GP Earnings Call Transcriptbeta

Operator: Good day, and welcome to the GreenPower Motor Company Inc. Second Quarter Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Michael Sieffert, Green Power 's Chief Financial Officer. Please go ahead.

Michael Sieffert: Thank you. This is Michael Sieffert, the Chief Financial Officer of GreenPower Motor Company. I would like to welcome everyone to our call to discuss GreenPower's financial results for the period ended September 30th, 2021. I'm here today with our Chief Executive Officer, Fraser Atkinson, the President, Brendan Riley, and our VP of Sales Marketing, Ryne Shetterly. During today's call, we may make comments or statements about our future expectations, plans, and prospects, which may constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 and applicable Canadian and U.S. securities laws. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our quarterly and term results and MD&A filed on SEDAR and on EDGAR. In addition, these forward-looking statements relate to the date in which they're made. We anticipate that subsequent events and developments may cause the Company's views to change. GreenPower disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now -- also during the course of today's call, we may refer to certain non-IFRS financial measures. Reconciliation of these non-IFRS measures can be found in our MD&A on SEDAR and on EDGAR and is also located on our website. I will now pass the call over to GreenPower's CEO, Fraser Atkinson.

Fraser Atkinson: Thanks, Michael, and thank you all for joining the call today. Following my opening remarks, Michael will cover the financial results for the quarter, and Brendan will speak to operations. A year ago, we embarked on a major shift from manufacturing vehicles pursuant to customer orders to producing certain models to a stage, where the finishing is dictated by customer requirements in order to accelerate our production to sales to delivery. Our team has been up to the task where we are close to getting our inventory to where it needs to be to support a much higher growth level with our plans and Brendan will discuss this in more detail on this call. We are very excited with the announcement this week where we've entered into an OEM agreement, with autonomous vehicle technology provider, Perone Robotics. We will be working with Perone, to integrate the LIDAR, radar, optical sensors, wiring harnesses, and so on, that they require for their toning system at the manufacturing stage, to enable an autonomous vehicle or what we are branding as our AV star, being an autonomous vehicle AV Star. Perone has also shown a strong commitment by buying additional EV Stars that they are currently converting to AV stars, as well as hiring sales and marketing staff to promote the AV star. Very exciting times for our collective organizations. Our expenses in the quarter includes significant investments to facilitate our growth plans. Let's discuss a few of these. During the quarter, we filed a $200 million shelf prospectus. This is not for any short-term needs as we are well-funded, as illustrated by the increase in our working capital over the last 6 months. This is to address long-term opportunities. For example, Ryne and the sales team may land a transformative order. The shelf allows us to access capital quickly to fund any working capital requirements. Number 2, we achieved a significant milestone with the launch of our B.E.A.S.T. Type D all-electric school bus at ACT Expo in Long Beach on August 31st, 2021, as well as our first deliveries to school districts in Southern California. We also had first deliveries to an end-customer with our EV Star Cab and Chassis, as well as our EV Star +. Number 3, we significantly expanded our sales, infrastructure, and network. And lastly, we have over 100 approved vouchers for eligible vehicles listed on the California HVIP, New Jersey ZIP, and B.C. SUVI rebate programs. We will circle back with more details on operational progress momentarily, but now pass the call to Michael Sieffert, GreenPower CFO to cover our quarterly financial results. Michael?

Michael Sieffert: Thank you, Fraser. For the quarter ended September 30th, 2021, GreenPower recorded revenues of $4.4 million in cost of revenues of $3.5 million, generating a gross profit of $950,000 or 21.5%. The gross profit this quarter was lower than our target of 30%, primarily due to the sale of 28 vehicles that were previously on lease out of gross margin below 20% and first-time sales of the 2 BEAST school buses and the sale of 10 EV Star Cab and Chassis to an end-user. The remaining 4 vehicles were sold at a gross margin above 30%. We continue to target a gross margin of up to 30%, and believe this will be achievable on normal course. However, we may experience lower than target margin quarters from time-to-time, when the majority of sales are either vehicles coming off lease or when we're making high-volume sales to a single customer. As Fraser mentioned, the majority of the increase in expenses this quarter was attributable to investments in our product roadmap, and in our sales and business infrastructure. Our expanding business and geographic footprint have caused certain -- increases in certain costs such as insurance, travel, marketing, and professional fees, with the largest increases attributable to payroll. Over the past year, we've benefited from a significant reduction in our interest and accretion expense, and we currently have virtually no interest-bearing debt and only 1 tranche of warrants remaining, all of which are owned by insiders. We finished the quarter with over $31.3 million in working capital, which included approximately $8 million in cash and restricted cash and $22.8 million in inventory, which was comprised of over $8.4 million in finished goods and $14.4 million in work in process inventory, representing over 330 vehicles in various stages of the completion and production at quarter-end. We continue to be well-capitalized to meet our capital needs in the near-term. I will now hand it over to Brendan Riley, Green Power's President for some operational details.

Brendan Riley: Thank you, Michael. And welcome to all those on the call today. I'm Brendan Riley, the president of GreenPower Motor Company. During the quarter, and subsequent to the quarter-end, we have continued to aggressively build inventory, accelerate our delivery schedule, and significantly expand our distribution capabilities. All the while investing in additional new product development leveraging our EV Star platform. We have long stated that we expect to see a significant ramp in deliveries in late summer and early fall. And we're right on target, and are at the very early innings of what we anticipate to be a substantial revenue ramp. Several factors are contributing to this expectation. We continue to successfully leverage not only California 's HVIP program, but other similar incentive programs on the East Coast and in Canada, which are providing a very healthy backlog indeed. We are expecting additional programs to come online here in the very near future throughout North America and our inventory position, which includes EV Stars, EV Stars cargoes, EV Star transits, EV Star cabin chassis, EV 350s, and BEAST school buses. These will allow us to meet the associated demand that will accompany these programs. At the end of the quarter, we have over 70 units in finished goods inventory and nearly 260 units in various stages of production. The final step in this multiyear process to bring the B.E.A.S.T., the all-electric school bus, stands for Battery Electric Automotive Student Transportation, was completed with the receipt of our 292 card from the California highway patrol. This is the official acceptance of this vehicle in regards to both safety and accessibility and will allow us to accelerate the delivery of these units, which we expect to be a meaningful contributor the revenues in the current and future quarters. While we are excited about the acceleration in deliveries, we continue to invest in design and creation of new product categories that leverage our EV platform. We are pleased to have been honored by METRO Magazine with the Innovative Solutions award and recognition of our work with Perrone Robotics and Jacksonville Transit Authority to develop and deploy our fully autonomous 80 star. This is positioning GreenPower for the future, and remains a priority. Additional products will be immediately commercial application, and various stages of design and development. In sum, this is a very exciting time for the Company. As we increasingly put substantial numbers of Green Power EV s on the road, not only are we putting units on the street, we're doing so serving some of the most recognizable brands in the country. These prestigious end-users, along with increasing volumes of repeat orders of our existing customer base, speak volumes about the value proposition and compelling nature of the EV Star line. This concludes our prepared remarks today. Operator, please open the floor to Q&A.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question If you're using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roaster. Our first question comes from Greg Lewis with BTIG, please go ahead.

Greg Lewis: Thank you, and good morning, everybody, and thanks for taking my questions. Guys, in the prepared remarks when we talk about margins, it seems based on the comments that it was maybe more about product mix than maybe some challenges that we were expecting on the supply chain and other inflation that we're hearing a lot about. Could you provide a little bit more color in terms of what you're seeing in the supply chain and inflation and really how we should think about the products mix driving margins?

Michael Sieffert: This is Mike Sieffert, I'll start with maybe the -- I'll start very briefly with the product mix and then just pass it over to either Brendan or Fraser to discuss supply chains. But in terms of the product mix, you have the biggest contributor here. It was really the fact that we had 28 vehicles coming off lease. Apologies, I have some noise in the background. the sales -- the sales mix was -- the primary and secondary was new products on the first quarter and sometimes the second. Any new product model we have always has those -- that initial gross profit compression, but usually rebounds the next quarter or certainly the next second quarter.

Brendan Riley: And this is Brendan, referring to the supply chain and inflationary pressures on the vehicles. As it stands right now, GreenPower's able to manage those both on the shipping side and the product cost side. We're actually going through inventory that was purchased a long time ago and parts that were purchased a while ago. We don't really expect huge pressure but we'll keep you guys posted. Right now, it looks as though costs may increase a few percentage points attributable to shipping and some increased cost of goods. But as it stands right now, we believe it's perfectly manageable and we don't see it affecting our gross profit moving forward.

Greg Lewis: That's great to hear, and I guess that's probably a function that you guys being in the process of ramping up, starting earlier this year. I did want to touch a little on the Perrone Robotics announcement. I guess a couple of things to think about there. 1 is, is this something that the 2 companies are joined together to work on to get something in place so that when customers are ready, GreenPower and Perrone are ready to go, or is this something where customers are actually trying to push the 2 companies forward to deliver a real solution?

Ryne Shetterly: This is Ryne Shetterly. Let me take that. I've literally just stepped off the floor of APTA just a couple of days ago where the Jacksonville Transit Authority vehicle was there and in service for everybody to ride. Guys, I've been to a lot of trade shows over the last 10 years in transit. And I've never seen the type of excitement for -- with transit agencies. Transit historically, and I've said this several times, is very conservative by nature. But when these guys start getting excited about emerging technology, and not just talking about it, right? There's a ton of people on the floor talking about what they're going to do over the next 18 months and likely well beyond that. For them to get on a vehicle and ride it autonomously was an absolute eye-opener for many, many of these folks. So, you're going to see AppDev reward it. Jacksonville Transit Authority to GreenPower and Perone Robotics project with the Innovation Project of the Year. You're starting to see these major organizations take notice and they're all very, very excited about it. They think that there's going to be a very, very high demand for it, and you're starting to see that with some of the recognition that these projects are getting. They're not just one-offs, they're not just science projects; these are tangible, physical vehicles in operation right now.

Brendan Riley: Greg, this is Brendan, and Ryne is exactly right about the transit operations, really looking at the EV Star autonomous or the AV Star product. The other aspect of it is that the EV Stars are a platform. EV Stars share most parts with each other, over 95% parts commonality and structure commonality. And not only is this applicable to moving people around, but our EV Star CC or Cab Chassis can be used for delivery purposes as a truck, step van, a service vehicle that's delivering parts, all types of different applications, and that the Perrone Tony system being incorporated end of the EV Star platform allows us to take this fungible vehicle, and sell it into all the sectors that can leverage or interested in leveraging autonomous transportation for goods or for people. So, we really see it as also the stepping stone now to goods movement autonomously, which is extensively even a larger opportunity for the market than moving around people.

Greg Lewis: Okay, great. And then just one more for me, Ryne, and you mentioned stepping stones. It was good to see some EV Stars getting in the hands of some public companies I think you referenced Fortune 500 in the press release. I guess my question around that is, were those deliveries, were those kind of we'll take one and kick the tires and see how it works or those initial deliveries ones that already are -- the customers that already have placed additional orders that we could see here sooner rather than later?

Ryne Shetterly: This is Ryne. I'll go ahead and take that one as well. Per the press release, we did deliver a vehicle to a Fortune 500 Company, and since then, that same Company has placed a follow-up order and taken an additional 4 -- I'm sorry, 3 units. One is actually currently in transit as we speak. So, no, this was -- these were the first medium heavy-duty. I think they have some electric bikes running around their campus, but no, this is their first electric vehicle that will be moving any of their employees on or around campus in this particular region.

Greg Lewis: Okay. That's great to hear. It looks like that the customers with the campuses that had been hurt from COVID are finally getting back to work and moving forward. So great to hear, look forward to continuing to watch. Have a great day guys.

Michael Sieffert: Thanks, Greg.

Fraser Atkinson: Thanks, Greg.

Operator: Our next question comes from Tate Sullivan with Maxim Group. Please go ahead.

Tate Sullivan: Hi, thank you. Thank you all. You mentioned the 100 approved vouchers and I know you have the California, I saw that New Jersey, you mentioned Canada. How many other states do you have vouchers then and they get a loan approval process to get on approved lists for those vouchers?

Ryne Shetterly: -- this is Ryne. The states are what was mentioned are the only current actual voucher programs. Many other locations have different incentives. But New York, New Jersey, California, DC with the CV program. They actually referred to those as vouchers, and amongst those 4 are -- it's obviously a blend across the board there. But that doesn't mean we're not working outside of the state. We've got some pretty good news from East Coast state this past week, Small orders, but we're starting to see those orders pop up the way they were popping up in California 5 years ago, onesies and twosies. This is the way it starts. A lot of these States have been looking at California and seeing what is the performance and reliability and durability going to look like? What is GreenPower Motor Company support going to look like? And we've built quite a reference sheet, and we look forward to utilizing and leveraging those references in order to create more demand here in the very near future.

Tate Sullivan: Ryne can you give us a follow-up -- can you give us an example of how you help customers navigate the voucher process, is that part of the normal sales procedure?

Ryne Shetterly: Yeah, absolutely. For many of these guys, even the ones you would expect to have a good beat on exactly what the process should look like. We've got the best grants coordinator and director of grants and contracts I think at the industry. Michael Perez has done a great job at managing these processes, bring multiple hack in assisting on the sales front, just attending trade shows in order to get customers familiar with what these processes look like. I'd give you an example, if somebody's interested in a project, they'll call me. We'll vet the project out, figure out what they're looking for. We'll turn that over to the contracts and grants team. They'll then take their information, figure out what it is they qualify for, and then walk them through the process. Sometimes you'll get customers who have done it before. And when you get those types of customers, it's a little bit more turnkey, they know how to navigate. But then you'll get folks who have absolutely never seen HVIP form. And that's where Michael and Erica come into play and they've done just a bang-up job and we're super proud of them.

Tate Sullivan: Great. Thank you. And moving on to the BEAST deliveries and looking at your history of announcements with the BEAST, in September you announced you delivered one to the Santa Maria School District and then back in November 2020, I think it was the Thermalito School District. In inventory right now, how many school districts are you delivering these to or is it repeat deliveries to the same district?

Ryne Shetterly: We will repeat deliveries, in theory, we've got 2 orders with (ph.). was an order -- they utilized two different grant programs. The Butte County Air Quality Control District Grant and then the VW Mitigation. So technically those are 2 purchase orders. However, we are working with creative bus sales on those orders, and they've placed the blanket order for the BEAST product. And then as far as Santa Maria goes, that was our first 40-foot variant of the electric school bus that GreenPower builds, and that for the press relief -- press release, I'm sorry, received the 292 certification, which is kind of one of the -- it's a major milestone. Major objective that we needed to meet in order to get some of these other school districts to be comfortable with moving forward with us. It's all a process and it takes time. It takes more time than we would all like but it is a process and we're doing our best to get these things closed out in an efficient and timely manner.

Tate Sullivan: Thank you.

Operator: . Our next question comes from Chris Souther with B. Riley. Please go ahead.

Chris Souther: Hey, guys. Thanks for taking my question here. Maybe to start with an update on Forest River. Where are we on the timing for potential follow-on orders with that customer there?

Ryne Shetterly: We've -- our engineers, as engineers do, have been going back and forth over the past several months. This past week, we've had a major breakthrough with those guys in terms of initial next steps. We don't have an update on terms of a follow-up order, but I can tell you that there's been some very important agreements made in terms of the integration process. And we actively met with those folks over at APTA, here in Florida. And I look forward to continuing that partnership and making -- strengthening it, and showing those guys and the rest of the industry that we are the only purpose-built product that's going to meet the needs of the transit industry.

Brendan Riley: And Chris, this is Brendan. It's a very good question. Since our vehicle is an entirely new platform for Forest River, one of the first new platform in years for the Company to actually put their body on. Integration does take a bit. We're still in the process of finalizing the integration and the final spec of the Forest River variant on the EV Star chassis. So, it might be a little bit longer, and then we'll go through some testing and validation of design. And then we anticipate if all goes as we expect, follow-on orders.

Chris Souther: Okay. Got it. So maybe early next year, a timing is what we should be looking at then between that integration process testing and the like, or is it longer than that you think?

Brendan Riley: That's probably a good guess. But right now, that's just a guess on what roadblocks or hiccups come along the way. But I can tell you from my perspective, the integration is going very well and we don't see any -- we don't foresee any issues during integration. And we've already integrated our Cab Chassis with box trucks, various -- multiple box builders and we've had no real issues with those integrations. It's a little more complicated when you're moving around people and you got more systems onboard. And those are the things that we're getting all hammered out.

Chris Souther: Okay. That's great to hear. And you called out there being additional sales upcoming with team. Should we assume its similar sales of leased vehicles that were previously to Green Commuter? Do you have a sense how many of those we should expect in the December quarter? What is the runway with being there for previously leased vehicles? Should we expect the majority to be unwound and sold to those guys over the next few quarters or -- what is the visibility there?

Brendan Riley: So, it's a much smaller number than -- as far as this quarter in terms of deliveries, we're capping out on original order that was placed earlier on in the year. The runway with ZIM is absolutely incredible. as their CEO, is a very, very instrumental player in this game, he's willing to take some risks, he's got a great vision. We think that there is a lot of potential there to partner with him in many, many different deployments. There has been some additional recent activity that we have met conveyed to the market. But as soon as everything gets finalized, we expect the press release on that when everything comes together.

Chris Souther: Okay, and then last one here from me. The inventory we got 70 completed vehicles, 216 in various stages of production. You mentioned that and you got 100 orders with HVIP and other programs. I'm just trying to get a sense of the timeline to sell-through those completed vehicles. What should we be thinking about for said steady-state inventory and timing around cash flow positive? You previously been targeting the December quarter. Are we still on track there or is it kind of pushed out? Anything good as far as visibility of selling out inventory with matching up with that -- the 100 different voucher program orders that you have.

Brendan Riley: Yes. Let me just add one little thing to that. We talked about the blend of vouchers that we've currently got in -- that are approved, several of those. One thing that we've noticed about the New Jersey ZIP program and then the New York VIP program is once those vouchers are approved, there's still a process behind that that takes some time. Those guys are still ironing out many of the details that are going to be a part of that program. So, vehicles that are ready to go -- we may not have all the documentation that is needed in order to officially make the delivery, the deals are done, the vouchers are approved. However, there's still some formalities that those two particular programs have to go through. And right now, nobody has sold more than us on either -- am sorry, on New Jersey program. With that, I'll turn it over to Michael Sieffert or Fraser in terms of inventory.

Fraser Atkinson: Yeah, so the -- in terms of the flow-through, Chris, we're expecting that the over 70 -- the majority into the current quarter with any lag -- any remainder, if you will, into the March 31st, so the next 2 quarters, including the current one we're now in, as well as at least 1, if not a couple of the tranches that are just moving through the back-end of the production or in-progress as Brendan referenced earlier. We're looking at volume over the back half of the current fiscal year that is certainly at a scale that is much higher than what we've reported the last 2 quarters.

Chris Souther: Okay.

Fraser Atkinson: And I think the other thing to talk about is that with that, the mix we expect a mix that is -- the majority of which is sales as opposed to the lease financing that has come off into a particular sale with the lower margin. So, it's really a combination of both an increase as well as an improvement in the mix in terms of the contribution on the gross profit.

Chris Souther: Okay. That's very helpful. I'll hop in the queue. Thanks, guys.

Operator: This concludes our question-and-answer session. I would like to turn the conference back go, but if Fraser Atkinson for any closing remarks.

Fraser Atkinson: Thank you, everyone for dialing into our earnings call for our second quarter. As you can see, we're very excited about the development of our business. A couple of things that we didn't talk about is that, with the recent infrastructure bill that's being passed, and other incentives that we haven't talked about. Our approach is being to build a business that isn't built on an expectation or programs that haven't been enacted. So, to the extent that the infrastructure bills ultimately provide significant funding for schools, for transit, and for other modes of transportation, those will all be bonuses to -- for our Company. Without the passage of them, what we've described today is the plan that we're on and the business that we're going to build with significant growth. So, stay tuned for the announcements supporting that and once again, thanks for your support.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.