Q4 2020 XL Fleet Corp Earnings Call
[music].
Greetings and welcome to the X for.
And it's quite and 2020 earnings call.
All participants are in a listen only mode. A question and answer session will follow the final credit and patient if anyone should require operator assistance during the conference and please press star zero on your telephone keypad. Please note. This conference is being recorded and I'll now turn the conference over to your host and Barclays As General Counsel and Vice President of corporate development.
And then for XL free. Thank you you may begin.
Thank you good afternoon, everyone and welcome to XL fleets earnings conference call to discuss our fourth quarter and full 2020 results with me today are taught Heinz founder and president and Dmitry, because aren't off Chief Executive Officer.
Our call. This afternoon includes statements that speak to the companies expect.
Vacations outlook or predictions of the future, which are considered forward looking statements. These forward looking statements are subject to risks and uncertainties many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update any forward looking statements.
Except as may be required by law, we refer you to XL fleets disclosures regarding risk factors and forward looking statements in today's earnings release, our annual report on form 10-K, and our other Securities and Exchange Commission filings with that I will turn the call over to top line.
Thanks, Jim and thanks for everyone for joining us.
On the call this afternoon.
We're extremely excited to be hosting our first earnings call as a public company. Following the completion of our business combination at the end of last year and.
And we're especially proud of our entire team for capping off the most successful year and our company's history.
Before getting into our fourth quarter and full year financial results.
I'd like to begin with a brief overview of our strategy and our value proposition to customers.
When we started XL fleet more than a decade ago fleet customers were looking for clean solutions that met their needs and made economic sense.
Today XL fleet is proud to be a leader and fleet electrification with over four.
<unk> 4300 cumulative units sold through 2021 hundreds of fleet customers throughout North America, and over 150 million customer miles driven today.
Our strategy to get where we are today was built on leveraging the way our customers were already buying commercial vehicles.
And we intentionally integrated seamlessly.
Mostly into the existing manufacturing process offering electrification solutions installed during the normal course of vehicle production.
By leveraging the way in which companies we're already purchasing vehicles, we changed a little for the fleet owners, while delivering them the sustainability and operational benefits they seek and upholding the performance reliability.
They require.
Since our founding this strategy has allowed us to establish what we believe to be and industry, leading track record and trust with our existing customer base.
These factors are Paramount given the critical nature of our fleet customers and their must run applications.
Simply said reliability as the price of entry.
Ability and our commercial fleet market and we are proud of our proven history of delivering the reliability and performance our customers require.
We have scale and continue to scale our platform seeking to make electrification simple for our customers with a range of hybrid and plug and hybrid propulsion systems already on the road.
We continue.
Free expand the range of vehicles and applications for our technology across vehicle classes and manufacturers.
Our strategy also means that we are agnostic to the technical approach. This.
And this key flexibility has allowed us to remain nimble as we developed our fleet electrification platform and a rapidly changing market.
Although global.
Turning to my chain concerns are impacting many automotive and manufacturing companies we have.
<unk> taken steps to reduce risks to our supply chain as we are and established purchaser of key components, having purchased thousands of batteries and electric motors.
These volumes are in excess of many of our direct competitors and we expect our scale to benefit our new vehicles.
Supply and platforms that we're developing and contribute to cost advantages.
This strategy has also positioned us to advance to the next step and our evolution.
This includes our plans to introduce all electric solutions.
And where we will focus on class for and larger vehicles, where we believe the greatest opportunity lies.
Lives for our solutions.
We continue to develop our all electric platforms and expect to begin shipments in 2020 two.
The trust, we have garnered with our existing hybrid and plug and hybrid customers as evidenced by the fact that customer Reorders and account for a majority of our revenues since inception.
This positions us well to serve as their provider of choice for all electric solutions as we lead commercial fleets through their electrification journey.
Our evolution also includes the addition of our comprehensive vehicle charging and power solutions currently under development.
Together these offerings will position us to develop a one stop shop solution.
Solution for fleet electrification in.
In December we formally introduced XL grid, which is focusing on developing charging infrastructure power and storage solutions.
As fleets increasingly electrify owners and operators need access to electric vehicle charging however, such infrastructure can be challenging to integrate into existing fleet facilities.
As dozens or even hundreds of vehicles can overwhelm their existing power infrastructure.
The decisions on what to install and how to navigate this problem can be daunting for fleets and.
In order to catalyze greater adoption of plug in and all electric solutions by XL fleet, making the infrastructure decisions easier is critical.
Through our XL grid offering we intend to simplify the electrification process for our fleet customers and reduce or eliminate the upfront costs associated with charging infrastructure.
According to industry estimates the total market size for U S commercial EV charging supply equipment and 2021 is approximately 264.
$4 million.
This is expected to grow to $1 8 billion by 2025, reflecting and nearly 60% CAGR over the next for years.
And March we announced the potential opportunity to deploy and operate 1000 charging stations that UBS Arena and the New York Metropolitan Region XL.
And I'll fleet intends to.
To support this project through the development deployment and management of a robust suite of electrification infrastructure, including solar power generation and energy storage and vehicle charging stations.
We believe that this deal will serve as a blueprint for other similar deals across the country.
Since our announcement.
We've been contacted by other arenas throughout the country and we.
And we're in active discussions about how we can partner with them to make the most efficient use of these facilities and their access to parking and power.
A portion of the proceeds raised from our recent business combination will be used towards expanding XL fleet internationally.
We believe that XL fleet has a strong footprint across parts of the U S and Canada.
And we see significant opportunity to bring our technology and our solutions to fleets across the world.
Since announcing and closing our business combination these conversations including inbound inquiries have accelerated and we look forward to further exploring these opportunities and providing updates when appropriate.
As communicated at the time of our business combination.
Nation announcement, we expect that M&A will play a role and our future growth.
And we have an active program in place where we are currently exploring potential transactions.
We are focusing on strategic opportunities and tended to be complementary to our existing platform technology and services that we believe will allow us.
To more quickly scale, our fully integrated approach and accelerate growth.
We are committed to executing on opportunities that we believe maximize shareholder value.
XL fleet continues to intend to use the capital infusion from our recent business combination to aggressively pursue our strategy for high growth over the coming years.
And global fleet electrification market is a trillion dollar opportunity and it is just getting started and.
In fact, less and 1% of new vehicles sold in the U S commercial fleet segment.
Any level of powertrain electrification today, reflecting a massive potential for us to help grow that number.
We're excited that trends towards fleet electrification continued.
Continued to accelerate and.
And we believe that we are in a prime position to be a leader and this growth.
With that I would like to pass it over to Dmitry to review our financial performance what.
And what we're seeing and the market.
And our latest outlook.
Thanks Todd.
I'd like to begin with a review of key achievements.
And milestone during 2020, and thus far in 2021.
First we delivered on our commitments achieving record company revenues for the fourth quarter and full year 2020, driven by continued growth and system shipments.
We generated positive gross.
Margin, all while rapidly scaling our platform and navigating challenging market conditions and significant supply chain friction across the entire industry.
Second we continued to increase the number of electrification solution available for customers.
And this.
Includes hybrid electric drive systems for the class five Ford F. By 50 Super duty chassis, where we began customer deliveries and the fourth quarter of 2020.
We also announced expansion across a range of fleet vehicles from general motors, including popular platforms from Chevrolet and GMC such as the Silverado.
Our auto this year at 2500, 3500 heavy duty pickups as well as just Chevrolet and GMC 3500, 4500 cutaway chassis.
All expansions were driven by customer demand and reflect XL XL fleet, I'm going ability to be nimble and responsive.
And to customer needs.
Third we launched XL grid in December and have seen substantial interest and the solutions. We are developing on two fronts.
Existing customers are interested in adding charging to their existing facilities and arena.
And additionally, other large facilities.
Our interest and and Andy and adding charging for patrons, while also serving incremental demand for fleet electrification charging.
Fourth we recently announced that we'll be offering all electric plug in hybrid and hybrid electric refuse trucks across a range of class three to eight.
Waste management vehicle options through our partnership with curb tender.
<unk> represents a great application to reduce fuel consumption and across the industry and a high impact opportunities to drive deep decarbonization within the commercial sector.
Overall I am very.
Very proud of the team for continuing to deliver on its commitments and driving further growth for XL fleet.
To increase the product and solutions activity, we continue to expand our organization and all level and has been successful and continuing to attract great talent across our company.
Company.
This growth includes significant expansion of our engineering capabilities, where we expect to grow our team by approximately 50% this year.
To support this growth we're excited to recently announce the opening of a state of the art fleet Electric electrification Technology Center.
<unk> and southeast Michigan.
This technology center will serve as the central area for the design development testing and validation of a wide range of our commercial vehicle electrification solutions.
The nearly 25000 square foot facility is strategically located and Metro Detroit.
Great area, which provides us with access to leading automotive and commercial vehicle talent.
This metro Detroit facility is highly complementary to our three existing site locations and.
And together our teams are already working collaboratively to further achieve customer focused innovation.
We are also actively growing our sales and marketing infrastructure and team to accelerate growth.
Turning to the financials.
Revenues for the full year of 2020 totaled $23 million, marking an increase of nearly three times over the prior year.
From a high level XL fleet for heavy second half waiting to 2020 revenue with over 80% of sales realized in the third and fourth quarters combined.
This was driven by typical seasonality and fleet orders with an overlay of <unk>.
And pandemic related.
And the disruptions, including OEM plant shutdowns and the spring and supply chain disruptions, especially in the first and second quarters of 2020, but also scattered across the rest of the year.
The strength of our customer base and our team enabled us to still nearly triple revenue.
Despite the pandemic and related disruptions.
Gross profit for the year totaled $2 $7 million.
Reflecting gross margin of 13, 5%.
This was a dramatic increase over the prior year, reflecting progress on cost reductions.
Price realization per unit.
And volume related improvements.
Research and development costs totaled $4 $4 million during the year up from two point million $9 million and the prior year.
The increase in R&D was primarily driven by the continued expansion.
Of our electrification solutions.
For the fourth quarter, we achieved revenues of $10 $9 million up from approximately $300000 and the prior year quarter.
Gross profit for the fourth quarter was $2 million, reflecting gross margins of 18.
2%.
We exited the year with cash and cash equivalents of approximately $330 million. Following the capital raised as part of our business combination with pivotal in late December.
In February we announced.
For the redemption of our public warrants, which resulted in additional cash proceeds of $85 $6 million.
Together as of March 15th.
Armed with approximately $408 million of cash on our balance sheet.
Positioning us extremely well to execute on.
Our growth strategy over the next several years.
Before opening up the line for Q&A I would like to make a few comments on our 2021 financial outlook.
The long term outlook for the commercial fleet market remains robust with continued focus on electrification.
Vacation, creating significant opportunity for our expanding base of solutions.
We have already seen continued growth and our sales opportunity pipeline, including significant expected repeat business based on conversations with our customers.
We expect the recent signing of the.
American rescue plan to serve as a catalyst and materialized pent up municipal demand over the near term.
While these positive factors remain firmly in place the industry continues to face significant challenges, resulting from the COVID-19 pandemic.
With that and mind, we'd like to provide a few thoughts and how we're thinking about the year.
First and our experience orders for commercial fleets and follow a seasonal pattern.
With a majority of fleet deliveries being second half weighted.
In fact, as I, just mentioned more than 80% of our 2012.
<unk> revenues were realized in the third and fourth quarters of 2020 and.
And a similar concentration has existed over the last several years.
We expect this pattern to continue and be more pronounced in 2020, one driven by ongoing industry wide challenges combined with a continued.
Ramp and our business.
Second the pandemic was prevalent and accelerating in many parts of the country in the world late last year and continuing through today.
Many municipal departments corporate clients and prospects, who would planned fleet orders in 2020, particularly late in the year.
And <unk> postpone these potential orders did a major budget shortfalls.
Together this has impacted orders for shipment in the first and second quarters of this year.
Third as I noted industries across the world has been impact impacted by the multiple production shutdowns during the pandemic.
And the recent microchip and other shortages that caused major Oems to shut off fleet orders, creating a lengthy period early in the year without any new vehicle orders possible.
While the industry works to alleviate the pressures resulting from these issues.
Challenges remain.
Remain prevalent today and it is possible that the impacts of these issues remain in place for a significant period of time.
Taken together, we are currently forecasting first quarter 2021, and revenue to be roughly $1 million or roughly flat as compared to the first.
First quarter of last year.
Driven by the ongoing OEM delays amid and microchip and other shortages.
Given this ongoing uncertainty and the potential for extended industry wide issues combined with typical seasonal patterns and our orders and a significant majority.
We have revenues focused on the second half.
We are not currently providing formal full year 'twenty one financial guidance.
That said as these pressures abate, we expect to see a stronger market environment emerge later this year.
And in this scenario, we would expect to realize significant.
Revenue growth for 2020 one.
Accompanied by an even more pronounced seasonality and therefore weighting to the second half of the year.
In summary, I'm very confident that we have the strategy the team the technology and the financial resources to.
Inefficient absolutely build this business into a global leader for sustainable fleet transportation.
We'd now like to open up the lines for Q&A.
At this time, we will be conducting a question and answer session. He would like to ask a question. Please press star one.
Six and telephone keypad and confirmation tunnel and they can't your line is and the question came in April.
Sorry to it if he would like to remove your question from Mikael for participants using speaker equipment, and maybe necessary for pick up and your handset before pressing the star keys, one moment. Please while we poll for questions.
Our first question is from Greg Lewis of <unk>. Please state your question.
Yes, hi, Thank you and good afternoon everybody.
Dmitry.
I guess first on.
Tying out the second half versus versus the first half and as we think about the impact that that no.
And I need the equipment shortages and and kind of that getting pushed out.
Is that something where we're in it and it kind of sounds like we should.
Or is that something where it's almost like the.
Okay.
And in Q1, and Q2, maybe become more about like.
The 2000 and up more in 2022, then the back half.
Yeah.
I'm sorry, Greg.
You were breaking up a little bit there.
Uh huh.
If I understood. Your question correctly I think you were asking if there is risk that.
Some of that demand actually pushes out into 2022.
Rather than the second half.
And I guess my my response to that is certainly depends on and how well the industry and.
And is able to deal with some of the current challenges.
We are seeing opportunities.
Beginning to emerge even here in Q2.
And we do expect a significantly stronger second half for the year.
We've got a.
Number of commitments from from existing customers.
And that are counting on.
And their vehicle orders to be delivered and the second half.
So so we do have some significant visibility to that.
We do have a growing pipeline.
So compared to six months ago, you know were substantially up in terms of the total opportunity landscape.
And and so that that's certainly a positive sign for us.
Okay, great. Thank you for that Dmitry, and and then and you know I wanted to touch a little bit on the.
And then he'd be charging station.
At the arena is is there any way to kind of think about or frame that.
And the new opportunity and kind of what that looks like is that more of it is that more of a and annuity stream or more of just the and upfront deployment type of revenue.
Number two.
And there really are two opportunities come and together with arena deals.
The core.
Business that we've been expanding or we announced in December was XL grid and that provides comprehensive charging and.
Our solutions energy storage solar power management for fleets and their facilities and other.
What that enables us to do with arena.
That would also provide those same.
Capabilities.
But in addition to that creating demand at those arenas.
For charging during the off peak time as part of the strategy. One of the benefits that are arenas have is they have a lot of power and a lot of parking which they don't need most.
And as the time.
And so by putting in the charging infrastructure and pairing that with electric.
Electric vehicles and plug in vehicles, they can use that infrastructure when the patrons are not parking there and it really creates an opportunity for recurring revenue and and longer term revenue as.
As well as our installation revenue.
Most of the for a one time are installed price. So it is a combination and every deal will be unique we have had a number of additional.
Conversations where we're actively.
And working with other similar projects and.
So we every project will be different and that's part of our the benefit of the holistic offering and we're bringing because we.
New or us.
The offering based on the needs other customer.
Yeah.
Okay perfect. Thank you for that and have a great day gentlemen.
Thanks, Craig.
<unk>.
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One moment, please Holly Paul for additional question.
Our next.
Style, and Samsung Jed <unk> with Canaccord Genuity and state your question.
Hi, Thanks, Thanks for taking my question.
I guess first just starting with revenue if we could what was the split between hybrid and plug and hybrid.
Solutions, either by revenue per units just rough numbers.
Yes Jed.
We continued to see.
A higher proportion of our revenue coming from hybrid system.
And then plug in hybrid and 2020.
We did have significantly more availability in terms of models and chassis on the hybrid and the plug in.
Question last year, we're certainly seeing more opportunity for the plug ins as we go forward and.
And we have announced additional models available with the plug in our systems and in particular on some some GM heavy duty pickup and cutaway chassis.
And that's that we're seeing a lot of interest for them really for us.
And one of the great things about our strategy is we're not dependent on that split or or you know any one technology and architecture, we're focused on developing a suite of solution that.
And meet the needs of specific applications and so.
As we're still at kind of the this narrow and the wedge where the principal competition is internal combustion engine gas and diesel.
These kinds of solutions are a great first step for customers.
Really get a full electrification.
No I get that and that's a I appreciate that so you know I take it the vast majority is on the hybrid and the reason I was asking though is obviously there the E. S. P is you know.
Twice that are in the plug in and in terms of you know so from a revenue.
Canoe and a unit perspective, it seems like the quickest way to see revenue growth would be to shift some of the hybrid over to the plug in hybrid and my thinking about that correctly.
Oh, well I think the way to think about it is with the diversity of applications.
And they're way and in the commercial vehicle space.
There's lots of opportunity to grow both of them as well as pure electric drive systems, which will be and even higher average selling price.
We've got those and development, we've got a multiple development programs.
And loading the one with curb tender that's been previously announced those.
Programs won't be hitting volume introduction until 2022, but that's part of the long term growth plan for the company and in particular, we're also gonna.
Can it get back into the market here in California.
California, and Q2 Theres a lot of pent up demand for these solutions are in California and.
And so we look forward to growing the volume across the range of offerings that we have.
Got it.
And so.
And I guess and maybe we I'm trying to reconcile the 90% drop in revenues Q4 to Q1 could you maybe help with the backlog because backlog shouldn't be affected and if I look at the shortages from a chip perspective, I'm not seeing a drop that that's significant.
[noise] against in terms of industry numbers, so how should is it.
You know where things pulled into Q4 or are they just being pushed out into Q3.
Yeah, as we mentioned.
And the Oems have actually shut off their order books.
And so while overall you know the industry volumes, maybe haven't dropped off to the to the degree that are.
You might think for a number of these customers and our customers their ability to get any.
And every of vehicles has been impacted so we typically see a lull in terms of the fleet you know sales.
And delivery and.
Most orders are placed in the first half for the year and a lot of the vehicle deliveries come and the second half of the year, we've seen that.
For some time and what's happening with the pandemic is kind of accelerating.
Or accentuating that.
That characteristic here in 2021 and.
And part of what you're seeing.
Add a little bit part of what you're seeing is carryover from last year disruptions from shutting down facilities.
Declared last year changed everybody's production and ordering patterns from them. So they you know there were some large orders for GM and Ford, which accelerated the closing of that order book is Dmitry mentioned now normally.
And the Oems will retool their factories and the.
Summer so they they stopped taking orders you know and the kind of late springtime early summer.
And they are this year or did it I think at a record pace in terms of the January timeframe. So there there is still some disruption that's going on with production.
Production cycles, and then the the buying cycles from customers as well.
And yet.
Due to Covid and look at the at the split of revenue last year.
And we did over 80% of the revenue and the second half and that was because a lot of fleet to put their orders in for vehicles in the first half and deliveries happened and the second half that same dynamic is is at work.
Work here and because of the shutdown and in ordering with a couple of the major Oems.
That dynamic is and it's still at work, we are expanding our offerings and more models and more vehicles, we're going to take advantage of that in the second half.
And and so that's really what's what's behind that dynamic.
Got it that's fair I, just think that you know from a seasonality perspective. The expectation is that you know this is more of a growth story than a value story.
And and that's why.
That's where my.
Questions were coming from tumor.
Two more if you if you'd indulge a I guess just Todd in terms of the value proposition and I was wondering if you could maybe unpack the XL grade a bit more you know it sounds like that's a great win for you guys. It sounds like the infrastructure package is going to be.
Positive for you if you wouldn't mind just talking about how we should think about the economics associated with that business I think that would be helpful. And then I have one more follow up.
The way that we're setting up XL grid is to really meet the needs of commercial fleets and.
Helping them assess their facilities, what charging infrastructure is required water opportunities for onsite solar storage and clean electricity supply power management.
And that they can effectively.
The transition to as much electrification as possible and to give them facilities.
So we want to offer that all our cart because.
Because you know some customers may only need charging stations and some customers may only need and some other piece of the of the offering so it will be available to customers and and is available for charging already.
For direct purchase and then the other opportunity to reduce the upfront costs were.
And eliminate the upfront costs would be to package up everything and offered as a service to the end customer where it's essentially are done through a longer term medium term contract which would enable.
And able to pads, we can recognize that revenue over time or you can sell off that asset either through two and us.
B or to a financial investor that wants to to finance it and so there's plenty of options for us to pursue and I think one of the best parts about the business model that we have that flexibility.
We have the capital on our own balance sheet too.
And early stage financing and and initial development work and.
And that's part of what we've identified.
And that's P to funds under the electrification of the service budget. So there was a $80 million budget to support the.
And the deployment of not only the charging and energy grid and XL grid assets, but the vehicles as well.
I'll jump back in queue. Thanks.
Thanks.
Yeah.
Thanks Jed.
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And with that Q1.
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With regard.
We have reached the end of the question and answer session and I will now turn the call over to from Dmitry, <unk> Saar and ask for closing remarks.
Thank you very much for participating in today's call and for your interest and XL fleet.
Have a great day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
With revenue.