Q3 2022 Lion Electric Co Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the <unk> Electric's third quarter 2022 results conference call. At this time all participants are in a listen only mode. A brief quotation and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded.
I would like to turn.
Nicole the Tuesday bow autonomy voice because.
The relations are sustainable.
Please go ahead Mr. Tony.
Good morning, everyone welcome to Lyons third quarter 2022 results conference call.
Do you have in you that goes off today for Nick So when that is.
Definitely north did you pleasant.
Event to do video.
Today, I'm here with Mike <unk>, our CEO funder, and Nicola wouldn't it our EVP and CFO .
Please note that our discussion will include estimates and other forward looking information, which are external preset would differ from in the future.
We invite you to review the cautionary language in this morning's earnings release and in our MD&A regarding the various factors.
Assumptions and risks that could cause our actual results to differ with that let me turn it over to mark to begin Mark.
Thank you Lisa good morning, everyone.
There are three key elements, we will be discussing on today's call.
First we are announcing this morning are Richard number of deliveries with 156 vehicles delivered in Q3, our highest quarterly number ever and affords configured if corker of sequential delivery growth.
Second as announced last week.
We have reached a historical milestone as we assembled the first electric school bus unit.
Our U S Juliet manufacturing plant.
Third.
We continue to see an unprecedented shift to vehicle electrification.
Both in the bus market, which is supported by the $5 billion. The EPA program and then the truck market.
Segment, where we posted record deliveries with 48 trucks in Q3.
We will now elaborate on each of these points.
Let's begin with vehicle deliveries and purchase orders.
We delivered 156 vehicles in Q3, consisting of 108 buses and 48 trucks.
This represents the highest number ever for a quarter and the fourth quarter of sequential growth in a row.
This is almost four times the number of 40 units delivered in Q3 of last year.
And then increase of almost 50% compared to the 105 units delivered in the last quarter.
Also.
The 48 trucks delivered in Q3 is more than three times the number of trucks delivered in the previous quarter.
Year to date, we have delivered 345 vehicles.
Compared to 196 delivered in all of fiscal year 2021.
As important as deliveries.
Are the names to whom we either delivered or sold trucks due in Q3.
These customers include companies such as D. H L. A global leader in the logistics industry family pre pharmacy network with over 400 retail locations Simons.
And retailer with department stores in the fourth biggest Canadian provinces.
Rick which operates more than 155 retail stores, they kicked that government and the New York Times.
Our pure book is now at 2408 vehicles.
Consisting of 323 trucks and 2085 buses.
Essentially all of them being conditional on the grant of subsidies and incentives.
This includes purchase orders for 49 buses from the first round of awards under the EPA program as of today. The order book represents a total combined order value of $575 million.
Let me now discuss our U S factory and our battery plant.
As announced last week, we completed the assembly of the first Electric School bus unit at our U S. Juliet manufacturing plant, which positions us to deliver made in America Electric school buses.
This is the result of a year.
Years of innovation and investment in an industry that is a key pillar in the transition to a low carbon economy.
I would like to thank our employees for their hard work and dedication towards achieving this significant milestone and governor Pritzker and his team for their great support.
This is also a timely development as governments are increasingly supporting the shift to electrification as demonstrated by the recent awards of the $5 billion EPA program, which we will discuss shortly now that our first unit is out of the Assembly line, we expect our Joliet plant to produce a few additional electric.
Bus units in Q4 of this year, followed by a gradual ramp up of production over the next year.
As previously mentioned.
The Joliet plant will initially be focused on electric school buses with the timing of trucks commercial production to continuously be reassessed based on market demand and factoring our truck production capacity and centered around.
With respect to the Lion Tempus.
Our battery factory is also advancing very well.
We expect to reach another important milestone next month with the production of our first battery pack at our battery plant.
Construction work for the battery plant building is advancing as planned and is expected to be completed next month as well.
And the next few weeks.
We will be transferring the battery Assembly line, which has been producing batteries at the Jr. Automation facility in Michigan two hour Mirabel plant.
And we expect to start production of battery packs in mirabel by the end of the year.
This will be followed by a gradual ramp up of <unk>.
<unk> in 2023.
As we complete the integration of our relying batteries on our vehicles.
Thereby gradually transitioning from the B M. W batteries, we aren't currently using <unk>.
I'll ask Michel to work of the innovation Center building should be substantially completed by the end of the year as previously announced.
Let me now provide an update on the EPA program in D. I R. A D U S inflation reduction act, which should both positively impact our industry in the near term.
First the EPA program.
Late October <unk>.
The EPA announced recipients of the first round amounting to $913 million of federal funding under the clean School bus program if.
If you recall.
This program was part of the bipartisan infrastructure law to allocate $5 billion from 2022 to 2026 for the purchase of clean school buses.
As part of this first the warrant.
We were pleased that 41 school districts across 16 U S States for which applications were filed through Lion were awarded vouchers to purchase 207 electric buses for a total of $82 million.
As mentioned earlier to date, we have already received purchase orders for 49 Electric school buses and we are confident that this number will increase between now and next April that deadline to place purchase orders in parallel we are in active discussions with other school districts and operators.
That up directly submitted and received vouchers, which we are hopeful will translate into additional purchase orders.
As a reminder.
I already districts were eligible to receive $375000 for electric school bus and up to $20000 for charging infrastructure and all buses needs to be delivered before tober 2024.
The first round of awards is very timely with the start up of manufacturing of our Joliet plant, which we believe is essential to support our strategy to seize maximum opportunities under the existing EPA around the funding and A&D subsequent from.
Now a few words on the IRI inflation reduction Act, which was signed into law last August and that we are also closely monitoring.
Again, this could have a significant impact to lose the execution of our growth strategy.
D Act includes a tax rate of $40000 for electric commercial vehicles over 14000 pounds, which will reduce the upfront purchase costs for customers, thereby decreasing the total cost of ownership for electric trucks. It also includes multiple incentive programs with billions of dollars of budget.
Which could potentially be used for the purchase of medium and heavy duty zero emission vehicles.
Yeah I already also includes other programs, which would serve to fund parts of future Capex at our Joliet facility.
Either through investment tax credits or loans.
We will of course continue to monitor closely the upcoming announcements and guidelines that should be released in the next few months.
Let me now provide an update on our supply chain.
For both critical and non critical components, we continue to see improvements as compared to the peak of the pandemic. Even if we still experience continued challenges at both the supplier and sub supplier levels, which is causing disruptions for some parts.
We do not expect those supply chain challenges. These appear in the short term and expect to continue to see challenges at least through 2023, we have been able to reduce the impacts of the supply chain crisis.
By putting in place, meaning creative actions.
<unk>, creating both supplier and component redundancies and also integrating longer lead times from our suppliers for the majority of our components and our manufacturing processes.
As far as batteries, we have over 5000 battery packs on and this is enough battery pack inventory for us to gradually transition to our land batteries. Starting early next year. Therefore, we are not planning to purchase Amy additional BMW batteries backs at this time.
Now turning to new vehicle models.
We continue to progress with the launch of new vehicle platforms.
Among other things we plan to deliver our first customer unit of the laminate refuse truck and the lion they bucket truck before the end of this year as.
As far as the Lion a tractor.
Intend to launch it in H one of next year. However, short term deliveries of the lion. They tractor are dependent upon battery packs to be supplied by Romeo power.
Which was recently acquired by Nikola Motors.
Nate.
We experienced delays in the deliveries of packs and we have received indications that they may not comply with their obligations under our contract.
As a result.
We have initiated arbitration proceedings to enforce the terms and conditions of the contract.
Finally, the linear and the commercial production is not planned in 2023 from our Joliet factory.
And timing of the Lion and shuttle bus, which leverages the lung and the platform will be reassessed based on future purchase orders.
Nicolas will now further discuss our financial performance for Q3.
Thank you Michael.
During the third quarter, we continued to post record deliveries and revenue.
Not only did we post growth as compared to last year, but we also posted sequential growth in deliveries for the fourth quarter.
In Q3, we delivered 108 buses and 48 trucks for a total of 156 vehicles translating into revenues of $41 million for the quarter.
140 of those vehicles were in Canada, and 16 in the U S.
The average selling price of these vehicles was slightly lower than in Q2, mostly as a reflection of the weakening of the Canadian dollar.
For the remainder of the year, we expect this gradual sequential growth in the number of units delivered to continue even if not at the same level as that experience between Q2, and Q3, mostly because of lingering supply chain challenges.
In Q3, our Lion capital solution continued to gain momentum as an increasing proportion of our clients chose to finance their vehicles through those solutions.
We posted gross margin of negative, 9%, reflecting higher raw material and commodity cost <unk>.
Reduction in ramp up costs as well as higher logistical costs.
As previously explained for the foreseeable future gross margins should continue to reflect the significant investments we are making to ramp up production.
Over the long term as we scale production, we expect margins to improve at fixed cost will be spread over increased number of units.
Continuing with SG&A costs, they amounted to $17 4 million and after removing the impact of noncash share based compensation. They were essentially flat compared to Q2 2022.
Now turning to adjusted EBITDA was negative $15 1 million for Q3.
Just that EBITDA for the quarter was mostly impacted by gross margin and was essentially the same as compared to Q2 2020.
R&D costs for the quarter amounted to approximately $18 million.
Let me now provide an update on our capex during the quarter capex amounted to $29 million, including $17 million for the Joliet plant and $11 million for the Lion King.
The spending for the line campus includes R&D related to the project.
We estimate our remaining approximately $50 million to be spent on our two growth projects by the end of it.
This would bring our total 2020 to spend on the project approximately $150 million, which is $30 million less than our previously disclosed that.
The reduction is a result of the continued optimization of our capital plan, including certain changes in the timing of the spend to ensure we align our capital outlays with the growth of our order book and ultimately vehicle delivery.
We expect that approximately $35 million of the total 2022 spend underlying capex will be financed via the related federal and provincial level.
The decrease relative to the amount of $40 million disclosed in Q2 as it related to the lower expected 2020 to spend for the project.
Let me now take a minute to discuss our balance sheet and liquidity profile.
During Q3, we secured important amounts of capital via various instruments.
We performed the initial drop $37 million on our revolving credit facility.
We drew an additional $7 million on the government loans related to one campus.
We secured a $10 million equipment financing facility for some of the equipment at the Joliet plant and we raised $20 million under our ATM program.
At the end of the quarter, our total debt amounted to approximately $57 million.
As of September 32022, we had a cash position of $67 million.
In addition to additional borrowing capacity of over $40 million on our revolving credit facility and we were also hold $11 million under the government loans for spending incurred on the lie on campus up to the end of Q3.
In addition, as of September 30, and aggregate and aggregate gross limit of approximately $105 million remained available for issuance under our ATM.
Shortly after the end of the quarter, we secured a $30 million Canadian revolving credit facility with CIT Alpha CVP, which was fully drawn at close.
This served in part to refinance an existing 13 million Canadian facility with fit out there with the remainder of the drawn amounts going on our balance sheet.
We are very pleased to welcome <unk> a world renowned fund manager as part of our capital providers and we are thankful for their desire to support us in the execution of our growth strategy.
We're also very thankful for their continued support.
As mentioned in the past as we reach important milestones and are preparing to scale production at both the Joliet plant underlying Canada.
We'll look to seize opportunities that may become available to raise additional capital.
With that I will pass it back to the market concluding remarks, thanks Nicholas.
Before we open the lines for questions, let me conclude by stressing all favorable legislation.
Creasing the levels of government incentives and the growing number of companies committing to electrifying their fleet should further accelerate the transition that the commercial vehicle segment.
We believe that the trend towards fleet electrification is gaining momentum and we are optimally positioned to respond to the expected surge in consumer demand.
Operator.
Now open the lines for questions.
I just want to ask you to limit to two <unk>.
There are questions asked to allow other participants to ask that question.
You've got of course go back into queue. If you have any follow up question.
Yeah.
Thank you.
I'd like to ask a question. Please press star followed by one the Nintendo <unk> don't know if you change your mind piece first.
Doug to your question, Tim will show you a postponement.
Well by well until 'twenty five.
First question comes from Mike <unk> from D. A Davidson.
One is no.
Okay. Good morning, and thanks for taking my question.
Maybe I'll start with just kind of.
The near term outlook here.
Do you anticipate having higher deliveries in Q4 versus Q3.
Yes, there's two areas.
Want to make sure I understand one in the school bus business.
Often a seasonal business with most school year is underway at this point. However, other school bus companies are saying that is there such a big backlog of mine deliver as many as they can as fast as they can so seasonality is out the window. This year and then secondly are there any major holiday shutdowns et cetera that typically happens every year in the truck industry is that the same for us.
Electric here.
Okay.
Hey, there.
Next speaking here.
Yes, the same for US obviously, we want to maximize deliveries.
But we.
We expect the same thing as it relates to holidays and Mark mentioned some Amish.
With the supply chain and so we said this morning, we expect to see continued growth, but not at the same level as what we experienced from Q3.
So Q2 to Q3 excuse me.
<unk>.
The seasonality given our volume and our wrap up is not typically something that impacts us but avail.
Availability of customers to take delivery during the holiday period is a reality.
Obviously.
Okay. Okay. Thanks for that.
My other question is about the line eight and the battery contract.
You said youre going into arbitration or just kind of starting out that process.
So could you just give us some sense as to how that could play out.
The Nikola would be compelled to deliver batteries just under the contract that you got is there a possibility you could be seeing a financial settlement instead.
Would that settlement.
The cost difference between the contracted value of the batteries and what you might have to go out and get.
As well as the cost to have the trust we certified.
Yeah.
Yes, good morning, good morning, Mike This.
This is this is Marc I'm sure you will.
Since we are.
Into the arbitration proceedings.
This is very confidential so we can get into any.
Details.
Respect this relationship at this point.
Okay, No problem guys I'll pass it along thank you so much.
Thank you Mike.
The next question comes from Chris <unk> from.
Hello.
Hey, guys. Thanks for taking my question here.
We could talk a little bit more about the EPA program.
About 10% of the awarded where applications that you guys submitted for clients.
About half the program was submitted directly by districts themselves could you provide any update on the process and trying to win some of those districts and good bye.
Themselves.
I'm curious if any of the 49 school buses.
<unk> gotten orders for ones, where you didnt file the application for them.
Yes.
Yes, good morning, good morning, Chris.
Yes, Chris.
So you you probably saw you saw the results of the Oems.
Are located.
The orders. So I think your question was really on the on the other orders that were that were given by the school districts and the.
The operators right.
Yes exactly.
Okay, No thats fine Chris So, yes, so basically those those buses were allocated to that and you probably remember I mean, they need to.
To take the buses and the Oems need to deliver the buses before October 2024, which is great for us because we have the capacity to deliver.
And the school district and those operators.
We are in the process.
Allocating.
The orders to the OEM. So we're in discussions with them right now.
Until April .
Next year to make their decision on <unk>.
What Oems are going to do business with.
I would just add that we've started to see some success with the names that didn't lie for US yes, we're at the very beginning of this.
This process.
We're hopeful we'll be more than.
Then just those who apply to us.
Got it.
Good to hear maybe.
Maybe on the truck momentum.
Nice uptick in deliveries backlog also grew could you give us a sense around where the decision process there.
As far as investment plans for the truck lines, how big does that backlog and visibility you have to be before we get the go ahead for that decision.
It would be helpful.
Yes, I'll take it.
When I look.
What I'd say to that is we're going to remain nimble around investing in the truck line and <unk>.
Yes for the time being.
Juliet plant is focused on school bus production.
And we have ample capacity here and things around to meet the.
The order book.
And we want to be mindful of course of capital outlay and so for the time being those trucks are going to be produced from here.
Okay.
Okay, maybe just as a follow up how would that impact the overall kind of said glad actually.
If we decided to continue to produce.
Sure.
In the current plan on the Capex figures that we provided for this year the school buses only.
We don't have any capex guidance.
<unk> this year.
So there.
There is no impact to the figures that we put out there because it is.
Current intention.
There is only a school buses right now in July .
Okay. Thanks, I'll hop in the queue.
Thank you thanks guys.
Our next question comes from Laura National Bank. Your line is now open.
Hi, Good morning, So just a quick follow up on Joliet, given the new Capex plan you have there what is your ultimate production capacity.
On school buses, just given the physical infrastructure and staffing that you plan to have there by the end of the year.
Yes.
Yes, good morning Rupert.
Yes.
Jumping up right now basically I mean, we're following.
We're following the.
The order book.
In Joliet.
As to to get to the manufacturing capacity of 5000 units.
When when need be.
School buses only to start with and.
So we have a lot of capacity we have the working stations are being.
Are being installed right now with all the Capex.
We need as well to be able to ramp up as <unk>.
So right now we have like 75.
<unk>, we will probably another like 15 20 before the.
And at the end of this year, so we're able to add the.
A great start.
Next year as well so everything is in place right now to be able to ramp up to the level.
Obviously orders, we will be getting on the use side. So the idea has always been the same what we sell in the U S side, we're manufacturing.
From our U S onshore and what we sell on the Canadian side, we're manufacturing from the.
The senior loan facility.
As the setup in Joliet much different from from syndrome.
How do you anticipate those differences could impact the learning curve.
Well it is different and the big difference Rupert.
And obviously you guys will will be invited to visit.
At some point, we have about 70.
Working stations for school buses and.
It's about three times the number of workstations that we havent seen enrollment.
You saw so.
Why are we doing this <unk> to go to go faster. So the talk time are lower meaning that this is going faster and there is also more automation.
As well in the engage on their factory so with the.
There is a knowledge transfer right now as we speak some employees from from Montreal.
Are already working in engineer and basically we're transferring the knowledge, but it's really the same recipe.
Yes.
We are using the big difference is really that we are using 70 working stations instead of 'twenty. So that's the huge difference and the idea is to go faster.
Great. Thank you I'll leave it there.
Thank you.
The next question comes from Craig Irwin.
Thanks, Greg.
Good morning, and thanks for taking my questions.
I wanted to ask about the <unk> trucks that were delivered in the quarter can you maybe break that down for us a little bit and talk about the number of customers that took trucks.
Are these customers that maybe have vehicles already.
You can follow on units.
And were there any any any large deliveries.
In that 48 unit total.
Hey, Greg I don't think that buying.
By and large new customers no customer.
That took on a very significant chunk of that I'd say.
I'd have to double check, but I don't even think there is a double digit order in there and the bulk of delivery would be the class six truck, which is just wondering if there is some upside.
Okay excellent.
And then the two other school bus guys that I cover are.
Talking about some some optimism out there right.
<unk>.
Well districts want to get their orders in quickly so that they can be at the front of the line for deliveries.
The superior economics are indisputable.
People want to see that that cost savings or the.
23 calendar year.
This is something you are seeing with the customers you're in dialogue with is this something you think can actually drive.
Little bit of a rush to get orders.
Is that something that maybe you can get us get as real activity before the end of the calendar year.
Absolutely Greg This is mark good morning, Yes, we see exactly the same thing.
A lot of optimism out there and we see that the market is really getting there.
We do have a lot of buses out there were the leader in electric school buses and it's very clear that.
Being proven.
That that where electric school buses are very reliable.
Which is great So Europe youre absolutely right.
The momentum is great.
<unk> DP program that's been out.
There is also it is also great.
Let's call District, and also you know the contractors.
In a rush to put in those orders and to get those buses. This is what we feel is well that being said, though I mean, it needs to be very well structured and this is how we work as you know.
With the customers because they need those solution right starting with the charging the right charging infrastructure as well, which is covered in the NDA for <unk> in the EPA program.
As well, but we do see that right now and this is why in the very short period of time.
We've been able to taking a 48 orders on Thursday, EPA, just within a very limited number of days so.
We fully share with what.
You just said.
Excellent well congratulations on the progress and I'll hop back in the queue.
Thank you very much Greg.
Next question comes from George <unk> from Canaccord Genuity George Your line is now open.
Hi, Good morning, everyone and thank you for taking my question.
I'm just sort of curious if you are looking at out into 2023 and the capital allocation decisions you have to make when you have this huge opportunity with the EPA in front of you you also have the new emission reduction incentives.
Kicking in for commercial vehicle production, how do you decide where the incremental dollar goes I'm curious as to how you kind of look at the field. Thank you.
Yes.
Hydro next year look at.
We're going to be consistent with the approach that we put forward a couple of quarters ago, which is to allocate capital where it helps us make.
More deliveries, especially where we have orders and can fulfill those orders. So we plan to be disciplined around capital.
Mentioned the IRR.
Let's just start with EPA I mean, we'll be in a very good position to deliver on the EPA contract out of the <unk> plant.
We will share more details around 'twenty three capex in the context of.
Q4 results.
But yes, so it will be well positioned for from the EPA standpoint, it relates to the IRI.
A great number of opportunities with us what seems like good opportunities in there. The details are not out yet, but when you think of.
The investment tax credits on the build out of our factories.
We believe we can qualify for that and that would obviously change things.
As part of the Capex can be financed that way, but we don't know the details yet and so we'll remain very nimble.
And yes, so I guess bottom line, we'll stick to the principles that we put out there.
Thank you and as a follow up you mentioned this near term issue with Romeo and the line eight are there other.
Vehicles in the commercial lineup that are that are using Romeo packs that we should think about potentially having being impacted by this.
By the sudden decision from Romeo Thank you.
Hey, George.
As we as we said in the previous quarters as well I mean, we're really focused on the.
<unk>.
Integrating the.
Romeo pass on the line and each center to start with.
So we spent a lot of money invest a lot of money with Romeo power for the integration of those of <unk>.
<unk>. So that was really the focus to start with that being said you know we could be using the <unk> on other models as well, but that was not in the plan at the beginning just to make sure that where we were fully focused and we are fully focused on.
And getting those functional from Romeo and integrating those maps on <unk> China.
Thank you.
Thank you Jordan.
Okay.
The next question comes from William Blair.
Thanks, John .
Your line is now.
Okay.
Thank you and good morning, congrats on the results.
Filling for Ben in for my first question essentially I wanted to know a little bit more about the fitbit, the biding pipeline and the timing of delivery for the current backlog.
As I believe it was previously mentioned in the past approximately over 50% of the backlog would be delivered over the next 12 months.
Yes.
Yes, hi.
In terms of the timing of the deliveries for the order book or I should say.
I don't have the orders.
The order book includes orders that are available from now to the end of 2025 things of some of the <unk>.
That ETF orders that we've announced.
We are not disclosing the specifics.
The timing of each each order.
Yes, and then I'll leave it at that as it relates to the split of the order book There is a good description of the approaching in Munich.
Thank you and maybe as a follow up I would like to know a little bit more.
I know that you guys don't provide guidance, but how will the investment in working capital evolves going into <unk> next year.
Yes, so look we've obviously invested in working capital.
<unk> inventory, we mentioned this morning that we have over 5000 BMW battery packs.
In inventory today that secure the pricing secured of course as well.
So we invested in quite a bit of inventory for the ramp up.
We when you look at the last quarter, the changes in payables and receivables pretty much offset each other I would say going forward.
It's our intention to.
To continue to grow into that.
Working capital level, there will be continued investments in working capital and there is likely to be some volatility from quarter to quarter basis.
Perfect. Thank you I'll pass the line.
Yes.
It depends you have no questions at this moment.
You bet.
Just on your final remarks.
Well, thanks to everyone for joining us today, we look forward to.
The discussion and since free to contact me for any further question you may ask.
Youre welcome nicely. Thank you.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Yes.