Q1 2022 Xos Inc Earnings Call
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Operator: Good afternoon and welcome to Xos' first quarter 2022 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Xos' Heneral Counsel, Christen Romero. Thank you, you may begin.
Today's call is being recorded and we have allocated one hour for prepared remarks and qa.
At this time. I would like to turn the conference over to exo general Counsel kristna romaro.
Thank you, you may begin.
Christen Romero: Thank you operator, and thank you everyone for joining us today. Hosting the call with me today our Xos's Chief Executive Officer Dakota Semlar, Chief Operating Officer Giordano Sordoni, and Chief Financial Officer Kingsley Afemikhe.
Christen Romero: Ahead of this call, Xos issued its first quarter 2022 earnings press release, which we will reference today. This can be found on the investor relation section of our website at investors.xostrucks.com.
Christen Romero: 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.
Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect, because the 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: We do not undertake any duty to update any forward-looking statement. Today's presentation also includes references to non-GAAP financial measures and performance metrics. Please refer to the information contained in the company's first quarter 2022 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, let me turn it over to Dakota.
Today's presentation also includes references to non-GAAP financial measures and performance metrics.
Please refer to the information contained in the company's first quarter 2022 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 aundue reliance on forward-looking statement. With that, let me turn it over to Dakota.
Dakota Semlar: Thanks Christen, and thank you everyone for joining us. Today, we are proud to announce our financial results and an excellent quarter. Despite continued disruption to supply chain and logistics, we grew unit deliveries and revenues and also improved unit margins. I am proud of our team's ability to navigate the ever-changing landscape and meet or exceed the targets that we set out for the first quarter.
Dakota Semlar: Our mission remains focused on transitioning fleets in targeted high-growth markets from internal combustion engines to electric commercial vehicles with industry-leading technology and, in the process, decarbonizing commercial transportation.
Dakota Semlar: I'll cover some of the exciting updates and highlights we had over the quarter. Geo will update you on our sourcing and manufacturing progress, and Kingsley will conclude with a detailed review of our first quarter results and outlook.
Dakota Semlar: During the first quarter, we continued to make steady progress scaling the business. First, we ramped production and delivered 56 units to customers across the US. We also broadened our distribution and service footprint with key customers and partners. Our commercial traction in the first quarter is underpinned by our expansion into growth-focused last-mile markets.
First we ramped production and delivered 56 units to customers across the U? S.
We also broadened our distribution and service footprint with key customers and partners. Our commercial traction in the first quarter is underpinned by our expansion into growth-focused last-mile markets.
Dakota Semlar: In the current environment of elevated diesel prices, Xos' industry-leading total cost of ownership and value proposition to our customers is stronger than ever. With trucks on the road since 2018, we are able to showcase our truck's real-world experience in our customers' hands.
Dakota Semlar: We are seeing an acceleration in our sales cycle quarter-on-quarter, with more purchase orders and more units per purchase order. Over the first quarter, we received purchase orders for over 350 trucks from a range of customers and use cases. In particular, we continue to secure orders from keystone customers such as FedEx ground operators with outstanding purchase orders currently standing at over 550 trucks across a range of states.
In particular, we continue to secure orders from Keystone customers such as FedEx ground operators. Outstanding purchase orders currently standing at over 550 trucks across a range of states.
Dakota Semlar: Subsequent to quarter-end, we announced delivery of 15 fully electric step bands to five different FedEx ground operators in Southern California. These vehicles were the first deliveries in 2022 under purchase orders signed last year and we're excited to continue rolling out our product for this leading nationwide fleet.
Dakota Semlar: We also continue to have great traction in the beverage, linen, and refrigerated trucks, such as the partnership we've announced with thermo [inaudible]. We secured a purchase order from the uniform and workwear leader UniFirst, and announced three deliveries to UniFirst Southern California location during the first quarter. This delivery was part of an initial rollout of vehicles and we expect additional deliveries to a UniFirst location in Boston Massachusetts in the second half of the year. We are excited to help our long-term partner UniFirst reduce their environmental impact and transition their fleet from diesel to electric vehicles.
We secured a purchase order from the uniform and workwear leader UniFirst, and announced three deliveries to UniFirst Southern California location during the first quarter.
This delivery was part of an initial rollout of vehicles and we expect additional deliveries to a uniifse location in Boston Massachusetts, in the second half of the year.
We are excited to help our long-term partner uniifverse, reduce their environmental impact and transition their fleet from diesel to electric vehicles.
Dakota Semlar: Finally, we are proud of the distribution and service network we have built. In the first quarter, we announced our partnership with Murphy Hoffman Company, one of the largest commercial vehicle dealerships in the country. We continue to take strategic steps to tackle the current supply chain crisis which Geo will talk about in detail. It is early days but we believe some of the strategic steps we have taken are beginning to bear fruit.
Dakota Semlar: In summary, we continue to make significant progress scaling the business and I'm proud of the team's accomplishments this quarter. The opportunity for clean fleet and logistics solutions in both the public and private sector remains immense and we expect to continue to benefit from the secular shift to a net zero carbon economy. I will now turn it over to Gio.
I will now turn it over to geo.
Giodarno Sordoni: Thanks Dakota. The Xos production system can be bucketed into four core activities, which I'll cover separately.
Giodarno Sordoni: First, we flow quality parts to the assembly line. Next, we assemble chassis at flex one in Tennessee and flex two in Mexico. Third, we assembled the lira battery system. And lastly, we work with our partners to install bodies on the X platform chassis. While the overall supply chain environment remains challenging and uncertain, we've seen modest improvement in our ability to procure and land some key components like wire harnesses. We've also secured near-term allocations of other commodities like battery cells.
While the overall supply chain environment remains challenging and uncertain, we've seen modest improvement in our ability to procure and land some key components like wire harnesses.
We've also secured near-term allocations of other commodities like battery cells.
Giodarno Sordoni: The team has done a great job in helping to strengthen our supply chain by multi-sourcing components to mitigate risks and securing more of our supply from North America to mitigate shipping cost increases and delays from overseas vendors. While modest, these improvements give us confidence in being able to continue growing deliveries each quarter.
While modest, these improvements give us confidence in being able to continue growing deliveries each quarter.
Giodarno Sordoni: Despite the challenges in sourcing and landing parts, we've increased production and deliveries from our chassis assembly plants flex one and flex two. While outpaced by chassis production, we are making steady progress in ramping up battery production. We remain on track to further improve our production yields with the addition of a more automated battery assembly line at flex one in Tennessee later this year. We're excited to share that we've begun to build out of this line and we're on track to begin producing batteries later in the year.
While outpaced by chassis production, we are making steady progress in ramping up battery production.
We remain on track to further improve our production yields with the addition of a more automated battery assembly line at flex one and Tennessee later this year.
We're excited to share that we've begun to build out of this line and we're on track to begin producing batteries later in the year.
Giodarno Sordoni: As we look to the current year and our key objectives, we can expect to see a continued ramp-up of our ex-platform production, as well as the introduction of new vehicle products and software offerings. We've been hard at work and we're excited to showcase some of these developments at our product reveals at Xos fleet week on May 10th. I'll now pass it over to our CFO, Kingsley Afemikhe.
We've been hard at work and we're excited to showcase some of these developments at our product reveals EV at exo's fleet week on may-tenth.
I'll now pass it over to our CFO , kingamsley fmeke.
Kingsley Afemikhe: Thank you, good afternoon to you all. Xos has had a great quarter in the midst of a very challenging business environment. We are making selective decisions to invest in our business and are excited by the opportunity for growth this year.
Excess has had a great quarter in the midst of a very challenging business environment.
We are making selective decisions to invest in our business and are excited by the opportunity for growth this year.
Kingsley Afemikhe: Our revenue in the first quarter increased to $7 million versus $0.8 million the same period in the prior year. This was above our guidance and is a sequential increase of 113% from the fourth quarter of 2021. This is driven by an increase in units delivered to 56, compared to four units in the same period in the prior year and 32 units last quarter.
This was above-out guidance and is a sequential increase of 113% from the fourth quarter of 2021.
This is driven by an increase in units delivered to 56, compared to four units in the same period in the prior year and 32 units last quarter.
Kingsley Afemikhe: As expected, our average selling price will vary quarter-on-quarter. However, we saw higher average selling prices this quarter and continue to expect ASPs to be higher this year overall compared to 2021.
However we saw higher average sellting prices this quarter and continue to expect ASPs to be higher this year overall compared to 2021.
Kingsley Afemikhe: We continue to see strong demand for our zero emission products, as the total cost of ownership strength is proven out and diesel prices remain elevated. Our cost for goods sold for the quarter was $10.2 million compared to $0.7 million dollars in the same period in the prior year.
Kingsley Afemikhe: Our cost for goods sold for the quarter was $10.2 million compared to $0.7 million dollars in the same period in the prior year.
Kingsley Afemikhe: We made good progress in gross margin this quarter, with a gross margin of minus 45% this quarter versus minus 74% in Q4 last year. This is a testament to the hard work of the entire team and the benefits we are beginning to reap as we scale production. Nevertheless, we remain cautious in the current supply chain picture, with the likelihood of increased material and logistics cost, particularly from our suppliers in Asia.
This is testament to the hard work of the entire team and the benefits we are beginning to read. Ag scale production.
Nevertheless, we remain cautious in the current supply chain picture, with the likelihood of increased material and logistics cost.
Particularly from our suppliers in Asia.
Kingsley Afemikhe: We are taking price action to cover more of our costs where we can, including applying raw material surcharges. We expect growth margin to improve as we ramp volumes and benefit from the addition of the new expanded automated battery line at our Tennessee facility. With these and other strategic steps, we believe we have a clear line of sight to being in growth margin positive.
We expect growth margin to improve our GE ramp volumes and benefits from the addition of the new expanded automated battery line at our Tennessee facility.
With these and other strategic steps, we believe we have a clear line of sight to being in growross marginand positive.
Kingsley Afemikhe: Turning over to expenses, our first quarter operating expenses were $20.3 million, compared to $5.7 million in the same period last year and $23 million in the fourth quarter. Operating expenses decreased 12% from the last quarter, primarily due to a reduction in R&D expenses.
Operating expenses decreased 12% from the last quarter, primarily due to a reduction in R&D expenses.
Kingsley Afemikhe: We are focused on the user experience and are making exciting progress in a range of new products, which we look forward to telling you about more next week.
Kingsley Afemikhe: We expect to continue to increase investments in new product development but, as detailed before, we expect that R&D expense relative to revenue will be lower this year overall compared to 2021.
Kingsley Afemikhe: Non-GAAP operating losses, excluding stock-based compensation expenses, were $23.1 million within our previous guidance and this compared to $5.5 million in the same period last year and $23.8 million in the fourth quarter in 2021.
Kingsley Afemikhe: We continue to see strong customer interest and are investing in our sales and marketing efforts. Sales and marketing expenses were $2 million in the first quarter, compared to $0.3 million in the same period last year and $1.3 million in the fourth quarter of 2021.
Sales and marketing expenses were $2 million in the first quarter, compared to $3 thousand in the same period last year and one $3 thousand in the fourth quarter of 2021.
Kingsley Afemikhe: Finally, general and administrative expenses for the quarter were $11.3 million compared to $2.4 million in the same period in the prior year, primarily driven by an increase in headcount.
Kingsley Afemikhe: Turning now to the balance sheet, at the end of the first quarter, our cash and equivalents and investments amounted to $132.7 million. This includes $3 million of restricted cash. In addition, we have added flexibility from $125 million standby equity purchase agreements. Inventories were at $40.3 million at the end of the quarter, about $18.6 million of which was in work and progress.
At the end of the first quarter, our cash and equivalents and investments amounted to $132.7 million.
This includes $3 million of restricted cash.
In addition.
We have added flexibility from $125 million to stand by equity purchase agreements.
Inventories were at $40.3 million at the end of the quarter, about $18.6 million of which was in work and progress.
Kingsley Afemikhe: Our inventory position continues to reflect some of the steps we are taking to ensure sufficient supply of key components. Overall net cash used in operating activities and cash paid for capital expenditures totaled $34.3 million.
Overall net cash used in operating activities and cash pays for capital expenditures totaled $34.3 million.
Kingsley Afemikhe: Finally, wrapping up with our business outlook, we continue to be focused on delivering sequential growth in revenues and deliveries over this year. Due to the continued uncertainty in the supply chain at this time, we are providing guidance for the second quarter of 2022. As we gain more clarity in the supply chain, we will expand that window. For Q2, we expect in deliveries to be in the range of 70 to 90 units delivering revenues in the range of eight to $11 million, and non-GAAP operating loss in the range of $23 to $28 million. Thank you and I'll pass you back on to Dakota.
Due to the continued uncertainty in the supply chain. At this time, we are providing guidance for the second quarter of 2020 -two.
As we gain more clarity in the supply chain, we will expand that window.
For Q2, we expect in de veref to be in the range of 70 to 90 units.
Delivering revenues in the range of eight to $11 million.
A non-GAAP operating loss in the range of 23 to $28 billion.
Thank you and I happy you day. Answered the pure.
Dakota Semlar: Thanks, Kingsley. Before we open it up for questions, I want to thank our team for their contributions to our success, as well as our partners, customers, and shareholders for their continuous support. We remain optimistic on our future, based on market growth, our technology platform, and the exceptional people we have here at Xos. Now, we'll open up the line for questions.
Operator: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press Star and two. We will pause for a moment as callers join the queue.
To join the question Q. you may press Star, then one on your telephone key pad.
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If you are using a speaker phone, Please pick up your handset before pressing any keys.
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It will pause for a moment as chllars join the queue.
Operator: The first question comes from Mike Shlisky with D.A Davidson. Please go ahead.
Please go ahead.
Mike Shlisky: Hello guys, good afternoon.
Dakota Semlar: Good afternoon Mike.
Mike Shlisky: Thank you. I wanted to start off just by looking at the purchase orders outstanding. Looking at what you've written and what you said you [inaudible] from FedEx, but you also got other orders throughout the quarter. Can you give us a number as of quarter end like how many [inaudible] you actually had outstanding in total to all customers?
Because a number as a quarterendra, it today like how many?
First or as you actually had outstanding in total to our customers.
Dakota Semlar: We didn't share that information about total orders for all customers outstanding, but it continues to grow quarter-over-quarter, with Q1 representing one of the strongest quarters yet, and that continues to increase, particularly as one hundred dollar oils prices spike and fleets begin to see the benefits of the total cost of ownership reductions that our fleet vehicles are offering for them.
Dakota Semlar: The other thing we've also seen is that customers, such as early customers like Lumis and others, have placed follow-on orders to really reap the benefits of electric excess vehicles across their fleet as they started to deploy their early vehicles.
Mike Shlisky: Okay super. Also, could you maybe give us some commentary on how the recent H-fif allocations went, how you guys did? Did you feel like you got all you could? Did you get more than you were able to last time, et cetera? Just your commentary around how that's going.
Also could you maybe give us some commentary on how the recent htrip allocations went, how you guys did? Did you feel like you got all you could? Did you get more than you were able to last time, ex cetera? To put the your commentary around how that's going.
Dakota Semlar: We definitely participated in this year's H-fif's opening up of their program and we were really successful this year. I don't have exact numbers on issuances, but we did exceed our last award period and have the opportunity to get more trucks into California. But just a reminder, these trucks are being sold all across the country, so really we're focusing on getting that acquisition price as close to a diesel competitive vehicle as possible so that the TCO savings that fleets will see from the reduced maintenance costs and the reduced fueling cost are relevant in any market and not just California, and so now most of our deliveries are actually taking place outside of California in states that don't have the same favorable incentives.
Mike Shlisky: Okay. I also want to ask about the deal you announced today with ThermoKing, is that, quote unquote the big launch you've got going on or is that something separate and talk to us about how that works, is that a full scale of vehicle or are you just powering the actual [inaudible] data? I wasn't quite sure exactly what's going on there.
The deal you announced today with thermal King? Is that, quote unquote- the the big launch is got going on or that n was separate and TOT about about how how that works? Is that a full scale of ehicle? Are you just powering the actual reffri? uring data? I wasn't quite sure exactly what's what's going on there.
Dakota Semlar: Yes, happy to talk more about the relationship and partnership with ThermoKing. We've been working with them for quite some time to integrate ThermoKing's zero emissions technology onto some of our vehicles. They're starting in the medium duty round by taking their transport refrigeration units and installing them on vehicles with boxes and bodies that will service refrigerated fleets in beverage sector and several other grocery delivery and food delivery sectors, so that's the first aspect of the partnership and something we've already started working on and are really excited to be able to deliver those products to customers that already operate reefer fleets.
Dakota Semlar: The second area is ThermoKing is also assisting us with some of our thermal management technology that we'll be incorporating into our excess hub. As you probably remember, the excess hub is our modular and mobile energy storage device and charging infrastructure to allow fleets to manage the delay between permanent charging infrastructure and when their trucks get delivered. So we're working with ThermoKing to install some of their zero emissions thermal management units onto our production excess hubs as well, leveraging a lot of their cooling technology that they've brought to the industry-some of the first that's in the industry for zero emissions applications.
Dakota Semlar: And then you also alluded to our product launch event next week, which is fleet week. So in long Beach California, on next Tuesday, May 10th, we will actually be hosting a product launch event where we're going to be announcing some really exciting upcoming products that we'll be able to continue to deliver to fleet customers and are really excited about showing and demonstrating this new technology to those customers, and some of which may actually have some of those reefers on them eventually.
Multiple speakers: [Mike Shlisky] Okay, well, definitely looking forward to that event for sure, but today's announcement is not the product that you're launching, is that true? [Dakota Semlar] That's correct. Today's announcement is not the product that we're launching on Tuesday.
Mike Shlisky: Okay, great. I've got more, but I think I'll give someone else a chance. I appreciate the help guys.
Dakota Semlar: Thanks Mike.
Operator: The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Please go ahead.
Jerry Revich: Hi, good afternoon.
Dakota Semlar: Afternoon Jerry.
Jerry Revich: I'm wondering if you could just talk about the planned deliveries that you folks have in the second quarter. Are all of these step band chassis? Can you talk about how many different configurations you're planning to deliver? And, on that same token, the bookings, the 350 perch orders you highlighted this quarter, can you just comment on how many different vehicle types that represents?
Dakota Semlar: Yeah, happy to provide more context and clarity on those deliveries for the upcoming quarter. The vast majority of those vehicles will be our medium duty step band platform going to some existing customers or NDX platform, and we will also be going to some new customers that are going to be taking delivery of their first vehicles. There will also be a small portion of those deliveries that will be our power train systems for some of our customers that are acquiring a technology like the battery systems and powertrain technology that we've developed.
Jerry Revich: Super. And then, can I just ask, unit profitability at this point, obviously we'll see what pace the supply chain is going to allow to ramp production, but how should we be thinking about incremental margins for every additional truck that we might be able to produce if you folks are able to deliver, let's say, 100 trucks this quarter, what's the incremental contribution we should be thinking about per truck at the gross profit line?
Dakota Semlar: As you know, it's a complicated the supply chain picture so it's hard for me to give that exact guidance. What I can give a lot of guidance on is kind of breaking down how we think about this. First of all, and pricing wise, we have taken pricing action in Q1 and you'll see that extend into Q2 as well, and so we are excited about our customers ready to take our trucks because the advantages are so clear. So we're taking pricing action giving what's going on with commodity prices. And then secondly, when you look at the direct costs, we're working very, very closely with our engineering teams and our supply chain teams to really bring those costs down and engineer for availability and also for costs. Some of those projects will take a bit longer, the most effect of that you'll see late in the year, next year. But what we're really excited about is the scale and the absorption of costs of our direct and indirect cost. We're beginning to see the benefits of this quarter and we expect more of year next quarter. I think even though we're cautiously optimistic, we all know that it's a lot of known, unknown out there with the supply chain, so we haven't given exact guidance on when we'll be growth margin positive, but we do have that clear line of site now when we look at the different actions we're taking.
Jerry Revich: Okay, thank you. And Dakota, you folks have had a steady stream of new distribution agreements every couple of months. Can you just talk about what's that pipeline look like for you and if we fast forward 12 months from now how many additional states are you targeting to have representation in?
Dakota Semlar: Yeah, absolutely happy to provide more context. So just to catch you up on what we've currently announced, we have relationships with several groups across the country, the most recent announcement being our partnership with MHC or the Murphy Hoffman companies, which is one of the leading commercial vehicle distribution and dealership networks in the country, and we're working with them in seven different states and multiple locations within those states as well to provide coverage to areas that we don't already have existing support and distribution services in and we have a pipeline on on several additional locations in the coming quarters. We never provided specific clarity on which states and which regions, but as those those regions do become available and we're able to talk about them, we'll certainly share those more publicly. Strong focus areas for us in terms of regional focus for fleet distribution is in the Northeast, in the Northwest, and then also some additional regions throughout the Midwest. So those are areas where we're continuing to see further growth, and some of that is going to be through distribution partners and dealers like MHC, but some of it will also be our own Xos distribution services, which actually is our own direct sale application where we're distributing vehicles directly to fleet customers.
Jerry Revich: Terrific, thanks.
Dakota Semlar: Thanks Jerry.
Operator: The next question comes from Donovan Schafer with Northland Capital Markets. Please go ahead.
Donovan Schafer: Hey guys, congratulations on the quarter, it looks great. I want to start off with looking at gross margins, and I know you're a young company and there's all kinds of supply chain stuff going on and maybe as investors and being on the South side where it's tempting to become a little impatient for a lack of a better word on my part, not saying it's the same thing for you guys, but we look at the gross margins and it's just hard not to see and go like oh, we really want to know when that'll change or when something will happen. So I'm wondering: can you give any kind of a ballpark because of course there are two factors, one is the price environment and you don't have control over that. You can pass things through to customers the surcharges and such, but it's hard to stay ahead of it and you don't know what's going to happen in a month with steel prices or batteries or whatever. But the other one is just sort of scale and I think that's probably one of the most important levers for you guys. Do you have a sense, I know you're not going to give a timeline for when you could see yourself being with the line of site to positive growth margins. But is there like a volume level where you feel you could get there? And even if you could give rough numbers, I mean, is it safe to stay that you would see yourself gross margin positive at a run rate of a thousand units a year or run rate of 500 units per year? Just wondering anything to kind of give us a hook there.
Dakota Semlar: Yeah, Hey Donovan. Look it's a very fair question and we absolutely believe that this is a high growth margin business and that is a target that we as an entire company are working towards. We can really think about it in a couple of ways. So I'll start again with pricing action there. We're trying to be proactive there as well where we can. What's helpful is that being in the cost of ice vehicles are also going up and so we haven't seen any slow down at all in demand in the areas where we're taking price action, which is exciting for us. The second thing is: when we think about the direct material costs isn't necessarily just a volume game, right and a scale game, it's also we're making continuous engineering additions to the vehicle, we're also thinking about ways that we can restructure things and so on. I think that's one of the strengths of being a manufacturing company and having an engineering ability to the projects that we're working on there. You're absolutely right when it comes to other costs and all the fixed costs amortizing there over the number of units- and even though it's early days, we are beginning to see the benefits of that. So I can't give you an exact number and say when we get to this number of [inaudible] or number of vehicles, you're seeing [inaudible] into positive growth margin, but the message we've said and the guidance we are giving is that growth margins to improve over time this year and that's our focus.
Donovan Schafer: Following up just quickly on that, I think, correct me if I'm wrong, but I believe Dakota said in the prepared remarks that there would be a-- at least your belief and your expectation as a company is that you will have sequential improvement in the unit volume from quarter-to-quarter-to-quarter through this year and so I'm wondering if we talk about the two factors here, commodity cost versus scaling one of the factors although it doesn't apply to every cost input. But if the scale is expected to increase sequentially, should we be expecting sort steady sequential growth margin improvement? Or could changes on the pricing side overcome that if some cost moves aggressively and it takes a month delay or a two-month delay to pass that to customers, would that undercut that kind of thinking?
If if the scale is expected to increase sequentially, should we be expecting sort stea, DY sequential gross margin improvement? Or could changes on the pricing side know overcome that? You know, if steel prices move, if some cost moves aggressively and it takes a month delay or a two -month delay to passth out you to customers, would that undercut that kind of thinking?
Dakota Semlar: Yes look, absolutely, we are in an extraordinary time when it comes to supply chain and we've done a relatively good job as a team to manage that. Making commitments on margins is going to be--we're not going to get at this time but what we're clear about is that we're focused on improving margins over time and we believe stronger, this is a positive margin business.
Donovan Schafer: Okay. And now the last question and I'll get back in the queue or I'll save the rest for later. But in terms of the supply chain and commodity well, clearly, you have the purchase orders and that's really great and clearly the demand is there and so it's more of a supply constrained environment. And so what are the kind of gating key supply inputs? Is it just sort of everything? Yeah, I know there are companies that every day the line workers come into the factory and there's something on a whiteboard that says, "Well, now we're out of this item and now we're out of that item," and it's just 100 different parts and it's just constant, kind of hand to mouth. Or are there things that are more specific? Like does it come down to port congestion with inbound product coming into the port of Los Angeles, outbound coming out of ports in China and the shutdowns there? Does it come down to certain specific items more often than other ones, like chips, cells, you mentioned wire harnesses this time which I think just come out for the first time, but you resolved that. But's curious what the major things are right now that cause this sort of supply constrain.
And so what are the kind of gating key supply inputs? Is it just sort of everything? Yeah, I know there are companies that every day the line workers come into the factory and there's something on a whiteboard that says, "Well, now we're out of this item and now we're out of that item," and it's just 100 different parts and it's just constant, kind of hand to mouth. Or are there things that are more specific? Like does it come down to port congestion with inbound product coming into the port of Los Angeles, outbound coming out of ports in China and the shutdowns there? Does it come down to certain specific items more often than other ones, like chips, cells, you mentioned wire harnesses this time which I think just come out for the first time, but you resolved that. But's curious what the major things are right now that cause this sort of supply constrain.
Giodarno Sordoni: Yeah, Donovan, this is Gio. I appreciate your question, thank you. It's a little bit of all the above in terms of port delays and delays in China with the shutdowns. As far as components, it changes over time. It would be a little misleading or disingenuous for me to say it's this component because that might be true this week and it will be a different component next week. I think what you picked up on in our prepared remarks is that we did mention some improvement in wire harnesses and being able to land those and get those to the plant more quickly than in the last quarter, and then also having better near-term visibility on our cell allocations. So those are both positive trends that we're talking about this time around. But yeah, you're right, it is this situation where we are tracking, we call them red flags or orange flags and yellow flags, depending on how dire it is, but those change from week to week and day to day and there's a daily meeting going through each of those issues at each plant. As you know, you can't build a truck without 100% of the parts and so we're making sure to get all of those and we've have had to start building in some cases without all the parts in warehouse and had to add them on later on in the process and move low product through the line. But that's a decision we made to be able to continue to keep the lines moving and continue delivering trucks and growing our delivery each quarter.
Donovan Schafer: Yeah well, thank you guys for answering the questions. It was great and I got say, being here in Southern California also seems-- price is almost $7 a gallon. I have to admit, when I saw the FedEx announcement for the 15 vehicles in Southern California, I just thought that was just like a no brainers: $7 a gallon. Alright, thank you, guys. I'll follow up with you later.
Giodarno Sordoni: Yes, it making [inaudible] equation even better. And yes, given that you're here, I hope to see you at fleet week on Tuesday.
Donovan Schafer: Absolutely, I'll see you there.
Operator: The next question comes from Dan Ives, with Wedbush Securities. Please go ahead.
Please go ahead.
Daniel Ives: Yeah, thanks. Can you just talk like with FedEx and how does that change conversations with other potential customers obviously just given what we see in the environment [inaudible]?
Can you just talk? I would that X and how that?
How does that change conversations with other potential customers? Obviously just just venwhat we see Ole environment pushed to evening.
Kingsley Afemikhe: Yeah, happy to provide some additional context there Dan. So working with large fleets like FedEx is incredibly helpful to build value for fleet operating customers. They see the diligence that these fleets have done in evaluating our vehicles and getting the infrastructure installed to support the vehicles, and it provides them with the peace of mind that Xos is not only building great truck products for fleets but also supporting those products in the field and I think that's a testament to our customer service and customer support team that help maintain and service these vehicles across the country. So we're actually servicing and supporting through our CX team, tracking and maintaining all of those vehicles that we deploy, and then making sure that each of those fleets that have trucks are getting those parts- and that kind of brand behind us- is really helpful when it comes to smaller or medium-sized fleet operators in making the decision around which electric truck manufacturer they're going to work with.
Daniel Ives: Great. And then Kingsley can you just hit on like from a cost perspective, outside your supply chain, and just everything you're seeing like what have you instituted just different procedures now just to make sure as much as possible that you could kind of just get guard rails around what's going on in the supply chain?
Just different procedures now just to make sure as much as possible that you could kind of just get guard rail around what's going on in picha.
Kingsley Afemikhe: Absolutely. So a bit of context here, we've had trucks on the roads since 2018, so we've been building out our supply chain over that time in a high level of detail. Clearly, as we are scaling, and as we are in this extraordinary supply chain environment, the number of steps that we are taking all the way through. So first is we've done a lot of work in reassuring our supply chain and diversifying our suppliers, and really enter into those agreements where we can get larger volumes and have more certainty of supply. So that's been very, very helpful when we're doing our long-term planning for this year. In addition, where we work through on the cost of the vehicle, we work through with the particular components and have the choice of different suppliers for the components, and we're spending a lot of time on managing freight. As you know, we manufacture our trucks here in the US and also in Mexico, there's a large amount of logistics required in our trucks and those come through in cogs, so we're being really, really thoughtful and managing that, making sure that we have the supplies for deliveries, making sure we do that in a way that's cost-conscious. [inaudible] and team, who joined us late last year has been really, really critical helping us to manage costs and manage going through the whole process in manufacturing, which is the other point about manufacturing as well. So we work through to make sure that our direct and indirect costs and really managed by us. So we are in an extraordinary situation all the way through on different costs and different components. We're watching and monitoring all the costs and we're taking price action where we can. And I think you can see that in the improvements in the margin and it's our focus to keep on going down that our journey.
Daniel Ives: Yes, look I think relative to the industry and the challenges you guys are doing a great job. Okay, thanks.
Multiple speakers: [Operator] Thanks. The next question comes from Mike Ward with Benchmark. Please go ahead. [Mike Ward] Thanks, good afternoon everyone. Can you guys quantify the change in the total cost of ownership? I mean, since these fuel prices have doubled can you quantify that all? And then also, I don't know, maybe talk about how that's affected your negotiations and with your different clients or potential clients as you look at the entire market going up?.
Dakota Semlar: Yes, absolutely. It's a great question Mike, and one of the most important factors that fleet owners face when they're deciding on acquiring new vehicles what to purchase. So in general, when we're talking about last mile or regional haul vehicles, fuel costs can make up anywhere from about 20 all the way up to 40% of your total cost of ownership, in some applications, in Class 8, it can even get higher than that. So if you factor in some of the fuel price increases that we've seen, certainly here in California and in other locations where we have our manufacturing facilities in Tennessee, the fuel prices have nearly doubled over the course of several months and that means that total cost of ownership, if these prices hold, could also double and it becomes the single most expensive component of operating a commercial vehicle fleet, even more costly than a driver or the operator of the vehicle itself. So it's a significant factor that has been driving up the demand for these vehicles. So even whilst we're going through this supply chain challenging environment where commodity costs have increased- in some cases 10% or 20%- the fuel cost increase has greatly surpassed any COGS increase that we've seen, making the total costs of ownership much more beneficial for Xos' electric vehicles than an alternative diesel or internal combustion engine vehicle.
So in general, when we're talking about last mile or regional Hall vehicles, fuel costs can make up anywhere from about 20 all the way up to 40% of your total cost of ownership, and some applications in Class 8, they can even get higher than that.
So if you factor in some of the fuel price increases that we've seen, certainly here in California and other locations where we have our manufacturing facilities in Tennessee, the fuel prices have nearly double over the course of several months and that means that that total cost of ownership, if these prices hold, could also double and it becomes the single most expensive component of operating a commercial vehicle fleet, even more costly than a driver or the operator of the vehicle itselfso it's a significant factor.
Been driving up the demand for these vehicles. So even whilst we're going through this supply chain challenging environment where commodity costs have increased- some cases 10% or 20% - the fuel cost increase has greatly surpassed any COGS increase that we've seen, making the total costs of ownership much more beneficial for excess's electric vehicles than an alternative diesel or internal combustion engine vehicle.
Mike Ward: But it's got to be a staggering number and it's going to be [inaudible] when you look at the dynamics of the fleet and other, [inaudible]
It's going to be poweroutful. What are the dynamics of the rearch fleet?
And other, given the data on the size of the reer leet. And then are the dynamics of same as other, the last Nile delivery or is it more a longer road at delivery functions?
Multiple speakers: [Dakota Semlar] Yeah, it's a little difficult to understand, but I think you're asking about the size of vehicle and does the [inaudible] savings correspond to-- [Mike Ward] Are the dynamics of the reefer fleet more like last mile or are they more long haul? [Dakota Semlar] It's a great question. So there are some long haul reefer fleets but, as you know, anything that operates in a reefer vehicle you would purchase in your refrigerated section of a grocery aisle, a convenience store, a produce market, that all has to go on a refrigerated truck. So we're working with [inaudible] looking to address those markets, those last mile regional haul markets. We're starting with the medium [inaudible] vehicles and focusing on box trucks that are frequently used for meat or produce or seafood delivery, and we have several grocer customers or grocery customers that are going to be utilizing refrigerated vehicles within their fleet and then eventually we'll expand into larger vehicles with transport refrigeration units that are mounted to trailers and some of the Class eight applications. But the focus today is really on that last mile distribution fleet that operates refrigerated trucks.
To great question though. There are some long haul reffer fleet but, as you know, anything that operates in a refer vehicle you would purchase in your refrigerated section of a grocery aisle, a convenience store, a produce market. That all has to go on our refrigerated truck. So we're working with their re, looking to address those markets, those last mile regional homeul markets. We're starting with the medium D vehicles and focusing on box trucks that are frequently used for meat or a produce or cfood delivery, and we have several grocer customers or grocery customers that are going to be utilizing refrigerated vehicles within their fleet and then eventually will expand into larger vehicles with transport refrigeration units that are mounted to trailers and some of the Class eight applications. But the focus today is really on that last mile distribution fleet that operates refrigerated trucks.
Mike Ward: And Thermo King, are they the biggest?
Dakota Semlar: I believe they are the biggest in the industry and they've got an incredible portfolio of zero emissions products that they have been working on for several years now that we're going to be integrating into the vehicle. So none of those products that we're putting on our trucks are going to be utilizing any diesel fuel or any gaseous liquid fuel to power the reefer unit.
Mike Ward: Well, that's a big win. Are you exclusive with them or can they deal with other electrified trucking companies?
Dakota Semlar: It's not an exclusive relationship and really we wanted to think about keeping an open mind in terms of what the customer wants. We're going to have several customers of ours that are Thermo King customers and we have customers that will also request other options. But we're excited about this partnership because they've been a leader when it comes to building zero-emission solutions that are more energy efficient for zero-emission vehicles like ours that they don't impact the overall range of the vehicle as significantly.
Mike Ward: Well, congrats. It's a big win. Thank you.
Dakota Semlar: Thank you.
Operator: Once again, if you have a question, please press star then one. The next question comes from Sharif Al Sabahi with Bank of America. Please go ahead.
Sharif Al Sabahi: Hi, good afternoon. So I just wanted to ask a bit about the free cash flow. We saw the cash burn from operations accelerated a bit year-on-year and we haven't yet seen a lot of the CapEx that was guided flow through yet. So thinking about, with the guidance for next quarter as a benchmark, it seems like we could expect something similar for cash from operations in Q2, with Q1, and when you combine that with expected CapEx spend, it seems like we could end up with about another $57 million of cash burn or so. So I wanted to ask if that's the correct way to think about it and, within that context, how do you think about the equity purchase agreement?
So I just wanted to ask a bit about the free cash flow.
You know, we saw cash from operations.
The cash burn from operations accelerated a bit -year-on-year and we haven't yet seen a lot of the CapEx that was guided flow through.
So thinking about, with the guidance for next quarter as a.
A benchmark, it seems like we could expect something similar for cash from operations in Q2 as Q1, and when you combine that with expected CapEx spend, it seems like we could end up about another fifty seven million.
Of cash burn or so, So I wanted to ask if that's the correct way to think about it and, within that context, how do you think about the equity purchase agreement?
Kingsley Afemikhe: Thanks, Sharif. So I think in general that what we're thinking of, the numbers that we gave in the guidance for capital investments or kind of a guidance over the entire year, and so when we think about kind of cash use this quarter, so we haven't given exact guidance on that but we expect it to be kind of in the range of what we've seen in the past. If you look at our inventory position, the $43 million, 18.6 million of that is [inaudible] so we have a number of the components looking for final pieces to finish off to put us in our customers' hands. So the numbers are a bit more flexible than that. And looking on to your second question about the equity purchases, we strongly believe in the equity of this company and we think that there's a lot of upside. So when we think about any equity issue, we would do it in a way that is necessary, in a way that's a strategic step for us, in an opportunistic way. We're a capital life business and we have a lot of flexibility in the business that we can use and control.
Sharif Al Sabahi: Understood. Thank you, I'll pass it along.
Operator: Those are all the questions that we have today. I will now turn the conference back over to Dakota for closing remarks.
Those are all the questions that we have today. I will now turn the conference back over to Dakota for closing remarks.
Dakota Semlar: Thank you. Thanks everybody for joining and thank you to all our analysts for asking some incredibly spiteful questions. We believe that the investment case for Xos is clear. If you consider the current environment we are in, with diesel prices being highly volatile and trending upwards, our total cost of ownership advantage is even more compelling and clear, as can be seen by our commercial traction.
Dakota Semlar: We're excited about next week and our product launch event, the Xos' fleet week on Tuesday, May 10, which will be in Long Beach California, and it will also be live streamed on our website, xostruck.com. We're hoping that everybody listening into the call today will be able to tune in to that event and really keep up to date with our new, exciting products. We're building a business tailored to the needs of our customers and focus on delivering for them, and our announcements at Xos fleet week will only continue to demonstrate our commitment to those fleet customers. Thank you, everybody. Have a great day.
On Tuesday, may 10, which will be in long reach California, and we'll also be live streamed on our website, exotruck com. We're hoping that everybody listening into the call today will be able to tune in to that event and really keep up to date with our new, exciting products. We're building a business tailored to the needs of our customers and focus on delivering for them, and our announcements at exo fleet week will only continue to demonstrate our commitment to those fleet customers. Thank you, everybody. Have a great day.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
You may disconnect your lines.
Thank you for participating and have a pleasant day.