured with the following assumptions:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Expected volatility
|
|
|
78.0 – 87.1%
|
|
|
|
80.0 – 80.1%
|
|
Expected term (in years)
|
|
|
6.25
|
|
|
|
6.25
|
|
Risk-free interest rate
|
|
|
0.1%
|
|
|
|
0.0 – 0.2%
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Restricted Stock Units
Restricted stock units generally vest over the requisite service periods
(vesting on a straight–line basis). The fair value of a stock award is equal to the fair market value of a share of the Company’s
Common stock on the grant date. The Company accounts for the forfeiture of equity awards as they occur.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Warrant Liabilities: The Company evaluated the Public Warrants
(“Public Warrants”) and Private Warrants (“Private Warrants”) (collectively, “Warrants”, which are
discussed in Note 8) in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own
Equity”, and concluded that a provision in the Warrant Agreement related to such warrants (“Warrant Agreement”) related
to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants met the
definition of a derivative as contemplated in ASC 815, the Warrants were initially recorded at fair value as derivative liabilities on
the Unaudited Condensed Consolidated Balance Sheets and measured at fair value at each reporting date in accordance with ASC 820, “Fair
Value Measurement”, with changes in fair value recognized in the Unaudited Condensed Consolidated Statement of Operations in the
period of change.
Research and development expense: Research and development costs
did not meet the requirements to be recognized as an asset as the associated future benefits were at best uncertain and there was no alternative
future use at the time the costs were incurred. Research and development costs include, but are not limited to, costs incurred in performing
research and development activities, including salaries, benefits, facilities, research- related overhead, sponsored research costs, contracted
services, license fees, and other external costs.
Net income (loss) per share: Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average
number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net
income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock and potentially dilutive securities
outstanding during the period determined using the treasury-stock and if-converted methods. For purposes of the diluted income (loss) per share
calculation, stock options, restricted stock units, restricted stock and warrants are considered to be potentially dilutive securities.
Potentially dilutive securities were excluded from the calculation of diluted income (loss) per share when their effect would be anti-dilutive.
Segment Information: The Company’s chief operating decision
maker (“CODM”) is its chief executive officer, who makes operating decisions, assesses performance and allocates
resources on a consolidated basis. The CODM reviews financial information presented on a consolidated basis for
the purposes of allocating resources and evaluating financial performance. Accordingly, management has determined that the Company operates
as one operating and reportable segment.
Related parties: A party is considered to be related to the
Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control
with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of
principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from
fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting
parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Note 2. Summary of Significant Accounting Policies, continued
Recent accounting pronouncements issued and adopted: In February
2016, the FASB issued a new accounting standard, ASC Topic 842, Leases (“ASC 842”), related to leases to increase transparency
and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the
balance sheet. Most significant among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for
those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective
of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company
adopted ASC 842 effective January 1, 2021 and as a result, the Company recorded a ROU asset and lease liability (See Note 6).
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic
740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income
taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2020, with early adoption permitted. ASU 2019-12 is effective for the Company beginning January 1, 2021. The adoption of ASU 2019-12
did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
Note 3. Revenue
The following table represents the Company’s revenues for the
three and six months ended June 30, 2021 and 2020, respectively, disaggregated, by sales channel.
Disaggregation of revenue:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from the sale of Drive Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue direct to customers
|
|
$
|
662
|
|
|
$
|
863
|
|
|
$
|
773
|
|
|
$
|
1,061
|
|
Revenue through channel partners
|
|
|
620
|
|
|
|
1,050
|
|
|
|
1,184
|
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from the sale of XL Grid solutions – which are sold direct to customers
|
|
|
2,412
|
|
|
|
-
|
|
|
|
2,412
|
|
|
|
-
|
|
Total revenue
|
|
$
|
3,694
|
|
|
$
|
1,913
|
|
|
$
|
4,369
|
|
|
$
|
3,144
|
|
Remaining performance obligations: At June 30, 2021 and
December 31, 2020, there was approximately $248 and $305 in deferred revenue related to unsatisfied extended warranty performance
obligations. During the three and six months ended June 30, 2021, the Company did not recognize revenue from the December 31, 2020
deferred revenue balance.
Contract Balances: The timing of revenue recognition, billings
and cash collections results in billed trade accounts receivable, and deferred revenue (contract liabilities) on the Unaudited Condensed
Consolidated Balance Sheets. In addition, the Company defers certain costs incurred to obtain a contract (contract costs).
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Note 3. Revenue, continued
Costs to obtain a contract: Sales commissions paid to internal
sales personnel, as well as associated payroll taxes and retirement plan contributions (together, sales commissions and associated costs)
that are incremental to the acquisition of customer contracts, are capitalized as capitalized contract acquisition cost on the balance
sheet when the period of benefit is determined to be greater than one year. In instances where an extended warranty is sold, the period
of benefit would extend beyond 12 months and therefore, the practical expedient would not be met for those contracts and require capitalization
of the related costs to obtain those contracts. The Company has elected to allocate the capitalized commissions to performance obligations
on a relative basis (i.e., in proportion to the transaction price allocated to each performance obligation) to determine the period of
amortization. As a result, substantially all of the commission is allocated to the combined equipment and installation performance obligation
and is amortized upon transfer of control of this performance obligation, which typically occurs in the same period in which commission
liability is incurred. Total commission expense (credit) recognized during the three months ended June 30, 2021 and 2020 was $(57) and
$18, respectively, and $199 and $33 during the six months ended June 30, 2021 and 2020, respectively. The amount of capitalized commissions
as of June 30, 2021 and December 31, 2020 was not material.
Warranties: The Company accrues estimated warranty costs at
the time of sale related to its assurance-type warranties. In general, for the sales of Drive Systems, manufactured products are warranted
for the shorter of three years or 75,000 miles against defects in material and workmanship when properly used for their intended purpose,
installed correctly and appropriately maintained. For the XL Grid solutions, projects are warranted for one year. The amount of the accrued
warranty liability is estimated based on historical claims rates and warranty fulfillments costs adjusted for any expected changes in
fulfillment costs.
The following is a roll-forward of the Company’s accrued warranty
liability:
|
|
For the
Six Months
Ended
June 30,
2021
|
|
|
For
the
Year
Ended
December 31,
2020
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period
|
|
$
|
1,735
|
|
|
$
|
1,009
|
|
Acquisition date accrual for World Energy acquisition
|
|
|
25
|
|
|
|
-
|
|
Accrual for warranties issued
|
|
|
98
|
|
|
|
912
|
|
Warranty fulfillment charges
|
|
|
(201
|
)
|
|
|
(186
|
)
|
Balance at the end of the period
|
|
$
|
1,657
|
|
|
$
|
1,735
|
|
The warranty liability is included in accrued expenses and other current
liabilities on the Unaudited Condensed Consolidated Balance Sheets.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Note 4. Business Combination
World Energy
On May 17, 2021, the Company acquired all of the issued and outstanding
membership interests of World Energy, a privately-held, Massachusetts-based entity, and assumed two of its principals and all of World
Energy’s employees. World Energy is a direct-install energy efficiency services company (“ESCO”), serving commercial,
industrial and institutional customers. World Energy enables utilities to meet their energy savings mandates by developing and executing
energy efficiency projects. The acquisition of World Energy expands the Company’s ability to deliver a comprehensive suite of energy
savings services that enhances XL Grid’s solutions portfolio to include commercial and industrial EV charging, solar, and energy
management services.
The total purchase price consideration of $12,077 for the acquisition
of World Energy consisted of the following components:
|
●
|
Cash of $8.1 million, consisting of the contractual purchase price of $8.0 million, plus $0.1 million, representing the amount by
which estimated closing date working capital exceeded the target working capital;
|
|
●
|
The closing date issuance of 231,002 shares of the Company’s
common stock, valued at the closing price of $6.23 per share as of May 17, 2021, for a total share fair value upon issuance of $1,439;
|
|
●
|
An obligation to issue 244,956 shares of the Company’s common
stock to certain of the sellers and their advisors of World Energy, in three equal installments on the sixth, twenty-fourth and the thirtieth
monthly anniversaries of the closing date. The closing date fair value was recorded at an aggregate amount of $1,526;
|
|
●
|
An obligation to pay in cash an earnout of $1,000 upon World Energy’s
achievement for the calendar year 2021 revenues of $19,500. The payment of the earnout is due within 30 days following the completion
of the audit of XL Fleet’s financial statements for the fiscal year ending December 31, 2021. Pursuant to the agreement, the earnout
is payable only if revenues for the period equal or exceed $19,500. Should the World Energy revenues be less than $19,500, then the earnout
would be $0. The Company determined that the achievement of the $19,500 revenue target was highly probable, and as such, the Company recorded
a closing date fair value of the earnout in the amount of $1,000.
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
Note 4. Business Combination, continued
World Energy, continued
The following details the preliminary allocation of the purchase price
consideration:
Cash
|
|
$
|
8,000
|
|
Preliminary working capital adjustment
|
|
|
112
|
|
Fair value of 231,002 shares issued at closing
|
|
|
1,439
|
|
Fair value of the earnout
|
|
|
1,000
|
|
Portion of deferred obligation to issue shares of common stock
|
|
|
1,526
|
|
Total consideration
|
|
|
12,077
|
|
|
|
|
|
|
Less the fair value of assets acquired less liabilities assumed
|
|
|
(3,296
|
)
|
Goodwill
|
|
$
|
8,781
|
|
In connection with the acquisition of World Energy, the Company incurred
an additional obligation to issue shares of its common stock to two of the sellers who also entered into employment agreements with the
Company. Pursuant to the terms of the agreement, the Company is obligated to issue 448,050 shares of its common stock, with an aggregate
fair value of approximately $3.7 million as of June 30, 2021, issuable in three equal installments on the sixth, twenty-fourth and the
thirtieth monthly anniversaries of the closing date, provided that seller/employee is employed by the Company at the date of issuance.
If the seller/employee is not employed at such issuance date, the shares attributable to that seller/employee are forfeited. The Company
determined that under relevant accounting guidance that this obligation to issue shares would be accounted for as compensation and not
as purchase price consideration. Accordingly, the fair values of each of the three compensation share obligations are accreted as compensation
over each relevant compensation period, and for the three and six months ended June 30, 2021, the Company recorded as selling, general
and administration expense, compensation costs of $427.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 4. Business Combination, continued
World Energy, continued
The Company has accounted for this acquisition as a business combination
under ASC Topic 805 “Business Combinations”. The acquisition method requires, among other things, that assets acquired and
liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The fair values of the assets
acquired and liabilities assumed by major class were recognized as follows:
|
|
Amount
|
|
Accounts receivable
|
|
$
|
3,350
|
|
Inventory, net
|
|
|
1,282
|
|
Prepaid expenses and other current assets
|
|
|
100
|
|
Property and equipment, net
|
|
|
173
|
|
Intangible assets, net
|
|
|
1,560
|
|
Right-of-use asset
|
|
|
145
|
|
Goodwill
|
|
|
8,781
|
|
Other assets
|
|
|
12
|
|
Accounts payable
|
|
|
(1,094
|
)
|
Lease liability, current
|
|
|
(56
|
)
|
Accrued expenses and other current liabilities
|
|
|
(1,297
|
)
|
Deferred revenue
|
|
|
(283
|
)
|
Lease liability, non-current
|
|
|
(89
|
)
|
Long-term debt, net of current portion
|
|
|
(507
|
)
|
Total purchase consideration
|
|
$
|
12,077
|
|
The acquired intangible assets are comprised of $1,560 related to
the fair value of customer relationships which is amortized over three years.
The estimated fair value of the intangible asset acquired was determined
based on the income approach to measure the fair value of the customer relationships. This fair value measurement was based on significant
inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 4. Business Combination, continued
World Energy, continued
Goodwill represents the excess of the purchase consideration over the
estimated acquisition date fair value of the net tangible and intangible assets acquired. Goodwill is primarily attributable to expected
post-acquisition synergies from integrating World Energy’s assembled workforce, products and processes into the Company’s
product offerings. Goodwill recorded is not deductible for income tax purposes.
Supplemental disclosure of pro forma information:
The following unaudited pro forma financial
information presents the combined results of the operations of XL Fleet and World Energy as if the acquisition of World
Energy had occurred as of January 1, 2020. The unaudited pro forma financial information is not necessarily
indicative of what the condensed consolidated results of operations actually would have been had the
respective acquisitions been completed on January 1, 2020. In addition, the unaudited pro forma financial
information does not purport to project the future results of operations of the combined Company.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues
|
|
$
|
6,502
|
|
|
$
|
2,629
|
|
|
$
|
12,118
|
|
|
$
|
10,033
|
|
Net (loss) income
|
|
$
|
(10,042
|
)
|
|
$
|
(14,058
|
)
|
|
$
|
52,272
|
|
|
$
|
(20,564
|
)
|
Per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share - basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.25
|
)
|
Net loss per share - diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.25
|
)
|
The above pro forma information includes pro forma adjustments to remove
the effect of the following non-recurring transactions:
|
1.)
|
Non-recurring merger expenses of $498 added back for the three and six months ended June 30, 2021 and charged to expense for the six
months ended June 30, 2020.
|
|
2.)
|
Elimination of interest expense associated with debt that was repaid in the acquisition of World Energy of $16 and $37 for the three
and six months ended June 30, 2021, respectively and $20 and $41 for the three and six months ended June 30, 2020, respectively.
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following
at June 30, 2021 and December 31, 2020:
|
|
As of
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Accrued warranty costs
|
|
$
|
1,657
|
|
|
$
|
1,735
|
|
Accrued compensation and related benefits
|
|
|
2,533
|
|
|
|
1,001
|
|
Contingent purchase price consideration - Quantum
|
|
|
1,873
|
|
|
|
926
|
|
Deferred purchase price consideration – World Energy
|
|
|
1,680
|
|
|
|
-
|
|
Accreted contingent compensation to sellers of World Energy
|
|
|
427
|
|
|
|
-
|
|
Accrued financing fees
|
|
|
-
|
|
|
|
723
|
|
Accrued expenses, other
|
|
|
2,749
|
|
|
|
216
|
|
|
|
$
|
10,919
|
|
|
$
|
4,601
|
|
Note 6. ROU Assets and Lease Liabilities
XL Fleet has entered into operating and finance leases as the lessee
for office space, R&D and manufacturing facilities, and vehicles. On January 1, 2021 (“Effective Date”), the Company adopted
FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”), which increases transparency and comparability
by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and
lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating and finance
lease liabilities on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on January 1, 2021.
As a result, the consolidated balance sheet as of December 31, 2020 was not restated and is not comparative.
The adoption of ASC 842 resulted in the recognition of operating ROU
assets of $3,481 and operating lease liabilities of $3,481 on the Company’s condensed consolidated balance sheet as of January 1, 2021.
The adoption of ASC 842 resulted in the recognition of finance ROU assets of $897 and finance lease liabilities of $897 on the Company’s
condensed consolidated balance sheet as of January 1, 2021.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 6. ROU Assets and Lease Liabilities, continued
The Company elected the package of practical expedients permitted within
the standard, which allow an entity to forgo reassessing (i) whether a contract contains a lease, (ii) classification of leases, and (iii)
whether capitalized costs associated with a lease meet the definition of initial direct costs. Also, the Company elected the expedient
allowing an entity to use hindsight to determine the lease term and impairment of ROU assets and the expedient to allow the Company to
not have to separate lease and non-lease components. The Company has also elected the short-term lease accounting policy under which the
Company would not recognize a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months
or less and does not include a purchase option that the Company is more than reasonably certain to exercise.
For contracts entered into on or after the Effective Date, at the inception
of a contract the Company will assess whether the contract is, or contains, a lease. The Company’s assessment is based on: (i) whether
the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic
benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. Leases
entered into prior to January 1, 2021, which were accounted for under ASC 840, were not reassessed for classification.
For operating leases, the lease liability is initially and subsequently
measured at the present value of the unpaid lease payments. For finance leases, the lease liability is initially measured in the same
manner and date as for operating leases, and is subsequently presented at amortized cost using the effective interest method. The Company
generally uses its incremental borrowing rate as the discount rate for leases, unless an interest rate is implicitly stated in the lease.
The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was
determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the
lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases includes the noncancelable
period of the lease plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably
certain to exercise, or an option to extend the lease controlled by the lessor. All ROU assets are reviewed periodically for impairment.
Lease expense for operating leases consists of the lease payments plus
any initial direct costs and is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of
the amortization of the asset on a straight-line basis over the shorter of the lease term or its useful life and interest expense determined
on an amortized cost basis, with the lease payments allocated between a reduction of the lease liability and interest expense.
The Company’s operating leases are comprised primarily of office space
and R&D and manufacturing facilities. Finance leases are comprised primarily of vehicle leases. Balance sheet information related
to our leases is presented below (ASC 842 was adopted on January 1, 2021):
|
|
June 30,
|
|
|
January 1,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2021
|
|
|
2020
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
3,360
|
|
|
$
|
3,481
|
|
|
$
|
–
|
|
Lease liability, current
|
|
|
477
|
|
|
|
469
|
|
|
|
–
|
|
Lease liability, non-current
|
|
|
2,929
|
|
|
|
3,012
|
|
|
|
–
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
1,115
|
|
|
|
897
|
|
|
|
–
|
|
Lease liability, current
|
|
|
368
|
|
|
|
265
|
|
|
|
–
|
|
Lease liability, non-current
|
|
|
612
|
|
|
|
632
|
|
|
|
–
|
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 6. ROU Assets and Lease Liabilities, continued
Other information related to leases is presented below:
|
|
Three Months
Ended
June 30,
2021
|
|
|
Six Months
Ended
June 30,
2021
|
|
Other information:
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
216
|
|
|
$
|
395
|
|
|
|
As of
June 30,
2021
|
|
Operating cash flows from operating leases
|
|
$
|
348
|
|
Weighted-average remaining lease term – operating leases (in months)
|
|
|
91.8
|
|
Weighted-average discount rate – operating leases
|
|
|
9.2
|
%
|
As of June 30, 2021, the annual minimum lease payments of our operating
lease liabilities were as follows:
For The Years Ending December 31,
|
|
|
|
2021 (excluding the six months ended June 30, 2021)
|
|
$
|
427
|
|
2022
|
|
|
673
|
|
2023
|
|
|
633
|
|
2024
|
|
|
597
|
|
2025
|
|
|
613
|
|
Thereafter
|
|
|
1,891
|
|
Total future minimum lease payments, undiscounted
|
|
|
4,834
|
|
Less: imputed interest
|
|
|
(1,428
|
)
|
Present value of future minimum lease payments
|
|
$
|
3,406
|
|
Note 7. Note Payable
Paycheck Protection Program Loan
In March 2021, World Energy entered into a Promissory Note (the
“PPP Note”) with Boston Private Bank & Trust Company as the lender (the “Lender”), pursuant to which the
Lender agreed to make a loan to the Company under the Paycheck Protection Program (the "PPP Loan") offered by the U.S.
Small Business Administration (the “SBA”) in a principal amount of $507 pursuant to Title 1 of the Coronavirus Aid,
Relief and Economic Security Act (the “CARES Act”). The PPP Loan proceeds may be forgiven provided that the proceeds are
used by the Company to pay for eligible payroll costs, including salaries, commissions, and similar compensation, group health care
benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. At June 30, 2021 the PPP loan was
included in long term debt, net of current portion, within the condensed consolidated balance sheet. This loan was forgiven by the
SBA during July 2021.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 8. Fair Value Measurements
Mark-to-Market Measurement
The Public Warrants were traded under the symbol XL.WS and the fair
values were based upon the closing price of the Public Warrants at each measurement date. The Private Warrants were valued using a Black-Scholes
model, pursuant to the inputs provided in the table below:
Input
|
|
Mark-to-Market
Measurement at
June 30,
2021
|
|
|
Mark-to-Market
Measurement at
December 31,
2020
|
|
Risk-free rate
|
|
|
0.76
|
%
|
|
|
0.36
|
%
|
Remaining term in years
|
|
|
4.47
|
|
|
|
4.98
|
|
Expected volatility
|
|
|
87.1
|
%
|
|
|
95.4
|
%
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Fair value of common stock
|
|
$
|
8.33
|
|
|
$
|
23.73
|
|
The following table sets forth the Company’s liabilities which
are measured at fair value on a recurring basis by level within the fair value hierarchy:
|
|
Fair Value Measurements as of June 30, 2021
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,811
|
|
|
$
|
20,811
|
|
Contingent consideration -– Quantum Fuel Systems, LLC (Quantum)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,873
|
|
|
$
|
1,873
|
|
Earnout – World Energy
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
Fair value of obligation to issue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares of common stock to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sellers of World Energy
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,040
|
|
|
$
|
2,040
|
|
|
|
Fair Value Measurements as of December 31, 2020
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants
|
|
$
|
62,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,100
|
|
Private Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
81,195
|
|
|
$
|
81,195
|
|
Contingent consideration -– (Quantum)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,849
|
|
|
$
|
1,849
|
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 8. Fair Value Measurements, continued
The following is a roll forward of the Company’s Level 3
instruments:
Balance, January 1, 2021
|
|
$
|
145,144
|
|
Fair value adjustments- Contingent consideration
|
|
|
24
|
|
Obligation to issue shares of common stock to sellers of World Energy
|
|
|
1,526
|
|
Settlement of derivative liability upon exercise of warrants
|
|
|
(47,162
|
)
|
Settlement of derivative liability upon call of warrants
|
|
|
(591
|
)
|
Fair value adjustments- Warrant liability
|
|
|
(74,731
|
)
|
Fair value adjustments – World Energy
|
|
|
514
|
|
Earnout – World Energy
|
|
|
1,000
|
|
Balance, June 30, 2021
|
|
$
|
25,724
|
|
During the six months ended June 30, 2021, 7,441,020 Public Warrants
were exercised, which resulted in the issuance of 7,441,020 shares of the Company's Common Stock, generating cash proceeds of $85,555
and 225,647 Public Warrants were called at $0.01 per warrant. No Public Warrants remain outstanding as of June 30, 2021.
Note 9. Warrants
Legacy XL Common Stock Warrants:
During the six months ended June 30, 2021, 243,000 Legacy XL Warrants
were exercised, which resulted in the issuance of 233,555 shares of the Company’s common stock, in a cashless exercise.
A summary of the warrant activity for the six months ended June 30,
2021 was as follows:
Warrants
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2021
|
|
|
249,117
|
|
|
$
|
0.76
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(243,000
|
)
|
|
|
0.76
|
|
Outstanding at June 30, 2021
|
|
|
6,117
|
|
|
$
|
0.76
|
|
Exercisable at June 30, 2021
|
|
|
6,117
|
|
|
$
|
0.76
|
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 10. Share-Based Compensation Expense
Share-based compensation expense for stock options, restricted stock
awards, and restricted stock units for the three months ended June 30, 2021 and 2020 was $754 and $225, respectively, and $1,196 and $277
for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was $6,827 of unrecognized compensation cost
related to stock options which is expected to be recognized over the remaining vesting periods, with a weighted-average period
of 3.5 years.
Stock Options
During the six months ended June 30, 2021, the Company issued 627,160
options to certain employees and board members that will vest over a period of one to four years.
A summary of stock option award activity for the six months ended June
30, 2021 was as follows:
Options
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
10,975,224
|
|
|
$
|
0.57
|
|
|
|
7.6
|
|
Granted
|
|
|
627,160
|
|
|
|
9.04
|
|
|
|
|
|
Exercised
|
|
|
(95,745
|
)
|
|
|
0.24
|
|
|
|
|
|
Cancelled or forfeited
|
|
|
(41,146
|
)
|
|
|
8.11
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
11,465,493
|
|
|
$
|
1.01
|
|
|
|
7.1
|
|
Exercisable at June 30, 2021
|
|
|
6,555,419
|
|
|
$
|
0.26
|
|
|
|
6.2
|
|
The aggregate intrinsic value of stock options exercised in the six
months ended June 30, 2021 and 2020 was $1,555 and $0 as determined on the date of exercise. Cash received from options exercised for
the six months ended June 30, 2021 and 2020 was $23 and $0, respectively.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 10. Share-Based Compensation Expense, continued
Restricted Stock Awards
The fair value of restricted stock awards is estimated by the fair
value of the Company’s Common Stock at the date of grant. Restricted stock activity during the six months ended at June 30, 2021
was as follows:
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
|
|
|
|
|
|
|
Non-vested, at beginning of period
|
|
|
446,332
|
|
|
$
|
0.24
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Cancelled or forfeited
|
|
|
-
|
|
|
|
|
|
Non-vested, at end of period
|
|
|
446,332
|
|
|
$
|
0.24
|
|
Restricted Stock Units
During the six months ended June 30, 2021, the Company issued 377,373
restricted stock units to directors which will vest over a period of one to four years.
The fair value of restricted stock unit awards is estimated by the
fair value of the Company’s Common Stock at the date of grant. Restricted stock activity during the six months ended at June 30,
2021 was as follows:
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair
Value Per Share
|
|
|
|
|
|
|
|
|
Non-vested, at beginning of period
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
377,373
|
|
|
|
7.19
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Cancelled or forfeited
|
|
|
(3,567
|
)
|
|
|
14.17
|
|
Non-vested, at end of period
|
|
|
373,806
|
|
|
$
|
7.12
|
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 11. Related Party Transactions
Operating lease: In March 2012, the Company entered into a noncancelable
lease agreement for office, research and development, and vehicle development and installation facilities with an investor of the Company.
The lease term has been extended through February 29, 2022. The lease includes a rent escalation clause, and rent expense is being recorded
on a straight-line basis.
Rent expense under the operating lease for the three months ended June
30, 2021 and 2020 was $58 and $55, respectively, and $135 and $113 for the six months ended June 30, 2021 and 2020, respectively.
Future minimum lease payments for this lease are as follows:
2021 (Six months)
|
|
$
|
117
|
|
2022
|
|
|
39
|
|
Total
|
|
$
|
156
|
|
Note 12. Commitments and Contingencies
Sponsorship Commitment: On February 24, 2021, the Company agreed
to a sponsorship agreement with several entities related to the UBS Arena, Belmont Park and the NY Islanders Hockey Club. Pursuant
to that Agreement, the Company was designated an “Official Electric Transportation Partner of UBS Arena” with various associated
marketing and branding rights. The sponsorship agreement has a term of three years with a sponsor fee of approximately $0.5 million
per year, of which $250 was paid in March, 2021. One of the directors of XL Fleet is a co-owner of the NY Islanders
Hockey Club.
Equipment Purchase: On March 1, 2021, the Company entered into
an agreement with Creative Bus Sales, Inc. to purchase six low floor electric transit buses to be delivered later in 2021 for a total
purchase price of $4.1 million. In connection with this agreement, on March 2, 2021, the Company made a nonrefundable down-payment of
$0.8 million. These buses will be deployed in the Company’s XL Grid business unit to support the Company’s electrification-as-a-service
strategy.
Purchase Commitments:
The Company has entered into firm commitments to purchase
batteries and motors from major suppliers. As of June 30, 2021, these purchase obligations consisted of an obligation of $8.1 million
to purchase batteries by December, 2021, an obligation of $2.3 million to purchase motors by July, 2022 and an open ended commitment of
$2.7 million to purchase batteries. In light of the lack of OEM chassis availability reducing demand for the Company’s Drive Systems,
the Company and the $8.1 million battery supplier are negotiating an amendment to this agreement to provide the Company with an additional
reasonable period of time to consume the remaining battery commitment.
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 12. Commitments and Contingencies, continued
Legal proceedings: The Company is periodically involved in legal
proceedings, legal actions and claims arising in the normal course of business, including proceedings relating to product liability, intellectual
property, safety and health, employment and other matters. Management believes that the outcome of such legal proceedings, legal actions
and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows.
On March 8, 2021, a putative class action complaint was filed in federal
district court for the Southern District of New York (Suh v. XL Fleet Corp., et al., Case No. 1:21-cv-02002) against the Company and certain
of its current officers and directors. On March 12, 2021, a second putative class action complaint was filed in federal district court
for the Southern District of New York (Kumar v. XL Fleet Corp., et al., Case No. 1:21-cv-02171) against the Company and certain of its
current officers and directors. Those cases were consolidated and a lead plaintiff appointed in June 2021, and an amended complaint filed
on July 20, 2021 alleging that certain public statements made by the defendants between October 2, 2020 and March 2, 2021 violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company believes that the allegations
asserted in the amended complaint are without merit, and the Company intends to vigorously defend the lawsuit. There can be no assurance,
however, that the Company will be successful. At this time, the Company is unable to estimate potential losses, if any, related to the
lawsuit.
Note 13. Net (Loss) Income Per Share
The following is a reconciliation of the numerator and denominator
used to calculate basic earnings per share and diluted earnings per share for the three and six months ended June 30, 2021, and 2020:
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income - basic
|
|
$
|
(10,469
|
)
|
|
$
|
(13,499
|
)
|
|
$
|
51,445
|
|
|
$
|
(19,953
|
)
|
Reverse: change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,731
|
)
|
|
|
-
|
|
Net loss - diluted
|
|
$
|
(10,469
|
)
|
|
$
|
(13,499
|
)
|
|
$
|
(23,286
|
)
|
|
$
|
(19,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic
|
|
|
139,237,805
|
|
|
|
82,990,664
|
|
|
|
137,416,593
|
|
|
|
82,577,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
181,942
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
139,237,805
|
|
|
|
82,990,664
|
|
|
|
137,598,535
|
|
|
|
82,577,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, basic
|
|
$
|
(0.08
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.37
|
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.24
|
)
|
XL Fleet Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share
and per share data)
Note 13. Net Income (Loss) Per Share, continued
Potential dilutive securities, which include stock options, warrants
and restricted stock units have been excluded from the computation of diluted net loss per share for the three and six months ended June
30, 2020 as the effect would be to reduce the net loss per share. Therefore, for this period the weighted average number of common shares
outstanding used to calculate both basic and diluted net loss per share is the same.
The number of shares underlying outstanding dilutive securities:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
11,399,635
|
|
|
|
11,584,747
|
|
|
|
11,399,635
|
|
|
|
11,584,747
|
|
Private Warrants
|
|
|
4,233,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
XL Legacy Warrants
|
|
|
6,117
|
|
|
|
2,507,338
|
|
|
|
6,117
|
|
|
|
2,507,338
|
|
Restricted stock units
|
|
|
322,225
|
|
|
|
-
|
|
|
|
322,225
|
|
|
|
-
|
|
Total
|
|
|
15,961,310
|
|
|
|
14,092,085
|
|
|
|
11,727,977
|
|
|
|
14,092,085
|
|
Note 14. Retirement Plan
The Company has adopted a 401(k) plan to provide all eligible employees
a means to accumulate retirement savings on a tax-advantaged basis. The 401(k) plan requires participants to be at least 21 years old.
In addition to the traditional 401(k), eligible employees are given the option of making an after-tax contribution to a Roth 401(k) or
a combination of both. Plan participants may make before tax elective contributions up to the maximum percentage of compensation and dollar
amount allowed under the Internal Revenue Code. Participants are allowed to contribute, subject to IRS limitations on total annual contributions
from 1% to 90% of eligible earnings. The plan provides for automatic enrollment at a 3% deferral rate of an employee’s eligible
wages. The Company provides for safe harbor matching contributions equal to 100% on the first 3% of an employee’s eligible earnings
deferred and an additional 50% on the next 2% of an employee’s eligible earnings deferred. Employee elective deferrals and safe
harbor matching contributions are 100% vested at all times.
In connection with the acquisition of World Energy, XL Fleet adopted
the World Energy 401(k) plan whose features are the same as those of the XL Fleet 401(k) plan except that (i) Participants are allowed
to contribute, subject to IRS limitations on total annual contributions from 1% to 100% of eligible earnings and (ii) the safe harbor
non-elective contribution is equal to 3% of employee’s compensation.
Note 15. Subsequent Event
Minority investment in eNow: On July 15, 2021, XL Fleet purchased $3 million in convertible notes
in eNow. Additionally, XL Fleet has the right to acquire eNow at a pre-determined valuation and has a right of first refusal with respect
to competing offers to acquire eNow, which expire if unexercised as of December 31, 2021. XL Fleet and eNow have also entered into a development
and supply agreement pursuant to which XL Fleet is the exclusive provider of high voltage batteries and associated power systems for use
in eNow eTRUs.