Xos, Inc. (NASDAQ:XOS) Q3 2023 Earnings Call Transcript

Xos, Inc. (NASDAQ:XOS) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Greetings, and welcome to Xos’s Third Quarter 2023 Earnings Call. At this time, all participants’ 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. [Operator Instructions] At this time, I would like to turn the conference over to General Counsel of Xos, Christen Romero. Thank you. You may begin.

Christen Romero: Thank you, everyone, for joining us today. Hosting the call with me today are Chief Executive Officer, Dakota Semler; Chief Operating Officer, Giordano Sordoni; and Acting Chief Financial Officer, Liana Pogosyan. Ahead of this call, Xos 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 investor.xostrucks.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.xostrucks.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 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 forward-looking statements. With that, I’ll turn it over to Dakota.

Dakota Semler: Thanks Christen, and thank you everyone for joining us to review Xos’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 GAAP gross margins. Next, our COO, Giordano Sordoni, will provide an update on our manufacturing efforts. To conclude, our acting CFO, Liana Pogosyan, 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 GAAP 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 [Indiscernible], where trust was built over months of operating Xos step vans. These fleets typically follow a more regimented vehicle replacement cadence than smaller fleets, which translates into more predictable volumes for Xos.

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 Xos as an approved step-van vendor. This enables government fleets state wide to freely purchase Xos 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 Xos Hub, our mobile charging solution.

We won 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 Procura [Ph] 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 Xos’ 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 step vans. We expect that the step-up purchase requirements will stimulate significant commercial EV demand.

The first milestone in 2025 requires 10% ownership of zero-emission vehicles by existing California step vans fleets and will require thousands of new EV vehicles in California alone. As one of the only options for EV step vans, Xos 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, Xos is positioned for success. As the leader in our sector, we have delivered more Class 5 and 6 EV step vans 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 Xos is at a positive inflection point and on the horizon of a bright future.

With that, I will turn the call over to our COO, Giordano Sordoni, who will share an operational update.

Giordano Sordoni: Thanks, Dakota. This quarter, we achieved a new milestone in the Tennessee factory. Supported by customer demand, a culture of continuous improvement, and a dedicated team, we sustained a build rate in excess of 700 step vans per year. The team maintained this production rate for over a month, underscoring our ability to deliver substantially higher volumes without additional CapEx investments. We expect to regularly achieve and beat this production rate for progressively longer periods over the coming quarters. Improvements in factory efficiency, such as simplified vehicle assembly processes and reduced shipping costs, also contributed to our positive gross margins. We channelled lessons from five years of building step vans into our 2020 spring design.

A person inspecting a lithium-ion battery that is being recycled.

Our team implemented important changes that resulted in a simplified build process and better shielded us from supply chain variability. Increased use of sub-assemblies reduced congestion on the production line and minimized the impact of part availability disruptions by allowing more components of the step van to be assembled asynchronously. Implementing these processes required close collaboration from our manufacturing, engineering, and supply chain teams throughout the design, validation, and launch phases of our gross margin positive step van. I’m proud to share the team’s accomplishments and their positive impact on our overall delivery efforts. To take advantage of our new sub-assembly-driven production line, we invested in the systems, training, and the tools used by our manufacturing team.

We better integrated our product lifecycle management tools with our manufacturing execution systems. Vehicles on the assembly line are being built with digital work instructions and quality check stations built directly into the process. Months of slow builds conducted with our engineering and manufacturing teams allowed us to unlock additional efficiencies in the design and on the factory floor. Improvements to our work order systems and assembly instructions reduced downtime and decreased quality issues. Additionally, as a result of our complete transition to in-house manufacturing, we reduced labor costs per vehicle and better leveraged our in-house metal fabrication capabilities. By building more parts in-house, we eliminated supplier margins and freight costs and accelerated implementation of design updates.

Finally, I’d like to provide an update on our supply chain. We believe that things have settled into the new normal. Some disruptions remain for capacity-constrained vendors, but for the most part, concerns have shifted from part availability, pricing, and managing inflationary pressures. Wiring harnesses remain challenging for the entire industry and occasionally disrupt our production lines. However, most vendors are meeting our volume expectations and our supply chain team has turned their focus to improvements in purchasing terms to reduce the working capital out of its inventory. I’ll now turn the call over to our acting CFO, Liana Pogosyan, who will cover our financial results for the quarter.

Liana Pogosyan: Thank you. For the first quarter, our revenue increased to $16.7 million from $4.8 million in the second quarter of 2023. Our cost of goods sold during the quarter increased to $14.7 million compared to $8.5 million in the second quarter of 2023, largely as a result of our increased deliveries. GAAP gross margin during the quarter was a profit of $2 million compared to a loss of $3.7 million last quarter. Margin improvements were driven by higher average selling price from the 2023 model year’s cutdowns delivered in the current quarter. Additionally, the company achieved a quarter-over-quarter reduction in direct material, direct labor, and overhead costs on a per-unit basis through the realization of previous investments in R&D and continued focus on cost reduction through strategic sourcing.

Reduced write-downs from physical inventory counts, as well as releases of inventory reserves related to sold units, also contributed to our improved margins. It should be noted that GAAP gross margins for a vehicle OEM are impacted by a range of reserves that, combined with changes in sales mix between direct, dealer, and prior model inventory sales, introduced higher levels of volatility in quarterly results. For this reason, we continue to share a consistent non-GAAP gross margin that you can find in today’s earnings press release. Turning to expenses, our third-quarter operating expenses decreased to $14.6 million from $16.8 million in the prior quarter, driven in part by the June 2023 reduction in workforce. Non-GAAP operating loss for the third quarter was $11.2 million.

We closed the quarter with cash and cash equivalents of $22.6 million, compared with $27.8 million at the end of the second quarter. In addition to cash used in operating activities, we used $10.1 million during the third quarter in financing activities, primarily related to payments on our convertible debentures with Yorkville. Such payments to Yorkville are scheduled to conclude in the fourth quarter. We continue to evaluate financial and strategic alternatives to provide additional liquidity and fund the business plan. Inventory dropped to $48.9 million in the third quarter from $55.5 million last quarter due to a combination of fast returns and sell-down of our remaining prior generation sub-grant inventory. We anticipate inventory levels will continue to decrease next quarter.

Operating cash flow less CapEx, or free cash flow, of negative $8.4 million for the quarter was significantly lower than negative $15.8 million last quarter. This change reflects a meaningful reduction in our burn rate from prior quarters, and we continue to see reductions in cash burn on a month over month basis. Coming up our strongest quarter thus far, we are reaffirming our full year 2023 guidance of 250 to 350 units delivered, revenue to be in the range of $36.3 million to $54.7 million, and a non-GAAP operating loss of between 50.5 million to 61 million. Our priority remains getting to free cash flow generation as soon as possible. This quarter was an important step in that direction and reflects a growing delivery volume, strong margins, and improved inventory management.

I’ll now turn the call back over to Dakota.

Dakota Semler: Thanks, Liana. To wrap up, Xos is at an exciting inflection point. We are a leader in EV commercial trucks with over 450 deliveries to date. We are a leader in EV economics with top-tier gross margins. We are well-positioned for future success due in part to regulatory developments requiring the adoption of commercial EVs. We see significant upside potential for our shareholders as we continue to deliver quality vehicles at competitive prices and the inevitable transition to medium-duty EVs quickens. Finally, we would like to thank all veterans and their families for their service and sacrifices made to protect our country and our freedoms. Your bravery and dedication in times of peace is particularly appreciated, but in difficult times like we are going through globally, your sacrifices are truly heroic.

We wish to thank all past veterans and those serving today who have done so much for this incredible country. With that, let’s open the line for questions.

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Q&A Session

Operator: [Operator Instructions] The first question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Unidentified Analyst: Hi, this is Adam on for Jerry today. Thanks for taking my question. It looks like COGS per unit came down around 35% sequentially quarter-over-quarter. Can you just unpack some of the moving pieces driving the sequential improvement and help us understand the level of six, costs and cost a good sole number, just thinking about how we should think about the unit profitability trajectory from here if you’re able to continue to ramp up delivery sequentially?

Dakota Semler: Yes, absolutely. And thanks, Adam, for that question. So really quite a few things that contributed to that improved gross margin, the first of which being the launch of our Pelican program, which is our 2023 step van. That vehicle is the result of over a year of engineering work and supply chain work that helped improve overall direct material costs that helped reduce the amount of time it takes to assemble a vehicle, reducing labor allocations and overheads. And we’ve also made it a more reliable, more durable vehicle. So most of the changes came because our product mix started shifting to that 2023 model year vehicle that we’ve been shipping to key customers in the quarter. The other thing that’s contributed to improved gross margins is our continued focus on adjusting pricing for the market.

So we’ve seen several factors, including inflation rising, which has had an impact on all commercial vehicles. And in the last several years, we’ve continued to update our pricing to ensure that it’s in line with the market while still being competitive and enabling fleets to achieve that TCO savings. The price action that we’ve taken at the beginning of 2023, as well as a price change that we made in midway through 2023 helped us contribute to higher than average ASPs across the vehicles that were delivered. But I’ll let Liana add a little bit more color too on the specifics.

Liana Pogosyan: Sure happy could provide additional context. Our GAAP growth margins, as we noted in our prepared remarks, is also impacted by various GAAP reserves. And over the last year, we’ve made significant improvements in our overall inventory management process. And as a result of that, we’ve seen those impacts in our financial performance of reduced inventory reserves this quarter that also contributed to improved margins.

Unidentified Analyst: Great. Thanks. That’s helpful. And then I think your guidance implies something like 125 units delivered next quarter at the midpoint. So a nice little step up from here. How much visibility and comfort do you have on that ramp? And, any early thoughts on the trajectory for 2024 deliveries?

Dakota Semler: Yes. So specifically in regards to this quarter, we’re reiterating guidance and expect to remain within that range. I think it’s going to be a strong end of year quarter. And we look to build momentum with each quarter and build on successive growth. So that’s what we’re expecting for the remainder of this year. Into 2024, as we discussed in our comments about the incentives, we believe that market will continue to be strong with our national account customers. There’s always a seasonal impact that comes as a result of the holidays, which slows down kind of towards the end of Q4, beginning of Q1. But that ramps pretty quickly particularly in areas like in parcel delivery, where folks are getting ready to build up their fleet over the summer months and spring prior to peak season for next year.

The other factor that we’re really considering and building into our volumes for next year is growth in our powertrains business. We’re expecting significant growth in that area to come from some other specialty vehicle industries adjacent to last mile delivery vehicles or our current step van vehicles that we’re building. So continue to see growth in that segment, although we haven’t issued full guidance for 2024 yet.

Unidentified Analyst: Great. And then last one from me. Can you just update us on how you’re thinking about, financing needs from here and different, financing options that you can take in the current rate environment to bolster your liquidity?

Dakota Semler: Absolutely. So one of the things that getting to positive gross margin, positive GAAP gross margins enables us to do is seek more traditional debt financing options out. So we’ve been having some really positive dialogues with various types of non-diluted capital providers, although the interest rates and rates in these kinds of markets are still high. As we continue to grow and ramp volumes, it will be essential to have access to that sort of capital for working capital and funding growth of inventory to support our backlog. The other thing we’ve been doing and considering is evaluating other strategic opportunities that exist in the market, whether that be equity capital opportunities or other strategic collaborations that bolster up the balance sheet or minimize our cash use. So we’re looking to any kind of transaction that would help create synergies for the business and build up a better cash liquidity balances.

Unidentified Analyst: Great. Thanks so much.

Operator: The next question comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Mike Shlisky: Hello. Good afternoon. Thanks for taking my questions. I guess I wanted to start off. I’ve asked this question before, but now that’s upon us, the ACF rule starting January 1st. I guess maybe a two-part question. At this point, are there any other providers of the step van types that you make that could possibly deliver the vehicles in the quantities that are needed for next year besides Xos? Is there anybody else out there that could compete on the forced EV adoption for next year? And then maybe secondly, how you started seeing at this point, now that we’re just, a month and a half, two months away, elevated incoming phone calls where we have to get these like vans or at least POs for a van ASAP to either get them this year or at least show that we’re trying to get them and apply for an exemption. Just kind of curious as to what the customer voice has been recently on that.

Dakota Semler: Yes, absolutely. So, Mike, in response to your question, I believe there’s one other company that might be able to create a solution that would be compliant with the ACF rule in the step van market. But we don’t work with them and don’t know if they’re capable of producing the volumes that are necessary for the market. So that obviously still remains to be seen. I think when you look at the customer list and customers that we’ve worked with in the past and are now working with in some of our new deliveries that will take place in Q4, including to the leading parcel delivery companies in this space, I think it speaks to us having the most reliable, durable product for their operations. So we’re excited about it.

It amounts to thousands of units that will need to be on the road by the end of 2024. And as we’ve shared previously in other earnings calls, a big part of that is going to be infrastructure and getting the trucks delivered before the end of the year. So we’re starting that process with several of our customers, even as they’re taking delivery of trucks. Even as they’re taking delivery of trucks now, planning out infrastructure for next year.

Mike Shlisky: Okay. I guess I was trying to get a sense of the sense of urgency among those customers today. Is it getting a little more stronger? I mean, I guess I’m trying to figure out how serious are they about complying with the rules or are they all trying to find exemptions at this point?

Dakota Semler: Yes, I would say there’s been some dialogue coming from industry trade groups around challenging the rules and not complying. Although CARB has shown in the past that even with those kinds of challenges, they’ve still issued citations and have issued notices to comply to large fleets that haven’t met the rule. So when it comes to large national accounts and large fleet customers in California, they’re known to work within CARB’s rules and comply with them. It’s generally the smaller fleets that you don’t see as much compliance with. And that’s because they have a lot of risk. If a large parcel delivery or a uniform rental company can’t operate within the state of California, it’s one of the largest markets for most of these fleets. So they need to be able to have continuing operations and they’ll pay to comply and make sure they can legally operate.

Mike Shlisky: Got it. I want to switch over to gross margins and maybe even dollar margins really quickly. I’m just trying to do some, throwing the ball against the wall math here. But it sounds like maybe given the fixed cost we’ve got today that might be coming down a bit, you could turn even dollar positive at maybe a thousand units a year. Am I on the right track there? Or can you give us an update when you think you might be able to start showing some pretty EBITDA out or some free cash flow?

Dakota Semler: Yes, that’s a great question. So I think as we shared about a year ago in our previous earnings call, we had a calculated plan to reduce direct material costs, reduce fixed costs of operating the business and other OpEx and improve our trajectory to getting the business to gross margin positive. And the next thing we shared was that the next step on our roadmap is getting to generating positive free cash flow. So we haven’t guided to a specific date, but I think we’ve made some incredible accomplishments in the last year to achieve these goals and to get there in the very near future. First and foremost, we’ve got unit gross margins ranging anywhere from the low teens percentage all the way up to low 20s percentage points.

Second, we’ve cut operational expenses significantly, nearly 50% year-over-year, which demonstrates that we can continue to operate our model, scale sales and scale growth of our products into the field while maintaining our lean operational structure that supports the ongoing needs of the business, including engineering, supply chain and our service requirements to keep our vehicles supported in the field. And then the third thing is we continue to increase volumes quarter-over-quarter. And so our focus as we increase volumes is to get to that point where we’re generating positive EBITDA and eventually positive free cash flow in the near term future.

Mike Shlisky: Got it. Maybe one last one for me, and it goes back to your last question that your last answer there. You’ve got a bunch of vehicles now that are on the road for well over a year, two or even more than that. Do you guys sense that in 2024 that parts and service will start to be a bigger part of the revenue? Should we start to actually model any actual numbers there? And I guess on a kind of related note, can you give me, share with us what your customers have shared about uptime of your vehicles compared to other ICE models or even other EVs that they may have out there? I’d appreciate both of those answers. Thank you.

Dakota Semler: Yes, it’s a great question. So we’ve had vehicles on the road all the way since 2018, but a substantial portion of vehicles have been put on the road in the last couple of years. We are continuing to see our service needs grow in the field from unplanned maintenance events. And we do have a small amount of service revenue coming in through parts sales, as well as service labor to help repair those vehicles out in the field. And when we say unplanned maintenance events, we’re talking about things like breaking a mirror off or a tire or a wheel, systems that aren’t failing because of the reliability of the vehicle, but maybe because of an operator error or other kind of issue. So we are seeing some parts revenue on that front and expect that will continue to grow as more vehicles are out there in the field and more powertrains are out there in the field.

The other component, which is as we start to see vehicles age into the field, it’ll be a few years before we see significant replacement costs on things like battery or powertrain components, just because the expected lifespan of a lot of those components is far longer than these vehicles have been out there in the field. As you probably remember, Mike, we have a hybrid model of how we service and support customers in the field. We have a team of Xos technicians across the country from California all the way to the East Coast and covering the Midwest and Texas and other areas. And for those technicians who are conducting repairs and diagnostics on vehicles, that’s where we’ll sell a direct part. But then we also have certain markets where we work with strong dealer partners to sell our parts and utilize their service teams to support our vehicles.

So in that case, margins on parts revenue is a little bit lower, but it is still coming in as we get more vehicles out into those markets.

Mike Shlisky: Great. I appreciate the discussion. I’ll pass it along. Thank you.

Operator: The next question comes from Donovan Schafer with Northland Capital Markets. Please go ahead.

Donovan Schafer: Hey, guys. Congratulations on the quarter. And these look great. Good you guys have been sticking to things and you’re kind of putting up some numbers from the initiatives you’ve been working on. I want to start by, I dialed in late, so it’s possible I missed this if it was in the prepared remarks, but EV charging has been such a headache historically. So can we get an update on that? Is it something that you feel like at this point is actually kind of behind us or is it still touch and go enough that we could get quarters that run into those issues? Has something changed where that’s kind of in the rear view mirror or we’re not quite out of the woods yet per se? Any clarification on that?

Dakota Semler: Yes, charging infrastructure is a really important aspect of our customer deliveries, Donovan. I think, thank you for asking the question. As we’ve delivered more vehicles into the field and as our orders have shifted to be supporting more national accounts than small and medium-sized regional fleets, the infrastructure problems and challenges have lessened, but they are still very much there. As we’ve shared in previous calls, we anticipate that these infrastructure challenges will be there for years to come. I shared earlier in the call that there are different phase-in milestone requirements. In California, for instance, the first one is 10% of high-priority fleets by the end of next year. The next iteration is 25%.

So the infrastructure that will need to be deployed over the coming years will continually increase each year. And with that, we anticipate challenges, particularly for some of these large deployment sites where there might be 100 or 200 vehicles parked out. But that being said, our deliveries in the quarter were actually trending much more towards large national accounts, and we anticipate that continuing in the next 12 months or so, really because that’s where we’re seeing our strongest recurring order base right now. So with those customers, infrastructure problems generally lessen. They’re more proactive about creating long-term infrastructure plans. Generally, they have more sites to deploy their vehicles across, and so it’s not always constrained to a single or a few locations.

And it gives us more flexibility to work with those customers on long-term planning. So to answer your question, yes, we anticipate it being a problem, although the shifting customer mix will help somewhat in alleviating customer deliveries going forward.

Donovan Schafer: Okay, that’s helpful. And then turning to, when you talked about the off-road, I think it’s $160,000 per unit California credit, you mentioned Marine or Port Appleton, and you also talked about the powertrain business doing well and looking at strong or growth opportunities there, which of course makes me think of Wiggins Powerlift, which has been one of the powertrain customers before. So I’m curious, how much do you see the — I think in California, there’s a new law driving lower emissions at the ports. And then if you have these different, those would be, of course, applications that are not on roads, and so you could use the $160,000 credit and all this stuff. So how much are kind of those multiple regulations that would come into play in a port marine-type environment? How much of a driver and potential is there in that area? If you can give any color on that, that’d be great.

Dakota Semler: Yes, happy to. So as a category of top line, our Powered by Excess and our Excess Energy Solutions business still represent less than 10% of our overall revenues, but we anticipate them growing at an even faster rate next year than vehicle sales. And part of that is accelerated by those regulations that you touched on, requiring all vehicles operating in and around airports and ocean ports in the state of California to go to zero emissions for the next few years. We also anticipate a lot of the environments that are needing additional charging infrastructure that’s flexible to be able to support the needs of various types of equipment, from forklifts to reach stackers to yard spotters and all of the other associated port material handling equipment.

While we can’t provide specific color or haven’t guided to that market yet, I think you will continue to see more growth in that segment, as well as other on-highway segments from the powertrain business that will show really fruitfully for us in 2024 and add strong gross margin unit sales, as well as more infrastructure sales. One anecdotal point that I’ll share is as we’ve launched the hub product into the market, we’ve had a whole array of new customers, both in the ports and airports, but also in other industrial sectors that need charging infrastructure that’s rapidly deployable, including smaller, lighter-duty class one and class two vehicle fleets that are looking for rapidly deployable charging infrastructure. So we anticipate that products like our hub will continue to see growth in other ancillary markets that are facing similar regulations to the ones our customer fleets are facing.

Donovan Schafer: Okay, that’s very interesting. And then just as a clarifying question, because Loomis [Ph] has been a big and kind of repeat customer, consistent customer for you guys, when you get orders, or when we’re talking about Loomis armored trucks, and when you’re talking about powered by Xos, do the armored trucks fall under, do you treat that as a powered by Xos, or is it more of like the 2003 Stock Van type chassis with the armored car body, and so you treat it, just thinking about when you give color and commentary about this is doing well, we expect growth here, we expect growth there. When you’re talking about, what bucket do you put the armored trucks into?

Dakota Semler: Yes, the armored vehicles are still on the 2023 step van chassis, so it’s still our conventional vehicle business. When we think about powered by Xos, we’re not building the overall chassis. We provide powertrain components, things like battery systems, motors, high voltage distribution, all the software, and other auxiliary components, but generally not the driveline, the chassis, the vehicle frame of those vehicles.

Donovan Schafer: Okay, that’s helpful. Okay, great, thanks guys. I’ll take the rest of my questions offline.

Dakota Semler: Thanks, Donovan.

Operator: This concludes the conference call and the Q&A. Ladies and gentlemen, thank you for your participation. This concludes today’s teleconference. You may disconnect your lines and have a wonderful day.