Spruce Power Holding Corporation (SPRU) Earnings Call Transcript & Summary

Good afternoon, and welcome to the XL Fleet Corp. First Quarter 2021 Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Jim Berklas, General Counsel and Vice President of Corporate Development for XL Fleet. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to XL Fleet's earnings conference call to discuss our results for the first quarter of 2021. With me today are Tod Hynes, our Founder and President; Dimitri Kazarinoff, Chief Executive Officer; and Cielo Hernandez, our Chief Financial Officer. Our call this afternoon includes statements that speak to the company's expectations, outlook or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update any forward-looking statements, except as may be required by law. We refer you to XL Fleet's disclosures regarding risk factors and forward-looking statements in today's earnings release, our annual report on Form 10-K and our other Securities and Exchange Commission filings. With that, I will turn the call over to Tod Hynes.

Thanks, Jim, and thanks to everyone for joining us on the call this afternoon. Before we get into our results for the first quarter, I'd like to begin with a discussion of an exciting acquisition announcement we made this afternoon. We were incredibly excited to announce the acquisition of World Energy Efficiency Services. Our major customers tell us that fleet facility power constraints create a unique and large challenge when trying to charge dozens and even hundreds of vehicles at the same location. The team at World Energy is filled with experts who can help solve this problem by incorporating energy-efficiency measures and solar power while integrating EV charging to increase the amount of energy available for fleet vehicle charging. The company operates across the New England region and has a long track record of delivering value to a strong portfolio of customers and utilities, including their long-standing relationships with Eversource and National Grid. Our acquisition of World Energy is aligned with the clear strategy we laid out when first announcing our business combination last year, and we expect the acquisition to benefit XL Fleet in 2 key ways: first, this is a highly strategic bolt-on acquisition that expands our charging infrastructure division, XL Grid. When we first launched XL Grid, our mission was clear, to make it easier and more cost effective for companies to electrify their fleets. By removing barriers to adoption and lowering the total cost of ownership, we believe we are well positioned to provide a comprehensive offering and set of solutions. This is exactly what World Energy provides to its customers and the combination of our company's complementary capabilities is tremendously powerful. As we said, the acquisition of World Energy will enhance our ability to provide fleet electrification in an even more seamless manner. Second, in addition to complementary capabilities, we will also benefit from a synergistic portfolio of customers. This includes the opportunity to provide XL Fleet solutions to World Energy's strong and deep customer base, as well as accelerating the adoption of XL Grid's offering across XL Fleet's spectrum of customers. Importantly, World Energy is profitable, free cash flow positive and is immediately accretive to XL Fleet. Total transaction consideration was approximately $16 million. The transaction was enabled by our strong balance sheet position, resulting from our business combination with Pivotal II in December of last year, including more than $400 million of cash on the balance sheet at the end of the first quarter of this year. We are excited to welcome the World Energy team to XL Fleet and look forward to partnering with them to grow over the long term. With that, I would like to pass it over to Dimitri to review our first quarter results and an update on our business progress.

Thanks, Tod. We remain intensely focused on executing our strategy for long-term success. We continue to evidence our success with a number of recent key announcements, including several since our last earnings call in March. I'd like to highlight a few. First, we announced a key partnership with Dickinson Fleet Services, a leading mobile maintenance provider for medium and heavy-duty trucks and trailers in North America. Under the partnership, we meaningfully expand our service network, including access to Dickinson's base of 700 mobile repair units and 800 repair and maintenance technicians. In addition to scale, we gained even greater regional and geographic diversification, enhancing our ability to service our growing base of customers and their demand. We're already working closely with the Dickinson team to ensure they are trained in servicing our wide range of vehicle applications. Second, we announced an agreement to electrify the pickup truck fleet of Apex Clean Energy, a leading clean energy company that develops, constructs and operates utility-scale wind and solar power facilities throughout North America. Apex turned to XL as part of their comprehensive effort to reduce carbon emissions. The first order, which includes 19 Ford F-series pickup trucks, includes both hybrid and plug-in hybrid systems. Apex is a great example of how commercial fleets providing must-run critical nature services are turning to XL Fleet to immediately deliver sustainability without compromising performance or reliability. A key part of this strategy is continuing to evolve and transform our business to offer a wider set of applications and solutions to a growing base of customer requirements. This includes our all-electric solutions, including our development agreement with Curbtender for electrified refuse trucks. We remain on track and expect to make volume shipments in 2022, significantly expanding the range of solutions and applications offered to our customers. Together with Curbtender, we have received recent verbal strong expressions of interest to purchase more of these refuse trucks from additional cities in North America. We are also pursuing other EV platforms and applications with our expanded product development team. We continue to expand the XL Fleet team in response to our widening scope of opportunities, and we are planning for growth. We're adding talent across the whole organization, including engineering, sales, marketing, finance and HR. In fact, our sales team is more than 3x larger than it was at the end of last year, meaningfully improving our ability to target and convert market opportunities for growing electrification demand. Importantly, this organizational growth includes the recent addition of Cielo Hernandez, who joined the XL Fleet team as Chief Financial Officer in April. Cielo brings with her more than 2.5 decades of public and private company experience. Cielo has already established herself as a valuable asset to our organization, and I look forward to partnering with her over the long term. With that, it is my pleasure to turn it over to Cielo Hernandez to review our financial performance and our latest outlook.

Thanks, Dimitri. I'm excited to be part of the XL Fleet team. Revenue for the first quarter of 2021 totaled approximately $700,000, slightly below the outlook we provided last quarter and compared to $1.2 million in the prior year period. Gross loss for the quarter was approximately $700,000 as compared to a gross loss of approximately $50,000 in the prior period -- year quarter. Research and development costs totaled $1.4 million during the first quarter compared to $1 million in the prior year period. The increase in R&D was primarily driven by the continued expansion of our electrification solutions. We exited the first quarter with cash and cash equivalents of approximately $404 million, up from $330 million last quarter. We continue to be [earned ] with a strong balance sheet, having raised $404 million of net proceeds from the completion of our business combination with Pivotal in December 2020, including approximately $86 million raised during the first quarter from exercises of our public warrants. We believe that this positions us extremely well to execute our growth strategy over the next several years, including the potential for future strategic M&A. In response to the guidance provided by the SEC on April 12, 2021, regarding the accounting and reporting of the warrants issued by the SPAC, XL Fleet has restated its consolidated financial statements to change the accounting treatment of its warrants. The restatement will be isolated to this change in accounting treatment and has no impact on historical or forward-looking cash flow, on operations of the company. The restatements which the company believes also apply to a significant number of companies, is isolated to exempt Fleet's historical accounting for its public warrants and private placement warrants issued in connection with its business combination with Pivotal Investment Corporation and has no impact on historical and forward-looking cash flow and operations of the company. Those warrants have previously had been accounted for as an equity. XL Fleet restated its fourth quarter and full year 2020 financial statement to account for the warrants as liabilities, which the company believes to be consistent with the April 2021 SEC guidance. The warrants will be marked to market with non-cash fair value adjustments. During the first quarter of 2021, the public warrants were exercised by their holders. And as a such, no public warrants remain outstanding at March 31, 2021. The impacts of these restatements was entirely non-cash and is expected to have no impact on XL Fleet's ongoing business operations or future plans. So now I'm going to talk about our outlook. Before opening the lines for Q&A, I would like to provide an update outlook for 2021. As Dimitri noted, interest in our solutions continues to grow. However, supply chain friction remains in place across the broader automotive industry as the market continues to [ battle ] the impact of ongoing COVID-19 pandemic as well as shortages in key production [ mark period. ] While those factors continue to cause near-term uncertainty, we have seen modest improvements in our visibility for the second half of the year as customer continue to [indiscernible] sustainability goals and many of the budgets refreshed in July. As discussed last quarter, commercial fleet orders typically follow seasonal patterns that will have both of our shipments in the second half of the year. As a result of our revenue, thanks to the significant second half weighted with more than 80% of our total 2020 revenue realized in the second half of the year -- last year. We continue to expect our seasonality to be even more prolonged this year with a significant majority of our revenue realized in the back half of the year as COVID-related demand impacts subside and commercial customers push for vehicles deliveries ahead of 2022. I will now pass it back to the Dimitri for a few closing remarks.

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

[Operator Instructions] The first question comes from Jed Dorsheimer with Canaccord Genuity.

I guess, Dimitri, if I look at the cumulative systems, they didn't change quarter-over-quarter. So were there any systems -- new systems sold as part of the $675,000 of revenue?

Yes. Jed, I believe we shipped a little over [indiscernible] in first quarter according to that revenue number. And the cumulative statement in our filings just referred to a total over 4,300. So it was a modest increase because of the light quarter, but we continue to expand deliveries.

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

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

Got it. That's helpful. And then just last question for any -- the 3 of you. I guess, just trying to frame '21 relative to 2020 with the hockey stick ramp in terms of the seasonality with the business. Are we to look at the ramp that you had year-over-year in '20 as what to expect for '21? Just curious in terms of if you can provide a bit more color on the framework. I mean, I know you provided a lot of color during the [ SPAC ] in terms of the guidance. But without that guidance, just wondering how we should be thinking about the expectations for the year?

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

[Operator Instructions] The next question comes from Greg Lewis with BTIG.

Congrats on the acquisition. I guess, I just wanted to dig in a little bit there. I guess, you mentioned 2020 revenue, is there any way to think about how that's trending or tracking in 2021? Obviously, on the EV side, your core business, there is some supply issues, et cetera. But as we think about the pace of EV charging, that seems to really be accelerating. I don't know if you want to kind of talk a little bit about XL Grid as a whole or just this acquisition, but any kind of color how you're thinking about the opportunity in '21. And then maybe expanding on that a little bit, how you think about that opportunity in '22 or beyond '21, just as -- given some of the expectations around the EV charging buildout?

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

Thanks, Dimitri. I mean we definitely see the XL Grid part of the business being a great bet. I mean we put that plan together essentially when we started the business, I know it was really about timing and resources and with the close of the transaction in December we had -- at the close of our [ SPAC ] transaction in December brought a ton of resources. So we moved quickly to bring on some great senior leadership to run that division. We've already been building up that team, primarily focused on larger infrastructure projects. So the internal capabilities and products we've been working on are similar to the UBS Arena deal we announced with 1,000 charging stations. So very large deals. But the World team brings a great set of experts that can help us implement on the smaller to medium-sized facilities, which is really where we see a bulk of the demand in the long run. I mean if you think about fleet electrification, it's going to be a multi-decade process. You're talking about lots of facilities, hundreds of thousands of charging stations that you -- Biden's administration committed to over 500,000. So we think that it's going to be a great part of the business, and it's also -- has some diversification on supply chain risk, on market risk because it really is much different process than the electric powertrain portion of the business. So the 2 of those combined is really a great combination. So we can make it really easy for fleets, small as well as large, put together large fleet electrification programs or comprehensive fleet electrification programs.

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

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

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

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

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

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

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.