Xos, Inc.

And welcome to EXOS' third quarter 2023 earnings call. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. If you require operator assistance, please press star then zero. At this time, I would like to turn the conference over to the General Counsel of EXOS, Kirsten Romero. Thank you. You may begin.

Thank you, everyone, for joining us today. Hosting the call with me today are Chief Executive Officer Dakota Simler, Chief Operating Officer Jordana Sordoni, and Acting Chief Financial Officer Liana Pagosian. Ahead of this call, EXOS issued its third quarter 2023 earnings press release, which we will reference during this call. This can be found on the investor relations section of our website at investors.exostrucks.com. On this call, management will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release during this conference call or in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at investors.exostrucks.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures and performance metrics. Please reference the the information contained in the company's third quarter 2023 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. Participants should be cautioned not to put undue reliance on any forward-looking statements. With that, I'll turn it over to Dakota.

Thanks, Kristen, and thank you, everyone, for joining us to review EXIS's most profitable and highest revenue quarter yet, On today's call, I will cover highlights from the quarter during which we delivered 105 units and achieved positive gap gross margins. Next, our COO, Giordano Sordoni, will provide an update on our manufacturing efforts. To conclude, our acting CFO, Liana Pagosian, will share the company's third quarter financial performance. We are excited to report that deliveries were up 175% over last quarter. Importantly, we demonstrated our ability to scale unit volumes and simultaneously expand margins. Importantly, our cost reduction efforts and investment in process improvements over the past 12 months paid off. We attained a gap gross margin of positive 11.9% and unit gross margins of up to 20%. This positive performance gives us the headroom to achieve margins in line with best-in-class commercial truck OEMs. Much of our ability to deliver more vehicles than ever came from the improved manufacturability of the 2023 Step-In. Such gains in manufacturing efficiency will continue to support delivery volumes in the fourth quarter and beyond. Our diverse customer mix for the quarter underscores the continued demand we see for TCO competitive EV trucks. The majority of our deliveries this quarter went to large fleets like Loomis, Aramark, and Canada Post, where trust was built over months of operating ExoStep vans. These fleets typically follow a more regimented vehicle replacement cadence than smaller fleets. which translates into more predictable volumes for excess. Deliveries to small fleets were more impacted by macroeconomic concerns and contracted slightly this quarter. However, this was more than compensated for by the large increase in deliveries to national fleets. We anticipate that our strong delivery numbers this quarter will translate to a strong fourth quarter owing partly to the more consistent demand and charging infrastructure readiness of larger fleets. We also had commercial victories in the public sector where the California state government selected Exos as an approved step van vendor. This enables government fleets statewide to freely purchase Exos vehicles via normal procurement processes and limits the ability of our competitors to serve the same market. Beyond step vans, we achieved an important milestone with the Exos Hub, our mobile charging solution. We want approval for the core incentive from the California Air Resources Board, or CARB, that covers up to $160,000 for off-highway vehicle charging applications. Immediately following approval, we saw an uptick in customer interest for deployment to construction sites, ports, and other eligible sites. Our powertrain business also saw an uptick in interest from school bus and RV OEMs, where established manufacturers are looking for a dependable EV powertrain solution. In particular, a number of new parties came to the table following the Proterra bankruptcy, which provided an opportunity for their customers to consider a more cost-competitive alternative. Turning now to positive momentum in the regulatory environment. This October, California's Secretary of State received the final version of the Advanced Clean Fleets, or ACF, rule with an effective date of January 1, 2024. ACF requires fleets in California to either purchase only zero-emission vehicles going forward or adopt a series of zero-emission milestones for their fleets. The regulation applies to any fleet operator with either more than $50 million in global annual revenues or more than 50 medium or heavy-duty vehicles in operation. This includes the vast majority of Exos' California customers who will be required to either purchase only zero-emission vehicles after January 1, 2024, or meet the first milestone of 10% zero-emission vehicles by January 1, 2025. We anticipate that most of our customers will opt for the milestones, which will allow fleets to comply by purchasing increasing numbers of EV stepvans. We expect that the step-up purchase requirements will stimulate The first milestone in 2025 requires 10% ownership of zero emissions vehicles by existing California Stepvans fleets and will require thousands of new EV vehicles in California alone. As one of the only options for EV Stepvans, Exos is well positioned to capitalize on this near-term demand. Future milestones of 25% EVs by 2028 50% EVs by 2031, and 75% EVs by 2033, and 100% EVs by 2035 will support the industry for more than a decade. The ACF rule includes a short list of exemptions available on a case-by-case basis to account for charging infrastructure delays and vehicle availability concerns. Such exemptions include time allowances for delays in charger installations and utility upgrades, as well as exemptions for vehicles with range and power requirements not yet met by EVs. Charging delay extensions will likely spread some of the 2025 milestone demand over a longer period of time, but will also encourage fleets to prioritize charging investments. Approval for an ACF extension requires an in-progress charging plan and documented evidence of slowdowns from contractors, utilities, and or equipment suppliers. Importantly, the vast majority of the step van market we serve will not be eligible for ACF vehicle availability exemption as our long range step van satisfies the vast majority of operational routes. Further, no exemptions are available to fleets that haven't already met the 10% milestone. In summary, Exos is positioned for success. As the leader in our sector, we have delivered more Class V and VI EV step-ins than anyone else, achieved our lofty gross margin goals, and reinforced our strong backlog and customer pipeline. Combined with a robust regulatory regime, we believe EXOS is at a positive inflection point and on the horizon of a bright future.