Envirotech Vehicles, Inc.

Good afternoon, ladies and gentlemen, and welcome to the EnviroTech Vehicles, Inc. fourth quarter and year-end 2021 conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Nesbitt of Investor Relations. The floor is yours.

Good afternoon, and thank you for calling in. Once again, thank you and welcome to EnviroTech's fourth quarter conference. 2021 earnings call. With me on the call are Philip Aldridge, Chief Executive Officer, and Christian Rodich, Chief Financial Officer. I'd like to begin the call by reading the safe harbor statement. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Alderman Viratech believes that the expectations reflected in such forward-looking statements are reasonable on the basis of current expectations, and Virotech can make no assurance that such expectations will prove to be correct. Also, these forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results to differ considerably from Virotech's current expectations due to changes in operating performance, technical and economic factors, and other risks and uncertainties disclosed in Virotech's annual report on Form 10-K, Query reports on Form 10-Q and other reports filed by EnviroTech from time to time with the Securities and Exchange Commission. Any forward-looking statements including in this earnings call are made only as of the date of this call. EnviroTech does not undertake any obligation to update or supplement any forward-looking statements to reflect new information, subsequent events, or circumstances, except as required by law. EnviroTech cannot assure you that projected results or events will be achieved. Now I'd like to turn the call over to Phil Aldrich, Chief Executive Officer of Envirotech. Mr. Aldrich, please proceed.

Thanks, John, and welcome, everybody. Well, we're pleased to have this opportunity to bring you up to speed on what has been an exciting and productive quarter and a year-end for Envirotech vehicles. Highlighted by, number one, the opening of our new manufacturing facility in Osceola, Arkansas, The continued expansion of our factory authorized representative for far network and robust or order activity From state and from our state and federal voucher programs the development introduction of our new fully electric zero emission right-hand drive vehicle Which we're very very excited about and and that's one in particular that we'll be looking to present to the post office Also, I'd like to report that we did graduate to the OTCQX market, and we will be changing our ticker symbol. Well, we did change our ticker symbol to EVTV. Adding also value to our talent and our management team, when we last spoke, I shared with you our plans to establish a manufacturing facility in the United States. Well, I'm happy to report that in February of 2022, we did open. albeit that we're in the cleanup stage and fixing many things, but we did open a 580,000 square foot manufacturing facility in Osceola, Arkansas, situated on 100 acres of ground. The facility positions us as one of the only EV companies with manufacturing facilities in the United States and establishes an early and crucial foothold in the rapidly expanding U.S. EV market. Arkansas also provides us with a robust business climate and a highly capable workforce as we look to staff the facility with over 800 employees and the facility's proximity to all forms of transportation allows us to efficiently transport our vehicles. Opening a manufacturing facility in the United States is a transformative step in the growth of our company, and we look forward to updating you on future developments as we continue to grow our share of both the transportation industry in Arkansas and the U.S. in the EV market. In addition to the new facility, a key component of our business continues to be growing our FAR networks. We have, in the last quarter, we entered into a new factory authorized representative agreement with Central States Bus Sales, who operates four facilities across the Central States, a Missouri based bus provider that will promote and sell and service EnviroTech vehicles throughout the middle of the U.S. force. These agreements continue to be a key part of our strategy as we partner with business at the forefront of their industry to provide them and their customers with environmentally friendly transportation alternatives. We also continue to see success through our status on the approved vendor program for the New Jersey Zero Emissions Incentive Programs. Since I spoke to you last, our New Jersey ZIP program has provided or approved for us an additional 18 vouchers 18 more vehicles towards the purchase of our vehicles for a total of approximately $1.4 million. Since the start of the program, the New Jersey Zip has awarded vouchers and grants for people to purchase up to 31 of our vehicles at a total value of approximately $2.7 million to new business across the New Jersey market. So we're very excited about that program. Our fleet has experienced excellent traction with the New Jersey Zip. and we're proud to be making our zero emission vehicles accessible to business owners across New Jersey. With our increase in sales numbers, we're also delivering more and more vehicles to our valued customers. In March, we delivered 10 high roof logistic vans to King Bee Rentals in conjunction with the voucher programs out of New Jersey SIP, and we anticipate many more deliveries in the near future as purchase orders continue to grow. So as you can see, we're having a strong and extending, we have a strong and expanding pipeline of orders for our vehicles, which we're managing, you know, this by ensuring that we have the appropriate inventory levels to meet market demand. In November of 2021, we received a delivery of 40 vehicles that increased the total number in our inventory to 68. And as of December 31st, 2021, additionally, we received another 58 class four vans in February of 2022, including our all-new 10 of our all-new right-hand drive delivery vans, which gave us a total of 42 high roof, six low roof, and the additional 10 right-hand delivery vans that we'll be, God willing, sending that out to the post office shortly. Shifting now to our fleet, while we already have an impressive lineup of electric trucks and vans, we're always looking for new ways to improve our offerings and expand our addressable market. We're currently in the process of developing several new vehicles to add to our already impressive fleet. And in March, we announced the availability of the fully electric right-hand drive vehicle, which is the ideal solution for delivery fleets with its right-side orientation, allowing drivers to complete deliveries without getting out of the vehicles. We also continue to both promote and hire talented individuals to help us grow our business. In February, we announced Christian Rodich, as our new Chief Financial Officer of Envirotech Vehicles. Christian, we're very grateful to have you on board. And last December, we promoted Susan Emery, as many of you know, to our Executive Vice President. Lastly, in December, we graduated on the OTCQB up to the OTCQX Best Market and changed our ticker symbol to EVTV, enhancing both our visibility and access to quality investors. So with the first quarter now closed, As well, I can say that we're seeing incredibly strong demand for our vehicles as the EV market continues its exponential growth. We have a robust pipeline and our inventory and the inventory to manage the rapidly increasing demand for our vehicles. We expect sequential growth in the first quarter over Q4 and a strong 2022. This is an incredibly exciting time for EnviroTech vehicles. We've opened our manufacturing facility and completed our move to Arkansas, establishing a strong foundation in this region from which we can continue to build our business. Our company and the EV industry is still only in its infancy, and we are capitalizing on numerous opportunities that will allow us to continue growing as a leading provider of electric vehicles in both the United States and around the world. The advent of our right-hand drive vehicle will allow us to expand into European markets. At this time, I'd like to turn the floor over to our CFO, Christian Rodick, to briefly walk you through the fourth quarter and our year-end financials. Christian?

Thank you, Phil, and good afternoon, everyone, and hello from OCL Arkansas. Sales were $675,000 for the quarter ended December 31st, 2021 compared to no sales in the three months ended December 31, 2020. Sales increase was primarily related to the sale of six vehicles in the 2021 period versus no vehicles sold over the same period in 2020. Sales for the full year were $2 million compared to $89,000 in 2020 where we sold 20 vehicles here in 2021 and one vehicle in 2020. Total net operating expenses for the fourth quarter of 2021 increased by $5.4 million when compared to the fourth quarter of 2020. This included $3.6 million of non-cash expenses, primarily stock compensation related to the merger of Adamant Inc. and Envirotech Drive Systems. We also had $800,000 of additional legal and professional service fees, $400,000 in additional payroll-related expenses, and $200,000 of insurance costs. Total net operating expenses for the year, ended December 31, 2021, increased by $8.1 million compared to the prior year. This included $4.1 million of non-cash expenses, 1.7 million more of legal and professional services, $900,000 of additional payroll-related expenses, and $400,000 of additional insurance costs. Increases beyond that relate to other accounts in general and administrative expenses. Net loss in the fourth quarter for 2021 was $4.4 million, compared to a net loss of only $25,000 in the fourth quarter of 2020. Net loss for the year ended December 31, 2021 was a total of $7.7 million compared to a net loss of $280,000 in prior year. As of December 31, 2021, the company had cash, cash equivalents, restricted cash, and marketable securities of $12.9 million and liabilities of $1.6 million. This compares to $1.9 million of cash, cash equivalents, restricted cash and marketable securities, and liabilities of approximately $2.9 million as of December 31, 2020. Working capital at December 31, 2021 was approximately $21.5 million as compared to working capital deficit in prior year of approximately $789,000. That concludes the wrap-up of our financial performance, and now we're opening the floor to questions.

Thank you, ladies and gentlemen. If you have any questions or comments, please indicate so by pressing star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, that's star one if you have a question or a comment. And the first question is coming from Craig Irwin with Roth Capital. Your line is live.

Thank you. Thanks again for taking my questions. So the thing that jumped out to me when I looked at the financials for the quarter was the gross margins. 48% is just a spectacular number. Can you maybe talk us through what's allowing you to get such – chunky margins. I know your focus is to really be sort of towards the value end of the market, the low-priced solution for your customers, but you're still able to get these gross margins. Can you unpack that for us?

Sure, Craig, and a great question. We've worked really diligently over the last 12 months on, as you are aware, bringing in a lot of our final assemblies and a lot of our production in-house to And of course, our production numbers over this last 12 months have shot up immensely. So we're seeing better component buys. We're seeing better, you know, just all around, you know, now that we've sort of streamlined our production line and stuff like that and streamlined, you know, the build on the vehicle. We finally got to the point where, hey, this is it. That's what we're building. That's what we're doing. So we're starting to see some really good margins you know, in the way that we buy products as an OEM to assemble them.

Excellent, excellent. So, my question, my second question is about Kingbee, the delivery of 10 vehicles in March and the benefit there from the New Jersey ZIP. How many other customers do you expect to potentially benefit from NG ZIP credits? How much more room does this program give you to extend the sales traction in New Jersey?

Another great question. Well, we've got tremendous growth there. We've got 31 vehicles sold into New Jersey already with another nine pending. And we've delivered 10, so we have 20 more that we need to deliver and 10 more that will follow right behind that. We should have, for all intents and purposes, delivered them already, And we were on track to do so. And then, of course, with Omicron hitting and stuff, it shut down the DMVs and various state departments, and it just became impossible for us to do that. But now we finally got through all of that, and lines are opening back up. And we're seeing that not just with New Jersey, but also with California. We finally just got You know, to give you an example, we have another 27-plus vehicles just from one client alone pending with California that we've now received those approvals. And so, yeah, so I think that we'll see a, you know, a robust number of sales being delivered off those voucher programs over the next 12 months.

Okay, excellent. I also wanted to ask about the inventory. Your inventory increased sequentially, third quarter a million, fourth quarter 8.4 million. I'm going to guess that that's, uh, you know, trucks, uh, that you've been preparing for delivery, but can you maybe talk about finished goods and inventory, how that's changed over the last couple of months, um, and, uh, the ability to, uh, to turn that inventory into cash. Right.

So, um, our inventory, um, right now is what I went through the numbers is we have, um, a large number of vehicles, over 60 vehicles on the ground right now, ready for delivery. that have all just gone through the final assemblies and the pre-delivery inspections and upwards of another 30 behind that. So, and I believe that you will see over the next few months, 21 plus of those will be delivered into New Jersey shortly here. The vouchers have already been issued and we're sitting on like 31 of those vouchers. So they're already issued. So it's just a matter of delivering the vehicles and we'll get paid off them. All of those will be delivered over the next quarter and we'll get paid off that. And the same with California. We have over 27 vouchers that are issued and vehicles that are ready to be delivered. And like I said, we just couldn't get those delivered because of, you know, COVID and Omicron. And now that's all opening right up. So we'll be delivering those. So, and again, we'll be getting paid off all of those as well.

Okay. And that last question, if I may. Can you maybe talk a little bit about the new Arkansas facility? What is this on a CapEx outlay for you this year? How does this impact your costs? Is that really part of the increased costs we saw in the fourth quarter as you were preparing to ink the agreements for this facility? And then how does this impact your manufacturing capacity? You did reference the efficiencies helping margins over the last couple of quarters. But how does this impact efficiencies, particularly supply chains, over the course of 22?

Okay. Well, obviously, as you know, we had a lot of travel expense and a lot of legal and a lot of things over the last fourth quarter that were relating around getting that facility. And, you know, it would have been nice if we could have just gone straight to Arkansas and arrived and landed there, but that wasn't the case. We visited a number of states. We were in Florida. We were in Utah. I mean, we just continually traveled to look. But ultimately, we wound up in Arkansas for many, many good reasons that we shared. So yeah, that was very exciting. And then it will take us probably 18 to 24 months to get that facility to the point that it's really operating in a big way. And we're hoping, God willing, that we'll be able to operate four lines at capacity. And each line would give us approximately, if you ran one shift, 1,000 vehicles a year. If you ran two shifts, 2,000 vehicles per year off the line. And we're hoping to have four lines open within two years and be producing 4,000 to 4,500 vehicles off those lines. and we'll see some real big efficiencies then, you know, we are able to source lithium within Arkansas, bigger steel is literally a mile up the road from us, so the price of steel right now, you know, is, you know, is, there's no real cost savings anywhere in the world, so getting that right up the street from us, we get to, we get to wipe out shipping and all the rest of that stuff, and right now, albeit that you do save a little bit of labor, you know, coming out of Malaysia, by the time you factor in shipping and delivery times and all the rest of that stuff, you know, we're going to see some really strong numbers on our vehicles and the price of our vehicles coming down because, you know, as everybody knows, shipping is a complete nightmare. And so, so we get to get rid of all of that. And we're very, very excited about that. And lastly, you know, as an OEM in our drive systems and stuff, many of us, The batteries and so on that we produce in our BMS systems are proprietary to us, and we don't have any chip issues like a lot of other people do. Some people say, how is that possible? Well, we use a CAN system, and most of the newer vehicles today are using chips to control things like power window motors and all those types of things. We just don't need that anymore. Many of you can remember if you had a car back in the 16s and 70s with electric windows, they just worked off a direct wired motor. Well, you know, we do things the same way. So from a commercial application point of view, we don't have any chip issues like many people are experiencing.

Excellent. Well, congrats on the commercial progress here, the operating progress, and I'll hop back in the queue. Thanks. Thank you.

Once again, if there are any remaining questions or comments, please indicate so now by pressing star 1 on your touchtone phone.

Once again, that's star 1 if you have a question or a comment. Okay, I'd like to turn the floor back to management for closing remarks.

Well, thank you, everyone, for joining us. This is Philip Oldridge. You know, we're very, very excited, and we appreciate you all being on the call today, and we look forward to speaking with you next quarter. So thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.