Q3 2024 The Lion Electric Co Earnings Call
Good afternoon ladies and gentlemen, welcome to the Lionel Electric Start Quarter, 2012 for results coverage call. At this time, I'll participate in a listen only mode.
A brief question and answer session will follow the formal presentation. As we are my day, this conference call is being recorded. I would like to turn a call over to Dominique Perron. Please, legal officer and corporate secretary. Please go ahead, this turn on.
The End
Speaker Change: Good afternoon everyone, welcome to Lions 3rd quarter 2024 result conference. The New York Confidence Telephonic, so the Exatucationalcy, the 12th impremest Vivaincact video.
Speaker Change: Today I am here with Marc Bedard, or Seal Founder, Nicolas Brunet, or President, and Fisach Coulomb, or Chief Financial Officer.
Speaker Change: Please note that our discussions may include estimate and other forward-looking information, and that our actual results could differ materially from those implied in any such statement.
Speaker Change: We invite you to review the cautionary language in the afternoon brief release, and in a Norendi and me, which contain important information regarding various factors, assumptions, and risks that could impact electoral results. With that, let me turn it over to Marc to begin.
Marc: Thank you Dominic. Good afternoon everyone. Thank you for joining us today.
Marc: Since the last quarter, the team at Lyon continues to deploy significant efforts.
Marc: in our relentless march towards improving our liquidity position and builds sustainable foundations for both the short-term and long-term success of Lyon.
As previous me announced.
We have implemented multiple insheatives to streamline our operations.
and we have seen the impact of these.
Marc: on our cash-off float.
Marc: We have implemented at-count reductions and initiated other cost reduction initiated, expected to result in annual life-cass savings of approximately $65 million.
Marc: We have implemented a batch size manufacturing approach to our truck business.
Marc: Tying production directly to purchase orders in order to minimize expenditures and cash burn.
Marc: Wombeding, Taining, our leadership in electric truck market.
Marc: Finally, we have launched a formal process to sublease a substantial portion of our
Marc: aiming to reduce expenditures, while maintaining current production capacity at the plant.
Marc: in parallel. We are exploring various alternatives to reduce our facilities related expenditures across our entire footprint.
Marc: and we continue to execute on our plan to start selling our battery packs to third-party starting in 2025.
Speaker Change: The spite is in the shereps.
Marc: The challenges that we had signal in the first half of the year continued in the third quarter to put significant pressure on the company from a cash flow and in the equity-day standpoint.
Marc: The continued delays associated with the Canadian Federal Walsh RdTF Program, the timing of the rounds in the UFPP program, and our liquidity position impacting our production cadence, have negative impact to our revenues.
Marc: that being said.
Marc: We are recently seen positive movements in both the ZDTF and the PLF programs.
Marc: that we will be addressing in a few minutes.
Marc: As you may have seen, our intern financial statements and M.D.N.A. signal the existence of uncertainty above the company's ability to continue as a going concern over the next 12 months if no additional funding is raised.
Marc: Inclusion of a going-contrime note is a reflection of the challenges we are currently facing.
Marc: but it does not mean that we are out of options.
Marc: We continue to actively review and consider different opportunities to secure additional financing and straight-on our financial position.
Marc: while working with our deaf holders to intensify the best path to ensure the long-term sustainability of our business in light of the upcoming experience of the COVID-19 release period and the Synelta CDPQ depth maturity.
Marc: Turning our attention to some of the 3rd quarter highlights.
Marc: We are seeing positive momentum with the EP program. Nipple will provide more details shortly.
Marc: and we also have pain expansion reimbursement payments totaling 30 million on their degrant from and continue to actively work with customers to obtain formal purchase orders and fulfill other requirements to receive payments from the rebate from.
Marc: We are continuing to work closely with the Canadian government and the operators.
Marc: to improve the timing of the processing of applications on their desédiat program.
Marc: and we are happy to note that the recent dialogue has been constructed in this regard as we have been informed by several operators that their applications are being processed.
Marc: We also continued to execute on our inventory reduction plan.
Marc: with a 15 million reduction in Q3 along and a 35 million dollar year to date in ventured reduction as of September 30th.
Marc: the Vast majority of which relates to rummeterials.
Marc: We are therefore very well-in-lying to realize a $50 million in ventry reduction in 2024.
Marc: which we expect to vehicle development.
Marc: We continue to ramp up the production of our Alliance SQL buses with the Lion Pro Pirates of Red Battery Packs and have received positive feedback from our customers on this new platform.
Marc: Separately, commercial production of the Lion 8 T as being pushed to 2025, as a result of that counter-deductions performed and are focused on preserving the quality and dust, a locatory sources to producing and delivering existing platforms.
Marc: Looking forward, it is clear that 2024 is a very challenging year and we will continue to work towards positioning ourselves for the future.
Marc: with Catbex and Bynas, and the significant reduction in development cost as a result or our vehicle platforms being substantially completed.
Marc: Our focus remains on preserving the Quidditine and straightening our financial position at mention earlier.
Marc: with all the efforts and initiatives taken to adjust our cost structure.
Marc: We will continue to work tirelessly to position the company to support the increasing electric school by demand.
Marc: and allow us to maintain our leadership position in this segment.
Nicolas Brunet: I will now turn it to Nicolas.
Nicolas Brunet: Thank you, Marc. So let me start by discussing deliveries, then address the order book.
Nicolas Brunet: During the quarter we delivered 89 vehicles comprising 71 buses and 18 trucks.
Marc: 45 vehicles were delivered in Canada and 44 in the US.
Marc: The decline in deliveries was mostly the result of delays with the ZETIF program, coupled with the timing of EPA-related deliveries.
Marc: The deliveries were also impacted by a slowdown in our production cadence due to the continued ramp-up related to the integration of our line batteries onto our vehicles.
Marc: Our objectives to preserve liquidity also impacted our rate of production and deliveries during the third court.
Marc: Q3's deliveries include an additional 11 buses to our customer who obtained funding approval under the DETTF program for 200 buses last quarter, bringing the total buses delivered to this client to 70.
Marc: We expect the remaining units from this order to be delivered over the remainder of 2024 and over 2020.
Marc: In terms of purchase orders, as of November 6, 2024, line vehicle order book stood at 1,590 vehicles consisting of 1,455 buses and 135 trucks.
Marc: representing a combined total order value of approximately $420 million.
Marc: The decrease in our order book is mainly due to our decision.
Marc: to withdraw 515 bus orders related to the ZETTS program.
Marc: given the uncertainty related to delays in the process of the ZETTF application.
Marc: and the March 31st, 2021 6 current timeline for the liver reason under the program.
Marc: The delay in the launch of commercial production of the Lion A-T truck have also resulted in the removal of 49 units from our orderbook.
Marc: Separately, we are seeing momentum with the US EPA Clean School Bus Program with over 275 purchase orders related to the program in the order book as of today.
Marc: We continue to work with a number of school districts and contractors that have been awarded and are considering purchasing Lyon vehicles.
Marc: In connection with the 2023 grant round, we obtain payments of $30 million and additional payment requests under the rebate rounds have been placed with the EPA.
Marc: We continue to actively work with customers to fulfill the necessary requirements to place payment requests under the latest rebate route.
Marc: Adjahi, a new round was announced in the EPA Clean School Bus Program at September 2024, providing for a funding of up to 965 million dollars.
Marc: and the aggregate total of 325,000 in funding will be available for priority districts for all electric buses and charging infrastructure. And stacking with certain other state programs at federal tax credits will be permitted.
Marc: Other eligible districts can receive an aggregate total of $177,000 per bus.
Marc: Applications are expected to be submitted by January 2025 with selectees notified in May 2025.
Speaker Change: Alphi Gheathern.
Marc: the latest three rounds of the EPA Clean School Bus Program, inclusive of the September 2024 rebate round. In addition to the Clean Heavy Duty Program, for which allocations are expected to be announced by February 2025, are expected to result in over 10,000 new electric school buses being deployed until the end of 2020.
Marc: We are proud of the success achieved by Lyon and Expecteners on the DPA program with Lyon Vehicle delivered under the program, having now traveled over 1 million miles.
Marc: During the third quarter, one of our customers, her Sure Community Unit School District, led the way in school bus electrification by unveiling a state-of-the-art electric school bus barn for its 25 all electric line sea buses.
Marc: featuring a solar array to offset the facility and new energy consumption.
Marc: This initiative is a clear example of the positive impact that dedicated federal investments into clean energy cannot.
Speaker Change: Finally, our line energy order book currently stands at approximately $8 million.
Speaker Change: and I will now turn it over to Richard to discuss our financial performance.
Richard: Thank you, Nicolas. I will start by commenting on Q3 results and will them discuss I liquidity position.
Speaker Change: In Q3, we recorded quarterly revenue after $3.6 million, driven by lower unit sales due to factors already discussed by Marc and Nicolas.
Speaker Change: The lower revenues coupled with increased manufacturing unit costs resulting both from the continued ramp up of our new Lyon D and Lyon 5 models and the continued integration of Lyon batteries onto our vehicles also impacted profitability.
Speaker Change: 423 gross margins was negative $16 million and it did the negative $19.5 million.
Speaker Change: In the middle of the last, we continue to see the positive impact and the materialization of previously announced Custcutting measures.
Speaker Change: Q3SGNA of $13.1 million was down $3.7 million from prior year and was down $1.6 million over Q2.
Speaker Change: We also saw significant reduction of cattex and R&D which respectively amounted to cattex of $400,000 down approximately $16 million from mass here and R&D of $6 million down approximately $9 million from mass here.
Speaker Change: Now, moving on to liquidity.
Marc: As a September 30th, we had the available liquidity of approximately 27 million dollars.
Marc: We continue to make good progress on our inventory reduction plan, decreasing inventory by 60 million in Q3 and 35 million dollars for the first nine months of 2024, the vast majority of which related to raw material reduction.
Marc: Our full year 2024 objective is now to reduce inventory by approximately $50 million as opposed to the $50-$75 million previously stated due to lower than expected sales volume.
Marc: We announced on October 1st additional amendments to various loan facilities providing for continued relief from certain financial covenants from September 30th until November 15th.
Speaker Change: We are in continued dialogue with lenders to address the upcoming end-of-release period and the upcoming maturity of the FINAZDA CDPQ loan. As stated by Marc, we are also currently seeking potential sources of financing and or other opportunities to strengthen our balance sheet.
Speaker Change: I will now pass it over to Marc for concluding remarks.
Marc Bedard: Thank you, Richard.
Marc Bedard: despite the headwinds lying and the whole EV industry is facing.
Marc Bedard: We continue to be very well equipped to support the operators in their transition to electric.
Marc Bedard: as demonstrated by the more than 32 million miles driven on our 2,200 vehicles on the road.
Speaker Change: Thank you very much. It was my pleasure. Thank you.
Marc Bedard: Our objective for the balance of 2024 is to continue to materialize all the initiatives we announced.
Marc Bedard: and straighten our liquidity position to be fully prepared to attack 2025 with a very efficient cost structure that will allow us to continue executing on our business strategy.
Marc Bedard: Finally...
Marc Bedard: I would like to thank our team at Lion for your determination and commitment to our mission and our clients for their trust in Lion for the electrification of their fleet.
Marc Bedard: Let's now open the line for questions.
Marc Bedard: Operator, what do we have for questions?
Speaker Change: We will now begin our question and answer session. After some of you would like to ask a question, please press star followed by 1.
Speaker Change: If you would like to remove that question, please press star followed by 2. Again, to ask a question, it is star 1. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. We'll pause briefly here as questions are registered.
Speaker Change: Our first question comes from Kevin Ching with the company CIBC. Kevin, your line is now open.
Kevin Ching: Hi, good afternoon or good evening. Thanks for taking my questions here. Maybe just two for me, you know, obviously.
Marc Bedard: new administration over in the U.S. Just wondering, I suspect it's early days here, just how you think that might impact, you know, some of the programs meant to subsidize the adoption of electric school buses and...
Marc Bedard: and commercial vehicles, you know.
Marc Bedard: Some of the stuff we're hearing suggests that maybe they'll lessen some of the regulatory efforts that the previous administration was pushing in terms of converting more vehicles to electric. Just wondering what you're thinking moving forward and maybe how that might change your strategy.
Marc Bedard: for your sales strategy.
Marc Bedard: Yeah, well thank you for your question Kevin, this is Marc.
Marc Bedard: I think at this point I think it's too early to see what the exact impact is going to be. We will be finding out probably within the next few months.
Marc Bedard: Obviously we're ready to collaborate with the new administration as well and there are crucial issues that we're working on right now in terms of energy transition and electrification obviously. But one thing that we should note is that the EPA.
Marc Bedard: and the Clean School Bus Program is working very well and as you probably know that was coming from the Bipartisan Infrastructure Law in 2021 and it's well underway right now and there was a lot of funding already going to operators, school districts.
Marc Bedard: and also to some OEMs and something we should note as well is the there's a lot of subsidies at the state level and just to name a few there's a lot of them in California, Texas, Michigan, Colorado, Illinois
Marc Bedard: and New York as well in addition to the EPA.
Speaker Change: That's helpful, and I appreciate the answer, given it's still early days. It leads to my second question. You know, Nick, you talked about some of the moving parts that impacted the order book, and it sounds like a lot of it was stuff that you had—actions you had taken. You called it, I think, 515.
Marc Bedard: units that were removed proactively from YOLA and related to the ZETF program.
Speaker Change: I guess maybe a simple question, what happens to these positive 15 units? Would you expect that to eventually re-enter your backlog at some point?
Marc Bedard: You know, lost orders just because of delays in the subsidy program, just, I guess, how do you view those 500 units that kind of were removed over the past 90 days?
Speaker Change: Yeah, hi Kevin.
Speaker Change: Yeah, let's start by saying that this is not a cancellation by a customer.
Speaker Change: It really is our approach to disclosing the purchase order book. And when we look at the timeline of the ZET ETF program, let's just say the current timeline, which calls for delivery before March 2026, we have to make estimates as to what can be delivered over that period. And hence, we removed that 515 units.
Speaker Change: from the order book. Now, the second part of your question is the intention to work with clients to bring that back. The answer is of course, but you know, we're disclosing the purchase order book as of today and hence
Marc Bedard: It's also worth saying that we have had some good dialogue and we have seen some good momentum with some of the ZETI-TS processing.
Marc Bedard: Despite removing that part of the order book, we were encouraged by some of the movement that we're seeing in the ZETI-TF.
Speaker Change: That's helpful, Colin. Thanks and best of luck as you close out this year.
Colin: Thank you very much.
Speaker Change: Hello? I have a question. The next question is from Mike.
Speaker Change: Hey, it's Mark Schlichter here from Davidson.
Mike: Thanks for calling on me there, Nick. Appreciate it. Hey, I just wanted to follow up with you on the price. Hello, can you guys hear me okay?
Speaker Change: are part of the plan, but you also mentioned that there are some subsidies that can be stacked on top of the federal subsidies.
Speaker Change: I'm just curious whether you are lowering your risk price to match DEPA's subsidy, or are you keeping your prices similar and finding your customer an additional subsidy as well?
Speaker Change: Yeah, Mike, the subsidies from the EPA program are, in our views, certainly adequate and, in some cases, generous. As you mentioned, the latest round is $325,000.
Speaker Change: of up to $40,000 that could be.
Speaker Change: stacked on that.
Speaker Change: And what we're looking to do is to have pricing that is coherent with volume and with the competitive dynamics in the industry. But all together, when you compare it to other subsidies, including in Canada, those are...
Speaker Change: that are very attractive.
Mike: more of an out-of-pocket for the operators. It's a matter of selling on the total cost of ownership, which is really traditionally the basis for purchasing commercial vehicles, and there's
Mike: There is very attractive total cost of ownership for the operators at those subsidy levels. So our goal is to be dynamic. Our medium to long term objective remains to
Mike: Over time, bring the pricing of the vehicle down, but of course, there's many dynamics at play, and given that we sell directly, we're well-positioned, we believe, to adapt to those changes in the market.
Speaker Change: Okay, thanks for that. I wanted to ask something about your delivery cadence in the fourth quarter. I had to look at your numbers and Richard, I appreciate your comments on inventory reductions.
Mike: But I'm just trying to make sure I can see a path to you being able to sustain this vindicated.
Mike: I guess two questions, you have fewer working days in this quarter, but do you plan to have less salaries?
Mike: I'm just trying to figure out whether you've got more money coming from the U.S. government or other cash coming in that will allow you to build all these buses. I'm having a hard time with the numbers, seeing a cadence increase in the fourth quarter at all.
Mike: Mike, this was a little difficult to understand on our side, but if I got the gist of it, what I'll say is, you know, as it relates to the liquidity and inflows, look, we provided a
Mike: The updated liquidity is at the end of Q3, as mentioned in the prepared remarks.
Mike: Our objective right now is to work with our lenders in the context of the expiring flex period and we're also looking at various alternatives to bolster the balance sheet, the financing.
Mike: We can't speak at this stage of the timing of when subsidies come in and other various funding.
Speaker Change: Okay, yeah, having a hard time hearing you as well. I'll just, I'll stop there and pass it along. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rupert Muir with the company National Bank. Rupert, your line is now open.
Rupert Muir: Thank you very much.
Rupert Muir: Hello, everyone. Thanks for taking the question.
Speaker Change: I think I heard you say there's potential for up to 10,000 vehicles by 2027 under some of those programs, the DOE program. Is that right and can you talk about the competition you see in the space and what share of that business did you target?
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Speaker Change: What I'd say the three rounds of the EPA that are ongoing, right, the grant round where funding was allocated
Speaker Change: where there's starting to be some deployments there. The 2023 rebate round where there's starting to be some,
Speaker Change: Marc Bedard, Isabelle Adjahi, Nicolas Brunet
Speaker Change: January 9, 2025.
Speaker Change: On top of that, there's the clean heavy duty, recall that it's close to a billion with 70% targeted for school buses. So all that together...
Speaker Change: Our map leads to over 10,000 vehicles, school buses to be specific, that would be deployed in the next two years or so. In terms of the competitive environment, while it's, you know, I wouldn't
Speaker Change: I don't think there's been many changes right there's a there's a number of competitors that are
Speaker Change: and some EVs and then there are players like Lion that are that are fully focused on EVs in terms of what we're targeting as market share and yes, you appreciate we're trying to
Speaker Change: Marc Bedard, Isabelle Adjahi, Nicolas Brunet
Speaker Change: Thank you.
Speaker Change: Okay, great. And with the changes you've made to your production capacity, what sort of production cadence do you think you could have if you were to receive orders? How easy would it be to get your production back up?
Speaker Change: Rupert, we do have the equipment, as you know, so it's a matter of having, you know, the right number of people.
Speaker Change: to be able to manufacture those buses. As we were saying earlier, I mean, we're very cautious about managing liquidity right now. And this is really top of mind, but obviously we do have the manufacturing capacity to ramp up at some point.
Rupert Muir: Thank you. And then if I could just quickly follow up on liquidity, you are investigating options for improving liquidity. Can you give us any more color on the options you're looking at and maybe what the front runners would be at this point?
Speaker Change: I can only reiterate what we said, we're speaking with our lenders in the context of the expiring flex period.
Speaker Change: but we can't get into more details at this stage. And of course once we have details to share, we will share them.
Speaker Change: Okay, very good. I'll leave it there. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: There are no more questions registered in queue at this time. I would like to pass the conference back over to our hosting team for closing remarks.
Speaker Change: Thank you everyone for joining the call today. We look forward to continuing the discussion and feel free to contact us for any follow-up question you may have. Have a nice evening.
Speaker Change: and Isabelle Adjahi.
Speaker Change: and Isabelle Adjahi. Thank you.