Xos, Inc. (XOS) Q2 2022 Earnings Report, Transcript and Summary

Greetings and welcome to Xos Inc's Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Xos' General Counsel, Christen Romero. Thank you. You may begin.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call with me today are Xos' Chief Executive Officer, Dakota Semler; Chief Operating Officer Giordano Sordoni; and Chief Financial Officer, Kingsley Afemikhe. Ahead of this call, Xos issued its second quarter 2022 earnings press release and the presentation, which we will reference today. 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 2022 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. Participants should be cautioned not to put undue reliance on forward-looking statements. With that, let me turn it over to Dakota.

Thanks, Christen, and thank you, everyone, for joining us today for our second quarter 2022 earnings call. We are excited to update you on another quarter of growth in both deliveries and revenue for excess. During our call today, I'll cover the business highlights we had over the quarter and also update since the end of the quarter, including the additional fundraise we announced today. Gio will provide you an update on our manufacturing progress, as well as details on our recent engineering partnerships. And to wrap up, Kingsley, will provide you with a detailed review of our second quarter financial results and our outlook for the second half of 2022. But first, I would like to give you a brief reminder on our mission and the problems we are solving for fleet customers. At Xos we are focused on providing the most durable and reliable electric trucks with purpose-built battery and power train technology designed specifically for the rigors of demanding commercial fleet applications. Our proprietary technology allows fleets the ability to unlock total cost of ownership or TCO savings unmatched in the industry. On top of that our energy services, such as the Xos Hub and Xos charters help fleets remove roadblocks for electric vehicle adoption by enabling fast high-power charging for our customers. Our customer success initiatives, including our charging solutions and fleet management platform enable fleets to seamlessly transition to electric vehicles while remaining focused on reducing total cost of ownership. Our efforts in building a robust sales and customer support organization are continuing to pay off, as our revenue for the second quarter of 2022 was $9.8 million, up roughly 40% compared to the first quarter of 2022. We also announced some new partners during the second quarter. We entered an e-Axle partnership with Allison Transmission, a leading supplier of transmissions and gear systems for the commercial vehicle industry to develop vehicle and power train technology. We are also working with Thermo King, a leading manufacturer of transport refrigeration units to develop zero-emission PRU systems for commercial fleet operators. Some of the highlights of our expanding customer relationships include the delivery of vehicles to FedEx Ground operators in Canada making them the first Canadian-based Xos customer delivery of 58 vehicles to merchant fleet and initial delivery to help them reach their goal of deploying 40,000 electric vehicles. In addition to expanding, our customer relationships and deliveries, we have broadened our distribution network to put more trucks on the road. As I'm sure you all saw last week, we recently announced that we have signed a dealership agreement and made initial deliveries to Gabrielli Truck Sales, marking the entrance of our dealership distribution network into the Northeast region. With this new dealership agreement Xos vehicles will now be available across New York New Jersey and Connecticut. This is an exciting opportunity for Xos, as we continue to build upon our already strong dealership distribution networks in the United States. It will also ensure, we provide industry-leading support to commercial and municipal fleets in the region, with the leading dealership group as our partner. We continue to work closely with all of our dealership partners in 10 different states, and multiple locations to provide coverage to areas where Xos does not already have existing support and distribution services. We expect our regional distribution and service footprint to continue to grow significantly, as we make inroads with new fleet customers and service providers throughout the country. Our focus over the second half of 2022 is optimizing our supply chain and manufacturing operations to build profitable vehicles, as we continue to scale. We also plan to commence manufacturing of our industry-first charging solutions, such as the Xos hub, which will enable rapid deployment of charging infrastructure for fleets. In addition to our focus on customer and delivery growth, Xos has continued to build stronger partnerships with our existing strategic partner The e-Axle [ph] Automotive Company. The e-Axle Automotive Company has been an incredible partner in Xos growth through direct investment and facilitating commercial relationships with global fleet customers. The e-Axle Automotive Company continues to invest into Xos through an adjoining convertible which Kingsley will discuss in a moment. In May, during our Fleet Week event, we launched Xosphere, our Fleet Intelligence software platform, which helps our customers minimize the TCO for electric fleets. Our fleet management platform is the most connected vehicle ecosystem for electric trucks available today. This platform is already in use by customers, including our launch customer UniFirst, who's using the platform to track the health of its fleet in real-time. We also showcased two new trucks to service Class 6, 7 and 8 fleet customers. The MDXT platform is a Class 6 or 7 medium-duty electric vehicle that can travel up to 270 miles on a single charge. We are proud to have Republic National Distributing Company one of the nation's leading wholesale beverage distributors as a launch partner. The HDXT on the other hand is a Class 8 heavy-duty tractor designed for regional haul fleets and can travel up to 230 miles on a single charge. McLean Company a leading supply chain services and distribution company has agreed to a pilot program with 10 HDXT vehicles. The launch of these new platforms will continue to help Xos accomplish its objective to build the fleet of the future with our innovative solutions to produce platforms that go farther last longer and provide a more cost-effective vehicle for all of our customers. Finally, I would like to touch on the recent climate bill that the Senate approved this past Sunday. The climate bill includes an estimated $369 billion in expenditures related to climate change and energy security including tax and other incentives to promote production of electric vehicles in the United States. We believe that this bill can provide an exciting opportunity to help grow our customer base and accelerate the decarbonisation of commercial transportation in the US. We are excited to have more support not only from the federal government but also incentives from states such as California, New York, New Jersey, Massachusetts, Minnesota and Texas. With that, I will now turn the call over to Gio.

Thanks, Dakota. Key areas of focus for us over the quarter have been enabling the acceleration in step van deliveries and improving our cost structure, while laying the groundwork for better gross margins. We continue to accelerate the rate of production of both vehicles and battery systems despite supply chain headwinds. Given the supply chain environment, we've been taking on inventory of key components as a way to de-risk vehicle deliveries and we've set ourselves up for growth over the coming quarters. This front-loading of inventory is temporary and we anticipate being able to move closer to just-in-time inventory management as the supply chain environment improves. Our automated battery assembly line at Flex one in Tennessee is producing its initial battery packs. Scaling up this line will be an important step in cost reduction on the Lyra Series battery, both in labor and logistics and it will allow battery production to catch up to chassis assembly which takes place in the same facility. This automation project has come in under budget and we remain focused on capital efficiency as we scale up. We've also continued to make improvements to our information system that will allow us to scale, while controlling the quality of our vehicles and battery systems. The supply chain, manufacturing and engineering teams are working closely on reducing the cost of producing our step-up. We have a clear path to begin delivering gross margin positive units in the first half of 2023. These plans include engineering and design changes to optimize the step-in architecture through more efficient packaging, part count reduction and sourcing more content domestically. The supply chain team under Steve Ivsan’s leadership has been focused on re-shoring efforts and entering into long-term agreements with key suppliers to bring costs down. The Xos manufacturing team remains focused on reducing the amount of time it takes to build a vehicle from flowing quality parts to our plants, assembling those parts into a chassis, installing bodies and supporting customer delivery. We feel confident in the adjustments we're making and the team's ability to execute on these important cost reduction initiatives. In addition to cost reduction efforts, we're also supporting additional vehicle deliveries by helping our fleet customers overcome charging infrastructure challenges. These challenges can range from permitting delays for charging infrastructure, long lead times on the equipment itself, project complexity for high-power depot charging and the expense of traditional DC fast charging options and associated construction costs. While these realities threatened to limit the rate of electric truck adoption across the entire industry, Xos is well positioned to help fleets overcome these challenges with a suite of charging products and services. We recently began offering 30-kilowatt DC fast chargers that are easy and affordable for fleets to install. We've also made great progress on the Xos Hub. The hub is a mobile charging station that can be used to charge five electric trucks simultaneously, while minimizing the power draw from the electric grid. The Xos Energy team helps fleet choose the right charging solutions for their depots and assists with getting that equipment installed. And finally, we're extremely proud to have announced key strategic partnerships with industry leaders in their respective fields Allison Transmission and Thermo King. We announced our partnership with Allison Transmission for the development of power train systems on our heavy-duty products in early May. The partnership with Allison Transmission is already off to a great start and they have delivered the initial eGen Power e-Axle hardware for integration validation and testing in the heavy-duty vehicle platforms that are designed and built by Xos. We continue to work closely with Thermo King to integrate their zero-emission refrigeration technology for vehicles to support applications like beverage and food delivery. So in summary, we continue to believe that we're on the right path to make significant progress in scaling our business and we are proud of the team's hard work during the quarter. The opportunity for clean fleet and logistics solutions in both the public and private sectors remain immense. And we expect to continue to benefit from the secular shift to a net zero carbon economy. I'll now pass the call over to our CFO, Kingsley Afemikhe.

Thanks Gio and good afternoon everyone. Good to be back again. Xos is making good progress in growing deliveries and establishing the systems we need as we scale. I will review our financial performance for the second quarter, our balance sheet and liquidity and conclude with our outlook for the second half of the year. Our revenue for the second quarter increased by roughly 40% to $9.8 million compared to $7 million in the first quarter of 2022. This was in-line with our guidance and was driven by an increase in units delivered by roughly 30% to 73 units compared to 56 in the first quarter of the year. Our cost of goods sold for the quarter was $14.9 million compared to $10.2 million in the previous quarter. Gross margin during the quarter was a loss of $5.1 million compared to a loss of $3.2 million in the previous quarter. We expect to be gross margin positive at the unit level in the first half of 2023. This will be driven by reductions in unit material costs due to our ongoing engineering programs, the benefits of the increased scale, and also opportunities for price increases on the back of strong end user demand. As Gio mentioned, this is a core area of focus for all our operations and we are engaging with all divisions within the company to drive efficiencies at scale. Turning over to expenses. Our second quarter operating expenses were $22.7 million compared to $20.3 million in the first quarter. Research and development expenses for the quarter were $7.6 million compared to $6.9 million in the first quarter. R&D expenses relative to revenue were lower for the quarter as detailed in our last call we expect this trend to continue over the rest of the year. Sales and marketing expenses were $3 million in the second quarter compared to $2 million in the previous quarter. Finally, general and administrative expenses for the quarter were $12.1 million compared to $11.3 million in the first quarter of 2022. Our non-GAAP operating losses were $25.8 million compared to $22.1 million in the first quarter of 2022. Our operating cash flow less CapEx or free cash flow was $51 million. $6.5 million of which was invested in purchase of property and equipment. As Gio mentioned, we now expect there to be significant savings in capital expenditure relative to our prior guidance and we expect cash use for PP&E in the second half of the year to be roughly in line with the first half. We closed the quarter with cash, cash equivalents and available-for-sale securities of $85.2 million, which includes $3 million of restricted cash. Over the second quarter, we raised $4.3 million in equity capital under $125 million existing equity purchase agreements with Yorkville Advisors. Subsequent to the quarter, we issued $55 million in convertible securities, $20 million to the Aljomaih Automotive Company, an existing investor, Dakota mentioned, in and strategic partner of Xos and $35 million in convertible securities to Yorkville Advisors. Pro forma for these transactions, cash, cash equivalents and available-for-sale securities at the end of the quarter would have been $140.2 million. We have made significant progress since the end of the quarter in focusing operations and reducing cash use. As Gio mentioned, a significant amount of our cash used for operations was an inventory or prepaid inventory build up. Having built up this safety stock, we will be making inventory investments selectively and we expect the rate of increase in our inventory position to fall. In addition, we are taking a number of targeted steps of focused programs to reduce overall expenses, benefiting from the in-build flexible and variable cost structure of our business. Finally, wrapping up with our business outlook. We continue to be focused on growing and delivering sequential growth in deliveries over this year. For the second half of 2022, we expect deliveries to be in the range of 150 and 200 units with expected revenues between 18.75 and $25.6 million. We also expect non-GAAP operating loss in the range of $43 million to $52 million. Thank you very much, and I will now turn you back over to Dakota.

Thanks Kingsley. Before we open it up for questions, I want to express a great deal of gratitude to our team for their incredible efforts and constant contributions to our success as well as our partners, customers and shareholders for their ongoing support. We remain optimistic about the future for Xos based on market growth, our technology platform and the exceptional talent we have here at Xos. I will now turn the call over to the operator to open the line for questions. Operator?

Thank you. [Operator Instructions] First question comes from the line of Mike Shlisky with D.A. Davidson. Please proceed with your question.

Okay. Good afternoon and thank you. Can we start off by maybe just talking about the cadence of the deliveries between the third quarter and the fourth quarter, just to confirm you're expecting sequential increases both quarters right from the prior, or are there unusual large chunks of shipments that might make that not happen this coming half?

Thanks Mike for the question. We are continuing to expect quarter-over-quarter sequential improvement in deliveries for vehicles. As you know we have some large fleet customers that take big bulky deliveries where it may not be 10 or 20 trucks. It might be a large volume of that quarter's portion of production. And so sometimes it can be chunky, but we're still focused on making quarter-over-quarter improvements.

Excellent outstanding. There were two terms on your -- in your prepared comments that I had not heard on 2Q conference call so far and that is just-in-time production and positive gross margins in the first part of 2023. So, congrats on both of those things. Can we discuss whether -- well, can we discuss the just-in-time production story, I mean obviously it's something to all manufacturers strive for. Once the supply chain is complete is that the -- it's just-in-time prepared to go, or do you have to have a little more volume to ensure that you can get the kind of maximum out of the operation?

Hey Mike, this is Gio. Yes, so we're working on both of those things. And like we said in our remarks have clear sight to achieving those within the first half of next year. As far as just-in-time inventory goes, I think it's too early to declare victory on some of our supply chain challenges. But as we noted, we've built up inventory and plan to move closer to just-in-time in the future. We are starting to see moderate signs of improvements and kind of light at the end of the tunnel from a supply chain perspective. Some of the key components that we're sourcing including some that involve chips have gone down from 52-week lead-times down to 26-week. That is one example of one of our -- the computers that goes on to the vehicle. So, we are seeing some improvement there and I'll pass it to Kingsley to answer the other part of your question.

Hey Mike, it's Kingsley here. Just following up on gross margins just to maybe take a level set, we always believe that this is a high gross margin business. And just to remind the group that we were a positive gross margin in our deliveries in first half of last year and also the year before that. This is a core area of focus for all of us in the company in a number of ways. First of all, we are selectively taking price action in the face of continued demand and that being well-received. Secondly, when you look at the R&D costs, yes, we're investing in new products. But a key part of our R&D is actually investments to reduce costs and to optimize the materials and working closely with Gio's team and supply chain. Finally, when you look across the supply chain way, we're having discussions with a number of long-term agreements with certain key components, we have executed a number of those earlier this year and that's what gives us the positive being positive -- about being positive gross margin towards the end of the first quarter -- first half of the year next year.

To follow-up to Kingsley I mean look you have had I think it was 15% positive gross margin in the past in certain quarters where you had somewhat low sales. Can you maybe ballpark for us the levels when you say positive are we talking about just above zero, or can you get back to those 15% at some point next year?

Yeah. And that's a good question, Mike. I think we're not going to go through that right now and can I give an exact guidance on that. But what we will say is that in the medium to long-term, we very much believe that this is a high-margin business particularly on our step down products. We have all gone through for the last year extraordinary supply chain disruption, which we as a company have coped with in the entire sector as well. And the actions that we're taking whether is restoring heads in North America, executing some long-term agreements, thinking through key parts of the firm and truck I think that we're taking that gives us the confidence that we will be a strong margin business.

Okay. Thanks so much for the color guys. I will pass it on.

And the next question is from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Thanks. Good afternoon, everyone.

Good afternoon, Jerry. How are you doing?

Doing well. Thanks. I appreciate the time Dakota and team. I'm wondering if we could just talk about what volume levels do you folks anticipate getting to gross profit positive in the first half of 2023. So sequentially, you folks are looking into at the midpoint increase production by about 50 trucks back half versus first half. Is that the same cadence that you envision first half 2023 versus back half 2022 to get to that gross profit positive bogie? Can you just expand on that if you don't mind?

Yeah. Absolutely, Jerry. Happy to give a bit more context on this. I think when we think about gross margin on a per unit basis, there's a few different components that comprise that. One is our direct material cost to our allocated costs and our overhead costs. And when we think about those on a direct material cost basis, we actually are really confident as Kingsley alluded to because of our long-term agreements with suppliers to be gross margin profitable and have really clear line of sight to that. I think that some of those other indirect costs that we see as being the levers that we need to turn and that ties directly into your volume question. It's not entirely volume dependent. As you know there's been some spikes and disruptions in the cost of freight or the cost of logistics over the past year. And some of those changes in indirect costs can impact our overall gross margin for each of those vehicles. So I don't want to guide to a specific number. But I think as we've mentioned before, we're going to continue to grow those deliveries quarter-over-quarter and really make sure that we're getting to a point where we can guide to a gross margin basis on a unit basis and then eventually gross margin for the quarter or for a period.

And Dakota just to make sure we're on the same page with you. When you say gross profit on a per unit basis, do you mean just the gross margin that we see for the company as a whole, or does that excluding any overhead? I just want to make sure I understand what you mean when you say gross profit positive on a per unit basis?

Hey, Jerry. Thanks, again. I'll take that. So when we're talking about gross margin on a unit basis we are including direct material costs, direct indirect costs, overhead freight all of that. The number you'll see on the GAAP financials have certain GAAP adjustments which are non-cash adjustments. So when we talk about unit basis we are including overhead.

Okay. Super. And then can you just give us a rough flavor out of the cost structure as it stands today within cost of goods sold, what proportion is fixed cost scalable overhead versus variable costs as we think about incremental margins?

Sure, absolutely. So when you look at the cost of the e-truck or our step-down products, I'd say roughly 70% of that is direct material costs. And that number moves around and sometimes it's a bit higher and it's slightly lower. And the rest are other overhead costs and freight and rents and so forth. And when we think about the pathways for the gross margin A: You're right we're amortizing more trucks fixed cost over more trucks. But in addition there are very specific programs that we have with our engineering team that we believe will significantly bring down the direct material costs. And Jerry that is the benefit of having core engineering capability like we have in excess. We're able to work across the whole company and focus on bringing down costs in all categories and not just amortized trucks fixed cost over more trucks.

Okay. I appreciate the discussion. Thank you.

Thanks, Jerry.

And the next question comes from the line of Dan Ives with Wedbush Securities. Please proceed with your question.

Hey, guys. Sam Brandeis on for Dan. A quick question. Within this macro environment, can you just talk about what the pipeline demand is looking for you guys right now? And kind of how you see it going forward as well in the next six to 12 months? Thanks.

Absolutely. Thanks for the question. So I think even in the supply chain environment, where we have continued to see disruptions to components that can go into vehicles, the existing industry has not been able to keep up with the demand for traditional commercial vehicles. And so what we've seen in the last quarter continuing into early 3Q is that demand has remained strong, particularly as replacement vehicle stock has been relatively low, customers are continuing to order more zero-emission vehicles. The other thing that we're starting to see is fleets are taking a more proactive stance and really trying to proactively plan procurement over the next few years as several emissions regulations begin to hit their different operations in places like California and some of the EPA changes that will put some of their trucks out of compliance. So demand has remained consistently strong over the quarter and we expect it to remain strong for the remaining half of the year.

Great. Thank you.

And the next question comes from the line of Donovan Schafer with Northland Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking the questions. I want to follow up on the emissions. California EPA stuff that Dan was just asking about. So I know – there's inflation reduction I have to say other incentives and that's kind of the favorite part of kind of the carats and sticks incentivization. But I wanted to deal with the sticks part of it. There's some niche things I think in California one of the emissions regulations is coming out sooner than later is around the reefer units the Thermo King like a tactic reefer units I think those need to start running on a dedicated electric source instead of auxiliary power running off of a diesel engine. So that has to get converted even before the vehicles do. And I believe you're able to provide batteries on a standalone basis battery module, just specifically for powering the load. Then you also have – let's say the small – other auxiliary loads could be affected I know California is rolling out legislation is going into effect against leaf flowers and other kinds of short-type products but there are – there can be auxiliary loads run on vehicles. So I'm curious if you can just give breakdown or give an update on what some of those sticks are kind of more specifically on when they might hit or when they can really drive? I know fleets can be planning for it now but just so we have the kind of full scope of what to monitor. Can you give an update there?

Absolutely. Thanks Donovan for that question. So we'll start really with the areas that powered by Xos our Powertrain division is focused on. So as you mentioned, the transport refrigeration unit industry is one of the first industries that's going to be impacted by new car regulation. And there are various requirements with different phase-in dates, the first of which being in 2023 that will require a zero emissions component which is going to have a huge impact on the refrigerated transport business and that does mean that there will actually be some diesel vehicles with a zero-emission transportation refrigeration unit. We're particularly excited about this opportunity because as you know, we have a relationship with Thermo King to co-develop zero-emissions transport refrigeration units for truck and tractor applications and to really bring their existing zero-emissions product line with our energy storage technologies to market in a way that's going to be compelling for fleets that operate in California. The other thing I'll add to that is look sets the standards for California, they also set a great deal of the standard process for EPA. And the EPA generally follows suit with similar regulations that impact the commercial transportation industries. So while TRUs are going to require zero-emission solutions in the near-term here in , we expect that to expand to really the rest of the country as the EPA continues to evolve their rules and regulations pertaining to TRUs. Beyond TRUs there's also other spaces and industries that have been impacted by zero-emissions regulations one of which is the ports and port facilities including airports in California. And those facilities also have specific phasing requirements ahead of on-highway trucks that will require their vehicles operating in port facilities whether they would be marine ports, inland ports or airports to go to full zero-emission powertrains as well. And we've already started with one of our customers there Wiggins Lift as well as another customer we haven't announced yet in the powered by Xos division that is providing -- we are providing powertrains into that material handling equipment that will be used in those port applications. So we see both of these segments as really providing an interesting and fast-growing market segment for our battery technology and our powertrain technology to be used and applied to different segments even outside of the on-highway truck space. The last area that I'll mention, which you alluded to is some of the more consumer-facing applications around emissions regulation such as blowers or weed whackers or small hand tools. While that is certainly an interesting market, it's not something that Xos remains focused on. We really are trying to leverage our technology for the commercial or industrial fleet applications that are going to have the rigorous demanding use case that really aligns with our technology that we've developed -- it's our battery systems and our software and vehicle control systems. So while we see a lot of opportunity in the off-highway space really focused more on the heavy vehicle sector and industrial equipment sector.

Okay. Great. And kind of following up on that I think a pretty related topic -- it is the thing that I like about you guys is that you seem to be very focused on the kind of have a more focused product offering versus some competitors that kind of try to provide every vehicle under the sun. And I also know you're trying not to build a model that's dependent on subsidies and so forth. So with that in mind, I can't hope but think about what appears to be a lot of state and federal funding going towards the electrification of school buses. On the face of it I would assume you guys are not really positioned to try and benefit from that. And in some ways perhaps would be deliberately trying not to kind of again stick with that focus which is -- it's great in a lot of ways but I just want to double-check and make sure I'm not missing something there. The funding is for districts in general. So there can be a lot of vehicles that aren't strictly just school buses. So maybe there is more potential to realize then also there's Xos Hub which is perhaps something you could be providing to school bus fleets even if you're not making the buses. So just curious making sure I'm not overlooking anything there?

Yes, it's a really, really relevant question. When we think about the school bus market we're really, really focused squarely on the commercial vehicle fleet settings. So school bus doesn't traditionally fall into our definition of what we view as on-highway commercial vehicles, but as you know whether you're looking at the Class A, Class B or Class C type school buses they leverage a lot of those commercial chassis platforms that exist within the industry today. So our focus leads us to really centering in on those industrial fleets last-mile delivery fleets, the customers that we've already started to announce and service and support by delivering customers, but by delivering vehicles. However, we do see that as an interesting market opportunity. And if there's a potential partnership in that realm, we obviously wouldn't turn it down but we're squarely focused on those commercial applications today.

Okay. Great. And then last question just -- so looking at the -- looking at the second half guidance for the second half of the year well actually the first just looking at the second quarter it does look like you had a quarter-over-quarter increase in ASPs of about 7%. So curious to know how much of that -- is that the start of products of price increases coming through, or is that more product mix? Kind of how much of the 7% increase was from price versus mix? And then do you expect that to continue as this sort of just the first signs of higher ASPs from higher costs getting passed through? And then for the H2 guidance from the midpoint it actually looks like ASPs may come back down to the Q1 level. So also curious if that's more mix or lumpiness in a way with contracts how price increases flow through, kind of, just curious about that. Any update would be great.

Yeah, absolutely. That's a great question Donovan. So when we look at Q2, you're exactly right it's a bit of both. So as we mentioned on the last call, we start taking price action and you're seeing the beginnings of that over the quarter and where the higher ASPs. And it's also due to a mix of different types of units that we deliver through different channels. We have a range of channels that we work through and now we're serving a number of customers in quite a few states in the US. So we're going to be strategic when it comes to ASPs depending on the channel and the location. It absolutely is our focus on taking price action and the face of the inflationary pressure that we see today and we will carry on doing so in discussions with our customers.

Okay. And so is it safe to say that the lower ASP in the second half of the year is it's not a reflection of something in terms of maybe there's just like you said different channels or mix, but you're consistently doing the ASP on a like-for-like basis that's getting increased?

Yes, that is absolutely our effort, yes.

Okay, okay. Great. Thank you guys, and I'll take the rest offline.

Thanks Donovan. Appreciate those questions.

[Operator Instructions] The next question is from the line of Sherif El-Sabbahy with Bank of America. Please proceed with your question.

Hi, good afternoon. So, my first question is a bit more color on some of those cost steps you've taken. It's been widely reported last month that you cut 8% of your workforce. Could you provide a bit more color on why those steps were taken and where in the organization those cuts were made? And should we expect it to impact the R&D line, the SG&A line and so forth?

Absolutely. Happy to provide more context. So over the course of the past few months, we've taken action to ensure that we're focused on delivering profitable products in the near-term future and continuing to focus on growing the business towards gross margin profitability and eventually generating free cash flow positivity. And to do so we really wanted to reiterate our focus on our existing products that are in production, including the stepvan platform that we're delivering every quarter and continue to make deliveries to customers. And ultimately some of the other products that we think are really enabling for our business to continue to scale such as our Xos Hub product, which we will go into production with in the near future, and ultimately enable more rapid deployment of fleets with concentrated populations of vehicles. So our focus in building out the organization has been what are the teams including our engineering teams, supply chain, SG&A teams that are going to support those initiatives and those products moving forward. We still continue to invest and have an engineering team dedicated to our MDXT and our HDXT platforms that will be coming to market next year, and believe that those products will also have a transformative impact on the market. The areas that we did cut and made adjustments to are really on future orientation and future initiatives beyond the scope of our existing products today such as the stepvan and the Hub platform that are going to be core and critical to our business over the next 12 to 24 months. And those were areas that we really wanted to make sure all of our capital, all of our resources were deployed to the products that were going to be most profitable in the near-term.

Understood. And are you able to give us a round figure or some sense of how much of a cost cut that is to your business?

We don't have an exact figure for you. The actual impacts of it were relatively small in terms of our personnel changes and the focus of our budgets on the products that were really going to be the products that we're building today. The areas that were impacted were areas that we're looking further out into the future and future initiatives and product development cycles.

Understood. And then just looking at the cash burn, it accelerated a bit this quarter. And given the guidance of similar operating losses in the second half to the first half, that would suggest a somewhat similar level of cash burn. Is that correct? And if so how do you feel about your capital position for the next 12 months?

Yes, absolutely. I'll just go through that step-by-step Hi. Sherif, this is Kingsley here. So if you look at our cash use over the quarter, well over half of that was investments into inventory with the steps we've taken to de risk future deliveries, if you took strategically. Now we've built up that position. We feel confident that the rates of increase of inventory investments will fall significantly, from what you saw in Q2. Also as we mentioned, we are being very focused on our programs and being very focused on our step-down products and burning out some products MDXT and HDXT. So we also expect operating costs in general to come down. So taking that into consideration, I think we're very comfortable where we are in our cash position and we ended up the quarter with considerable cash on the balance sheet. Really excited to have the continued investments in the company from the [indiscernible] who've been with us for quite a few years, and also with the other convertible the [indiscernible] today. With the capital, that we've raised we feel very confident that we can put more and more trucks on the road, invest in our new products and carry on focusing the business on driving pathways to being positive gross margin in the first half of next year towards the second half.

Thanks for that. And just finally, do you expect to raise further capital in the coming year?

Yes. Look if you look at where we are, I mean just maybe take a step back a little bit. So we went public last year. It's extraordinary and is coming up to a year now. And what we said at the time we went public, is that yes we did not raise the full amount of capital that we intend to but we were going to allocate the habit in growing revenue and growing deliveries and bringing on exciting new products and we've done that. In the midst of the investments, that we've made now into raising more capital as we grow the scale, we believe that the company will become able to tap into nondilutive financing asset-backed lending and other types of financing as well. We feel confident, with the capital position that we have now and we're looking forward to the second half of the year.

Thank you. A – Dakota Semler: Thanks, Sherif

Those are all the questions that we have today. I will now turn the conference back over to Dakota, for closing remarks.

Thank you, operator and thank you everybody for joining us today to discuss our second quarter results. We're making tremendous progress towards our objective, to build the fleet of the future with our innovative solutions, to produce new platforms that go farther, last longer and provide a more cost-effective platform for our customers. We look forward to keeping you updated on our progress and we hope to see many, of you at some of the upcoming conferences. Thank you everybody for joining, and have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may disconnect your lines and have a wonderful day.