The Lion Electric Company (NYSE:LEV) Q4 2023 Earnings Call Transcript

The Lion Electric Company (NYSE:LEV) Q4 2023 Earnings Call Transcript February 29, 2024

The Lion Electric Company misses on earnings expectations. Reported EPS is $-0.12 EPS, expectations were $-0.09. The Lion Electric Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone. Welcome to Lion Electric’s Fourth Quarter and Fiscal 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, M. Adjahi.

Isabelle Adjahi: Good morning, everyone. Welcome to Lion’s fourth quarter and fiscal 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. We will be discussing our Q4 results in a moment, but I first want to address our 2023 performance and highlight some of our achievements. 2023 has without a doubt been a challenging year for the whole EV industry, including for Lion, but it has also been a year of significant progress for our company. First, we saw a significant increase in deliveries, resulting in revenue growth of 81% for the year, in addition to achieving positive adjusted gross margins. We also completed the construction of our vehicle production facility in Joliet and our battery plant in Mirabel, and started production at both facilities. We now have the infrastructure in place, including the production line and equipment, to achieve a production capacity of up to 5,000 vehicles per year and battery production capacity of 1.7 gigawatt-hour, enough to power 5,000 of our vehicles.

With this significant manufacturing infrastructure in place, we do not plan to make any significant investments in gross CapEx for the foreseeable future. We also obtained certification for our MD battery pack, which powers our Lion5 trucks today and will be integrated shortly on our LionC school buses. This represents a significant milestone in the execution of our vertical integration strategy. And last but not least, we started the commercial production of the LionD school bus and the Lion5 truck, and we are planning to start the commercial production of the LionA tractor this summer. With our vehicle lineup nearly completed and with significant production infrastructure in place, we are well positioned to capture market share in the medium and heavy-duty EV space.

Let me now comment on our Q4 results. During the quarter, we delivered 188 vehicles, leading to 29% revenue growth over Q4 2022. Despite maintaining a positive adjusted gross margin during the quarter, the 188 vehicles we delivered are below our expectations. This is mainly explained by two reasons. First, we incurred delays in the initial deliveries of the LionD school buses and the Lion5 trucks, as we wanted to ensure optimal quality of these vehicles, which were the first ones going to customers, and as a result, initial deliveries were pushed out to Q1 and Q2 of this year. And second, our Q4 deliveries and the pacing of new orders were significantly impacted by the substantial delays incurred by the Canadian Government with its Zero Emission Transit Fund program, the ZETF, since several Canadian school bus operators are still waiting for an official approval to start receiving our electric buses.

The continued uncertainty and delays around the ZETF program had a major impact on momentum of electric school bus deliveries in Canada, as the Canadian federal government and our clients currently work to evaluate and process sizable applications for school buses deployment that were filed several months ago. As a result of these delays and its impact on our world liquidity, we are taking immediate action by temporarily laying off approximately 100 employees, mostly impacting our night shift production workforce in Saint-Jerome. We will reassess our production needs on a regular basis in the upcoming months, mainly depending on the pace of the ZETF project approval and deployment. Before turning it over to Nicolas and Richard to provide more detailed insights into our commercial operations and financial performance, let me reiterate that with our 1,850 vehicles on the road that have driven 22 million miles in real operating conditions and considering everything we have achieved over the past 15 years, we believe we are in an exceptional position for continued success.

Our main objectives are an effective liquidity management and achieving profitability by remaining agile and actively focused on cost control. Further, we will continue to proactively improve the quality of our vehicles and increase our field technician service coverage to maximize customer experience and uptime with our vehicles. Nicolas?

Nicolas Brunet: Thank you, Marc. I will start by addressing Q4 and fiscal 2023 deliveries, then discuss the order book and conclude with an update on certain subsidy progress. Starting with deliveries, we delivered 188 vehicles in Q4, consisting of 178 school buses and 10 trucks. 107 vehicles were delivered in Canada and 81 in the U.S. Our school bus deliveries in Canada were impacted by the inability to deliver under the Canadian ZETF program, for which a number of our clients are in discussions with the government to obtain satisfactory approval under the program. Furthermore, as previously explained, we experienced some delays in the first deliveries of the Lion5 trucks and the LionD school buses, which further impacted results.

For fiscal 2023, we delivered 852 vehicles compared to 519 in 2022, a 64% increase on a year-over-year basis. Now, shifting our focus to purchase orders. The order book currently stands at 2,076 vehicles, consisting of 1,791 school buses and 285 trucks, representing approximately $500 million. In addition to the challenging economic environment, the decline in the order book is in part attributable to the timing of certain subsidy programs, which are beneficial in the long-term but can cause some volatility on a quarter-to-quarter basis. For example, EPA awarded in January close to $1 billion of grant funding for purchase of clean school buses, but purchase orders cannot yet be placed under the program’s parameters and hence are not reflected in the order book.

As previously announced, Lion was awarded a grant for 97 school buses and related charging infrastructure in this round, representing a total of $38 million for which we are working with the school districts to obtain formal purchase orders once allowed by the EPA. We see significant potential for additional opportunities for Lion in connection with this round, as we estimate that 70% of units were awarded directly to school districts, financial entities and third-party contractors. We are in dialogue with a number of these parties towards the potential deployment of Lion school buses. We are also very encouraged by customer engagement towards applications for the most recent rebate round of the EPA program, which closed on February 14. The EPA expects to award at least $500 million under this round, with results to be announced in April.

Now that the applications for the EPA’s latest rebate round have closed, we are hopeful to see more momentum in a number of state-level programs, including in California, Colorado and New York, among others. On the truck side, we are particularly excited by two trucking programs from the EPA. First, the EPA’s Clean Ports Program, which was launched yesterday, is expected to allocate up to $2.6 billion towards zero-emission port equipment and infrastructure, including drayage trucks. The application deadline for this program is set for May 28. Second, the EPA’s Clean Heavy-Duty Vehicles Program, which is expected to allocate $1 billion towards the deployment of Class 6 and Class 7 clean trucks, is expected to start in early spring of 2024.

With the Lion5 and Lion6 in commercial production today, and with the start of commercial production of the Lion8 tractor truck scheduled for mid-2024, we believe we are very well positioned for our customers to benefit from such funding. In summary, the grants environment, combined with customers’ strong appetite for electric vehicles, is very promising for the long-term, despite causing some volatility in the short-term, which we expect to persist for at least the next few months. I will now turn it over to Richard to discuss our financial performance. Richard?

Richard Coulombe: Thank you, Nicolas. I will start by commenting on Q4 results and then comment on fiscal 2023. I will then discuss our liquidity position and provide color for 2024. Starting with Q4 performance, revenue amounted to $60.4 million, representing a 29% increase year-over-year. Despite lower than expected sales volume, we posted adjusted gross margin of 1.3%, which excludes the $9.8 million inventory write-down related to the Lion8 and LionM vehicles, as compared to an adjusted gross margin that was negative 10.2% for the corresponding quarter in 2022. Our SG&A expenses, which amounted to $16 million, decreased from 33% of revenue in Q4 2022 to 27% of revenue this year, reflecting our disciplined approach to cost management.

Our Q4 results included an impairment of intangible assets and property, plant, and equipment of $36 million related to our decision to indefinitely delay the start of our commercial production of the LionA and LionM vehicles. We had a significant improvement in adjusted EBITDA, which was negative $6.3 million for the quarter, as compared to negative $13.9 million in Q4 2022, resulting from improved adjusted gross profits and decreasing costs. Q4 CapEx amounted to $13.7 million, a significant decrease as compared to $39.1 million in Q4 2022, marking the end of our growth CapEx. On the development front, we continued to see a reduction in spend, as we bring new platforms in production. Additions to net intangible assets, mostly related to vehicle and battery-related development, amounted to $17.8 million, down $2.5 million, as compared to $21.3 million in Q4 2022.

Now turning to fiscal 2023 performance. For fiscal 2023, revenue, which amounted to $253.5 million, increased by 81%, as compared to $139.9 million in 2022. Worth mentioning, revenue generated in the U.S. more than tripled as compared to 2022 and accounted for over a third of our revenue for the year. We achieved positive adjusted gross margins for the year, with adjusted gross profit of $4.3 million or 1.7% of revenue, as compared to an adjusted gross loss of $12.9 million or negative 9.3% of revenue in 2022. Adjusted EBITDA amounted to negative $34.3 million for the year, as compared to negative $54.8 million in 2022. This is a result of our revenue growth and effort in optimizing our cost structure. Turning to our liquidity position, we ended the year with $93 million of available liquidity, consisting of $30 million in cash and $63 million of immediate borrowing capacity on our revolver.

It is important to note that inventory investment made over the last two years to achieve production ramp-up has been a significant driver of cash outflows. With the bulk of our ramp-up occurring during the supply chain crisis, we have built significant inventory of raw material on the balance sheet. With supply chain now easing, such large inventory position is no longer required. Further, we have a number of finished vehicles on hand, which could be deployed rapidly, particularly in the event that certain customers obtain satisfactory approval from the ZETF. We therefore anticipate that inventory reduction will positively contribute to liquidity in 2024, with a targeted inventory reduction of $50 million to $75 million. Looking ahead to 2024, our focus remains on driving growth in orders and deliveries, while diligently controlling costs.

As previously mentioned, the ramp-up of the LionV — the Lion5 and the Lion batteries, as well as the upcoming launch of the LionA tractor, will put short-term pressure on our growth margin, particularly in the first half of the year. We anticipate that CapEx will be lower than $10 million, consisting largely of maintenance CapEx. Similarly, vehicle and battery development spending will be reduced by approximately 30% as compared to 2023 and amount to approximately $45 million as the development of new product nears completion and vehicles are brought to market. We remain committed to tight cost management in a concerted effort to reduce working capital, particularly focusing on reducing inventory levels. Last, we will continue to monitor our liquidity requirements, including a significant reduction in our inventory and will stay appraised of potential opportunities to strengthen our balance sheet to ensure financial resilience in the face of evolving market conditions.

In summary, while we have made significant strides in our financial performance, we remain vigilant in navigating the challenges and opportunities that lie ahead, united by our commitment to sustainable growth and financial consciousness. Back to you, Marc.

Marc Bedard: Thank you, Richard. Before we open the line for questions, let me conclude by reiterating that while we expect the current environment to continue to result in volatile order flow and deliveries for at least the next few months, we remain very enthusiastic about our future and fully committed to leveraging all investments made over the last 15 years to reach our ultimate objective of becoming profitable and free cash deposits. Until then, we remain fully committed to taking appropriate measures to safeguard our liquidity. Thank you for your attention this morning and let’s now open the line for questions.

Isabelle Adjahi: Operator, we will now open the line for questions. I just want to ask you to limit to two the number of questions asked to allow other participants to ask their questions. You can, of course, go back in the queue if you have any follow-up questions.

See also 20 Best Cities to Retire on a Budget of $1800 a Month and 16 Countries with Most Chinese Expats.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Rupert Merer from National Bank. Please go ahead.

Rupert Merer: Hi. Good morning, everyone.

Marc Bedard: Good morning, Rupert.

Rupert Merer: If we can start with the ZETF funding. I’m wondering, do you have any visibility from the government on the timing for when they could release some of that ZETF funding?

Marc Bedard: Yeah. Rupert, this is Marc. Let me start by saying that the Canadian Government has been a great partner over the years and we all know that they are supporting electrification in Canada. And one example is that their target is to get 35% of the total medium- and heavy-duty vehicle sales by 2030 to be 35%. So that’s a lot and it’s exactly aligned with what the ZETF is supposed to be doing. So there has been a lot of delays. I understand right now there is a lot of ongoing dialogue with the potential customers and we’re also in dialogue with the ZETF at the same time. And as you know, it’s a major part of our purchase order book as well. So, I think everybody is on the same page, and there has been a lot of volume on their end.

This is what I’m getting and there are terms negotiations as we speak, but we’re very enthusiastic about the outcome of that. We feel this is obvious that this is going to go through at some point and we’re looking — we are really looking forward to that. So, we’re staying tuned, we’re a good partner and we feel that we’re well-listened as well.

Rupert Merer: Do you believe that when they finish this process that they come up with a framework that allows for all of the funding to move forward in a fairly short order or is it going to be more of an approval of grants on a case-by-case basis?

Nicolas Brunet: Well, we all hope the same thing, that the grant will be in such a form that it will be very easy for the operators to apply and get their funding and maybe that was part of the issue. So, I cannot talk about the future, but I know that $2.75 billion is a lot of money to invest for them, understanding as well that transit buses are included in there, but in all the discussions we’ve had in the past, it was very clear that a lot of that money will go for the school buses as well and we have yet to see that, so we’re looking forward to it.

Rupert Merer: All right. Very good. Secondly, if we can talk about inventory, it’s encouraging to hear that we could bring that down $50 million to $75 million. What’s an appropriate amount of inventory for the company in the long run and what are the opportunities to further bring that down, maybe to more of a just-in-time model or if you can discuss what sort of inventory level you think you need to hold in the future, are there any critical components that absolutely you can’t move to more of a just-in-time model?

Richard Coulombe: It’s Richard here. I’ll take that one, Rupert. Obviously, we feel, as I said earlier, our inventory in a very challenging supply chain environment, and right now, as I mentioned earlier, we don’t need to have or carry buffers that we’ve been carrying in the last couple of years. So right now, we are very focused on reducing inventory levels to healthier levels. Hard to say what is the timing and optimal inventory in the current context, but that’s partly what Marc just described. So our goal is to really monitor our order book, make sure we have the appropriate level of inventory to deliver based on our customer needs. So that’s what we’re focusing on. Like I said, right now, we are really focused on reducing our inventory.

We mentioned $50 million to $75 million. This is obviously raw material. It’s also finished goods that we could deliver quite quickly if some of these dedicated applications, in particular, are approved. So that’s the short-term view at $50 million to $75 million and we’ll take it from there afterwards.

Rupert Merer: Just a quick follow-up to that. You’re now producing your own battery packs and I know you do have some batteries and battery packs in inventory. With that, do you anticipate that you’ll be running your own battery production at a reasonable level in the coming quarters or do you hold back on your own battery pack production while you work off the inventory?

Marc Bedard: No. We will — we are starting to integrate our own battery packs on our vehicles, Rupert. So if you — you’re going to see some Lion5 deliveries and they are equipped with our Lion battery and the pack. Those are the first vehicles with our battery packs. That being said, though, I mean, obviously, using the 1,000 BMW battery packs that we have in stock right now is also top of mind and this is part of what Richard has been talking about in production as well. It’s really a mix of taking down this [Technical Difficulty] the manufacturing in Mirabel.

Rupert Merer: Okay. Very good. I’ll leave it there. Thank you.

Marc Bedard: Thank you. Thank you, Rupert.

Operator: The next question comes from Kevin Chiang from CIBC. Please go ahead.

Kevin Chiang: Hey. Good morning, everybody. Thanks for taking my question. Maybe I’ll ask about, I guess, how you think about your sales strategy as you look to build out your vehicle book. I appreciate you guys have been generally more conservative in how you frame your backlog, your order book size versus maybe some of the other companies out there, but it is down three quarters in a row. You have a significant amount of excess capacity. It seems like it would make sense to find a way to kind of ramp up sales here to leverage better fixed cost absorption. That seems like that could work. And then maybe as a follow-on to that, do you need the freight recession to [Technical Difficulty] more open to buying some of the non-school bus vehicles you have in the market? Just wondering how much the freight recession might have impacted your dialogue over the past year, just given where the freight economy was in 2023?

Nicolas Brunet: Hey, Kevin. Nick here. I will — let me start by addressing — I had trouble understanding the second part of your question, but let me start with the first part. On the order book side, obviously, the order book is a point in time and it is not reflective necessarily of really the ongoing client dialogue and what I alluded to this and [Technical Difficulty] especially on the bus side, there is significant volatility caused by the timing of the subsidy program. When you look at it, there are unprecedented amounts being deployed towards electric school buses. Specifically, the EPA, I mean, that is a great example, allocated close to a $1 billion, an amount that was doubled from the initial plan, in the grant round of the second phase, if you will, of the $5 billion program that was allocated in January.

As we announced, there is about $38 million of units that were directly allocated to our applications for our clients, of course, and there is a number of dialogue as well at 70% of that round, close to 2,000 vehicles are allocated to free agents. But the program does not yet allow anyone to place purchase orders and that won’t be allowed until we expect April. This is a great amount of money that is coming into the space, all for enthusiastic buyers of electric school buses, but they can’t show in the order book just yet. At the same time, the EPA just closed on Feb 15 applications for, again, $500 million back to the voucher round this time and this is another situation where we see a lot of client enthusiasm towards applying under the program and ultimately looking to purchase with EPA subsidy electric school buses, but not yet reflected in the order book.

Same, you look at the ZETF, right? There is clearly a lot of enthusiasm in the program. Half of the order book for us is tied in there. There is a big number of applications that we know of that clients are making on their own and they are awaiting the outcome of that. And so these subsidy programs, when you take a medium-term timeframe, they are very exciting. They will drive very significant volume, we believe, but in the short-term they cause the volatility that we are discussing this morning. So…

Kevin Chiang: Okay. I…

Nicolas Brunet: Things are going in the right direction without a doubt, but there is volatility in the short-term caused by the specificity of those subsidy programs.

Kevin Chiang: I appreciate…

Nicolas Brunet: If you don’t mind, Kevin.

Kevin Chiang: Yeah.

Nicolas Brunet: If you could you repeat the second part of your question…

Kevin Chiang: And so…

Nicolas Brunet: …it wasn’t clear our end.

Kevin Chiang: For sure. So if I look at some of the products you launched, like the Lion5, Lion6, those seem to be a little bit more maybe tied to the freight economy, people using those vehicles to deliver goods. Last year, in parts of 2022, we did go through and are going through a freight recession. Just wondering how much that might have impacted customer dialogue. If a shipper is facing 10%, 15% decline in volume, are they actual — as they at the table also talking about transitioning their fleet to electric or is that a conversation that might have gotten pushed out until the freight economy looks a little bit better?

Marc Bedard: Yeah. That’s a good question. Without a doubt, we’re operating in a more challenging economic environment for the purchasers of trucks, for shippers, as you said. At the same time, there is a — we see that clients are increasingly realizing they will need to transition to zero emission. The dialogue is really split, I would say, between some of the smaller operators looking to do a few handful of units to try out the product. They will benefit, of course, from some of the subsidies, particularly here in Canada and we also have dialogue with much larger players that are looking to figure out the solution at scale. That’s what I mean when I say they realize they will need to do this transition. Certainly, during the most active years of shipping, this dialogue was a little pushed aside because of the need to focus on current operation, maximize profitability.

So we’ve seen a return of that dialogue. It’s not tomorrow demand, but it’s the big demand that will drive the market. When you think about it, the truck — the electric truck market is still at its total infancy. There are less than 1,500 all-electric trucks registered in North America as of December 2023. We’re one of the few players that has critical scale. We’re part of this dialogue with the large and the small operators and actually we’re the fourth largest player when you look at registration. So we’re encouraged by the dialogue. Subsidies will help. We don’t think they’re as needed in the truck as they are in the school bus space, but they will help. As I mentioned this morning, the EPA is stepping things up quite big with the $2.6 billion funding program for ports that opened yesterday and for which applications are due by the end [Technical Difficulty] in early spring with EPA, this time for the Class 6 and 7.

Obviously, the ports is for a Class 8 tractor. So, all in all, there’s certainly good movement there.

Kevin Chiang: Okay. Maybe just a clarification question on the inventory, the $50 to $75 million. Was that a net number, so accounting for what I suspect would be headwinds inventory as you ramp up production or was that somewhat of a gross comment that today you’re setting at $50 million to $75 million and you could take that out, but to offset — potentially the offset to that is as you ramp up production, that would obviously be a working capital headwind, does it is…

Richard Coulombe: No. We’re really looking at a net reduction $50…

Kevin Chiang: Net reduction.

Richard Coulombe: …$50 million to $75 million. Considering the growth, like, that’s all factored in. Like, we finished the year with $250 million of inventory.

Kevin Chiang: Right.

Richard Coulombe: Like I said earlier, we have some finished goods there that we know are going to move in a short period of time and then we’re very focused on, again, discipline on raw material. The current context right now allows it, so we’re really trying to bring parts in in more of a just-in-time approach. That’s going to be the focus and $50 million to $75 million can be net.

Kevin Chiang: Okay. Perfect. That’s very helpful. Thank you very much and best of luck in 2024.

Marc Bedard: Thank you, Kevin.

Nicolas Brunet: Thank you.

Operator: The next question comes from Mike Shlisky from D.A. Davidson. Please go ahead.

Mike Shlisky: Hi. Good morning. Thanks for taking my questions. I seem to ask this every quarter, so I’ll ask it again here. Do you feel like 2024 will be a year of growth for deliveries overall, when you — and perhaps we’re seeing a challenge the first few months here, but do you think, net-net, will be growing this year?

Richard Coulombe: Well, Mike, hey, Richard is speaking. There’s a lot of moving pieces in 2024, but the short of it is, yes, we are aiming for a year of growth in delivery. When I say the moving pieces, obviously half the art book is tied to the ZETF application and so that is a big driver of our deliveries for the upcoming year. As we mentioned in the prepared remarks, we see some volatility in the next few months, again, driven by the subsidy program, but without a doubt, we’re aiming for 2024 to be a growth — a year of growth in delivery.

Mike Shlisky: Great. I also want to ask about market share, especially in school buses. There’s been a large supplier of batteries go bankrupt recently. They supply at least one of the bus makers on the EV side. I’m curious if you thus far have seen some expansion in your share and expect more in 2024, more than you would have expected, given perhaps there’s at least one company not delivering right now. Just curious whether there’s been a lot of brand switching out there, in your opinion.

Richard Coulombe: Yeah. I think we are — on the market share front; we’re looking to capture all the market share that we can. We — just like I alluded to in trucks, when we think market share, we like to stick to the facts and we look at registration and by the fact that we see, we are the number one player in all electric school buses in North America and I’m talking specifically across Type C and D combined. We — of course, we saw that bankruptcy as well. Are we seeing a shift in applications? Not yet, but at the same time, one of the things that I think will distinguish us is the extent to which we are delivering on the program, specifically the EPA program. We’re close to 80% delivered on our allocations of the first round and we think as the program moves forward, the OEM’s ability to deliver rapidly will be an important factor.

Mike Shlisky: Okay. I’ll pass it along. Thank you.

Marc Bedard: Thank you, Mike.

Operator: Our next question is from George Gianarikas from Canaccord Genuity. Please go ahead.

George Gianarikas: Good morning and thank you for taking my questions. I know it’s a volatile environment. You mentioned some issues with allocations of orders, but I was wondering if you mentioned liquidity. If you could give us sort of in broad strokes what you’re expecting 2024 to look like from an EBITDA perspective and maybe a gross margin perspective, just so we can kind of compartmentalize what your cash needs will be throughout the year? Thank you.

Richard Coulombe: Hi, George. It’s Richard. Right now, we don’t provide any guidance. I can maybe comment on the liquidity front. We — like I said earlier, we close the year with $93 million, $30 million in cash, $62 million on our revolving facility. We believe we have sufficient run rate for the year. Key drivers for us in terms of liquidity, obviously, we’re coming towards the end of our investment cycle. This year, we’re looking at CapEx that’s going to be lower than $10 million. We talked about the inventory reduction plan between $50 million and $75 million. We continue to be very focused on overall cost control, cost reduction. SG&A, we expect the trend to continue with the percentage of sales. I hope you saw the improvement year-over-year and that’s going to continue.

We have a lot of initiatives on product cost savings, so that’s another focus area for us. And R&D, same thing, as we introduce new products in the market, we see the R&D spend going down. We’re looking at a 30% reduction this year. So those elements make us feel really comfortable with our cash position.

Nicolas Brunet: Hey, George. Maybe one additional comment as well. Obviously, the growth CapEx being behind us is a big, big thing. You don’t see that very often in the EV space. So I think it’s great. Also, what we did this morning, letting go 100 people. Obviously, this is not the kind of thing that we wanted to, but we’re taking the action to make sure that we’re protecting our liquidity without a doubt.

George Gianarikas: Thank you. And maybe as a follow-up, the previous question was about market share. One of the larger competitors in the space has talked about expecting the order about 30 — to win, excuse me, about 30% of orders related to at least round two of the EPA Clean School Bus program. Maybe, again, in broad strokes, what would be satisfactory for you in terms of just a market share win rate for those two programs? Thank you.

Marc Bedard: Yeah. Hey. Look, we — for us, George, expectations of winning in a program that’s lottery-driven, because that’s what it is, is more speculative than we’re going to be here. I’m not going to comment about specific numbers. I will say we are number one player in the space by registration today, by market share. Our market share has been more weighted in Canada relative to the U.S. and we expect to — we’re hoping to see continued improvements in the proportion of our wins under the EPA program. The dialogue with the customers is very constructive, but ultimately, we’ll want to talk with purchase orders and not with these types of forward-looking estimates.

George Gianarikas: I appreciate it. Thank you.

Marc Bedard: Thank you.

Operator: Next question comes from Dan Levy from Barclays. Please go ahead.

Trevor Young: Good morning. Trevor Young on for Dan Levy. Thanks for taking the question. So looking at the order book, I can appreciate that the timing of the awards under the — under your major bus programs are significantly impacted by the timing of, I guess, the government subsidy programs, but we are looking — I guess we’re looking for a sort of inflection in the order book. I was just curious if you could, I know you can’t guide to it, but could you quantify, like, what we could expect as these programs, the timing aligns and would these jumps in order books be larger than some of the larger sequential jumps you’ve seen in the past?

Nicolas Brunet: Look, could they — I guess they could, Dan. If I am — if you look at it, essentially, again, there’s a $1 billion allocated in the grant round, right, the grant — second round of the EPA program, and as I mentioned, 70% of that is allocated to what we call free agents, meaning it’s not Lion, it’s not other OEMs, it’s not their dealers. That’s — so it’s close to 2,000 units that are, we believe, up for grabs by everyone, including us and we’re working hard at it. And then there’s a $500 million in the rebates program that just closed on Feb 14 and that will be allocated in April. So when you look at it, starting in April and the next few months, there will be a lot of funding that can result in purchase orders for the next few months.

And so, yes, the jump could potentially be bigger than we’ve seen in the past. I also mentioned that, when these programs come out, it really is OEMs like us, or certainly, we do make the promotion of these programs and make sure that the clients are aware. We file a lot of applications on behalf of clients, but more and more, that program gains maturity and the school districts and operators are aware of the program and file on their own and then pick an OEM. So there will be a lot of dollars out there dedicated to bus purchases that are up for grabs. So technically speaking, absolutely, yes, the jumps in the future could be higher in the order book when, obviously, it starts potentially in April and then in the subsequent months.

Trevor Young: That’s very helpful. Thank you. Then there’s a follow-up. We’ve seen these reports coming out about the finalized EPA targets for light vehicles specifically. It sounds like the emissions targets might get softened a little bit, at least through 2030 and I was just curious if there was any meaningful reads here for year-end markets. I appreciate that light vehicle is a different world, but is there any reason to think that this sentiment might translate over into your realm as well for EPA rules.

Nicolas Brunet: From our standpoint, we’ve seen no change. First of all, especially when you look in the school bus space, I don’t — I think we’re past the point of convincing customers, and in general, society around the benefits of electric school buses relative to diesel for a school bus application. On top of EPA targets, really, their state level, provincial level regulation that’s coming into place, and so no, what’s happening in the light vehicle sector hasn’t impacted us. And in the truck space, we’ve said it in the past, the truck space, medium-heavy duty here, is a few years behind the school bus for sure, but it’s a much bigger market. As I mentioned earlier, there really is, it’s a discussion topic that has been more active with the large operators that really have these targets out there.

There’s regulation, there’s targets as well and with these large companies that essentially need to figure out the solution going forward. And so, in short, Dan, no impact as it relates to the light-duty.

Richard Coulombe: And Dan. also, with respect to the greenhouse gas emissions, if you want to lower them, one of the best ways to attack the medium- and heavy-duty trucks and buses, for every bus that you’re doing, it’s like taking off basically at least five cars from the street. So that’s really the best way to get to your goals of bringing down the greenhouse gas emissions. When you’re looking in Canada, like, you know, the 35% target that they have for 2030, 2030 is tomorrow. So we do not see how this could decrease and we really see that that will be the best way to achieve their goals and that’s exactly what we echo on the U.S. side and in Europe as well.

Trevor Young: That’s really helpful. Appreciate it.

Operator: Our next question comes from Chris Souther from B. Riley. Please go ahead.

Chris Souther: Hey, guys. Good morning and thanks for taking my questions here. Would you be able to quantify the impact on the delays for the initial LionD, Lion5 vehicles in the fourth quarter there, like, versus how much you were expecting versus the push out there, I think would be helpful?

Nicolas Brunet: Yeah. Chris, I mean, obviously, we cannot provide the exact figure, but that was significant, right? Some of it is explaining the difference between what the street was looking at and the final number that we got at 188, which was clearly below our expectations. That was a mix of that. The ZETF, but for us, quality is always number one and not easy to bring any new product to market. We see that. There’s very few new EV products coming to market and when you do that, you need to take your time. So our goal was really to start delivering them by the end of the year, but I mean, we’ve had a few challenges like in terms of software updates and those kind of things where we felt that since those will be the first deliveries, the customers deserve the best.

And so we will catch up, what we lost at the end of Q4 is going to take us two quarters to catch up, but we feel good about the quality of the product we’re bringing to market. You probably saw some feedback also on some of the customers that started to receive the LionD and it’s very, very positive.

Chris Souther: Okay. Maybe just if we take out the ZETF and kind of look at the backlog, how many of the remaining school — all-electric school buses are LionD and can you give us any sense around a breakdown of expected timing, excluding that kind of Canadian program that is obviously out of your control? I just wanted to get if we could get a better feel for other timing delays beyond that one that we’re seeing here. I think you called out a little bit with the EPA for April for this past grant one, but kind of a broader peek at the order book I think would be helpful for folks?

Nicolas Brunet: Yeah. So the majority, more than half of the order book is in the — with the ZETF and conditional to that. The rest, Chris is, I’d say, still the majority of that is in the Type C market. We have a good amount of demand for the Type B in the order book, especially for a product that we hadn’t delivered yet, but the bulk of it is in the Type C. Nonetheless, you generate the most demand with the vehicle when you put it on the street, which is what we’re doing now and so we expect production of the Type D to ramp up and demand to ramp up concurrently.

Chris Souther: Okay. Thanks. I’ll hop in the queue here.

Nicolas Brunet: Thank you.

Operator: The next question is from Étienne Larochelle from Desjardins. Please go ahead.

Étienne Larochelle: Hey. Good morning and thank you for taking my question. My first question is on the headcount that you announced this quarter. I’m just curious if you could provide more color on how much an OpEx savings this could translate to and if you will incur any charges for this in the upcoming quarters?

Nicolas Brunet: Yeah. So, Étienne, good morning. The — yeah. The headcount number is 100 people that we’ve let go and most of them are on the night shift. So basically, at this point, we’re temporarily eliminating the night shift and a lot of them are manufacturing people, but some of them are overhead as well. So basically we’re reducing the overhead at the same time. Was that your question, I missed part of your — the second part of your question.

Étienne Larochelle: Yes. I was just curious if you could provide more color on how much an OpEx savings this could translate to and if you will incur any charges in the upcoming quarters. We’ll get to that. The $150 million you previously announced back in December.

Nicolas Brunet: Yeah. Well, the $150 million, we’re already benefiting from this cap. I mean, there is some with — in addition to the savings, obviously, we’re making on a temporary basis, because the goal for those employees is to go back to work as soon as we get approvals from ZETF for the delivery of our vehicles. So we still hope that this will be the case. If not, the annual saving that we’re looking at with this is around US$8 million. That’s the kind of saving we’re looking at when you’re including the payroll and obviously the other expenses related to the night shift, but the real goal is to get great news from the ZETF and bring back our people.

Étienne Larochelle: Got it. Thank you for the color. Maybe as a follow-up, with supply chain issues and shipping costs easing over the last couple of months, I’m just curious if you’ve seen a reduction in your bill of material costs.

Nicolas Brunet: Well, we saw some reduction a lot because of all the initiatives we have that Richard was alluding to in the past. He was saying that we’re working a lot on the bill of material and in savings. So there is some of that. Obviously, with the amount of inventory that we have, it could take a little while as well to start seeing the benefit of those cost savings, because we have $250 million of inventory and the real goal is obviously to use that inventory as soon as possible to get the benefit of the $50 million to $75 million inventory reduction that Richard was talking about. But this is top of mind for us to keep reducing the cost of the bill of material and we have people working full-time on that without any compromise on quality.

Étienne Larochelle: Got it. Thank you for taking my questions. I will pass the line.

Nicolas Brunet: Thank you.

Operator: [Operator Instructions] We have no further questions on the call at this time, so I’ll hand the floor back to you.

Isabelle Adjahi: Thank you everyone for joining the call today. We really look forward to continuing the discussion and feel free to contact me for any further questions you may have. Have a nice day.

Operator: Thank you. This concludes today’s conference call. You may now all disconnect your lines.