Xos, Inc. (XOS) has reported a positive gross margin for the fourth consecutive quarter in its second-quarter 2024 earnings call, with revenues reaching $15.5 million. The electric vehicle manufacturer delivered 90 units, primarily StepVans to fleet customers like UPS and FedEx (NYSE:FDX) Ground contractors, and also saw strong sales activity for its Hub mobile energy storage and charging product.
Xos is experiencing robust demand and expects higher volumes in 2024. Despite a negative free cash flow of $26.1 million, attributed to unfavorable changes in working capital, the company is focused on improving its financial position and reaffirmed its full-year 2024 guidance.
Key Takeaways
- Xos reported $15.5 million in revenue and a positive gross margin for the fourth quarter in a row.
- The company delivered 90 units, mainly StepVans, and saw strong Hub sales.
- Xos expects 2024 volumes to surpass those in 2023, with increased product demand.
- The company is working on scaling production, reducing costs, and improving margins.
- Xos reported a negative free cash flow of $26.1 million due to higher accounts receivable and inventory balances.
- Full-year 2024 guidance includes revenue between $66.7 million and $100.4 million, and delivery of 400 to 600 units.
Company Outlook
- Xos is focused on capital efficiency and a path to profitability.
- The company is pursuing additional powertrain partnerships and expanding its product offerings.
- Xos expects to stabilize accounts receivable and inventory balances in future quarters.
Bearish Highlights
- The company experienced a significant increase in negative free cash flow, from $14.6 million to $26.1 million.
- Higher accounts receivable and inventory balances contributed to the negative free cash flow.
Bullish Highlights
- Xos is positioned for growth with increasing deliveries and a diversified product portfolio.
- Strong interest from large national accounts is expected to grow the sales backlog.
- Xos is actively working on new deals and adaptations to its Stepvan platform.
Misses
- Despite revenue growth, the company still reported a non-GAAP operating loss of approximately $19 million for the first half of the year.
Q&A Highlights
- Xos is close to reaching a production capacity of two Hubs per week.
- The company anticipates sequential revenue growth and an increase in revenues for the second half of the year.
In conclusion, Xos, Inc. is demonstrating a strong trajectory in the electric vehicle market with its continued positive gross margin and growth in unit deliveries. The company is making strategic moves to expand its product offerings and partnerships while also addressing its cash flow challenges. With a reaffirmed guidance for the full year, Xos is signaling confidence in its future performance.
InvestingPro Insights
Xos, Inc. (XOS) has shown resilience in its revenue growth, as evidenced by the latest figures from the last twelve months as of Q2 2024. The company's revenue surged by an impressive 119.67%, indicating a strong market demand for its electric vehicles and energy solutions. This performance aligns with the company's expectations of higher volumes in 2024, as mentioned in their earnings call.
InvestingPro Tips highlight that Xos may face challenges with its financial health, particularly regarding its ability to make interest payments on debt and its quick cash burn. This is a crucial consideration for investors, as it could impact the company's long-term sustainability and growth prospects. With Xos not expected to be profitable this year, according to analysts, and a negative free cash flow reported, these concerns are underscored.
Despite these challenges, Xos has a high shareholder yield and liquid assets that exceed its short-term obligations, which could provide some financial flexibility. However, the company's stock price has been quite volatile, with significant declines over the last month, three months, and six months, reflecting investor sentiment and market conditions.
InvestingPro Data shows a market cap of $43.14M, which, while modest, suggests room for growth as the electric vehicle market expands. The P/E ratio stands at -0.71, and the price/book ratio at 0.73, which might attract investors looking for potential undervalued opportunities. However, the negative operating income margin of -104.13% indicates that the company is currently not generating profits from its operations, which is a critical area for improvement.
For detailed analysis and additional tips on Xos, investors can explore 16 more InvestingPro Tips at https://www.investing.com/pro/XOS, which provide a deeper dive into the company's financial health and market position.
Full transcript - Xos Inc (XOS) Q2 2024:
Operator: Greetings, everyone, and welcome to Xos, Inc.'s Second Quarter 2024 Earnings Call. At this time all participant lines are in 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 today's conference call is being recorded. At this time, I'd like to turn the floor over to the General Counsel of Xos, Christen Romero. Thank you. You may begin.
Christen Romero: Thank you, everyone, for joining us today. Hosting the call with me are Chief Executive Officer, Dakota Semler; Chief Operating Officer, Giordano Sordoni; and Acting Chief Financial Officer, Liana Pogosyan. Ahead of this call, Xos issued its second quarter 2024 earnings press release, which we will reference during the call. This can be found on the Investor Relations section of our website at investors.xostrucks.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.xostrucks.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 second quarter 2024 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.
Dakota Semler: Thanks, Christen, and thank you, everyone, for joining us. On today's call, I will cover highlights from the second quarter of 2024, during which we generated $15.5 million in revenue, delivered 90 units, and achieved our fourth consecutive quarter of positive gross margin. Gio and Liana will then provide operational and financial updates, respectively. Starting with sales and deliveries, revenue is up 18% quarter over quarter and 227% year over year. The majority of our 90 units delivered were StepVans for fleet customers, namely UPS and FedEx Ground contractors, supplemented by powertrain sales to Blue Bird (NASDAQ:BLBD), and Hub sales to multiple new customers. We expect 2024 volumes to be meaningfully higher than 2023 and similarly weighted towards the second half of the year as customers respond to incentives and charging infrastructure comes online. Demand for Xos products remained robust throughout the year. In May, we attended the industry's largest conference, the Advanced Clean Transportation Expo, where potential customers demonstrated strong interest in both our vehicles and our latest generation Hub. In addition to our own booth, Xos technology was also on display by Blue Bird, one of the largest school bus OEMs and a leader of EVs in the sector. We announced our exciting new powertrain partnership with Blue Bird during the quarter and at the show, they displayed a pair of parcel delivery chassis built with Xos powertrains. Blue Bird's decision to partner with Xos and showcase our powertrain underscores our reputation as a leader in EV technology. The partnership resulted in significant attention to Xos products. Over the course of the show and weeks that followed, the Blue Bird partnership came up repeatedly with both fleet buyers and industry insiders as a vote of confidence in Xos's technical capabilities and the company's future. Turning now to our charging products, where we are experiencing stronger-than-expected sales activity, the Hub, Xos's mobile energy storage and charging product, is filling gaps felt by customers. They recognize the value of pivoting their fleets and equipment away from fossil fuels but have to confront the realities of lagging permanent infrastructure installation timelines, limited charging options in remote locations, and the complexity of accessing grid power from work sites. This quarter, Hub sales were particularly strong with firms outside our Stepvan customer base, including a large government fleet. Operators across the industries are demonstrating a clear need for more flexible charging solutions, and we expect that charging solutions will grow into a robust part of Xos's overall business. The strength of the sector is evidenced by the attention it received at the ACT Expo this year, where more than a dozen firms showcased combined charging and energy storage products. We view the increased number of options as a healthy evolution of the EV market and ultimately beneficial for Xos. As the first mover in the space, the Hub has a strong sales pipeline and is a mature and cost-competitive product. New market entrants are bringing more visibility to the product category than Xos alone can generate, and also provide alternate paths for customers to discover Xos and our products. Most importantly, the advancement of alternative charging options will support faster adoption of our vehicles and expand the EV market to include more of the fleets without access to traditional permanent chargers. For more detail on how we are fulfilling the strong demand for Xos products, I'll hand it over to our COO, Gio, for an operational update.
Giordano Sordoni: Thank you, Dakota. Xos's engineering, supply chain, and manufacturing teams remain focused on scaling production and delivering further margin improvements. Our engineers are developing a longer 208-inch wheelbase variation of the Xos Stepvan to support a wider range of bodies requested by our customers. In fact, we've already secured signed sales orders for this new variation. Some of the first units will be delivered to Mission Linen as part of the order that we announced in the first quarter. Lengthening the vehicle is a relatively simple change, with efforts primarily focused on changes to the frame rails, extensions to wiring harnesses, and durability testing of the updated chassis. This means we're able to launch the new variant quickly and with minimal R&D investment. We expect the new long wheelbase Stepvan to be in customer hands by the first quarter of 2025. Also, within engineering, our software and controls team have made improvements to our connectivity platform that will translate into cost savings on both complete vehicles and powertrains. As commercial vehicle customers begin to expect features like over-the-air updates and real-time telemetry, our in-house software capabilities have differentiated Xos as both a vehicle manufacturer and a technology partner to legacy OEMs. Furthermore, our teams continue to find opportunities to grow our margins by reducing direct costs. This quarter, Xos brought a greater portion of logistics for our completed chassis in-house, which translates to lower costs overall. Our manufacturing team is focused on scaling vehicle production efficiently, integrating Hub and powertrain production to the factory floor. As I mentioned last quarter, we're preparing for production rates of up to 8 Hubs per month in 2024 alongside our Stepvan and powertrain volumes to satisfy strong demand from existing and new Xos customers. As a final note, we're tracking the potential tariff changes that could impact our China-sourced components. Xos is preparing for any such development by identifying alternative sources and exploring tariff mitigation strategies. At this point, we do not anticipate significant tariff-related disruptions or impediments to our production schedule, but we will continue to monitor any developments in this space. With that, I'll pass it to Liana.
Liana Pogosyan: Thank you, Gio. For the second quarter, our revenue increased to $15.5 million from $13.2 million in the first quarter of 2024, primarily as a result of our increased deliveries. Our costs of goods sold during the quarter increased to $13.5 million compared to $10.4 million in the first quarter. GAAP gross margin during the quarter was a profit of $2 million, or 13.1%, compared to a profit of $2.8 million in the first quarter, or 21.2%. The first quarter's GAAP gross margins included beneficial adjustments related to our inventory reserves and inventory accuracy processes. GAAP gross margin during the second quarter was negatively impacted by lower average selling price due to product mix, write-off of excess materials, and adjustments to our reserves due to overall higher inventory balances. We continue to see margin improvements in our Stepvans as we realize the efforts of our engineering, supply chain, and manufacturing teams. We have been able to work with our suppliers in reducing the cost of several critical components as we scale production, leading to lower direct material costs for each unit. Additionally, our engineering and production teams continue to gain efficiencies in the design and build of our Stepvans, reducing labor costs while increasing the durability and reliability of each unit produced. It should be noted that GAAP gross margins for a vehicle OEM are impacted by a range of reserves that, combined with changes in the sales mix between direct, dealer, and prior model inventory sales, introduced higher levels of volatility in quarterly results. We continue to share a consistent non-GAAP gross margin that adjusts for inventory reserves and physical inventory and other related adjustments that you can find in today's earnings press release. Turning to expenses. Our second quarter operating expenses of $13.4 million remains broadly in line with the first quarter's figure of $13 million. Non-GAAP operating loss for the second quarter was $9.7 million. GAAP operating loss was $11.4 million. Excitedly, our operating profitability is following a promising trajectory. Following last year's efforts to reduce spending on noncore projects and the release of the current Stepvan platform, our non-GAAP operating loss improved to negative 63% this quarter from negative 357% 1 year ago. We expect to see continued improvements over the coming quarters as our volumes grow and our operations teams continue to identify and implement cost-saving changes to our products. Turning to the balance sheet. We closed the quarter with cash and cash equivalents and restricted cash of $20.7 million, compared to $47.3 million at the end of the first quarter. The reduction in cash above our historical trends was primarily the result of our elevated accounts receivable balance of $29.7 million at the end of the quarter, compared to $20.3 million in the first quarter. This resulted from a concentration of deliveries made at the end of the quarter, as well as a temporary buildup in government incentive receivables. The substantially higher deliveries we expect to make in the second half of the year also played a role as inventory increased to $41.4 million in the current quarter from $36.6 million in the first quarter to support higher production rates. We have taken steps to improve our incentive collection processes and expect our accounts receivable and inventory balances to stabilize over the coming quarters. In addition, we are actively pursuing options for nondilutive working capital to fund the growth of our business and preserve liquidity. Relatedly, operating cash flow less CapEx or free cash flow of negative $26.1 million for the quarter was a decrease from negative $14.6 million last quarter. Unfavorable changes in working capital driven by higher accounts receivable and inventory balances and lower margins this quarter contributed to the increase in negative free cash flow. Based on the initiatives we discussed, we expect to see more favorable changes in working capital in the coming quarters. Finally, we are reaffirming our full year 2024 guidance of revenue in the range of $66.7 million to $100.4 million, a non-GAAP operating loss of between $43.7 million to $48.7 million, and 400 to 600 units delivered. I'll now turn the call back over to Dakota.
Dakota Semler: Thank you, Liana. To wrap up, Xos is positioned to win. We are growing deliveries, demonstrating our leadership in commercial EVs via partnerships with established OEMs, powering forward with a strong margin trajectory, and building a self-sustaining business. Diversifying our product portfolio by leveraging our Stepvan technology to satisfy unmet demand for powertrains and Hubs is adding to our strong backlog of Stepvans. Our technology portfolio and highly competitive pricing has made us a partner of choice for OEMs like Blue Bird. Our relentless focus on capital efficiency and cost reductions translated into four consecutive quarters of positive gross margin this year and continued progress in the company's path to profitability. With that, let's open the line for questions.
Operator: [Operator Instructions] And our first question today comes from Mike Shlisky from D.A. Davidson. Please go ahead with your question.
Mike Shlisky: Good afternoon. Thanks for taking my questions. So folks, if I'm looking at this correctly, given the $9.7 million non-GAAP operating loss in 2Q, roughly what you saw in the first quarter, you still expect to have the $43 million to $48.7 million loss for the full year. But you've got revenue increasing in the back half. So curious, what's dragging on income in the back half here? You have sales increase and pretty good momentum in most areas. What should we expect to be a challenge in the second half from a profitability perspective?
Dakota Semler: Yeah. So we can start, and I can address your first part of your question, Mike, which is why the high increase there in Q2. First, that was driven really by a ramp-up in inventory spending because of the demand for orders that we're seeing in the second half of the year. The other component, as Liana touched on, is really those collections of government incentives. So a number of our customers get the benefit of state, local, or federal subsidies, some of which are paid out on longer terms, might go beyond the traditional net 15 or net 30 terms that we have with our customers. And so some of those carry across into the second quarter or into the third and fourth quarter for vehicles delivered at the end of Q2. And a big part of that has just been our ability to collect against those receivables for those government incentives, where they operate by a different set of terms than what our standard customer terms and conditions apply. When we're looking at our guidance for the rest of the year, we are very, very confident in staying within the realm of our guidance at the volume level or at the unit level. And that's where we're driving our operating loss assumptions and our gross margin assumptions for Q3 and Q4. So ultimately, we do expect that we'll recover a lot of the cash that came from those incentives for vehicles delivered in the first half of the year in the second half, as well as convert that work in process or the dollars used to purchase inventory into finished goods and ultimately sell those vehicles to customers in the second half of the year. It's a process that we've been continuing trying to improve and hone, but ultimately something that I think will only get better in the quarters to come.
Mike Shlisky: Okay. Might follow-up on that one offline. You didn't mention much in the prior comment about the sales pipeline and the backlog that you might have. Can you comment on existing customer interest, new customer interest, and where you think things are headed into 2025 here?
Dakota Semler: Yes, absolutely. So even in the macroeconomic context right now, where we've seen a little bit of a slowdown in the broader EV sector and a slowdown in growth, not a slowdown in overall sales, we continue to see strong interest, particularly from large national accounts. I would say sales closed in the second quarter have skewed more towards our large national accounts than our smaller regional accounts. And there are several factors that are influencing that. One is just the cost of capital right now for a lot of those smaller fleets. When they're looking at capital financing or lease financing of these vehicles, the interest rate market today is elevated, and that's driving some of the slower purchasing rates we've seen in the small and regional fleets. But on the national fleet side, we're still seeing strong demand, and many of the customers are trying to meet some of the implementation timelines for regulations such as the Advanced Clean Fleet Rule in California. So a lot of our customers, the big parcel delivery customers, we highlighted two of our largest groups of deliveries, which is UPS for Q2 and then obviously FedEx Ground contractors, both of which are ramping up orders pretty significantly to comply with that ACF regulation. And we expect that will continue to grow in the years to come as more states adopt some form of ACF locally or a combination of ACF or ACT regulations. So overall, sales backlog continues to grow. And as we touched on, there's other products that are now coming into the fold, like the Xos Hub and our powertrains business, powered by Xos, that are also starting to add into that backlog. And we expect those will continue to grow over the quarters to come as there's still strong, strong interest in electrifying those school bus industry and the school bus platform in the broader commercial vehicle and specialty vehicle space.
Mike Shlisky: Great. Maybe one last one for me to follow up on your Blue Bird comments. Are there other potential powertrain partnerships that you're looking at beyond Blue Bird and Winnebago? And I guess I'm curious to see if -- and Gio, you mentioned you made the longer wheelbase version on a relatively inexpensive way. So it's a bit of an adaptation. Are the products you're looking at to go into further adaptation from here, or do you have anything newer, more radical, or even larger in the pipeline here?
Giordano Sordoni: Yeah. The powertrain team remains active, and the deals that we've announced with Winnebago and Blue Bird definitely adds some momentum there. So there are other things we're working on that we can't quite share yet. And then, while the variations to the Stepvan, whether we make the Stepvan a bit longer or a bit shorter, that does tend to open up some new customer avenues, both on a Stepvan body platform and also to other powertrain customers that might be more interested in some of those adaptations for their particular use case. Of course, in the past, we had talked about medium-duty and heavy-duty trucks as well. Those are still things that we think make a lot of sense in certain environments. But right now, our core focus is the electric chassis for delivery vans, our powertrain unit, as well as the Hubs.
Mike Shlisky: Great. Thanks for answering my questions. I appreciate it.
Operator: [Operator Instructions] Our next question comes from Donovan Schafer from Northland Capital Markets. Please go ahead with your question.
Donovan Schafer: Hey, guys. First, I want to just follow up on Mike's first question about the guidance. I can imagine a lot of possibilities, but I think what he's getting at is, not on a cash basis because, of course, on a cash basis, the changes in working capital could make Q2 a larger cash-consuming quarter. But on an accrual accounting basis, since you're giving us -- for the outlook, you're giving revenue and a non-GAAP operating loss, which there's adjustments there, but it's still more accrual than a cash flow type number. So in order to square the revenue guidance and the operating loss guidance, it seems like either ASPs would have to come down, or I guess I'm thinking maybe gross margins -- it seems like gross margins maybe would have to come down. So is there something like that that you see in Q3 and Q4, gross margin compression or operating expense increasing more materially? Is that something you've identified and seen, or is it more just from a conservatism or a consistency standpoint, you just have a desire to stick with what you initially put out, just reiterating as a way of being cautious or conservative?
Liana Pogosyan: Thanks, Donovan. With respect to the non-GAAP operating loss, I would say, our overall guidance is on the conservative basis. As you can see in the non-GAAP operating loss for the 6 months ended, we were at about $19 million, and we would expect that same or better trajectory for the second half of the year.
Donovan Schafer: Okay. Actually that’s very helpful. Thank you. And then as a second question, focusing just on the revenue piece of it, we've talked in the past that I think the belief or expectation is that you hope to be able to have sequential revenue growth each quarter. So now that we're in August, just wanted to double-check and see if that's still the thinking that you still think Q3 will be higher than Q2 and Q4 will be higher than Q3, if that's the anticipated pattern, or if there's anything from a seasonal or a timing standpoint where Q3 would be the bigger quarter versus Q4?
Liana Pogosyan: I think that, directionally, how you're thinking is correct. You should expect to see a sequential increase in revenues. I think one of the key aspects also with respect to revenue is average selling price, which there is some variability between quarter to quarter. But one of the things that I think is also important is with respect to the product mix, not only within our Stepvan product, but also within Hubs and as well as powertrains there is that variability from period to period. But sequentially, there should be an expectation of an increase.
Donovan Schafer: Okay. And then one last one, if I can squeeze it in, is just with the Hubs, last quarter, we talked about ramping the ability to manufacture Hubs for the second half of the year. I think the goal was four Hubs per month, I believe, correct me if I'm wrong on that. But that was the goal for the second half. Just curious if we can get a specific update on where we're at, if you've hit that capability of four per month or not. And then if you have that capability or just in general, what is the run rate right now, yeah, run rate of production of the Hub?
Giordano Sordoni: Yeah, Donovan, appreciate the question. The Hub line setup has gone really well, and we are building Hubs more consistently. Our supply base is caught up, and so we're really happy with all the progress on the Hub line. We aren't at -- so eight hubs per month is two per week. We're not quite getting all the way up to two per week every single week, but we are just about to be there. So often, it'll be 1.5-plus per week, and then the next week, we'll get out two. So, more or less, at least by the end of the month here, we'll be at two per week and reach that capacity.
Donovan Schafer: Fantastic, all right, thanks guys. We'll take the rest of my questions offline.
Giordano Sordoni: Thanks.
Operator: And ladies and gentlemen, at this time, I'm showing no further questions in the queue. Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may now disconnect your lines and have a wonderful day.
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