Q1 2021 XL Fleet Corp Earnings Call

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Good afternoon, and welcome to the ex L. C Corp, first quarter 2021 conference call.

As a reminder, today's call is being recorded.

At this time all participants are in a listen only mode.

A brief question answer session will follow the formal presentation.

For opening remarks, and introductions I would like to turn the call over to Jim Buckles General Counsel and Vice President of corporate development for XL fleet.

Please go ahead.

Good afternoon, everyone and welcome to XL Fleet earnings conference call to discuss our results for the first quarter of 2021 with me today are part of Heinz of our founder of pregnant sneakers.

Newkirk as Arnaud Chief Executive Officer, Cielo Hernandez, Chief Financial Officer.

Our call. This afternoon includes statements that speak to the company's expectations 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 of disclosures regarding risk factors and forward looking statements in today's earnings release.

We will report on form 10-K, and our other Securities and Exchange Commission filings with that I will turn the call over to the top line.

Thanks, Tim and thanks to everyone for joining us on the call. This afternoon.

Before we get into our results for the first quarter I would like to begin with the discussion of an exciting acquisition announcement, we made this afternoon.

We were incredibly excited to announce the acquisition of World energy efficiency services.

Our major customers tell us the fleet facility power constraints create a unique and large challenge when trying to charge doesn't even hundreds of vehicles at the same location the.

The team at World Energy is filled with experts who can help solve this problem.

Of incorporating energy efficiency measures and solar power, while integrating EV charging to increase the amount of energy available for fleet vehicle charging.

The company operates across the New England region.

And has a long track record of delivering value to our strong portfolio of customers and utilities, including their long standing relationships with ever source and national grid.

Our acquisition of World Energy is aligned with the clear strategy, we laid out when first announcing our business combination last year and.

And we expect the acquisition to benefit XL fleet in two key ways.

First this is the highly strategic bolt on acquisition that expands our charging infrastructure division XL grid.

When we first launched XL grid, our mission was clear to make it easier and more cost effective for companies to electrify their fleets.

By removing barriers to adoption and lowering the total cost of ownership. We believe we are well positioned to provide a comprehensive offering and set of solutions.

This is exactly what world energy provides to its customers and the combination of our company's complementary capabilities is tremendously powerful.

As we said the acquisition of World Energy will enhance our ability to provide fleet electrification and an even more seamless manner.

Second in addition to complementary capabilities, we will also benefit from a synergistic portfolio of customers.

This includes the opportunity to provide XL fleet solutions to World Energy's strong and deep customer base.

As well as accelerating the adoption of XL grid offering across XL fleet spectrum of customers.

Importantly world energy is profitable.

Free cash flow positive and is immediately accretive to XL fleet.

Total transaction consideration was approximately $16 million.

The transaction was enabled by our strong balance sheet position, resulting from our business combination with pivotal two in December of last year.

Including more than $400 million of cash on the balance sheet at the end of the first quarter of this year.

We are excited to welcome the World Energy team to XL fleet and look forward to partnering with them to grow over the long term.

With that I would like to pass it over to Dmitry to review, our first quarter results and an update on our business progress.

Thanks Todd.

We remain intensely focused on executing our strategy for long term success.

We continue to evidence of our success with a number of recent key announcements, including several since our last earnings call on March I would like to highlight a few.

First we announced the key partnership with Dickinson Fleet services.

A leading mobile maintenance provider for medium and heavy duty trucks and trailers in North America.

Under the partnership we meaningfully expand our service network, including access to deck includes base of 700 mobile repair of unit.

800 repair and maintenance technicians.

In addition to scale, we gain even greater regional and geographic diversification enhancing our ability to service our growing base of customers and their demand.

We're already working closely with the Dickinson team to ensure they are trained in servicing our wide range of vehicle applications.

Second we announced an agreement to electrify the pickup truck fleet of apex clean energy, a leading clean energy company that develops construct and operate utility scale wind and solar power facilities throughout North America.

Apex turned to XL as part of their comprehensive effort to reduce carbon emissions the.

First order, which includes 19 Ford F series pickup trucks includes both hybrid and plug in hybrid systems.

Apex is a great example of how commercial fleet, providing must run critical nature of services are turning to XL fleet to immediately deliver sustainability without compromising performance or the liability.

A key part of this strategy is continuing to evolve and transform our business.

Okay.

This includes our all electric solutions, including our development agreement with curb tender for electrified refuse trucks.

We remain on track and expect to make volume shipments in 2020 to significantly expanding the range of solutions and applications offered to our customers.

Together with curb tender we have received recent verbal strong expressions of interest to purchase more of these refuse trucks from additional cities in North America.

We are also pursuing other EV platforms and applications with our expanded product development team.

We continue to expand the XL fleet team in response to our widening scope of opportunities and we are planning for growth.

We're adding talent across the whole organization, including engineering sales marketing finance and HR.

In fact, our sales team is more than three times larger than it was at the end of last year.

Meaning for improving our ability of the target and convert market opportunities for growing electrification demand.

Importantly, this organizational growth includes the recent addition of Cielo Hernandez, who joined the XL fleet team as Chief Financial Officer.

April.

CLO brings with her more than two and a half decades of public and private company experience.

Bill has already established yourself as a valuable asset to our organization and I look forward to partnering with her over the long term.

With that it is my pleasure to turn it over to the Cielo Hernandez to review, our financial performance and our latest outlook.

Thanks for me today I'm excited to be filings the XL fruitful.

Revenue for the first quarter of 2021 for Matt.

Approximately $700000 net.

You will note the outlook, we provided last quarter income.

<unk> per $1 2 million in the.

Higher net appear yet.

Does the loss for the quarter was that some of them.

$700000 as.

Compared to anything else the loss of a plug.

Flux of nearly 50000.

<unk> thousand dollars in the prior of PBS.

He had a quiet.

Full sense and development costs totaled one $4 million that index.

First quarter compared to $1 million on the prior P. <unk>.

The increase in R&D was primarily driven by the continued expansion of our interpretation of the initiatives.

We exited the third quarter with cash and cash of Kimberly of approximating 100 of port in the world.

$230 million, that's less credit income.

The tier two the Orange bank.

The on balance sheet.

They probably have another $4 million of low cost who founded.

The completion of our combination with P&I.

The total trading.

Including the low <unk>.

Global re index.

Colorado from anchor spaces of our colleagues.

Right.

Moving boxes for us.

It's full of new ways to execute on.

The growth of its strategy of labor.

Yes.

<unk> the potential for a few author of strategic M&A.

In response to the guidance provided by the SEC on April 12, 2021, Hey, guys on the accounting and reporting of the Huawei issue by the ex back.

<unk> has the stayed at the consolidated financial statements the change the accounting treatment of cars.

Why that is.

Statements would be isolated to the change in accounting true.

And how can that impact.

The kind of forward looking cash flow on the operation of the company.

Notwithstanding the cash.

<unk> always looked like throughout the day.

We took a number of countries.

Isolated to axon fleet vertical accounting for its part of it.

And part of it was issued in connection with equal combination with P value.

So on Corporation.

And in fact, all of these studies of forward looking cash flow and operations of the company.

First of all those things have.

Our cultural for some equity.

Except for me.

It is quite it on full year total financing of its stable.

So for that the whereas the fly every meeting with the cash.

Company believes the diesel bulk to the eight.

April 2021.

The guidance for.

Hawaii will be.

On the market no cash fair value I gaslog.

Moving the first quarter of 2021, but how do you why on Earth day.

I got hold of.

That's not one of our insulin of bundle at March for the start turning for the line.

The impact of them.

All glass interrogate no cash.

Expected the path.

The impact Excellency ongoing diesel observation or Peter.

So now I'm going to talk about all of outlook.

Before opening the lines for Q&A I would like to provide an update on those for 2021.

As the meeting notice.

He knows the Lucent continue physical however supply chain fixed social names opening.

For those the reported automobile industry as the market continues to balance the impact of ongoing COVID-19 pandemic.

As one of Chinese Keith, perhaps you might see it.

When does the practice continued to cause the reaction of uncertainty we have seen modest improvement in all of the CBD for the SEC.

Half of the net a question on continuous.

Hi.

That's the extent of we need of course of mainly of the batches of finished in July.

As disclosed in the Quad O. The lessons with all of this could you pick on snow.

Patton.

Both of the signals in the second half of the year.

As a result.

Both of them very close to the Rubicon second half weighted moving.

More of that 80% of our total 20 for any of that anymore.

Life.

On house all of the year last year.

We will continue to affect I always think of now you need to be even more parallel book.

Here with a significant majority of our revenue per line.

On the back half of the year as the COVID-19 related in line.

The sky and convert them for.

For the vehicle when you're already ahead of us.

For example.

I will now pass it back to them in the case for a few questions on that.

Thanks CLO in summary, we remain focused on executing our strategy, providing customers with reliable electrification solutions.

Meet their performance and sustainability requirements.

Industry challenges remain but we are not taking our eye off the mission of building the business.

Innovating, new technologies, and delivering electrification solutions that reliably meet the needs of the commercial fleet industry.

Thanks very much for your time this afternoon and now we will open up the line for questions and answers.

Thank you we will now begin the question and the answer session.

To join the question queue you May Press Star then one on your telephone keypad.

Share of town acknowledging your request.

If you were using a speakerphone please pick up your handset before pressing and Keith.

To withdraw your question. Please press Star then two.

We will pause for a moment of callers join the queue.

The first question comes from Jed <unk> with Canaccord Genuity. Please.

Please go ahead.

Hi, Thanks for taking my question.

I guess.

Dmitry, if I look at the cumulative systems.

Didn't change quarter over quarter, so were there any systems new systems sold.

Part of the 675000.

The revenue.

Yes, I believe we shift of auto.

Over 30 of them.

In the first quarter.

According to that revenue number and.

The accumulative.

Statements in our filings just referred to on a total over 4300. So it was the modest increase because of the light quarter on but we continue to expand deliveries.

I figured as much. Thank you that's helpful.

And then <unk>.

Congratulations on the acquisition.

As I look at the company's website seems to be a direct competitor too.

And <unk>.

And maybe I'm categorizing that wrong, but thats, how how I looked at it.

Which brings me to my question. They are of a number of in addition to EV charging there is actually a number of energy efficiency.

Drivers to their business I'm. Just curious is that something that is of combined entity you will be pursuing or is it simply going to be the EV side of the.

Business.

That you're integrating it.

Yes. This is Todd I'll take that question one.

One of the day.

Advantages of the World is that they are focused on higher volume smaller to mid sized projects, where on <unk> might be focused on the entire campus or a bigger project and so many of the fleet facilities.

Where we see electrification occurring are smaller to medium sized buildings, maybe $25 50 of 100 vehicles kind of in that range.

And so they have a great very efficient process for.

Essentially implementing those types of projects and.

And we do see efficiency as well as solar an onsite storage is the key piece of the fleet electrification process of lot of these facilities.

Power constraints, they werent designed to have 50 vehicles charging yet.

7% to 20 kilowatts overnight or fast Chargers that can add up quite quickly.

So looking at the energy use profile of those buildings, incorporating efficiency solar and storage as well as the charging infrastructure.

It really enables fleets to electrify.

Faster and at a lower cost than.

And then if they were to try and the upgrade the power of the building.

Which can take take time and add significant expense as well.

Got it.

Helpful. Thanks, and then just last question.

For any.

The three of you I guess.

Hi.

Just trying to frame 'twenty one relative to.

2020, with the hockey stick ramp in terms of the seasonality with the with the business.

Are we to look at the <unk>.

Ramp that you had year over year in 'twenty.

As what to expect for 'twenty. One just curious in terms of if you could provide a bit more color on the.

Of the framework I mean, I know you provided a lot of color.

During the spec in terms of the <unk>.

Guidance, but.

Without that guidance just wondering how we should be thinking about the expectations for the year.

Yeah, Jed the Dmitry again.

Can take that one.

Hello mentioned.

We expect.

The majority of the revenue to be back half loaded again this year and in fact.

That sort of seasonality of that pattern, we expect to be even more pronounced.

And that's because of the the ongoing COVID-19 and industry related challenges in the first half of 2021.

We've seen the early.

I'm closing their order books early not even taking orders. So there's been a lot of disruption for our customers ability to get vehicles.

At the same time, we think of lot of those pressures are going to be alleviated over the next couple of months.

And we do know that some of our customers who are looking to get a number of our systems and then had budget issues because of COVID-19 municipal customers theyre going to see relief with new budgets on July <unk>. So there's a lot of factors at work to help us in the <unk>.

Second half of the year, there is still a high degree of uncertainty in terms of the level of disruption that could persist in the industry from things like the chip shortage of labor shortages and the like so it's still an uncertain time, but we do see visibility to much better second half of them done the first.

Okay I'll jump back in queue. Thanks.

Once again, if you ask the question. Please press star one now.

The next question comes from Greg Lewis with <unk>.

Please go ahead.

Yes, hi, Thank you and good afternoon, everybody and.

Congrats on the acquisition I guess I just wanted to dig in a little bit there.

I guess you mentioned 2020, rather now is is there any way to think about how that's trending or tracking in 2021.

On.

Obviously on the EV side of your peers.

The core business there is some supply issues et cetera.

As we think about the pace of EV charging that seems to really be accelerating I don't know if you want to kind of talk a little bit about XL grid as a whole or or just this acquisition, but but any kind of color of how you're thinking about the opportunity in 'twenty, one and then maybe expanding on that a little bit.

How you think about that opportunity in 'twenty two.

The air or beyond 'twenty, one just given some of the the expectations around the EV charging build out.

Sure Greg This is dmitry.

In terms of of the acquisition World Energy has a very strong business really solid relationships with the wide customer base in the utilities and in the regions. They operate so we think the momentum they have to sustain.

What they did last year and keep moving forward as is very exciting.

We think the business combination offers potential upside, especially as it relates to XL Greg.

And we've got a widening suite of opportunity on the XL grid side and there is a lot of energy in the in the industry, there and Todd can give a little more color.

On some of that opportunity space that we have.

Been pursuing.

Thanks Dmitry.

When you see the XL grid part of the business being a great bet I mean, we put that plan together.

So when we started the business and it was really about timing and resources.

With the close the transaction in December we had at the close of our stock transaction in December of brought a ton of resources. So we moved quickly to <unk>.

Bring on some great senior leadership.

The run that division, we've already been building out that team primarily focused on <unk>.

Larger infrastructure projects some of the internal capabilities and products you've been working on are.

Similar to the UBS Irina deal, we announced with the 1000 charging stations so very large deals.

The the world team brings a great set of experts that can help us implement on the smaller to medium size the facilities, which is really where we see a bulk of the demands on the long run to the if you think about.

The fleet electrification.

Kind of be a multi multi decade process you are talking about lots of facilities hundreds of thousands of charging stations.

By the administration committed to over 500000.

So we think that it's going to be.

Part of the business then its also.

The diversification on supply chain risk on market risk.

Really as the most different process in the.

Electric powertrain portion of the business. So I think the two of those combined its really a great combination. So we can make it really easy for fleet.

The small as well as large put together large fleet electrification programs are of comprehensive fleet electrification programs.

And then just it sounds like the there historically the company had been more focused just regionally in new England now that it's part of the XL grid family as their expectations.

We're going to take that segment of the business or at least the expertise more of the national level.

This is definitely a national and ultimately international opportunity.

It's a great business on the regional basis, we already have a good.

The national footprint in the U S as well as Canada.

And we will leverage their capabilities to expand.

Bring in.

For more business across the U S.

And then just one more for me clear.

Clearly the <unk>.

In the prepared remarks, you mentioned some of maybe some demand started to show up on the municipal side and in the press release you mentioned.

The potential for deliveries of the first of all the <unk> systems.

As we think about lead times I E whether on the.

Municipality looking for Europe.

Plug ins or on the new.

New company looking at an E beam solution.

One of kind of the lead on that I need to notify XL of balance.

Being ready to go.

My vehicle and it does it does it differ between the all EV solution versus the ones who are currently building.

Yeah, So Greg I'll take that one dmitry.

Yes, the the easy solutions are still in product development, so they're not currently.

Available for production deliveries and some of the lead times there are definitely longer.

We do already have.

Some orders in hand.

It's very exciting and then we've had some strong interest from additional cities in North America for that class six refuse I'm on.

Offering that we're putting together with curb tender that has been announced but those deliveries are expected to be in.

In 2022 so.

The significant lead time from now because of.

Listing products, we have released the hybrid and the plug in hybrid systems.

Typical lead time is in the area of 10 to 14 weeks.

In a normal situation is also the lead times for orders and delivery for.

For the vehicles from the Oems for the up Fitters and to the fleet right now of that therefore.

Lead time situation of the Oems.

Kind of disrupted and.

Can be substantially longer.

But we're also working to.

Shorten our ability to respond, especially where customers already have vehicles on the ground. We do have flexibility on our business model to do retrofits as well as his up fit.

And in some cases.

Especially right now with the disruption in new vehicle deliveries for some customers that that can make a lot of sense.

The.

That's kind of the picture of the lead time.

Okay.

Okay, great. Thank you all very much from time and have a good night.

Ladies and gentlemen, we have reached the end of the question answer session.

I would like to turn the call back in the true can you true cause are enough for closing remarks.

Thank you very much for participating in today's call and for your interest in XL fleet.

Have a great day.

This concludes today's conference call you may disconnect your lines.

Thank you for participating and have a pleasant day.

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