Xos (NASDAQ:XOS) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
Xos Inc launched the Power Hub, expanding its focus from electric vehicles to power infrastructure, with significant opportunities in data centers and the AI economy.
Quarterly deliveries were lighter than expected at 30 units, generating $4.7 million in revenue, with delays attributed to customer deferrals. The company anticipates fulfilling these orders over the next year.
Despite lower deliveries, the company achieved its highest first-half GAAP gross margin at 31%, with a strong non-GAAP gross profit improvement due to a favorable product mix and cost efficiencies.
The company expanded its product line with the Power Hub Series, offering mobile, containerized battery energy storage solutions, and anticipates strong demand from data centers, public sector, and defense customers.
Xos reduced operating expenses by 9% year-over-year while improving operating loss by 23% in the first half, and raised $7.6 million to strengthen its liquidity position.
Full-year guidance was revised with expected revenue of $35 to $43 million and unit deliveries between 250 to 350 units, reflecting shifts in expected product mix and volumes.
Full Transcript
OPERATOR
Welcome to the Xos second quarter 2026 earnings call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, please press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded.
I would now like to turn the conference over to David Zlatcu, General Counsel. Please go ahead.
David Zlatcu, General Counsel
Thank you all for joining us today. Hosting the call with me are our Xos Chief Executive Officer, Dakota Semmler; Xos Chief Operating Officer, Giordano Sordoni; and Xos's Chief Financial Officer, Liana Pogosian. Today, after the close of regular trading, Xos issued its second quarter 2026 earnings press release. As you listen 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 June 30, 2026.
Management's statements today reflect management's views as of today, August 13, 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 these 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 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.xostrucks.com investor overview. With that, I now turn it over to our CEO, Dakota.
Dakota Semler, CEO
Thanks, David, and thank you, everyone, for joining us on the call. Every company has a handful of quarters that redraw the boundaries of what it can become. Q2 2026 was one of those quarters for us. In June, we launched the Power Hub, the newest and largest member of the Xos Hub family, and with it we stepped directly into one of the largest infrastructure buildouts in American history: the race to power data centers and the AI economy. The through line of the quarter was clear: Xos is becoming a power infrastructure company, with the products, the customer base, and the manufacturing capability to grow in markets far larger than the one we started in. On the headline numbers, we delivered 30 units in the quarter, generating $4.7 million in revenue, and posted our twelfth consecutive quarter of positive non-GAAP gross margins. Deliveries came in lighter than we planned. We anticipated delivering far more units in the quarter, but multiple orders shifted into subsequent quarters pending customer delays and customer acceptance. That is frustrating, and I will not pretend otherwise. But these are deferrals, and we anticipate fulfilling those orders over the next year.
Even with the later deliveries, our margin trajectory through the first half remains strong. GAAP gross margin for the first half of 2026 was 31%, the strongest first half in Xos history, and we are proud of that. Liana will take you through the full financial picture, including our updated full-year outlook, which reflects the timing of those shifted orders. What has not changed is the demand underneath this business. We anticipate a strong second half with multiple opportunities across our growing segments.
In June, we announced the launch of the Power Hub Series: mobile, containerized battery energy storage, with our flagship 3.1 megawatt-hour unit delivering 1.5 megawatts of continuous power from a standard intermodal container form factor. Multiple units can be combined to power multi-megawatt sites without traditional engineering cycles. This is not just a bigger battery; it's a deployable power system. Here's why it matters: we believe one of the biggest constraints in the U.S. industry right now is the inability to deliver power where it is needed, when it is needed. Data centers and industrial facilities are waiting three to seven years for grid interconnection. The Power Hub lets them energize a site in days. And we're not arriving in this market without a foothold. Xos has more than 250 megawatt-hours of energy storage already deployed across North America. Customers in this market do not buy promises; they buy proof, and our proof is our EV Charger Hubs that are working in the field today.
That demand is already converting. The Charger Hub has already supported a large data center construction project for a hyperscaler customer—exactly the application this product was built for: power-constrained sites, fast deployment, no permitting overhead, and customers who need uptime more than they need Siri. We expect to announce rental, leasing, and deployment partners for the Power Hub in the coming quarters. The same demand signal is coming from the public sector, and it grew louder throughout the quarter.
In May, Xos was selected as one of only 17 finalists from a nationwide pool of applicants at the U.S. Air Force Global Strike Command Commercial Capabilities Showcase, where our team ran a live demonstration with the Charger Hub—real-time DC fast charging of an electric vehicle, no grid connection, no setup crew. And in June, we made an appearance at the Government Fleet Expo in Long Beach, putting our trucks, powertrains, and hubs in front of municipal, state, and federal fleet buyers.
The electrification of the battlefield is one of the most significant operational shifts inside today's military. Unmanned aerial systems, counter-UAS platforms, distributed computing at the forward operating base, and expanded telecommunications are all creating load growth that only quiet, deployable power can serve. The Hub was built for exactly that environment, and the reception from defense customers this quarter confirmed it. Our commercial business kept building as well.
At ACT Expo in May, we showcased the complete Xos ecosystem: step vans powered by Xos powertrains, and the Charger Hub—at one conference. The proof points behind that ecosystem kept stacking up: over 100 powertrain orders since we launched the business with Blue Bird in the second quarter of last year; Hubs operating with fleets like Caltrans, Duke Energy, Xcel Energy, and Waymo; vehicles in service with UPS and FedEx ISPs; and more than 1,000 Xos units in operation today.
The economics underneath all of this continue to move in our favor. With diesel in California averaging north of $7 per gallon during the quarter, heavy-duty fleets running electric are seeing per-mile fuel savings of more than 60%. Those savings are real, they are durable, and they do not depend on where federal policy lands. The regulatory tailwind may have turned, but the economic tailwind has not. Underneath the growth story, the discipline that got us here has not changed.
Gross margin will move with product mix from quarter to quarter, but the structural drivers—higher-margin hub and powertrain revenue, lower product costs, and leaner operations—are durable, and we continue to expect full-year 2026 gross margins to be meaningfully better than 2025. We also strengthened the balance sheet during the quarter and closed with more cash than we started. Liana will cover both in detail. Stepping back, Q2 2026 was the quarter Xos's addressable market got bigger—a lot bigger.
Trucks put us on the road. Powertrains put us inside other OEMs' vehicles. The Power Hub has put us in front of the defining infrastructure challenge of this decade. The second half of this year is about converting that position into deliveries. With that, I'll turn it over to Gio to walk through the operational highlights of the quarter.
Giordano Sordoni, COO
Thanks, Dakota. During the second quarter, our operations and engineering teams continued to execute across our commercial vehicle powertrain and energy storage product lines, while making meaningful progress toward the launch of several new products and configurations. Across our manufacturing operations, we continued to build Xos trucks and powertrain systems alongside our Xos Hub energy storage products. One of the strengths of our operating model is that these products share much of the same underlying technology, supply chain, engineering resources, and manufacturing infrastructure, allowing us to support multiple product lines within a flexible production footprint. On the Xos Hub, Q2 was our highest production quarter to date, with 29 Hubs produced during the quarter. This milestone reflects the work that our team has done to improve the Hub production process, increase throughput, and make the production line more flexible. Importantly, these improvements aren't just about producing more units. We've also been working to increase the number of Hub configurations we can efficiently build.
This flexibility is becoming increasingly important as we expand the Hub platform beyond mobile EV charging and into a broader range of energy storage and power applications. A major focus during Q2 was the testing, validation, and certification of these new Hub configurations. Our engineering team completed a substantial amount of UL testing and certification work during the quarter. This work is critical as we expand the product into applications where customers require certified equipment that can integrate safely and reliably with existing electrical infrastructure.
We've also made significant progress toward the production launch of our AC export Hub variants. These products build on the battery, power electronics, controls, and software technology that we've already deployed in the field, but add the ability to directly provide AC power. This meaningfully expands the addressable applications for the Hub, including temporary and backup power, industrial applications, and power support for energy-intensive infrastructure such as data centers.
On the vehicle and powertrain side, we continued building Xos commercial vehicles while also producing and delivering powertrain kits to Blue Bird. We began delivering powertrain kits with vehicle-to-grid capability, giving our customers the capability to use the Xos powertrain as an energy asset that can feed energy back into the grid. Running these programs alongside the growing Hub production demonstrates the flexibility of our manufacturing operation and our ability to deploy a common technology platform across multiple end markets.
Across all of these efforts, our focus remains on building a more flexible, capital-efficient operating model. The manufacturing improvements we made during the quarter allow us to support a broader product portfolio using our existing team, facility, and infrastructure. As we move through the second half of the year, our priorities are straightforward: continue executing on truck and powertrain production ramp, our expanded Hub product portfolio, and build on the manufacturing and certification work completed during the first half of the year.
With that, I'll turn it over to Liana.
Liana Pogosian, CFO
Thanks, Gia. Before I go through the quarter, I want to frame the first half, because three things came together that have not come together before. The first half of twenty twenty six produced the highest GAAP gross margin and gross profit in Xos's history, our lowest GAAP and non-GAAP operating loss, and a record half for powertrain and hub deliveries. Margin expanding while operating loss narrows is the operating leverage we have been building toward.
With that as the backdrop, let me walk through the detail, including the delivery timing that shaped the second quarter. For the first half of twenty twenty six, our revenue was sixteen million dollars on one hundred twenty five units, down from twenty four point three million dollars on one hundred sixty four units in the first half of twenty twenty five. Revenue decreased as a result of lower deliveries, primarily reflecting orders that shifted into subsequent quarters pending customer readiness and acceptance, together with engineering resources toward the development of new hub variants.
For Q2 twenty twenty six, our revenue was four point seven million dollars on thirty units, down from eighteen point four million dollars on one hundred thirty five units in Q2 twenty twenty five, and down sequentially from eleven point two million dollars on ninety five units. This quarter's deliveries were mainly driven by our hub and powertrain product lines, including Blue Bird powertrain kits. In the first half of twenty twenty six, we generated GAAP gross profit of four point nine million dollars, a thirty one percent gross margin, compared with two point nine million dollars, or eleven point eight percent, in the first half of twenty twenty five. That is an improvement of more than nineteen percentage points year over year and the highest first half GAAP gross margin in our history. Non-GAAP gross profit was four point six million dollars, or twenty nine percent, compared with one point two million dollars, or four point nine percent, a year ago, an improvement of more than twenty four percentage points. The improvement reflects a favorable shift in product mix toward higher-margin hub and powertrain deliveries, together with continued savings from optimized inventory management and sourcing strategies.
For the second quarter of twenty twenty six, GAAP gross profit was zero point six million dollars, or twelve point one percent, compared with one point six million dollars, or eight point nine percent, in the second quarter of twenty twenty five and four point four million dollars, or thirty eight point nine percent, in the first quarter of twenty twenty six. Non-GAAP gross profit was zero point three million dollars, or seven point two percent, for the second quarter of twenty twenty six, versus zero point three million dollars, or one point five percent, in the prior-year quarter and four point three million dollars, or thirty eight point two percent, in the first quarter of twenty twenty six. The sequential decline reflects the timing and mix of deliveries within the year. This quarter marks our twelfth consecutive period of positive non-GAAP gross margin. Now turning to expenses. In the first half of twenty twenty six, operating expenses were seventeen point five million dollars, compared to nineteen point two million dollars in the first half of twenty twenty five. The reduction of approximately nine percent reflects our continued discipline in managing costs while continuing to invest.
Our Q2 twenty twenty six operating expenses were eight point five million dollars, down from eight point seven million dollars in Q2 twenty twenty five, and down sequentially from nine million dollars in Q1 twenty twenty six. Our operating loss for the first half of twenty twenty six improved to twelve point six million dollars, to sixteen point three million dollars in the first half of twenty twenty five, a reduction of approximately twenty three percent.
Non-GAAP operating loss for the first half of twenty twenty six improved to eight point eight million dollars, compared with fourteen point nine million dollars in the first half of twenty twenty five, a reduction of approximately forty one percent, reflecting continued momentum toward profitability driven by improved operating efficiency and cost discipline. For Q2 twenty twenty six, operating loss was seven point nine million dollars, compared with seven point one million dollars in Q2 twenty twenty five and four point six million dollars in Q1 twenty twenty six, primarily reflecting lower volumes during the quarter.
Non-GAAP operating loss improved year over year to six point two million dollars, compared with six point eight million dollars in Q2 twenty twenty five, but increased sequentially from two point six million dollars in Q1 twenty twenty six, primarily due to the same volume dynamics. Our EBITDA loss for the first half of twenty twenty six improved to eleven point five million dollars, compared with a loss of fifteen point three million dollars in the first half of twenty twenty five, an improvement of approximately twenty five percent.
Adjusted EBITDA during the first half of twenty twenty six was a loss of seven point five million dollars, representing an improvement of approximately thirty nine percent, compared with a loss of twelve point one million dollars in the first half of twenty twenty five, reflecting the continued benefits of cost discipline and operational efficiency. For Q2 twenty twenty six, EBITDA was a loss of seven point four million dollars, compared with a loss of six point five million dollars in Q2 twenty twenty five and a loss of four point one million dollars in Q1 twenty twenty six.
Adjusted EBITDA for Q2 twenty twenty six was a loss of five point one million dollars, compared with a loss of four point nine million dollars in Q2 twenty twenty five and a loss of two million dollars in Q1 twenty twenty six. Turning to the balance sheet, we closed Q2 twenty twenty six with cash and cash equivalents totaling thirteen point two million dollars, up from nine point eight million dollars at the end of the first quarter, an increase of approximately thirty five percent.
During the quarter, we raised two point two million dollars under our ATM offering program and five point four million dollars through a registered direct offering, or seven point six million dollars in total net of operating costs. These raises strengthened our liquidity position and provide additional capital to support our growth initiatives. For the first six months of twenty twenty six, operating cash flow less capex, or free cash flow, was negative four point three million dollars, compared with negative zero point one million dollars in the first half of twenty twenty five.
The change primarily reflects the significantly larger working capital release in the prior-year period, when reductions in inventory and accounts receivable generated sixteen point three million dollars of cash, compared with three point six million dollars in the current-year period. Inventory declined to twenty three point five million dollars at the end of the second quarter of twenty twenty six from twenty five million dollars at year-end twenty twenty five and thirty one million dollars at the end of the second quarter of twenty twenty five, reflecting continued progress from our inventory management initiatives and broader operational disciplines.
We continue to make meaningful progress in improving accounts receivable turnover. Over the past four quarters, we collected nearly fifty million dollars from both customers and organizations administering state grant programs, including seven point two million dollars during the second quarter of twenty twenty six. Accounts receivable, net, declined to four point five million dollars at June thirtieth, twenty twenty six, from six million dollars at year-end twenty twenty five.
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 collections. Now turning to our outlook. In order to better reflect changes in the expected product mix and volume expectations for the second half of the year, we are revising our full-year twenty twenty six guidance of revenue to fall within the range of thirty five to forty three million dollars, unit deliveries to be within the range of two hundred and fifty to three hundred and fifty units, and non-GAAP operating loss to be in the range of fourteen point seven to eleven point four million dollars. With that, I'll turn the call back over to the operator.
OPERATOR
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ted Jackson with Northland Securities. Please go ahead.
Ted Jackson, Analyst at Northland Securities
Thanks very much. Sorry about the slippage in units in the quarter, but congratulations on all the progress with the hub. On the hub, you said twenty nine units produced. Is that just produced, or is that the number of units that actually went out the door during the quarter?
Giordano Sordoni, COO
Yeah, Ted, those were—that's the number produced. Not all of those count as deliveries, although some of them have been paid for. Some of them are still in the factory, paid for but yet to be picked up and delivered to the customer.
Ted Jackson, Analyst at Northland Securities
On the hub, you provided some commentary with regards to, you know, efforts to get it UL listed, which obviously is critical. Could you outline, you know, kind of where you are in that process? I mean, usually there's, you know, a fair amount of testing with regards to, you know, different components of any kind of equipment, and then after that you kind of test the unit in and of itself. So maybe some discussion on, you know, the different tests that you've taken and passed, the ones you have left, and maybe a timeline to when you complete.
Giordano Sordoni, COO
Yeah. We have UL approval at the component level, as you mentioned. We're using UL-approved components, for the most part. We are doing system-level testing. There are a few different standards that we're going after, one of which we should have approval on in the next couple of weeks, and then we're pursuing another standard that'll take a little bit longer. It's not gating for customer deliveries completely. With the amount of testing we have now, and especially within a couple weeks, there are plenty of customers that are willing and able to take the hub with the level of certification and testing that it has now, and we'll continue to build and improve upon that. And as we kind of touched on in our comments, we're making sure to do the testing in a way where it will apply across as many variants of the platform as possible. We are building these units with different capabilities, so DC charge output versus AC power output. We want the tests and certifications to cover both those use cases, as well as different sizes of hub. In the mobile form factor, we go as small as, like, a two hundred and ten kilowatt-hour hub and as large as a six hundred and thirty kilowatt-hour unit.
We've made a ton of improvements to the enclosure itself so that our kind of standard middle-ground four hundred kilowatt-hour unit will come under ten thousand pounds, which is an important requirement for our customers that want to move the unit around with kind of a standard pickup truck. So that's another thing that we've been hard at work on in future versions of the hub. But yeah, going well so far, and it's in no way going to stop us from starting to make deliveries of the new versions of the unit and continue delivering the charger hub version of the unit—of the product, I should—
UNKNOWN Analyst
Is it fair to assume that you'll have all the UL certification work done before year-end?
Dakota Semler, CEO
Well, I think we'll have certain standards done within the next couple weeks. As far as other standards that we're pursuing, that might push into next year, but again, nothing that's gating us from being able to get up and running.
UNKNOWN Analyst
When looking at the unit shortfall, can you give us some color? It sounds like, given that you're talking a little more positively with regards to powertrains and hubs, that a lot of the surprise for you was on the chassis side. Is that correct?
Dakota Semler, CEO
Yeah, so part of the surprise was interesting powertrain delays. We had some orders that got delayed and slowed down on the powertrain side of the business. There were a few smaller truck orders that also pushed back, but as we highlighted, all of these orders are still expected to come through within the next year or so, some of them probably even within the next couple of quarters.
UNKNOWN Analyst
Okay, and then my final question: I know Blue Bird's an important customer, and they made a pretty significant announcement when they reported with regards to taking over the chassis operations for Ford for step vans and such. Is there any implication of that as it relates to what they're doing with Ford? I mean, I know it sounds like it's just ICE-related, but are there any ramifications or anything that is noteworthy as it relates to Blue Bird and Xos with regards to that?
Dakota Semler, CEO
Yeah, can't speak exactly to their internal strategy for the acquisition. We view it as a potential complementary piece. Blue Bird has bought our powertrains to sell into the commercial traffic space as well, and that's not something that currently Ford has an offering for in their strip chassis product lineup. They've never built a zero-emissions product, and Blue Bird looked to us to build their zero-emissions commercial chassis powertrain. So that's something we view as a potential opportunity in the future.
And the capacity: we're very familiar with the Detroit Chassis Products facility that they bought. The capacity and throughput of that facility is incredible. I think they can produce upwards of twenty thousand units a year, so it represents some very large volume opportunities that I think are exciting for Blue Bird, and as one of their potential EV powertrain suppliers, we think it could be a really interesting growth opportunity as we continue to expand our relationship with them.
UNKNOWN Analyst
An excellent answer. All right, thanks, Dakota. I'll get out of line. Thanks, Ed.
OPERATOR
Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.
Craig Irwin, Analyst at Roth Capital Partners
Good evening, and thanks for taking my questions. So, Dakota, I wanted to ask a little bit more about the Power Hub. The product in the market that's competitive that's getting the most attention these days is obviously Ford's unit, where they use CATL cells, and I guess they're about five and a half megawatt-hours. So your 3.1 should make you, from a unit purchase price, materially less expensive. And then I just wanted to confirm that you're going to continue using cells from EVE, which were less expensive than the CATL cells in the first place.
And maybe you want to comment on why 3.1 megawatt-hours in the box instead of five and a half. I do know you're running it at the same rate, C/2, but can you help us understand the customer conversations that helped you design this product?
Dakota Semler, CEO
Yeah, absolutely. One of the things that is an important call-out and I think is sometimes overlooked in the large-scale BESS industry is that, when you're looking at a lot of the traditional BESS systems that are out there in the market from suppliers like CATL or from Ford, they're what is referred to as a DC block. As you know, all these LFP batteries and modules and systems run DC power, and so when there is a handoff at those systems, it's a DC connection.
Typically, when those BESS systems are connected into utility-scale generation or any kind of utility-scale load, there's a separate inverter and power conversion system that's required to connect it into the grid, which is a very large system and typically quite costly as well. So when you're buying from a CATL or from a BYD or any of these large cell manufacturers, even the Ford system that they're building now, it's what's considered a DC block.
There's a new architecture that we have implemented, and there's a couple other folks that are starting to do this, where you actually take the DC block that's in your traditional ESS and you combine it with the power conversion system, and you combine it with the energy controller which controls and moderates that power. Essentially, what we're outputting is not just DC power; it's AC power. That makes it really effective for a variety of different reasons.
One is you're manufacturing the entire system, PCS and controller, all in one enclosure in one factory, so it brings the cost down considerably of the actual system as a combined system. In addition to that, it makes them much quicker and faster to deploy. So instead of engineering a site where you have to design the BESS system, connect it to the PCS, connect it to your controller, connect it to your AC transformer or switchgear, you are going to now design one system that plugs into the rest of the load.
That makes it a lot quicker to be able to deploy these, and we can directly connect to a conventional diesel or recip genset. That makes it very, very deployable from a power standpoint. I think it's important to draw that out, because one of the biggest use cases we see is in temporary power. As data centers start to see demand for their product ramping up, they need to get power quickly, and that can take three to seven years for them to get power from the grid.
So what a lot of operators are doing is bringing in large reciprocating gensets in the two to four megawatt range and connecting them directly to the load. But that creates a variety of problems for basically AI compute loads. They're very, very volatile. They're totally different than traditional historical data center loads, where you see a significant ramp-up in power, and that ramp-up is followed by a very quick fall in power demand. They're very volatile, which causes generators to run at very volatile RPMs, which creates a ton of maintenance issues and maintenance costs in keeping those generators operational.
The other thing it does is it causes your generator to run at suboptimal efficiency ranges. So as it's going up and down in the RPMs, you're seeing incredibly poor fuel consumption. What you really want a generator to do is run at their optimal efficiency level, which can be at 70 to 80 percent of their rated load. That's what the BESS system essentially does. That will allow these recip generators to not only operate more efficiently, but to take away the volatile peaks, reducing maintenance and wear and tear on the generators, and ultimately reducing emissions because the generator's burning the most amount of fuel the most efficiently.
So as you're looking at a lot of these sites—you look at the xAI site in Memphis, and you look at some of these other sites that have been powered by traditional recip diesel or nat-gas or propane gensets—the BESS is what's key to keeping O&M costs low and to keeping fuel costs as efficient as they can be. So we're not just selling that DC block. A DC block can't connect into a conventional genset. You can't drop it at a site and immediately plug it in and have megawatts of power within a few days.
You have to install that inverter; you have to connect it; you have to make sure your controller is synced between the generator, the PCS, and the BESS system. So there's a lot of engineering and work that goes into rolling that out. That's where our system is truly differentiated: you can actually deliver this to a site, plug it into any conventional reciprocating large-scale genset, and immediately have site power to power these critical loads that have really expensive or costly, sensitive electronics that are being powered.
And then you had a second question, which is around cell supply. We've worked with a number of different suppliers over the years. We have great partnerships with a lot of the large Tier 1 key suppliers globally, and our primary supplier for this product is Gotion. They've built an incredible facility in Illinois where they're doing domestic production of battery cells and battery packs, and that was a critical requirement for us, as we have a number of customers, including some of the defense customers we talked about, that have specific requirements around U.S. content and U.S. manufacturing of cells and critical components. In order to maintain those FEOC compliance requirements, we knew we had to source a local cell and a local pack. So these are all built with Gotion packs, which are still incredibly competitive, being that they're manufactured here by one of the top five cell manufacturers globally.
Craig Irwin, Analyst at Roth Capital Partners
Thank you for that. So my next question is about inventory. You've done a really good job bringing down your inventory over the last several quarters, and again, even in a light revenue quarter, you brought inventory down. What's a fair expectation for inventory liquidation over the next couple quarters? Do you expect an uptick from what we saw in the June quarter? Does this help us release cash from the balance sheet?
Dakota Semler, CEO
Yeah, it definitely does. We've taken multiple steps to improve that. I think one of the biggest things that's shifting in our model is that when we deliver powertrain kits and we deliver hubs, there's not a secondary stage of manufacturing. When those vehicles or those components or those hubs leave our factory, they change hands, and title changes to the customer. That's a little bit different with a step van, where sometimes we will sell a complete strip chassis, sometimes we'll sell a completed step van, and there might be a few months where that vehicle's in the hands of the outfitter getting delivered to a customer, which greatly increases our inventory holding period and decreases our inventory turnover rates. So as the mix and shift evolves towards increased hubs and increased powertrains, that inventory turnover is gradually accelerated just based upon the type of product that we're selling. Beyond that, we've really focused on optimizing getting as many things built to order as possible and reducing the amount of inventory that we carry for demos or sales and marketing type products that we use for events and loaners and that sort of thing.
Our focus is to get that and optimize it as much as possible. We hope for multiple inventory turns per year, and we're well on our way and significantly improved from what we've seen in the last two or three years. That's something that we think will even get better with the Hub and will be supported by having domestic production of a lot of our critical components, including costly things such as battery cells and battery packs.
Craig Irwin, Analyst at Roth Capital Partners
Thank you, and my last question is a financial question. In the June quarter, you brought your SG&A and R&D down by a few hundred thousand dollars. Can you talk about whether or not these were specific cost-out actions or more a function of the variable expense around revenue generation, and can we maybe expect these at similar or slightly lower levels over the next couple of quarters?
Liana Pogosian, CFO
Yeah, thanks for the question, Craig. As far as the cadence, there were some, as a result of the function of revenue, but a lot of the decreases were smaller purchases of R&D materials, and just as far as the cadence of it, I would say we should expect it to be at the level similar to what we had earlier this year, the first quarter.
Craig Irwin, Analyst at Roth Capital Partners
Excellent. Well, congratulations on another, you know, another step forward, right, and we look forward to watching the progress. Thanks, great.
OPERATOR
This concludes our question and answer session. I would like to turn the conference back over to Dakota Semler for any closing remarks.
Dakota Semler, CEO
For most of our history, the size of Xos' opportunity was set by how many fleets were ready to electrify their trucks. As of this quarter, it is set by something much larger: how much power this country needs and how fast it needs it. Data centers, defense installations, government fleets, and commercial operators are all hitting the same wall: energy demand that is growing faster than the grid can deliver. In Q2, we put Xos squarely in front of that demand with an expanding product line that is already proving itself in the field.
Gross margins and liquidity still frame every decision we make, and nothing about this quarter changed that discipline. What changed is the size of the field we play on. The second half of 2026 is where that shows up in volume. The majority of the year's deliveries are ahead of us, weighted towards the products with the strongest demand and the strongest margins in our portfolio. We built Xos to move fleets; now we are scaling it to power far more than that.
Q2 was the quarter that the future came into view. With that, we'll wrap up today's call. Thank you, everybody.
OPERATOR
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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