GreenPower Motor Q4 2024 Earnings Call Transcript

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July 1, 2024

There are 7 speakers on the call.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Michael Seifert, CFO. Please go ahead.

Speaker 1

Thank you. This is Michael Seifert, the Chief Financial Officer of Green Power Motor Company. Would like to welcome everyone to our call to discuss Green Power's financial results for the fiscal year ended March 31, 2024. I'm here today with our CEO, Fraser Atkinson and Brenton Reilly, our President. 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 purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995 and 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 on EDGAR. In addition, these forward looking statements relate to the date on which they're 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. For additional information on the results of operations for the year ended March 31, 2024, you can access the audited financial statements and MD and A posted on Green Power's website as well as on SEDAR and or FileVon Venture. I'll now pass the call over to Green Power's CEO, Fraser Atkinson.

Speaker 2

Thank you, Michael. GreenPower has accomplished a great deal in the past year and I'm proud to be working with the team at GreenPower as we've set a new path for our business. Today, GreenPower has 2 fully operational production facilities, 1 on the West Coast in Porterville, California and 1 on the East Coast in South Charleston, West Virginia. This positions GreenPower as a national company with production, sales and service from coast to coast. With a full line of commercial vehicles and the only EV Schoolbox OEM manufacture both a Class 4 Type A and the larger Type D all electric purpose built school bus.

Speaker 2

GreenPower is positioned to be a core supplier of electric vehicles in the medium and heavy duty space. Let there be no doubt over the past year, the EV sector has encountered significant headwinds. Despite these GreenPower has made significant progress with our roadmap to transition to a production plan driven by customer orders. In the past, we'd manufacture to inventory so that we were able to complete sales when we received the customer order. Now that we are receiving large orders, including some with deposits, we must be able to produce pursuant to those customer orders.

Speaker 2

As Michael will discuss in his remarks, this provides for more efficiencies and fewer touch points, which should improve our gross profit over time. In order to make this transition, GreenPower needed to expand its manufacturing capabilities both in California and West Virginia, make investments in GP Truck Body to provide a complete range of commercial vehicles and obtain production financing. Brendan will discuss the transition with our manufacturing and Michael our capital structure in order to achieve this plan. Hand in hand with the production plan is the sales strategy that focuses on long term prospects with mandates and money. To provide some context on mandates, when a customer is interested in a Tesla Model 3, a Rivian pickup truck or Lucid Air Automobile, they are not required to buy any of these.

Speaker 2

Because mandates do not exist for light duty vehicles, growth in the market for these vehicles can at times stagnate. However, mandates do now exist for medium and heavy duty vehicles like the Class 4 commercial vehicles and school buses manufactured by GreenPower. That is why GreenPower has chosen to focus on these 2 markets. Many states have requirements for school districts to purchase all electric school buses by certain dates. In states like New York and California, this has to happen over the next 10 years.

Speaker 2

Those 2 states alone operate 80, 000 school buses representing a market opportunity of approximately $25, 000, 000, 000 For the cost for commercial space, California has recently introduced legislation requiring roughly 10% of new purchases by fleet operators to be 0 emission vehicles, creating demand for GreenPower's EV Star commercial vehicles. This requirement will increase to 75% over the next 10 years amounting to a multi $1, 000, 000, 000 annual market opportunity in that state alone. Several other states are copying the California initiative further expanding this market opportunity. While these mandates represent strong growth drivers, they are only as effective as the funding available to support the initiatives. In the case of California, the 8 VIB Voucher Program has recently introduced the small fleets plus up, which doubles the amount of the vouchers available to purchase our EV Star products.

Speaker 2

These plus ups amount help small fleet operators get into GreenPower commercial vehicles for nearly no cost when combined with the federal IRA tax credits. Additionally, HVIP introduced the 0 emission school bus initiative with $500, 000, 000 which is in addition to existing funding programs from Air Quality Management Districts and the SCOBA set aside fund. Further, the EPA has been slow in getting out contracts for awards, but we expect to see that activity in the current fiscal year. The combined Green Power production and sales strategy designed to meet the customer needs in the most cost efficient manner possible, while focusing on the incentive money available where the mandates required adaptation will continue to provide for the best growth trajectory for our company. I'll now hand it over to Brendan for a discussion on our operations.

Speaker 3

Thank you, Fraser, and good morning to all those on the call. During the year, Green Power completed the build out of the company's South Charleston, West Virginia manufacturing facility and delivered the 1st all electric school buses produced at the facility with the first delivery of our 4 Nano Beasts and NanoBeasts Access Type A school buses in December of 2023. We also commenced manufacturing of our BEAST Type D all electric purpose built 0 emission school buses. And subsequent to the year end, we delivered the 1st Type D manufactured in West Virginia manufacturing plant to the Kanawha County School District that's in West Virginia. These production milestones should not be taken lightly.

Speaker 3

It is also no small feat to set up a U. S.-based ground up purpose built EV manufacturing facility in a region not accustomed to that type of skilled manufacturing required to produce these innovative vehicles. Training of the workforce was a major undertaking, complemented by our partners at Bridge Valley Community and Technical College and the state of West Virginia. Moreover, the production line verification and validation is necessary to ensure that the products coming off the line meet the highest standards of quality and safety, especially in the school bus production. These startup challenges were timely met and have set the stage for continued ramp up of production at the facility.

Speaker 3

Equally as significant as the first products rolling off of our West Virginia plant is the increase in sales and deliveries of GreenPower's all electric purpose built 0 emission school buses. Specifically, GreenPower enjoyed a fourfold increase in the number of GreenPower school buses sold in the 2024 fiscal year. Those sales were in markets where Green Power School Buses have been delivered in the past as well as new states where we deploy the 1st Green Power School buses. We anticipate that school bus deliveries will continue to grow in the current fiscal year as we have live orders for more than 100 Green Power all electric school buses, including an additional 37 being manufactured in West Virginia. And we have a qualified lead pipeline of more than 160 Green Power School buses.

Speaker 3

This represents a potential for $100, 000, 000 in revenue. Lastly, in the 2024 fiscal year, GreenPower continued to push innovation forward in the school bus sector by introducing the Mega Beast. The Mega Beast is a 40 foot, Type D, all electric, purpose built, Sierra mission school bus that delivers class leading range of up to 300 miles on a single charge via 387 kilowatt hour battery pack. It provides the longest range, has the biggest battery in the school bus market and provides more uphill climbing power and has the most desirable V2G capability for a more stable electric grid and community sustainability in areas where it is deployed. Turning to the production line, GreenPower has made significant investment with our in house body division, GP Truck Body.

Speaker 3

The focus has been to improve delivery time of upfitting our EV Star cabin chassis with truck bodies for customers providing a seamless 1 stop shop opportunity. Through GP Truck Body, Green Power has been able to develop a comprehensive suite of products with new truck body designs, including our all aluminum stake bed, our landscape bed, our dump truck, our utility truck, the service body, and the new state of the art refrigerated box truck, which we branded the Evistar Reefer X. The Reefer X has the X factor in that it weighs less, performs better, is built stronger, is more and is more affordable and has a longer warranty than typical competitive products. These new design open exciting new markets for green power and demonstrate the flexibility of the EV Star platform. As a result of these efforts by commercial truck sales team, GreenPower has increased sales of upfitted commercial EV Star line by nearly 50% during the fiscal year from 79 to 117 vehicle deliveries.

Speaker 3

Green Power also won the 2023 GreenCar Product of Excellence for the EV Star cab chassis. Green Card Journal said that the award honors commercial vehicles that feature greater environmental performance through higher efficiency. The integration of advanced technology and electronics and innovative powertrains that achieve decarbonization goals with low or no carbon emissions. All in all, the fiscal year was a success for GreenPower with the 1st school buses manufactured in West Virginia, the launch of its commercial and school bus products and the increase in sales in both the company's school bus products and up fitted EV Stars trucks and vans. Next, I'll turn it over to Michael Seifert, GreenPower's CFO, who will cover the financial highlights.

Speaker 1

Thank you, Brendan. For the year ended March 31, 2024, GreenPower generated revenues of $39, 300, 000 with cost of sales of $33, 900, 000 yielding a gross profit of $5, 400, 000 FreePower continues to be 1 of few EV OEMs that consistently post a gross profit. This past year, our gross profit margin declined due to inventory write downs and as we began production in West Virginia and delivered our first vehicles produced at the factory. We believe that transitioning production pursuant to customer orders will help alleviate the adjustments and an increased throughput in West Virginia should reduce the fixed overhead allocation per unit, which over time should help improve our overall gross profit. For the 2024 fiscal year, we delivered 222 Green Power purpose built 0 emission vehicles consisting of 122 EV Star cabin chassis, 18 EV Star cargo, 6 EV Star cargo plus, 33 EV Star Passenger Bands, 31 Type T B School Buses, 10 Type A Nano Beast and Nano Beast Access School Buses as well as 2 EV250s.

Speaker 1

This past year has been a transition, its deliveries to a broader group of dealers and customers as well as extending our geographic reach. Excluding the deliveries of cabin chassis to other OEMs, we enjoyed a 50% increase from 79 vehicles in the previous year to 117 in the current 2024 fiscal year. Fraser and Brendan talked about the transition with our production and this transition has been facilitated by changes to our capital structure. During the year, we entered into a revolving $5, 000, 000 term loan facility as well as obtaining guarantees for letters of credit for a further $5, 000, 000 with Export Development Canada or EDC. Both the facility and the letter of credit guarantees are used to finance the production of green power all electric vehicles pursuant to existing customer orders and they've therefore been instrumental in our transition.

Speaker 1

EDC has supported GreenPower's production of 0 emission vehicles and has been a great partner for GreenPower. During the fiscal year, GreenPower commenced monthly lease payments on a lease purchase agreement with the State of West Virginia for a production facility located in South Charleston with more than 6 acres and an 80, 000 square foot building. Lease payments totaled $600, 000 for the year and these will be applied in full to the purchase of the property. The state will also provide up to $3, 500, 000 in employment incentive payments to Green Power for jobs created in the state as well as production increases over time. Title to the property will be transferred to Green Power once total lease and incentive payments reach 6, 700, 000 dollars With that, operator, please open the call up for questions.

Operator

We will now begin the question and answer session. The first question comes from Tyler Dimitayo with BTIG. Please go ahead.

Speaker 4

Hi, everyone, and good morning. Thanks for taking the questions here. I wanted to start on the shift in the production plan and how you're thinking about managing that more towards orders. I know you highlighted some color on the inventory side of things. I'm just curious about any other tangible steps you can kind of point to here in terms of how you're thinking about exactly doing that?

Speaker 4

Any other color there? Thanks.

Speaker 2

Well, I'll start and Brendan and Michael can weigh in. But for example, with West Virginia, this our production is what is known in the industry as CKD. So it's component knockdown and that requires managing our supply chain in a fashion that we can flow the product through or manufacture the product through West Virginia as opposed to leveraging contract manufacturers less than we have in the past. So that's a pretty big shift on the production side. And while it doesn't require a big CapEx, there was a significant cost that we've incurred this past year in getting that facility ramped up to handle that kind of production as well as the processes to facilitate that.

Speaker 2

And then on the financing side, is that getting a line of credit where it's supported by finished goods, accounts receivable. In other words, the traditional metrics is very, very different than in our case where we're looking at arranging financing for the actual production, which isn't covered by finished goods or any other form of inventory that would support a line of credit. So EDC is a great partner for us and yet they have a facility that is very much geared towards the kind of production financing that we needed for this shift or this transition.

Speaker 4

Okay, great. Thanks, Fraser. Really appreciate that. And then my follow-up here, I wanted to talk a little bit about the order book. I you pointed to more than 100 in the order book units, pipeline, 160 plus, call it.

Speaker 4

You also had that nice order with the West Virginia for the incremental 88 units for school buses. I guess, can we talk about that a little bit? Maybe how you're thinking about that, timing of those deliveries and just general update on maybe that contract?

Speaker 2

Well, the 37 is well in process of the 88 that you referenced. And I believe Brendan commented on that earlier this morning. And so that our objective is to build and get those delivered within the current fiscal year. So you'll see deliveries later this year and continuing through with the delivery for all 37 of those. The big difference just taking a step back, the difference big difference between live orders and the qualified leads is that the vast majority of the qualified leads are represented by orders or customer orders where funding has been either specifically secured or identified.

Speaker 2

We're working through contracts. The EPA has been particularly slow in getting their contracts out. And but we don't have a delivery date. So in the case of live orders, we're by and large working with production that has delivery dates or expectations on when the vehicles will be delivered to the end customers or dealers versus the qualified leads where we don't have a delivery date. And I should add that it's not just the contracts.

Speaker 2

In some cases, it's customers or dealers that want the end user to have their infrastructure in place or charging stations installed and the like.

Speaker 4

Okay, great. And just 1 last 1 here, I want to squeeze in. The I think that 88 was an incremental. I mean, what does that bring the total contract to? Is it around 100 now?

Speaker 2

It's over 100.

Speaker 4

Okay, great. Thank you guys. Really appreciate the time. I'll turn it back to the queue.

Operator

The next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

Speaker 5

Good morning. Thanks for taking my questions. Fraser, we all completely understand the repositioning of the company towards new manufacturing and the school bus markets, which look really exciting right here with 1, 000, 000, 000 of dollars being allocated by our President to that opportunity to give our kids clean air, right, clean air while they go to school and come home. Can you maybe talk a little bit about the challenges in the medium term, short term as far as the delivery on those contracts, you have the orders, but many of these school districts have faced issues around charging infrastructure, and there were some early issues around capital access. I believe some of this has been handled, maybe a lot of it.

Speaker 5

Can you just talk about what you're hearing from the different districts as you work with them? And can you maybe shape it for us how we should expect momentum to come together for Green Power in this market?

Speaker 2

Well, that's a great question. I guess 1 of the big challenges is that these initiatives and to some extent mandates that are driving these at the federal level, They've been very quick at getting some of the awards out there and the announcements and press releases. But in the trenches here, as an OEM, I mean, we're waiting for contracts. And so there's been a delay on that side. Our past year didn't have a dollar of revenue from EPA funded deals, even though they've been very substantial out there.

Speaker 2

So there's been that disconnect. Going back to your question on charging, that is probably 1 of the biggest impediments that we continue to encounter, especially in an area where we perhaps aren't dealing with as sophisticated a purchaser as we would with a large fleet operator would have a whole group dedicated to ensuring that charging infrastructure is properly scoped worked properly. Whereas with many school districts and operators of school buses for school districts, they have a mindset sometimes that, well, let's get the best level 3 charging stations and that are possible or available out there without realizing that they don't have enough power into their facility to accommodate their wish list. And so there really isn't necessarily a practical outlook in terms of how they're going to deploy the all electric school buses. So still a lot of education required, still a lot of handholding and that going back to our order book, that has impacted how we're able to roll out the qualified leads into the live order portion of our order book.

Speaker 5

Okay, excellent. So is it correct that the power needs of the Mini Beast are materially less than the Beast? So the charging infrastructure is easier to install, easier to site. So we could see sort of more near term strength in that area of the market, maybe the Type C school bus alternative, right, the clean alternative to Type C. And can you maybe talk a little bit about your capacity to serve demand there?

Speaker 5

Is there the capability to scale up to tens of units a month or more? How should we think about that? Well,

Speaker 2

the our Type A school bus is the only purpose built Class 4 school bus on the market. In California, we compete with 3 other companies that use a Ford E450 heavy duty cabin chassis that they acquire from Ford. So we're in a very different category, literally a category of our own where someone wants to buy a purpose built school bus, then type A school bus, then ours is the choice. We and that platform is I mean, we love that platform because it's built on our EV Star cabin chassis. So that is a proven platform that we use for within our commercial vehicle group and that we sell to other OEMs.

Speaker 2

And so that gives us the ability to either have a level 2 charger or DC fast charge. And given the battery capacity on that vehicle, in many cases, a user can fully charge the vehicle between the morning run and the afternoon run on that vehicle using a 19.2 kw level 2 charger, which is not expensive, easy to much easier to install than a DC fast charge and doesn't have the same power requirements. So there's distinct advantages with that class of vehicle. And we see that that could be our that could be our lead product within the SCOBA sector where we are seen as the leader in the space.

Speaker 5

Excellent. So my last question, if I may. Your balance sheet, right, you've done a very good job managing working capital. I guess working capital down almost $10, 000, 000 over the year ago period. While for the fiscal year, your revenue was very similar.

Speaker 5

Can you talk about the ability to maybe liquidate inventory that's there? What should we think about working capital? Just to share of the ramping school bus opportunity.

Speaker 2

Well, we see the I mean, there will be work in process represented by the production in West Virginia and Porterville pursuant to customer orders. But we see a continued reduction in our finished goods portion or the proportion of finished goods being lower than the work in process. And we see a continued lower percentage in our accounts receivable than our sales as a result of the mix on the sales side.

Speaker 5

Understood. Well, congratulations on the success repositioning the company. We're hoping the spring is let loose and we get to see the real potential as the school bus deliveries materialize this year. Thanks, Craig.

Operator

The next question comes from Tate Sullivan with Maxim Group. Please go ahead.

Speaker 6

Back in April along with guiding to the school bus deliveries, 88 of them in fiscal year 'twenty 5, you gave some detail on the EPA grant for $18, 600, 000 How will you get that grant money on delivery or perhaps ahead of delivery? Can you talk about that a bit, Fraser, please?

Speaker 2

While we're still waiting for the contract. So that until we have the we're able to get that completed and obviously we'll announce in a very timely fashion. They were that is holding us up in terms of providing the specific final delivery dates pursuant to that particular award.

Speaker 6

And you're it's awaiting for the contract pardon from the EPA itself or from the school district customer in West Virginia? What is this?

Speaker 2

From the EPA.

Speaker 1

Okay. Perfect.

Speaker 6

And then is the April comment about delivering 88 school buses in West Virginia in fiscal year 'twenty 5, is that still intact, that type of timeline there?

Speaker 2

Well, we still we're I mean, we are working right now on the 37 on the front end of that, as well as we recently and just that was just a week ago, we delivered the 1st beast school bus out of the West Virginia facility, which shows our ability or capability of producing both the Type A scope buses as we delivered 4 of those in December of 2023. And so now we've delivered our 1st B school bus in the past week. So now that that milestone is being achieved, we're continuing to work on the 37 B School Bus order that where those will be deliveries that occur this fall and winter and through before the end of the current fiscal year.

Speaker 6

Yes. Thank you. And then Brendan, you call it and then a bit on the qualified lead pipeline of 160 more. So that's above and beyond the live orders for more than $100, 000, 000 if I heard that correctly. And then you said $100, 000, 000 of revenue.

Speaker 6

Is that based on what grant money they pay for? Is that I mean that implies a pretty good price tag? How do

Speaker 2

you get that number too?

Speaker 3

That's just the estimate of revenue. So that's what we have as far as our qualified leads. If you extrapolate the value of those orders, that's the value.

Speaker 6

Great. Thank you

Operator

all. This concludes our question and answer session. I would like to turn the conference back over to Fraser Atkinson, CEO for any closing remarks.

Speaker 2

Thank you. We expect to be very busy this summer in securing contracts for our school buses and generating orders from new markets for our commercial vehicles. Realization of our strategy focusing on the school bus sector and Class 4 commercial vehicles where there are mandates and money. We look forward to providing you with timely updates on our progress. In the meantime, if you have any questions, feel free to reach out to Brendan, Michael or myself.

Speaker 2

Thank you for your continued support and this concludes our call.

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