GreenPower Motor Company Inc. (NASDAQ:GP) Q2 2024 Earnings Call Transcript

GreenPower Motor Company Inc. (NASDAQ:GP) Q2 2024 Earnings Call Transcript November 14, 2023

GreenPower Motor Company Inc. misses on earnings expectations. Reported EPS is $-0.17 EPS, expectations were $-0.09.

Operator: Good day, and welcome to the GreenPower Second Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Sieffert, Chief Financial Officer. Please go ahead.

Michael Sieffert : Thank you. This is Michael Sieffert, Chief Financial Officer of GreenPower Motor Company. I would like to welcome everyone to our call to discuss GreenPower’s results for the 3- and 6-month periods ended September 30, 2023, and recent developments. I’m here today with our Chief Executive Officer, Fraser Atkinson; our President, Brendan Riley; Vice President, Claus Tritt; and Vice President, Michael Perez. 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 and applicable Canadian 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 interim results and MD&A filed on SEDAR and on EDGAR.

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. 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. 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 filed on SEDAR and on EDGAR. And is also located on our website at www.greenpowermotor.com. I will now pass the call over to GreenPower’s CEO, Fraser Atkinson.

Fraser Atkinson : Thank you, Michael. Over the years, we’ve talked about money and mandates driving fleet operators electrification strategies for medium- and heavy-duty vehicles. While money in the form of boaters and incentives can have a near-term impact on sales, is our view that the longer-term growth opportunities for the medium and heavy-duty EV sector will be realized by those companies that are best positioned to take advantage of key mandates. On today’s call, the GreenPower team will talk about recent mandates that will drive demand for GreenPower’s commercial vehicle and school bus groups. Earlier this year, our focus has been on making the transition from utilizing our inventory to satisfy customer needs to the production of school buses in West Virginia.

And we’ve expanded the production capabilities with Lion Truck body, our in-house body builder to produce completed vehicles utilizing our own EV star cabin chassis. We achieved a number of milestones in the most recent period and completed key deliverables in order for us to achieve these longer-term strategic objectives. GreenPower reported revenues of $26 million for the first half of the 2024 fiscal year, an increase of 125% over the revenue of $11.6 million for the first half of the previous fiscal year. For the quarter, we generated revenue of $8.4 million with deliveries of 31 vehicles, including a record 16 school buses, being a record for the company. Finally, with our financial position, we increased our cash by $1.4 million from the beginning of the current fiscal year, and we’ve maintained a strong working capital balance.

I’ll now hand it over to Michael for a discussion on the financial highlights for the quarter.

Michael Sieffert : Thank you, Fraser. For the 3 months ended September 30, 2023, GreenPower generated revenue of $8.4 million, primarily from the sale of 16 BEAST to Nano BEAST and 15 EV Stars, which was an increase of 9.1% from $7.7 million of revenue generated in the same quarter in the prior year from the sale of 4 BEAST and 50 EV Stars. Both quarters also included revenue from leases, part sales and truck bodies. Gross profit was $1.2 million, and gross profit margin was 14.6% compared to $1.6 million and 21% in the prior year’s quarter. The margin decline was primarily due to higher parts inventory costs, lower margins at Lion Truck Body and delivery of new products. Sales, general and administrative costs were $5.2 million compared to $4.7 million in the prior year an increase of 10.5% primarily due to expansion of the company’s operations in workforce in West Virginia and California as well as an increase in allowance for credit losses which was partially offset by lower share-based payments expense and lower product development costs.

GreenPower generated a loss for the quarter of $4.3 million compared to a loss of $3.6 million in the same quarter of the prior year. For the 6 months ended September 30, 2023, GreenPower generated revenue of $26 million, primarily from the sale of 162 vehicles in the current period which was an increase of 124.5% from revenue of 11.6% in the first 6 months of the prior year, which was due to the sale of 75 vehicles and other sources. Gross profit was $4 million and gross profit margin was 15.4% in the 6 months ended September 30, 2023 compared to $2.7 million and 23.1% in the same period of the prior year. The margin decline was primarily due to the same factors as during the recent quarter. Sales, general and administrative costs were $10.5 million in the 6 months ended September 30, 2023, compared to $9.8 million in the prior year period, an increase of 7.1%, primarily due to expansion of the company’s operations and workforce and increase in allowance for credit losses.

And these factors were partially offset by lower share-based payments expense as well as lower sales and marketing costs. GreenPower generated a loss for the 6-month period of $7 million compared to a loss of $8 million in the same period of the prior year. As at September 30, 2023, GreenPower had cash of $2 million, working capital of $24.2 million and $1.4 million available on its operating line of credit. 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. GreenPower was also able to lower its interest-bearing debt during the period as we remain focused on efficiently managing our working capital.

I’ll now turn it to Brendan Riley to discuss operations.

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Brendan Riley : Thank you, Michael. In addition to sales and production, during this quarter, we have focused on the future, the future of meeting the customer demands facing our industry due to money and mandates. And in doing so, we have made preparations to ensure our customers, both school districts and commercial operators that they have product options available to meet or exceed their demands and transportation of people and goods. The GreenPower manufacturing facility in West Virginia is in production of the Nano BEAST. It’s our small school bus. And provisions have made — have been made to start the manufacturing of the BEAST in the next quarter. The first all-electric purpose-built school buses will emerge from the West Virginia factory on December 13 with 4 Nano BEAST being delivered to schools in West Virginia under the purchase made by the state.

This is a monumental occasion that sets the foundation for the future of production for GreenPower school buses to be delivered to customers in the East Coast and the Midwest. The school bus team has also spent the quarter focusing on differing state requirements and regulations, found in the state school bus procurement contracts to ensure that GreenPower school buses are readily available and are purchasable to be bought by them. The New York, California, Connecticut, Maine, Maryland, and others now have a level of requirements and incentives available to cause a transition from smelly and polluting diesel to clean and quiet electric buses. With production in California, West Virginia and with contract manufacturing, GreenPower is uniquely positioned to supply battery electric school buses in large quantities and in a timely manner.

Another goal of last quarter was to move school bus inventory, and we’ve done just that. All of the inventory of our B school buses have either been shipped to customers or have been allocated to orders. On the commercial side of our business, we’ve delivered our first airport ground support vehicle, the EV Star Hydrant Truck. This is a purpose-built, all-electric large aircraft refueling vehicle. The vehicle is operating at Vancouver Airport in Canada and is an example of how we provide our all-electric purpose-built technology in a variety of settings, from specialty vehicles like our hydrant truck, to our box truck and refrigerated trucks, which are very standard in the market. GreenPower is truly a one-stop shop for compelling zero-emission vehicles.

The last topic I wanted to touch on is mandates. One example of a strenuous mandate looming is the California Advanced Clean Truck Regulation. This regulation will require 15% of certain fleets to be all electric by the next year, that’s 2024 in order to operate in California, and that percentage goes up over time. This is an example of just 1 mandate of many that exists from coast to coast here in the U.S.A. GreenPower’s commitment to provide a quality product in a timely manner to our customers is what we strive for. And that’s what last quarter’s preparations have been all about. Now I’d like to turn it over to our Vice President, Claus Tritt, who will discuss the activities in the Commercial Vehicle Group. Take it away, Claus.

Claus Tritt : Thank you, Brendan. Good morning, everyone. Brendan has set the stage for what I would like to spend a few minutes to amplify. Today, GreenPower is positioned to meet the commercial needs of customers, who want to make the transition to all electric vehicles in their fleets. Whether that desire is based on mandates, economic opportunity or for environmental reasons, we have the capacity in stock to deliver a completed vehicle within 60 days, not the normal 6 to 9 months customers face when dealing with multiple vendors. And with Lion Truck Body, GreenPower can upfit that product to meet the customers’ needs in a one-stop shop experience. Box trucks, stake beds, refrigerated trucks, specialty vehicles, you name it, we are prepared to move immediately for the customer nationwide.

We have spent this last quarter preparing for this. We are prepared for the demand of box trucks and cargo vans because of the California advanced clean truck requirements. And GreenPower is positioned to help customers with grants and importantly, supply vehicles that meet the $40,000 tax credit under the inflation reduction as the tax year comes to close. In addition to look — in addition to looking in the future, we also completed delivery of 10 EV star passenger vans in the Boston market during the quarter. These vehicles are being used there in an innovative approach, the worker transportation providing last mile solutions to get people safely to and from work. Our commercial dealer network continues to expand with appointments during the quarter in the triangle in North Carolina, North Texas and West Virginia.

And recent trade show activity has further exposed the green power EV Star commercial line of products to new geographical locations and customers as well as dealers in other areas of the country. I would now like to turn it over to Michael Perez to further discuss school bus activities.

Michael Perez : Thank you, Claus. Good morning, everyone. Over this past quarter, we continue our work on completing certifications and meeting requirements for key states where we see the best opportunities to meet the demand of all electric zero-emission school buses. I was recently at the NAPT Conference and Trade Show in Ohio, where we launched our Mega BEAST Type D all electric purpose-built electric school bus, which has an industry-leading range of up to 300 miles from 387-kilowatt hour battery pack, the largest currently available in school bus transportation. We were also engaged with several high-quality prospects had to show in new geographic territories, including Ohio, Kentucky, Tennessee and Virginia. This morning, we announced our first order for 25 Mega BEAST to Montebello USD in California through our dealer, Model 1, formerly creative bus sales utilizing vouchers from the HVIP School Bus Set-Aside Program and the EPA Clean School Bus Program.

This first-of-a-kind order will begin production immediately with deliveries targeted in late 2024. We also announced an order for 10 B school buses for Garden Grove that we’re already working on with deliveries scheduled over the next couple of quarters. In the past month, California Governor Gavin Newsom signed legislation requiring all new school buses in California be electric by 2035. With that action, California joined Connecticut, Maine, Maryland, and New York in mandating the switch to all electric zero-emission school buses and fleets over the next 4 to 17 years. The new law makes California the leader in state funding for the transition to all electric school buses with the switch projected to cost roughly $5 billion. We are working with Model 1 on dozens of orders, utilizing funding from the HVIP School Bus Set-Aside program, the $1.2 billion to be added in 2024, air quality management district funding the VW Fund and, of course, the EPA Clean School Bus Program.

We are also very excited to announce very soon new orders that will be the first orders in new states setting up continued momentum as we enter the new year. And now I’ll turn it back over to Fraser Atkinson.

Fraser Atkinson : Operator, at this time, if you could open the line for our Q&A session.

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Q&A Session

Operator: [Operator Instructions] The first question today comes from Craig Irwin with ROTH MKM.

Craig Irwin : It’s really nice to hear the West Virginia facility is starting to produce. You have orders already, customers are waiting for the product. Can you maybe just help us shape potential orders in this December quarter for your Type A and Type C school buses from this facility. Is there any difference in pricing versus your legacy product? And margins, I should say. And can you talk about the number of customers that are visiting this facility as you bring up production and the different school districts that are coming in for Ride and Drive before they make their final commitments?

Brendan Riley : Yes. Craig, this is Brendan. Your first question needs to be answered, that the buses built in West Virginia are the same buses we build in California, and anywhere else. They’re — it’s not a new bus. There are some specification differences, but those are really minor changes that we make could be a different option that’s added to it. It could be a different color in one place or another, stickers, things of that nature. But for the most part, the vehicles, at least from a certification perspective, they’re essentially the same vehicle. We — the facility is fairly new. We’ve had dealers come through and do training. Customer visits will be — are scheduled for this quarter. And again, I don’t know if I can name any of them.

I would so, probably won’t. But we do have customers coming out for ride and drives and to tour the facility including customers from West Virginia that are actually going to be receiving the buses under the West Virginia contract. For the first year, we’ll be producing again, first, the 41 buses from the West Virginia contract and any follow-on buses for the West Virginia contract as we’ve committed to the state to get those out first. As far as the pricing is concerned to the end user, the pricing is the same right now. And for margins, it is a new facility. We expect those to improve. And I don’t think we’re really announcing that number yet. But frankly, the market on the East Coast is just opening up for us. We’ve just been added to the New York State bid.

And we are working on other places on the East Coast to start selling more vehicles into.

Craig Irwin : Excellent. So EPA is slated to start releasing additional districts as far as the vouchers they’re awarded in this year’s funding program. Can you maybe help us understand the work you’ve been doing with different school districts and different dealers to support their applications to this program? And what you feel about your overall competitiveness as far as voucher awards for customers that are likely to work with GreenPower?

Fraser Atkinson : Michael Perez, did you want to lead off on that?

Michael Perez : Yes, of course. We work with several of our existing dealer network on producing webinars, producing materials and producing any items that go to school districts within their territory to set up all of these applications that are being submitted for the EPA Clean School Bus Program. That can include demos, in-person demos, ride and drives and anything else tailored to that region and that market.

Fraser Atkinson : And I’d add to that, that Michael was that the NAPT Conference that he referenced in our opening remarks, and this past summer at SDN, which is kind of like the big annual event for the school bus industry. And within each of those, there the engagement was numbered in the hundreds in terms of contact discussions. We had a panel that — how many people were in attendance for that, Michael? At the SDN panel? Yes. So all of that is part of the — people are waiting until a future date. They take advantage of the ride and drive opportunities at events like that where we have our vehicles, and we’re providing ride and drives at those conferences and trade shows. So that’s a big part of it as well.

Brendan Riley : One last thing. Would you provide assistance, if any, customers, dealers or fleet partners are looking to submit for a grant, we provide assistance with any of the paperwork making sure that if they need any help on how to fill it out, how to — what all of our data is to populate those applications, we provide that whenever customers, dealers, or fleet partners need it.

Craig Irwin : Okay. Last question, if I may, before I hop back in the queue. So your cabin chassis product, you have 1 very large customer there. And from our prior conversations, I understand that the contract size in this market is likely to be much larger, potentially much more lumpy over the next couple of years. Can you maybe update us on market developments there? You do have a number of vehicles actually rolling out in the world now and different customers taking product. How is this impacting the overall tempo of conversations and potential customer activity?

Fraser Atkinson : Well, we have a large customer you’re probably referring to had paused the intake of our cabin chassis and I think that was in the August time frame. Right now, where we said we have over 50 CCs that we have available for delivery at the appropriate time. I think more importantly, part of what Claus referred to in our opening remarks is, number one, he’s got a number of orders and even a greater number of quotes just on the CCs. So we’ve got a rapidly developing market for our EV Star cabin chassis. And we’re also utilizing that for our Nano BEAST, for our production with Lion Truck Body. So it really has a broad application and 1 that has really grown over the last 2 or 3 quarters.

Craig Irwin : Excellent. Well, congratulations on the progress, and I’ll go ahead and hop back in the queue.

Fraser Atkinson : Thank you, Craig.

Operator: [Operator Instructions] The next question comes from Tate Sullivan with Maxim.

Unidentified Analyst : This is actually Justin Smith in for Tate Sullivan today. Kind of just following up on the last question. I was just wondering if you guys were able to provide any details you’re still looking to deliver all 1,500 of those units to your larger customer in regards to the cabin chassis units?

Fraser Atkinson : Well, we don’t give forecast. We don’t provide any guidance in that regard. And I think the answer that we had on the previous question would be the same in that. We have vehicles or CCs ready right now. We have CCs that are in the queue that are being either completed or substantially completed that could add to that in the follow-on quarter in January and February, and that will be something that we’ll be working through over the next week or 2 in terms of this quarter and next quarter.

Unidentified Analyst : All right. Great. And then kind of following up on that as well. Are you able to provide any information on those units to start coming out if you think your gross margin for those will be better or worse than the gross margins for your electric school buses that are going out right now?

Fraser Atkinson : Well, the higher volume contracts we’ve had margin compression or the margin is lower due to a price that wouldn’t be the same if we had a one-off or 2 off. And the reason we do those is that as we are able to get deliveries that are consistent and continually ramp up volumes related to each of the products, whether it’s a Nano BEAST or a BEAST or cabin chassis is as we’re able to get repeatable deliveries. That’s where we’re going to enjoy a higher gross profit.

Operator: The next question comes from Greg Lewis with BTIG.

Gregory Lewis : I’m not sure if this question is more for Mike or Fraser, but clearly, you’ve been walking through some of the challenges on the decremental margins, and we’re ramping West Virginia. Is there any kind of thoughts around what type of volume we need to be coming out of West Virginia in terms of bus sales, we think that starts to be margin accretive?

Michael Sieffert : So maybe I…

Fraser Atkinson : Yes, go ahead Michael.

Michael Sieffert : Yes. Just we haven’t — just to be clear, we haven’t really talked through margins of school buses coming from West Virginia. I would say that the margin compression that we saw this quarter, specifically, it was, I’d say, more related to specific parts inflation as well as deliveries of new vehicles like new products — so less to do with our school bus sales in the quarter. Our school bus sales this quarter actually generated a margin that was higher than the overall margin for the quarter, just to give you an indication. As that facility ramps up, certainly, we would expect there to be better economies of scale. But at this point, we haven’t broken that out specifically, Greg. So there’s probably not a lot of additional detail I can cover. Fraser, I’m not sure if there’s more you’d like to add there.

Fraser Atkinson : Well, I think the — we’re just getting organized to start the BEAST production with the first vehicles for that side of the School Bus Group coming off the line in early spring of 2024, I believe, is our target. And with — until we get through that first and second cycle and look at how we’re going to both ramp and manage our costs, we’ll have a much, much better idea of where we are. The positive in that group is that, is that both at the state level like on the New York State contract that we’re on that Brendan talked about, and Michael Perez talked about is — and the California programs and the school bus program, they all have price points that are very supportive in terms of what our cost structure. In other words, before those, the vehicles were probably be selling for a little less than what these mandates and incentives are providing.

Gregory Lewis : That’s super helpful. And then just following up on that. Clearly, the initial buses rolling out of West Virginia are all going to West Virginia. As we think about that, at what point is that — is that a back end of ’24, maybe calendar year ’25, that when we start selling to non-West Virginia school bus — municipalities or customers?

Fraser Atkinson : Well, we have had — we have had customers outside of West Virginia that are looking for the production out of West Virginia to fulfill their requirements. So we’re already at a stage from a sales point of view in terms of identifying and quantifying what we’re going to need to do for the East Coast. So that’s why we — initially, we’re looking at South Charleston facility as being predominantly fulfilling requirements we could see in the short term with West Virginia, but that’s already expanding to other markets on the East Coast.

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

End of Q&A:

Fraser Atkinson : At the beginning of today’s call, we talked about the importance of being positioned in the medium and heavy-duty EV space to be able to fully benefit from key mandates. GreenPower strategy is to be able to take full advantages of 2 such mandates. For the mandates in 5 states to electrify school buses, including the 2 big markets of New York and California, number one, we have the full range of all electric school buses, including the recent launch of the Mega BEAST for a second Type D along with multiple configurations for our Type A Nano BEAST, to fulfill almost all the requirements of the school districts have. Number two, we have strong dealers in each of California and New York. Number three, we’ve spent the last 2 years locating a facility, tooling and commencing the school bus production in West Virginia for customers up and down the East Coast.

For the California advanced clean truck regulation, that will require 15% of certain fleets to be all electric by next year. Number one, we can build a completed box truck in 30 to 60 days compared to other outsourced body builders that take at least 6 to 9 months. And the customer has — doesn’t have to deal with multiple companies. Number two, GreenPower’s innovation has brought a number of products to market, such as our refrigerated box truck. Number three, we have our own cabin chassis with the EV Star CC on hand, ready to fill customer requirements. And as close as always says within this space, we are truly a one-stop shop. In conclusion, we positioned ourselves for not 1 but 2 generational mandates that will drive growth for our school bus and our commercial vehicle groups.

This concludes our call. We thank you for your support.

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