GreenPower Motor Q3 2024 Earnings Call Transcript

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February 13, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the Green Power Motor Company Third Quarter Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Michael Seifert, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you. This is Michael Seifert, the Chief Financial Officer of GreenPower Motor Company. I would like to welcome everyone to our call to discuss GreenPower's results for the 3 9 month ended December 31, 2023 and recent developments. I'm here today with our Chief Executive Officer, Fraser Atkinson and our President, Brendan Riley. 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 provision under the Private Securities Litigation Reform Act of 1995 applicable Canadian securities laws.

Speaker 1

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 interim results and MD and A filed on SEDAR and Domenica. In addition, these forward looking statements relate to the date on which they are made. We anticipate that subsequent events and developments may cause the company's views to change. Green Power disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Also, during the course of today's call, we may refer to certain non IFRS financial measures.

Speaker 1

Reconciliation of these non IFRS measures can be found in our MD and A filed on SEDAR and on EDGAR and is also located on our website at www.greenpowermotor. Call. I'll now pass the call over to Fraser Atkinson, Green Power's CEO, to discuss highlights for the quarter.

Speaker 2

Good morning, and thank you for joining Greenbrier's quarterly earnings call today. Our school bus group continued to make great strides in the 3rd quarter. Achieved a significant milestone with the delivery of 4 Type A Nano B school buses that were the 1st all electric purpose built school buses manufactured in West Virginia. Immediately following that delivery, production of the Type D Beast School Bus began in the West Virginia plant, which in the immediate term will fulfill current orders for 38 beast school buses in West Virginia and prepare the production team for the mix manufacturing of beasts and NanoBeasts at the facility to meet the projected demand. Presently, we have live orders for 102 of our Type Mega Beast, Beast and Type A Nano Beast school buses, including our first order from our dealer in the state of New York.

Speaker 2

We also have a qualified sales pipeline for 164 Green Power School Buses. On the commercial vehicle side of the business, we had deliveries this quarter that included 10 EV Star Cabin Chassis to the Canadian unit of a global retailer who upfit the vehicle for fulfillment of their orders to customers in the Greater Toronto market. Having said that, our commercial vehicle group with EV Star Cargo and EV Star Passenger Vehicles is several quarters behind the school bus group in terms of its order book. We expect to achieve similar growth with live orders, purchase orders and a qualified sales pipeline by leveraging new and existing incentive programs as well as 3rd party relationships. We've had delays from customers with deliveries of our EV Star cabin chassis.

Speaker 2

With inventory ready to go, we are now working on scheduling deliveries for these. Collectively, these will create a robust commercial vehicle group, which combined with the school bus group will uniquely position GreenPower in the medium and heavy duty EV sector. Over the past few years, we've maintained significant levels of finished goods inventory. We don't need to maintain these levels due to stocking orders from dealers who could provide demonstrations and Ryan and drives to their customers along with a reduced competitive landscape. This is allowing us to shift from fulfilling orders from inventory to manufacturing vehicles pursuant to customer orders.

Speaker 2

How is GreenPower going to finance an increase in school bus orders and changes with our vehicles. Instead of a traditional facility, we needed to secure a facility focused on production financing. This morning, we announced that we've entered into a revolving loan agreement with Export Development Canada or EDC for up to $5,000,000 to fund all electric vehicle production for certain customer orders, allowing for multiple advances over a 2 year period with repayments when vehicles are delivered. The revolving nature of the facility provides the flexibility to fund multiple orders and offers incremental capital in addition to GreenPower's existing $8,000,000 operating line of credit and the guarantee of up to $5,000,000 of standby letters of credit provided by EDC. I'll now pass the call to Michael Seifert, Green Power's CFO to discuss our financial results for the quarter.

Speaker 1

Thank you, Frazer. For the 3 months ended December 31, 2023, GreenPower generated revenue of $8,200,000 primarily from the sale and lease 34 all electric vehicles, which included 13 Bstonanob school buses. This is a decline of 36.3% from the $12,800,000 of revenue generated in the same quarter in the prior year from the sale of 101 all electric vehicles, which included 1 Nano piece. Both quarters also included revenue from leases, parts sales and truck bodies. Gross profit was 1,400,000 Gross profit margin was 16.6% compared to $2,200,000 at a gross profit of 17.4% in the prior year's quarter.

Speaker 1

The margin decline in the current quarter was primarily due to an inventory write down of $408,000 which was included in cost of sales. The gross profit margin for the quarter would have been 21.6% without the inventory write down. Green Power generated a loss for the quarter of $4,600,000 compared to a loss of $3,400,000 in the same quarter of the prior year. For the 9 months ended December 31, 2023, Green Power generated revenue of $34,200,000 primarily from the sale of 196 vehicles in the current period, which was an increase of 40.1 percent from revenue of $24,400,000 in the 1st 9 months of the prior year, which was from the sale of 176 vehicles. Gross profit was $5,400,000 and gross profit margin was 15.7% in the 9 months ended December 31, 2023, compared to $4,900,000 at a gross profit margin of 20.1% in the same period of the prior year.

Speaker 1

Inventory write down of $408,000 included in the current year period reduced the gross profit margin by 1.2 percent from 16.9 percent to 15.7%. Green Power generated a loss for the 9 month period of $11,700,000 compared to a loss of $11,200,000 in the same period of the prior year. As at December 31, 2023, Green Power had cash of $4,000,000 which was an increase of $3,400,000 since the beginning of the year and working capital of $19,400,000 Improvements in the company's cash and available liquidity since March 31, 2023 were largely due to higher sales and due to a focus on collections, which led to lower levels of inventory and accounts receivable. I would now like to turn the call over to Green Power's President, Brendan Riley, to to highlight some of the innovative achievements Green Power reached during the quarter.

Speaker 3

Thank you, Michael, and good morning to you all. As Fraser mentioned, The continued strides are being made by our school bus division. To this end and in our effort to help eliminate smelly polluting diesel school buses, we have been expanding our national efforts through the addition of new dealers and have hired more territory managers to support both our school bus end customers and dealerships alike. A major technical accomplishment of this division during this quarter was the introduction of the new Mega Beast. It's our newest All electric purpose built school bus.

Speaker 3

We launched the Type D Mega Beast School Bus to meet the demands from school districts requiring V2G and longer range. This 40 foot, 90 passenger, Type D, 0 emission school bus delivers class leading range of up to 300 miles on a single charge. This is all due to the 3 87 kilowatt hour battery pack. Its V2G capabilities allow for more stable electric grid and community sustainability in areas which is deployed. I'm pleased to say that the market responded immediately to the introduction of Our product and our California dealer Model 1 just placed an order for 25 megabits for the Montebello School District just 2 weeks after we made the announcement of this product.

Speaker 3

Our commercial vehicle division has also produced a new innovative product during the quarter. GreenPower delivered its 1st EV Star Cargo refrigerated van to a UC school in California with dual batteries for increased resilience and continual etrue cooling for the cargo area, it has diamond plate floor and an FDA spec interior area that is smooth and allows for easier cleaning and sanitation for any of the refrigerated goods. In the next few months, we are expecting more innovation from this group from the cargo transportation space. At this point, we would like to now open up the call to any questions.

Operator

Thank you. We will now begin our question and answer session. And the first question will be from Greg Lewis from BTIG. Please go ahead.

Speaker 4

Yes. Thank you and good morning everybody and thanks for taking my questions.

Speaker 3

Fraser, I was hoping to talk

Speaker 4

a little bit more about West Virginia. Congratulations on getting Some of those orders out the door. In terms of the production ramp, you mentioned the ability to go dual line, beast and nano. Any thoughts of how we should think about over the next few quarters what those deliveries, that delivery production profile could look like and just as we think about the remaining, well, The Beast Class D buses to West Virginia, is that order do we need to get that order of the way before we start selling buses into New York, or is that are we going to expect those kind of to be coming off the line concurrently?

Speaker 2

Well, first well, thanks for the multi faceted questions there, Greg. First off, Our initial thought was that we would really only be positioned to do one of the Type A or the Type The nano beast or the beast in West Virginia, but we're now at a place that having gone through the full cycle at the nano beast and well into the first tranche for the Type D beast that we believe we can do both And we certainly have the capacity to manage runs of both of those vehicles. So that has changed the dynamics. In terms of our expectation or The throughput, we're going to need a full cycle of the beast as we have done with the NanoBeast. As the first production run, you run into all of the various startup issues and so on in terms of each of those runs.

Speaker 2

So that's what we're going through right now. Once we get this production run through and we're starting into the 3rd and the 4th runs, if you will, will have much better visibility on what that throughput would be. But we continue to add people and grow the production crews, so the capabilities are increasing by the month. In terms of the priorities, we've got The orders from New York and certainly the expectation is orders from additional states on the East Coast is that All of those or substantially all of those will be fulfilled out of West Virginia. And the ordering of that will depend on Really what we're focused on in terms of the production run at that point in time.

Speaker 2

So for example, if we The 3rd or the 4th production line or run is for NanoBees and we have more NanoBees outside of the state of West Virginia, then that will end up being the mix of the deliveries and the sales for that particular period.

Speaker 4

Okay, great. And then I did have a question on inventory. It's good to see that come down and you made some comments in the prepared remarks around maybe A little bit more build to order. Is there any kind of way we should be thinking or any kind of guidance can give us how you're thinking about inventory management and are we going to be maybe for the next couple of quarters, we're going to be able to kind of whittle down that some of that inventory, I guess, improving our cash conversion.

Speaker 2

Well, there may be a timing issue where we end up with at the end of any particular month or by extension a quarter or year end where we have higher than expected finished goods simply because that's what's come off of the production line and We haven't delivered and recognized revenue and so that's sitting in finished goods inventory. But the plan is certainly over the next few quarters that We can continue to utilize existing finished goods level and draw that down While we're moving from fulfilling customer orders from inventory to Where we're into manufacturing and production pursuant to customer orders. So that's the plan over the next few quarters and the facility we announced this morning is a big part of helping us transition or pivot to that approach.

Speaker 4

Okay, great. Thank you very much.

Operator

Thank you. And our next question is from Craig Irwin from Roth MKM. Please go ahead.

Speaker 5

Good morning. First, I'd like to say congratulations on the strong backlog and the progress of the beast and the Nano Beast and the Mega Beast. So it's nice to see everything coming together. I wanted to ask specifically if you could talk about How you're working with your customers on charging infrastructure. There's a conversation out there about the installation of charging structure being a pinch point for the acceptance of these school buses about the ability to actually cite some of these fleets being restricted because of utility timelines for new infrastructure.

Speaker 5

And Is there really maybe an advantage for the NanoBeasts as far as near term volumes, given the complexities of adopting this technology?

Speaker 2

Well, I'll let Brendan get into some of the details on your first question. But at a high level, the And I'm glad you mentioned the word utility because it's not just the perception is that the availability of chargers or the hardware side of the charging infrastructure is the pinch point. It's really in large part the utilities. And it's also the expectation of customers that are looking at vehicle to grid solutions and a broader implementation than simply acquiring and running school buses or all electric school buses. So there's a lot of dynamics that are in play that have affected the timing on that side of our deployments.

Speaker 2

As far as the mix of products that we have brought to market is that you're Quite right that the Type A Nano Beast, which is built on our EV Star platform, and by extension utilizes a lot of the Same parts and components, which provide for ease of deployment also is easier to deploy in terms of the infrastructure side as one can use a level 2 charger or a DC fast charge. And It really has a lot of flexibility. And Matt, if the vehicle or the Type A NanoBees can be charge between a morning run and an afternoon noon run and still have sufficient battery capacity to do an evening event or activity run, then it's a lot easier to install that level 2 charger. But if they need to get a much faster top charge, then we have the flexibility of installing a Level 3 charger for that vehicle. And on that, I'll turn it to Brendan, who can provide a little bit more visibility on your first question regarding charging infrastructure.

Speaker 3

Thank you, Craig, for the very thoughtful question. And good morning. This is Brendan Reilly. The Part of our strategy was, of course, to have the 3 different battery sizes from the get go. We have a car sized battery of the EV Star line of vehicles, which the Nano Beast is built on, that allows us to charge very easily at level 2 overnight charging, the same kind of charging you'd have in your house, the same charging I have in my house.

Speaker 3

With the beast, again, we've got a 200 kilowatt hour battery. You can do overnight charging on level 2, but you're really pushing it to the limit. And then the mega beast was really designed for those who have DC fast charging available and who have an interest in using the vehicle for All of its efforts to bring students to and from school and to V2G. So you've got really enough left over to be meaningful to the grid and have some normal access to the battery storage on the vehicle. Now the marketplace has changed more slowly than we hoped, but has changed do in part there are a lot more companies able to install chargers.

Speaker 3

The utilities are trying to get ahead of the curve a lot better these days and we do see improvements also including the availability of charging EVSE, which is electric vehicle support equipment, chargers and related equipment. But the main thing we're seeing right now is we mentioned our pipeline. Some of that pipeline are orders that the customers are waiting to figure out how they're going to do charging. I think they've got the money and the ability to buy, but They're waiting until they have their charging figured out. So I think you're going to see kind of a fast uptake on Charging capabilities, installation charging for the chargers.

Speaker 3

We are having more companies involved in that space And I think they're becoming more efficient and better apt at installing the chargers.

Speaker 5

Thank you for that. So my second question is about working capital. You guys have done a really good job managing working And generated a decent amount of cash there over the last few quarters. Can you maybe describe for us how well matched The inventory of work in process or finished goods is to anticipated near term deliveries. Would you expect working capital to be a positive contribution to cash in this current quarter?

Speaker 2

Well, I'll turn the details over to Michael. But at a high level, Our work in process is fairly well aligned with the production flow that matches is the fulfillment to customer orders as opposed to production to inventory, whereas we have been over the last few quarters we'll continue over the next couple of quarters to realign our finished goods to match that. So At a high level, finished goods need some work to fully align and the rest in terms of work in process To some extent, our parts supply that we sell separately as well to customers is better aligned with where we are right now with our strategy on manufacturing. Yes. Just to add a

Speaker 1

couple of very quick points, I think it really has been a focus of the company over the past 9 to 12 months to focus on inventory and bringing that down to a level that is better matched to sales. But I think the other thing to point out, Craig, is that with the on funding that inventory growth and we anticipate given our current order book that a lot of that will be used towards All electric school bus order book fulfillment.

Speaker 5

Understood. So my last question, if I may. Gross margins in the quarter, the historic average is quite a bit higher. So is it fair for us to Maybe consider the early production of some of these beast and nano beast units to Maybe lower margin because of greater man hours to complete and other factors in there, and that we could see those trend up over the next couple of quarters as far as the overall gross margin levels. Is that fair?

Speaker 3

That is very fair, Fred.

Speaker 2

Yes, go ahead, Brandon.

Speaker 3

That's very fair. Training, getting employees up to speed, costs money. It's an investment. And you're going to see the margins continually improve. Also, we're starting to see some stabilization of our costs as it go from materials, raw materials and so on.

Speaker 3

So we should see a good shrinkage in our costs and an increase in our GP.

Speaker 2

Yes. In terms of the short term, Craig, Michael in his section commented on the one time charges that we had made, which in part relates to your previous question that as we're realigning our business and working capital and changing the mix in terms of finished goods and work in processes. We have incurred some one time impairment costs on our inventory As we make that transition, so that we expect is a short term proposition. And As we get into continuous production flow where the inventory is aligned with all of that, then That's going to help the margins

Speaker 3

as well.

Speaker 5

Excellent. Well, congrats on the progress here. We look forward to Watching the continued steps forward.

Speaker 2

Thanks, Greg.

Operator

The next question is from John Gay From a quiet investor, please go ahead.

Speaker 6

Good morning, guys, and congratulations on the continued progress. I have sensed by the numbers of vehicles sold that Workhorse is not in the mix by much of any. Is that true? And if so, how do we look upon that so called contract?

Speaker 1

Sorry, I

Speaker 2

cut out there. Well, we don't we haven't pointed out specific metrics For our customers over the last number of quarters and we did comment in our earlier remarks that While we have not had some cabin chassis deliveries, we are currently Working on schedule in terms of future deliveries for our cabin chassis. There's been a short term pause and we expect to have that resume in the not too distant future.

Speaker 6

Okay. Thank you.

Operator

And the next question is a follow-up from Greg Lewis from BTIG. Please go ahead.

Speaker 4

Hey, thanks and good morning. And sorry to hop back in, but I did want to understand I thought it'd probably be good to understand. So congrats on the $5,000,000 revolver. Are there different hurdle rates, I. E.

Speaker 4

That could be achieved where you could come back and expand that maybe to $8,000,000 $10,000,000 Just as we kind of get through it was as we get production going, I would think you'll probably outgrow that $5,000,000 number. Mike, any thoughts around that?

Speaker 1

Well, I Go ahead. Go ahead, Michael. I was going to say, 1st of all, we are very appreciative of the support from EDC. We think this is a very efficient and well priced facility for the company. But to answer your question, yes, There certainly is the opportunity to revisit this in terms of size over time as our business grows and we can certainly look to upsize this, but for the time being, we feel this is a good size for the company and we'll definitely be put to use Given the orders we have in place.

Speaker 1

Fraser, if you have anything to add?

Speaker 2

No, that's a good summary.

Speaker 4

Okay. Now understood, it just seems like pretty good attractive financing. So yes, hitting that building out on that and then That would obviously be super positive for the company. All right, guys. Thank you very much.

Speaker 2

Thanks, Craig.

Operator

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Fraser Atkinson for any closing remarks.

Speaker 2

In closing, we delivered the first 4 Type A NanoB SCO buses manufactured in West Virginia to 4 SCO districts in the state and started production of our larger Type D school buses. We delivered 10 EV Star cabin chassis to the Canadian unit of a global retailer who will upfit the vehicles for fulfillment of orders To their customers in Toronto, we delivered the 1st EV Star Cargo refrigerated van to a California University And we launched the Mega Beast with twice the battery capacity of the beast, providing a range of up to 300 miles on a single charge. We made significant progress while increasing our cash position by $3,300,000 from the start of the fiscal year. Subsequent to the quarter, we secured $5,000,000 of production financing from EDC, who have also guaranteed $5,000,000 of standby letters of credit, which vastly improves our manufacturing capabilities. Thanks for your support.

Speaker 2

This concludes the 3rd quarter earnings call for GreenPower.

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