Good day, and welcome to the Xos Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to David Zlotchew, General Counsel. Please go ahead.

Thank you, everyone, for joining us today. Hosting the call with me are Xos' Chief Executive Officer, Dakota Semler; Xos' Chief Operating Officer; Giordano Sordoni, and Xos' acting Chief Financial Officer, Liana Pogosyan. Today, after the close of regular trading, Xos issued its fourth quarter 2024 earnings press release. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results, as well as commentary on the quarter and year ended December 31, 2024. Management's statements today reflect management's views as of today, March 28, 2025, only and will include forward-looking statements including statements regarding our fiscal year 2025, management's expectations for future financial and operational performance and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Additional information about important factors that could cause actual results to differ materially, including but not limited to, Xos' ability to access capital when needed and continue as a going concern and potential supply chain disruptions including as a result of changes to or uncertainty around trade policies and tariffs, is included in today's press release and in our filings with the SEC, including our most recent Annual Report on Form 10-K and subsequent filings. We undertake no obligation to update forward-looking statements, except as required by law. Participants are cautioned not to put undue reliance on forward-looking statements. Further, today's presentation includes references to non-GAAP financial measures and performance metrics. Additional information about these non-GAAP measures, including reconciliations of non-GAAP measures to the comparable GAAP measures is included in the press release we issued today. Our press release and SEC filings are available on the Investor Relations section of our website at www.xostrucks.com/investor-overview. With that, I now turn it over to our CEO, Dakota.

Thanks, David. And thank you everyone, for joining us. Q4 marked the close of Xos' strongest year yet and it sets the stage for an even stronger 2025. Over the last 12 months, we've demonstrated that we can not only grow revenue and diversify our customer base, but also improve profitability, cash flow management and operational execution. As we look ahead, we expect that trend to continue with top-line growth, margin expansion and improved product diversity. This momentum positions Xos, as the most efficient public commercial EV company in the market today. We're delivering more medium-duty electric vehicles than any other company in our sector and we're doing it with the most efficient operational expense structure in the industry. Even as the economic environment continues to evolve and we see changes in administration, regulatory policies and tariff structures, Xos remains resilient. While these changes have brought their own set of challenges, including potential cost impacts from new tariffs, we've been preparing for these shifts for over a year. We will talk more about these steps we're taking to stay ahead of those changes in today's call. In Q4, we generated $11.5 million in revenue and delivered 51 units. Despite regular seasonal delays in the parcel delivery segment, where many of our customers experienced peak volume during Q4 and Q1, delaying vehicle acceptance, we remain confident in our demand pipeline. While we fell short of our guided deliveries for the year, we still achieved significant year-over-year revenue growth in 2024. This reflects continued demand for our products even at higher average selling prices than we've previously seen, which we view as a strong validation of our value proposition in the market. Importantly, Xos is also one of the very few electric vehicle manufacturers delivering double-digit gross margins on our products. In…

Thanks, Dakota, and good afternoon everyone. Our manufacturing, supply chain and engineering teams delivered a strong close to the year, improving efficiency while executing at our highest production rates yet. Despite operating with a significantly smaller team, we achieved our most efficient vehicle and hub production rates to date, demonstrating the strength of our streamlined operations. In addition to our regular chassis production, the team worked hard this quarter to prepare for the launch of a longer wheel-based variant of our StepVan chassis platform. We are now producing this 208-inch wheel-based variant on our main chassis line. This longer wheelbase allows for a larger body and an additional 200 cubic feet of cargo capacity, a direct response to customer requests. A key highlight this quarter was our continued engineering work on chassis improvements for one of our largest customers to whom we are now making deliveries. Our focus on refining vehicle design and durability ensures we are meeting the evolving needs of our fleet customers while driving long-term cost efficiencies. We steadily increased our hub production rates throughout the quarter reaching approximately two hub units per week. This significant accomplishment positions us well to build and deliver additional hub units to meet customer demand in 2025. The engineering and supply chain payments remain dedicated to reducing bill of material costs through both vehicle design optimization and strategic supplier partnerships. In the last 12 months, our team has implemented over $10 million in cost reductions, and we have additional reductions planned for the coming year. We are actively working to mitigate potential tariff impacts and related uncertainties by continuing to drive down direct material costs through engineering improvements and supplier partnerships. We remain focused on our strategy to invest more in Tennessee, which has become the foundation of our operations. Our…

Thank you, Gio. This year, we continue to grow our revenues, delivered our first positive full year GAAP gross margin and reduced total operating expenses. For the full year of 2024, our revenue was $56 million, up from $44.5 million compared to last year. Our cost of goods sold during the year increased to $52 million compared to $45.8 million in 2023. GAAP gross margin during the year was a profit of $4 million or 7.1% compared to a loss of $1.3 million or negative 2.9% in 2023. Non-GAAP gross margin during the year was a profit of $10 million or 18% compared to a loss of $2.3 million or negative 5.2% in 2023. Margin improvements were mainly driven by higher average selling price, continued focus on reducing labor and overhead costs and improving our production processes. The increase in average selling price was primarily due to selling our newer generation stepvans and hubs, which have higher prices than our legacy products for the full year 2024 as compared to just a portion of the 2023 year. For the fourth quarter of 2024, our revenue was $11.5 million, down from $15.8 million in the third quarter this year. Our cost of goods sold during the quarter increased to $15.2 million compared to $12.9 million in the third quarter. GAAP gross margin during the quarter was a loss of $3.7 million or negative 32.4% compared to a profit of $2.9 million or 18.1% in the third quarter. GAAP gross margin was significantly impacted in the current quarter by changes in our inventory reserves and write-offs of inventory from our annual physical counts, as well as absolute parts. Write-up of inventory mainly related to consolidation of two warehouses in 2024 into our main plan in Byrdstown, as well as write-off of inventory…

Thank you, Liana. As we look ahead to 2025, we remain focused on delivering growth, increasing liquidity and margins and building products that stand the test of time. While the broader EV landscape continues to evolve, facing regulatory shifts, infrastructure bottlenecks and cost pressures, we see these as opportunities to differentiate ourselves. Over the past year, we've expanded our product portfolio, deepened our customer partnerships and proven that we can adapt quickly while maintaining discipline in execution and our high-quality standards. The interest we are seeing across powertrains, strip chassis and the Xos hub reflects the strength of our company and the trust we've built with customers. With the foundational work of 2024 behind us, we believe we are entering the new year in one of the strongest positions in our company's history. We are excited for the road ahead and we're just getting started. With that, I'll hand it back to the operator for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And your first question today will come from Craig Irwin with ROTH Capital Partners. Please go ahead.

Good evening. Thank you for taking my question. So Dakota, to start from the top, your gross margin is 23% in the quarter on an adjusted basis really surprised me. Really strong when we consider volume in the quarter of 51 units down 45% sequentially, but your margins are flat. So that kind of suggests that either you have a substantial improvement in variable production costs or production costs overall or maybe a positive mix issue going on. Can you help us understand what's going right in there to really deliver on margin results like this.

Yes, absolutely. And thanks for the question, Craig. It really comes down to a shifting product mix. When we look at some of our specialty products that are unique in the market, such as the Xos hub and some of our powertrain customers. Those margins can be strong given the uniqueness of those products and the engineering investments that we make upfront with our customers. So if we see quarters that reflect a higher mix of some of those products, we anticipate that -- that's going to be reflected in our adjusted gross margins for the quarter. And I think one other thing to note about that is we anticipate these will continue to improve. Assuming we can address the challenges with tariffs, with increased scale across our supply chain and increased scale in the production and manufacturing environment, those margins should be able to be improved. And several of those non-cash GAAP associated expenses such as capitalized freight and other items can also continue to go down, as we increase those volumes.

Excellent. Excellent. So that dovetails nicely to my second question, which is about your hub business outlook. You mentioned several customers in your prepared comments, Waymo, Duke, Caltrans, others. You also mentioned two units a week in production capacity. Do you expect to operate anywhere near production capacity in this business this year? Is there maybe anything that would have you consider increasing capacity? Or is there a potential for that based on discussions you are having with this interesting list of customers.

Yes, absolutely. So we've set up the line to be able to support the market the way we understand it today. It is still an incredibly unique product and that it is providing an infrastructure stop-gap for many customers that experience charging infrastructure deployment delays from installing permanent infrastructure. And it's kind of an interesting process because generally, when we talk to a customer, they're only interested in the product after they've had dealt with the difficulty of deploying charging infrastructure. So it takes folks a first run at deploying infrastructure and in the conventional manner to be able to really see the value in the hub. But 1 thing we are planning on doing this year is increasing the capabilities of the hub to be able to offer other power export capabilities and energy management capabilities that will service a broader market and potentially even be utilized in fixed infrastructure applications where it can still provide a similar unique product offering to customers kind of going through those same pain points. So we do anticipate the volume potential and the production capacity potential growing -- but we are not going to expand that production capacity until we really can validate that market and make sure that we have a strong customer base and backlog behind it.

Excellent. So then moving on to the Drivetrain business. Blue Bird and Winnebago, obviously, customers that are both working for you, things are going well there. I assume there are other customers in the pipeline. Can you maybe help people understand what FMVSS certification means for the drivetrain delivered for Blue Bird and the 20 units that they ordered for powertrains for this year, would you expect those to be in production vehicles? And any additional color on the powertrain business would be great. Thank you.

Absolutely. So the Powertrain business is a unique business and that it requires a deep partnership with our customers and collaborating with their respective engineering organizations to integrate the powertrain into their vehicle chassis. And so we do a lot of work upfront with these customers in engineering validation and durability assessment and testing as well as homologation. And through that homologation process, there are several steps that we have to comply with in order to satisfy the Federal Motor Vehicle safety standards. And those steps can take many months, in some cases, years to get through. So what that means when we complete those processes is that we can sell production units to end-user customers. So it is an exciting step in the order that we received is expected to go to an end-user customer. So these are full production powertrains that we'll be shipping this year. going to a school district.

Okay. And then last question, if I may. The balance sheet was another complete surprise, right? $3.3 million in free cash flow, $2.5 million higher cash exiting your fourth quarter than in your third quarter, $15 million in cash out from receivables and inventory in the quarter. How much room is there to go to continue improving on working capital? You did give us the details around your mix shift towards Strip chassis and how that helps a little bit. But can you continue to lean out inventory and receivables and is there anything else we should know about the balance sheet that would help us understand cash needs over the next year?

Yes. So first and foremost, our goal is to build a sustainable business, and to improve working capital usage to the most efficient level it can possibly get to. For us, that means several things that we're doing. I talked a little bit about the shift in deliveries to strip chassis versus completed vehicles that shortens the cycle for delivery times to our customers. We are also working with our suppliers to help us with better terms to ensure that we are laying out cash for working capital and inventory in a more efficient manner. And lastly, I think what we've always said is we need to take a proactive stance on infrastructure to ensure that our customers don't experience infrastructure delays. And as they are already having delays that we have a solution in place with the hub. So it is really a combination of several factors improving the kind of throughput of those vehicles getting to customers. Now on the back end, you have the collection process, which as we've talked about at great length, the incentive collections can take many, many months. In order to mitigate the exposure to those incentives, we've partnered with several dealers and partners to help floor plan some of these vehicles before the incentives are received and in the door. And what that means is, for us, we can deliver the vehicle, recognize revenue, collect that receivable and collect the incentive from the dealer and allow them to help in that process of getting a truck delivered to a customer, shortening the cycle of inventory turnover and collections time lines. So that will really dramatically improve our ability to collect cash quicker. Hopefully it should lean out receivables. And as we work to improve the efficiency of the manufacturing plant and our customer delivery schedule, we should also be able to continue to reduce inventory levels relative to top-line revenue.

Great. Well, congratulations on a strong execution this quarter. I’ll go ahead, and hop back in the queue.

Your next question today will come from Mike Shlisky with D.A. Davidson. Please go ahead.

Yes, hi. Good afternoon. Thanks for taking my question. I wanted to touch on the margin story for a second year because you mentioned that mix can go up and down and change. I guess I'd like to confirm, do you still think you'll have positive gross margins throughout 2025? And then further, could there be improvement upon the prior year, although it is already, again, quite strong.

Thanks, Mike. Yes. When we look at gross margins for 2025, we anticipate them continuing to stay strongly positive, and we do anticipate for the full year that we will see margin growth on an adjusted basis. As we look at our business, there are several factors that influence GAAP gross margin. And some of those factors are hard to forecast given the changes and dynamics and current climate in the economy right now. But on an adjusted basis, we do anticipate that those non-GAAP gross margins will continue to grow year-over-year.

Okay. And then the other question was that there were certainly some question remarks remaining around the tariff situation, this could change by the end of the night, who knows. But the range that you provided on top-line and on operating losses for the year, does the bottom-end include like kind of worst-case scenario tariffs? Or could there be some very compelling situations that just you're not [constantly] (ph) right now and what you're putting out there?

Yes. It's a great question. And specifically talking in regards to tariffs, I think most of the exposure is something we are working to mitigate. That doesn't mean we are going to avoid paying tariffs. We obviously have already paid tariffs today on battery cells ranging in the kind of 10% to 15% range. But if there are ways in which we can reduce our exposure, such as bringing some of the components back to production in the U.S., we are absolutely going to entertain those kinds of options. And then that in some ways, that may mean cost trade-offs, slightly increased costs. But if those costs are still lower than the tariffs in many ways that it still helps us to reduce our exposure. When we look at the bottom-end of the guidance range, we really think the biggest factors that are influencing that and our delivery of units is not so much tariff factors, but rather charging infrastructure readiness. We have a backlog that already exceeds the current level of guided orders. And that's because we have some customer orders that won't take delivery in 2025, but later after that. So we are not concerned about so much the demand or even the tariffs changing the cost structure of our vehicles, as much as we are concerned about the readiness of charging infrastructure and the customers being able to accept delivery of those trucks and get them into service.

Got it. Okay. I appreciate it. And I’ll pass the line. Thank you.

Thank you. Your next question today will come from Ted Jackson with Northland Securities. Please go ahead.

Thanks very much. So my first question is, I'm just curious in the quarter, did you have any environmental credit revenue?

In the fourth quarter, we did not have any credit revenue. We had credit revenue in the third quarter of last year.

Okay. When we -- if possible, with regards to fourth quarter, could you give some kind of color with regards to the makeup of units, hubs, chassis things like that and then the same with regards to the guidance for '25?

Yes. In terms of the mix of the quarter level, we haven't drilled that far into it. We can share that it was an increased mix of hubs, which are higher ASPs reflecting the lower unit mix there and also higher gross margins on that product. As we work throughout the year in 2025, we don't plan to specifically guide to the unit mix throughout the year. But we are seeing an increasing demand for that hub product, which obviously we only launched halfway through last year. So we didn't have that factored significantly into our unit mix or our revenue or gross margin mix for 2024. So that should be positively accretive and hopefully continue to bolster up the margins.

Okay. That's actually quite useful. What do you think your CapEx will be in '25?

As a facility today, the Tennessee plant is actually incredibly well equipped to accommodate volumes that are far larger than what we are delivering today, both on the vehicle side as well as on the hubs. We really don't anticipate much more CapEx other than preventative maintenance and incremental iterative investments, as we work through the year. But I would say the CapEx budgeted is relatively negligible in comparison to total top-line and the way our balance sheet sits today.

Do you know when you'll file your K?

Planning on filing it on Monday.

Any chance that you could give us a cash flow statement and maybe your breakdown of revenue in terms of stuff that's in there, StepVan, powertrain hubs, other ancillaries. So I mean, I assume I'm not the only person that has their model built around some of that kind of stuff so that we would be able to get our models turned in front of your release.

Well, the full cash flow statement will be available once we file the 10-K on Monday. We do have -- in the earnings release, we do have a tabular disclosure around net cash provided by used in operating activities. But the rest will be available on Monday.

Okay, that’s it from me. Thanks very much.

This will conclude our question-and-answer session as well as conference call. Thank you for attending today's presentation. You may now disconnect your lines, and have a great rest of your day.