Q4 2023 Xos Inc Earnings Call
Yes.
[music].
Greetings and welcome to excess Inc, fourth quarter and full year 2023 earnings call. At this time all participant lines are getting a listen only mode for those of you participating in the conference call there will be an opportunity for your questions at the end of today's prepared comments. Please note this call.
<unk> is being recorded and now at this time I would like to turn the conference over to the general counsel of excess Christian Romero. Thank you you may begin.
Thank you everyone for joining us today hosting the call with me today are Chief Executive Officer Dakota, similar Chief operating Officer, Giordano, Sordoni and acting Chief Financial Officer Liana negotiate ahead of this call excess issued its fourth quarter 2023 earnings press release, which we will reference during the call.
It.
This can be found on the Investor Relations section of our website at investors that excess trucks dot com.
On this call management will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.
Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release. During this conference call or in our latest reports and filings with the Securities and Exchange Commission.
These documents can be found on our website at investors that excess trucks dot com, we do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures and performance metrics. Please refer to the information contained in the company's fourth quarter 2023 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.
Participants should be cautioned not to put undue reliance on forward looking statements with that I now turn it over to our CEO Dakota.
Thanks, Kristin and thank you everyone for joining us to review access is best year to date.
On today's call I will cover highlights from 2023 during which we generated revenues of $44 $5 million delivered 283 units and achieved positive gross margins in both the third and fourth quarters.
Before handing it off to G O N liana for operational and financial updates I will discuss our anticipated acquisition of electromechanical and the outlook for 2024.
Last year, we delivered quarter over quarter growth and set new delivery records in each of the third and fourth quarters. Following the release of the redesign step van platform.
As is common practice in our industry most of our customers build confidence in excess vehicles by starting with an initial order of 10 or fewer trucks and putting these vehicles through their paces in the real world.
Customers, then return with larger order sizes that make XO as part of their ongoing vehicle replacement schedule.
The initial orders all involve important decisions about the vehicles use case total cost of ownership charging infrastructure and driver training that differ from the traditional commercial vehicle sales process, making a robust sales program a strategic focus of excess.
Our strong customer pipeline built on the past six years of direct sales propelled us to success with significant delivery volumes to established customers like Loomis and unit first as well as new customers, including UBS and Canada Post <unk>.
Direct sales comprised over 90% of our 2023 sales and remain a critical tool in growing our market share.
Following the sale, we rely heavily on our dealer partners to service and support excess vehicles, delivering a high quality customer experience that directly translates into larger follow on orders.
In 2023, we saw order sizes grow with many of our customers, including Loomis is purchase of 150 vehicles announced in the first quarter and we expect that our established relationships with globally recognized fleets will continue to differentiate ex us.
Our new step van platform also contributed directly to our improved financial results showcasing that access is commercial evs can deliver attractive gross margins without the massive scale and capital requirements cited by many.
The new XO step vans exhibit unit gross margins in the range of 623%.
In line or exceeding the gross margins of many legacy Oems.
We expect these results will continue to improve the concerted efforts of our engineering and supply chain teams, which Joel will describe momentarily.
The new step van was also a step forward for our customers combining longer range with improved payloads and reliability.
Over the second half of the year, we delivered over 170 units of the new step and the customers alongside a small population of prior generation inventory.
It is a vehicle platform that we plan to leverage for many years, both in the step van market and our powertrain and hub products.
Operationally, we pursued a series of difficult and aggressive cost cutting efforts in 2023 that instilled financial discipline and rigor across the company.
By the fourth quarter, we reduced operating expenses by 43% from their peak in the fourth quarter of 2021.
Those changes together with improvements to our gross margins propel xo's towards our next company goal positive free cash flow.
Our steady March towards positive free cash flow is bolstered by our expected acquisition of electromechanical and.
In 2023, we explored multiple options to address access and the need for growth in working capital.
We found a unique opportunity with electromechanical following the discontinuation of their solo EV electromechanical conducted an extensive review of all options to deploy their capital and determined Xo's offered the best long term opportunity.
Our anticipated acquisition of electromechanical further underscores excesses unique position as a leader in fleet electrification.
Yesterday, the transaction was approved by shareholders of both excess and electromechanical and we currently anticipate to close this upcoming Monday March 25th.
The deal is expected to provide access with over $45 million in additional capital that will provide a secure financial base for many quarters.
For reference <unk> quarterly cash consumption range between $2 2 million and $8 5 million in the second half of 2023.
Excluding our now completed repayments to Yorkville.
The positive impact of the acquisition is hard to overstate and I think all of the electromechanical shareholders for their support and ensuring that access remains a leader in commercial evs for years to come.
Following the anticipated close of the transaction next week and the resultant influx of capital to access access will continue to make judicious capital allocation in those areas, where we anticipate short and mid term gains in our bottom line.
We remain open to outside funding opportunities, where it unlocks significant value for both customers and shareholders.
However, we do not foresee a need for additional capital to deliver growing volumes of our core products.
Turning now to our commercial prospects for 2024.
I firmly believe that <unk> has selected the ideal entry point to the commercial EV market with our step van and.
And further believe that excess will parlay step van success into other sectors as customer demand and infrastructure readiness grows.
For now we remain wholly committed to the step in market and our related powertrain products.
That continued focus is reflected in our capex and R&D budgets, which remain unchanged following the acquisition.
We believe concentrated attention on increased step van deliveries is the key to reaching our financial goals in.
In 2024 hour delivery volumes will be bolstered by three major factors.
First we anticipate our established customers will continue to increase their order sizes and make ex us a part of their routine vehicle procurement cycles.
We continue to believe that deliveries will be weighted to the second half of the year as customers' race to install charging infrastructure supported by our sales team who've gotten a strong start to the year.
Relative to 2023, we expect to see substantially stronger first and second quarters.
Second regulatory pressure combined with customer incentives available in at least 10 states will continue to motivate new and existing customers to adopt evs.
Lastly, the revised step van platform is translating into stronger powertrain sales, we have powertrain deliveries planned for Winnebago and a nationally recognized school bus manufacturer in 2024.
In addition to bolstered vehicle sales, we have high expectations for the updated excess hub.
Hub serves as both a sales enablement tool for step vans.
And as a high margin product in its own right.
We are seeing surging interest in purchase orders from a range of customers, including XL energy and Duke energy, who signed sales orders and are beginning to take delivery.
Our hub leverages existing power infrastructure at customer sites to provide stopgap EV charging remote and rescue charging and low cost in D C charging infrastructure.
Each unit can charge up to four vehicles at one time from a single power connection, which many locations already have on site.
The hub can also be mounted to a trailer to provide mobile power storage and charging capabilities.
By allowing users to forgo expensive and time consuming electrical upgrades our fleet customers can put newly purchased at vans into service before a permanent charging infrastructure is complete.
In many cases, we can entirely avoid the uncertain infrastructure installation timelines that have impacted excess vehicle delivery schedules.
And additional support for hub sales are the recent incentives from the California Air Resources Board core incentive project, which provide up to $160000 per unit for certain hub purchases.
In all while the hub won't eliminate charging related delays for our customers. We believe it will meaningfully improve the predictability of our step van deliveries.
I'll now hand, it over to our C O O G O for an operational update.
Thanks Dakota.
2023 was banner year for the excess engineering supply chain and manufacturing teams.
We launched a new higher performance step van platform delivered positive gross margins and sustained higher vehicle build rates than ever before.
Our updated step van platform delivered higher payload and range performance to our customers, while simultaneously, enabling us to achieve our gross margin targets.
The long range variants of our platform as a particular highlight.
Comprised approximately 53% of 2023 deliveries.
The platform Redesigns, coupled with significant revamp of our factory operation.
By bringing our manufacturing team in house integrating our ERP system into our product development and manufacturing systems and fabricating more components on site, we were able to scale up factory output to match customer demand without significant capital investments.
In both the third and fourth quarters, we were able to demonstrate for periods of time build rates in excess of 700 chassis per year.
That's the same build rate underscore the Tennessee factories future production capabilities and reflects the agility with which our teams can quickly pivot and satisfy production demands without risking unhealthy inventory buildup.
The team accomplished all of this while significantly reducing operating expenses over the year, which is a testament to our ability to deliver results in a capital constrained environment.
Beyond Stephens our team fully revamped the hub.
By leveraging our existing battery and Charger technology hub now offers sub 10000 pound curb weight 280 kilowatt hour capacity and four charge heads with up to 150 kilowatt charged speed.
All at a 40% lower price than our prior version.
Thanks for engineers effort and the highly overlapping supply chains, we have the manufacturing capacity to build up to 100 hubs per year at our Bridgetown, Tennessee factory. In addition to our project projected step van volumes.
Turning to 2020 for our supply chain and engineering teams will continue to focus on cost reductions and improve vehicle performance.
Our growing scale and reputation as a leader in the industry is starting to pay dividends and supplier relationships.
As a result, we have more opportunities to enter into long term supply agreements with better terms that have eluded new Oems.
Our engineers are working closely alongside our supply chain team to further improve performance and margin of our vehicles.
In 2024, we expect to expand our addressable market by introducing new step in Berlin, and powertrain systems, where customer demand is sufficient to justify the R&D resources.
The excess hub powered by access will continue to expand and support revenue growth, but for 2024, our top priority will remain scale production and deliveries.
With that I'll pass it on.
Thank you Carol and good afternoon, everyone by five 3% a year full of challenges that Exxon was able to navigate all while making significant progress financially.
I think our gross margin positive step and growing in a deliberate and securing meaningful capital via our our expected acquisition of electromechanical I have prepared excess to deliver strong results in the coming year.
Compared with Wifi too we grew revenue by 22%.
Our annual gross margin near breakeven at negative two 9% and negative 83% and reduce our quarterly operating expenses by 27%.
These accomplishments are quite immense dedication from our entire team and provide real confidence that it will continue to deliver on a glass that's target implant 24 and beyond.
With that in mind I'll now.
Review, our financial performance for the fourth quarter of 'twenty type thing.
Our revenue for the fourth quarter increased to 18 5 million compared to $16 7 million in the third quarter.
Our cost of goods sold during the quarter increased to 17 million compared to $14 7 million in the prior quarter.
GAAP gross margin during the quarter was a profit of 1.8 million I'm, sorry to a profit of $10 million in the prior quarter.
The change in revenues was primarily due to the increase in quarter over quarter unit deliveries as well as an increase in current quarter deliveries of energy products, including the excess top huh.
So that's all increased in line with revenues during the quarter gross margin was impacted in the current quarter by changes in our inventory reserve update.
I pay for that but that's the level that had cost related to the cells and.
And the results of our physical inventory count.
This activity resulted in slightly lower margins compared to the prior quarter, but highlights our focus on continuous improvement.
How about inventory management processes.
As noted last quarter GAAP gross margin for our vehicle OEM is impacted by a range of reserve that's combined with changes in the sales mix between.
So that's the Empire model inventory sale also this higher level of volatility in quarterly results.
The reason, we can to continue to share our consistent non-GAAP gross margin and you can find them today My name is Ali.
Our fourth quarter operating expenses decreased to 13 point some million from $14 six nine in the prior quarter, primarily driven by the October 2020, but definitely the workforce and overall our expenses across all categories, partially offset by electromechanical transactional related expenses.
non-GAAP operating loss was $58 1 million and for the fourth quarter of $10 9 million.
Operating expenses are expected to increase moderately following the acquisition as we wind down the remaining electromechanical operations through the second quarter.
We ended the year with cash and cash equivalents of $11 6 million compared with $2 6 million at the end of the third quarter.
Hello. This is the cash using operating activities, we used $10 9 million during the fourth quarter and financing activity.
This was primarily related to our comfort about debentures about with Yorktown, which have now been repaid in full.
As I said last quarter. These payments concluded in the fourth quarter and will not impact future results.
I don't know if I contrast that to 37.8 million from $48 9 million in the third quarter as we continued to draw down he pandemic inventory than prior generation Stephane.
While material balance decreased as a result, opex tedious production at Pelican units during the quarter offset by if you ever see.
I felt that our strategic purchasing and inventory management.
Finished goods inventory decreased due to the sale of our power generation as well as the sale of energy products we.
We expect inventory balances to stabilize moving well, that's prudent and deliberate purchasable.
Operating cash flow less capex, our free cash flow improved to negative $9 million by the fourth quarter from negative $8 1 million last quarter.
This reflects both excesses until cost structure from reductions made in appointing me as well I think he deliveries of gross margin positive.
Wrapping up without looks like 'twenty 'twenty, four we expect to generate $66 7 million $240 million in revenue achieve.
Achieving non-GAAP operating loss of $48 7 million to 43 7 million and deliver 400 to 600 yet.
As a result of a design Stefan and updated excess top we expect excess to deliver positive gross margin in each quarter of 'twenty 'twenty four.
This growth will be supported by improved liquidity in the form of a $45 million in cash and cash equivalents that we expect to receive from the acquisition of the electromechanical and that kind of weak.
This capital will be used to fund ongoing operations and working capital needs to support our growing Stephane.
Our expected acquisition of electromechanical includes the assumption of certain liabilities, mainly in the form of two real estate leases that we expect to start with.
Do not anticipate the acquisition to meaningfully change the trajectory of excess of operating expenses.
Or delay our achievement of positive cash flow.
I'll now turn the call back over to the platform.
Thanks, Liana to wrap up 2023 was a critical year for excess that set the stage for an exciting 2024.
Our customers clearly demonstrated their growing demand for electrification, leading to our back to back record quarters in the second half of 2023.
Our vehicles are now in use by the majority of North America's large step vans fleets and remain the sole source option for zero emission class five and six step vans delivered at scale.
We also demonstrated that commercial evs can be built profitably with the release of our gross margin positive step in.
<unk> a leader in positive EV economics, now with the upcoming acquisition of electromechanical, we have secured the funding needed to build a sustainable cash flow positive business. These milestones remain rare accomplishment and the commercial EV industry excess continues to be.
Outlier in the industry and a critical part of the electrification of commercial vehicles.
With that let's open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on a touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press star and then.
Two.
Our first question comes from Donovan Schafer with Northland Capital markets. Please go ahead.
Hey, guys congratulations on getting the votes for the <unk> acquisition.
That's great to hear.
So for my first question I wanted to ask with I'm going to ask about gross margins. So yeah. They came down a little bit this quarter.
And based on what we own inside.
There are some there's some inherent lumpiness it seems asked to do it.
The way reserves are treated in different channels.
You know, whether it's direct sales or through a dealer.
But it sounds like you know on a non-GAAP with the non-GAAP gross profit you report it adjusts for a lot of that so I'm curious if we can kind of just isolate you know if there was something my impression is that kind of on an apples to apples basis gross margins have come down a little bit.
Q3 to Q4, correct me, if I'm wrong on that.
And if so just what if you can talk through what kind of was the impact there in the fourth quarter.
Hello, The reserve Yeah, Yeah. Your line is now live sorry.
Can you hear us now with all of them.
Yes.
Great.
So there is there's a really a couple of things that drive that when you look at the GAAP figures. It's obviously the reserves are that liana touched on that to drive a little bit of that change.
But when we adjust for non-GAAP considerations.
The largest factor is gonna be model mix and some of the shorter range battery vehicles or slightly different configured vehicles are going to represent our demonstrate different margin profiles and so as we make different deliveries to various customers that have longer range or lift gates or other.
It might be added onto the vehicle.
That's ultimately going to drive our margin performance quarter to quarter that changes.
But as we get through some of the older inventory, which should end in Q2.
As we make more deliveries of our 2023 and 2024 step vans the margin profile across all of those vehicles will continue to increase.
And as we've said in previous calls we believe margin profile of all of our products should be north of 20%.
So it should continue to improve in quarters to come.
Okay great.
And then turning to 2024.
Just to add one more point on that.
I did.
And then my script, we mentioned that there was an absorption of overhead related costs and part of the evaluation of the methodologies. We required a change in estimates I'm disappointed that was onetime in nature that we don't expect to reoccur and that was primarily driven by the lower margin. This quarter. That's all okay. Okay.
And then turning to 2024.
It was a very crude kind of approach to things, but if I if I take the midpoint of the revenue guidance and I take the midpoint of.
The non-GAAP operating loss guidance, and if I, just sort of hold the opex and.
Other expenses constant and I, just sort of makes that the same 24 as it was in 'twenty, three which I know is very crude.
But the implication there is something like or is it gross margin for 'twenty 'twenty four somewhere in the ballpark of 11%.
I'm just curious if you can give any color around like is that is that like.
Is that is that gonna grossly missile lead us to think in that framework or theyre going to be a different sort of puts and takes or things that would cause a deviation from that and then also you know.
It'll start lower and scale through the year, how you would expect that kind of gross margin to behave over the year.
Yeah. So it's a great question and while we don't guide to gross margins and free cash flow or I guess operating cash flow.
Hum at a granular level, we can provide some context I think informs your assumption, which if you look at 2023 Opex.
We talked about making significant improvements in.
Our.
For our full year Opex reductions were close to 25%.
By the end of Q4, and so if you look at the annualized Opex number it's probably not the stabilized opex number that we saw in Q4.
Drive a little bit of improvement.
And then as we represented that model mix will continue to improve.
And we anticipate selling a substantial portion of those higher margin kind of vehicle configurations within the year that will ultimately lead to that and improved gross margin performance in the year ahead.
Really you know a lot of it comes down to what what gets delivered quarter to quarter. So there's still a little bit of variability, but I think.
Generally speaking opex performance should be better.
Excluding some of the impacts of the inclusion of E. M. B, a <unk> financials for Q1.
And to the profitability of all the vehicles will deliver in this year will continue to improve as well.
Okay, and if I can.
And squeeze one more in just if we can get an update on the state of.
The current state of things for your customers are getting the EV charging infrastructure in place kind of what visibility you have what kind of.
Conversations are engagement, you're doing with customers to make sure that they will.
Be able to take delivery sort of is scheduled where.
There too I know in the past you know a year ago or so so that was it.
Our limiting the ability of customers to take delivery. So if we can just get kind of an update there that'd be great.
Yeah, absolutely, we're happy to provide a general update.
Infrastructure continues to be the biggest issue that we and other oem's experience in terms of delivering vehicles growing deliveries.
Period over period.
But we're taking that into our own hands and really working with customers to improve the rate with which we deliver infrastructure.
We also recently announced the launch of our second generation hub.
Subsequent to Q4 closed in the beginning of Q1 and the second generation hub was released to much fanfare. We've been building a significant order backlog of those units, which will help enable delivery of more of our own trucks as well as other evs for customers that don't currently acquire XO.
Trucks, so we believe that solving a significant portion of the problem that we're dealing with today.
But beyond that we don't believe that the hub is going to solve all of our infrastructure challenges.
We'll say that we have better insight and better visibility into the deployment timelines of some of our key infrastructure projects with a lot of our customers here in California or in other large states. We're charging infrastructure is being deployed such as in Texas or New York.
But we doesn't mean, we have certainty around all of those dates says projects can experience construction delays utility delays building permit delays.
That that can slow these projects down so we're continuing to be more proactive about monitoring that and incorporating that into our annual planning exercise.
Then products like the hub will continue to to supplement and provide a stopgap solution until we can get that permanent infrastructure deployed.
Alright, great. Thanks, guys I'll take the rest of my questions offline.
Thank you.
The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Hi, This is Adam on for Jerry today, Thanks for taking my question.
It seems like you're sort of at the run rate.
Deliveries consistent with the low end of the guide so just wondering how youre thinking about the puts and takes that would keep you at this run rate in at the low end versus the high end of the range. You know what are what are the key bottlenecks to deliveries.
And the range of that embedded in guidance.
Yeah. Thanks for the question Adam So I would start off by reiterating my my previous point really about infrastructure that continues to be the single biggest bottleneck or hurdle in terms of increasing deliveries.
So for the reaching or obtaining the high end of the guide I think infrastructure will drive the majority of that incremental performance.
There are other factors that are obviously playing into all of this including the time to delivery from the up the facility supply chain in component parts that go into the vehicles.
But I would say the majority of the the delays that we experienced in that range are gonna be attributable to infrastructure delays.
With projects that customers are deploying.
One other factor that I think is well will significantly change that as the hub.
And although we've just launched the hub Gen. Two units are going to be shipping our first units this quarter.
We don't have a clear understanding of how that will impact deliveries quite yet as we haven't fully rolled out production and fully got them into the field with customers, but we do anticipate that it'll have a pretty significant positive impact for us being able to do.
Within that range and hopefully you know stay at the high end of that range. So.
So as the hub continues to ramp up in production in Q2.
And we hope that that can drive our performance and being in the top end of the range.
And nice to see the positive margin gross margins on the new XO step fans I think you said unit gross margins in the range of 6% to 23% on that project.
That product what drives that variability and where do you expect margin so on that product to trend over time.
Yeah. So it actually has driven a lot by customer model mix and the configuration ultimately that that our customers deploy.
Some of our longer range battery option may have a higher margin profile other feature add ons things like lift gates or power takeoff for power export might drive that and even the body configuration. So generally the customer specific attributes and features on the vehicle.
As well as customer specific deal terms.
As we go to increased volumes and increased deliveries to some of our larger customers. We do offer small discounts for some of those larger bulk purchases.
And those are generally will accrue to those customers that are buying north of 100 units or more.
So that's that's what drives most of the variability there is obviously.
<unk> allocation or labor allocation that gets attributed to different vehicles, depending upon the.
How that vehicles built up but those very less than the actual final vehicle models back.
Got it that's helpful and then last one for me.
The unit deliveries our outlook for 2024 can you provide any color between the split of step vans first powertrains versus hub products.
Yes, we're not providing that guidance today.
We anticipate that.
Really all three of the categories are growing.
Pretty substantially and so as we look to 2024 theres just depending upon our customer whether it's a powered by excess customer or it's a statin and customer there are different variables that informed when they take delivery of those trucks, but.
But we have a pretty good confidence around that pipeline to stay well within that range and know that really all three of these product segments are going to be growing double digits.
In terms of their deliveries in the year.
Great. Thanks, so much.
Thanks, Adam.
The next question comes from Mike Szeliski with D. A Davidson. Please go ahead.
Yes, hi, good afternoon, Thanks for taking my question.
Sure.
Yes, I wanted to see you.
You still have legacy vehicle to deliver in 2024.
Or will it be entirely the new version and I guess on top of that you have a new new version to others is there a whole new round of improvements for further gross margin.
In it.
And somewhere near future here.
Speaker Change: Yeah, absolutely. Thanks for the question, Mike and thanks for joining.
With regard to the legacy units in Q2 will have less than 10 of those units to deliver.
So with most of the net realizable value accruals already having hit our P&L in the previous year, we don't expect to be the margin trail to really impact us in full year 2024.
So again very single digit units are.
For the remainder of the year.
And then the second point around your question around New models, which is our 2020 for model year step van.
We'll continue to make improvements every year on the product both for improved customer experience improved efficiency and durability and reliability, but one of the other side effects or benefits of making those engineering changes is as you pointed out the improvement in our cost of goods sold but we do we do anticipate some.
The improvement in our cost of goods sold.
Not as drastic of an improvement from our legacy inventory to the 2023 step van but still incremental margin performance improvement within the year because of some of those engineering changes and particularly because it's because of some of the supply chain changes and improvements that we've negotiated with our key vendors in some.
Players that make up the cost of that vehicle.
Okay great.
And then.
I guess I was curious you had mentioned that almost all your sales were through the direct channel and the dealer network was.
Most of the service piece of it.
Do you anticipate more of the 'twenty 'twenty four sales to be.
New equipment to be in the dealer channel or would you still think it'll be multinational or direct accounts.
Yeah. That's a great question. So as we mentioned in the call 90% of our sales came through the direct channel.
I believe that number will actually continue to go up and we will see even higher than 90% of our sales go through our direct channel.
And just one quick clarification on the the service perspective, most of the service work is still done by our traveling technicians and our mobile maintenance Xo's service team, which are excess employees, but.
But we do work with those third party dealer vendors and maintenance mobile maintenance companies to help supplement and markets, where we may not have a concentrated population of vehicles.
And so we do anticipate that our service footprint will continue to grow as we deliver vehicles across new territories.
Throughout the central United States, and other locations, where we don't already have trucks.
But we would also anticipate that we'll continue to do a majority of the service work on those vehicles.
Got it.
And then thirdly can you discuss some of the non step van.
Sales you've got I.
I guess can you are you able to say what happened in the fourth quarter could you provide a breakdown of the vehicles versus the powertrains.
Whether that even matters at this point for your margins.
Go ahead.
Because it's just such a some more details as to what that might look like in 'twenty four.
Particularly on the school bus side.
There's only a few players will you be providing one of the one of the large players with with bus powertrain and you've got a replacement.
Prior model or what at least what are you supposed to be putting out an entirely new EV school bus models.
24.
Yeah. So it's a great question. So when we talk about model mix as you know the the step vans have seen significantly improved gross margin starting in 2023 and will will further improve into 2020 for.
Our powered by excess margins because of the.
The associated engineering cost and the setup costs of building out.
Those customer and those customers and that customer pipeline. The margin profiles are generally even higher in the 20% to 30% range, sometimes higher but ultimately depends a lot on this customer circumstances.
Challenge in that segment is that we don't always control the volume deliveries because we are a a powertrain supplier, providing a component to our final vehicle manufacturer for an OEM.
With regard to our specific customers in that space and in the school bus and recreational vehicle products. These are new products that they would be launching with our powertrain technology. So incremental business that they are not already currently supporting and servicing today.
We do anticipate there'll be growing volumes, although the.
The the mix I would say relative to our overall core step in business, it's still relatively low it's a minority percentage of our overall vehicle deliveries and revenue.
And with all of the Dakota, just to make sure. The bus the bus that this customer will be launching do you know what people would be eligible for some of the large subsidies from the EPA and various states.
There can be underway, there's a pretty large programs and I'm curious to make sure that excellence buses Xtra was powered buses will be able to receive those types of subsidies.
That's a great question, we do believe it will be eligible under the program because it's not in production yet we haven't gotten final confirmation.
But as you know Mike the.
E. P. A released was expected to release about $500 million in subsidies in their loss grants release in early January.
And they announced a 1 billion dollar pool of funding. So it's a fast growing market and continues to see lots of demand.
In that space and we expect our vehicle to view, our powertrain to be one of the vehicles that will be eligible for those.
Those EPA incentives and potentially other state driven incentive programs.
Great I appreciate the discussion I'll pass it along.
The next question.
The next question comes from Daniel Ives with Wedbush. Please go ahead.
Hi, This is Steven we're hopping on for Daniel Ives I just had two quick questions you mentioned on the call that the.
Cashing assumption that you guys had in the back half of 'twenty, three with somewhere between $2 2 million and $8 5 million. If I heard that correctly do you expect this to continue throughout the first quarter and into 'twenty. Four and then also you mentioned that the deliveries for this year would be a little bit more back half weighted should it be similar to what we saw in 2020.
And if it's not then how should we really expect that going forward.
Yes.
Cash burn numbers are what we delivered in the second half of 2023, and we anticipate that with our continued delivery of 2023 and 'twenty four model year vehicles, our margin profiles will continue to improve.
Thereby reducing that number we also anticipate that we can continue to deliver more units, which will also continue to reduce that number and the year to come.
And I think when we're looking at inventory turns are.
In terms of getting older inventory off the balance sheet, we anticipate that our inventory turns will continue to anticipate necessitating less working capital to build a larger amount of vehicles.
So that's that's to address your first question.
And then what was the can you clarify the second question just one more time for me.
So you mentioned a little bit about the deliveries for this upcoming year would be a little more back half weighted is it going to be similar to what we saw in 2023 and if not how should we expect to be modeling this out.
Yeah.
We do anticipate that it will be back half weighted and there's a variety of factors that are more industry factors that drive.
Seasonality and some of the markets such as our parcel delivery customers. They generally in Q1 and Q4 don't take a lot of deliveries and the reason for that being Q4 is obviously the busiest season, where volumes for them can go upwards of a 100% of their baseline volume.
So delivering to those customers at that time period is very difficult and then in Q1, we see a lot of that carryover volume from package returns and shipment returns the deliveries in Q1, and Q4 tend to be slow for parcel delivery, which represents a substantial portion of our overall vehicle deliveries.
So that's where they concentrate amongst Q2 and Q3 generally.
And then in terms of our other powertrain customers in some of our uniform rental or vocational customers.
They generally take delivery at the in the second half of the year.
Either during the summer period or in Q4, some of which are smaller fleets has taken to take advantage of some of the accelerated depreciation tax treatment of <unk>.
Wiring new equipment, such as section 179.
Some of which just has to do with the end of their fiscal years and the timing of their budget cycles.
Two to reaffirm with definitely doesn't mean, we do have a back half weighted 2024 as well.
Thank you.
Thank you.
And that concludes our question and answer session.
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