Q2 2021 XL Fleet Corp Earnings Call

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Good afternoon, and welcome to the Excel Fleet Corp, second 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 and answer session will follow the formal presentation.

For opening remarks, and introductions I would like to turn the call over to Jim Barklouse General Counsel and Vice President of corporate corporate development for XL Fleet. Please go ahead.

Thank you good afternoon, everyone and welcome to XL <unk> earnings conference call to discuss our results for the second quarter of 2021 with me today are caught ahrens, our founder and President Dmitry, because Arnold our Chief Executive Officer, Cielo Hernandez, our Chief Financial Officer. Our call. This afternoon includes statements that speak to the company's expectations outlook or predictions of the future.

<unk>, 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 maybe required by law. We refer you to XL fleets disclosures regarding risk.

Crackers 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 Congress.

Thanks, Jim and thanks to everyone for joining us in the call. This afternoon.

As the global commercial fleet industry continues to express growing interest in electrification. Our team remains focused on expanding our comprehensive set of solutions and ways that eliminate barriers and help customers adopt E D faster and in larger volumes.

I'm proud of our company's track record of delivering innovative solutions to customers across a range of commercial fleet application.

Help them save money and reduce carbon emissions and meet sustainability goals.

When we announced our business combination with pivotal two in September of last year, we illustrated that XL grid and electrification and service would be important parts of our long term growth strategy for the business.

This unique approach to the fleet industry focuses on making it easier and more cost effective for companies to electrify their fleet by eliminating many of the common barriers, including infrastructure financial technological and power constraints to name a few.

At the time, we identified M&A as a key opportunity to add capacity.

And capability to our platform that we would pursue advancing this strategy.

In the second quarter, we began to fall through on that plan with the acquisition of World Energy efficiency services.

The highly strategic bolt on acquisition of World Energy expanded our XL grid division by adding significant new capabilities to our core business.

World Energy helps customers address the factors and challenges that can arise when companies transition their fleets to electric power.

This often include facility power constraints at sites, resulting from the addition of new charging infrastructure.

While many companies don't know where to begin when scoping and planning a charging infrastructure project.

World Energy has a proven service provider, who can help companies better understand their energy requirements. So they can more confidently and efficiently deploy electric vehicle within their fleets.

They can also help customers incorporate energy efficiency measures and solar power, while integrating EV charging infrastructure at their facilities.

We continue to develop other aspects of our external grid division.

Should we expect to serve as a significant driver of opportunity and growth over the near and long term.

While this business provides diversification to our platform in the near term since sales from World energy are not impacted by OEM vehicle production.

More importantly, it helps to round out our comprehensive electrification solution for our customers for the long haul.

We were also excited to recently announce an agreement with you know the supply battery and power systems for the company's electrified refrigerated trailer solution, which enable electrification of class eight refrigerated trailers, which historically run on diesel fuel.

The addressable market for refrigerated trailers is significant with approximately 50000, new refrigerated trailers sold annually in the United States alone.

Positioning it as a multibillion dollar market.

However, today's technology use utilizing diesel to power the refrigeration unit and each diesel powered trailer can burn as much diesel fuel and a day as a delivery truck.

Companies are actively looking to drive emission reductions in this part of the market.

So we believe there are large opportunities to enable emission savings with electrified refrigerated trailers.

Under the terms of our agreement XL fleet will supply battery and power electronics systems for 1000 E. Now units, representing a significant opportunity for continued growth.

Excel fleet and you now expect to deliver initial units beginning in 2022 to customers and industries, including food retail manufacturing and distribution.

Additionally, the partnership enhances XL fleets strategic position to collaborate with important class eight transportation customers, providing potential cross selling opportunities for XL fleets integrated solutions, offering, including electrified powertrains and Exxon grid charging infrastructure.

We believe so much in this opportunity that we had invested $3 million for a minority stake in the business.

Our investments also include the opportunity to purchase the remaining portion of <unk> business at a pre determined valuation.

With that I would like to pass it over to Dmitry to provide a recent business update.

Thanks Todd.

Like to begin with a review of key highlights from the second quarter and recently.

Despite continued supply chain issues and wide scale shortages of key materials and vehicle production affecting drive system sales.

Total revenue grew to $3.7 million during the second quarter up from approximately $1 million in Q1 of this year.

The increase versus the prior year was driven by the addition of World energy.

Really offset by a reduction in drive system sales.

Our world Energy business contributed $2.4 million, reflecting approximately a half quarter contribution following the acquisition completed in mid May.

The team successfully executed over 70 projects, helping customers with a wide range of energy solutions.

We are excited at the continued opportunities for growth in this business and its significance to our wider XL great offering.

We generated gross profit of approximately $1 million, primarily driven by our XL grid division and reflecting margins of approximately 26%.

Through the end of the second quarter, we have sold a total of nearly 4500 hybrid and plug in hybrid systems.

And remain on track to deliver our all electric solutions in 2022.

We continue to expand the range of systems that we offer to customers and widen their applications, including our recent announcement with curb tender to jointly develop electric refuse vehicles and more recently with Rubicon to more widely deploy these solutions to their customers throughout the.

Waste management industry.

We formally opened our Michigan fleet electrification center and we're pleased to be joined by Governor Gretchen Whitmer and other officials to commemorate this exciting event.

The center is home to our growing base of engineering talent, including over two dozen Michigan employees, who are already working in the facility.

Its strategic location and the Metro Detroit region provides us access to a wealth of automotive and commercial vehicle talent.

In June we were pleased to gain current product carb executive order approval and.

Labeling new sale for our hybrid electric Ford Transit systems.

In the California market, where we continue to see very strong interest.

We expect additional curb approvals for other applications over the coming months.

Further extending our set of solutions, we're able to offer into this very attractive market for fleet electrification.

While we continue to see strong interest across the industry.

OEM vehicle availability.

Resulting from chip shortages and other key materials continues to drive an unprecedented interruption in the ability of our customers.

Securing new vehicles on which our electrified systems are installed.

We believe that XL fleet is very well positioned to capitalize on an eventual market rebound.

However, given an increase and likely extension of this industry disruption.

We have challenged our team to identify and uncover ways to leverage our flexible business model.

One such opportunity includes actively targeting opportunities to retrofit our systems on existing vehicles.

We believe this represents a significant opportunity to drive activity, particularly during this period of supply chain disruption that continues to significantly impact our product sales.

A substantial portion of our Q2 revenue from drive system sales was from retrofits.

This is a proven ability of our business.

With that I'll turn it over to cielo for a more detailed review of our financial performance.

Thanks Dmitry.

Revenue for the second quarter of 2021 Toyota.

All $3.7 million.

Up from $1.9 million in the prior year period.

He drivers behind it.

Whereas the weekend.

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Revenue in our XL Glebe Division totaled $2.4 million, which was primarily comprised of our passion quiet country V issue from work and that's G. SEC.

Completed a reputation of war and empty on May 17.

So those are pretty thin approximately half of the business the formal living to quiet.

We generated.

Healthy corporate acquired approximately $1 million.

From approximately $40000.

In Q2 of last year, it's actually sounds good.

Uh-huh Park some money.

$700000 last quarter.

The improvement was driven by contribution from where NFC.

Accent group business.

Adjusted EBITDA totaled.

$11.4 million.

Paris to negative three $5 million in the prior year quarter.

Research and development costs totaled two $8 million.

SG&A totaled $10.8 million compared to $3.3 million in the prior year, Florida and approximately $8 million in Q1.

The increase was primarily driven by the continued expansion of our.

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In allergy and facilities.

For all the good or the strategy and meet new obligations as a public traded company.

He's also include SG&A expenses associated with the addition of work energy.

I think June 30th we had cash and cash equivalent of $384 million compared to $404 million and that's why our.

Our balance sheet remains strong.

Following the capital raise as part of our business combination completed in December 2020, and exercise and stuff are hardly wireline area. This year.

And then my thought was balance sheet, saying well position us with flexibility in a competitive advantage as we continue to execute well now.

Got it.

Over the next several years, including.

Including the potential for there is just terrific M&A.

I will now pass it back to the meeting.

Yeah.

Thanks C L L bean.

Before opening up the lines for Q&A I would like to provide an updated outlook for 2021.

Overall interest in our solutions remain strong as companies and fleets continue to pursue new and immediate ways to a lot of your five.

The range of solutions, we've developed positions us to meet this growing demand from our expanding base of commercial fleet customers.

However, challenges, resulting from very limited new vehicle availability and other shortages continued to impact the market for our drive systems limiting our ability to meet some of this demand in the near term and resulting in continued uncertainty in our outlook.

Recently Oems have pushed out the opening of new orders and increased delivery lead times when orders will be taken indicating the shortage of new vehicles is likely to extend into 2022.

In addition, as the Delta variant has fueled a new spike in COVID-19 cases.

We cannot rule out continued pandemic impacts as we go forward.

Despite these industry wide challenges our business model positions us to remain nimble.

As noted earlier, we have expanded our XL grid division through the acquisition of World Energy and we continue to actively pursue and win opportunities to retrofit our systems on existing vehicles.

And have increased our resources and effort around this approach.

We are expanding the drive system solutions, we offer to our customers through new partnerships and collaborations that have opened new markets for XL fleet, including waste management low floor buses for wheelchair accessible travel and refrigerated trailers, we're confident these solutions and X.

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We continue to develop new electrification solutions across a broader range of chassis option and expand our energy management and charging infrastructure capabilities, while also pursuing exciting new opportunities outside of North America.

While the lack of commercial fleet availability is unprecedented we remain focused on executing our strategy energy and leveraging the operational and financial flexibility of our business model.

We are armed with more than $375 million of cash on our balance sheet, which positions us to remain aggressive in fight in creative new ways to grow the business in the long term, while riding out the storm created by the current market conditions.

With that we'd now like to open up the lines for Q&A.

We will now begin the question and answer session.

I ask a question you May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.

If at any time your question that's been interesting you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Again, if you have a question. Please press Star then one.

Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Mr.

Dmitry <unk> for any closing remarks.

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

Have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.