XOS Q2 2024 Earnings Call Transcript

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August 13, 2024

Key Takeaways

  • Q2 revenue of $15.5 M (up 18% QoQ, 227% YoY) with 90 unit deliveries marks the fourth consecutive quarter of positive gross margin.
  • Step van sales were driven by UPS and FedEx Ground contractors, supplemented by powertrain orders from Bluebird, and a new 208-inch wheelbase variant secured signed orders for Q1 2025.
  • Hub sales exceeded expectations as fleets seek flexible charging amid slow permanent infrastructure deployment, positioning the hub as a growing revenue stream alongside vehicles and powertrains.
  • Cash and equivalents declined to $20.7 M (from $47.3 M) due to elevated accounts receivable ($29.7 M) and inventory buildup ($41.4 M), resulting in a negative $26.1 M free cash flow.
  • Management reaffirmed full-year 2024 guidance of $66.7 M–$100.4 M in revenue, a non-GAAP operating loss of $43.7 M–$48.7 M, and 400–600 unit deliveries.
AI Generated. May Contain Errors.
Earnings Conference Call
XOS Q2 2024
00:00 / 00:00

Transcript Sections

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Operator

At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note today's conference call is being recorded. At this time, I'd like to turn the floor over to the General Counsel of Xos, Christen Romero. Thank you. You may begin.

Christen Romero
General Counsel at Xos

Thank you, everyone, for joining us today. Hosting the call with me, our Chief Executive Officer, Dakota Semler, Chief Operating Officer, Giordano Sordoni, and Acting Chief Financial Officer, Liana Pogosyan. Ahead of this call, Xos issued its Second Quarter 2024 Earnings Press Release, which we will reference during the call. This can be found on the investor relations section of our website at investors.xostrucks.com. On this call, management will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, because of factors discussed in today's earnings news release, during this conference call, or in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at investors.xostrucks.com.

Christen Romero
General Counsel at Xos

We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures and performance metrics. Please refer to the information contained in the company's Second Quarter 2024 Earnings Press Release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. Participants should be cautioned not to put undue reliance on forward-looking statements. With that, I now turn it over to our CEO, Dakota.

Dakota Semler
CEO at Xos

Thanks, Christen, and thank you everyone for joining us. On today's call, I will cover highlights from the Second Quarter of 2024, during which we generated $15.5 million in revenue, delivered 90 units, and achieved our fourth consecutive quarter of positive gross margin. Gio and Liana will then provide operational and financial updates, respectively. Starting with sales and deliveries, revenue is up 18% quarter-over-quarter and 227% year-over-year. The majority of our 90 units delivered were step vans for fleet customers, namely UPS and FedEx Ground contractors, supplemented by powertrain sales to Blue Bird and Hub sales to multiple new customers.

Dakota Semler
CEO at Xos

We expect 2024 volumes to be meaningfully higher than 2023 and similarly weighted towards the second half of the year as customers respond to incentives and charging infrastructure comes online. Demand for Xos products remained robust throughout the year. In May, we attended the industry's largest conference, the Advanced Clean Transportation Expo, where potential customers demonstrated strong interest in both our vehicles and our latest generation Hub. In addition to our own booth, Xos technology was also on display by Blue Bird, one of the largest school bus OEMs and a leader of EVs in the sector. We announced our exciting new powertrain partnership with Blue Bird during the quarter, and at the show, they displayed a pair of parcel delivery chassis built with Xos powertrains.

Dakota Semler
CEO at Xos

Blue Bird's decision to partner with Xos and showcase our powertrain underscores our reputation as a leader in EV technology. The partnership resulted in significant attention to Xos products. Over the course of the show and weeks that followed, the Blue Bird partnership came up repeatedly with both fleet buyers and industry insiders as a vote of confidence in Xos' technical capabilities and the company's future. Turning now to our charging products, where we are experiencing stronger than expected sales activity, the Hub, Xos' mobile energy storage and charging product, is filling gaps felt by customers. They recognize the value of pivoting their fleets and equipment away from fossil fuels, but have to confront the realities of lagging permanent infrastructure installation timelines, limited charging options in remote locations, and the complexity of accessing grid power from work sites.

Dakota Semler
CEO at Xos

This quarter, Hub sales were particularly strong with firms outside our Step Van customer base, including a large government fleet. Operators across the industries are demonstrating a clear need for more flexible charging solutions, and we expect that charging solutions will grow into a robust part of Xos' overall business. The strength of the sector is evidenced by the attention it received at the ACT Expo this year, where more than a dozen firms showcased combined charging and energy storage products. We view the increased number of options as a healthy evolution of the EV market and ultimately beneficial for Xos. As a first mover in the space, the Hub has a strong sales pipeline and is a mature and cost-competitive product.

Dakota Semler
CEO at Xos

New market entrants are bringing more visibility to the product category than Xos alone can generate and also provide alternate paths for customers to discover Xos and our products. Most importantly, the advancement of alternative charging options will support faster adoption of our vehicles and expand the EV market to include more of the fleets without access to traditional permanent chargers. For more detail on how we are fulfilling the strong demand for Xos products, I'll hand it over to our COO, Gio, for an operational update.

Giordano Sordoni
COO at Xos

Thank you, Dakota. Xos' engineering, supply chain, and manufacturing teams remain focused on scaling production and delivering further margin improvements. Our engineers are developing a longer 208-inch wheelbase variation of the Xos Step Van to support a wider range of bodies requested by our customers. In fact, we've already secured signed sales orders for this new variation. Some of the first units will be delivered to Mission Linen as part of the order that we announced in the first quarter. Lengthening the vehicle is a relatively simple change, with efforts primarily focused on changes to the frame rails, extensions to wiring harnesses, and durability testing of the updated chassis. This means we're able to launch the new variant quickly and with minimal R&D investment. We expect the new long-wheelbase Step Van to be in customer hands by the first quarter of 2025.

Giordano Sordoni
COO at Xos

Also, within engineering, our software and controls team has made improvements to our connectivity platform that will translate into cost savings, both on complete vehicles and powertrains. As commercial vehicle customers begin to expect features like over-the-air updates and real-time telemetry, our in-house software capabilities have differentiated Xos as both a vehicle manufacturer and a technology partner to legacy OEMs. Furthermore, our teams continue to find opportunities to grow our margins by reducing direct costs. This quarter, Xos brought a greater portion of logistics for our completed chassis in-house, which translates to lower costs overall. Our manufacturing team is focused on scaling vehicle production efficiently, integrating Hub and powertrain production to the factory floor.

Giordano Sordoni
COO at Xos

As I mentioned last quarter, we're preparing for production rates of up to eight Hubs per month in 2024, alongside our Step Van and powertrain volumes, to satisfy strong demand from existing and new Xos customers. As a final note, we're tracking the potential tariff changes that could impact our China-sourced components. Xos is preparing for any such development by identifying alternative sources and exploring tariff mitigation strategies. At this point, we do not anticipate significant tariff-related disruptions or impediments to our production schedule, but we will continue to monitor any developments in this space. With that, I'll pass it to Liana.

Liana Pogosyan
CFO at Xos

Thank you, Gio. For the second quarter, our revenue increased to $15.5 million from $13.2 million in the first quarter of 2024, primarily as a result of our increased deliveries. Our cost of goods sold during the quarter increased to $13.5 million, compared to $10.4 million in the first quarter. GAAP gross margin during the quarter was a profit of $2 million, or 13.1%, compared to a profit of $2.8 million in the first quarter, or 21.2%. The first quarter's GAAP gross margins included beneficial adjustments related to our inventory reserves and inventory accuracy processes. GAAP gross margin during the second quarter was negatively impacted by lower average selling price due to product mix, write-off of excess materials, and adjustments to our reserves due to overall higher inventory balances.

Liana Pogosyan
CFO at Xos

We continue to see margin improvements in our Step Vans as we realize the efforts of our engineering, supply chain, and manufacturing teams. We have been able to work with our suppliers in reducing the cost of several critical components as we scale production, leading to lower direct material costs for each unit. Additionally, our engineering and production teams continued to gain efficiencies in the design and build of our Step Vans, reducing labor costs while increasing the durability and reliability of each unit produced. It should be noted that GAAP gross margins for a vehicle OEM are impacted by a range of reserves that, combined with changes in the sales mix between direct, dealer, and prior model inventory sales, introduced higher levels of volatility in quarterly results.

Liana Pogosyan
CFO at Xos

We continue to share a consistent non-GAAP gross margin that adjusts for inventory reserves and physical inventory and other related adjustments that you can find in today's earnings press release. Turning to expenses, our second quarter operating expenses of $13.4 million remained broadly in line with the first quarter's figure of $13 million. Non-GAAP operating loss for the second quarter was $9.7 million. GAAP operating loss was $11.4 million. Excitedly, our operating profitability is following a promising trajectory. Following last year's efforts to reduce spending on non-core projects and the release of the current Step Van platform, our non-GAAP operating loss improved to -63% this quarter from -357% one year ago.

Liana Pogosyan
CFO at Xos

We expect to see continued improvements over the coming quarters as our volumes grow and our operations teams continue to identify and implement cost-saving changes to our products. Turning to the balance sheet, we closed the quarter with cash and cash equivalents and restricted cash of $20.7 million, compared to $47.3 million at the end of the first quarter. The reduction in cash above our historical trends was primarily the result of our elevated accounts receivable balance of $29.7 million at the end of the quarter, compared to $20.3 million in the first quarter. This resulted from a concentration of deliveries made at the end of the quarter, as well as a temporary buildup in government incentive receivables.

Liana Pogosyan
CFO at Xos

The substantially higher deliveries we expect to make in the second half of the year also played a role, as inventory increased to $41.4 million in the current quarter from $36.6 million in the first quarter to support higher production rates. We have taken steps to improve our incentive collection processes and expect our accounts receivable and inventory balances to stabilize over the coming quarters. In addition, we are actively pursuing options for non-dilutive working capital to fund the growth of our business and preserve liquidity. Relatedly, operating cash flow less CapEx, or free cash flow, of negative $26.1 million quarter-over-quarter, was a decrease from negative $14.6 million last quarter. Unfavorable changes in working capital, driven by higher accounts receivable and inventory balances and lower margins this quarter, contributed to the increase in negative free cash flow.

Liana Pogosyan
CFO at Xos

Based on the initiatives we discussed, we expect to see more favorable changes in working capital in the coming quarters. Finally, we are reaffirming our full year 2024 guidance of revenue in the range of $66.7 million-$100.4 million, a non-GAAP operating loss between $43.7 million-$48.7 million, and 400-600 units delivered. I'll now turn the call back over to Dakota.

Dakota Semler
CEO at Xos

Thank you, Liana. To wrap up, Xos is positioned to win. We are growing deliveries, demonstrating our leadership in commercial EVs via partnerships with established OEMs, powering forward with a strong margin trajectory and building a self-sustaining business. Diversifying our product portfolio by leveraging our step van technology to satisfy unmet demand for powertrains and Hubs is adding to our strong backlog of step vans. Our technology portfolio and highly competitive pricing has made us a partner of choice for OEMs like Blue Bird. Our relentless focus on capital efficiency and cost reductions translated into four consecutive quarters of positive gross margin this year and continued progress in the company's path to profitability. With that, let's open the line for questions.

Operator

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press Star and then One using a touchtone telephone. To withdraw your questions, you may press Star and Two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality. Once again, that is Star and then One to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Mike Shlisky from D.A. Davidson. Please go ahead with your question.

Mike Shlisky
Mike Shlisky
Managing Director, Senior Equity Research Analyst, and Broker at D.A. Davidson

Good afternoon. Thanks for taking my questions. So folks, if I'm looking at this correctly, given the $9.7 million non-GAAP operating loss in Q2, roughly what you saw in the first quarter, do you still expect to have the $43 million-$48.7 million loss for the full year? But you've got revenue increasing in the back half. So kind of curious what's dragging on income in the back half year. You have sales increase and pretty good momentum in most areas. What should we expect to be a challenge in the second half or from a profitability perspective?

Dakota Semler
CEO at Xos

Yeah. So we can start, and I can address your first part of your question, Mike, which is, you know, why, why the high increase there in Q2? First, that was driven really by a ramp up in inventory spending because of the demand for orders that we're seeing in the second half of the year. The other component, as Liana touched on, is really that collection or those collections of government incentives. So a number of our customers get the benefit of state, local, or federal subsidies, some of which are paid out on longer terms, might go beyond the traditional net fifteen or net thirty terms that we have with our customers. And so some of those carry across into the second quarter or into the third and fourth quarter for vehicles delivered at the end of Q2.

Dakota Semler
CEO at Xos

A big part of that has just been our, our ability to, to collect against those receivables for those government incentives, where they operate by a different set of terms than what our standard customer terms and conditions apply. When we're looking at our guidance for the rest of the year, we are very, very confident in staying within the realm of our, our guidance at the volume level or at the unit level. And that's where we're driving our operating loss assumptions and our, our gross margin assumptions for Q3 and Q4.

Dakota Semler
CEO at Xos

So ultimately, we do expect that we'll recover a lot of the cash that came from those incentives for vehicles delivered in the first half of the year, in the second half, as well as convert that work in process or the dollars used to purchase inventory into finished goods and ultimately sell those vehicles to customers in the second half of the year. It's a process that we've been continuing trying to improve and hone, but ultimately something that I think will only get better in the quarters to come.

Mike Shlisky
Mike Shlisky
Managing Director, Senior Equity Research Analyst, and Broker at D.A. Davidson

Okay. Okay. I thought on that one offline. You, you didn't mention much in the prepared comment about sort of the, the sales pipeline and the backlog that you might have. Can you comment on existing customer interest, new customer interest, and, you know, where you think things are headed into 2025 here?

Dakota Semler
CEO at Xos

Yeah, absolutely. So even in the macroeconomic, macroeconomic context right now, where we've seen a little bit of a slowdown in the broader EV sector and a slowdown in growth, not a slowdown in overall sales, we continue to see strong interest, particularly from large national accounts. I would say sales closed in the second quarter have skewed more towards our large national accounts than our smaller regional accounts. And there are several factors that are influencing that. One is just the cost of capital right now for a lot of those smaller fleets, when they're looking at capital financing or lease financing of these vehicles, the interest rate market today is, is elevated, and that's driving some of the slower purchasing rates we've seen in the small and regional fleets.

Dakota Semler
CEO at Xos

But on the national fleet side, we're still seeing strong demand, and many of the customers are trying to meet some of the, implementation timelines for regulations such as the Advanced Clean Fleets rule in California. So a lot of our customers, the big parcel delivery customers, we highlighted two of our largest groups of deliveries, which is UPS for Q2, and then obviously FedEx Ground contractors, both of which are ramping up orders pretty significantly to comply with that ACF regulation. And we expect that will continue to grow in the years to come as more states adopt some form of ACF, locally, or a combination of ACF or ACT regulations. So overall, sales backlog continues to grow.

Dakota Semler
CEO at Xos

As we touched on, there's other products that are now coming into the fold, like the Xos Hub and our powertrains business, Powered by Xos, that are also starting to add into that backlog. We expect those will continue to grow over the quarters to come, as there's still strong, strong interest in electrifying those school bus industry and the school bus platform, and as a broader, broader commercial vehicle and specialty vehicle space.

Mike Shlisky
Mike Shlisky
Managing Director, Senior Equity Research Analyst, and Broker at D.A. Davidson

Great. Maybe, maybe, one last one for me to follow up on, on your Blue Bird comments. Are there other potential powertrain partnerships that you're looking at beyond Blue Bird and Winnebago? And I guess I'm curious to see if, and Gio, you mentioned you made the, the longer wheelbase version on a relatively inexpensive way, just a bit of, of an adaptation. Are the products you're looking at to go into further adaptation from here, or do you have anything kind of new or radical or newer, newer, more radical or even larger in the, in the, in the pipeline here?

Giordano Sordoni
COO at Xos

Yeah, the powertrain team remains active, and the deals that we've announced with Winnebago and Blue Bird definitely add some momentum there. So there are other things we're working on that we can't quite share yet. And then, while the variations to the step van, you know, whether we make the step van a bit longer or a bit shorter, that does tend to open up some new customer avenues, both on a step van body platform and also to other powertrain customers that might be more interested in some of those adaptations for their particular use case. Of course, in the past, we had talked about medium-duty and heavy-duty trucks as well. Those are still things that we think make a lot of sense in certain environments.

Giordano Sordoni
COO at Xos

Right now, our core focus is the electric chassis for delivery vans, our powertrain unit, as well as the Hubs.

Mike Shlisky
Mike Shlisky
Managing Director, Senior Equity Research Analyst, and Broker at D.A. Davidson

Great. Thanks for answering my questions. I appreciate it.

Operator

Once again, if you would like to ask a question, please star one. Our next question comes from Donovan Schafer from Northland Capital Markets. Please go ahead with your question.

Donovan Schafer
Donovan Schafer
Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets

Hey, guys. First, I wanna just follow up on Mike's first question about kind of with the guidance. And, yeah, I can imagine a lot of possibilities, but I think what he's getting at is, like, not on a, not on a cash basis, 'cause, of course, on a cash basis, the changes in working capital could make Q2 a larger cash-consuming quarter. But on an accrual accounting basis, you know, since you're giving us for the outlook, you're giving revenue and a non-GAAP operating loss, which, you know, there's adjustments there, but it's still more accrual than a, you know, cash flow type number.

Donovan Schafer
Donovan Schafer
Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets

So if we sort of in order to square those, the revenue guidance and the operating loss guidance, it seems like either, you know, ASPs would have to come down and/or, you know, I guess maybe, I'm thinking maybe gross margins, it seems like gross margins maybe would have to come down. So is there something like that, that you see in Q3 and Q4, gross margin compression or operating expense increasing more materially? Is that— Is that something you've identified and seen, or is it more just from a conservatism or consistency standpoint, you just have a desire to kind of stick with what you initially put out, just sort of reiterating as a way of being cautious or conservative?

Liana Pogosyan
CFO at Xos

Thanks, Donovan. I mean, with respect to the non-GAAP operating loss, I would say, you know, our overall guidance is on the conservative basis. You know, as you can see, you know, in the non-GAAP operating loss for the six months ended, we were at about $19 million, and we would expect that same or better trajectory for the second half of the year.

Donovan Schafer
Donovan Schafer
Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets

... Okay, I see. That's very helpful. Thank you. And then as a second question, looking, just focusing just on the revenue piece of it, we've talked in the past that, you know, I think you've the belief or expectation is that you hope to be able to have sequential revenue growth sort of each quarter. So, you know, now that we're kind of in August, just wanted to double check and see if that's still the thinking that, you know, you still think Q3 will be higher than Q2, and Q4 will be higher than Q3, if that's the anticipated pattern. Or if there's anything sort of from a seasonal or a timing standpoint where Q3 would be the bigger quarter versus Q4.

Liana Pogosyan
CFO at Xos

I think directionally, how you're thinking is correct. You should expect to see a sequential increase in revenues. I think one of the key aspects also with respect to revenue is average selling price, which there is some variability between quarter to quarter. But one of the things that I think is also important is, you know, with respect to the product mix, not only within our StepVan products, but also within Hubs and as well as powertrains, you know, there is that variability from period to period. But sequentially, there should be an expectation of an increase.

Donovan Schafer
Donovan Schafer
Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets

Okay. Okay. And then one last one, if I can squeeze it in, is just with the Hub set, last quarter, we talked about ramping the ability to manufacture Hubs for the second half of the year. I think the goal was 4 Hubs per month, I believe, correct me if I'm wrong on that, but that was the goal sort of for the second half. Just curious if we can get a specific update on kind of where we're at, if you've hit that capability of 4 per month or not, and if... And then, you know, if you have it, that capability, or just in general, what is the kind of run rate right now? The run rate of production of the Hub.

Giordano Sordoni
COO at Xos

Yeah, Donovan, appreciate the question. The Hub line set up has gone really well, and we are building Hubs more consistently. Our supply base has caught up, and so we're really happy with all the progress on the Hub line. We aren't at—so 8 Hubs per month is 2 per week. We're not quite getting all the way up to 2 per week, every single week, but we are just about to be there. So often it'll be, you know, 1.5+ per week, and then the next week we'll get out 2. So, you know, more or less, at least by the end of the month here, we'll be at 2 per week and have reached that capacity.

Donovan Schafer
Donovan Schafer
Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets

Fantastic. All right. Thanks, guys. I'll take the rest of my questions offline.

Giordano Sordoni
COO at Xos

Thanks.

Operator

Ladies and gentlemen, at this time, showing no further questions in the queue.

Analysts
    • Christen Romero
      General Counsel at Xos
    • Dakota Semler
      CEO at Xos
    • Donovan Schafer
      Head of Research, Investment Adviser Representative, and CFA Charterholder at Northland Capital Markets
    • Giordano Sordoni
      COO at Xos
    • Liana Pogosyan
      CFO at Xos
    • Mike Shlisky
      Managing Director, Senior Equity Research Analyst, and Broker at D.A. Davidson
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