GreenPower Motor Company Inc.

Good day and welcome to the Green Power Motor Company third quarter earnings conference 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 telephone keypad. 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, 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 results for the three- and nine-month periods ended December 31st, 2023, and recent developments. I'm here today with our Chief Executive Officer, Fraser Atkinson, and our President, Brendan Riley. 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 a safe harbor provision under the Private Securities Litigation Reform Act of 1995 and applicable Canadian 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 DENECA. In addition, these forward-looking statements relate to the date on which they're 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 MD&A filed on CDAR and on EDGAR and is also located on our website at www.greenpowermotor.com. I'll now pass the call over to Fraser Atkinson, GreenPower's CEO, to discuss highlights for the quarter.

Good morning, and thank you for joining GreenPower's quarterly earnings call today. Our school bus group continued to make great strides in the third quarter. We achieved a significant milestone with the delivery of four Type A Nano Beast school buses that were the first all-electric, purpose-built school buses manufactured in West Virginia. Immediately following that delivery, production of the Type D Beast school bus began in the West Virginia plant, which in the immediate term will fulfill current orders for 38 Beast school buses in West Virginia and prepare the production team for the mixed manufacturing of Beasts and NanoBeasts at the facility to meet the projected demand. Presently, we have live orders for 102 of our Type D MegaBeast, Beast, and Type A NanoBeast school buses, including our first order from our dealer in the state of New York. We also have a qualified sales pipeline for 164 Green Power school buses. On the commercial vehicle side of the business, we had deliveries this quarter that included 10 EVSTAR cabin chassis to the Canadian unit of a global retailer who will outfit the vehicle for fulfillment of their orders to customers in the greater Toronto market. Having said that, our commercial vehicle group with EVSTAR cargo and EVSTAR passenger vehicles is several quarters behind the school bus group in terms of its order book. We expect to achieve similar growth with live orders, purchase orders, and a qualified sales pipeline by leveraging new and existing incentive programs, as well as third-party relationships. We've had delays from customers with deliveries of our EV star cab and chassis. With inventory ready to go, we are now working on scheduling deliveries for these. Collectively, these will create a robust commercial vehicle group which combined with the school bus group will uniquely position Green Power in the medium and heavy duty EV sector. Over the past few years, we've maintained significant levels of finished goods inventory. We don't need to maintain these levels due to stocking orders from dealers who can provide demonstrations and ride and drives to their customers along with a reduced competitive landscape. This is allowing us to shift from fulfilling orders from inventory to manufacturing vehicles pursuant to customer orders. How is Green Power going to finance an increase in school bus orders and changes with our commercial vehicles? Instead of a traditional facility, we needed to secure a facility focused on production financing. This morning, we announced that we've entered into a revolving loan agreement with Export Development Canada, or EDC, for up to $5 million to fund all electric vehicle production for certain customer orders, allowing for multiple advances over a two-year period with repayments when vehicles are delivered. The revolving nature of the facility provides the flexibility to fund multiple orders and offers incremental capital in addition to Green Power's existing $8 million operating line of credit, and the guarantee of up to $5 million of standby letters of credit provided by EDC. I'll now pass the call to Michael Seifert, GreenPower's CFO, to discuss our financial results for the quarter.

Thank you, Fraser. For the three months ended December 31st, 2023, GreenPower generated revenue of $8.2 million, primarily from the sale and lease of 34 all-electric vehicles, which included 13 Beast and Nano Beast school buses. This is a decline of 36.3% from the $12.8 million of revenue generated in the same quarter in the prior year from the sale of 101 all-electric vehicles, which included one nanobase. Both quarters also included revenue from leases, parts sales, and truck bodies. Gross profit was $1.4 million, and gross profit margin was 16.6%, compared to $2.2 million and a gross profit of 17.4% in the prior year's quarter. The margin decline in the current quarter was primarily due to an inventory write-down of $408,000, which was including cost of sales. The gross profit margin for the quarter would have been 21.6% without the inventory write-down. Green Power generated a loss for the quarter of $4.6 million compared to a loss of $3.4 million in the same quarter of the prior year. For the nine months ended December 31st, 2023, Green Power generated revenue of $34.2 million, primarily from the sale of 196 vehicles in the current period, which was an increase of 40.1% from revenue of $24.4 million in the first nine months of the prior year, which was from the sale of 176 vehicles. Gross profit was $5.4 million and gross profit margin was 15.7 million, sorry, 15.7% in the nine months ended December 31st, 2023, compared to 4.9 million at a gross profit margin of 20.1% in the same period of the prior year. Inventory write down of 408,000 included in the current year period reduced the gross profit margin by 1.2% from 16.9% to 15.7%. Green Power generated a loss for the nine month period of 11.7 million compared to a loss of 11.2 million in the same period of the prior year. As at December 31st, 2023, Green Power had cash of $4 million, which was an increase of $3.4 million since the beginning of the year, and working capital of $19.4 million. Improvements in the company's cash and available liquidity since March 31st, 2023 were largely due to higher sales and due to a focus on collections, which led to lower levels of inventory and accounts receivable. I would now like to turn the call over to Green Power's President, Brendan Riley, to highlight some of the innovative achievements Green Power reached during the quarter.

Thank you, Michael, and good morning to you all. As Fraser mentioned, the continued strides are being made by our school bus division. To this end, and in our effort to help eliminate smelly, polluting diesel school buses, we have been expanding our national efforts through the addition of new dealers and have hired more territory managers to support both our school bus end customers and dealerships alike. A major technical accomplishment of this division during this quarter was the introduction of the new Mega Beast. It's our newest all-electric, purpose-built school bus. We launched the Type D Mega Beast school bus to meet the demands from school districts requiring V to G and longer range this 40 foot 90 passenger type d zero mission school bus delivers class leading range of up to 300 miles on a single charge this is all due to the 387 kilowatt hour battery pack its v2g capabilities allow for more stable electric grid and community sustainability in areas which is employed I'm pleased to say that the market responded immediately to the introduction of our product and our California dealer Model 1 just placed an order for 25 megabits for the Montebello School District just two weeks after we made the announcement of this product. Our commercial vehicle division has also produced a new innovative product during the quarter. Green Power delivered its first EV Star cargo refrigerated van to a UC school in California. With dual batteries for increased resilience and continual E-True cooling for the cargo area, it has diamond plate floor and an FDA spec interior area that is smooth and allows for easier cleaning and sanitation for any of the refrigerated goods. In the next few months, we are expecting more innovation from this group from the cargo transportation space. At this point, we would like to now open up the call to any questions.

Thank you. We will now begin our question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And the first question will be from Greg Lewis from BTIG. Please go ahead.

Yes, thank you, and good morning, everybody, and thanks for taking my questions. Fraser, I was hoping to talk a little bit more about West Virginia. Congratulations on getting some of those orders out the door. In terms of the production ramp, you mentioned the ability to go dual line, beast and nano. Any thoughts of how we should think about you know, over the next few quarters, what those deliveries, that delivery production profile could look like. And just as we think about the remaining, well, the Beast Class D buses to West Virginia, is that order, do we need to get that order of the way before we start selling buses into New York? Or is that, are we going to expect those kind of to be coming off the line concurrently?

Well, first, well, thanks for the multifaceted questions there, Greg. First off, our initial thought was that we would really only be positioned to do one of the type A or the type D, being the nanobeast or the beast in West Virginia, but we're now at a place that having gone through the full cycle of the nanobeast and well into the first tranche for the Type D Beast that we believe we can do both and we certainly have the capacity to manage runs of both of those vehicles. That has changed the dynamics. In terms of our expectation or the throughput, we're going to need a full cycle of the beast as we have done with the NanoBeast. As the first production run, you run into all of the various startup issues and so on in terms of each of those runs. So that's what we're going through right now. Once we get this production run through and we're starting into the third and the fourth runs, if you will, we'll have much better visibility on what that throughput would be. But we continue to add people and grow the production crew so the capabilities are increasing by the month. In terms of the priorities, we've got the orders from New York and certainly the expectation is orders from additional states on the East Coast is that all of those or substantially all of those will be fulfilled out of West Virginia. And the ordering of that will depend on, you know, really what we're focused on in terms of the production run at that point in time. So, for example, if the third or the fourth production line or run is for nanobees and we have more nanobees outside of the state of West Virginia, then that will end up being the mix of the deliveries and the sales for, you know, for that particular period.

okay great and then i did have a question on the inventory you know it was good to see that come down and you made some comments uh in the prepared remarks around maybe a little bit more uh you know the bill to order um is there any kind of way we should be thinking or any kind of guidance you can give us how you're thinking about inventory management and and are we going to be you know maybe for the next couple quarters we're going to be able to kind of whittle it whittle down that some of that inventory um you know, I guess improving our cash conversion?

Well, there may be a timing issue where we end up with at the end of any particular month or by extension a quarter or year end where we have, you know, higher than expected finished goods simply because that's, you know, what's come off of the production line and we haven't delivered and recognized revenue and so that sitting in finished goods inventory is But the plan is certainly over the next few quarters that we can continue to utilize existing finished goods level and draw that down while we're moving from fulfilling customer orders from inventory to where we're into manufacturing and production pursuant to customer orders. That's the plan over the next few quarters, and the facility we announced this morning is a big part of helping us transition or pivot to that approach.

Okay, great. Thank you very much.

Thank you. And our next question is from Craig Irwin from Roth MKM. Please go ahead.

Good morning. First, I'd like to say congratulations on the on the strong backlog and the progress of the beast and the nano beast and the mega beast. So it's nice to see everything coming together. I wanted to ask specifically if you could talk about how you're working with your customers on charging infrastructure. There's a conversation out there about the installation of charging infrastructure being a pinch point for the acceptance of these school buses. about the ability to actually site some of these fleets being restricted because of utility timelines for new infrastructure. And is there really maybe an advantage for the NanoBeast as far as near-term volumes given the complexities of adopting this technology?

Well, I'll let Brendan get into some of the details on your first question. But at a high level, and I'm glad you mentioned the word utility because it's not just the perception is that, you know, the availability of chargers or, you know, the hardware side of the charging infrastructure is the pinch point. It's really in large part the utilities. And it's also the expectation of customers that are looking at vehicle to grid solutions and a broader implementation than simply acquiring and running school buses or all electric school buses. So there's a lot of dynamics that are in play that have affected the timing on that side of our deployments. As far as the The mix of products that we have brought to market is that you're quite right that the Type A Nanobeast, which is built on our EVStar platform, and by extension utilizes a lot of the same parts and components, which provide for ease of deployment, also is easier to deploy in terms of the infrastructure side, as one can use a level two charger or a DC fast charge. it really has a lot of flexibility in that if the vehicle or the Type A Nanobeast can be charged between a morning run and an afternoon run and still have sufficient battery capacity to do an evening event or activity run, then it's a lot easier to install that level two charger. But if they need to get a much faster top charge, that we have the flexibility of installing a level three charger for that vehicle. And on that, I'll turn it to Brendan, who can provide a little bit more visibility on your first question regarding charging infrastructure.

Yeah, thank you, Craig, for the very thoughtful question. And good morning, this is Brendan Riley. Part of our strategy was, of course, to have the three different battery sizes from the get-go. We have a car size battery in the EV Star line of vehicles, which the Nano Beast is built on. That allows us to charge very easily at level two, overnight charging, the same kind of charging you'd have in your house, the same charging I have in my house. With the Beast, again, we've got a 200 kilowatt hour battery. You can do overnight charging on level two. but you're really pushing it to the limit. And then the Mega Beast was really designed for those who have DC fast charging available and who have an interest in using the vehicle for all of its efforts to bring students to and from school and the V to G. So you've got really enough left over to be meaningful to the grid and have some normal access to the battery storage on the vehicle now the the marketplace has changed more slowly than we hoped but has changed due in part there are a lot more companies able to install chargers the utilities are trying to get ahead of the curve a lot better these days and we do see improvements uh also including the availability of charging evse which is electric vehicle support equipment the chargers and related equipment but um The main thing we're seeing right now is we mentioned our pipeline. Some of that pipeline are orders that the customers are waiting to figure out how they're going to do charging. I think they've got the money and the ability to buy, but they're waiting until they have their charging figured out. So I think you're going to see kind of a fast uptake on charging capabilities, installation charging for the chargers. We are having more companies involved in that space, and I think they're becoming more efficient and better apt at installing the chargers.

Thank you for that. So my second question is about working capital. You guys have done a really good job managing working capital and generated a decent amount of cash there over the last few quarters. Can you maybe describe for us how well matched the inventory of working process or finished goods is to, you know, anticipated near-term deliveries? You know, would you expect working capital to be, you know, a positive contribution to cash in this current quarter?

I'll turn the details over to Michael, but at a high level, Our working process is fairly well aligned with the production flow that matches the fulfillment to customer orders as opposed to production to inventory, whereas we have been over the last few quarters and will continue over the next couple of quarters to realign our finished goods to match that. you know, the high level, you know, finished goods need some work to, you know, to fully align and the rest in terms of work in process and to some extent our parts supply that we sell separately as well to customers is better aligned with, you know, where we are right now with our strategy on manufacturing.

Yeah, just to add a couple of very quick points, I think it really has been a focus of the company over the past, nine to 12 months to focus on inventory and bringing that down to a level that is better matched to sales. But I think the other thing to point out, Craig, is that with the facility that we announced this morning of $5 million, that's earmarked for funding production. And so that is really focused on funding that inventory growth. And we anticipate given our current order book that a lot of that will be used towards all electric school bus order book fulfillment.

Understood. So my last question, if I may, gross margins in the quarter, you know, the historic average is quite a bit higher. So is it fair for us to maybe consider, you know, the early production of some of these beast and nanobeast units to be maybe a lower margin because of greater man hours to complete and other factors in there? and that we could see those trend up over the next couple quarters as far as the overall gross margin levels. Is that fair?

That is very fair, Craig. Yeah, go ahead, Brandon.

That's very fair. Training, getting employees up to speed costs money. It's an investment, and you're going to see the margins continually improve. Also, we're starting to see some stabilization of of our costs as it goes from materials, raw materials and so on. So we should see a good shrinkage in our costs and an increase in our GP.

In terms of the short term, Craig, Michael in his section commented on the one-time charges that we had made, which in part relates to your previous question. as we're realigning our business and working capital and changing the mix in terms of finished goods and work in process as we have incurred some one-time impairment costs on our inventory as we make that transition. So that we expect is a short-term proposition and as we get into a continuous production flow where you know, the inventory is aligned with all of that, then, you know, that's going to help the margins as well.

Excellent. Well, congrats on the progress here. We look forward to watching, you know, the continued steps forward.

Thanks, Craig. Again, if you have a question, please press star then one. The next question is from John Gay from Quiet Investor. Please go ahead.

Good morning, guys, and congratulations on the continued progress. I sense by the numbers of vehicles sold that workhorse is not in the mix by much of any. Is that true? And if so, how do we look upon that so-called contract? Hello?

Sorry, I cut out there. Well, we haven't pointed out specific metrics for our customers over the last number of quarters, and we did comment in our earlier remarks that while we have not had some cabin chassis deliveries, we are currently working on a schedule in terms of future deliveries for customers. you know, for our cabin chassis. So, you know, there's been a short-term pause and we expect to have that resume in the not too distant future.

Okay. Thank you.

And once again, if you have a question, please press star then 1. And the next question is a follow-up from Greg Lewis from BTIG. Please go ahead.

Hey, thanks, and good morning. And sorry to hop back in, but I did want to understand. I thought it would probably be good to understand. So congrats on the $5 million revolver. Are there different hurdle rates, i.e., that could be achieved where you could come back and expand that maybe to $8 million, $10 million? Just as we get production going, I would think you'll probably outgrow that $5 million number. Mike, any thoughts around that?

Go ahead, Michael. I was going to say, first of all, we are very appreciative of the support from EDC. We think this is a very efficient and well-priced facility for the company. Um, but to answer your question, yeah, there certainly is the opportunity to revisit this in terms of size over time as, as our business grows and, and we can certainly look to, um, upsize this, but you know, for the time being, we, you know, we feel this is, uh, a good size for the company and. You know, we'll definitely be put to use, um, given the orders we have in place. Fraser, if you have anything to add.

Nope. That's a good summary. Okay, yeah, now understood. It just seems like pretty good, attractive financing. So, yeah, you know, building out on that and then expanding that would obviously be super, super positive for the company. All right, guys, thank you very much. Thanks, Craig.

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

In closing, we delivered the first four Type A Nano B school buses manufactured in West Virginia to four school districts in the state and started production of our larger Type D B school buses. We delivered 10 EV Star Cabin Chassis to the Canadian unit of a global retailer who will outfit the vehicles for fulfillment of orders to their customers in Toronto. We delivered the first EVSTAR cargo refrigerated van to a California university. And we launched the Mega Beast with twice the battery capacity of the Beast, providing a range of up to 300 miles on a single charge. We made significant progress while increasing our cash position by $3.3 million from the start of the fiscal year. Subsequent to the quarter, we secured $5 million of production financing from EDC who have also guaranteed $5 million of standby letters of credit, which vastly improves our manufacturing capabilities. Thanks for your support. This concludes the third quarter earnings call for Green Power.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. Take care.