The Lion Electric Company Common Shares

Hello everyone, good morning and welcome to the Lions Electric's first quarter 2022 results conference call. At this time, all participants are on listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the call over to Isabel Adjahi, Vice President of Investor Relations and Sustainable Development. Please go ahead, Ms Adjahi.

Good morning, everyone. Welcome to Lions' first quarter 2022 results conference call. Today, I'm here with Marc Bédard, our CEO funder, and Nicolas Brunet, our EVP and CFO. Please note that our discussion will include estimates and other forward-looking information, which our actual results could differ from in the future. We invite you to review the questionnaire language in yesterday's earnings release and in our MD&A regarding the various factors, assumptions, and risks that would cause our actual results to differ. With that, let me turn it over to Marc to begin.

Marc? Thank you, Isabelle, and good morning, everyone. In a few days, on May 7th, it will be exactly one year since we became a public company. From our first day of trading on the New York and Toronto stock exchanges, Each one of us at Lion has brought their very best foot forward to deliver on our growth strategy, which resulted in our Q122 performance. Today, I am pleased to report that, first, despite a challenging supply chain environment, we continue to see significant improvements, which translated into an accelerated pace of vehicle deliveries and resulted in us achieving a record number of quarterly vehicle deliveries. We expect to continue gradual improvements in vehicle deliveries over the coming quarters. Second, we are accelerating CAPEX investments and remain on track to start manufacturing US-built vehicles and Lion batteries in the second half of this year. And third, the movement towards transport electrification continues to gain strong momentum, as demonstrated by unprecedented government funding packages announced in the US and Canada, including the announcement last week of the first $500 million in funding under the EPA's $5 billion Clean School Bus Program. Lion is uniquely positioned to benefit from these funding packages. I will now discuss those three elements before passing it on to Nicholas, who will discuss our financial results for the quarter. And please note that I will also at times refer to specific pages in the deck. First, We are pleased to report that in Q1, we continued our growth and achieved a record number of quarterly vehicle deliveries. 84 vehicles were delivered, 72 buses and 12 trucks as compared to 24 in Q1 of last year. With the supply chain improvements we have been able to achieve over the last two quarters, we are confident that the cadence of production and therefore the number of deliveries should gradually improve over the rest of the year. Let me now spend a minute on our supply chain a key element of our growth strategy. As you all know, we are fortunate to have a very robust supply chain tailored to our electric vehicles, in which we have been operating for years. And this has been a key element in Lion maintaining a decent level of production, despite the perfect storm we went through. We continue to build our inventory for critical components, such as motors and batteries. as these usually require a longer lead time and are less subject to supplier redundancy. With more than 3,000 batteries and 500 motors in inventory, and more orders coming in at attractive prices for the remainder of the year, we are significantly reducing the potential risk of manufacturing delays. Considering the current environment, we believe this to be the right approach to de-risk our ramp-up in vehicle production and deliveries, even if we have to carry this inventory on our balance sheet. With respect to the other components, although the supply chain is still quite fragile, we are seeing clear signs of improvement. Lead time for the delivery of most components, although still longer than usual, is now stable. As one of our objectives is to continue to improve our supply chain for both the short and long term, we continue to focus on multi-sourcing, to ensure we have different options for the majority of our parts. Today, we source from over 500 suppliers, most of them being in North America, in line with our strategy to develop a strong local EV supply chain. As supply chain management is a key pillar in our growth strategy, we are pleased to have hired Dr. Judd Kenney as Senior Vice President of Procurement and Supply Chain, a longtime executive of Alstom, Bombardier Transportation, and Pratt & Whitney, Judd has more than 20 years' experience in supply chain management. Judd is leading the development and implementation of best practices across our supply chain as we focus on ramping up production while lowering unit costs. With respect to orders, our PO book amounts to 2,422 vehicles consisting of 286 trucks and 2,136 buses. This represents a total order value of $600 million. And about 40% of these vehicles are deliverable in 2022. We are very pleased by the continued strength of the school bus market, where the transition to EV is happening faster than expected. As you saw by our recent announcements, we are seeing more repeat and larger orders from our customers as they transition from initial orders to larger scale fleet electrification. Order momentum in school buses in Canada is clearly supported by strong legislative tailwind, which I will discuss in a minute. We expect to experience an even bigger impact in the United States, especially now that the specifics of the initial funding under the EPA's $5 billion Clean School Bus Program became available last week. I will discuss this in greater detail later, but clearly, the funding available for electric school buses under this $5 billion program should expedite school bus electrification in the U.S., and our product offering is perfectly suited to this program. In the truck market, we continue to have promising dialogue with potential customers as our electric trucks are becoming more and more available. Large fleets are testing our vehicles and visiting our plants, which we are confident will translate into tangible orders. We also like the momentum we are experiencing with truck upfitters, as demonstrated by recent announcements with industrial leaders such as Morgan Truck Buddy, Thermo King, Napite, CM Truck Beds, and Transit. Similar to what we have done with Demers for the electric ambulance, these partnerships demonstrate the flexibility of our Class 5 to Class 8 purpose-built electric trucks that can easily adapt to any applications. Upfitter partnerships fit perfectly in our channel sales model, where we can leverage the existing relationships and volumes of established offerors to accelerate our market penetration. Speaking of the Class A truck, we will soon finalize and start the testing of our Lion AT with an objective to deliver customer units by the end of the year. Based on our current discussions with customers, we expect a very high demand for this vehicle considering our estimate that 45% of the Class A tractor trailer trucks in North America are currently operating under the urban range we offer. Now, turning to our two new manufacturing facilities. Pictures of the Joliet plant and the Lion Campus are available on slides eight and nine of the deck. As you can see, we continue to make great progress at both locations. In Joliet, we have started receiving and installing equipment for the school bus production line, such as overhead cranes. while we are finalizing the construction of the interior of the building. We are on track to start commercial production of buses in the second half of this year, which will enable us to keep up with the increased demand for our electric school buses. Equipment for truck production will be received later during the year, and production should start late this year, early next year. We remain fully focused on setting up our working stations for our buses, trucks and chassis and continue to build our local team. As of today, about 25 plant managers and supervisors have already been hired, and we are also very active in the recruitment of our manufacturing employees. We expect a total workforce of about 500 employees in Joliet by the end of the year. Let's now turn to the Lyon campus, for which pictures are available on slide nine of the Q1 deck. As of today, as you can see, We have fully completed the steel structure for the battery plant building and approximately 40% of the building shell has been mounted. We have also poured most of the foundations for the innovation center and will now start mounting the steel structure. In parallel to the construction of our battery plant, we have substantially completed the development of our proprietary battery modules and battery packs. The assembly line production of our batteries is also advancing on schedule. Our prototype module line has been installed at JR Automation Facility in Michigan, and we are pleased to announce that we have produced our first prototype battery pack, which is currently being tested, an exercise we will of course repeat many times during the next few months. You can see a picture of this prototype pack on page nine of the Q1 deck. Simultaneously, we are testing our commercial production line, which will first be installed and commissioned at JR Automation Facility and then transferred to our own battery plant. Start of battery production in Mirabelle is planned for the second half of this year. Let me now spend a minute on our existing manufacturing plants near Montreal. As you know, as we continue to progress on vehicle development, as well as on our Joliet plant and Lion Campus, which I just discussed, we are also ramping up production at our two existing sites near Montreal. I am very pleased with the progress we are making on this front. And despite the supply chain crisis we are facing, we expect production and vehicle deliveries to continue to increase over the coming quarters. We are in fact investing millions of dollars to increase our production cadence, as you can see in our cost of goods sold in our Q1 financial statements. While these investments obviously impact our short-term gross margin and overall profitability, including in Q1, We are very confident that these investments will pay off in the near future as we continue to ramp up production to deliver on our growing order book. Let's now discuss the strong tailwinds we are seeing in the movement towards fleet electrification. More than ever, we can feel that the wind of electrification is blowing at full speed, as demonstrated by numerous announcements of highly attractive funding programs and legislation supporting transport electrification. Let me touch on a few examples, starting in the United States. First, details of the first round of funding under the EPA's $5 billion Clean School Bus Program were released last week. Under this program, priority districts can receive up to $375,000 in funding per electric school bus, which can represent up to 100% of our all-electric school bus price. while other eligible districts can receive up to $250,000 per electric bus, thus largely aligning the price of our electric bus to that of a conventional one. This is excellent news for Lion. Given our leadership in the industry, our first mover advantage, our close relationships with the largest operators and school districts, and of course, our upcoming Joliet plant, where we will manufacture made-in-America electric vehicles starting in the second half of this year. No other OEM is better positioned than Lyon to assist school bus operators and school districts in leveraging this unprecedented $5 billion funding package. Also, in addition to last year's announcement by the city of New York that it will electrify 100% of its school bus fleet by 2035, New York Governor Hochul recently announced that the state of New York will look to follow the same path and commit $1 billion to support EV adoption and infrastructure. The objective is for the 50,000 school buses on the road in the state to be zero emission by 2035, with a requirement that all new school bus purchases be electric starting in 2027. In the same breath, Boston's mayor also announced a plan to replace over 700 school buses with electric alternatives by 2030. I would also like to highlight our recently announced MOU with the U.S. Department of Energy to accelerate the use of electric vehicles, such ours, to help balance the renewable power grid through vehicle-to-everything technology. We have been involved with several V2G projects throughout the years and are very proud to be the only school bus manufacturer to be asked to take part in this key project. Final point on the U.S. market. We are pleased to announce that in March, we submitted our first application for credits under the Advanced Clean Truck Program in the United States. The Advanced Clean Truck Program is a credit and deficit program which requires the sale of zero emission or near zero emission medium and heavy duty trucks. As a dedicated zero emission medium and heavy duty trucks manufacturer, we were eligible to start earning credits under the program with our 2021 models. We will be able to monetize the credits that we earn under this program by selling them to manufacturers in deficit. Several states in the United States have already adopted the ACT rule and currently include California, Oregon, Washington, New Jersey, New York, and Massachusetts. As more states adopt the ACT rule and we continue to grow our production and sales, these credits have the potential to represent a significant source of revenue for Lions. In Canada, the recently announced budgets at both the federal and provincial levels also allocated significant amounts to EV adoption. The Canadian federal government committed to investing $547.5 million over the next four years to launch a new purchase incentive program for medium and heavy-duty zero-emission vehicles. While Quebec bona fide its environmental trucking program and is now allocating up to $175,000 per electric truck. There is also a 15% bonification for Made in Quebec trucks, which brings the maximum grant amount to over $200,000 in the case of our Lion trucks. Still in Canada, British Columbia expanded its LCFS program in January to enable owners of electric vehicles charging infrastructure to also earn LCFS credits. LCFS credits earn by operating line trucks and school buses, can represent a very material source of revenue for our customers that could significantly improve the TCO advantage of our vehicles related to the diesel ones. Speaking of which, the current environment and upward pressure on crew load prices are clearly favoring the switch to electric vehicles. As you can see on page 11 of our deck, Increasing the price of diesel fuel from $3.50 per gallon, the price we previously used in our TCO calculations, to $5 per gallon increases the estimated TCO benefits of our Lion 6 to 35% and reduces the payback period to five years. Said differently, our Lion 6 truck allows customers to have a significant amount on the total cost of ownership of the vehicle even without taking into account the various subsidies that are available today. With that, let me now turn the call over to Nicholas, who will comment on our financial results.