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

Thank you. Good afternoon, everyone, and welcome to XL Fleet’s earnings conference call to discuss our fourth quarter and full 2020 results. So with me today are Tod Hynes, Founder and President; and Dimitri Kazarinoff, Chief Executive Officer. Our call this afternoon includes statements that speak to the Company’s expectations, outlooks, 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. We’re extremely excited to be hosting our first earnings call as a public company, following the completion of our business combination at the end of last year. And we’re especially proud of our entire team for capping off the most successful year in our Company’s history. Before getting into our fourth quarter and full year financial results, I’d like to begin with a brief overview of our strategy and our value proposition for customers. When we started XL Fleet more than a decade ago, fleet customers were looking for clean solutions that met their needs and made economic sense. Today XL Fleet is proud to be a leader in fleet electrification with over 4,300 cumulative units sold through 2020, hundreds of fleet customers throughout North America and over 150 million customer miles driven today. Our strategy to get where we are today was built on leveraging the way our customers were already buying commercial vehicles. We intentionally integrated seamlessly into the existing manufacturing process, offering electrification solutions installed during the normal course of vehicle production. By leveraging the way in which companies were already purchasing vehicles, we changed very little for the fleet owners while delivering them the sustainability and operational benefits they seek, and upholding the performance and reliability they require. Since our founding, this strategy has allowed us to establish what we believe to be an industry-leading track record and trust with our existing customer base. These factors are paramount, given the critical nature of our fleet customers and their must-run applications. Simply said, reliability is the price of entry in the commercial fleet market. And we’re proud of our proven history of delivering the reliability and performance our customers require. We have scaled and continue to scale our platform, seeking to make electrification simple for our customers with the range of hybrid and plug-in hybrid propulsion systems already on the road. We continue to expand the range of vehicles and applications for our technology across vehicle classes and manufacturers. Our strategy also means that we are agnostic to the technical approach. This key flexibility has allowed us to remain nimble as we develop our fleet electrification platform in a rapidly changing market. Although global supply chain concerns are impacting many automotive and manufacturing companies, we’ve taken steps to reduce risks to our supply chain as we’re an established purchaser of key components, having purchased thousands of batteries and electric motors. These volumes are in excess of many of our direct competitors, and we expect our scale to benefit our new vehicles and platforms that we are developing and contribute to cost advantages. This strategy has also positioned us to advance to the next step in our evolution. This includes our plans to introduce all-electric solutions where we will focus on Class 4 and larger vehicles where we believe the greatest opportunity lies for our solutions. We continue to develop our all-electric platforms and expect to begin shipments in 2022. The trust we have garnered with our existing hybrid and plug-in hybrid customers is evidenced by the fact that customer reorders account for a majority of our revenues since inception. This positions us well to serve as their provider of choice for all-electric solutions as we lead commercial fleets through their electrification journey. Our evolution also includes the addition of our comprehensive vehicle charging and power solutions currently under development. Together, these offerings will position us to develop a one-stop-shop solution for fleet electrification. In December, we formally introduced XL Grid, which focuses on developing charging infrastructure, power, and storage solutions. As fleets increasingly electrify, owners and operators need access to electric vehicle charging. However, such infrastructure can be challenging to integrate into existing fleet facilities as dozens or even hundreds of vehicles can overwhelm their existing power infrastructure. Decisions on what to install and how to navigate this problem can be daunting for fleets. In order to catalyze greater adoption of plug-in and all-electric solutions by XL Fleet, making the infrastructure decisions easier is critical. Through our XL Grid offering, we intend to simplify the electrification process for our fleet customers and reduce or eliminate the upfront costs associated with charging infrastructure. According to industry estimates, the total market size for U.S. commercial EV charging supply equipment in 2021 is approximately $264 million. This is expected to grow to $1.8 billion by 2025, reflecting a nearly 60% CAGR over the next four years. In March, we announced the potential opportunity to deploy and operate 1,000 charging stations at UBS Arena in the New York metropolitan region. XL Fleet intends to support this project through the development, deployment, and management of a robust suite of electrification infrastructure, including solar, power generation, energy storage, and vehicle charging stations. We believe that this deal will serve as a blueprint for other similar deals across the country. Since our announcement, we’ve been contacted by other arenas throughout the country, and we’re in active discussions about how we can partner with them to make the most efficient use of these facilities and their access to parking and power. A portion of the proceeds raised from our recent business combination will be used towards expanding XL Fleet internationally. We believe that XL Fleet has a strong footprint across parts of the U.S. and Canada, and we see significant opportunities to bring our technology and our solutions to fleets across the world. Since announcing and closing our business combination, these conversations, including inbound inquiries have accelerated, and we look forward to further exploring these opportunities and providing updates when appropriate. As communicated at the time of our business combination announcement, we expect that M&A will play a role in our future growth. And we have an active program in place where we are currently exploring potential transactions. We’re focusing on strategic opportunities intended to be complementary to our existing platform, technology, and services that we believe will allow us to more quickly scale our fully integrated approach and accelerate growth. We are committed to executing on opportunities that we believe maximize shareholder value. XL Fleet continues to intend to use the capital infusion from our recent business combination to aggressively pursue our strategy for high growth over the coming years. The global fleet electrification market is a $1 trillion opportunity, and it is just getting started. In fact, less than 1% of new vehicles sold in the U.S. commercial fleet segment at any level of powertrain electrification today, reflecting a massive potential for us to help grow that number. We’re excited that transport’s fleet electrification continues to accelerate, and we believe that we are in a prime position to be a leader in this growth. With that, I would like to pass it over to Dimitri to review our financial performance, what we’re seeing in the market, and our latest outlook.

Thanks, Tod. I’d like to begin with a review of key achievements and milestones during 2020 and thus far in 2021. First, we delivered on our commitment, achieving record Company revenues for the fourth quarter and full year 2020, driven by continued growth in existing shipments. We generated positive gross margin, all while rapidly scaling our platform and navigating challenging market conditions and significant supply chain friction across the entire industry. Second, we continued to increase the number of electrification solutions available for customers. This includes hybrid electric drive systems for the Class 5 Ford F-550 Super Duty chassis, where we began customer deliveries in the fourth quarter of 2020. We also announced expansion across a range of fleet vehicles from General Motors, including popular platforms from Chevrolet and GMC, such as the Silverado, the Sierra 2500 and 3500 heavy-duty pickup, as well as the Chevrolet GMC 3500 and 4500 cutaway chassis. All expansions were driven by customer demand and reflect XL Fleet’s ongoing ability to be nimble and responsive to customer needs. Third, we launched XL Grid in December and have seen substantial interest in the solutions we are developing on two fronts: Existing customers are interested in adding charging to their existing facilities and arenas; and additionally, other large facilities are interested in adding charging for patrons while also serving incremental demand for fleet electrification charging. Fourth, we recently announced that we will be offering all-electric plug-in hybrid and hybrid electric refuse trucks across a range of Class 3 to 8 waste management vehicle options through our partnership with Curbtender. Refuse represents a great application to reduce fuel consumption across the industry and a high-impact opportunity to drive decarbonization within the commercial sector. Overall, I am very proud of the team for continuing to deliver on its commitments and driving further growth for XL Fleet. To increase the product and solutions activity, we continue to expand our organization at all levels and have been successful in continuing to attract great talent across our Company. This growth includes significant expansion of our engineering capabilities, where we expect to grow our team by approximately 50% this year. To support this growth, we’re excited to recently announce the opening of a state-of-the-art fleet electrification technology center in Southeast Michigan. This technology center will serve as the central area for the design, development, testing, and validation of a wide range of our commercial vehicle electrification solutions. The nearly 25,000 square-foot facility is strategically located in the Metro Detroit area, which provides us with access to leading automotive and commercial vehicle talent. This Metro Detroit facility is highly complementary to our three existing site locations. And together, our teams are already working collaboratively to further achieve customer-focused innovation. We are also actively growing our sales and marketing infrastructure and team to accelerate growth. Turning to the financials. Revenues for the full year 2020 totaled $20.3 million, marking an increase of nearly three times over the prior year. From a high level, XL Fleet saw a heavy second half weighting to 2020 revenue with over 80% of sales realized in the third and fourth quarters combined. This was driven by typical seasonality in fleet orders with an overlay of significant pandemic-related disruptions, including OEM plant shutdowns in the spring and supply chain disruptions, especially in the first and second quarters of 2020, but also scattered across the rest of the year. The strength of our customer base and our team enabled us to still nearly triple revenue, despite the pandemic and related disruptions. Gross profit for the year totaled $2.7 million, reflecting a gross margin of 13.5%. This was a dramatic increase over the prior year, reflecting progress on cost reduction, price realization per unit, and volume-related improvements. Research and development costs totaled $4.4 million during the year, up from $2.9 million in the prior year. The increase in R&D was primarily driven by the continued expansion of our electrification solutions. For the fourth quarter, we achieved revenues of $10.9 million, up from approximately $300,000 in the prior year quarter. Gross profits in the fourth quarter were $2 million, reflecting gross margins of 18.2%. We exited the year with cash and cash equivalents of approximately $330 million, following the capital raise as part of our business combination with Pivotal in late December. In February, we announced the redemption of our public warrants, which resulted in additional cash proceeds of $85.6 million. Together, as of March 15th, we’re armed with approximately $408 million of cash on our balance sheet, positioning us extremely well to execute on our growth strategy over the next several years. Before opening up the lines for Q&A, I would like to make a few comments on our 2021 financial outlook. The long-term outlook for the commercial fleet market remains robust with continued focus on electrification, creating significant opportunity for our expanding base of solutions. We have already seen continued growth in our sales opportunity pipeline, including significant expected repeat business based on conversations with our customers. We expect the recent signing of the American Rescue Plan to serve as a catalyst and materialize pent-up municipal demand over the near term. While these positive factors remain firmly in place, the industry continues to face significant challenges resulting from the COVID-19 pandemic. With that in mind, we’d like to provide a few thoughts on how we’re thinking about the year. First, in our experience, orders for commercial fleets follow a seasonal pattern with a majority of fleet deliveries being second half weighted. In fact, as I just mentioned, more than 80% of our 2020 revenues were realized in the third and fourth quarters of 2020, and a similar concentration has existed over the last several years. We expect this pattern to continue and be more pronounced in 2021, driven by ongoing industry-wide challenges, combined with a continued ramp in our business. Second, the pandemic was prevalent and accelerating in many parts of the country and the world late last year and continuing through today. Many municipal departments, corporate clients, and prospects who had planned fleet orders in 2020, particularly late in the year, postponed these potential orders due to major budget shortfalls. Together, this has impacted orders for shipment in the first and second quarters of this year. Third, as I noted, industries across the world have been impacted by the multiple production shutdowns during the pandemic and the recent microchip and other shortages that caused major OEMs to halt fleet orders, creating a lengthy period early in the year without any new vehicle orders possible. While the industry works to alleviate the pressures resulting from these issues, challenges remain prevalent today, and it is possible that the impacts of these issues might linger for a significant period of time. Taken together, we are currently forecasting first quarter 2021 revenue to be roughly $1 million or roughly flat as compared to the first quarter of last year, driven by the ongoing OEM delays amid microchip and other shortages. Given this ongoing uncertainty and the potential for extended industry-wide issues, combined with typical seasonal patterns in our orders and a significant majority of revenues focused on the second half, we are not currently providing formal full-year '21 financial guidance. That said, as these pressures abate, we expect to see a stronger market environment emerge later this year. And in this scenario, we would expect to realize significant revenue growth for 2021 accompanied by an even more pronounced seasonality and, therefore, weighting to the second half of the year. In summary, I am very confident that we have the strategy, the team, the technology, and the financial resources to successfully build this business into a global leader for sustainable fleet transportation. We’d now like to open up the lines for Q&A.

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

Yes, hi. Thank you, and good afternoon, everyone. Dimitri, I'd like to start with the comparison between the second half and the first half. Considering the impact of shortages and delays, do you think that Q1 and Q2 might end up reflecting more of 2022 compared to the second half?

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

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

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

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

Thanks, Greg.

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

What was the revenue or unit split between hybrid and plug-in hybrid solutions, even if it's just rough numbers?

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

No, I understand that and I appreciate it. The majority is indeed focused on the hybrid. The reason I inquired is that the average selling price for plug-in hybrids is twice that of hybrids, so from a revenue and unit standpoint, it seems like transitioning some of the hybrid models to plug-in hybrids could be the fastest route to increasing revenue. Am I thinking about this correctly?

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

I’m trying to understand the 90% drop in revenues from Q4 to Q1. Can you provide some insight on the backlog? The backlog shouldn’t be impacted. Additionally, I’m not witnessing such a significant decrease in chip shortages when looking at the industry numbers. Were there orders pulled into Q4, or are they simply being delayed to Q3?

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

Parts of what you're observing are carryover from last year. Disruptions caused by shutting down facilities due to COVID last year altered everyone’s production and ordering patterns. Consequently, there were substantial orders for GM and Ford, which speeded up the processing of that order book as Dimitri mentioned. Typically, OEMs will retool their factories in the summer, halting order intake in late spring or early summer. This year, they achieved what I believe is a record pace during January. There is still some disruption happening with production cycles and customer buying cycles as well.

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

Understood. That’s reasonable. I believe that from a seasonal standpoint, this is more of a growth narrative than a value narrative, which is where my questions stem from. If you could indulge me with two more inquiries. Todd, regarding the value proposition, I was hoping you could elaborate on the XL Grid. It appears to be a significant achievement for your team. It also seems that the infrastructure package will have a favorable impact on you. If you could discuss how we should approach the economics related to that business, I think it would be beneficial. Lastly, I have one more follow-up question.

We are designing XL Grid to cater to the needs of commercial fleets by helping them evaluate their facilities, determine necessary charging infrastructure, explore onsite solar storage opportunities, ensure clean electricity supply, and manage power effectively. This approach will support their transition to electrification. We aim to provide these services on a modular basis since different customers may require different components. Charging stations are already available for direct purchase. Additionally, to help reduce or eliminate upfront costs, we can bundle our offerings into a service model for customers through long- or medium-term contracts, allowing us to recognize revenue over time, or we can sell the assets to a special purpose buyer or a financial investor interested in financing. This model gives us multiple options to explore. A key advantage of our business model is this flexibility. We have sufficient capital on our balance sheet for early-stage financing and initial development, which aligns with our funding strategy for electrification projects. We have allocated an $80 million budget to support the rollout of not only charging and energy grid assets but also vehicles.

I’ll jump back in queue. Thanks.

Thanks.

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