The Lion Electric Company (NYSE:LEV) Q3 2023 Earnings Call Transcript

The Lion Electric Company (NYSE:LEV) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Good morning, ladies and gentlemen, and welcome to Lion Electric’s Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the call over to Isabelle Adjahi, Vice President, Investor Relations and Sustainable Development. Please go ahead, Mr. Adjahi.

Isabelle Adjahi: Good morning, everyone. Welcome to Lion’s third quarter 2023 results conference call. [Foreign Language] Today, I’m here with Marc Bedard, our CEO, Founder; Nicolas Brunet, our President and Richard Coulombe, our Chief Financial Officer. Please note that our discussion may include estimates and other forward-looking information and that our actual results could differ materially from those implied in any such statements. We invite you to review the cautionary language in this morning’s press release and in our MD&A, which contains important information regarding various factors, assumptions and risks that could impact our actual results. With that, let me turn it over to Marc to begin. Marc?

Marc Bedard: Thank you, Isabelle. Good morning, everyone. Today, we are pleased to report that in Q3, we achieved record deliveries, revenues, and gross margins, clearly showing that our focus remains our goal to profitability. Compared to Q3 2022, we basically doubled our revenues, with approximately the same SG&A expenses. And our gross margin went from negative 9% gross margin of over 6%, mostly driven by higher volume, favorable average selling price, and continued cash control. We had a significant EBITDA improvement as well, increasing from negative $15.1 million in Q3 2022 to negative $3.9 million in Q3 of this year. Also, we now have more than 1,600 vehicles on the road, with more than 19 million miles driven or 30 million kilometers, a significant achievement demonstrating our leadership position in the EV space.

It is also my pleasure to acknowledge recent leadership appointments. Nicolas, who got deeply acquainted with Lion’s products, customers, and operations over the past four years, was named President, and works with me on the elaboration and execution of all strategic aspects of the business. His main focus being our commercial operations and the acceleration of sales across the United States and Canada. Richard who has been instrumental in driving our growth projects with a lot of success for the last two years was appointed Chief Financial Officer. Richard will leverage his 25 years in executive finance roles to support our objectives of profitability and positive free cash flow. I will now provide an update on several key decisions we have made to focus on our profitability objective and optimize capital usage.

On the bus side, we will postpone the commercial production of the LionA school bus to prioritize the commercial production of our high demand products and the timely integration of our Lion batteries on our existing platforms. On the truck side, the litigation with Nikola Motors and their decision not to supply us with the Romeo Power batteries will result in us using our own Lion batteries on our LionA tractor truck, thus postponing its market entry to mid-2024. And finally, we have great news with respect to both the Lion5 truck and the LionD school bus. As we started commercial production for both of these vehicles and will soon begin customer deliveries. Now turning to our manufacturing plants and operations. In Joliet, we now have the infrastructure in place to reach a production capacity of 2,500 school buses per year.

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Q&A Session

During Q3, we continue to ramp up the production of LionC buses. And like I just mentioned, we have also started the commercial production of LionD units. At our battery plant, we continue to ramp up production of Lion battery packs during the quarter. The current production line allows us to reach production capacity of 1.7 gigawatt hour per year, enough to power over 5,000 of our vehicles. The certification process for the Lion pack is progressing well and we expect final certification to occur before the end of the year. With respect to our Innovation Center, the building is currently being used as a testing and certification center for our vehicles and batteries, as a pre-delivery inspection site and as a warehouse or inventory. This allows us to leverage space available and optimize operational efficiency.

Additionally, we will soon start using the Innovation Center as a showroom and delivery center for our customers to see and test our vehicles on our test track and take delivery. In a nutshell, we have been able to expand our manufacturing capacity to our targeted levels and the CapEx investments for our two growth projects will be completed by the end of this year. On that note, I will now ask Nicolas to dive into our commercial operations performance before turning it to Richard who’ll discuss the financial highlights of our Q3 results.

Nicolas Brunet : Thank you, Bedard. We delivered 245 vehicles in Q3 consisting of 220 school buses and 25 trucks. 132 vehicles were delivered in Canada and 113 in the US. This is a record number of overall quarterly deliveries, but also a record for deliveries in the US, where we delivered purpose-built, easy school buses to several new customers. The vast majority of those US deliveries were part of the EPA’s Clean School Bus program. We are pleased to make prompt deliveries under the EPA program demonstrating Lion’s leadership in US EV school buses. Cumulatively, for the first nine months of the year, we delivered a total of 664 vehicles, almost twice the 345 vehicles delivered over the same time same last year. With respect to the order book, it currently stands at 2,232 vehicles.

That’s 268 trucks and 1,964 buses totaling $525 million with the LionEnergy book at 129 charging stations, representing $4 million. Worth mentioning is a conditional order from Highland Electrics for 50 LionC school buses, which we announced this past Friday. This quarter’s vehicle order book was affected by various factors, including the removal of 140 units from the deferral of the LionA platform discussed earlier, as well as purchase order delays and cancellations related to subsidy programs, mostly stemming from clients awaiting funding decisions. We anticipate a positive momentum in all electric school buses as a result of attractive funding programs, including awards under the $400 million 2023 EPA grant program, which draws significant customer interest ahead of applications in August, and for which customer awards are expected in Q1 2024.

Potential orders under the 2023 EPA rebate program, with a budget of $500 million requiring applications by January 2024 with award announcements scheduled for April 2024. Several appealing programs in states such as Texas, Colorado, New York, Michigan, and California, which could drive school bus demand beyond the scope of the EPA program. And momentum in the Quebec school bus market where the subsidy program was recently renewed and enhanced with an increase of available funding from $125,000 per bus to $175,000 per bus depending on battery capacity. This momentum in the school bus space is further supported by an increasing number of states passing laws to accelerate the electrification of the transportation sector. Separately, we are in ongoing dialogue with the Canadian Federal government that any satisfactory approval of sizable applications for school bus deployments placed under the ZETF program.