XL Fleet Corp.
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Greetings. Welcome to the XL Fleet Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. And I’ll now turn the conference over to your host Jim Berklas, General Counsel and Vice President of Corporate Development for XL Fleet. Thank you. You may begin.

[Jim Berklas:]

Thank you. Good afternoon, everyone, and welcome to XL Fleet’s earnings conference call to discuss our fourth quarter and full 2020 results. So with me today are Tod Hynes Founder and President; and Dimitri Kazarinoff, Chief Executive Officer.

[Tod Hynes:]

Thanks, Jim, and thanks to everyone for joining us on the call this afternoon. We’re extremely excited to be hosting our first earnings call as a public company, following the completion of our business combination at the end of last year. And we’re especially proud of our entire team for capping off the most successful year in our Company’s history. Before getting into our fourth quarter and full year financial results, I’d like to begin with a brief overview of our strategy and our value proposition customers. When we started XL Fleet more than a decade ago, fleet customers were looking for clean solutions that met their needs and made economic sense. Today XL Fleet is proud to be a leader in fleet electrification with over 4,300 cumulative units sold through 2020, hundreds of fleet customers throughout North America and over 150 million customer miles driven today. Our strategy to get where we are today was built on leveraging the way our customers were already buying commercial vehicles. We intentionally integrated seamlessly into the existing manufacturing process, offering electrification solutions installed during the normal course of vehicle production. By leveraging the way in which companies were already purchasing vehicles, we changed a little for the fleet owners while delivering them the sustainability and operational benefits they seek and upholding the performance, reliability they require. Since our founding, this strategy has allowed us to establish what we believe to be an industry-leading track record and trust with our existing customer base. These factors are paramount, given the critical nature of our fleet customers and their must run applications. Simply said, reliability is the price of entry in the commercial fleet market. And we’re proud of our proven history of delivering the reliability and performance our customers require.

[Dimitri Kazarinoff:]

Thanks Todd. I’d like to begin with a review of key achievements and milestones during 2020 and thus far in 2021. First, we delivered on our commitment, achieving record Company revenues for the fourth quarter and full year 2020, driven by continued growth in existing shipments. We generated positive gross margin, all while rapidly scaling our platform and navigating challenging market conditions and significant supply chain friction across the entire industry. Second we continue to increase the number of electrification solutions available for customers. This includes hybrid electric drive systems for the Class 5 Ford F-550 Super Duty chassis, where we began customer deliveries in the fourth quarter of 2020. We also announced expansion across a range of fleet vehicles from General Motors, including popular platforms from Chevrolet and GMC, such as the Silverado, the Sierra 2500 and 3500 heavy-duty pickup, as well as the Chevrolet GMC 3500 and 4500 cutaway chassis. All expansions were driven by customer demand and reflect XL Fleet’s ongoing ability to be nimble and responsive to customer needs. Third, we launched XL Grid in December and have seen substantial interest in the solutions we are developing on two fronts

[Operator:]

Our first question is from Greg Lewis of BTIG. Please state your question.

[Greg Lewis:]

Yes. Hi. Thank you. And good afternoon, everybody. Dimitri, I guess, first on tying out the second half versus the first half. And as we think about the impact that shortages and kind of that getting pushed out, is that something where -- and it kind of sounds like or is that something where it’s almost like Q1 and Q2, maybe become more like -- end up more in 2022 than the back half?

[Dimitri Kazarinoff:]

I’m sorry, Greg. You were breaking up a little bit there. If I understood your question correctly, I think you were asking if there’s risk that some of this demand actually pushes out into 2022, rather than the second half. And, I guess, my response to that is, certainly depends on how well the industry is able to deal with some of the current challenges. But, we are seeing opportunities beginning to emerge even here in Q2. And we do expect a significantly stronger second half of the year. We’ve got a number of commitments from some existing customers that are counting on their vehicle orders to be delivered in the second half. So, we do have some significant visibility to that. We do have a growing pipeline. So, compared to six months ago, we’re substantially up in terms of the total opportunity landscape. And so, that’s certainly a positive sign for us.

[Greg Lewis:]

Okay, great. Thanks for that, Dimitri. And then, I wanted to touch a little bit on the EV charging station at the Arena. Is there any way to kind of think about or frame that revenue opportunity, and kind of what that looks like? Is that more of an annuity stream or more of just an upfront deployment type of revenue number?

[Tod Hynes:]

There are really two opportunities coming together with arena deals. The core business that we’ve been expanding or we announced in December was XL Grid. And that provides comprehensive charging solutions, energy storage, solar, power management for fleets and their facilities. And what that enabled us to do with the arenas is also provide those same capabilities. But in addition to that, creating demand at those arenas for charging during the off peak time is part of the strategy. One of the benefits that arenas have is they have a lot of power and a lot of parking, which they don’t need most of the time. And so, by putting in the charging infrastructure and pairing that with electric vehicles and plug-in vehicles, they can use that infrastructure when the patrons are not parking there. It really creates an opportunity for recurring revenue and longer term revenue, as well as installation revenue or one-time install price. So, it is a combination and every deal will be unique. We have had a number of additional conversations. We’re actively working with other similar projects. So, every project will be different. And that’s part of the benefit of the holistic offering that we’re bringing, because we can adjust the offering based on the needs of the customer.

[Greg Lewis:]

Okay, perfect. Thank you for that, Tod. Have a great day gentlemen.

[Tod Hynes:]

Thanks, Greg.

[Operator:]

Our next question comes from Jed Dorsheimer of Canaccord Genuity. Please state your question.

[Jed Dorsheimer:]

I guess first, starting with revenue, if we could -- what was the split between hybrid and plug-in hybrid solutions, either by revenue or units, just rough numbers?

[Dimitri Kazarinoff:]

Yes, Jed. We continued to see a higher proportion of our revenue coming from hybrid system than plug-in hybrid in 2020. We did have significantly more availability in terms of models and chasses on the hybrid than the plug-in last year. We’re certainly seeing more opportunity for the plug-ins as we go forward. And we have announced additional models available with the plug-in systems, in particular on some GM heavy-duty pickup and cutaway chasses that we’re seeing a lot of interest for. Really for us, one of the great things about our strategy is we’re not dependent on that split or any one technology and architecture. We’re focused on developing a suite of solutions that really meet the needs of specific applications. And so, as we’re still at kind of this narrow end of the wedge where the principal competition is internal combustion engines, gas and diesel, these kinds of solutions are great first step for customers on their way to full electrification.

[Jed Dorsheimer:]

No, I get that. And I appreciate that. So, I think it’s -- the vast majority is on the hybrid. The reason I was asking though is obviously there’s the ASP is twice that in the plug-in, in terms of -- so from a revenue and unit perspective, it seems like the quickest way to see revenue growth would be to shift some of the hybrid over to the plug-in hybrid. Am I thinking about that correctly?

[Dimitri Kazarinoff:]

Well, I think, the way to think about it is, with the diversity of applications in the commercial vehicle space, there’s lots of opportunities to grow both of them, as well as pure electric drive systems, which will be an even higher average selling price. We’ve got those in development. We’ve got multiple development programs, including the one with Curbtender that’s been previously announced. Those programs won’t be hitting volume introduction until 2022, but that’s part of the long-term growth plan for the Company. And in particular, we’re also going to get back into the market here in California in Q2 there’s a lot of pent up demand for these solutions in California. And so, we look forward to growing the volume across the range of offerings that we have.

[Jed Dorsheimer:]

So, I guess, then maybe we -- I’m trying to reconcile the 90% drop in revenues Q4 to Q1. Could you maybe help with the backlog? Because backlog shouldn’t be affected. And if I look at the shortages from a chip perspective, I’m not seeing a drop that that’s significant in terms of industry numbers. So, how should -- is it -- were things pulled into Q4 or are they just being pushed out into Q3?

[Dimitri Kazarinoff:]

Yes. As we mentioned, the OEMs have actually shut off their order books. And so, while overall, the industry volumes maybe have dropped off to the degree that you might think, for a number of these customers and our customers, their ability to get any delivery of vehicles has been impacted. So, we typically see a lull in terms of the sales and delivery. Most orders are placed in the first half of the year and a lot of the vehicles deliveries come in the second half of the year. We’ve seen that for some time. And what’s happening with the pandemic is kind of accelerating or accentuating that characteristic here in 2021.

[Tod Hynes:]

And parts of what you’re seeing -- just to add a little bit. Part of what you’re seeing is carryover from last year. Disruptions from shutting down facilities due to COVID last year changed everybody’s production and ordering patterns. So, there were some large orders for GM and Ford, which accelerated the posing of that order book as Dimitri mentioned. Now, normally OEMs will retool their factories in the summer. So, they stop taking orders in the kind of late spring time or early summer. And they -- this year, they did I think a record pace in terms of January timeframe. So, there is still some disruption that’s going on with production cycles and then the buying cycles from customers as well.

[Dimitri Kazarinoff:]

And Jed, if you look at the split of revenue last year, we did over 80% of the revenue in the second half. And that was because a lot of fleets put their orders in for vehicles in the first half and deliveries happened in the second half. That same dynamic is at work here. And because of, yes, the shutdown in, ordering with a couple of the major OEMs, that dynamic is still at work. We are expanding our offerings on more models and more vehicles. We’re going to take advantage of that in the second half. And so, that’s really what’s behind the dynamic.

[Jed Dorsheimer:]

Got it. That’s fair. I just think that from a seasonality perspective, the expectation is that this is more of a growth story than a value story. And that’s where my questions were coming from. Two more if you’d indulge. I guess, just -- Todd, in terms of the value proposition, I was wondering if you could maybe unpack the XL Grid a bit more. It sounds like that’s a great win for you guys. It sounds like the infrastructure package is going to be positive for you. If you wouldn’t mind just talking about how we should think about the economics associated with that business, I think that would be helpful. And then, I have one more follow-up.

[Tod Hynes:]

The way that we’re setting up XL Grid is to really meet the needs of commercial fleets and helping them assess their facilities, what charging infrastructure is required, what are opportunities for onsite solar storage, clean electricity supply, power management, so that they can effectively transition to as much electrification as possible at the given facilities. So, we want to offer that à la carte, because some customers may only need charging stations, some customers may only need some other piece of the offering. So, it will be available to customers and is available for charging already for direct purchase. And then, the other opportunity to reduce the upfront cost or eliminate upfront cost would be to package up everything and offer it as a service to the end customer, where it’s essentially done through a longer term, medium term contract, which would enable to recognize that revenue over time, or you can sell off that asset either to an SPB or to a financial investor that wants to finance it. So, there’s plenty of options for us to pursue. And I think, one of the best parts about the business model is that we have that flexibility. We have the capital on our own balance sheet to do early stage financing and initial development work. And that’s part of what we identified in our use of funds under the electrification of the service budget. So, there’s a $80 million budget to support the deployment of not only the charging and energy grid -- XL Grid assets but vehicles as well.

[Jed Dorsheimer:]

I’ll jump back in queue. Thanks.

[Tod Hynes:]

Thanks. We have reached the end of the question-and-answer session. And I will now turn the call over to 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, and you may disconnect your lines at this time. Thank you for your participation, and have a great day.