GreenPower Motor Company Inc

XTSX:GPV

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and welcome to the GreenPower Motor Company First Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Sieffert. Please go ahead.

[Michael Sieffert, CFO & Secretary]

Thank you. This is Michael Sieffert, the Chief Financial Officer of GreenPower Motor Company. I would like to welcome everyone to our call to discuss GreenPower's financial results for the period ended June 30, 2021. I'm here today with our Chief Executive Officer, Fraser Atkinson; our President, Brendan Riley; and our VP of Sales and Marketing, Ryne Shetterly.During today's call, we may make comments or statements about our future expectations, plans and prospects, which may constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our quarterly interim results and MD&A filed on SEDAR and on EDGAR. In addition, these forward-looking statements relate to the date on which they are made. We anticipate subsequent events and developments may cause the company to be used to change. GreenPower disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.I will now pass the call over to GreenPower's -- apologies, also during the course of today's call, we may refer to certain non-IFRS financial measures. Reconciliation of these non-IFRS measures can be found in our MD&A on SEDAR and on EDGAR and is also located on our website at www.greenpowermotor.com. I'll now pass the call over to GreenPower's CEO, Fraser Atkinson.

[Fraser Atkinson, Executive Chairman & CEO]

Thank you, Michael, and thanks all to all for joining our earnings call. Following my opening remarks, Michael will cover the financial highlights for the quarter. Brendan will speak about our operations, and Ryne Shetterly will join us for the Q&A. Our plan since our NASDAQ IPO last fall remains on track and firmly in place. As we had anticipated, we experienced a substantial increase in sales pipeline activity this summer, as the economy reopened and various incentive programs came back online. We expect this search to achieve our objective of obtaining positive cash flow this calendar year with that momentum to continue into 2022. The sense of urgency when it comes to the topic of climate change is growing greater by the day, and the wave of mandates and support of funding continues to grow. Earlier this year, there were numerous announcements around goals for the adoption of zero-emission medium- and heavy-duty buses, in particular, with school buses and transit buses. With the recent passage of the infrastructure bill, there will be funding available to support these lofty goals. To put this into context, in order to get to the 20% target for zero-emission school buses, 100,000 of the 500,000 school buses will need to be replaced or 8,000 of the 40,000 school buses that are sold each year starting now.We started the monthly production of our B.E.A.S.T. school bus last fall and the first of these are scheduled for delivery pursuant to customer orders in the next month. And more importantly, we will have inventory to meet the increased demand this fall. We'll circle back with more details on operations momentarily. But first, I'll pass the call back to Michael Sieffert, GreenPower's CFO, to cover our quarterly financial results.

[Michael Sieffert, CFO & Secretary]

Thank you, Fraser. For the quarter ended June 30, 2021, GreenPower recorded revenues of $2.7 million and cost of revenues of $1.8 million, generating a gross profit of $850,000 or 32%. Revenue increased 17% compared to the first quarter of the prior year and was generated from the delivery of 5 EV Stars to Forest River, 14 EV Stars to Green Commuter for which GreenPower provided lease financing, 1 EV Star to Harbor Air, which will be used as a shuttle between the airline's various locations and for which GreenPower provided lease financing. And 1 EV Star to the Learning Disability Society of Greater Vancouver for uses in mobile classroom.We finished the quarter with completed vehicle and charger inventory of approximately $6.2 million, comprised of 7 EV Star Transit Plus, 42 EV Star Cab and Chassis, 5 EV Stars and EV350 and charging stations. We continue to invest in production of EV Stars in B.E.A.S.T. school buses. And as of June 30, we had approximately 12.5 million of vehicles under production inventory that is primarily comprised of our various models of EV Stars and our B.E.A.S.T. Type D school buses, which we expect to deliver later this summer. We have continued to invest in inventory since the quarter end and now have approximately 300 vehicles at various stages of production. We have ample liquidity to continue on the current rate of production with $31.3 million in working capital as of quarter end, including $9.1 million in cash, an undrawn line of credit, a strong balance sheet with total assets of $40.9 million and total liabilities of less than $4 million. We continue to manage costs while we scale up our business. Our cash costs for the quarter were $1.97 million during the quarter compared to approximately $2.03 million in the prior quarter. We anticipate the cash costs will continue to increase over the course of the year as we invest in our North American infrastructure and increased staffing levels.In summary, there's 3 financial -- key financial highlights for the quarter. First, we continued to maintain our gross profit margin at 30% or better. Second, we've increased working capital by $0.5 million and have ample liquidity to continue to invest in growth. And three, our cash costs held steady at $2 million during the quarter, while our inventory increased by 50% over the quarter and over 3x compared to last year. I'll now hand it over to Brendan for some operational details.

[Brendan Riley, President & Director]

Thank you, Michael. My name is Brendan Riley, again, President of GreenPower Motor Company. We have accomplished a tremendous amount recently at GreenPower Motor Company as we expand our production capabilities and build inventory. We now have over 300 vehicles in various stages of production or are completed in inventory, which has been a massive undertaking. But our team has stepped up to the challenge, and I'm extremely proud, and I can't say enough about what they've done. Our current production capabilities right now are 50 units per month, and we expect that to continue an upward trajectory to over 100 vehicles or 100 units per month over the next year. Our supply chain remains robust with no material interruptions. While we have been successful in bringing some of the cost out of the equation, we have been unfortunately hit by higher shipping costs, which somewhat offset those gains. That being said, our goal is to increase aggressively driving down each unit cost on an absolute basis. Especially when we hit greater economies of scale, we expect our cost to reduce and the prices to the customers reflecting that reduced cost. Pardon me. While incentives and mandate will continue to aggressively drive adoption over the foreseeable future, our end objective over time remains to produce an EV that can completely on a stand-alone basis compete when it comes to price with other vehicles that are being sold in the markets, EVs and non-EVs. And we continue making progress on that front. During the quarter, we delivered our first 5 GreenPower Cab and Chassis to Forest River. Our 2 technical teams are collaborating today and into the future, working to finalize the upfitting process at Forest River's facility with expected completion sometime in September. And our plans include a scheduled Altoona test shortly thereafter. Now the Altoona test not only opens up federal funding for transit properties but also serves somewhat of a buyer's guide to those purchasing vehicles, knowing what they're in store for with a lifetime of this vehicle. Our purpose built EV Star shine the last time at Altoona with a score of 92.2, highest score of any medium or heavy-duty vehicle ever tested of any type. We're obviously excited to get this Forest River vehicle covered by the Altoona test, open up the transit market. This is also a very exciting time for our Type D school bus, the B.E.A.S.T. as we have our grand unveiling at the ACT Expo later this month. These units have about a 2-3-quarter build time and our first units from production increased last fall are rolling off the assembly line with an initial customer delivery later this month and more to follow in September. As Fraser mentioned at the top, funding for various mandates is solidifying rapidly, and we are excited to be putting wheels on the ground today and moving forward. And that continues -- excuse me, that concludes our prepared remarks. Operator, please open the floor for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Greg Lewis with BTIG.

[Gregory Robert Lewis]

Yes. Brendan, you kind of talked recently about some of the shipping challenges that were seen in the market. As you think about the progression of the buildout and congratulations on the gradual scaling up you've been doing and I guess, it sounds like we're going to be targeting 100 units at a certain point on a monthly basis within the next 12 months. As we think about these lead times for equipment, how are we thinking about that? Like should we expect that progression over the next 12 months to kind of be slow and then accelerate in the back half of, I guess, in like -- in sort of the last quarter of that year target? Or is it something where we're just going to gradually see the company be able to ramp production more steadily?

[Brendan Riley, President & Director]

Yes, Greg, that's a really good question. And that's exactly the issue that we're struggling with, I think, industry-wide is there's a convergence of weird things happening at once. Supply chain issues are definitely something that we expect to affect really everybody in the industry into next year and possibly beyond mostly when it comes to the semiconductor components, pieces, parts that go into some of our controllers and inverters and things of that nature. We've been able to stay ahead of that by placing large orders early on, sometimes paying for them and having those either dedicated to us or in our inventory. So those have been in short supply. Even other weird components have had some supply chain issues. And we don't know what those components are all going to be. We do expect little hiccups here and there but very short-term supply chain issues, which may affect the month or 2 of production at least for GreenPower. So shipping is another issue and not just shipping -- ocean shipping, air shipping, but even interstate shipping. It's -- there's just a bigger demand than we have the ability to take care of for shipping. So it's driving up costs and sometimes delaying vehicle delivery or production schedules, things of that nature. We don't -- our -- what we stated in this -- in our MD&A is and what we stated on the earnings call here today. And that we'll have the capacity to build those vehicles. We anticipate that those vehicles will be buildable and deliverable. Again, if there's supply chain issues, all bets are off. COVID [indiscernible] had again and entire supply chain shutdown or customer shutdown. So it's -- Greg, I wish I had some very clear and concise things to tell you. But I think right now, these are the best projections or the best ideas of what we'll have available to, and what we'll be able to do based on today.No. Brendan. That was super helpful. And then...

[Fraser Atkinson, Executive Chairman & CEO]

Sorry to interrupt, Greg, its Fraser speaking, is that in your -- in the context of your question for what we are doing in terms of building up to 100 a month, in the event that we need to be producing product at a magnitude of that number, we have spent -- have been spending a fair amount of time over this past year looking at how we would accomplish that. And whether that's through partnerships, whether that's through other means of production beyond what we're doing right now. We do have sort of a midterm strategy, if you will, that will help move us in terms of moving out of just that incremental growth that you just described because if the demand takes off, we have to be in a position to be able to handle that demand.

[Gregory Robert Lewis]

Yes. No, absolutely. And then I also wanted to ask about the transit bus business, it's interesting, right? I mean I think people think a lot about EVs in the commercial side, and it's kind of been this e-commerce lockdown, acceleration in demand, but it's interesting because where kind of green power fits in the market, it's almost like more of a reopening trade, as campuses go back to work and people start flying. And as we think about that transit bus market, I feel like on -- like 1 of the previous calls, you talked about transit in L.A., that transit pass system operating at like 20% capacity realizing that, I guess, COVID is still a touch and go -- we're in a touch-and-go environment with COVID. Has there been any falling or a pickup in interest maybe from some of these corporate campuses or cities around thinking about how they're going to approach their demand for transit buses. I mean, wow, it's already August of '21. So I guess we're already looking ahead towards '22. Has there been any kind of change in tone from some of these potential customers that will probably be ordering buses, I guess, at a certain point.

[Ryne Shetterly, Vice President of Sales & Marketing]

Yes. This is Ryne Shetterly, Vice President of Sales and Marketing. I'll go ahead and take that one. You're absolutely spot on. The demand, the peak and interest over the last 90 days in Silicon Valley as well as the Pacific Northwest, so between Portland and Seattle. Some of the largest companies in the world really are just starting to put their -- put dates on when their campuses are going to be opening back up. And I would say between the beginning of September and very towards the end of the year, you're going to see many of these folks starting to bring people back, therefore, right off the bat enhancing their need for transportation. A lot of the companies right now are running pilot programs and figuring out exactly how many vehicles they need to deploy. So many of those companies are in the due diligence phase of figuring out exactly what their needs are going to be, and that's certainly kept us busy over the last 60 days.

[Operator]

Our next question comes from Chris Souther with B. Riley.

[Christopher Curran Souther, Research Analyst]

The first 1 on Forest River. Can You talk about any feedback from the original 5 that you shipped to them, timing of Altoona? And talk about where you see the potential with that customer after the announcement earlier this week they had with a competitor in the space? Do you see that announcement as limiting your potential for expansion beyond the 150 order? Or could you also get an order in the thousands from them? I'm curious how you see that relationship? Is it kind of a bake-off between your 2 technologies? Or is it different vehicles within their fleet that potentially be addressed between the 2 of you?

[Brendan Riley, President & Director]

Chris, this is Brendan. I don't think we've got the details of what that order with that competitor that you mentioned are yet. So I don't know that we can really comment on what's going on. Again, it seems to be powertrains for larger vehicles. And our arrangement with Forest River right now is for Class 4 EV Star platform vehicles. So again, I would have to wait and maybe get some details and maybe get back to you on that. But we're moving ahead with our Altoona testing, which is really the -- that's going to be the real [indiscernible] our vehicles being the vehicle of choice for transit properties and others that rely on Altoona or basically a seal of approval. But at this point, we can only speak for ourselves. We anticipate once we have a fully integrated vehicle later this summer that we anticipate orders coming in. We can't speak about them yet because they're not in hand, but we're, again, keeping our heads down and making sure that we deliver the best products for the market and help Forest River in the integration of their components onto our vehicles.

[Christopher Curran Souther, Research Analyst]

Okay. Got it. So maybe just -- you talked about the pipeline acceleration here. But curious, can you share any numbers around the order book from this acceleration that we've seen and where it stands today?

[Brendan Riley, President & Director]

I am not sharing any orders that we have not announced yet. All I can say is hold on to your seat. There's going to be some big announcements, but that's all I can say.

[Christopher Curran Souther, Research Analyst]

Okay. Got it. So maybe just in kind of the near term here, given kind of indication that positive cash flow by year-end, and you've got quite a few vehicles that are in various stages of inventory and kind of finished goods. Just kind of curious what is kind of the cadence that we should expect as far as the inventory build that we've seen over the last couple of quarters, starting to see kind of a mash between deliveries versus production. Is that something we're still looking at is like third and fourth -- excuse me, September and December quarter, kind of starting to align as far as production and delivery? Is that kind of a good way to think about where you see the next couple of months here?

[Fraser Atkinson, Executive Chairman & CEO]

Absolutely. And to put this into context, the quarter that we just completed and filed had just over 20 vehicles in the quarter and there weren't any school buses. And we've been spending a considerable amount of time in our resources since last fall building the production and that are part of the numbers that you were just referencing earlier. And the first of those vehicles, the deliveries start within the next month. And we'll be doing a full unveil of the vehicle on August 31, September 1 at ACT Expo. So that's a good example of the activity that we've been busy on and the resources we've been using to build up that inventory that will now just be kicking in the September and then more fully with the December quarters.

[Operator]

Next question comes from Craig Irwin with the ROTH Capital Partners.

[Craig Edward Irwin, MD & Senior Research Analyst]

So I was kind of surprised that this wasn't handled in your prepared remarks, right? And I know it's a tricky issue given that you never really want to bite the helping hand. But there's among the companies actually delivering, right? There's a lot of future deliveries, but among the companies actually delivering, there seems to be a conversation that's growing about the pending HVIP vouchers, the pending New York vouchers, the expected benefit from the infrastructure plan, putting near-term deliveries on pause having customers wait to see where they get the best potential support for being early adopters of medium and heavy-duty EVs. And the other opportunities for infrastructure to support larger growth over the longer run. Can you maybe frame out for us whether or not this is something you're seeing as well? And how you think this is likely to be resolved over the next couple of quarters?

[Brendan Riley, President & Director]

Craig, first, this is Brendan, and I'm sure the other guys will chime in here. But -- the -- again, these incentives, there's 2 sides to them. One is people wait for them, like you said, and the rollout isn't always the smoothest. There's a lot of people still working remotely. So very hard for things to get processed in a timely fashion as far as these incentives are concerned and approval, and there are a lot of [indiscernible] pieced across during the approval process. So we see these incentives as helpful at least now in the short term. Don't forget, we've got a huge infrastructure bill here that appears to be getting across the finish line that will dwarf any of these programs that we've seen so far. So we are seeing actually more and more incentives, the more the better. But again, Craig, keep in mind, from our perspective, we're focusing on making sure our vehicles are compelling even when these incentives are removed. We can't tell you when that's going to be, but we're preparing for that time. But we're very grateful for the incentives, and it's not about not biting the hand that feeds us. But there are some adopters that would not be early adopters without those incentives. And we think that at least today and into the near-term future, those incentives are not only beneficial but possibly be necessary for certain factors to adopt.

[Craig Edward Irwin, MD & Senior Research Analyst]

Okay. The other question that I just wanted to ask directly, right, is, can you reassure us that you would never have built the inventory unless you had credible customer names that you would ship these to when all the boxes get checked. I mean I think you probably even had the customer names and the soft orders long before you ordered these vehicles from your suppliers and started putting them on your balance sheet. But if you could sort of talk us through this process and tell us sort of what the finished goods inventory is now that's available for delivery if we do see some of these items that are putting the brakes on the market clear? I mean, do we have a slug of orders to go out very quickly? Or does this ramp over time?

[Fraser Atkinson, Executive Chairman & CEO]

Well I'll start with sort of a high-level comment on the -- in terms of the product mix when we're dealing with a range of products from 25 to 40 footers, it's -- a lot goes into the decisions we have to make on which models that we build up. And so as we have previously disclosed, our focus was on select models within the EV Star platform and our D school bus. So on the EV Star platform, to the extent that we build out our Cab and Chassis, those are portable, if you will, in terms of they're easily built up to EV Star Cargo Pluses to the -- our EV Star Plus. And so there's a variety of follow-on models that can utilize that same platform. And so our buildup was very mindful of if we can't place these all in this fashion, then we can build them out to satisfy the demand and requirements with some of the other models within that platform. So that's really the great part of having that platform is being able to have the flexibility to deploy across numerous models. On the B.E.A.S.T. school bus, each time that we have looked at increasing our production has been based on key market indicators and some of the numerous ride-and-drive events that Ryne has been conducting for the better part of the year. So that's been based on a combination of specific market information along with the customer orders that we do have in hand along with the sales pipeline. So that's -- there isn't a particular factor that has driven the production decision. But -- in all cases, we've certainly been factoring in what we have as well as what we see in the short term that we were in a position to fulfill.

[Michael Sieffert, CFO & Secretary]

And Craig, this is Mike here. I think you had a specific question about finished goods. At the end of the quarter, we had over 50 units in finished goods. And as both Brendan and Fraser said, we anticipate our school buses are going to start to be in a position to deliver later this month or this quarter. And so that ramp-up that we began, call it, months ago after our IPO in the U.S., those vehicles are really going to start to deliver at a much higher cadence over the coming months.

[Craig Edward Irwin, MD & Senior Research Analyst]

Okay. So just to clarify, the 50 units are fully built ready for customer delivery or at least nearly ready for customer delivery. Is that correct?

[Michael Sieffert, CFO & Secretary]

Some of those are the Cab and Chassis and as Fraser mentioned some of those...

[Fraser Atkinson, Executive Chairman & CEO]

They're all ready. They're all ready to go.

[Michael Sieffert, CFO & Secretary]

Yes.

[Craig Edward Irwin, MD & Senior Research Analyst]

Yes. Okay. Excellent. That's very helpful...

[Fraser Atkinson, Executive Chairman & CEO]

And that's 45 days ago.

[Craig Edward Irwin, MD & Senior Research Analyst]

Yes. As 45 days ago. Yes. Well, how many of them have been delivered? I mean can you tell us sort of roughly at this point in the quarter? Have you delivered several, many, a few?

[Fraser Atkinson, Executive Chairman & CEO]

We haven't announced, but we certainly will be doing so before the quarter.

[Craig Edward Irwin, MD & Senior Research Analyst]

Okay. So how many are physically still in your possession, I guess, is the question?

[Fraser Atkinson, Executive Chairman & CEO]

We don't have -- we don't track that or announce that at this stage, but that's certainly something that we're looking at doing in the near term.

[Operator]

[Operator Instructions]. The next question comes from Tate Sullivan with Maxim Group.

[Tate H. Sullivan, Senior Industrials Analyst]

You mentioned the ACT Expo a couple of times during -- but will this be the first real step time demonstration of the B.E.A.S.T. to grow. I thought you were already out there with the B.E.A.S.T., or can you just explain that? The benefits of this unveiling?

[Ryne Shetterly, Vice President of Sales & Marketing]

So this is Ryne Shetterly. Everything that we had delivered up to date has been the 36.5-foot variant. This is going to be the industry's first purpose-built Type D 90-passenger, zero-emission school bus. And this will be the first time that we're going to be taking it to a trade show.

[Tate H. Sullivan, Senior Industrials Analyst]

And then just can you review the comments about the order for the B.E.A.S.T. or win at potential. Now is this -- you said pursuant to a customer order, but then I thought you said that maybe it's already ordered the beast that you might be able to deliver? How will it work? Is it just not monetized from the customer?

[Ryne Shetterly, Vice President of Sales & Marketing]

No. So the first several tranches of vehicles, which have been announced in previous releases are all accounted for. So we will have vehicles deployed and delivering to end users that we've already announced, Anaheim USD, a few others, right out of the gate. And the expectation there internally is that those vehicles are in those customers' possession in the next 45 days or so.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Frazer to for any closing remarks.

[Fraser Atkinson, Executive Chairman & CEO]

Thank you, everyone, for joining us. And as this has been a topic of discussion. I would like to point out that the ACT Expo, the particulars of our participation, we are a gold sponsor at the event. It's being held at the Long Beach Convention Center on August 31 and September 1. So if you're in the Greater Los Angeles area and able to attend either days, Ryne, hopefully, he'd be able to come by our booth, which is right at the entrance. And we will have our EV Star with the side ADA, our B.E.A.S.T. school bus and our EV Star Cargo Plus all at the ACT Expo. So it's really great opportunity to see our vehicle and the unveiling of our school bus that we've talked about on this call. So once again, thank you for listening to our earnings call, and we look forward to providing updates and our -- the exciting times ahead of us with a lot of the mandates and the incentives that are coming on stream.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.