Richard Coulombe: I’ll take that one, Rupert. Listen, as I said earlier, Q1 for us was a quarter where we really worked with our supplier base and we kind of realigned our approach, shifting from a build-to-stock to a build-to-order approach. So Q1 was like a transition quarter. Some of our suppliers had already built some inventory for us, had already bought some of our materials. So Q1, despite, I would say, all of the alignment that – let’s say, that occurred during the quarter, we accepted some inventory in exchange for prepayment terms and so on just to, again, get through that transition phase. And despite all of that, we managed to reduce inventories by $12 million. So I anticipate that Q2, Q3, we will continue seeing an improvement of that inventory reduction.
So I do see the numbers increasing in the next two quarters and internally for sure we’re driving a higher number. We’ll see how things play out. Obviously, a lot of it is connected to the order book and how many orders we’re going to secure from the EPA round, as Nic pointed out, and ZETF. So there’s a lot of moving parts, but it’s hard for me, at this point, to talk about a different set of numbers, but I feel very confident with the $50 million to $75 million. And we should see – I’m expecting Q2 to be another good quarter in terms of inventory reduction.
MarcBedard: Rupert, this is Marc. With respect to the current assets, Richard referred to that earlier, we have $329 million of current assets and $124 million of current liabilities. So that gives us almost $200 million of unlock – of liquidity that we can unlock as well. And, obviously, it’s mostly inventory, as Richard just mentioned, but it’s also accounts receivable. There’s a lot of accounts receivable in there and there’s a lot of accounts receivable coming from the government. So good accounts receivable and then just a matter of timing before getting those and it’s an area where we will unlock – we will be able to unlock some liquidities going forward.
Benoît Poirier: Liquidity, I believe you say, is the same today as it was at the end of March. Do you have a forecast where that could end up at the end of Q2 with all of the initiatives that you’re looking at?
Richard Coulombe: I’m not going to get into forecasting cash flows. I can just tell you we’re highly focused on our working capital initiatives. As I pointed out earlier, our April 30th balance is more or less the same as March. And as we drive our initiative, confidence is going to be a key contributor for liqudity.
Marc Bedard: Rupert, we also need to keep in mind the rightsizing that we’ve done. We feel that was necessary and very responsible from us. And this is $40 million in annualized savings and a lot of this was coming from the overhead as well. So, you will start to see the result of this rightsizing going forward, but there was a major decrease, obviously, in the burn rate. And you can add this also to what we’ve been doing with respect to CapEx, which, as you know, less than $5 million and $400,000 in the first quarter. Just keep in mind that last year, in Q1 of last year, we had CapEx of $23 million and we had R&D of $16.5 million and in Q1 our R&D was $8.2 million. So I think all of this is going in the right direction.
Benoît Poirier: As a follow-up on the supply chain, can you talk about how the supply chain is progressing? Are you seeing any further relief on prices for key items like your product sales or other critical parts?
Marc Bedard: That’s a good question. Obviously, with the technology devolving, we absolutely see some reduction in cost at some point. What is top of mind for us is bringing down the inventory, but at some point we will start to see some results in those costs going down. So it will not be a short term thing because of the inventory, but we are consuming right now. But, yes, absolutely, going forward, and I would say on a medium term, we are absolutely expecting some costs going down.
Richard Coulombe: And I can add maybe, a lot of it is going to be on the new platform, right? What we saw in Q1, we see there was some pressure on our margins coming from the Lion5 introduction, LionD, the introduction of our own battery. So, obviously, as we se volume growing on those platforms and we continue building more of our own batteries, we definitely going to see costs going down. So, there’s a lot of effort on that front.
Operator: The next question comes from Daniel Lai at Barclays.
Daniel Lai: This is Daniel on for Dan. To start off, help us understand the gross margin dynamics in the quarter. Could you provide us with some color on your visibility to future product launch headwinds and any other sense of puts and takes we should be aware of, and how much of a drag were product launches on gross margins in 1Q?
Richard Coulombe: Listen, on gross margin, we already communicated previously that there would be some volatility in the short term as we introduced the new platforms. So, definitely, this quarter – a couple of things, right? It was a quarter with relatively low volume. We introduced the Lion5, LionD, we started introducing our own batteries on our platforms. So obviously all of this impacted the margin in the quarter. And we had several quarters where our margin was positive and this quarter we were expecting to go back into negative territory given what I’ve just mentioned. And there will be a bit of volatility again in the short term as we continue ramping up on those new platforms. But, again, as we see volumes picking up in the second half and as we continue seeing maturity in those platforms, again, the plan is to go back into positive territory as soon as possible.
So, lot of efforts there. And as Marc pointed out, we did take a lot of costs out with the three rounds of restructuring. We’re looking at $40 million of savings on an annual basis. We’re going to start feeling the full effect of those savings. Let’s say it’s going to be about $10 million a quarter in Q3. So we should see roughly $5 million of tailwind in Q2 and then the full impact that will be seen in Q3, Q4. So, that’s also going to help our margin going forward.
Daniel Lai: And just as a quick follow-up on your commentary on the workforce reduction. What sorts of offsets are there to a reduced workforce? And are you currently comfortable with the current size of your headcount, your workforce.
Marc Bedard: Daniel, yes, we are. Basically, most of the adjustment was done with respect to the overhead. So there was almost no direct labor with the recent move that we’ve done. And you probably remember also that the second wave in February of this year was basically taking out the second shift for now. So that was mostly direct labor at this point, but we had to adjust to the reality of some incentive [indiscernible]. With what we are seeing now, feel pretty good that we have the right size for what we can expect for the foreseeable future. So, we’ve been growing a lot within the last few years and 2024 is really a year of adapting to those conditions and it’s also a year of launching new products. The Lion5, the LionZ, the Lion MD batteries, the Lion HD batteries and, in Q3 of this year, the Lion8 tractor.
So, obviously, all of this has an impact on the gross margin, but at the same time, we’re going to the market with a great lineup of products, and that will bring volume over time. So to go back to your question, feel very good about the right-sizing we’re doing. I feel very good that the growth CapEx that we’ve been investing within the last few years are behind us, because it’s not only a matter of like investing that money, but controlling those projects as well. And this is all behind us. And after Q3 of this year, we will also be done with any new product development, which is amazing. And this is going to drive down, obviously, the R&D costs going forward. So it’s all about focus. We’re very focused on growing the pipeline. And our real goal, as I said earlier, is to go back to having a positive EBITDA and generating free cash flow.
And this is what everybody at Lion is focused on.
Operator: The next question comes from Mike Shlisky from the D.A. Davidson.
Michael Shlisky: I wanted to ask about the Lion8 that’s coming out soon. I don’t want to jump the gun here, but I think one of your comments earlier, Nic, Amazon has just placed an order for 14 of another brand, Class 8 EVs for use in the ports. I guess at this point with a couple of the models that are already on the market of Class 8 EVs, could you give us a sense as to — update us as to what the differentiators are of the Lion8 and kind of what [indiscernible] you think you’ll get there over the next 18 months or so?
