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spk00: 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.
spk06: 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.
spk13: 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.
spk04: Thank you, Mark. Before we jump into Q&A, let me give you a quick overview of Q1 2022 results. We were pleased with our Q1 2022 performance as we posted record quarterly vehicle deliveries in the history of our company with 84 vehicle deliveries. We posted revenues of $22.6 million in Q1, up $16.4 million as compared to $6.2 million last year, and we're pleased to deliver 84 vehicles. That's 72 buses and 12 trucks, a significant increase as compared to the 24 vehicles delivered in the same period last year. 80 of the Q1 2022 deliveries took place in Canada and four in the United States. Of note, The school bus unit mix for the quarter, as well as discounted pricing on certain trucks that were sold in the context of new product launch pricing, impacted the average selling price per unit. Q1 2022 revenue generated from sales of Lion Energy and aftermarket parts were higher than in Q1 2021, but slightly lower than in Q4 2021. Our gross loss amounted to 0.9 million as compared to 1.8 million in Q1 2021. Costs of goods sold include multi-million dollar investments aimed at continuing to ramp up production. Said differently, COGS include costs that do not yet contribute to the top line. Gross margin was also impacted by lower average selling prices per vehicle compared to Q4 2021, driven by specific unit mix for the quarter. Although we are pleased with Q1 deliveries in the current circumstances, the number of units delivered remains significantly below what we believe we can achieve with our current resources and manufacturing ramp-up investments. We, however, remain very encouraged by the unit-level economics, and taking all this into consideration, we firmly believe that, in the long run, the Lion model scales very well and can generate attractive gross margins as we produce and sell more vehicles and expand on our vertical integration strategy, such as the Lion batteries at our own battery plant. Continuing with administrative expenses, they amounted to $11 million, including $2.8 million in non-cash share-based compensation, an increase of $4.7 million as compared to $6.3 million in Q1 2021, and a modest increase as compared to Q4 2021, excluding share-based compensation. This was mainly the result of an increase in expenses reflecting Lion's status as a public company and the expansion of Lion's head office capabilities in anticipation of an expected increase in business activity. Selling expenses amounted to $5.4 million, including $1 million in non-cash share-based compensation, an increase of $1 million as compared to $4.4 million last year. The increase was primarily due to Lion's expanding its sales force in anticipation of the ramp-up of production capacity, and an increase in expenses as a result of the opening and operation of new experience centers. Now turning to adjusted EBITDA, which was negative $11.3 million for Q1. EBITDA for the quarter was impacted by the gross margin and, to a far lesser extent, by a small sequential increase in SG&A. Let's now discuss cash flows. Cash flow from operations for Q1 was negative $34 million, inclusive of $21 million of changes in working capital as we continue to invest in working capital, specifically inventory, and prepared for a continued increase in production. We also invested $15 million in R&D and $35 million in CapEx. Those amounts include $14 million for the Joliet plant and $17 million for the Lion Campus. We expect CapEx to continue to increase in the coming quarters as we progress with the construction of both plans. Last but not least, let me speak to select balance sheet items and liquidity. First, we ended Q1 with $155 million in cash, in addition to untapped government loan facilities for approximately $80 million for the Lyon campus, 30% of which is forgivable. We also have access to a committed revolving credit facility and the maximum principal amount of $200 million. Altogether, we have access to liquidity of up to $435 million. In terms of the capital needs for our project, we estimate the remaining $280 million to be spent on our two growth projects in order to reach full completion of both the Innovation Center and the Joliet Plan. In conclusion, We believe that we have a solid balance sheet which provides us with significant runway and flexibility as we continue to focus on achieving our growth project and ramping up our production. That said, we will remain very focused on the management of our cash resources. We will be very vigilant and always assess our options in regards to sources of capital. The last point I would like to make is that as construction of the Lyon campus is advancing, we have retained financial advisors to explore a sale-leaseback of the battery plant building. Should we close this transaction, we expect the capital outlay for the construction of the building to decrease. With this, I will turn the call back to Mark.
spk13: Thanks, Nicholas. Before we open the lines for questions, let me mention again that we expect production and deliveries to continue to increase throughout the rest of the year. Also, we remain on track to start manufacturing U.S.-built vehicles, and Lion batteries in the second half of this year. And finally, we are uniquely positioned to benefit from unprecedented government funding in both the US and Canada, and this should have a major impact on our already growing PO book. As you can see, we are more ready than anyone else to maintain and grow our leadership position in the EV market. Thanks.
spk06: Operator? We will now open the line for questions. I just want participants to know that we would appreciate if you could limit to two the number of questions asked so that you can allow others to ask their questions. And of course, you can go back into the queue if you have any follow-up questions.
spk00: Thank you. If anyone would like to register a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. And when preparing to ask your question, please ensure you are unmuted locally. So that's star followed by one on your telephone keypad to register a question. Our first question is from Benoit Poirier from Desjardins Capital Markets. Benoit, your line is open. Please go ahead.
spk09: Yes, thank you very much. And good morning, everyone. In your presentation, you note some improvement in the supply chain. Could you provide some color about your ability to ramp up delivery and expectations for Q2 in the full year? You mentioned about 40% of your backlog is deliverable in 2022. Should we assume about 900 to 1,000 deliveries for the full year? Hey, good morning. Good morning, Benoit. Yeah, we're glad.
spk13: You know, we did... 84 uh 84 deliveries in uh in q1 of this year and as you just said i mean we're expecting you know that same kind of growth uh for the uh you know the second quarter and we're seeing you know growth for the the rest of the year so the big difference you know on the supply chain uh with what we saw in the in the past is uh is basically longer longer lead times so longer lead times i said about two months you know in our last in our in our last call and now we're saying, you know, it's between two and three months and Obviously this is reflecting also in our the investment we're making in the inventory, you know on our on the on the balance sheet What is becoming a lot better the way that you know, the kind of crisis that we were seeing on a regular basis are Seems to disappear right now so it seems that you know with the the closed dialogue with how we have with all the suppliers and we can work with them and basically make sure that we will have all the components on the timely matter. So that being said, though, everything is not being resolved. So we see that, you know, until the end of the year and probably, you know, starting 2023 as well. I mean, those supply chain challenges will remain, but obviously they are becoming less and less. and impact to our operations, so that's very good news to ramp up. So, you know, I will not comment on the number of deliveries we will be making for the whole year, but it's looking very good, and we see that Q2 will be better than Q1, and we're expecting, you know, that same kind of growth for the remainder of the year as well.
spk09: Okay. And looking at your gross margin, Nicolas, it's been negative in the quarter, although you mentioned, Color, about higher overhead that fixed us and also launch prices that were made. How should we be thinking about your gross margin going forward?
spk13: Before I pass it to Nick, maybe just one comment. I mean, what we're very pleased to see right now is the good, very good material margin that we have. So we have a very healthy material margin. And that's probably the beginning when you wanna show a good gross margin in your financial statements, right? And we've been seeing information from companies we're competing with. And we saw at some point that their bill of materials were like higher than their selling prices. And it's absolutely not the case at Lion. So it's a sustainable, healthy material margin that we're having right now. And yeah, we made millions of dollars of investments in basically our labor and in our overhead as well. And so when we're saying labor, we're speaking, you know, like direct labor. We have the people to do two-thirds of our 2,500 units manufacturing capacity we have right now in Montreal. Obviously, that's a major investment when you're making 80, 85 units or 84 units in a quarter. Major investment in labor, but also major investment on everything else. We do have the equipment for the 2,500 units, we do have the space as well, and we do have all the indirect costs as well and all the indirect labor. So the team of people is there and ready to do those 2,500 units right now. And when we're saying we're making millions of investments in our manufacturing capacity, and this is obviously hitting the gross margin, well, in Q1, but that's going to keep hitting the gross margin for the next quarter as well. That's exactly what we mean. So, Nick, if you want to add anything.
spk04: I think you covered it well, Mark. The only thing I'd reiterate is what's important, that there are costs hitting the P&L today that are not contributing to the top line, as Mark detailed. And of most importance is that the model scales well. The economic model scales well. The unit-level economics are, we believe, very attractive. And as we continue to grow, we expect to see significant improvements in gross margins over time.
spk09: Okay, that's my two. Thank you very much for the time, and I'll try to get back in the queue. Thanks. Thank you.
spk00: Thank you. Our next question is from Jed Dorsheimer from Canaccord Genuity. Jed, your line is open. Please go ahead.
spk12: Hi, thanks. Thanks for taking my question. I guess my two are related. The first is... ASPs look like they're coming down, and I'm wondering why that is, given how favorable the subsidy situation is for your products, and do you see that stabilizing? And then I have one follow-up.
spk04: Yeah, maybe I can take this one. Hi, Jeff. Good to speak to you. Look, the ASP is really a factor of unit mix. for the quarter, so it really is, there was certainly no decrease for the given mix that we sold for the year, but it's a matter of mix versus the previous quarter. We highlighted in the disclosure, there's a slight decrease as well, just on a sequential basis in terms of the line energy and part sales, which probably make the implied ASP difference higher than it actually is. But bottom line, it's a matter of unit mix. I'd also say, I want to come back to the point that the incremental margin or the materials margin on each of these sales for the unit mix was also very healthy. And so I do expect something similar in terms of unit mix for the coming quarters. But again, it scales well from a gross margin standpoint.
spk12: Got it. So suffice to say, particularly on the buses with such a, with up to a hundred percent, um, subsidized, uh, there will be a stable ASP in that. Um, and I do have, uh, well, you know, my, and then my followup question is, um, related to the, um, the schedule of the warrant conversion from Amazon. Um, Is that on a regimented basis? And I ask this because there's another company I cover that had a similar mechanism, and Amazon was the company there. And given the subsidies combined with the warrants, it almost seems like they're getting ostensibly a free vehicle. So why wouldn't they force conversion there? occur of that sooner, which would help your cash needs too.
spk04: Yeah, Jim, the terms of the warrants with Amazon is that, so if you recall, they have access to 35 million shares of Lion when fully vested. Five million of that is vested, and the remaining 30 in order to vest is related to spend. In order for the whole 30 million shares to vest, they would need to spend $1.1 billion on our product. And it's sort of a vest as they spend essentially. Look, we obviously agree that it's an attractive proposition in so many ways. But that said, our disclosure around Amazon will be around big orders if and when they happen and warrants vesting. And so I'll leave it at that as it relates to the potential.
spk12: Great.
spk04: Thanks, guys.
spk05: Thank you, Jeff.
spk00: Thank you. Our next question is from Brian Johnson from Barclays. Brian, your line is open. Please go ahead.
spk10: Thank you. Two related questions. It's not lost on most dev investors that battery minimal prices are spiking and cell manufacturers are beginning to flow those through the cost. So I think two questions kind of one, um, have you seen any impact? Well, one is, you know, given you put it on trucks and buses, um, you know, is there risk to the unit economics? And thank you for the comments earlier on that. Um, as the minerals stay where they are, or you well covered, at least on the order book for pricing. And then two, um, you know, given not just battery costs, but a lot of other materials are inflating. Given your long backlog, how are you working with your customers on price or price bands or price indexing going forward?
spk04: Yeah, a couple of things, Brian, I'm good to speak to you. First on the batteries, and you'll recall that we have over 3,000 BMW batteries in inventory today. and we have significant orders coming through the rest of the year. Those are part of a purchase commitment that was made a certain while ago, and certainly prior to the spikes in pricing. So we feel that the pricing we have on batteries is quite attractive relative to what else we're seeing currently, and covers us very well for a big chunk of the order boom. It's also important to keep in mind that we are working eventually to transition most of our own batteries. And despite the increase in materials, which translate, of course, in higher cell prices, just the benefits of vertical integration of not also paying margins to third parties at the pack level are such that we view in the coming years an important decrease in the cost of our batteries. Now, as it relates to inflation on the rest of the bill of materials, so far, I mean, there is obviously inflationary pressure. So far, it's been well contained in great part because we have overstocked a number of supplies. At the same time, you know, as we're seeing the inflationary pressure, we're also working on a cost-out program that's related to scale-up, that's related to design and certain elements. And so those two are mitigating each other significantly. Our intention, obviously, is to continue to bring the cost of the vehicle down and in the long term bring vehicle pricing down. But to be very clear, should the inflationary pressure be such that it requires an increase of our vehicle prices in line with inflation, there's nothing that prevents us from doing that.
spk10: Okay, thanks.
spk00: Thank you. Our next question is from Rupert Murrah from National Bank. Rupert, your line is open. Please go ahead.
spk08: Good morning, everyone. Good morning, Rupert. With some stability in the supply chain now, are there any specific bottlenecks for production you can identify or do you still have many issues in flux? And related to that, Is it possible with some improvements in supply chain, you could see a step change to production rather than a more kind of gradual or steady improvement?
spk13: Yeah, well, Rupert, that's a good question. And obviously, we're trying to deliver as fast as possible on those orders. I mean, the customers are requesting them, which is great. Well, it needs to be kind of gradual. You cannot just turn the switch on and just triple the number of units you can manufacture. I mean, it's a supply chain of over 500 suppliers. And the less critical components are, let's say, as critical as the critical components like the EV components, such as batteries and motors. and all of that. So we have an approach where we build the foundation, we build everything, and from month to month, we are increasing the manufacturing pace to be at a very high level before long. So no, not easy to do a major step all of a sudden, but the kind of gradual, but when we're saying gradual, it could be, kind of a very you know speedy increase as well and this is what we're shooting for as i said earlier i mean we see that q2 uh we're expecting you know that same kind of growth that we saw in q1 but then obviously we're shooting for q3 and q4 to grow at at the uh much you know a higher higher pace if possible
spk08: All right, great. Thank you. And then another dynamic here, I look at the difference between orders and deliveries in the U.S. and Canada. We had deliveries to the U.S. down a bit this quarter. Can you talk about this dynamic and maybe how much of your order book is in the U.S.? How important is it for your product to be made in the U.S. to get U.S. sales? And could we see a step change in your U.S. business as Joliet picks up?
spk13: Yeah, Rupert, let me start on this one. You know, on the bus side, what happened, I mean, you know, when the Biden government came into power, basically everybody was expecting the subsidies that, you know, they've just announced last week. And so it seems like, you know, the market was kind of on a hold. for about a year. So there was, I mean, getting the orders in the last year, I mean, was quite challenging on the US side because everybody was expecting the, you know, this $500 billion deployment, I mean, to take, to happen. And so the news that happened last week, you know, with this $500 million, which is, you is great. And so this $5 billion is going to be deployed over the next few years. And this is a great news. And now we see that this momentum is going back. And as you know, you know, we're the clear leader in electric school buses in North America. And then, you know, right now, I mean, obviously, you know, we're in very close dialogue with the largest operators and also with the school districts to capture you know, as much as possible of this $500 million. So we will see, in my opinion, obviously, you know, the orders from U.S. operators really increase going forward. So that was like great, great news last week that we've been waiting, waiting for for a long, long time. That being said, though, on the Canadian side, it's still going very well. I mean, you know, this ETF is taking place. Right now, and so this is, we see a lot of momentum on the Canadian side still. So it seems like the school bus market as I was saying earlier this morning is kind of the electric school bus is kind of going even faster than what we were expecting. On the truck side, well, the truck side in general, not only in the US, but has been slower than expected. It seems, I mean, that probably within the last year, or maybe within the last 18 months as well, the market was kind of focused on something else. So those truck operators, you know, they were, those doing the, let's say the last mile, for example, they were having, you know, great results. They were, they had been very busy, but at the same time, the whole world, you know, was focused with those crisis. You know, the crisis with COVID, and then, you know, the supply chain crisis, obviously, that was partly, you know, coming from that. And, you know, the war, you know, kicked in right after. So the truck market was very, it seemed like, you know, focused on something else. And now we're seeing very good signs in the dialogues we're having, you know, with the truck operators that this is coming back. So it's been slower than expected. But keep in mind that the truck market is 10 times bigger than the bus market. And the U.S. market is 10 times bigger than the Canadian market. So with everything I'm saying, we're seeing that the U S market, I think, you know, it's going to be very promising either for the, you know, the, the truck and also for both, you know, for the, uh, uh, for the, uh, the buses as well. And it seems that, you know, finally the truck market is, is catching up, uh, right now, which, which is great. And then, you know, the last poll of your question was about, you know, the made in America, uh, buses and trucks. Well, honestly, I think that's going to help. I think that's really going to help. I mean, you, I know you've been thinking like this, you know, for a while also, you know, in the discussions we have, and we feel the same way that, you know, we, we, we, I mean, this is really going to expedite ourselves on the, on the US side. And the good news is that, you know, we will be starting this very, very shortly. Second half of this year, we're starting with the buses and then we'll follow up with the trucks. So to your point, we feel that this is going to be like a stepping stone, you know, for us on the U.S. side, without a doubt.
spk08: Great. Thank you for the call. Thank you.
spk00: Thank you. Our next question is from Mark Neville from Scotiabank. Mark, your line is open. Please go ahead.
spk03: Hey, good morning. Thanks for the time. Morning, Mark. Maybe this first morning, maybe just first on the backlog. When you say 40% are deliverable in 2022, what exactly does that mean? And I guess my question, if a chunk of those deliveries slip into 2023, is there any penalty or risk to the line?
spk13: Yeah, the 40% deliverable, that means that, you know, the customers, I mean, they want them, they would like them in 2022. So, which is the good news because we do have the orders and as per our agreement, Uh, you know, they could take them in 2022. So, uh, this is what, what it means. So they are basically, you're requesting those products. Uh, we're adding, you know, a very good close dialogue with, you know, all of our customers. They do understand, you know, the challenges we're going through with the, um, supply chain, uh, obviously, and to your, to your point, I mean, is there any orders we can lose if there's any, they're very minor. There are some dates, you know, with some of the subsidies, but, you know, it's kind of minor. So I will say, you know, we don't want to lose any orders, but I will say, you know, it's not material. Is there any penalties? Nothing I'm aware of. No, there's no penalties, Mark.
spk03: Okay. Maybe just on the CapEx, I think you said $280 million rest to complete your two projects, right? Is my math right that roughly 165 is this year?
spk04: It's a little bit over 180 would be this year.
spk03: Okay. And in terms of the government support that you're getting for Lion Campus, the 80 million, I'm just curious, how exactly does that work? I mean, is that fully available now? Is it sort of based on the number of people you hire? I'm just sort of curious how sort of broad strokes. How do you get access to that?
spk04: Rod Schroes is related to the spend of the Lion Campus altogether. It's a little more complicated than just that, but by and large, it's margining on that spend, if you will. The two agreements are different, but some of them are limited in the number of draws we can make. We do expect the first draw to occur in Q2, and it's going to be gradual as we spend on the project. The project being, obviously, the campus and the battery factory.
spk03: Right. Right. OK. Thanks for the time. Appreciate it. Thank you. Thank you.
spk00: Thank you. Our next question is from Michael Glenn from Raymond James. Your line is open. Please go ahead.
spk02: Hey, good morning. Just to start, circling to the EPA program that's in place, is there a made in the USA aspect to this program with the school buses?
spk04: Look, it's our understanding that there will be. In any case, for us, it will be. And so the intention is to build everything that we sell out of this program out of the Joliet plant.
spk02: And does that have any potential implications for the battery modules as well going over the border?
spk04: No, we don't believe that. In fact, we think we're in a unique spot here because we control what goes into the battery, meaning the cells. We source the cells. We produce the battery. We don't see any school bus OEMs out there that are doing that. Obviously, there isn't right now a source of local cells Uh, but you know, put it this way, we think our battery will be the most North American there is certainly, and can, can be, you know, can be also built eventually with us source. When those are available.
spk02: Okay. And, and then on the $200 million facility, what can you describe the covenants or the, any sort of usage dynamic we should think about with respect to that $200 million facility?
spk04: Yeah, it's an ABL facility. It really is meant to scale up with working cap and based on inventory, based on receivables. There are no, I would say, no significant or no financial covenants until there's a spring when the facility is close to being either a full margin or fully used. So it does provide with not only attractive pricing but quite a bit of flexibility and And it's well-suited to our model, which is still working capital intensive. And so I certainly like the instrument.
spk02: Okay. Thanks for taking the questions. Thank you.
spk00: Thank you. Our next question is from Jonathan Lammons from BMO Capital Markets. Jonathan, your line is open. Please go ahead. Good morning.
spk11: Good morning, Jonathan. Mark, on the Trump-Fitter partnership, Good morning. On the truck upfitter partnerships that have been announced recently, how are you thinking about the development timelines for those and when could we see more trucks on offer potentially supporting stronger orders?
spk13: This is happening right now, Jonathan. When we made the announcement, we basically had our truck with the upfitter's equipment installed on top of that. So we're talking about, you know, Morgan, Thermocane, NAPI, CM truck beds, and we did one, you know, with Transit as well. So we have those five truck upfitters, and the equipment is, you know, working very well with our trucks. And those were, you know, with the Lion 6, but there could be some usage, you know, on the Lion 8 as well. And also just a reminder, Jonathan, that, you know, the same thing is happening with the refuse trucks. um as well so the uh the refuse truck you know the the first ones will be delivered very uh very shortly and same thing i mean we've been working for years to make sure that the the batteries you know are installed in a way that the um the outfitters could install their equipment uh without having you know to modify what they are what they are doing so it's it's almost a plug and play for them because of all the work that's being done within the last few years. And I think this is something that, well, obviously that's a major benefit of the purpose-built electric trucks we are doing, but this is a major advantage that those updaters are enjoying right now.
spk11: Thanks. And in the context of the new EPA funding to school district customers, which is quite positive, would you have an update on Lion's market share in the zero-emission school bus market for 2021?
spk04: Yeah, by our estimates, we're the number one player in the electric space. We look at registrations and we'd be, I'd say by a certain margin, the largest player. We've been selling, as you know, on both sides of the border and feel that we're very well positioned Salesforce standpoint in order to tap into that program.
spk11: Thanks for your comments. Thank you. Thank you.
spk00: Thank you. Our next question is from Newman Seddy from Laurentian Bank. Newman, your line is open. Please go ahead.
spk07: Hi. Good morning, everyone.
spk13: Good morning.
spk07: Yeah, so I think you, Mark, mentioned that if there is a ramp-up, it's going to be a gradual one. I'm just wondering if, let's say, the supply chain issues subside, they're not there, how long would it take you to sort of get to that two, three, two-thirds of the capacity? Is it like five months, six months, or is it a longer period for you to ramp that up?
spk13: Yeah, well, that's a good question, Newman. So, Without the supply chain challenges, it will take a few months to run that up because we do have the people, which is obviously a major challenge for most manufacturing companies. We do have two-thirds of the people right now. Also, we do have the manufacturing equipment. We do have the manufacturing capacity to do this as we speak. And the only reason we're not able to do that right now is because of the supply chain issues. So if it was not, you know, because of the supply chain issues, it will be in a few months.
spk07: Okay, no, that's fair. And maybe just a second one. Can you provide some additional sort of color about around your potential vehicle sales pipeline right now and how that's faring versus last quarter?
spk13: Yeah, can you repeat the question? Vehicle sales, mine?
spk04: Pipeline.
spk13: Pipeline?
spk04: Yes. Yeah, look, maybe I'll take this one. And there's a bit of feedback on your line, Norman. But we're very pleased with the dialogue with the truck companies, as we mentioned. We look forward to this converting into purchase orders. And we talked about the strong momentum in the school bus space with the ZETI-TF, with the EPA program, among just some of the very attractive programs that are out there. What we report though is really just the purchase order book and we aim to be very disciplined about how we go about this. So we're not gonna comment on specific numbers as it relates to the selling activities and the pipeline, but we'll say we feel very good and we see strong momentum.
spk07: Okay, thanks for taking my question. I'll get back in the queue. Thank you.
spk05: Thank you.
spk00: Thank you. We have our last question from Benoit as a follow-up. Benoit, your line is open. Please go ahead.
spk09: Yes, thank you very much. So could you maybe provide some color about the potential behind the sale of zero emission, what it could represent over the next two or three years?
spk04: Are you talking about credit specifically, Ben?
spk09: Yeah, yeah, exactly, exactly.
spk04: Yes, so under the Advanced Clean Truck Program, and as a reminder, this is a program where a number of states, I think it was 16 at first, had signed an MOU to follow suit, to follow California's leadership around setting specific ratios of zero emission vehicle sales, including medium and heavy duty. throughout the years leading to specific objectives in 2035 and 2040, and under which there would be a credit and fine system whereby if you don't meet these ratios, you need to pay a fine or purchase a credit. And then if you exceed those ratios, i.e. if you sell more EVs than is required to, and I'm talking about the OEMs here, then you would get a credit and you can sell those credits. Now, these specific ratios don't kick in before 2024. but the accumulation of credit has started. We have sold a little bit over 40 vehicles in those given states last year, and we are in the process of qualifying those sales. And so we're very early in this process, but it's obviously very encouraging for us that we're already accumulating those credits. We don't have a good sense of the market price of those credits just yet. So I won't provide a specific estimate. But as you know, other EVOEMs have done very well with those credits. They could be a very attractive source of revenue and I'd say revenue and margins because they don't come at any extra cost for us. It's really credits we get for doing what we're already doing. And all of our vehicle sales will pretty much qualify because we just sell EVs. And so it's got an interesting potential, a very interesting potential, but we're just at the beginning for now.
spk09: Okay, that's great, Collier. And obviously, when we look on the financial standpoint, you mentioned great, Collier, about your available liquidity and CapEx. And I'm just wondering about the inventory bill. How should we be thinking with respect to the inventory potential inventory bill for 2022 and how the booking activity is important with respect to cash advance to offset the increase in working cap?
spk04: Yeah, that's a good question. You will have seen a reduction in the amount that we invested in working cap in the last quarter. obviously the objective is to sort of grow into our working cap requirements if you will you know and it's said differently to have working cap investment be a lesser and lesser proportion of sales over time that said I mentioned earlier that we need in the current environment to stock and say overstock on batteries and in some cases on motors and other critical components so we do expect some variability going forward in the working capital needs. We do expect to continue to invest in working capital. And to your last question, to the last part of your question, we don't depend on customer advances to fund our activities. I mean, there are generally no advances in the school bus space, and there could be some in some circumstances in the trucks, but it's not a financing tool for us.
spk09: That's great. Okay, thank you very much. Thank you, Ben.
spk01: Well, thanks, and that's all the time we have for today as we have 9.30 commitment. So thanks, everyone, for joining the call. We look forward to continuing the discussion, and feel free to contact me for any follow-up questions you may have. You have a nice day. Thanks.
spk00: Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.
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