Q2 2023 The Lion Electric Company Earnings Call
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Okay. Good.
Ladies and gentlemen, and welcome to Lindsay Electric second quarter 2023 results conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded.
To register for a question. Please press star followed by one on your telephone keypad.
I would now like to turn the call over to Isabella Zhao Vice President Investor Relations and sustainable development.
Please go ahead Mr. Josh.
Good morning, everyone.
Welcome to Alliance second quarter 2023 results conference call.
Do you have echo Sharon's telephonic, so let us see.
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Why did you.
Today, I'm here with Mike <unk>, our CEO funder and Denicola when they are EVP and CFO .
Please note that our discussion may include estimates and are therefore were looking information.
And that our actual results could differ materially from those implied in any such statements.
We invite you to review the cautionary language in this morning's press release and in our <unk>.
M DNA, which contains important information regarding various factors assumptions and risks that could impact our actual results.
With that let me turn it over to Mark to begin Mark.
Thank you Lisa good morning, everyone.
One.
Today, we are pleased to share our Q2 2023 results and key updates that will shape, our path to continued growth and profitability.
First and foremost.
We successfully closed earlier in July a $142 million financing round, providing us with the flexibility needed to execute our growth plans for the foreseeable future.
Second.
We posted positive gross margins in Q2.
Which was largely driven by higher revenues and an increase in average selling prices.
So I like our continuous tight control over the bill of material and other expenses.
And finally <unk>.
Not only was Q2 a record quarter in terms of revenues, but we also improved the truck deliveries.
We will now provide color on each of these items before we open the line for questions.
Let's start with our recently announced financing transactions on.
On July 19th we closed concurrent financing transactions, resulting in gross proceeds of $142 million.
With this key liquidity milestone behind us.
We now have the required flexibility to execute our growth plans for the foreseeable future and continue our path to achieving profitability.
In this regard.
We are gross margin positive in Q2.
Definitely showing that our business model is scaling well and does not need extraordinary volumes to be successful.
This positive gross margin is a significant step towards our overall objective of being EBITDA positive and generating free cash flow.
Let's now delve into the details of our Q2 deliveries and that were purchase orders.
During Q2.
We posted record quarterly revenue of $58 million with the deliveries of 199 vehicles, including 33 trucks.
14 of the 33 trucks delivered during the quarter were ordered by both a leader in sustainable logistics and our repeat customer for Lion.
Note that the delivery of 50 additional school buses that were ready to be delivered to one of our customers and what is it a customer was ready to receive with deferred until the final approval of this ETF subsidy by the Canadian Federal government.
The lease were mostly due to this application being the first sizable order under this ETF program to go through the final application process we.
We expect the subsidy to be approved and those vehicles to be delivered in the coming months, leading the way for several other deliveries on Theres ETF.
In terms of purchase orders.
Repeal book consists of 2000, and 559 vehicles, comprising 304 trucks in 2000, and 265 buses representing $625 million.
Worth mentioning is an order from cat food four five line five trucks, which we launched in May and is slated for production before year end.
Last our Lion energy Peel book stands at 275 charging stations and related services amounting to $5 million.
Which takes me to an update on the Joliet factory and the battery plant.
On July 21st we.
We officially inaugurated the Georgia manufacturing plant the largest electric vehicle plan for medium duty and heavy duty vehicles in the United States, we were honored to own more than 500 attendees, including government officials, such as Governor Pritzker Senator Durbin incentives Duckworth.
As well as customers analyst climate change advocates community and policy leaders.
They all reiterated their commitment to align and DB sector, which is further demonstrated by funding programs such as the EPA Clean School bus program.
Round two of the EP program, which consistent $400 million in grant funding opened last April we are working closely with school districts and operators to help our clients secured grant funding under this program.
This is just one example out of many others as we are seeing new programs and legislations, including in Texas, Michigan, Illinois among others.
Back to our activities in Julien.
During the quarter.
We continued to manufacturer licensed units for customer deliveries.
And continued the setup of school bus working stations and installation of equipment.
Everyone on site at the Grand opening was able to realize that the building and all tenant improvements have been completed.
We plan to gradually ramp up production and Juliet, including the start of production this year.
Our objective remains to have the manufacturing capacity of 2500 school buses per year in Joliet at the end of this year.
Regarding the line campus in Mirabel during the quarter, we transferred and installed an additional portion of the battery production line from Jr. Automation specialty and continued to ramp up the production of our battery packs.
Our objective is to bring production capacity to one seven gigawatt hour per year by the end of this year.
This will be enough to power approximately 5000 of our vehicles and the mix of school buses and trucks.
Our line pipe truck as well as our Lion skin line. The school buses will be the first vehicles to feature our proprietary line battery banks.
Our goal is to progressively integrate our lion battery packs into our vehicles and gradually reduce reliance on third party batteries at the end of Q2, we added approximately 2700 BMW battery packs in inventory.
Nicholas will now further discuss our financial performance for Q2 Nicholas.
Thank you Mike I will start with the recent financing I will then comment on Q2 results, including an update on Capex and I will conclude with our liquidity position.
After the end of the quarter, we announced and post financing transaction, resulting in approximately $142 million in gross proceeds.
The financing includes a $74 million five year senior unsecured convertible debenture bearing interest at 13%.
For this portion we have the option to accrue and defer interest payment such that these payments accumulate to the amount that is owed and convertible into lionshead.
The debenture is convertible at a price of $2 58 per share representing a 20% premium to the $5 51 at the apartment transaction announcements.
The second tranche, consistent CAD $90 million or approximately U S $68 million in five year senior secured non convertible debenture bearing interest at 11% that will be paid in cash on a quarterly basis.
This group of investors was also issued warrants entitling them to purchase $22 5 million common shares at an exercise price of CAD $2 81 per share representing a $5 eight at the time of transaction announcements.
This capital infusion provides us with the flexibility needed to execute our growth plans for the foreseeable future.
Of importance to note there are no additional financial ratio covenant associated with these financing.
Concurrently with this transaction the maturity of our $200 million revolving credit facility was extended by one year to August 2025.
And last but not least the ATM program, which was set to expire in July 2024 was terminated.
Moving onto our financial performance for Q2, 'twenty three we achieved record quarterly revenue of $58 million.
Supported by the delivery of 190 <unk>.
A substantial increase compared to Q2 2022, when we delivered 105.
Specifically, we delivered 166 buses at 33 trucks in Q2 2023 with a 171 of these vehicles delivered in Canada and 28 in the U S.
Our average selling price also trended upwards.
<unk> impacting our gross margin.
As Mark mentioned earlier the delivery of 50 additional buses that were ready to be delivered and for which the client was ready for reception was deferred until final approval of the Etfs subsidy by the federal government.
We expect that the ETF approval to be obtained in the vehicles to be delivered in the coming months.
During Q2 'twenty three we also continued to improve gross margin, reaching <unk>, 7% due to the positive impact of increased sales volume product mix and higher manufacturing throughput.
Adjusted EBITDA for the quarter was negative $9 7 million.
Marking a significant improvement compared to negative $14 4 million in Q2 'twenty.
Addition to intangible assets, primarily related to R&D decreased to $17 9 million compared to $24 6 million in Q2 'twenty two.
Our total capital expenditures for the quarter decreased to $19 1 million as compared to $44 3 million Q2 of 'twenty two.
5 million of these expenditures related to the Joliet manufacturing plan and $12 million that alliance campus.
For the remainder of 2023, we expect to incur a total of $26 million in capex related to our two growth projects, namely 9 million for the Joliet plant and $17 million for the Lion cabinet.
We want to reiterate that for 2020 for our capital expenditures are expected to significantly decrease as our large project related investments will be completed.
Let's now move to liquidity and capital resources.
During Q2 2023, we received $8 million in government loans related to the Lions gate and raised $4 million through the ATM program before terminating it in conjunction with the recent offering.
Approximately $2 million of our last ATM rate was settled after the end of the quarter.
Furthermore, during Q2 'twenty three we received initial upfront rebate payments from the EPA from approximately $27 million under the first round of funding of the program.
As a reminder, we obtained 292 purchase orders in connection with the EPA Green School bus program most directly through vouchers filed by life at lesser extent through applications made by free agents, which were converted to purchase orders of life.
These purchase orders represent a total value of $105 million.
Applications in respect of other orders are processed by the EPA, we expect to also be able to receive other upfront payments from the EPA.
As of June 32023, we had a cash position of $44 million.
The borrowing base on our revolving credit facility stood at $124 million of which 100 million was drawn at June 32023.
Taking into account the required reserve to avoid triggering certain covenant. This translated into immediate borrowing capacity of $8 million, that's bringing our immediate liquidity position slightly above $50 million at the end of the quarter.
As previously mentioned after the end of the quarter, we received $142 million in gross proceeds from the offering providing us with the required flexibility to execute our growth plan.
With that I will pass it back to market concluding remarks.
Thanks Nicholas.
Before we open the line for questions.
Let me conclude by saying that with the financing behind US. We now have the required financial flexibility to execute our growth plans and continue to focus on achieving profitability.
Last week marked 15 years of existence for Lion and let me tell you that we are more excited than ever about the opportunities ahead with now over 1400 vehicles on the road.
Collectively traveled over 14 million miles or 22 million kilometers.
Ryan is in a unique position to continue to capture market share in the medium and heavy duty EV space. Thank you all for joining us today, and we will now open the lines for questions.
Operator, we will now open the lines for questions.
I just want to ask you to limit to two <unk>.
Number of questions asked to allow other participants to ask that question.
You can of course go back into the queue. If you have any follow up questions.
Yeah.
Perfect ladies.
Ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Star followed by one on your telephone keypad.
To withdraw your question. Please press star followed by <unk>.
And also remember too and mutual microphones when it's your turn to speak.
Our first question comes from Mike Slutsky from D. A Davidson Mike. Your line is now open. Please proceed.
Yes, good morning, and thank you for taking my questions.
Maybe I'll start off with a question about about bus deliveries and the cadence going forward.
I guess could you maybe give us an update as to how you feel that's going to progression here do you see ongoing increases quarter over quarter for the next couple of quarters. What do you feel like the bus business at this point that the size, where it follows the broader bus industry where.
In the fourth quarter, and then next first quarter deliveries will taper off given schools already in session.
Yes, good morning, good morning, Mike.
Yes, with respect to the to the buses Mike you've seen.
Trends in the previous quarters as well.
We've said it I mean, we the goal is to increase the revenues and.
Making sure we make profit so we're very proud of that.
Gross margin positive right now I think that's the.
The real goal that being said, though what youre looking at the order book and.
And if youre looking also the results that we have with respect to the.
EPA and let them Canadian programs as well.
We're doing good were doing good so definitely we see.
An increase in the revenues and the number of deliveries.
In the upcoming quarters, but that's going to be there's going to be sequential zone.
Said it several times, it's not a switch that you turn on enough, but we definitely see growth within the next quarters.
Okay.
The other question was about your experience center comments, you had in that release.
Hoping up Julia added one more experience, that's what I believe to serve that area of the country.
How built out is your experience something youre looking at this point.
What do you need to build a new future and if there are large cutbacks were each one as you build them out.
Sure.
Yeah.
Yes, Mike.
Mike we have 12 of them right now and.
For the foreseeable future I mean this is this is this is good we do have experience centers and most of the states that.
Or many of the states that we are targeting the same thing on the Canadian side in many provinces and I think your question was also on Capex I can take this one.
I would say, it's quite minimal capex to open an experience tenure and we can be pretty nimble there.
No I think that what we need is to rent or lease facility.
And have just the required two linked to service vehicles. So it's certainly not a significant amount of capex. When we when we expect that when we expand the footprint of course, we're very mindful of capital spend and we will only do so with that with material deployments.
Okay, Great. Those are my two questions I'll pass it along thanks.
Thank you Mike.
Our next question comes from <unk> Levi from Barclays.
Your line is now open. Please proceed.
Hi, Trevor young on for Dan today.
Thanks for taking my question.
And congrats on getting back to positive gross margin.
Sure you have your sights set on the same for adjusted EBITDA and I was curious if you could just give some directional indications on the bridge towards that from here.
To think about it in terms of volume versus other factors.
Hey, Trevor Thanks. Thank you for your question look I'd say, obviously, we're we have said in previous calls as the number one objective here is to be.
Profitable and get to free cash flow positive we demonstrated today.
I think some significant progress towards that.
There remains a lot of room for us to continue to improve on the volume of deliveries on the ASP.
The.
Margin of.
Of course, while.
While we're pleased with the trajectory there can be some volatility along the way.
The way but.
We're pleased with where things are heading I think youre seeing that in the numbers. This morning.
Yeah.
That's helpful. Thank you.
And then just as a follow up I noticed the sequential decline in Lyon Energy Order book and I was just curious.
The extent to which this reflects deliveries on the order book and then more broadly how to think about the energy business in terms of how it breaks out between supporting buses and trucks or if it generally matches.
The vehicle order book.
Yes.
Well, let's start with the second part of your question. The goal of the energy business is to make sure that the clients are well taken care of in all aspects.
The electrification of their fleet.
That's a key component where there can be some issues not only procuring that equipment, but also.
Installing it right and coordinating with the utility and so that's why we handle that for clients.
We have a quite a good hit rates in some markets and in other places and other vehicle classes clients, we'll torture on their own and that's fine as long as it's well coordinated I would say it's part of the order book. This is something that can be.
That could have some more chunky orders and so when we make those deliveries or when we get those orders we see some upward downswing.
It's certainly not in our view a testament of.
The.
Change in the order book for the vehicles or change in the cadence of delivery. It's just really one snapshot at one point in time, and we've had some sizable deliveries during the quarter.
Yes.
For the charging infrastructure.
Yes.
Very helpful. Thank you.
Thank you.
Our next question comes from Robert Lewis from National Bank.
Your line is now open. Please proceed.
Thank you good morning, everyone.
So.
The delay on the set ETF funding.
How good is your visibility into that approval process and do you see this impacting any vehicles that you would plan to deliver in Q3.
Well thanks for your question Rupert obviously, we will be.
Maybe cautious cautious about the timing of those deliveries going forward.
Yeah.
That was the first.
Sizable order for school buses, there's Etfs and.
This is the reason for this delay right now so it doesn't put into.
Question.
The availability of those funds and the willingness of the government to fund those school buses, but it's really a matter of that.
Timing.
So communication is very good with the Canadian government and there was a lot of steps, let's say two to make.
Mmm global supply chain challenges can you give us a little more color on this how how many vehicles were impacted by these issues in queue to.
And maybe you can give some color on what the specific supply chain challenges are today.
Yeah, Rupert that it's it's going a lot better I mean, a year ago. We were saying you know that was the that was the main challenge drink just trying to manufactured those those buses and trucks. It's not it's not any more I mean, we've been able to develop a network of suppliers tier one suppliers and a great redundancy of supply.
Yours as well so we're very proud of that and no no big issue I mean, we're not out of the woods, yet you know with respect to the the supply chain crisis, but it's going it's going very well. So we don't see that as as an impact I mean for us to be able to manufacture our buses and trucks going forward.
Can can give us a sense on how many vehicles might be impacted by that issue or.
Or the issues.
I don't I don't think.
The number of.
<unk> I think you know, it's really for us to be able to manage this.
Overall supply chain crisis, and we're we're we're doing pretty pretty good so not theirs.
I don't think there's any number of vehicles, you know that were impacted by that.
Alright, I'll leave it there thank you.
Thank you.
Our next question comes from Chris shelter from the Riley Chris is like it's all open. Please go ahead.
Hey, guys. Congrats on March proud right here.
Ask you seem to be a big driver hero of improvement given you know calling came down slightly but we have the revenue improvement can you give.
Ah Ah Ah margin walk maybe from home <unk> with some of the pumpkin tastes related to a fees inefficiency.
What's driving Aspie improvement U S. First Canada, you know incremental trucks and just that'd be helpful. There.
Yeah, certainly hate Christa here.
The every quarter the delivery of the mix of the delivery excuse me our mix of big orders that we deliver into as well as.
Vehicles with different options and any different markets B, a Canadian and U S.
And and and just this quarter was certainly that'd be demonstrated an improvement in the AFP by number of things, having a more diversified full of clients that we delivered to by improving our delivery count in the U S and improving our.
Our truck deliveries as well so that's a that's a bit if all of the above and what <unk>. What you said as you see though we still have.
Deliveries count that that's significantly weighted towards the Canadian market.
We've talked about delivering Ah vehicles with more options more energy in the U S market, including the E. P. A program there was a lot of room to continue to grow that and as well if there's a lot of room to continue to grow on the <unk>. So we're we feel good about the a S P. But our goal is to continue to.
Improvement.
Okay got it <unk> Mexican Chinese to grow in the near term are there you know and they're kind of a cadence of incremental fixed costs around Juliet in there about all that.
That could impact the gross margins on thank you for Q I just wanted to get a sense of what you were looking at what you were talking about with <unk>.
Potential volatility on the margin.
That's exactly it look or let's be clear that our goal is to continue to improve gross margin, but all.
<unk> margin of profitability.
But the reason I pointed to some potential volatility is is on the other side of what I just mentioned around with the AFP improvement in the volume of potential volume improvements as well, they're also more costs that we're undertaking with the the Julia plant wrapped up as the battery plant around seven.
These are I don't expect those to impact the longterm trajectory, but in the short term they can call. Some some <unk>.
Perfect <unk>.
Thank you.
Our next question comes from Craig <unk> Ross M K M.
Correct. Your lines now open. Please proceed.
See.
Thank you so it looks like G. P. A is going up on the issue of $400 million like the voucher sits here last year, they did well over $940 million. So the the total number of school bus ordered it seems to be attracting right or at least the the the financial subsidy for you at school by.
Tracking.
How do you think that's <unk> order book you develop over the next year and is the U S market as important for for your business as.
<unk>.
From the Canadian Canadian authority, and any other programs across the router yet.
Hey, Greg nuclear so let's definitely yes, we're very focused on round two of the E. P. A program, which is for $400 million, we talked about it in the past it's a it's a different approach to it it really is.
Alright, Besides application that is going well, we're having some good dialogue and the this round as closing.
Late August with some indication of who will be awarded two four and then four in other words in Q1 at the same time. It is our expectation that there will be another EPA round in a tune of $600 million for this year. They they are talking about 1 billion a year and a $600 million, we expect would be in the form of a rebate pre.
<unk> pretty much in the same form as we've seen in round. One. So we think there was more coming there and there are more programs that are opening and a number of states rights, including.
In Illinois for example, but it's just one among among others.
So just to wrap up on on this the U S side of the business is a very important one for us. It's with you. It is a very strong area of growth potential and we're very focused on it.
Oh. Thank you that's that's all my questions.
Thank you Craig.
Our next question comes from Liang Iced tea from chemical Genuity.
Yeah. Your your lifestyle open you. Please proceed.
Good morning, everyone Mmm. Thanks, so much for taking my question in congrats on the corner.
Just a couple of questions for me to start can you discuss any opportunity that you see to acquire a battery Angela module Appleton in the marketplace.
You you mean, you mean from the third the third parties.
Yes, correct.
Well, we are as you know, we we do have our battery factory.
Basically our intention is to rely less and less on the third party battery packs or or modules, we're building our own modules and we are buying.
Sounds from from tier one <unk>.
<unk> so what's that.
That's that's the goal that line, we we do have a capacity.
<unk> six nine an hour right now we're going you know 217, you can win a word by the end of the year and it's enough to up with batteries on about approximately five pounds on up our vehicles on an annual basis.
So we're good we're good for now.
Okay. Okay that makes sense and then just one more for me can you provide any time that that can help us understand your updated strategy around continuing to bolster your like quite a bit condition.
Yeah, just well in terms of liquidity the short of it is we believe we have the required flexibility to execute our plan for the foreseeable future with the rain that we just did when you look at what we said about the quarter, we had the over $50 million of immediately liquidity at the end of the queue to that's our cash position and the.
The availability on the revolver, we close a financing right after the quarter for 142 million in gross proceeds we expect we have other source of liquidity that includes upfront payments from the P. A R government home facility.
And in terms of just you know the Capex programme, what's really important here that we have.
The remaining 26 million thing for on the <unk> project for the rest of the year.
That leads us as Mark was mentioned to 5000 vehicles of the capacity both on the vehicle side and on the battery side and we're very firm on that the intention is to drastically reduce capex at 2024, we do not plan to invest in further capacity growth and and so the the short of it again.
We believe we have the the required flexibility to execute the plan and that's that's why we shut down the ATM program.
Got it okay, great. That's all for me. Thank you so much.
Thank you.
Our next question comes from T N local shell from they've got nothing.
You're like how open. Please proceed.
Hey, good morning, and thank for taking my question that will be speaking with you have a good one.
Thursday regarding the certification of your <unk> your privacy expected it will be completed in two two vanilla.
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Yeah. Good morning at the end, where we're at the end of the test and the certification.
Yes, you know on that on that were battery pack and.
We it will be it will be certified within the next within the next few months. So we're still good I mean, we're we're aligning with the need for hour battery packs and as you probably know we will we will start installing them on the line five and after that also on the <unk> on the.
The Lion D and also on the line and they tractor so timelines I mean, when we're aligning the Denise.
For those battery packs with the lunch off about where vehicles.
The timing is the timing worst perfectly so no one knew issues.
And then maybe.
<unk>.
Yeah.
I don't know if you wish to come install it.
Good luck.
Reaching process.
I'm trying to.
The only condition change anything whatsoever.
Well it doesn't.
As you know at this stage, both the arbitration process with Romeo when the court case against you Gonna Motors are following their course.
And you're right, they're gonna just announced on June 30th.
That Romeo is liquid liquidating its assets and basically they are transferring the ownership of all of its assets and there's some there's some exclusions in Arizona and they did that to a third party if I need for the benefit of the the.
<unk> right now we're basically you know.
Evaluating all of our options in light of what.
Right.
What happened so basically you know those to prosper.
Processes I mean are just following their course right now as we speak.
Perfect. Thank you very much for the kids.
<unk>.
Thank you Dan.
Our next question comes from <unk> from BMO.
Currently your lifestyle open. Please proceed.
I remembered morning.
This one <unk> like what what trends are you seeing in the commercial truck market and discussions with the customers and the second one is recently saw Jamie that'd be hunt clothing classic commercial drink orders.
<unk>, Nicola and what you and all those kind of discussions at anytime.
Yeah, Let me start with the the first full of your your your question. We have 33 trucks delivered this quarter. So obviously this is going the right direction.
Which is good and the 14 of those 33 trucks with we're both and so it's more trucks than basically what G. B on just you know.
And then F U a few days ago, but also if you are looking at that word customer list you will see Bolton there and also DHL Ikea.
Amazon and mainly.
Others as well so a lot of those truck operators the see the benefits of the total cost of of ownership and they're starting with a few tracks. We still feel that it's going to go faster than than it did with school buses in school buses. It took about five years to really take off and we feel you know that trunks.
He is gonna be a little bit faster, but obviously with you know all of the the prices that we saw in the last couple of years.
There was a little bit of a step back and on the on this.
On this site, but we feel now a good good momentum with the.
With the truck operators. The discussions are are very good are very good as well so what kind of.
Well, let's say what kind of excited that we feel that the the <unk>.
Number of deliveries, we'll we'll keep increasing and with respect to your question with.
G. Beyond obviously, you know all the those communications and these are very confidential so.
Don't think we can comment on on any of those I mean, we're keeping the relationship with our customers very confidential.
<unk>. Thank you so much those are the questions.
Thank you.
We currently have no further questions, so I would like to <unk>.
Game for closing remarks.
Thanks, everyone for joining liquid today, we really look forward to continue with the discussion on the secret to come back to US for any question you may I have a nice day.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may not disconnect online. Thank you.
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