Xos, Inc. (XOS) Earnings Call Transcript

Good day, and welcome to the Exos, Inc. Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Zlotchew, General Counsel. Please go ahead.

Thank you to all for joining us today. Hosting the call with me are Xos's Chief Executive Officer, Dakota Semler, Xos's Chief Operating Officer, Giordano Sordoni, and Xos's Chief Financial Officer, Liana Pogosyan. Today, after the close of regular trading, Xos issued its third quarter 2026 earnings press release. If you listened 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 ended September 30, 2026. Xos also filed its quarterly report on Form 10-Q after the close today. Management statements today reflect management's views as of today, November 12, 2026, only, and will include forward-looking statements, including statements regarding our fiscal year 2026, 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. Please refer to today's press release and our filings with the SEC, including our most recently filed annual report on Form 10-K and subsequent filings, for a more detailed discussion of important factors that could cause actual results to differ materially from forward-looking statements. Such factors include, but are not limited to, Xos's ability to access capital when needed and continue as a going concern, Xos's ability to implement business plans and identify and realize opportunities, potential supply chain disruptions and/or economic downturns resulting from trade policies, tariffs, international consequences, conflicts and tensions, and/or shortages of access to oil, energy, and other key industrial inputs. We undertake no obligation to update forward-looking statements except as required by law. You should not 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 historical 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.exostrucks.com/investor-overview. With that, I now turn it over to our CEO, Dakota.

Thanks, David, and thank you everyone for joining us on the call. 10 years ago, Gio and I started Exos to build better trucks for fleets. The trucks are still here and so are the fleets, but somewhere along the way, the product we built to charge those trucks became something customers wanted for its own sake. In the third quarter, the Xos Hub moved from being a supplemental product line that could accelerate a fleet's readiness to take delivery of EV trucks to being a diverse product line with applications showing substantial demand beyond the EV market. That is the headline of the quarter, and we believe it will be the headline of the year ahead. Let me start with the numbers. We delivered 33 units in the third quarter and generated $5.5 million in revenue, up 17% sequentially. Gross margin came in at 15.3% on a GAAP basis and 34.4% on a non-GAAP basis. Our 13th consecutive quarter of positive non-GAAP gross margin. Hub and powertrain deliveries made over the past nine months have made up roughly 72% of revenue, the highest mix of non-vehicle products in our history. The field data behind the hub is what makes me excited about its prospects for adoption in a variety of applications. In September, a single Xos hub crossed 1 gigawatt-hour of energy delivered. That is 1 unit, more than 33,000 charging sessions, averaging close to 2 megawatt-hours a day through Arizona summers since early 2025. Across our connected fleet, hubs have delivered more than 5 gigawatt-hours. When a data center, contractor, utility, or school district asks whether this platform holds up under daily use, we no longer answer with a spec sheet. We answer with the meter. That proof is converting into customers at a pace we have not seen before and across more segments than we have ever served at once. To start with the public sector, in August, Xos was awarded a prototype other transaction agreement by the U.S. Air Force to develop and deliver a ruggedized, deployable charging system for electrified support equipment, with work running out of Byrdstown into 2027. It is our first defense contract, and it came through a competitive showcase against a national field, and it opens a procurement path that did not exist for Xos six months ago. Utilities are expanding, not piloting. Xcel Energy, which started with two hubs in Colorado in 2024, has placed multiple follow-on orders this year, including units headed to service territories Xcel has never put a hub in before. Duke Energy has units in the field, Orlando Utilities Commission, and other Florida utilities are running hubs. These are organizations that evaluate equipment for years before they standardize it, and they are coming back for more. The school bus market has become one of our fastest-moving verticals. Twin Rivers Unified School District, one of the most electrified school fleets in the country, is charging buses on Exos hubs. Highland Electric Fleets, which finances and operates electric school buses for districts, has hubs in service. First Student, which operates a fleet of tens of thousands of school buses, is operating our hubs as well. What has changed in the last quarter is the conversation. Districts that came to us for charging are now asking about the PowerHub as backup power for the school itself. So that when a utility shuts off service for a wildfire or a storm, the campus stays lit, the refrigerators stay cold, and the community has a place to go. That is not a charging sale. That is resilience infrastructure. And the same districts are the buyers. The rest of the list is wider than I expected a year ago. Transit agencies, with which we spent a week at APTA in Chicago this month, convenience store operators, we met them at the NACS show in Las Vegas, and they weren't asking about charging at all. They wanted backup power that keeps the store open and the pumps running through an outage. State programs like the Texas Backup Power Package Program are now putting real money behind exactly that. Rental car and ride-hailing fleets, where vehicles cycle through depots the grid was never sized for. Autonomous fleets, where a leading operator placed a 12-unit follow-on order this summer and took our first hubs into Europe. And in agriculture, where a John Deere electric tractor is now charging off an Xos hub during the pecan harvest, and growers are starting to see the hub the way construction crews already do, as a piece of equipment that lets the rest of their electrical equipment work. Then there's the market that drove the PowerHub launch in June, data center construction. Through the quarter, we worked directly with general contractors building hyperscale sites, and in October, we were the only equipment vendor invited alongside some of those contractors to a major data center sustainability summit. The question we are getting from the people who run these projects is no longer whether a hub can keep construction equipment charged, it is whether a PowerHub will be able to carry live data center loads alongside generators and grid power. The answer is yes. Customers see us in rooms we've never been in before. We'll be on the floor at RE+ this month, the largest energy storage and solar show in North America, as a power company rather than a truck company showing a charger. And in January, we will be at PowerGen, where the people who build and run generation assets go to buy. Project developers, engineering procurement and construction contractors, utilities, and power producers think in megawatts and megawatt-hours, and our 3.1 megawatt-hour PowerHub will fit that scale. Underneath all of this, we kept doing the unglamorous work. In August, the full hub lineup from 210 kilowatt-hours to the 630 kilowatt-hour flagship earned UL 2202 certification. That listing is what lets a customer permit, insure, and specify the hub in jurisdictions that require listed equipment and it removes weeks from deployment timelines. Gio will cover the certification and production work in more detail because the capacity he has built in Byrdstown is what makes next year's plan possible. We are also adding people carefully. The inbound interest across these segments has outrun the size of our sales and business development teams, so we're adding headcount there, in the seats that turn demand into purchase orders, while holding the rest of the cost structure where we worked so hard to get it. Our plan is to make every new hire pay for itself in orders. Our vehicle business continues to matter, and I do not want the energy story to crowd it out. Step vans, deliveries to FedEx ISPs continued in the quarter, powertrain kits are shipping to Blue Bird with vehicle-to-grid capability, and the trucks remain the reason fleets trusted us with their energy needs in the first place. Commercial vehicles and EV charging will be a substantial part of Xos for years. But here is what I want investors to hear clearly. Based on the orders in hand, the pipeline, and the breadth of segments now buying, we expect our power business, led by the PowerHub, to grow faster in 2027 than any product we have ever launched and to become the largest part of Xos. Larger than trucks and larger than EV charging. In short, 2027 will be the year Xos's productivity is measured in megawatt-hours as much as it is measured in units. With that, I'll turn it over to Gio to walk through the operational highlights of the quarter.

Thanks, Dakota. Last quarter, I talked about the testing and the certification work underway across our hub portfolio. In the third quarter, that work started to pay off, and Q3 became a quarter of moving products from development into the field. The most important milestone was UL certification for the Charger Hub. In August, the Charger Hub completed certification to UL 2202 and UL 2231. This is critical for customers who need certified charging equipment that can be deployed safely and reliably at their sites. We also continue to advance the UL 9540 program for the broader PowerHub and ChargerHub product family. It's a substantial program with multiple parallel work streams, including system-level safety testing and a factory audit of our Tennessee plant. Customers in rental, industrial, and infrastructure markets increasingly ask for UL 9540 certification, and we're making steady progress toward that milestone. On the product side, our AC export PowerHub moved from prototype into production. Our team built and tested the first units in the third quarter, and the 420 kilowatt-hour PowerHub is now in production. During the quarter, we also increased the power output of our PowerHub systems and continued design and analysis work on additional hub variants, making engineering improvements along the way. We also put the PowerHub in front of our customers. During the quarter, we demonstrated our hub products with two blue-chip customers, including an extended field trial, and completed several demonstrations in defense applications, where mobile power that deploys quickly and can run quietly without a grid connection is a strong fit. We demonstrated integration with customer generators with the hub automatically starting and stopping the generator as needed. That capability matters for customers who want to cut generator run hours, fuel use, and maintenance without changing how they work on site. On the vehicle side, we continue delivering Xos trucks and powertrains, and we're conducting testing to optimize truck performance for the 2027 model year. That work draws on what we've learned from the vehicles already operating in our customers' fleets and is aimed at delivering more value to the fleets that rely on our trucks every day. On the production side, we spent a lot of time in the third quarter planning for 2027. We built a detailed capacity and labor plan for our Byrdstown facility to support a larger hub program covering production line layout, staffing, and flexibility in the event that demand runs ahead of production. We also continued to improve our service operations. During the quarter, we sped up how quickly we get parts to the field, and we kept working to resolve customer issues faster. In supply chain, we continue to expand our in-house fabrication capabilities to give us more control over cost and schedule. We continued our reshoring efforts as part of our broader cost-down strategy, and we see them as an important lever for margins and supply resilience going forward. As we move into the end of the year and into 2027, our priorities are straightforward. Continue to ramp up hub production, complete UL 9540 certification for the PowerHub and ChargerHub products, and bring our hub variants to market and keep building a flexible, capital-efficient manufacturing operation that can scale with demand. And with that, I'll turn it over to Liana.

Thanks, Gio. Before I go through the quarter, I want to frame the first nine months of 2026 because three things moved in the right direction at the same time. Our operating results improved sequentially across the board, from revenue and gross margin through operating loss and adjusted EBITDA. Our cost base continued to come down from a year ago and our balance sheet got leaner with less debt and less inventory than we started the year with. With that as the backdrop, let me walk through the details including the drivers behind our revised outlook. For the first nine months of 2026, our revenue was $21.5 million on 158 units, down from $40.8 million on 294 units in the same period last year. The decrease reflects significantly lower step-down volumes from the year-ago period, which included the impact of 195 units as part of the UPS order recognized in Q2 and Q3 2025, together with orders that shifted into subsequent quarters pending customer readiness and acceptance. For Q3 2026, our revenue was $5.5 million on 33 units, down from $16.5 million on 130 units in Q3 2025, but up sequentially from $4.7 million on 30 units in Q2 2026. This quarter's deliveries were mainly driven by our hub and powertrain product lines. For the first nine months of 2026, we generated GAAP gross profit of $5.8 million, representing a gross margin of 26.9% compared with $5.4 million or 13.3% in the same period last year. This represents an improvement of more than 13 percentage points and marks the highest nine-month GAAP gross margin in our history. Non-GAAP gross profit increased to $6.5 million or 30.4% compared with $3.8 million or 9.4% in the prior year period, representing an improvement of more than 20 percentage points. The year-over-year improvement reflects a favorable shift in product mix toward higher margin hub and powertrain deliveries, the absence of UPS step-down deliveries that weighed on the prior year period, and continued benefits from optimized inventory management and sourcing strategies. For the third quarter of 2026, GAAP gross profit was $0.9 million or 15.3% compared with $2.6 million or 15.5% in the third quarter of 2025 and $0.6 million or 12.1% in the second quarter of 2026. Non-GAAP gross profit was $1.9 million or 34.4% compared with $2.7 million or 16.1% in the prior year quarter and $0.3 million or 7.2% in the second quarter of 2026. The sequential improvement in GAAP gross profit reflects higher average selling price due to product mix. This quarter marks our 13th consecutive quarter of positive non-GAAP gross margin. Turning to expenses, through the first nine months of 2026, operating expenses were $25.8 million compared to $28.7 million in the same period last year. The reduction of approximately 10% reflects our continued discipline in managing costs while continuing to invest in future growth. Operating expenses for the third quarter of 2026 were $8.3 million, including a $0.5 million one-time benefit from a settlement of a software-related vendor contract, compared to $9.5 million in the third quarter of 2025 and $8.5 million in the second quarter of 2026. Excluding the settlement, operating expenses increased approximately $0.3 million sequentially, driven by higher research and development spending. Our operating loss through the first nine months of 2026 improved to $20 million compared with $23.3 million in the same period last year, a reduction of approximately 14%. Non-GAAP operating loss for the first nine months of 2026 improved to $12.9 million compared to $19.6 million in the same period last year, representing a reduction of approximately 34%. This improvement reflects continued progress towards profitability, supported by improved margins, enhanced operating efficiencies, and disciplined cost management. Operating loss for the third quarter of 2026 improved sequentially to $7.5 million compared to $7.9 million in the second quarter of 2026, driven by higher gross profit and lower operating expenses. This compares to an operating loss of $7 million in the third quarter of 2025. The third quarter of 2026 included a $0.5 million one-time benefit from the settlement of a software-related vendor contract as previously mentioned. Excluding this benefit, operating loss would have been relatively consistent with the prior quarter. Non-GAAP operating loss improved to $4.1 million from $6.2 million in Q2 2026 and $4.7 million in Q3 2025. Our EBITDA loss through the first nine months of 2026 was $18.3 million, compared with a loss of $12.4 million in the same period last year, primarily as a result of a $9.4 million gain on operating lease termination in the prior year period. Adjusted EBITDA, which excludes that gain, among other items, was a loss of $12 million through the first nine months of 2026, an improvement of approximately 27% compared with a loss of $16.5 million in the same period last year, reflecting the continued benefits of cost discipline, operational efficiency, and improved performance. For Q3 2026, EBITDA was a loss of $6.9 million, improving sequentially from a loss of $7.4 million, compared with positive EBITDA of $2.9 million in Q3 2025, which included the lease termination gain. Adjusted EBITDA for Q3 2026 was a loss of $4.6 million, improving 15.6% sequentially from a loss of $5.5 million in Q2 2026, compared to a loss of $4.3 million in Q3 2025. Turning to the balance sheet, we closed Q3 2026 with cash and cash equivalents totaling $12.1 million, compared with $13.2 million at the end of the second quarter of 2026. During the quarter, we raised $2.8 million net of offering costs under our ATM program, and we paid $1.5 million of principal on our convertible note, reducing outstanding convertible debt to $14 million down from $14.5 million since year-end 2025. Through the first nine months of 2026, operating cash flow less CapEx, or free cash flow, was negative $7 million compared with positive $3 million in the same period last year. The change primarily reflects a significantly larger working capital release in the prior year period when reductions in inventory and accounts receivable generated $24.4 million of cash compared with $6.3 million in the current year period. Inventory declined to $21.8 million at the end of the quarter, from $23.5 million at the end of last quarter, and $25 million at the year-end 2025, reflecting continued progress from our inventory management initiatives and broader operational discipline. Accounts receivable net increased slightly to $4.6 million at the end of this quarter from $4.5 million at the end of last quarter. Over the past four quarters, we collected more than $36 million from both customers and organizations administering state grant programs, including $5.5 million during the third quarter of 2026. This discipline remains central to building a more self-sustaining business with a stronger foundation for long-term stability. As we look ahead, our priorities remain clear. Scaling efficiently, proactively managing liquidity, pursuing strategic capital raising opportunities, allocating capital with discipline, and maintaining our focus on accounts receivable collection. Now, turning to our outlook, certain customer orders we had expected to deliver in the fourth quarter have shifted into future periods, primarily due to customer readiness and delivery timing. These are deferrals, not cancellations. Combined with changes in expected product mix, we are revising our full-year 2026 guidance, revenue of $25 million to $35 million, unit deliveries of 185 to 250 units, and a non-GAAP operating loss of $17.2 million to $20.5 million. With that, I'll turn the call back over to Dakota.

Thank you, Liana. A year ago on this call, the hub was a charging accessory for a truck company. Today, it charges aircraft, backs up schools, keeps utility crews working through outages, and is being evaluated to carry data center loads. The product did not change as much as the world around it. Power got scarce, and Xos was already building the thing that delivers power. Growth, margins, and liquidity remain our top three priorities in running the business. The growth is now coming from more segments than we can serve with marketing alone, which is why so much of this year went into certifications, production, flexibility, and partners. The margins follow the mix, and the mix is moving toward the hub. And liquidity, as Liana described, is being managed so that growth is funded by customers and lenders before it is funded by shareholders. Ten years in, this team has built a company that makes money on the most complex products in the power industry and is now pointed at the largest problem in physical infrastructure: load growth across the grid. With that, I'll hand it back over to the operator for questions. We will now begin the question and answer session.

[Operator Instructions] The first question today comes from Craig Irwin with Roth Capital Partners. Please go ahead.