XL Fleet Corp.
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Operator:]

Good afternoon and welcome to the XL Fleet Corp. First Quarter 2021 Conference Call. As a reminder today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. For opening remarks and introduction, I'd like to turn the call over to Jim Berklas, General Counsel and Vice President of Corporate Development for XL Fleet. Please go ahead.

[Jim Berklas:]

Thank you. Good afternoon, everyone, and welcome to XL Fleet’s earnings conference call to discuss our results for the first quarter of 2021. With me today are Tod Hynes, our Founder and President; and Dimitri Kazarinoff, Chief Executive Officer; and Cielo Hernandez, our Chief Financial Officer.

[Tod Hynes:]

Thanks, Jim, and thanks to everyone for joining us on the call this afternoon. Before we get into our results for the first quarter, I'd like to begin with the discussion of an exciting acquisition announcement we made this afternoon. We were incredibly excited to announce the acquisition of World Energy Efficiency Services. Our major customers tell us that fleet facility power constraints create a unique and large challenge when trying to charge dozens and even hundreds of vehicles at the same location. The team at World Energy is filled with experts who can help solve this problem by incorporating energy efficiency measures and solar power, while integrating EV charging to increase the amount of energy available for fleet vehicle charging. The company operates across the New England region and has a long track record of delivering value to a strong portfolio of customers and utilities, including their longstanding relationships with Eversource and National Grid. Our acquisition of World Energy is aligned with the clear strategy we laid out when first announcing our business combination last year, and we expect the acquisition to benefit XL Fleet in two key ways. First, this is a highly strategic bolt-on acquisition that expands our charging infrastructure division XL Grid. When we first launched XL Grid, our mission was clear to make it easier and more cost effective for companies to electrify their fleets. By removing barriers to adoption and lowering the total cost of ownership, we believe we are well-positioned to provide a comprehensive offering and set of solutions. This is exactly what World Energy provides to its customers. And the combination of our company's complimentary capabilities is tremendously powerful. As we said, the acquisition of World Energy will enhance our ability to provide fleet electrification in an even more seamless manner.

[Dimitri Kazarinoff:]

Thanks Tod. We remain intensely focused on executing our strategy for long-term success. We continued to evidence our success with a number of recent key announcements, including several since our last earnings call in March. I'd like to highlight a few. First, we announced the key partnership with Dickinson Fleet Services, a leading mobile maintenance provider for medium and heavy-duty trucks and trailers in North America. Under the partnership, we meaningfully expand our service network, including access to Dickinson base of 700 mobile repair units and 800 repair and maintenance technicians. In addition to scale, we gained even greater regional and geographic diversification, enhancing our ability to service our growing base of customers and their demand. We're already working closely with the Dickinson team to ensure they are trained in servicing our wide range of vehicle applications. Second, we announced an agreement to electrify the pickup truck fleet of Apex Clean Energy, a leading clean energy company that develops, constructs and operates utility scale wind and solar power facilities throughout North America. Apex turned to XL as part of their comprehensive effort to reduce carbon emissions. The first order, which includes 19 Ford F Series pickup trucks, includes both hybrid and plug-in hybrid systems. Apex is a great example of how commercial fleets providing must critical nature services are turning to XL Fleet to immediately deliver sustainability without compromising performance or reliability. A key part of this strategy is continuing to evolve and transform our business to offer a wider set of applications and solutions to a growing base of customer requirement. This includes our all electric solutions, including our development agreement with Curbtender for electrified refuse trucks. We remain on track and expect to make volume shipments in 2022 significantly expanding the range of solutions and applications offered to our customers.

[Cielo Hernandez:]

Thanks, Dimitri. I'm excited to be part of the XL Fleet team. Revenues for the first quarter of 2021 totaled approximately $700,000, a slightly below the outlook we provided last quarter and compared to $1.2 million in the prior year period. Gross loss for the quarter was approximately $700,000 as compared to a gross loss of approximately $60,000 in the prior period quarter. Research and development costs totaled $1.4 million during the first quarter compared to $1 million in the prior year period. The increase in R&D was primarily driven by the continued expansion of our electrification solutions. We existed the first quarter with cash and cash equivalents of approximately $404 million, up from $330 million last quarter. We continued to be earned with our strong balance sheet, having raised $404 million of net proceeds from the completion of our business combination with period on in December, 2020, including approximately $86 million raised during the first quarter from exercises of our public warrants. We believe that this positions us extremely well to execute on our growth strategy over the next several years, including the potential for a few other strategic M&A. In response to guidance provided by the SEC on April 12, 2021 regarding the accounting and reporting of warrants issued by SPAC, XL Fleet has restated its consolidated financial statements to change the accounting treatment of its warrants. The restatement will be isolated to this change in accounting treatment and has not impact on historical or forward-looking cash flow and operation of the company. The restatement, which the company believes also apply to a significant number of company is isolated to XL Fleet's historical accounting for its public warrants and private placement warrants issued in connection with its business combination peer investment corporation and has no impact on the historical or forward-looking cash flow and operations of the company. These warrants had been accounted for as an equity.

[Dimitri Kazarinoff:]

Thanks, Cielo. In summary, we remain focused on executing our strategy, providing customers with reliable electrification solutions that meet their performance and sustainability requirements. Industry challenges remain, but we are not taking our eye off the mission of building the business, innovating new technologies and delivering electrification solutions that reliably meet the needs of the commercial fleet industry. Thanks very much for your time this afternoon. Now, we will open up the lines for questions and answers.

[Operator:]

Thank you. We will now begin the question-and-answer session.

[Jed Dorsheimer:]

Hi. Thanks for taking my question. I guess, Dimitri, if I look at the cumulative systems, they didn’t change quarter-over-quarter, so were there any systems, new systems sold as part of the $675,000 in revenue?

[Dimitri Kazarinoff:]

Yeah. Jed, I believe we shipped a little over 30 some in the first quarter according to that revenue number and the cumulative statement in our filings just referred to a total over 4,300. So, it was a modest increase because of the light quarter. But we continue to expand deliveries.

[Jed Dorsheimer:]

I figured as much. So, thank you. That's helpful. And then, congratulations on the acquisition. As I look at the company's website seems to be a direct competitor to Ameresco and maybe I'm categorizing that wrong, but that's how I looked at it. Which brings me to my question that they have a number of -- in addition to EV charging, there's actually a number of energy efficiency drivers to their business. I'm just curious, is that something that is a combined entity you will be pursuing or is it simply going to be the EV side of the business?

[Tod Hynes:]

Jed, this is Tod. One of the advantages of World is that they're focused on higher volume, smaller mid-sized projects where Ameresco might be focused on an entire campus or a bigger project. And so many of the fleet facilities where we see electrification occurring are smaller to medium sized buildings, maybe 25, 50, 100 vehicles kind of in that range. And so, they have a great -- very efficient process for essentially implementing those types of projects. And we do see efficiency as well as solar and on-site storage is the key piece of the fleet electrification process. A lot of these facilities have power constraints. They weren't designed to have 50 vehicles charging at that 7 to 20 kilowatts overnight or fast chargers that can add up quite quickly. So, looking at the energy use profile of those buildings, incorporating efficiency, solar, and storage, as well as the charging infrastructure, really enables fleets to electrify faster and at a lower cost than if they were to try and upgrade the power to the building, which can take time and add significant expense as well.

[Jed Dorsheimer:]

Got it. That's helpful. Thanks. And then, just last question, for any -- the three of you. I guess, just trying to frame 2021 relative to 2020 with the hockey stick ramp in terms of the seasonality with the business. Are we to look at the ramp that you had year-over-year in 2020, as what to expect for 2021? Just curious in terms of -- if you can provide a bit more color on the framework. I mean, I know you provided a lot of color during the spec in terms of the guidance, but without that guidance, just wondering, how we should be thinking about the expectations for the year.

[Dimitri Kazarinoff:]

Yeah. Jed, this Dimitri again. I can take that one. As Cielo mentioned, we expect a majority of the revenue to be back half loaded again this year. And in fact, that sort of seasonality or that pattern we expect to be even more pronounced. And that's because of the ongoing COVID and industry related challenges in the first half of 2021. We've seen the OEMs closing their order books early, not even taking orders. So there's been a lot of disruption for our customer's ability to get vehicles. At the same time, we think a lot of those pressures are going to be alleviated over the next couple of months. And we do know that some of our customers who are looking to get a number of our systems and they've had budget issues because of COVID, municipal customers, they're going to see relief with new budgets on July 1st. So, there's a lot of factors at work to help us in the second half of the year. There's still a high degree of uncertainty in terms of the level of disruption that could persist in the industry from things like the chip shortage or rubber shortages and alike. So, it's still an uncertain time, but we do see visibility to much better second half than the first.

[Jed Dorsheimer:]

Okay. I'll jump back in queue. Thanks.

[Operator:]

The next question comes from Greg Lewis with BTIG. Please go ahead.

[Greg Lewis:]

Yeah. Hi. Thank you and good afternoon, everybody. And congrats on the acquisition. I guess I just wanted to dig in a little bit there. I guess w you mentioned 2020 revenue, is there any way to think about how that's trending or tracking in 2021? Obviously on the EV side, your core business, there's some supply issues, et cetera. But as we think about the pace of EV charging, that seems to really be accelerating. I don't know if you want to kind of talk a little bit about XL Grid as a whole, or just this acquisition. But any kind of color how you're thinking about the opportunity in 2021? And then, maybe expanding on that a little bit, how you think about that opportunity in 2022 or beyond 2021, just as given some of the expectations around the EV charging build-out.

[Dimitri Kazarinoff:]

Sure. Greg, this is Dimitri. In terms of the acquisition, World Energy has a very strong business, really solid relationships with wide customer base and utilities in the regions they operate. So, we think the momentum they have to sustain what they did last year and keep moving forward and is very exciting. And we think the business combination offers potential upside, especially as it relates to XL Grid. And we've got a widening suite of opportunity on the XL Grid side. And there is a lot of energy in the industry there. And Tod can give a little more color on some of that opportunity space that we've been pursuing.

[Tod Hynes:]

Thanks, Dimitri. I mean, we definitely see the XL Grid part of the business being a great bet. I mean, we put that plan together essentially when we started the business and it was really about timing and resources and with the close the transaction in December, we had -- the close of our stock transaction December. It brought a ton of resources. So we moved quickly to bring on some great senior leadership to run that division. We've already been building up that team primarily focused on larger infrastructure projects. So, the internal capabilities and products we've been working on are similar to the UBS Arena deal we announced with the a thousand charging stations, so very large deals, but the World team brings a great set of experts that can help us implement on the smaller to medium size facilities, which is really where we see a bulk of the demands in the long run. I mean, if you think about fleet electrification, it's going to be a multi-decade process. You're talking about lots of facilities, hundreds of thousands of charging stations by an administration committed to over 500,000. So, we think that it's going to be a great part of the business. Then it's also -- has some diversification on supply chain risk on market risk, because it really is a much different process than the electric powertrain portion of the business. So, I think the two of those combined it's really a great combination, so we can make it really easy for fleets, small as well as large, but together large fleet electrification programs or comprehensive fleet electrification programs.

[Greg Lewis:]

And then, just -- it sounds like there historically that the company had been more focused just regionally in New England. Now that it's part of the XL Grid family, is there expectations that we're going to take that segment of the business, or at least their expertise more at a national level?

[Tod Hynes:]

This is definitely a national and ultimately international opportunity. So, they've built a great business on the regional basis. We already have a good national footprint in the U.S., as well as Canada. And we will leverage their capabilities to expand and bring in more business across the U.S. and Canada.

[Greg Lewis:]

And then just one more for me. Clearly, in the prepared remarks you mentioned, some -- maybe some demands started to show up on the municipal side and in the press release you mentioned, the potential for deliveries of the first all EV systems. As we think about lead times, whether a municipality looking for your -- the plug-ins or new company looking at an EV solution, what are kind of the lead times that I need to notify XL about being ready to convert my vehicle and does it differ between the all EV solution versus the ones that are currently there?

[Dimitri Kazarinoff:]

Yeah. So -- Greg, I'll take that one -- Dimitri. Yeah. The EV solutions are still in product development, so they're not currently available for production deliveries. And so, the lead times there are definitely longer. We do already have some orders in hand and that's very exciting. I'm going to -- we've had some strong interest from additional cities in North America for that classics refuse offering that we're putting together with Curbtender that has been announced, but those deliveries are expected to be in 2022. So, significant lead time from now. The existing products we have released the hybrid and the plug-in hybrid systems, typical lead time as in the area of 10 to 14 weeks, which in a normal situation is also the lead time for orders and delivery for vehicles from the OEM to the upfitters and to the fleets, right now that whole lead time situation with the OEM is kind of disrupted and can be substantially longer. But we're also working to shorten our ability to respond, especially where customers already have vehicles on the ground. We do have flexibility in our business model to do retrofit as well as upfit and in some cases, especially right now with the disruption in new vehicle deliveries for some customers that can make a lot of sense. So, that's kind of the picture of the lead times.

[Greg Lewis:]

Okay. Great. Thank you all very much for the time. Have a good night.

[Operator:]

Ladies and gentlemen, we have reached the end of the question-answer-session. I'd like to turn the call back to Mr. Dimitri Kazarinoff for closing remarks.

[Dimitri Kazarinoff:]

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