Q4 2021 Lion Electric Co Earnings Call

Good morning, ladies and gentlemen, welcome to fly in electric fourth quarter and 'twenty 'twenty. One results conference call. At this time, all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation.

As a reminder, this conference call is being recorded I would now like to turn the call over to Isabella Zhao Vice President Investor Relations and sustainable development. Please go ahead Ms Ida.

Good morning, everyone.

Welcome to <unk> fourth quarter, and 2021 research conference call.

Do you have when you're at a coffeehouse today for Nick So whenever just touching off did you get him to match is it I need to make venture in video.

Today I'm here with Matt Cabral are.

See you funder and he called up when they are executive Vice President and CFO .

Please note that our discussion that would include estimates and are therefore wonderful information, which are actually I'd research could differ from in the future.

We invite you to review the cautionary language in yesterday's earnings release and in our MD&A regarding the various factors assumptions and risks that could cause our actual pretax to differ.

With that let me turn it over to Mark to begin Mark.

Thank you Lisa and good morning, everyone.

Thanks for being with us today to discuss our performance during our first year as a public company.

Our performance we are very proud of.

Indeed, 2021 was the best year ever for the Lion.

We consolidated our commanding leadership position, Indeed electric bus market, where we have been selling and delivering vehicles since 2016, while at the same time starting to sell our electric trucks.

Despite the supply chain crisis, and the Covid challenges. We also proved to be a very resilient company and started the construction of both the Georgia manufacturing plant and the Lion campus.

And we continue to hire talented employees, including key senior leaders all of this while growing our order book by over 2000 units delivering about 200 vehicles and developing new platforms.

I would like to discuss those three elements on today's call before passing it on to Nicholas <unk>.

We'll discuss our financial results.

First we delivered on our 2021 strategic objectives.

Second.

We continue to proactively manage supply chain challenges and we increased the pace of vehicle deliveries in Q4 of 2021.

And finally, we are entering 2022 with optimism our main objective being the scale up of our manufacturing and commercial operations.

Let me start with our 2021 main achievements.

We are pleased that in 2021, we surpassed the pre pandemic levels and delivered 196 vehicles more than double the 80 buses delivered in 2020.

With respect to the order book, we drastically increased it to $575 million.

Shifting of 2025 buses and 300 trucks for a total of 2000 and 325 vehicles.

This compares to an order book of 300 vehicles, when we announced our planned public listing in November 2020.

It also includes an order from a customer with a leader in the retail industry for 50 lying in a tractor trucks.

We are seeing a similar trend in the Alliant energy pure book, which consist of 278 charging stations and related services, representing a total order value of $3 million.

Alliant energy as a key element as we support our clients and their transition journey to EV.

With the same objective of supporting our customers, we announced earlier this week, our partnership agreement with Cox automotive.

That will complement our experience centers by giving our customers access to an additional 25 service centers more than 1000 technicians and nearly 800 mobile service trucks in the field.

We also made significant progress on our two construction projects and delivered on key milestones for each of our manufacturing facilities.

First.

With respect to our state of the art vehicles factory in Joliet, Illinois. We finished the construction of the shell building and took possession of our 900000 square foot manufacturing plant.

Tenant improvement work and the purchase of critical manufacturing equipment progressing as scheduled we are still on track to start vehicle production in the second half of this year.

This will be the largest U S production site for zero emission medium and heavy duty vehicles with a capacity of 20000 vehicles per year.

Irene is ongoing and we have started to fill key positions such as they wreck Panther Gras, who recently joined Lion that general manager for the Joliet facility.

Now turning to the Lion campus.

During the year, we broke ground and the construction of what will house, our new battery plant and innovation Center.

Construction work is on schedule.

We have now completed the building foundations for the battery plant and started to Mount the structure of the building.

On the technical front.

We are working with GE are a touchy company to purchase and set up production equipment. Here again, we are on schedule and still planning to start producing the first batteries in the second half of this year.

With respect to the alliance team the build out is also going according to plans.

Our head count has increased by 550 employees since November 2020, it's now amounts to over 1000 people, including more than 300 engineering and research and development professionals.

Recent key hires also include Richard Coulomb as senior Vice President strategic initiate is David Scott as Vice President operations, and William Blanchard as head of land capital solutions on which Nicholas will further elaborate in a moment.

Yeah.

On the product development side, we spent $46 million in R&D in 2021, as we continued to develop new platforms that will complement our current seven models.

During the year.

We were proud to unveil the first purpose built all electric ambulance that we developed in partnership with the Mers one of the largest ambulance manufacturers in North America.

Let me now provide a brief update on supply chain.

2021 supply chain challenges proved the importance of having a robust supply chain tailored to electric vehicles, which is precisely what we have here at lion.

Unlike new commerce or even incumbent Oems entering the field of EV are 10, plus years of experience in the EV space have been key in managing these global supply chain crisis.

It took us over five years to build a deep supply chain tailored to Evs and this has been a differentiating factor for us in 2021 and will remain a key competitive advantage for our long term growth.

During Q4.

We were pleased to see an improvement in the pace of production as compared to Q3.

Not only do we have more visibility on potential upcoming issues, but we are also starting to feel the tangible impact of proactive initiative. We previously undertook to address the supply chain challenges.

But we remain cautiously optimistic for this year.

As we continue to see disruptions in the global supply chain. In addition to labor shortages driven in part by Covid.

Both our operations and our suppliers' operations in a nutshell supply chain challenges are eased, but not fully resolved yet.

I will now provide more color on our 2022 key priorities.

First on.

On the deliveries and purchase order front.

We remain focused on increasing our purchase order book with the objective to establish our leadership position in the electric truck market as we have already done in the electric school bus market.

The strong secular tailwind driving EV adoption should further support this objective as.

As we anticipate that government programs funded by the bipartisan infrastructure Bill in the United States. In addition to many other programs.

We'll formally materialize in 2022.

As a reminder, the.

The infrastructure Bill includes a 5 billion dollar funding package towards the replacement of existing school buses for zero emission ones and $7 $5 billion for EV infrastructure.

With respect to the E T F program in Canada It.

It includes $2 $75 billion to support school bus and public transit electrification.

Although we cannot confirm the exact timing of funding approval. We are pleased to announce that student transportation of Canada, which has placed a conditional order for 1000, all electric lines High school buses under the XE T F as formally being accepted by the government for the last step of its funding.

<unk>.

Now turning to our two new manufacturing facilities.

In Joliet.

We will start receiving manufacturing equipment to start production of buses over Q1, and Q2 of this year and equipment for trucks will be received later during the year.

As of December 31st in addition to tenant improvements.

We have spent $13 million in capex and as of today have engaged an additional $40 million on building and equipment such as E. G V's lists overhead cranes and tooling.

We will first focus on the installation of a production line for buses to keep up with the very strong momentum for our electric school buses as reflected in our order book simultaneously, we will ramp up our manufacturing capacity by setting up additional production lines, including the ones torchmark.

Our head count in Illinois should amount to approximately 500 employees at the end of this year.

Now with respect to the Lion campus.

The battery module Assembly line, which will be highly automated I've already been ordered for initial testing production of module prototypes and commercial production.

The orders for the equipment, requiring long lead time, such as conveyors and wire Bonder is I've also been placed and both delivery and installation of our own schedule.

As of December 31st we have spent $5 million in capex and as of today, we have engaged an additional $55 million on equipment and building.

Furthermore, we are currently in active negotiations with cell suppliers to finalize long term supply agreements.

And finally, the startup module and pack production is planned for the second half of this year as you can see.

All is going according to plans.

As far as our innovation center, which will mostly house, our R&D activities. It will be completed and operational in 2023.

Which takes me to the last element on which we will focus in 2022. The initial delivery in commercialization of additional models. We are pleased to announce that during the year.

We will start delivering the first lying in the tractor and lying in eight refuse trucks for which we already have orders.

We also expect to begin this year, the commercialization and delivery of the Lion D bus the lion's five the lie in a bucket truck.

In our electric ambulance however.

However, we have decided to push to 2023.

Commercialization of the Lion seven the Lion boom truck and the Lion utility truck.

As on the front of supply chain challenges, we want to allocate all efforts on models for which we already have a strong demand for which we are in active commercialization.

With that.

Let me now turn the call over to Nicholas who.

Who will comment on our financial results.

Thank you Mark.

Before we jump into Q&A, let me give you a quick overview of the Q4 in 2020 one result.

We were pleased to complete 2021 on a positive note with a sequential growth in deliveries and an improvement in margin.

We delivered 71 vehicles in Q4 57 buses in 14 trucks significant increase as compared to the 46 delivered in the same period last year and 40 vehicles delivered in Q3 2021.

Please note that this number includes the delivery of approximately two thirds of the vehicles that we're 90% plus completed as of the end of Q3 and awaiting components to be finalized and delivered <unk>.

43 of the Q4 deliveries took place in Canada and 28 in the United States.

This translated into revenues of $22 9 million up 9.4 million as compared to $13 $5 million last year.

Our gross profits were $2 2 million or 10% of revenue.

Significant improvement over margin achieved through the year as we continued to scale our business.

Net earnings were $28 3 million and included a gain of $46 $6 million related to the noncash change in fair value of share word obligation and $5 1 million of noncash share based compensation expense.

Adjusted EBITDA was negative $7 5 million in Q4.

As a reminder, adjusted EBITDA includes adjustments for certain noncash and nonrecurring items, namely change in fair value of share warrant obligations share based compensation and other nonrecurring expenses.

Let's now discuss cash flow.

Cash flow from operations for Q4 was negative $59 million inclusive of $47 million of changes in working capital as we continue to invest in working capital and prepare for a continued increase in production.

We also invested $10 million in research and development and $19 million in Capex of which $9 million was included in trade payables and accrued liabilities as of December 31.

The Capex amount includes $11 million for leasehold improvements at our Joliet plant and $5 million for the construction of the Lion King.

I will discuss this in more detail in a few minutes, but note that as we took possession of the Juliet building in orange parallel advancing with the construction the battery plant, we expect capex to significantly increase in 2022.

Now let me make a few comments on selected 2021 performance items.

We were extremely pleased with what we have accomplished in addition to consolidating our commanding leadership in the electric school bus market.

Managed challenges outside of our control and posted record deliveries and revenues in the history of our firm.

Specifically, we delivered 151 buses 45 trucks for a total of 196 units in 2021 as compared to 80 buses in 2020.

134 of these deliveries took place in Canada and 62 in the United States.

This translated in revenue of $57 $7 million up $34 3 million or 146% as compared to $23 $4 million a year earlier.

Our gross profits were at breakeven down from $3 $1 million a year ago, as we incurred significant manufacturing ramp up costs in 2020.

Net loss for 2021 was $43 3 million and included a gain of $85 8 million related to the noncash change in fair value of share warrant obligation and $71 1 million of noncash share based compensation expense.

Adjusted EBITDA was negative $27 6 million for 2021.

Last but not Lee, let me speak to select balance sheet items and liquidity.

First we ended the year with $242 million in cash in addition to Untap government loan facilities for approximately $80 million for the Lion King.

In addition, our revolver, which remains undrawn was increased to $200 million.

While we do not have any immediate needs for the revolver, we had an opportunity to increase the facility and did so in order to build additional liquidity as we continue to ramp up production.

Finally, we finished the year with inventories of $116 million.

The vast majority of this consistent raw material and we continue to prepare for increased production and aimed to minimize the potential impact of supply chain disruption.

This also includes approximately 3000 batteries on hand in line with our strategy to Overstock key easy components in the current environment.

My last comments before turning the microphone over to Marc will pertain to 2022.

Although we will not be providing financial targets. It is important for us to give you color on what could impact the year.

Although pleased with our Q4 delivery, we still expect Q1 manufacturing and delivery to be impacted by supply its supply chain challenges, but we expect this issue to be reduced as we move forward in the year.

With no surprise, we also expect some upward pressure on the cost of raw material driven by inflation.

All this should increase our operating costs and we expect this to continue for most of the year.

Of course, we will work to mitigate the impact of such cost pressure and could potentially adjust our pricing strategy accordingly.

Let me now spend a minute on Capex investment.

2022 is expected to be a big year, as we intend to invest approximately $215 million towards our two new plants.

<unk> total capex to completion is expected to amount to approximately $150 million, including approximately $115 million expected to be spent in 2022.

The increase in total costs as compared to the $130 million initially it out.

Mainly the result of inflationary pressure and a slight increase in the scope of the project as we refined it to optimize the efficiency of our plant.

We intend to work to optimize the project Capex.

For the Lion campus total Capex is expected to amount to approximately U S $180 million or $220 million Canadian including approximately U S 100 million expected to be spent in 2022.

The increase in total cost.

Compared to the $145 million initially announced is the result of both inflationary pressure and an increase in the scope of the project as we have elected to equip the innovation center part of the campus with the climate testing and battery destruction.

Please note that the $180 million mentioned above excludes the potential proceeds from a sale leaseback transaction that we are currently exploring for the battery building.

Should we go ahead and close this transaction, we expect the capital outlay to be closer to the total capex amount of $145 million that we had initially announced.

On a final note I am pleased to announce that we are making great progress in our objective to enhance our offering of vehicle financing solutions to our clients and that really unblocked Shah has joined our team as head of line capital solutions.

His mandate will be to design and implement programs to offer financing to our customers for the purchase of our electric vehicles charging infrastructure as well as for the monetization of carbon and other credits on behalf of our clients.

We plan to achieve this via partnerships with large financing institution, many of which are already offering financing solutions to our clients.

We believe these to be important aspects to ease the transition to easy for our customers as long term financing solution significantly smooth in the cash flow profile and the transition to EV and in many cases allowed the customer to benefit from a favorable PCL from day, one we will update you as we progress towards building these lion.

Proprietary refinancing solution, which will ultimately aimed to further accelerate our purchase order book and pace of delivery.

And with this I will turn the call back to Mark.

Thanks Nicholas.

Before we open the lines for questions. Let me conclude by saying that 2021 prove that that electrification was not a question of if but when and this win is clearly happening right now for Lion.

Looking at the entire EV landscape.

I am more than ever before convinced.

That we are in a unique position to consolidate our leadership in the electric bus market.

While it becoming a key player in the medium and heavy duty electric truck sector.

As we look ahead, we expect to reach key milestones again this year.

Which will significantly accelerate our long term sustainable growth in 2022 and beyond.

Let me finish.

My thinking on where employees for their agility dedication and resilience as well as for their hard work throughout this past year I would also like to thank our customers and our shareholders for their support throughout the year.

And we are looking forward to our continued interaction in 2022 and beyond thank you.

Operator. Please go ahead with your question session. Thank you.

Your first question comes from.

Yeah, Hey, Jonathan capital.

Yeah, Okay. Good morning, I guess Thats my name good morning, everyone.

Okay. Good morning.

Good morning, Okay. Thank you very much for taking my question.

Yes.

Ended the year with purchase orders around 2325 units.

What about the timing for these deliveries are mark.

Yeah, but when in fact those.

<unk> of those units are our deliverable. This this year.

So a little bit over let's say 1000, a 1000 units are deliverable in in 2022. So we're working very hard on this.

I can tell you that right now our pace of manufacturing in Q1 is about the same as the one that we had at the end of last year.

So it is going well we are recovering.

Slowly, but surely from everything that is happening and that happened with the supply chain crisis and with with Covid, but you know the supply chain challenges, though remain for 2022 as I was.

Just saying just saying earlier, so we will be ramping up.

This this year.

Slowly slowly, but surely but you know we do have the manufacturing capacity to deliver those units up.

Okay, perfect and could you provide the color on all your bidding pipeline has increased versus the 6000 units you had at the end of.

2020.

Yeah, absolutely the well the pipeline is increasing a lot as you know we've decided not to disclose the pipeline.

It's not giving you know a lot of information and with what we have are our orders real orders and the purchase order book and I know this is not the way that a lot of other Oems.

Have been acting but this is what we feel.

As you know information that that the market can I can trust. So we we we we issue or we disclose the real order book when.

When you know the customers are sending us.

The purchase the purchase order so dialogue with customers are going very well.

In the truck.

Market, we have 300.

Orders for 300 units right now.

Last week, we got an order for 50 units.

A leader in the retail industry space and the name will be disclosed within the next within the next few weeks and.

This is the kind of dialogue, we're having with customers now than we do.

A lot of customers seeing the need to electrify their will sneak and this is very very promising. So we will not disclose detailed information on the pipeline, but let me tell you that the pipeline is growing as the order book grow as well in the last year.

Okay and could you maybe provide an update on your relationship with Romeo gave them the plunge into our share price.

And also what kind of uplift we might expect from the battery plant.

In 2022.

Yeah, well we.

As you know we have.

Committed ourselves to buying a little bit over $200 million.

Over the next two years from Romeo we've decided to start putting those batteries on the lyonnais tractor to two <unk> to start with so we started receiving some some battery packs and we are expecting to receive many many more battery.

Battery packs from them within our within the debt. The next the next few months. So that's really looking you know what the share price with respect to Romeo was more a question of relationship and their ability to deliver the units that we are looking at.

Okay and last one for me what about your call FERC level around the cash position given the capex outlook that was provided earlier.

Nicola.

Yeah, Hi, Ben.

Look we believe we have a very solid balance sheet. We currently have access to a little bit over $520 million, that's up $240 million or 242 of cash $80 million.

Government loan or grant loans and <unk>.

In Undrawn revolver at the tune of $200 million.

The capital requirements for the two projects as I mentioned earlier is about $330 million of which 215 is to be spent in 2022 and of course, we continue to invest in working cap in R&D as we continue to ramp up production and sale.

But we feel good about the current capital situation provides us with good flexibility and a lot of runway.

That said, we will remain focused on the management of cash resources, and we will be very vigilant and always assess alternatives in this regard.

Okay. Thanks, very much for the time.

Thank you.

Your next question is from Rupert Mirror with National Bank.

Yeah.

Good morning, everyone.

Good morning, Robert.

If I can come back to production capacity you mentioned do you have the capacity to deliver 1000 units.

If you didn't have supply chain issues, where would you say your production capacity is today, if there were no.

The supply chain issues, and what would you need to do to get that to your <unk>.

You are right at 2500 units per year.

Yes, our manufacturing capacity right now Rupert with respect to the the equipment.

500 units per year, and we have the labor to do about two thirds of that so same thing. We said last year. This is exactly the same thing we do we do right.

Right now so about two thirds of 2500 units on an annual basis is that is that we're manufacturing capacity right now.

Okay, Great and you did mention some some labor shortages give us a little more color on that are you seeing much.

Turnover in your staffs and would you would you hire more people if you could find them at this point.

Yeah, well that's a that's a good question I mean, we I think you know what is really helping US right now is the lion's mission.

The people who want to work at a client they are well paid.

As well they are excited about our ESG.

Mission, they're excited that we're helping customers, reaching their ESG goals as well, which is what companies are looking at doing right now and we feel we're in a great great spot because of that as well. So the people are coming to alliance.

Well first of all because of what they're doing you know for a company that you know with respect to values. So that's the first thing second thing obviously as always you know how much you are youre getting paid so we are able right now to hire.

The people that are that we need.

Is there even though some turn turnover, yes like like in all the places you know there there is a turn a turnover of employees, but I will say.

It's it's under control and if Youre looking at the number of employees from one quarter to the other.

We are always growing this this number we passed the 1000.

The 1000 people and number and you know this is a this is something that everybody is very proud of this.

So how does that number change quarter over quarter and in particular, how many are in the U S. Now how.

How do you see how do you see that going towards your target of 500 by year end.

Yeah. So yeah, we're ramping up you know the we will be receiving as you know with the manufacturing equipment and Juliet and at the same pace, we're ramping up the number of employees.

John Yes, so it is going to be mostly in the second half of <unk>.

Of this year. So we have a few employees on site right now and we will be hiring on a regular basis and most of them will be coming in in the second half of next year to start manufacturing some vehicles in the in the second half of next year, so more and more <unk>.

<unk> on the on the U S side, and it's not only with respect to manufacturing, but it's also with respect to procurement we have HR people, we outsell our people as you know we do have experience centers that.

We are we are opening as well and we're putting more and more people and those expiring centers I think the big difference with between line and some other companies is that we and the whole ecosystem and this ecosystem is key in selling the vehicles and obviously a lot of that growth, even though it's coming on the U S site.

Great I'll leave it there thank you.

Thank you Robert.

Your next question is from Kevin Chiang with CIBC.

Hi, Thanks.

Taking my question and good morning.

Good morning, Kevin.

Good morning.

I'm just wondering just given the inflationary environment, obviously creates a little bit of uncertainty as you as you.

Build your backlog is that changing how you.

You build the order book like are you, maybe a little bit more apprehensive building too far out just given given the uncertainty around raw material cost.

You don't go into get caught offside with gross margins here.

Yeah, Hey, Kevin it's Nick here.

Sure.

Obviously, we factor that into how we build the order book there are for us.

Two things are sort of working in the opposite direction, we have a cost down program as you know to bring our overall production costs down.

And at the same time, we are seeing some inflationary pressure without a doubt.

We that said, it's still the intention to build the pipeline and the longer term it doesn't inform how we go about.

The curve of that debt.

US down but it remains our goal in.

We're doing our focus to the lower the cost of the vehicles over the year and we have a good grip on that where thats going over the next few years.

Yeah, So and of course, we haven't.

Adjusted the pricing in the in the near term.

It's always something that we could do but for the time being we're seeing our competitors increased their prices. We saw some price increases as high as the 15% that makes our our products relatively more attractive.

And we feel that the.

<unk> level economics continue to work very well and so it's something we're very mindful of but it doesn't change our long term strategy.

Okay.

And then Mark you know you can comment at all in.

I guess, how people define their backlog and you know.

The way you defined it as it may be more conservative.

<unk> purchase order versus maybe others.

Lumping in things that can pensions and stuff like that but.

Just wondering.

For big customers that Youre going after what they signed large.

Hello, wise or something some sort of no handshake agreement with another OEM.

Does that does that preclude you from thinking that business.

If somebody else was kind of you know.

Put the flag on that territory or do you find that those customers are still open to talking with them, even if they sign it or a large oh, it's not fun, but you know what I've indicated an intention to buy some electric vehicles from with other Oems.

Well you know what Kevin we feel that's exactly the other way around I mean, we get the.

The operators, they're looking for a real solution, they're not looking for press release.

Two to announce that the <unk>.

<unk> been <unk> been ordering trucks, when they do not order trucks. So basically we feel our strategy is the right one.

And it's been the same since day, one we are real.

We have real operations, we have real customers. We are we aren't adding <unk> products on the road. We saw some new commerce, I mean, saying that you know the AEP sold units.

In 2021, when when Youre looking I mean diesel units for zero.

I mean, so it's only units on the road, we have a whole lot of units on the road, we have a lot of mileage. So we don't need.

Those kind of things so the dialogue, we're having with customers are the kind of dialogue that the customers are expecting.

Basically we are there for them and they want to put trucks on the road. They want to put buses on the road they want to put them without distracting their operations right now they are making money delivering products and this is what we're doing with them. So we're selling them the right vehicle with the right specs at the right time would be the appropriate.

Charging infrastructure as well.

At the right price and this is exactly what theyre looking at so the one people who know what is their duty cycle. The duty cycle of their products and that will be providing them with the real charging infrastructure. So when we're selling let's say trucks.

For example, and that's one of the reason may be you know for the slower ramp up because we're in the very good you know very serious dialogue with customers well. It's most of the time, it's the whole thing that the customers are buying you see that.

The Alliant energy fuel book is growing.

Is growing you know also also we have a very good growth in that place as well so they're looking for the charging infrastructure, they're looking for a one stop shop and that's exactly what we're getting them. So we feel exactly the other way around it doesn't preclude us from having any discussions with them. If there is something.

Think that they feel that they're talking to the right the OEM when they're talking to us.

Okay. That's helpful and I apologize if I missed this one last one for me.

You talked about some of these manufacturing ramp up costs that are weighing on on close.

Margins.

Those were some of them want to try to separate kind of ramp up cost versus well.

Direct cost of goods sold associated with the vehicles that you delivered in the quarter.

Yes, Kevin we don't.

Separate those and obviously, there's a lot of sensitive information there are I'd say.

10% gross margin off of the 71 vehicle sales is a it's a.

It's a big improvement over what we've seen over the.

The rest of the year, we're very happy with that as I mentioned before.

At the unit level the model works really well, it's a matter of scaling. It we are incurring cost today and those costs are really going through the P&L today, but they're really target there for resources that are targeted at tomorrows production and that's sort of the.

What we're going through to grow the production and the sale.

But I'll reiterate worthwhile at the unit level and then we expect our gross margin to continue to increase with scale in production.

Thank you for taking my questions have a great weekend everybody.

Thank you again.

Next question is from Brian Johnson with Barclays.

No questions you know as we look at the <unk> run rate.

You know how much was in plant how much were trucks that were largely assembled at <unk> that you are parts for how much that we're kind of fresh from job from scratch drugs and then your caution kind of been about <unk>, but how do we think about the cadence through 'twenty two our belts.

Yes, maybe I'll start I'll start with the question on the floor and Mark will take the cadence going forward. So.

We talked about.

60 trucks that were 90 850, excuse me vehicles or trucks that were 60% or 90% plus completed as of the end of Q3.

This is a figure that we provided given the impact that the supply chain issues have had on the quarter.

In the fourth quarter about two thirds of those specific vehicles were delivered.

And then assume that the rest were.

Either started from scratch a quarter or started before but we're at a much lesser.

Completion rates.

That's for the Q4.

Yes, Brian let me well good morning, Brian Let me take the the cadence.

For for 'twenty 2022 as I said I mean, we see the cadence right now in Q1 being about the same as the one at the end of last year, what we're seeing right now with the supply chain challenges.

Evolving very very fast I will say that what we're seeing the most right now is longer lead times.

From our suppliers. So most of the issues like you know with no delivering I mean, we're past that.

But longer lead times.

On average it's two additional months.

On average there is something that we're taking like one month previously thinking about three months. So that's all that's on average and when we when we do have overseas suppliers.

Well, it's even worse because you know obviously there are longer longer lead times, but also you need to add to this the logistics challenges. So logistic challenges because there are less available less availability from the.

The carriers. So when we this is exactly what we factor we factor all of this right now in our cadence and we see a ramp up.

Throughout the year to 2022, so Q1 about the same pace as we had in Q4, but we've already put in the orders to significantly ramp up.

After that so it is going to be a constant ramp up through throughout the year to deliver.

As much as possible.

<unk> of units that are being that are deliverable. This year in 2020 22, let me maybe add you know on your.

And my answer Brian .

And all the things that we've been doing with respect to the supply the supply chain.

Challenges in addition to everything we said in the past like you know, it's talking more components stocking less critical components as well all of that we've been adding to the suppliers redundancy, even more and we started to build.

Our U S procurement as well, so we're getting ready to manufacture and Juliet and many of those suppliers that will be supplying the jolliest operation have already started.

Supplying the Montreal operation as well so we're pleased to do that and we're building that U S E.

Ecosystem at a at the same time, so it's really really helping us ramp ramp up you know our manufacturing even though on the Canadian side right now.

Right I get that I look forward to launching here in Illinois.

Second question kind of related to that.

A lot of specs.

Graduates investors are very worried about.

Follow on funding rounds that could be dilutive.

And so I just wanted to get off the table because its always a cloud for anyone who would have quite a ways back.

I kind of look at your cash liquidity.

But then there's some big chunks of Capex coming up so it seems like in Canada. The campus will largely be paid for through that $80 million or there's a big chunk of Capex down in Joliet 400 million you mentioned the sale lease back, but just how do we think about you know you have the.

Gross capex in the presentation, but what it's likely to do in terms of actual capex coming out of the cash flow.

Cash balance through the course of 'twenty two given all the various options you have to fund those hard assets.

Yeah. Good question Brian .

For the sale leaseback I won't provide a specific figure and this is something that where we are.

We're exploring right now, it's 175000 square foot building that.

Industrial building, just a box and so we're.

We think our capital is better.

Elsewhere.

The in terms of the 80 million government loan do that as well.

There isn't sort of proportionate to the draws on that will be proportionate to the spend of the overall project and then I'm back to for the rest.

Back to the point that when you add all these things together, it's $520 million in liquidity and the project. It's $2 15 that get spent this year on the on the project and that is before any proceeds of a sale lease back. So we feel very good about the current capital situation. We have good good runway.

Good flexibility, but as I mentioned before we'll be very focused on the management of cash resources.

Stay vigilant around alternatives to this.

Okay. Thank you.

Thank you Brian .

Your next question is from Nauman, <unk> with Laurentian Bank.

Hi, good morning, everyone and thanks for taking my questions.

Good morning them.

So I think Nicolas you had mentioned that at the end of last quarter. You had about 50, where he goes which were close to its finish model and third were delivered and wandering.

In the end of the fourth quarter, what sort of number for four almost finished where he goes look like.

Hi, Noah.

As I mentioned before this was a.

Figure that we provided at the end of Q3 because of the.

The severe impact that the supply chain and add on.

Production at that point, its not a figure that we plan to.

To update the street on that.

On the basis I will say, though.

We're still in a situation, where we're advancing vehicles and we're putting.

There are components of a few missing component that prevent us from.

From finalizing.

Certainly.

Okay, Okay, that's fair and.

When I look at your backlog growth in terms of the new truck orders I'm. Just wondering if there were any repeat orders as well or were these from a new costumers.

Yes, we have a mix of both.

I mean, we do have repeat.

Repeat orders well you know the story on this order of 1000 units from SDC obviously.

Major repeat order, but we have new customers as well so I will say that on the bus side. Many many repeat.

Repeat orders, we have new customers as well on the truck side, obviously, new customers because we just started delivering.

B, our electric trucks and in 2021.

Oh, Okay. That's fair and just this is more a general question in terms of the.

The bidding activity that you're doing I'm, just wondering how big is your sales team now and what sort of incentives are there.

And how aggressive are you indoors bidding activities I'm, just trying to get a sense of.

What sort of incentives are there for your sales team.

You mean for yourselves, but their salespeople.

Yeah.

Yeah, well I mean no.

<unk>.

The two other major insider above you know making.

Well basically you know evening.

The reach of our customers.

ESG goals, which is which is great so very well paid.

People many of our people are very seasoned people in.

In sales as well we have many more.

While our sales forces in the U S and also in Canada, and we have local people in almost all of the.

The states and provinces.

Yes.

We are targeting right now so I don't want to get into the details obviously, because it's very sensitive.

With respect to be the other Oems, where we're competing with.

We are very well.

We will take a while and then they.

They are doing their jobs.

Okay, that's great and maybe just one last one for Nicholas maybe if you could remind US you have this committed.

Credit facility of 100 million.

Just I think which was upsized to 200 million, but I'm. Just wondering if there are any covenants or restrictions on when you can draw on it or it's just like fully committed you can do it anytime you want without any restrictions.

Yeah.

Certainly fully committed.

It's an ABL liked facility.

So it's subject to an a mall.

Growing base.

We're growing working capital quite fast and this is the ideal instrument for that there are some.

Some covenants related to that that we feel are very.

Moreover, a friendly.

Yes.

Is it at that.

Okay. That's very good so yeah, that's it from me and thanks for taking my question. Thanks.

Thank you.

Your next question is from Jonathan Lamers with BMO capital markets.

Good morning.

Good morning, Jonathan.

Mark on the Lion financing solutions Division.

Could you discuss the need for this you saw.

In the truck market and how you expect it will support sales going forward.

Yes, no. Thank you Jonathan.

I think it's really going to help.

Selling selling buses and trucks you know early area with talking about the customer is looking for the whole ecosystem. So right now it's not only about just buying a truck like <unk> been doing with diesel it's buying though.

The old charging in the trial the charging infrastructure.

Getting.

Year end is also you know on any amount of subsidies out there.

But it's also you know the financing.

Those trucks and buses the upfront cost.

Is the challenge with with EV, So with Lion capital solutions, we will be able to lower the upfront costs, sometimes we'll be able to eliminate.

The whole cost so it's really as a service.

Kind of financing that.

Net net we are doing so in our opinion that with like the missing link in everything that we were offering and we think that this is again. This is going to have a major major impact on ourselves going forward.

Will you be taking anything onto your balance sheet or is it all third party.

Hey, Jonathan the idea is really third party.

That's the whole point of putting dividends together is to really strike those deals too.

Leverage the capital of others, and it's something all partners, we have been working with and it's a matter of formalizing and making it more programmatic.

The impact on our balance sheet should be very minimum and we're talking about potentially helping with that.

Some reserves here and there, but nothing major.

Thanks, and on the sales pipeline great to see the order from the large retailer.

Mark I believe you previously mentioned.

<unk> with some very large fleet operators regarding some potential.

Large orders could you comment on how discussions with that segment are continuing and are there any large fleet operators or close to trailing.

A few vehicles.

Yeah, absolutely Jonathan is going is going very well I mean, we were in constant dialogue.

With them I mean, many of them to be above you know what they have already tried our products. So the like the like driving the product that's the first thing.

Some of them you know I've been running some tests on the on our telematics.

System, as well, which is key for them our capacity to deliver you know the charging infrastructure and now most you know any types of charging infrastructure as well.

All the critical T that we've been gaining in the marketplace being.

Well the first one.

In the market, but adding purpose built.

Electric vehicles, which is exactly what the operators are looking for they are looking at lowering the maintenance cost and this is exactly what they are getting with our products I will say, it's it's going very well with what is very promising also is that especially on the truck side, you will see that many of those operators.

<unk> are basically going in for a very significant numbers.

As you know the number 50 net we saw earlier this week, but even bigger numbers than that so many of them are looking at electrifying.

The old fleet within a number of years, which is which is very very promising because they do understand the total cost of ownership.

The get it and they are spending most of their money on maintenance on the cost of energy as well. So the upfront cost is something but it's really all of the cost that we will be touring after now.

Which is very significant for them. So when they are looking at EV fully understand that they are saving a lot of money on an annual basis well. Its land. We do have all the experience over the last five six years, a very good technology.

As well so those are you know those discussions with the customers I mean, they are better and better and better all the time.

Thanks and.

Mark.

I believe you mentioned.

Based on the raw material cost inflation, you're seeing you would consider adjusting prices if necessary R.

Our industry truck prices trending consistently with your expectations I believe some assemblers are publicly discussing pricing for class eight was in the low 300 range.

Recognizing there's a lot of factors that go into the selling price.

Yes, I'd say Jonathan.

The.

Pricing is dependent a lot of things, including onboard energy.

What we've found is that our pricing in the market is competitive.

And of course, it's like it's a it's not a I wouldn't point to one single price unit.

Our unit point.

But yes, we feel in general.

And it's quite competitive and that's what that is.

Part of the dialogue with the customer and then let me ask Jonathan that we feel that the strategy. We've been putting forward is working very well like vertical integration for some components, including you know would be the batteries will be manufacturing.

Later this year. This is key and this is working very well so while you see some of those Oems.

The only way that they can make up for the price increase youre seeing is increasing the selling price well, we see that our cost out program is working very very well. So right now we have been able to do that maintaining our margins without Amy Amy price increase so we were saying this last year that our.

D. G. I mean this is the way it's working in right now with the cost pressure, we see that this is working very well.

Okay last question.

On the.

Production capacity I know you were at about two thirds if run rate now do you have any guidance for us.

On the two new facilities when those come online in the second half.

What portion of capacity.

We will come online in the second half.

Or just guidance on the fixed expenses, we should be thinking about as we compare.

Cash outflow to your liquidity.

Yes.

The way, we are ramping up basically the manufacturing equipment.

We will be in place like coupon if I'm talking about the battery factory it will be five gigawatt hour manufacturing capacity, obviously, it's not day one.

It's a ramp up of this manufacturing capacity, but most of the equipment will be installed.

On the very short term basis to get to that capacity, but not all of it and we will need to ramp up the <unk>.

Labor as well so we will be smart about the way we will be.

Ramping up because we're a cost conscious as well and we're doing exactly the same thing in <unk>, we will start with the buses.

Because most of the order book right now.

Is is with buses. So the first vehicles, we will be manufacturing in the second half of this year, we will start with the <unk>.

<unk> and then we will start receiving by the end of this year the equipment for the <unk>.

Trucks as well and then we will ramp up our manufacturing capacity. According to the orders that are coming in.

Let me just add on the on just the fixed expense.

What.

So the big increase in the AR.

The lease liabilities and right of use assets on our balance sheet that's related to Julia.

At least there is slightly over $4 million per year for the first year.

Obviously, there is some some opex that comes with that Mark mentioned will be gradual in terms of.

Bring in the bulk of the work force.

As time or close to at the time.

Yeah.

Yeah.

Okay, and so no comments at this point on.

The fixed portion of cost of sales and Opex.

I would.

The rest of the Opex and how we should think about the ramp curve for that.

No additional comments on that that's fine. Thank you.

Thank you.

Your final question comes from Michael Glen with Raymond James.

Hey, good morning, I just wanted to go back to an earlier comment I think you indicated that you have 3000 batteries on hand does that is that what was indicated.

That's correct yes.

So is that you have three years of supply then of batteries I'm just trying to understand one.

Holding that much inventory of batteries.

No.

The number of batteries.

In general I think.

A school bus in sort of three to four batteries.

A truck can be as many as eight batteries right. So.

Yeah, Yeah. So it is not.

<unk> 3000 vehicles is release the number of batteries that said.

We're going to continue to.

Received more shipments of batteries and it's something that.

The critical components, we can't be shorter full stop.

Okay, and when you're entering when you're having the negotiations with the sell.

Manufacturers are what are their requirements or are they asking for take or pay commitments like how.

What are you seeing in terms of pricing.

Do you still see yourself, an attractive position to purchase cells.

Or is capacity getting constrained there.

No. We do we do Michael I think we feel.

Strategy, we've we've taken so far as the right is the right one.

When you were buying Pax or you're buying modules youre totally youre fully captives.

Onto your supplier or when you are buying at the cell level youre almost agnostic.

Two the cell supplier, so yes active negotiations with many many.

Cell suppliers. The good thing is that we can have several.

Sellers are selling some suppliers so the.

It's a 21 700 cylindrical cells.

As a as you know and yes well.

Depending on the supplier different different requests and those arent exactly the items, we're negotiating right now.

Okay.

<unk>.

The $215 million number you gave earlier for the capital spend on the projects what would be the working capital S.

Estimate for the coming year.

Uh huh.

There is no working capital as parts of 15, if anything some of it to me no I understood I understand that I'm just.

Working capital forecast like Youre working capital asset that will be recorded.

Yes.

Thats not a figure will be we'll be providing a michael.

We're going to continue to increase referred to invest in working capital at some point that.

<unk> is going to go down certainly relative to sales is the intention, but I won't be providing a specific figure on it.

Okay. That's all my questions. Thanks.

Thank you Michael.

Your final question is from Mark Mondello with Scotiabank.

Hey, good morning, Mark Good morning, Ed.

Good morning, Mike.

Good morning.

So before for 2022, the capital budget $2 15 for the projects.

Have you given a number for investment in intangibles and earned he thinks it's pretty significant I think.

Yes.

That is not a number.

Number we're providing guidance on we'll call it.

In 2021, that's at about 45 million Bucks, there won't be providing.

Okay.

Okay.

45 million in 2000 21000 number that you just quoted.

Okay.

Okay.

Okay, and I guess just wanted them.

Understanding correctly the deliveries there's a thousand units in the backlog that sort of are set to be delivered this year.

In Q1, you're it sounds like you're expecting to produce deliver roughly.

60, or 70, whatever you did in Q4.

Okay.

Assuming you couldn't deliver those units.

2022 is there is there any penalties that you're sort of required to bed.

Yes, Mark in most of the cases I mean.

No I mean, we will we will be good.

Some of them are being funded by well. One example will be the age of it.

And there are some you know.

Some dates of.

Delivering at.

At some point, but it's I won't say it's.

It's kind of minor in.

The order book that we have so the answer to your question is yes, you know for some units, but not very significant.

Sure.

And just on the your pricing strategy.

Strategy.

Just given the inflationary environment I'm, just curious sort of why not.

Sort of put some price increases through I'm sure again.

Most companies I think are doing it.

It feels like an easy environment to do so to me. So I guess I'm just curious why not.

Because I mean, we're maintaining our margins without doing it.

Mark I mean, no reason to do that and I think that's basically you know the payback or everything we've been doing in the past the the whole strategy of procurement vertical integration as well.

<unk> built.

So everything we'd be saying for years that is the right way to do things, we see that the proof is in the putting and this is exactly what is happening right now so while the other Oems have no choice than increasing their selling price.

I mean, you know so far I mean, we have been able to cope with this this increase so.

Now we feel it's only proving that we've been doing the right thing for many many years.

Okay. Okay.

Just some of the funding line financing solutions.

You've talked about I guess, you're using a third party to.

To help with the upfront costs I mean, do you have a vendor of choice.

Do we have a what sorry, another event Oh, well, yes. So.

I think the third parties and not just a third party the idea.

Is that we're going to look to have partnerships on sort of the sort of upstream if you will to get to develop the solutions in a programmatic way and then downstream to use it as part of selling tool right as opposed to today, where it's more of a.

On a referral basis, it will be packaged in the selling tools in the toolkit that our sales force has so.

We are speaking to various parties in this regard and I expect more to come throughout the year.

Okay.

Can you remind me is this.

The STB order is that in the current backlog.

Which one you said mark the FTC's yeah.

Yeah.

The student transportation of Canada, Yeah, Yeah, well.

That's in the order book for 1000 units, yes, yeah, okay. Okay. Okay.

Sure.

Okay, I think I'll leave it there thanks a lot.

Thank you Mark.

Yeah.

At this time there are no questions I would like to turn the call over for <unk>.

For closing remarks.

Thank you operator, and thanks, everyone for joining the call.

I look forward to continuing to discuss with you and feel free to contact me if you have the.

And he put a question I have a nice day.

Okay.

This concludes today's conference you may now disconnect.

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