GreenPower Motor Company Inc.

Good day, and welcome to the Green Power Motor Company, Inc. Second Quarter Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Michael Seifert, Green Power's Chief Financial Officer. Please go ahead.

Thank you. This is Michael Seifert, the Chief Financial Officer of Green Power Motor Company. I would like to welcome everyone to our call to discuss Green Power's financial results for the period ended September 30th, 2021. I'm here today with our Chief Executive Officer, Fraser Atkinson, President Brendan Riley, and our VP of Sales and Marketing, Ryan Chatterley. 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 provisions under the Private Securities Litigation Reform Act of 1995 and applicable Canadian and U.S. 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 CDAR 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. Green Power 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 ND&A on CDAR and on EDGAR and is also located on our website. I will now pass the call over to Green Power's CEO, Fraser Atkinson.

Thanks, Michael, and thank you all for joining the call today. Following my opening remarks, Michael will cover the financial results for the quarter and Brendan will speak to operations. A year ago, we embarked on a major shift from manufacturing vehicles pursuant to customer orders to producing certain models to a stage where the finishing is dictated by customer requirements in order to accelerate our production to sales to delivery. Our team has been up to the task where we are close to getting our inventory to where it needs to be to support a much higher growth level with our plans. And Brendan will discuss this in more detail on this call. We are very excited with the announcement this week where we've entered into an OEM agreement with autonomous vehicle technology provider Perone Robotics. We will be working with Perone to integrate the LIDAR, radar, optical sensors, wiring harnesses, and so on that they require for their Tony system at the manufacturing stage to enable an autonomous vehicle or what we are branding as our AV star being an autonomous vehicle, EV star. Peron has also shown a strong commitment by buying additional EV stars that they are currently converting to AV stars as well as hiring sales and marketing staff to promote the AV Star. Very exciting times for our collective organizations. Our expenses in the quarter include significant investments to facilitate our growth plans. Let's discuss a few of these. During the quarter, we filed a $200 million shelf prospectus. This is not for any short-term needs as we are well-funded as illustrated by the increase in our working capital over the last six months. This is to address long-term opportunities. For example, Ryan and the sales team may land a transformative order. The shelf allows us to access capital quickly to fund any working capital requirements. Number two, we achieved a significant milestone with the launch of our Beast Type D all-electric school bus at ACT Expo in Long Beach on August 31, 2021, as well as our first deliveries to school districts in Southern California. We also had first deliveries to an end customer with our EV Star Cab and Chassis, as well as our EV Star Plus. Number three, we significantly expanded our sales infrastructure and network. And lastly, we have over 100 approved vouchers for eligible vehicles listed on the California HVIP, New Jersey ZIP, and BC SUV rebate programs. We will circle back with more details on operational progress momentarily, but now I'll pass the call to Michael Seifert, Green Power's CFO, to cover our quarterly financial results. Michael? Thank you, Fraser.

For the quarter ended September 30, 2021, Green Power recorded revenues of $4.4 million and cost of revenues of $3.5 million, generating a gross profit of $950,000, or 21.5%. The gross profit this quarter was lower than our target of 30%, primarily due to the sale of 28 vehicles that were previously on lease at a gross margin below 20%, and first-time sales of the two B-school buses and the sale of 10 EV Star cabin chassis to an end user. The remaining four vehicles were sold at a gross margin above 30%. We continue to target a gross margin of up to 30%, and believe this will be achievable in the normal course. However, we may experience lower than target margin quarters from time to time when the majority of sales are either vehicles coming off lease or when we're making high volume sales to a single customer. As Fraser mentioned, the majority of the increase in expenses this quarter was attributable to investments in our product roadmap and in our sales and business infrastructure. Our expanding business and geographic footprint has caused certain increases in certain costs, such as insurance, travel, marketing, and professional fees, the largest increases attributable to payroll. Over the past year, we have benefited from a significant reduction in our interest and accretion expense, and we currently have virtually no interest-bearing debt and only one tranche of warrants remaining, all of which are owned by insiders. We finished the quarter with over $31.3 million in working capital, which included approximately $8 million in cash and restricted cash, and $22.8 million in inventory, which was comprised of over $8.4 million in finished goods and $14.4 million in work and process inventory, representing over 330 vehicles in various stages of completion and production at quarter end. We continue to be well capitalized to meet our capital needs in the near term. I'll now hand it over to Brendan Riley, Green Power's president, for some operational details.

Thank you, Michael, and welcome to all those on the call today. I'm Brendan Riley, the president of Green Power Motor Company. During the quarter and subsequent to the quarter end, we have continued to aggressively build inventory, accelerate our delivery schedule, and significantly expand our distribution capabilities, all the while investing in additional new product development leveraging our EVStar platform. We have long stated that we expect to see a significant ramp in deliveries in late summer and early fall, and we are right on target and are at the very early innings of what we anticipate to be a substantial revenue ramp. Several factors are contributing to this expectation. We continue to successfully leverage not only California's HFIP program, but other similar incentive programs on the East Coast and in Canada, which are providing a very healthy backlog indeed. We are expecting additional programs to come online here in the very near future throughout North America. And our inventory position, which includes EVStars, EVStars Cargos, EVStar Transits, EVStar Cabin Chassis, EV350s, and these school buses, these will allow us to meet the associated demand that will accompany these programs. At the end of the quarter, we have over 70 units in finished goods inventory and nearly 260 units in various stages of production. The final step in this multi-year process to bring the BEAST, the All Electric School Bus, stands for Battery Electric Automotive Student Transportation, was completed with the receipt of our 292 card from the California Highway Patrol. This is the official acceptance of this vehicle in regards to both safety and accessibility, and will allow us to accelerate the delivery of these units which we expect to be a meaningful contributor to the revenues in the current and future quarters. While we are excited about the acceleration and deliveries, we continue to invest in design and creation of new product categories that leverage our EVSTAR platform. We are pleased to have been honored by Metro Magazine with the Innovative Solutions Award in recognition of our work with Peron Robotics and Jacksonville Transportation Authority to develop and deploy our fully autonomous 80 star. This is positioning GreenPower for the future and remains a priority. Additional products will be immediately commercial application and various stages of design and development. In sum, this is a very exciting time for the company as we increasingly put substantial numbers of GreenPower EVs on the road. Not only are we putting units on the street, We are doing so serving some of the most recognizable brands in the country. These prestigious end users, along with increasing volumes of repeat orders of our existing customer base, speak volumes about the value proposition and compelling nature of the EV Star line. This concludes our prepared remarks today. Operator, please open the floor to Q&As.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Greg Lewis with the BTIG. Please go ahead.

Yes, thank you and good morning, everybody, and thanks for taking my questions. You know, guys, I guess in the prepared remarks, you know, when we talk about, you know, margins, it seems based on the comments that it was maybe more about product mix than, you know, maybe some challenges that I guess we were kind of expecting on the supply chain. on the supply chain and other inflation that we're hearing a lot about. Could you kind of provide a little bit more color in terms of, you know, what you're seeing in the supply chain and inflation and, and really how we should think about the products, mixed driving margins.

I'll start with, go ahead, Michael. I'll start very briefly with the product mix and then just pass it over to either Brennan or Fraser to discuss supply chain. But in terms of the product mix, yeah, the biggest contributor here was really the fact that we had 28 vehicles coming off lease. Apologies, I have some noise in the background.

Yeah, the sales mix was – The primary and secondary was new products on the first quarter and sometimes the second. Any new product model we have always has that initial gross profit compression but usually rebounds the next quarter or certainly the next second quarter.

And this is Brendan referring to the supply chain and inflationary pressures on the vehicles. As it stands right now, Green Power is able to manage those both on the shipping side and the product cost side. We were actually going through inventory that was purchased a long time ago and parts that were purchased a while ago. We don't really expect huge pressure, but we'll keep you guys posted. Right now, it looks as though cost may increase a few percentage points attributable to shipping and some increased cost of goods. But as it stands right now, we believe it's perfectly manageable, and we don't see it affecting our gross profit moving forward.

Now, that's great to hear, and I guess that's probably a function of you guys being in the process of ramping up, starting, I guess, earlier this year. I did want to touch a little on the Peroni robotics announcement. I guess a couple things to think about there. One is, is this something that the two companies are joined together to work on to kind of get something in place so that when customers are ready, Green Power and Peroni are ready to go? Or is this something where you know, customers are actually, you know, kind of trying to push the two companies forward to deliver a real solution.

This is Ryan Shutter. Let me take that. I literally just stepped off the floor of APTA just a couple of days ago where the Jacksonville Transit Authority vehicle was there and in service for everybody to ride. Guys, I've been to a lot of trade shows over the last 10 years in transit, and I've never seen the type of excitement for, you know, with transit agencies. You know, transit historically, and I've said this several times, is very conservative by nature. But when these guys start getting excited about, you and not just talking about it, right? There's a ton of people on the floor talking about what they're going to do over the next 18 months and, you know, likely well beyond that. For them to get on a vehicle and ride it autonomously was an absolute eye-opener for many, many of these folks. So you're going to see, you know, APTA rewarded Jacksonville Transit Authority, the Green Power and Peron Robotics Project with the Innovation Project of the Year Award. you're starting to see these major organizations take notice, and they're all very, very excited about it. They think that there's going to be a very, very high demand for it, and you're starting to see that with some of the recognition that these projects are getting. They're not just one-offs. They're not just science projects. These are tangible, physical vehicles in operation right now.

And Greg, this is Brendan, and Ryan is exactly right about the transit operations, really looking at the EV star autonomous or the AV star product. The other aspect of it is that the EV stars are a platform. EV stars share most parts with each other, over 95% parts commonality and structure commonality. And, you know, not only is this applicable to moving people around, But our EVStar CC, our cab chassis, can be used for delivery purposes as a truck, a step van, a service vehicle that's delivering parts, all types of different applications. And the Perrone Tony system being incorporated into the EVStar platform allows us to take this fungible vehicle and and sell it into all the sectors that can leverage or are interested in leveraging autonomous transportation for goods or people. So we really see it as also the stepping stone now to goods movement autonomously, which is ostensibly even a larger opportunity for the market than moving around people.

Okay, great. And then just one more for me. Brandon, you mentioned stepping stones. It was good to see some EB stars getting in the hands of some, I guess, public companies. I think you referenced Fortune 500 in the press release. I guess my question around that is, were those deliveries, were those kind of, hey, we'll take one and kind of kick the tires and see how it works, or are those initial deliveries, ones that the customers already have placed additional orders that we could see here sooner rather than later.

So this is Ryan. I'll go ahead and take that one as well. Per the press release, we did deliver a vehicle to a Fortune 500 company. And since then, that same company has placed a follow-up order and taken an additional four, I'm sorry, three units. One is actually currently in transit as we speak. So no, these were the first medium heavy duty. I think they have some electric bikes running around their campus. But, no, this is their first electric vehicles that will be moving any of their employees on or around campus in this particular region.

Okay, that's great to hear. It looks like the customers with the campuses that, you know, had been hurt from COVID are finally getting back to work and moving forward. So, hey, great to hear. Look forward to continuing to watch. Have a great day, guys. Thanks, Greg. Thanks, Greg.

Our next question comes from Tate Sullivan with Maxim Group. Please go ahead.

Hi. Thank you. Thank you all. You mentioned the 100 approved vouchers, and I know you have the California. I saw the New Jersey. You mentioned Canada. How many other states do you have vouchers in, and is it a long approval process to get on approved lists for those vouchers?

So this is Ryan. The states are what was mentioned are the only current actual voucher programs. Many other locations have, you know, different incentives. But, you know, New York, New Jersey, California, D.C. with the SUV program, they actually refer to those as vouchers. And amongst those four are, you know, it's obviously a blend across the board there. but that doesn't mean we're not working outside of the state. We got some pretty good news from an East Coast state this past week. You know, small orders, but we're starting to see those orders kind of pop up the way they were popping up in California five years ago, right, onesies and twosies. This is the way it starts. A lot of these states have been looking at California and seeing what is the performance and reliability and durability going to look like, what is Green Power Motor Company support going to look like, And, you know, we've built quite a reference sheet, and we look forward to utilizing and leveraging those references in order to create more demand here in the very near future.

Can you give an example how you help customers navigate the voucher process? Is that part of the normal sales procedure?

Yeah, absolutely. For many of these guys, even the ones you would expect to have a good beat on exactly what the process should look like, We've got the best grants coordinator and director of grants and contracts, I think, in the industry. Michael Perez has done a great job at managing these processes while wearing multiple hats and assisting on the sales front, attending trade shows in order to get customers familiar with what these processes look like. I'll give you an example. If somebody's interested in a project, they'll call me. We'll kind of vet the project out, figure out what they're looking for, We'll turn that over to the contracts and grants team. They'll then take their information, figure out what it is they qualify for, and then walk them through the process. Sometimes you'll get customers who have done it before, and when you get those type of customers, it's a little bit more turnkey. They kind of know how to navigate. But then you'll get folks who have absolutely never even – never seen an HVAC form before. And that's where Michael and Erica come into play. And they've done just a bang-up job, and we're super proud of them.

Great, thank you. And moving on to the BEAST deliveries and looking at your history of announcements with the BEAST, in September you announced you delivered one to the Santa Maria School District, and then back in November 2020, I think it was the Thermolito School District. In inventory right now, how many school districts are you delivering BEASTs to, or is it repeat deliveries to the same district? Great.

Well, repeat deliveries, we've got, in theory, we've got two orders with Thermolito. Thermolito was an order. They utilized two different grant programs, the Butte County Air Quality Control District grant and then the VW mitigation. So technically, those are two purchase orders. However, we are working with Creative Bus Sales on those orders, and they've placed a blanket order for the Beast product. And then as far as Santa Maria goes, that was our first 40-foot variant of the electric school bus that Green Power builds. And that per the press release, I'm sorry, received the 292 certification, which is kind of one of the, it's a major milestone, major objective that we needed to meet in order to get some of these other school districts to be comfortable with moving forward with us. It's all a process and it takes time. It takes more time than we would all like, but it is a process and we're doing our best to get these things closed out in an efficient and timely manner. Okay, thank you.

Again, if you'd like to ask a question, please press star, then 1. Our next question comes from Chris Souther with SpeedEye. Please go ahead.

Hey, guys. Thanks for taking my question here. Maybe we can start with an update on Forest River. Where are we on the timing for potential follow-on orders with that customer there?

So our engineers, as engineers do, have been going back and forth over the past several months. This past week we've had a major breakthrough with those guys in terms of initial next steps. We don't have an update in terms of a follow-up order, but I can tell you that there's been some very important agreements made in terms of the integration process And, you know, we actively met with those folks over at APTA here in Florida. And I look forward to continuing that partnership and making, you know, strengthening it and showing those guys and the rest of the industry that we are the only purpose-built product that's going to meet the needs of the transit industry.

Yeah, and Chris, this is Brendan. It's a very good question. Since our vehicle is an entirely new platform for Forest River, one of the first new platforms in years for the company to actually put their body on, integration does take a bit. So we're still in the process of finalizing the integration and the final spec of the vehicle. the forest river variant on the EV star chassis. So it might be a little bit longer and then we'll go through some testing and validation of design. And then we anticipate if all goes as we expect, follow on orders.

Okay, got it. So maybe kind of early next year kind of timing is what we should be looking at then, you know, between kind of the integration process testing and the like, or is it, you know, longer than that, you think?

That's probably a good guess, but right now that's just a guess on, you know, what roadblocks or hiccups come along the way. But I could tell you from my perspective that The integration is going very well, and we don't foresee any issues during integration. And we've already integrated our cab chassis with box trucks, various multiple box builders, and everything. We've had, you know, no real issues with those integrations. It's a little more complicated when you're moving around people and you've got more systems on board, and those are the things that we're getting all hammered out. Okay, that's great to hear.

And you called out in the MD&A additional sales upcoming with Zim. Should we assume it's similar sales of, you know, leased vehicles that were previously to Green Commuter? Do you have a sense? How many of those should expect in the December quarter? And, you know, what is kind of the runway with Zim there, you know, for previously leased vehicles? Should we expect, you know, the majority to be kind of unwound and sold to those guys over the next, you know, few quarters? Or what is the visibility there? Yeah.

So it's a much smaller number than as far as this quarter in terms of deliveries. We're capping out an original order that was placed earlier on in the year. The runway with Zim is absolutely incredible. Paul Gupas, their CEO, is a very, very instrumental player in this game. He's willing to take some risks. He's got a great vision. We think that there is a lot of potential there to partner with him in many, many different deployments. There has been some additional recent activity that we haven't conveyed to the market, but as soon as everything gets finalized, we expect a press release on that when everything comes together.

Okay. And then last one here from me. The inventory, we've now got 70 completed vehicles, 260 in various stages of production. You mentioned that you've got 100 orders with HVIP and other programs. I'm just trying to get a sense of the timeline to sell through those completed vehicles. What should we be thinking about for, you know, steady state inventory and, you know, timing around kind of cash flow positive? You know, previously been targeting kind of the December quarter. Are we still on track there? Is it kind of pushed out? You know, anything you can give as far as, you know, visibility of, you know, selling out the, you know, inventory with, you know, matching up with that, you know, the hundred, you know, different voucher program orders that you have?

Yeah, let me just add one little thing to that. So we talked about the blend of vouchers that we've currently got that are approved. Several of those, one thing that we've noticed about the New Jersey ZIP program and then the New York VIP program is once those vouchers are approved, there's still a process behind that that takes some time. Those guys are still ironing out many of the details that are going to be a part of that program. So, you know, vehicles that are ready to go, you know, we may not have all the documentation that is needed in order to officially make the delivery. The deals are done. The vouchers are approved. However, there's still, you know, some formalities that those two particular programs have to go through. And right now, nobody has sold more than us on either arms or in the New Jersey program. And with that, I'll turn it over to Michael Seaford or Frazier in terms of inventory.

Yeah, so in terms of the flow through, Chris, we're expecting that the over 70, the majority into the current quarter with any lag, any remainder, if you will, into the the March 31st, so the next two quarters, including the current one we're now in, as well as at least one, if not a couple of the tranches that are just moving through the back end of the production or in progress, as Brendan referenced earlier. So, you know, we're looking at volume over the back half of our current fiscal year that it's certainly at a scale that is much, much higher than what we, what we've reported the last two quarters. Okay. And I think the other thing to talk about is that with that, the mix, we expect a mix that is, you know, the majority of which is sales as opposed to the, the lease financing that is, that has come off into a particular sale with the lower margin. So we, You know, it's really a combination of both an increase as well as an improvement in the mix in terms of the contribution on the gross profit.

Okay. That's very helpful. I'll hop in the queue. Thanks, guys.

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

Thank you, everyone, for dialing in to our earnings call for our second quarter. As you can see, we're very excited about the development of our business. A couple things that we didn't talk about is that with the recent infrastructure bill that's being passed and other incentives that we haven't talked about, our approach has been to to build a business that isn't built on an expectation or programs that haven't been enacted. So to the extent that the infrastructure bills ultimately provide significant funding for schools, for transit, and for other modes of transportation, those will all be bonuses for our company without the passage of them. what we've described today is the plan that we're on and the business that we're going to build with significant growth. So stay tuned for the announcements supporting that. And once again, thanks for your support.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.