GreenPower Motor Company Inc.

Good day and welcome to the Green Power Motor Company first quarter earnings and update on Green Power sales pipeline 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 1 on your telephone keypad. To withdraw your question, please press star, then 2. 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 financial results for the period ended June 30th, 2024, and provide an update on Green Power's sales pipeline. 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 purposes of the Safe Harbour 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 Donna Edgar. 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. For additional information on the results, of operations for the period ended June 30th, 2024. You can also access our audited financial statements and MD&A posted on Green Power's website as well as on www.cdar.com or filed on EDGAR. I'll now pass the call over to Green Power's CEO, Fraser Atkinson.

Thanks, Michael, and good morning, everyone. I'm pleased to report that since our most recent quarter, Green Power has turned an important corner. Our most recent quarter is not indicative of where our business is positioned today. While uncertainty over state regulations and federal incentives combined with other global economic factors slowed some EV markets earlier this year, the increase in orders and quotes Green Power is now experiencing shows that the demand for all electric vehicles is still there and that the market is rebounding with significant growth potential. We have the inventory and the production to meet the increased demand. Consequently, we see a step up in our revenue from our most recent quarter through each of the remaining quarters this fiscal year. Earlier today, we announced deliveries of our all-electric purpose-built school buses in California with follow-on deliveries over the next few weeks in California and Oregon. This activity complements our recent announcement on sales on the East Coast. Brendan will discuss our activities in the school bus sector in more detail later on this call. We have seen a significant uptick in the past few months with our sales pipeline for Green Power's all-electric commercial vehicles, including 28 specialty vehicles for deployment in Canada, which would utilize our current inventory of EV star cabin chassis. This represents inventory we have in our books generating cash flow requiring little additional cash outflow, markedly improving our liquidity. We've also received orders for EV star passenger vans in a variety of seating configurations and EV star plus cargo plus vehicles consisting of more than 20 vehicles. We anticipate delivering most of these vehicles by the end of this calendar year. Many of these orders in quotes have follow on orders providing exponential growth with our sales pipeline. Now an observation on our competitive landscape. Our go to market strategy consists of the horizontal market for medium duty class four vehicles where we have our own electric cabin chassis, passenger vans, shuttle buses, and a range of commercial vehicles, as well as the vertical market for school buses with our class four Type A all-electric NanoBeast school bus and our heavy-duty Class 8 Type D Beast all-electric school bus. Over the past year, there's been an interesting trend in that the number of EV OEMs with medium-duty Class 4 all-electric offerings have been dwindling as measured by the eligible vehicles listed on California's H-5th Incentive Program. There are fewer Class 4 Type A school buses, fewer Class 4 passenger vans, and fewer Class 4 commercial vehicles listed on the program. We believe this trend will continue over the short term. California has introduced legislation requiring roughly 10% of new purchases of Class 4 vehicles by fleet operators to be zero emission, creating demand for Green Power's EV Star line of commercial vehicles. This requirement will increase to 75% over the next 10 years, amounting to a multibillion-dollar annual market opportunity. We believe this increased demand will flip the supply demand in favor of EV OEMs within the medium-duty Class IV space, and that we are starting to see the early days of this new dynamic. I'll now hand it over to Brendan for discussion on operations.

thank you frazier and good morning everyone on the call two years ago this month green power took possession of its manufacturing facility in west virginia that decision to manufacture there was based on the need to increase the company's production capacity well beyond california to the east coast today the pipeline of green power all electric purpose-built zero mission school bus orders has more than 30 vehicles slated for delivery in California and Oregon over the next 90 to 120 days. These orders complement the 88 school buses previously announced for the East Coast. So the East-West strategy of manufacturing and delivering products nationwide, as the company envisioned two years ago when the West Virginia plant was added, is coming to fruition as planned. Today, according to the listings under California HVAC program, Green Power is the only school bus OEM that is manufacturing an all-electric, purpose-built Class 4 Type A school bus and an all-electric Type D school bus. While that has significant impact on incentives in California, it is also notable from a market standpoint nationwide. Combining this fact with our unique production capabilities on both the east and west coasts, Green Power is perfectly poised to take full advantage of the mandates which have been implemented in many states and take advantage of the more than $8 billion in monies from state and federal level, all of which are impacting the transition to and deployment of all electric school buses. During the quarter, Green Power has been called upon to service an EV product expert and thought leader in the national discussion on EV school bus deployment. During STN Indy and STN Reno, I personally had the opportunity to make the presentations on the contemporary materials and methods and systems and structures for EV school bus safety. In Reno, Green Power was also asked to participate in a discussion on preparing for the 2030 mandates and the increased regulations coming on diesel with a focus on how to prepare for the change via electric products. We also participated in a roadmap conference at the WRI, that's the World Resource Institute, looking at the barriers to 100 zero mission school bus deployment and how to overcome them later today leading national organization impacting policy related to the deployment of zero mission vehicles in general zeta that's a zero mission transportation association has asked me to participate in the discussion on the economic impact and workforce implications of the ev industry Before closing, I want to amplify Frazier's comments on the commercial side of Green Power's business. Much like the East-West production strategy on school bus production that makes us more nimble and more able to respond to market demands and changes, our combining effort, excuse me, our combining offering of school buses and commercial vehicles provide the flexibility to weather the conditions Frazier mentioned having occurred in early 2024. We have filled our pipeline, increased our quotes, and have seen an increase in commercial demand. Just yesterday, I was at a ride and drive in Oakland with CARB, CalSTAR, and our dealers, where I noticed a much higher interest level compared to earlier in the year. Lastly, as it relates to our commercial products, during the quarter we introduced a very modern refrigerated box that utilizes our EV Star cabin chassis. This refrigerated box is called the EV Star Reefer X. It's a modern design and look that complements the modern EV platform. The EV Star Reefer X is purpose-built, fully customized with a lighter body to allow for increased payload. runs off of high voltage, and is considered one of the most energy efficient and is now becoming one of the more desirable EV refrigerated boxes. Designed to serve the mid to last mile refrigerated delivery and catering applications, the EV Star Reefer X moves goods that need to be temperature controlled, such as frozen foods, flowers, pharmaceuticals, all doing that zero emission method. The vehicle's body features one interior wall structure and allows for seamless sanitation, consistent insulation throughout the entire vehicle, and a much longer life. Now I'd like to return the call to Michael Seifert.

Thank you, Brendan. For the three months ended June 30th, 2024, Green Power generated revenue of $3 million with a cost of sales of $2.8 million. generating a gross profit of approximately $222,000. Our lower than anticipated gross profit margin this quarter was primarily related to overhead costs incurred on the limited throughput in West Virginia and from lower realized gross profit margins on sales of prior model year inventory. We expect the gross profit margins will increase when throughput improves in our West Virginia facility, which will improve the allocation of a plant overhead on a per unit basis. Turning to our liquidity, we raised gross proceeds of $2.3 million before fees and expenses in a unit offering during the quarter, and we continue to utilize our operating line of credit and revolving credit facility with EDC to fund investments in working capital. We ended the quarter with nearly $2 million in available liquidity on the EDC revolving credit facility, and we've continued to utilize the facility to push forward production for existing sales contracts since quarter end. This facility continues to be an important source of capital for our company. We finished the quarter with nearly $14 million in working capital, including $33.7 million in inventory, of which $13.4 million was finished goods. Many of the opportunities we're currently working on involve sales of existing finished goods inventory, which only require very limited additional capital outlays. Finally, we've been fortunate to have the continued support from Green Power's directors and officers who have provided important and much needed financial support for our company over time. I'll now pass the call back to Fraser for some final remarks.

Michael, we'll open the lines for the Q&A and I'll provide a summary at the end.

Thank you. Operator?

We will now begin the 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. Our first question comes from Craig Irwin of Roth Capital Partners. Go ahead, please.

Good morning, and thanks for taking my questions. I wanted to maybe unpack a little bit the book of orders in hand. So in your press release today, you said 28 cabin chassis that are going into Canada, I guess 20 EV star cargo plus and passenger vans, and then 30 school buses for California and Oregon. With what's going on in West Virginia, different areas of the country, you know, my intuition leads me to think you've got an order book quite a bit bigger than the 78 units that you're calling out directly. Can you maybe update us on a gross number or, you know, a range that you think is fair based on, you know, orders in hand or commitments in hand that might be matched with EPA vouchers or HVIP funding?

Well, that's a multi-part question, so let's start at the top there for you, Craig. On the specialty vehicles and the passenger vans, in many of those, we have follow-on orders. In other words, we'll be working with them to place the initial order, and then there's a follow-on order for a like or similar number of vehicles. And the follow-ons don't have the, you know, the full set of approvals that would, you know, where we would put it at the top of our sales pipeline. So it would be lower down in terms of the probability as we would need to deliver the first tranche and then move on to the second phase or in even one case, the third phase for orders that a particular customer is looking for. So the attributes in the second and third tranche aren't quite the same as the first one, but the magnitude of the follow-on is greater than what we're looking at in the first tranche for the specialty vehicles and the passenger vans.

Understood, understood. So to ask the question simply, you called out some specific numbers in your release. Is it credible to say that there's a much broader pipeline than the 78 units you identify that, you know, we could have a multiple of that in interest? But as far as... And that's what I was saying. Okay. Excellent. Excellent. Thank you for that clarification. So then, you know, this is a lumpy business, quarter to quarter. You know, deliveries are difficult to predict, very difficult. Can you maybe talk us through what you would see as a natural margin now for your products? Does this differ dramatically between Cabin Chassis and the EV Star, Cargo Plus, and then the school buses? Do we see sort of, you know, richer products on the gross margin side and products that are less profitable? How should we think about, you know, potential gross margin progression later on this year?

Well, traditionally our gross profit has been in the high teens, 16%, 17%, 18% on a quarterly basis. I think Michael articulated the impact of the current quarter that when you have just a handful of vehicles going through a large facility as we have in West Virginia, the allocation of the plant overhead has a limited number of vehicles that absorb that overhead. So as we increase throughput, which we are doing right now, we're currently working through the 37 school bus orders in West Virginia. Facility looks a whole lot busier today than it does three, four months ago. So consequently, we see that as having a favorable impact on that allocation, which improves or increases our gross profit over time.

Understood.

Thank you.

Then last question for me. In your remarks, you indicated that some of the units you expect to deliver can be served out of inventory, that there's a number of vehicles that are finished in inventory. Can you update us on the finished vehicles in inventory? What type of vehicles are these? Can you maybe share the number of the different types?

Well, I'll provide the overarching comment, the first part of your question, then let Michael speak to the metrics within the finished goods inventory. But for those vehicles, like a specialty vehicle, like a box truck that we would build on our EV star cabin chassis or a similar type vehicle, or even the reefer that that Brendan talked about that was recently launched, all of those are built on our own EV Star cabin chassis and we have an inventory of those and consequently that inventory is fully paid so that allows us to crystallize or utilize the inventory and generate cash flow with little or no cash outflow. Understood.

This is Mike here. Hi Craig. So in terms of our finished goods inventory, the largest category right now would be our EB Star cabin chassis, although that's a category that is depleting quite rapidly, which is a positive thing due to the sales that we've seen over the last little while. So we anticipate that that's going to be declining over time. We also have approximately or over 40 EV stars of various types. That does include second-hand vehicles that we have repossessed or have been returned after lease. And then the other major categories would be our NanoBeasts. We have over 10 of those. And we have received additional Beasts since quarter end. So at quarter end, we didn't have many Beasts available for sale, but since quarter end, we have received additional Beasts that we're now in the process of delivery.

Excellent. Well, it's good to hear the customers are showing increased enthusiasm. I'll go ahead and hop back in the queue. Thank you.

Thanks, Craig.

Our next question comes from Tate Sullivan of Maxim Group. Go ahead, please.

Hi, thank you. Brendan, did I hear you mention more state subsidies in West Virginia as production increases, or have you already received those subsidies or have to apply for any? Can you cover that landscape, please?

I'm sorry, Kate. I couldn't clearly hear your question.

Do you have available subsidies in West Virginia as production increases?

We do. We have numerous subsidies in West Virginia. On top of subsidies we enjoy with the state for training employees where the state actually covers cost of new hires that go through the Green Power and Bridge Valley training program. We have tax subsidies. We have multiple subsidies in West Virginia that we'll be able to continue to take advantage of over the next few years up to and including the fact that our building in West Virginia is essentially a rent-to-own option where the state has purchased the building and we are buying it through the lease payments.

have you already received actual checks from the government or does that come as you increase production or the offsets to taxes? How do most of those work?

That would be a question for Michael Seifert to answer, I believe, on whether we've received the physical checks or if they're credits.

Yeah, so I think maybe what, in terms of the support we've received from the state, how I would characterize it is that they are the major providers end customer for a lot of units that we're selling so we are clearly selling to school districts but the state itself has supported those sales and it has also supported very importantly some pilot projects which have helped us develop and improve our vehicles as well as you know prove their ability to operate in some of the challenging conditions that exist there so mountainous terrain, you have winter conditions and so all of that has been helpful and as Brendan mentioned we do have a sale lease back on a facility there which again is the facility that we've been able to produce and then finally we have received support from the state in the form of training our workforce and so we're employing I think currently over 40 individuals at that point. And the estate has been supporting, importantly, some important training for those staff. So we would characterize this as a great relationship and one that I think works well certainly for our company, but hopefully the state sees benefit in terms of employment that we're offering there.

Tate, we have received checks.

Okay. Okay. And then, Frasier, too, with the 80 orders on the East Coast, are all of those school buses, are all those destined for West Virginia, or have you increased your state footprint for school buses since starting production in the West Virginia facility?

I believe that includes some orders that will be going into New York. Correct.

Okay. Okay, and then last for me, Michael, did you say $2 million of availability at the end of the quarter on the EDC facility? Did I catch that?

That's correct, approximately $2 million. I mean, it's on our balance sheet of a drawn balance of slightly over $3 million at quarter end, and it's a $5 million facility. Okay, thank you all. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Frazier Atkinson, Chief Executive Officer, for any closing remarks.

Thank you. To recap, we have seen a significant uptick in the past few months with our sales pipeline for Green Power's all-electric school buses, EVSTAR passenger vans, and specialty vehicles, which utilize our current inventory of EVSTAR cabin chassis. The latter represents the inventory we have on our books, generating cash flow requiring little additional cash outflow, markedly improving our liquidity. Many of these orders in quotes have follow-on orders providing exponential growth with our sales pipeline. We have the inventory and the production to meet the increased demand. Consequently, we see a step up in our revenue from our most recent quarter through each of the remaining quarters this fiscal year. Thank you all for your support and this ends today's call.

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