Q4 2021 Lightning eMotors Inc Earnings Call
Greetings and welcome to the Lightning E Motors fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
I will now turn the conference over to our host Bryan Smith, Vice President of Investor Relations. Thank you you may begin.
Thank you operator, and thank you for joining us hosting the call today are lightning <unk> co founder and CEO , Tim <unk>, Our Chief revenue officer, cash, Stephanie <unk> and CFO Teresa Covington.
Head of this call lightening issued its fourth quarter 2021 earnings press release and presentation, which we will reference today. These can be found on the Investor Relations section of our website at Lightning Motors Dot com.
On this call management will be making statements based on current expectations and assumptions, which are subject to risks and uncertainties actual results could differ materially from these forward looking statements due to risk factors that are listed in today's earnings release and in our filings with the SEC, which can also be found on our website.
We do not assume the duty to update any forward looking statements.
Today's presentation also includes non-GAAP financial measures. Please refer to the information contained in today's earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP measures with that let me turn it over to Tim. Thank.
Thank you, Brian and thanks to everyone for joining us today on today's call, we will be referring to the slides that were posted to the Investor Relations section of our website earlier this afternoon.
I'll start off on slide four with today's agenda.
We will begin with an overview of lightning and how we continue to strengthen the company, we will provide a supply chain update and discuss our manufacturing expansion.
Cash will then provide an update on products and markets partnerships sales and business development and Teresa will wrap it up with a financial overview.
Moving to slide six we believe lightning he motors as the only full range manufacturer of class three through seven battery electric and fuel cell electric vehicles in the market, including ambulances shuttle buses utility trucks school buses and motor coaches.
We're the only company currently shipping product in all of these classes.
We started in 2008 with commercial vehicle hybrid solutions and have now shipped over 240, <unk> zero emission vehicles with over $1 3 million zero emissions miles driven by our customers with.
With every vehicle we ship in every mile our customers drive our lead grows.
Moving to slide seven we have built a modular software hardware architecture that allows us to serve a highly segmented and customized market with a cost effective solution.
Our high level of software and hardware customization that is required for commercial electric vehicles is something that legacy Oems have not historically perform that are not well suited for companies like Ford and GM are building, a light duty commercial trucks, and vans and high volumes and do it out of a business model that supports manufacturing electric vehicles for the medium duty segment.
Moving to slide eight we recently announced our partnership with General Motors. The agreement covers a broad range of class three through six commercial vehicle chassis from shuttle buses to delivery trucks to school buses.
This agreement broadens and Diversifies, our platform offerings as well as our chassis supply and expands our partnerships with Forest River and Collins School bus.
GM has delivered a chassis and our engineering development work has started in earnest we expect to receive production chassis in volume later this year and we'll begin to see the impact of this agreement within the next four quarters.
Moving to slide nine let's discuss the supply chain.
We are experiencing strong and growing product demand, however supply chain disruptions continue to serve as obstacles for our business. There is good news, though the battery partnership agreements, we've announced previously it put us in an excellent position regarding battery supply with inventory on hand today.
However, major chassis Oems like Ford have publicly announced lengthy factory shutdowns of their commercial vehicle chassis plants limiting commercial vehicle chassis availability and we expect these shutdowns to result in continued chassis availability constraints for the next few quarters.
Limited chassis availability has been impacting both commercial ice vehicles as well as electric vehicles exacerbated by a lack of transparency regarding chassis ship dates.
Our engineering manufacturing and supply chain teams have been taking measures to adapt to the circumstances with continued progress on our previously announced lightning strip chassis and cab chassis products that are not limited by chip shortages.
We will be providing further details on our each assay in the coming months.
In addition, we announced today a partnership with Forest River to supply factory certified Lightning Repower powertrains to support over 50000 eligible Forest River shuttle buses on the road today.
This partnership validates the value of our unique repower powertrains in a market where it is one of very few options for fleets to continue servicing their routes with reliable vehicles.
Lightning is the only electric commercial vehicle OEM today to offer powertrains to replace and upgrade ice and EV Powertrains and school buses shuttle buses transit buses and motor coaches.
Finally, we continue to grow our lightning energy business, which is also not chassis dependent and we have a lengthy healthy sales pipeline for our proprietary charging and energy solutions that are tightly integrated with our vehicles.
Although our Q2 and Q3 2021 revenue was constrained by battery supply and other components and Q4 revenue was constrained by chassis availability, we were able to mitigate several other supply chain constrictions and sell a record 146 complete zero emission vehicles in 2021.
It is important to note that we have not lost any sales due to the supply chain delays, rather revenue is simply being pushed forward to future quarters.
Moving to slide 10, let me now provide an update on our manufacturing capacity expansion.
We released a new video, we released new press release and video earlier this quarter showcasing our manufacturing expansion and automation.
And the video available on our website you can see some of the automation and other factory improvements we made to reduce the labor cost per unit and improve efficiency and reliability as we drive towards an expected factory capacity of up to 3000 vehicles <unk> powertrain systems per year.
Specifically, we invested in advanced laser cutters collaborative robots and augmented reality software to improve both quality and productivity.
We are renovating 3700 square feet to create a research and development lab, which will include a vehicle dynamometer in battery Test Center.
Lastly, we believe we can readily expand and add the additional square footage needed on our 1 million square foot campus that along with our OEM customers installation capabilities will allow us to support capacity of up to 20000 vehicles and powertrains per year.
We believe we are one of very few companies in the U S zero emission commercial vehicle market with a fully operational and scalable factory.
And now I'll turn it to cash to provide an overview of the order backlog sales pipeline and key partnerships.
Thanks, Dan I'll begin on slide 12 to provide an update on products partnerships pipeline and backlog.
Our core vehicle products, all in let's say zero emission cargo vans delivery trucks passenger vans and school buses continue to drive the business forward, our strategic partnerships with market, leading Oems and specialty vehicle builders like Forrester and Colin have enabled us to engage with a wider range of customers by leveraging our breadth.
Partners brand reputation and extensive nationwide dealer network as.
As a result, we continued to see repeat orders and demand for these products is strong.
The sales pipeline as of March 14th 2022 was $1 5 billion and backlog was $169 3 million.
All of our backlog included all electric commercial vehicles, all electric powertrain systems and charging system.
Backlog generally component comprises of binding of non binding agreements and purchase orders from customers.
Pipeline consists of those opportunities in various stages of a sales cycle prior to the receipt of a purchase order.
On slide 13, we show some additional vehicle applications and partnerships ambulances transit bus and motor coach Repowering and <unk>.
I like units when do you think of obligations are now in customer hands, and we anticipated growing demand for these vehicles over the next six to 12 months.
We continue to explore additional vehicle partnerships and look forward to sharing those details in the near future.
Now I'd like to turn to slide 14 to discuss the forces that continue to drive adoption of zero emission commercial vehicles government regulations and mandates grant funding program and meet sustainability targets, California, It's actually isolation Transit Airport shuttle rule, and a 15 state Mou or zero.
<unk> vehicles are all delivering a strong message to the market.
Is electric.
Beyond the mandate state and federal governments are now providing even more funding to accelerate the adoption of zero emission vehicles.
Graham's back the federal trials of the polar these low or no emission vehicle program in California, They chip will provide significantly more money this year than they ever have.
Mechanically like the Epa's Clean School bus program are benefiting from the infrastructure investment and jobs Act plus.
Lastly, many please continue their march towards electrification simply due to corporate sustainability goals. The recent increase in gas prices that accelerated the interest of many corporations looking to go electric seeking lower total cost of ownership.
Moving to slide 15, I didn't mention the industry if anything a once in a lifetime supply chain challenge with chassis.
Which is creating new opportunities to repower commercial vehicles to zero emission.
Lightning has been re powering vehicles for nearly a decade. So we are positioned very nicely to capitalize on this opportunity.
In addition to our current partnership with ABC to re power band buses and motor coaches earlier today, we announced a new partnership with Florida shovel to offer zero emission repo was for passenger vans and shuttle buses, who their nationwide dealer network.
And with that I'll turn it over to treat them to provide an update on <unk> financial results and outlook.
Thank you Kash I will now provide some commentary on our fourth quarter results, followed by our first quarter outlook.
Beginning on slide 17 for the fourth quarter, we generated revenues of $4 $2 million, which increased 13% from the year ago period. During the fourth quarter Lightning sold 36 vehicles compared to 27 vehicles in the prior year period.
Cost of goods sold in the fourth quarter was $6 $9 million compared to $4 $9 million during the prior year period, primarily due to an increase in revenues.
As we ramp production in our revenues grow we expect to generate operating leverage as we benefit from fixed cost leverage on labor and overhead improved battery supply terms and operational efficiency.
The gross margin percentage was minus 63, 5% in the fourth quarter compared to minus 31% during the prior year period, primarily due to higher factory overhead and expenses related to the transition of our new battery into protection S.
SG&A in the fourth quarter was $13 6 million compared to $3 $5 million in the prior year period, primarily due to higher administrative expenses related to being a public company.
Research and development expense in the fourth quarter was $875000 compared to $567000 in the prior year period, primarily due to higher engineering head count to advance the development and design win new vehicle platforms, refine and improve our production processes.
Foreign product testing and enhance our in house engineering capabilities.
Total operating expenses in the fourth quarter were $14 5 million compared to $4 million in the prior year period, the operating loss for the fourth quarter was $17 $2 million compared to $5 $2 million in the prior year period.
Net income for the fourth quarter was $22 $2 million compared to a net loss of <unk> <unk>.
$13 $4 million during the prior year period. The positive net income was primarily due to a $40 million noncash gain from the change in the fair value of the earn out liability and a $3 $9 million noncash gain from the change in the fair value of the derivative liability, partially offset by higher.
<unk> and interest expenses.
The adjusted EBITDA loss for the quarter was $15 $9 million compared to a $5 $1 million loss in the prior year period. The change is primarily related to higher operating expenses in the current period.
A reconciliation of net loss to the adjusted EBITDA can be found on slide 19.
Turning to our balance sheet Lightning ended the fourth quarter was $168 $5 million in cash and cash equivalents.
Turning to slide 18, our outlook for the first quarter as Tim noted earlier, our Newberry partnerships have helped us navigate a help.
<unk> helped us mitigate much of the battery risks we had in 2021, we continue however to experienced supply chain challenges with chassis and other components delays associated with any of these components may impact the timing of revenue base.
Based on current business conditions, we expect for the quarter ending March 31, 2022 vehicle and powertrain system sales to be in the range of 65 to 75 units.
Revenue to be in the range of $5 million to $6 million adjusted EBITDA loss to be in the range of 15 million to $17 million.
We invest capital in our factory and other revenue enhancing projects most of our capital investments will be directed towards three areas manufacturing facility build out and equipment to increase capacity and drive cost reductions and factory efficiency.
<unk> sales demonstration vehicles to deploy at potential customers across the country to drive an increase in sales backlog and pipeline and three engineering and R&D equipment to support our existing and new products and services. Our full year 2022 capital spending is expected to be in the range of 10 million to 15.
Millions of dollars.
The Q4 and 2021 information we have discussed reflects our preliminary unaudited results and is based on the information available as of date of this call.
And it may require adjustments, which could result in changes to the company's unaudited financial results included in the press release.
Included in our operating expenses in Q4 is $1 8 million worth of bad debt expense.
This expense is still under review with the with the auditors there.
There are three options that we have no change to our financial statements. One is we could end up with a decrease in revenue by $1 8 million.
And removal of the bad debt expense with no change to income state net income for EPS or EPS in 2021.
Or we could have a decrease in our bad debt expense and record a prospective change with a decreased revenue.
The first quarter.
F 2022.
With that I turn it back to Tim for closing remarks.
Thank you Theresa.
In closing while in the near term lightening is experiencing the same supply chain headwinds as other companies in our space we.
We feel confident in our longer term outlook as evidenced by our strong backlog pipeline and the OEM partnerships, we've announced in fact, we see the current industry disruptions focus shifts and market transformation as bullish for our business in the medium and long term as we are well positioned with products customers and experience.
Over the course of 2021, we dramatically strengthened our organization in many ways. One we increased the capacity productivity and quality of our manufacturing operations.
Two our engineering team developed and introduced a multitude of unique new products and services.
We doubled the number of suppliers to reduce reliance on any single vendor for key components.
We partnered with quality organizations and Oems to increase the value we provide to our customers and five we brought in world class team members, both management and individual contributors, who have the experience expertise and passion to accelerate the business at lightning pace and we're confident we'll be able to continue to attract the best of the best to join our mission.
In our view lightning stands out to our customers because of our ability to produce and deliver our full suite of unique vehicles and infrastructure solutions they require to run their fleets today.
Further we believe the opportunity for lightning and the EV industry remains robust with multiple drivers of zeb adoption, including new sustainability and air quality mandates and billions of dollars of new federal and state funding that will be available to fleets over the next year.
With less than 1% of the commercial vehicle market, having adopted zero emission vehicles, we look forward to many years of strong growth ahead.
I would like to finish by thanking all of our customers for their confidence in lightning our partners for their contributions to our company's success and our shareholders for your support.
I, especially want to thank our employees, who are executing at a high level through a challenging operating environment.
And with that thank you everyone and I. Appreciate your time today, operator, we're now ready to open the line for questions.
Thank you.
And at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
You May press the Star key followed by the number two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Mike <unk> with D. A Davidson. Please state your question.
Hi, everybody good afternoon.
There've been Mike How're you.
Great. Thank you I was asking about the new Repower announcement here.
Just want to clarify a few details.
Not part of the original agreement as an extra additional business on top of that.
Can you correct.
Great perfect and can you tell us how soon and how much.
So you have that business in 2022 and 2023.
But one of the great parts about this product is it's a product we already make so we make a 450 powertrains and those of you that have seen pictures or video of our factory now that we have an assembly line that makes it for 50 powertrains and we both install them here as well as ship them to forest River to install them. So the opportunity now to use.
He is in a different capacity rather than putting them in new vehicles to put them in the potentially up to 50000 of these vehicles that are already on the road. We see is as obviously very exciting and a significant opportunity.
I wouldn't say, though yet that us nor forest river fully understand the extent of the demand. So we are actively now obviously this is a brand new announcement today and something we're working on together to respond to the fact that.
Many of Forest River customers can't get a product today, meaning they can't buy a new shuttle bus of your transit agency and you want a new shuttle bus today, you arent going to be able to get one because they aren't available as gasoline or electric either one so the opportunity for those people to be able to keep a reliable vehicle on the road by Repowering them, we believe is compelling and exciting.
It will certainly get a better idea over the coming weeks and months, how the how the market responds to it.
Okay great.
I wanted to talk I want to touch on your backlog here.
Wanted to.
Sure what's in your backlog now does it does.
I'll include Forest River, and Collins box or is it just like what they've got it on your current production schedule. I know these are multi year agreements just Michelle I know, what's in there and what's not.
Got it.
That cash can you respond to that.
Yeah, absolutely. So we do have units with both Florida sugar and called it in our backlog. Many of those are in production some of them have already been shipped and are with them and their dealers and their customers.
We do not have all of the potential for those agreements in the backlog because they are multiyear agreements. So as that demand gets firmed up we will added to the backlog. So it's.
It's a mix we've got some in there, but we've got a lot of potential that's not in there.
Okay.
Rob on backlog here it looks like actually looking at this correctly, it's actually down a bit from the previous quarter.
And in units can you, maybe just clarify like what exactly someone moving parts are as to how that.
That may have happened in such a strong demand environment.
Yeah. So I mean, our backlog has both binding and non binding contracts. Our backlog does not have a bunch of pre reservations that anybody can fill it on our website.
Loan commitments from our customers.
And as time goes on we're constantly bringing new things into the backlog some customers may elect to no longer take those vehicles for either operational reasons or as they no longer have the demand for it.
But generally speaking we are very bullish about our backlog it more than covers.
The supply constraints, we have over the next few quarters. So I am more focused on improving the quality of the backlog, bringing higher margin products into the mix signing new partnerships, bringing customers, who won't just all of the <unk> 20, but it will buy the next 100 500. After the 20 so it is.
Relatively flat towards compared to last quarter.
But but I think the mix has gotten better we have better partnerships and better customers in the mix now.
Okay I appreciate that answer guys.
Leave it there. Thank you so much.
Thank you Mike.
Our next question comes from Donovan Schafer with Colliers Security. Please go ahead.
Hi, guys.
So when I asked about Asps is just because it looks like.
They're down a bit quarter over quarter, and then for the first quarter guidance, so they're going to be down again.
And I'm guessing this is sort of being driven by the <unk>.
Idea of moving from being more of a vehicle.
Manufacturer to you've talked about kind of like the Cummins of Evs shifting more to powertrains.
But just any color you can give there on what's driving the declining asps.
Some of that has to do with the Forest River Repowering agreement.
Thank you Donna and yet you're exactly right in the sense that as we do a mixture of vehicles plus.
Just powertrains that mixture changes the ASP.
On a quarter by quarter basis in this case, we had in Q4.
A lot of of powertrains, where the customers had provided the vehicles that we weren't doing any power any re powers. During Q4. So it did not include any repower business in Q4, but it was business that was just powertrains without the vehicles attached with changes ASP. It.
It was also Q4 was very weighted towards a lot of the <unk>.
Class III vehicles, which are the less expensive of our options. Obviously is as people buy bigger and bigger powertrains. They are more and more expensive because you have obviously more battery associated as well.
So the at the bottom and when where we could get a lot of class III chassis. We ended up doing a lot of class three and in Q4 and also in Q1.
Whereas in times past and certainly in the future we expect to see a mix of some of our bigger vehicles more of our bigger vehicles with some of the chassis constraints.
Ease up a bit.
Okay, and then as a follow up on that.
The mix of powertrains increases relative to complete vehicle sales.
All else equal those tends to be higher margin sales because you can imagine.
Sure.
You're sort of secret sauce isn't India enclosure.
The box that is the vehicle then that might be it cost you to sort of pass through.
Whereas if you're stripping it down just to kind of your secret sauce of the drivetrain is that gonna be.
All else equal tend to be a higher margin product or would do the same.
Your intuition is again accurate Donovan, so I'd say.
We're just selling a powertrain whether repower knew it is higher margin because when we package it with a vehicle the vehicle tends to be lower margin and that's dilutive to the overall margin proposition.
But also that this does begin to evolve as we begin to release our own E chassis.
Then in those cases, we will have margin better margin on our own E chassis, because the chassis does have some significant value in terms of features where it can we believe we can get a premium for that product. So this will evolve as we get towards chassis, but today exactly what you said is correct.
Well you just keep me up to the last question. So my my last question was going to be where you are in the development process for your chassis to just in terms of specifics like what I'm sure, there's kind of a roadmap or certain checkpoints that you'd get to them.
Yeah initial design engineering phases, and testing and such so where are you guys right now with the economy.
So still in the design and validation stages, beginning to work with our customers to make sure. It meets their expectations and requirements. It is making good progress we have allocated continue to allocate more and more engineers recently hired additional new people, who are absorbing the work required to accelerate that activity.
So we see it as absolutely critical to the company, but it's also in the chassis. It has to be done right. Clearly we want the highest quality chassis out there. We also want a product that plugs right in the current our current customers' assembly lines. It makes it easy so those things have to be done right and ultimately on an each assay we owned the <unk>.
Ft features and so obviously, we're doing a lot of work to make sure. Those safety features are.
Best of the best in the industry. So it is absolutely moving forward, but hard to put an exact timeline on it right now.
Okay, great. Thank you I'll take the rest offline. Thanks.
Next question comes from Steven Fox with Fox Advisors. Please state your question.
Hey, Thanks, Good afternoon, everyone. I guess first of all can you just explain to bad debt expense a little bit clearer like what was the circumstances behind that and then I had a couple of follow ups.
Yeah on the bad debt as I mentioned that we had that.
Within our operating expenses in the quarter, we have one 8 million of bad debt around.
Rail that we had in two.
2021.
And.
This is our first 10-K, and so we're going back with the auditors our position the sale is complete and we at this time have deemed the amount uncollectable. So we took a bad debt for that so what we're working on with our with our auditors.
Is the three options that I spoke about today.
So I understand all that I'm, just trying to understand what the circumstances by which the company was unable to collect as a company did your customer go bankrupt.
Did they have a problem with the vehicles any detail there.
Yes, it is actually a complex deal with it both a government voucher and a customer thankfully. So I will say categorically that vehicles are running there on the road there with the customer and they are happy with them. So that part I can answer in terms of why the.
<unk> around the combination of the subsidy side and the customer side are being argued obviously I can't speak to but in terms of because it's under review, but the actual <unk> to answer. The first question that the vehicles are indeed in in route running today regularly.
And fully operational and the customer is happy with them.
And we did receive a partial payment form we just did not receive the government subsidy side of the payments. So from that side, we are very firm and confident on.
That's really helpful. Tim I appreciate that and then in terms of looking for the full year I'm pretty supply chains are tougher to call than last year, even a month ago for obvious reasons, but how confident are you in your ability to sort of source at higher volumes, whether it be for full via.
Nichols or just powertrains.
Versus say 90 days ago. It seems like Theres a lot of moving pieces. Some are pulled in some of them pushed out et cetera.
Yeah.
It's true and then of course, we've got China, now, claiming COVID-19 again, so that it is difficult in a moving target what I will tell you is the things we've done it and I say this a lot on other calls we work to control the things we can control. So one of those is obviously our systems and our procurement team and I've I've indicated in past and we'll say.
It's continued we continue to increase the size of our global supply chain team. We've also added significant new software systems logistical systems to really ensure we understand where we're at so at the very least I can tell you we have far better visibility than we used to have the other thing is we've added a lot of new suppliers to at a new <unk>.
Apply chain, so we feel much better about that and we're no longer at the behest of single source supplies. In most cases, we're also working very hard to in source, some things and build some of our own components where necessary to control it.
But also working in some cases, where we do rely on suppliers to continue to add additional diversification of that supply chain. So a long answer to say it is it is difficult to predict and obviously, we all see the news every day, whether youre talking about steel coming out of Russia, whether you're talking about logistics challenges at the port of long beach or whether you talk.
Looking about supply.
Supply chain Covid challenges in China, each of those on a daily basis can pop up what we're doing is really making the investments we need to make to be at the front of that I'd also say we've placed some significant long term agreements in many cases, which have enhanced our prioritization with suppliers and we expect that to.
Continue we continue to build a really strong relationships.
Place pretty significant orders now that move us up on the priority list. So all the things. We can do we are doing but obviously all of us are still at the behest of the macro situations that are a bit unpredictable on a day to day basis, yes.
Yes.
It all makes sense and it's really helpful. And then just as a follow up to that I guess would it be.
Safe to assume that the supply chain could also dictate some of the production schedules in terms of mix of business through the rest of the year like powertrain, becoming a bigger portion of sales et cetera.
Absolutely and I think Thats I think any good company has to be able to be a bit to agile and the approach we take and we are so we're looking out every day, saying what what do we know we can get and what can we build and what can we revenue.
And obviously looking at that in conjunction with what is in our backlog and what our customers want and where the urgency opportunities and that's why we've really looked at this opportunity around re powers and taking advantage of that Wow medium duty chassis are constrained and taking advantage of some of the opportunity to build a lightning energy.
The structure.
Preemptively before some of the customers get their trucks. Many of them are wanting to do that and willing to do that so we're absolutely looking opportunistically at the markets and looking carefully at where the constraints are and trying to work around those.
That makes a lot of sense. Thank you.
Our next question comes from the city of El Somebody with Bank of America. Please state your question.
Hey, how are you guys.
It's been a great story of how are you doing.
Doing well doing well so I just wanted to ask a bit.
At the guidance.
Seems like you have a bit higher revenue on relatively flat.
EBITDA. So I'll just ask if there is any.
Absorption on labor and overhead given that you've expanded the capacity or any of the moving parts there.
Yeah, I should read this as tree say, yes.
Hmm.
We're finding now with at these volumes is we do have under absorbed overhead.
In the factory.
Part of it as we think about.
Driving to improve gross margin you know one of the key things is it's really getting that production ramp. So that we can absorb the overhead on a per unit basis going through the factory.
Yeah, I'll expand on that sure Ive as we've said we've got a factory that can build in a single ship 500 units so exactly to your intuition.
Further away one is from 500 units the less absorption.
The closer we get to 1500 units the more absorption. There is so we see a real strong urgency obviously to two <unk>.
Some of these supply chain and obviously moved towards the places we can get volume because any volume we can use in the factory up.
Improved margins significantly.
Thanks for that and apologies. If this was discussed earlier, but looking at the top line.
It seems as if the asps.
We are declining it's about 79000 and guided for Q1 is that purely on the re power agreement or what are some of the moving parts there.
Yes, the biggest moving part is whether or not there.
Is it includes the new vehicles. So we do have in Q1 quite a few vehicles for a major customer where they're providing the chassis. So it's not a repower it as a new vehicle, but they are providing the chassis and so we don't have we don't take the revenue on the chassis and that reduces asps.
The other thing is Q1 is very heavily because the bigger chassis had been more highly constrained.
We have been fortunate enough to get some of the class III chassis as quite a few class III chassis and that's what we've been building and so and those the powertrains and class III chassis are less expensive than the larger chassis less battery involved. So the combination of those two building the smaller end of our spectrum and also building more powertrains and.
Less complete vehicles in terms of the way the invoicing works out does change the revenue mix, but we do I would expect that some of the supply chain eases up around the larger chassis and also as we do some of the larger repower units that are our ASP average will go up.
Understood. Thank you guys.
Just a reminder to ask a question press star one.
Our next question comes from Colin Rusch with Oppenheimer. Please state your question.
Thanks, So much guys could you talk a little bit about the customer dynamics right.
Right now in terms of any sort of deep bookings that you have or more.
A more positive note.
Customers that are going away and looking at some of your competitors coming back to work with you on the vehicles.
The cash can you take that one.
Absolutely so.
We know the customers, who really want to go that could quickly. They go to the market value of that option typically we win the round, one which because we have real vehicles, they can touch and drive today, but many of our customers of competitors have websites and brochures. So we'll usually when the round one where okay. We've got a real part of they can touch and feel.
Then when it comes to pricing we are careful.
We want to be careful on how we play the pricing aspect you would like to make money, but we understand the customers are looking at from a total cost of ownership perspective. So there are cases, where we refuse to go as low as some of the competitors are especially when the competitor is a company that has not been building products with very long, it's easy for that company to take a very bullish approach.
How low they can get the cost. So we've had some cases where customers have elected to go elsewhere because of the lower price and then six to nine months to come back to us, saying, Here's a product didn't work out or he is still going to have my partners and I placed the order for six to nine months ago. Let me talk to you guys again, so that happens often both in the bus space and also in the.
Truck space.
Perfect that's helpful.
Yeah.
I'll take the <unk> question offline.
So just the question is really around the leverage that you guys are getting out of yourself our investments. So obviously, you're one of the few.
Medium duty truck companies.
It really has invested heavily in software could you talk a little bit about the areas that you're investing in on the software this year and how much leverage you're getting out of those investments from us from a cost structure.
Thank you Colin it's a great question and something I'm.
Former software person very passionate about.
The obviously in the time has passed.
Separated our segmented our software in three segments, we have the the software that controls the vehicle that is proprietary that we build.
Software, we do believe we're the best in the business and if you look at the efficiency scores on carb Dino tests, we are.
At the very top in most categories and so we do believe we do a great job in that software, but what makes it unique is the fact that it is modular we can take that software and very easily ported to a bigger vehicle a smaller vehicle at different vehicle or vehicle with different equipment on it.
And that's what's made us unique is the speed and the agility at which we can take that software and move it to different components and different platforms of different size vehicles.
The second piece of software is the the the way we integrate into a specific vehicle and again. This is modular some vehicles have air brake some vehicles have hydraulic brakes some vehicles have.
Rear lift gates, some vehicles have rooftop air conditioning, and our ability to integrate to all of that effectively and cost effectively modular ladies again unique to us and something we're very proud of.
And thirdly, we have our industry, leading telematics and analytics, one hertz and that's what's given us a big leg up as today, we have one second telematics on every single vehicle in the field today, we understand what happens when it's colder when it's harder when Theres high payload. We can tell you the difference between a driver drives with really good regeneron a driver.
Who doesn't pay attention to regions. So those three areas are great, but we're now adding a fourth area. This year that I'm very excited about in terms of investment and that is the integration of our charging an energy solution to our vehicles. So.
When the customer said, what's really valuable to us as they scale as they scale. They are beginning to understand the complexity and the need to be very careful about when they charge, where they charge how much they charge and how they manage that across our scaling fleet demand charges can get very expensive. If you charge too many vehicles too fast too to close.
Together.
So the ability to manage the vehicle with the charterer and for example, when that vehicle comes back to depot, the vehicle and the charterer talk and May know together, how much energy it needs by when it needs that energy and how much energy, it's going to need in the next day. So all of those are things, we're excited about and opportunities we see to continue to add value to the software side of the business.
Great. Thanks, so much guys.
Yeah.
Our next question comes from Michael Ward with benchmark. Please state your question.
Thanks, Good afternoon, everyone.
Yes.
A couple of things first off on General Motors.
You a volume commitment for chassis.
Yes.
I don't know that we can talk about it today I think it's still under wraps, but we do have a commitment from them on what they'll give us chassis.
Which is important to us obviously in order to be able to get.
Chassis out this year.
Okay.
On the Repower can you talk a little bit about some of the financial dynamics.
Cost revenue capacity.
50000 potential vehicles, just at Forest River.
To repower.
Can we go on our decades based on your kind of your capacity projections.
How much space. So I assume it's in the current facility that you'll do these repower.
The manufacturing of those before Theyre shipped out does it take up of space.
Does it do to the capital side of the equation and those sorts of things.
Yes, it's a very good question and when you look at videos of our manufacturing or those of you that have visited you'll see we've got assembly lines for powertrains and so this re powered powertrain is identical to the other powertrains, we build so whether we build the powertrain and ship it out to be installed somewhere else or whether we installed at this factory that.
Our train side of the Assembly line is the same it's very efficient we've talked about this year being able to do 3000 powertrains in this factory. This year on two shifts so we've got pretty good capacity and in terms of if we focused entirely on just powertrains or if we had a much bigger mix of just powertrains versus powertrains plus install on V.
Vehicles, we could do even a bigger mix of just powertrains. It is the lowest floor space use and the lowest our manpower use of everything we built when we take that powertrain and install it in a vehicle here at our factory. It takes a lot more space as you can imagine. It also takes a lot more manpower. So this is the most efficient way to use our factor.
Space and also the most efficient way to leverage our partners, who already have facilities in the field, where they have historically put new new powertrains and vehicles anyway. So it's a it's a great use of the ecosystem of the partnerships that exist.
Okay and is it a fair assumption.
Revenue standpoint, the Repower side is about 40% to the total cost of the vehicle.
Probably.
That's fair I haven't done the math recently and it does change depending on the size of the vehicle and some of the features but I think that's in the ballpark.
Okay, and I assume it's going to be less capital intensive so from that standpoint.
It's a way to accelerate revenue pretty quickly.
Do you have an exclusive right now but for sure can other people do it.
Yes, so we havent, we havent exclusive with us today and Forest River correct.
Awesome, that's great news. Thank you.
Thank you.
Our next question comes from Vicky Benjamin with corner Blue Capital. Please state your question.
Good afternoon Chad.
Good afternoon, and great to hear from you again yeah.
Yes.
Well I think one of your one of your fans love your product.
A couple of quick questions and then I had just feeding off of some of the other questions first of all.
So we know that you have 1500 capacity or vehicles 3000.
We're running two shifts.
I know that this was asked at the previous question, but what's the approximate number of powertrain. If you only did powertrain that you could do with your current capacity.
I'll have to offer to find that later.
I don't know yet to be honest I haven't asked my team to go do that math that certainly as we talked about more stage time it takes on that.
It seems to take about eight hours a vehicle and I was just wondering if powertrains are about half.
Yes.
Powertrains are much faster in the end when you tour of the factory, you'll kind of see that when you look up there you can see the powertrains happened very there are a lot more automation on the powertrain side.
And so the powertrains do happen much faster the vehicles and this is true interestingly enough. Even we spent a lot of time with our partners, who built vehicles and as the vehicle.
The size gets bigger of what Youre working on the speed slows down.
I think exponentially powertrains being so much smaller they are much much faster we bottleneck here on the vehicle side by far absolutely. So both from a capacity of people side and the capacity of floor space size, it's very significant lately tilted towards.
The vehicle the full vehicle assembly, taking a lot more than just powertrain.
And just on that point.
Our virtually all of the parts.
From the U S on the powertrains are in house.
Because we know we know you have all these the contract with batteries. So we don't have to worry about that.
Creating around software so is.
Is it are we still down to missing little small plastic parts or with the powertrain or you are pretty much. So.
Yeah.
Domestically.
So today, we are there are still some things that ship in depending on the specific size of vehicle and the type of vehicle, but it is much more contained so when internally when we think about the constraints in supply chain constraints around supply chain, we have a much higher comfort level than we do around chat.
These today and a lot more things, we can control and we can buy more than and we just have much deeper relationships. There then whereas chassis. We don't have a lot of leverage on chassis. So.
We do feel more confident but I don't want to make it seem like there is no macro situation that could still derail it because with everything going on.
We've become very careful with sounding overly confident that nothing will go wrong, but.
Today. Your intuition is accurate that there is a lot less risk on just the powertrain.
And just one more follow on question with two parts.
So I think everyone on the phone probably got excited about seeing the number of 50000 workforce forever and given the backdrop of rising diesel cost gas cost.
The lack of chassis from any OEM.
It would seem like that 50000 is that you folks have done at least with David over of course wherever some exploration on demand on that side.
Do you have any.
Expectations do you have any forecast for that and.
Yes, or no is any of that in the Q1 numbers.
So I'll answer the last one first none of that's in Q1 numbers and none of it is in backlog yet. So none of this has been it is a fresh conversation where everybody's including Forest River is trying to adapt to this new world of not being able to get any kind of chassis for their customers. So that the straightforward.
The answer is both forest River and US are actively looking in and out there talking to the dealers and the customers about what the demand looks like and we don't have a good answer yet because this is so fresh.
We are both optimistic or we wouldn't have made obviously the the work to put this in and build this this factory certified opportunity, but the <unk>.
Truth is we're just in the early stage of looking at demand and customers and it is not yet in our backlog or in Q1.
Great and just one final question I noticed that in your disclosures that you had about 165 million left in cash that's great.
Any concerns about liquidity any plans for liquidity and near term future.
You know, we believe our cash and cash equivalents as you mentioned our balance at the end of 2021 was $168 5 million, which we believe is sufficient to continue to execute our business strategy over the next 12 months.
We will need additional capital in the future and we continue to evaluate our capital needs and financing alternatives.
Great. Thank you very much Theresa thank you.
Thank you Vicky.
Thank you and that's that was our last question for today and that concludes today's conference call. All parties may disconnect have a great day. Thank you.