The Lion Electric Company Common Shares

Good morning, ladies and gentlemen. Welcome to Lion Electric's second quarter 2022 results conference call. At this time, all participants are in a 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 Ajahi, Vice President of Investor Relations and Sustainable Development. Please go ahead, Ms. Ajahi.

Good morning, everyone. Welcome to Lion's second quarter 2022 results conference call. Bienvenue à la conférence téléphonique sur les résultats financiers du deuxième trimestre 2022 de Lyon. 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 cautionary language in this morning's annual release and in our MD&A regarding the various factors, assumptions, and risks that could 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. We are very proud of our results in the second quarter of this year, both in terms of vehicle deliveries and in the execution of our growth initiatives. As we navigate through those challenging times, we relentlessly focus our strategic activities on accelerating return on investment with the ultimate goal of increasing deliveries to our customers, while at the same time increasing our manufacturing capacity at a pace consistent with the EV market adoption. To do that, we leverage both the strength of our Lion ecosystem An experience we have accumulated over 14 years of operations. This enables us to ensure that our investments are aligned with the underlying fundamentals impacting our industry and operations, as well as our liquidity profile. Today, in addition to discussing our Q2-22 operational and financial performance, we will explain the actions we will implement to support our growth strategy and accelerate return on investment. There are three key elements for today's call. First, as supply chain continues to improve, so does the pace of our vehicle deliveries. We delivered the highest quarterly number of vehicles ever with 105 deliveries in Q2. This is the result of a more stable manufacturing rhythm where we see continued growth in the number of finished vehicles being produced. And we expect our manufacturing operations to continue to improve in the upcoming quarters. Second, our Jolient plant and our battery factory are advancing as per schedule, and we remain on track to start manufacturing U.S.-built vehicles and Lion batteries by the end of the year. That being said, with a view to focus our strategic activities to accelerate return on investment and optimally manage our capital resources, we decided to adjust the cadence of our capital spend for the Jolient facility. Our goal being to align CapEx with projected deliveries. We will reduce 2022 spend to focus on reaching commercial production for the electric bus production lines in Joliet. Third, with many long-time expected EV programs in both the US and Canada now being deployed or to be deployed in the near future, we expect global demand to significantly accelerate and are more than ever ready to support customers in their transition to EV. We will elaborate on each element during the call. Let's begin with vehicle deliveries. We delivered 105 vehicles in Q2, the highest number ever for a quarter. This represents an increase of 72% compared to 61 vehicles in Q2 of 2021. Also, a growing number of our customers in Q2 dealt with Lion Capital, to secure financing solutions, making it easier for them to access financing solutions tailored to the EV product on a timely basis. Let me now provide an update on our supply chain. For both critical and non-critical components, the challenges experienced over the past year are decreasing, even if they have not yet fully reverted to pre-pandemic levels. As we remain extremely vigilant, And to avoid any disruption in this still fragile environment, we continue to proactively seek new alternate suppliers. Specifically, we have increased the number of suppliers from which we source raw materials and components by more than 15% over the last 12 months. One of the biggest hurdles we are nevertheless currently facing is the upward inflation pressure for some of our commodities and for transportation costs. which had and is expected to continue to have a negative impact on our product cost. To that end, we have begun rolling out near-term price increases in certain markets to preserve our unit level gross margins. On the battery front, we have over 3,000 packs in inventory, and we expect to continue to receive additional packs until the end of the year, thus ensuring a smooth transition to our own battery pack production in 2023. Let me now discuss our U.S. factory and our battery plant and our priorities for the foreseeable future. Like most companies, we spent the last few months navigating through the current challenging economic environment and have decided to put additional focus on what will generate revenue in the short term with a goal to accelerate return on investment and optimally manage our capital resources. The concrete actions we are putting in place are the following. We adjusted the planned cadence of our capital spent at the Jolient facility to align it further with projected deliveries and therefore decided to initially focus exclusively on bus production. Trucks will continue to be manufactured in Canada in the near term, where we have ample capacity to meet near-term demand. As a result, the installation of some of the equipment and other capital expenditures at the Jolient facility has been pushed beyond 2022. This includes equipment aimed at supporting truck production or further increasing bus capacity towards full-scale production. Specifically, we are reducing the amount of total capex expected to be insured for the full year in the Joliet plant in 2022 by $35 million from $115 million to $80 million. While the estimated cost to build out the Joliet facility to its full capacity remains at $150 million, the timing of the full build-out will be continuously reassessed. In the same line of thought, staffing of the Joliet plant is being adjusted to align our focus on short-term production needs. Most of the management and back-office employees have been hired, and on the manufacturing front, we will hire the number of employees required to begin our bus production ramp up towards the end of 2022. We will then scale the account over time based on demand for our vehicles. With respect to the Lion Campus, with a view to better leverage our available space and maximize cost efficiency in this environment of very expensive and rare square footage renting cost, we have decided to use a portion of the Innovation Center That was initially planned for engineering offices for warehousing capabilities on a temporary basis starting early next year. A portion of the Innovation Center will still be used as planned for tests and certification of our vehicles and batteries, as well as for vehicle prototype production. While there are no changes to the expected capex of approximately $100 million to be incurred in total in 2022 for the Lion Campus, We will here again focus on the battery plant, which will have a significant impact on our short-term revenue and accelerate return on investment. The timing of the full build-out of the Innovation Center will therefore be continuously reassessed. I will now discuss the advancement of each plant in detail, starting with our U.S. manufacturing plant in Joliet. The construction work is progressing well during Q2 We continue to install school bus assembly stations and manufacture Lion's Sea units for the purpose of working station setup and employee training. We expect the installation of school bus production stations to be substantially completed near the end of the year. And we remain on track to start the commercial production of buses also by the end of the year. This will enable us to meet the demand for our electric school buses coming in part from the $5 billion EPA program. Let me stress that while our current focus is on ramping up near-term production in a capital efficient manner, our long-term expected annual capacity in Joliet remains unchanged at 20,000 vehicles per year. Now turning to the Lyon campus. During the quarter, we substantially completed the shell of the battery plant building. We expect the interior work to be largely completed by the end of Q3 and production of battery packs to begin towards the end of the year. For the innovation center building, foundation work has been completed and the steel structure is advanced to approximately 90% completion. In parallel, testing of both our battery packs and assembly line are progressing as planned. We continue to produce additional prototype battery packs at JR Automation Facility in Troy, Michigan, where the prototype line has been in operation. The battery packs are currently undergoing testing and certification, and we expect the certification of packs, factory acceptance of production equipment at JR Automation Facility, as well as production of our battery packs at the line factory to be completed by the end of this year. Now turning to orders. Our PO book amounts to $590 million, consisting of 286 trucks and 2,071 buses for a total of 2,357 vehicles, substantially all of them being conditional on the grant of subsidies and incentives. Long-awaited subsidies, which are finally being launched on both sides of the border, should accelerate the transition to EV, and we believe that this momentum will positively impact our book. On that note, we are pleased to announce that our order book includes a first order for four Lion ambulances, a vehicle we developed in partnership with Demers and for which we see great potential. With respect to electric buses, we are seeing more and more interest from Canadian customers, as reflected by recent orders, including several repeat orders during Q2. The Canadian ZTS program continues to generate increased interest from large school bus fleet owners. As a reminder, under this program, the federal government is dedicating 2.75 billion Canadian dollars to support public transit and school bus electrification. Most recently, on the truck side, the Canadian federal government announced the launch of the incentives for medium and heavy duty zero emission vehicles program, dedicating 547.5 million Canadian dollars over the next four years. The objective of this program is to promote the adoption of medium and heavy-duty zero-emission vehicles. Under this program, electric truck buyers can receive up to $150,000 in subsidy per electric truck. Even more interesting is that this funding can be combined with provincial incentives. As an example, by stacking both the federal and provincial incentives, such as Quebec's Eco-Communash program, a Line 6 truck is eligible for subsidies of up to $244,000, which has a material positive impact on the TCO. Since launch, many trucks have benefited from this program, and we continue to see increased interest from customers. In the US, the $500 million first phase of the announced $5 billion EPA program opened in May, translating into unprecedented customer interest and dialogue. We are confident that the positive impact of this program will materialize on the order book once orders can formally be placed by the operators and school districts starting next October as per the program rollout procedures. In the meantime, many U.S. customers are putting orders on hold, awaiting final grant allocations. As a reminder, this program will award up to $375,000 per zero-emission school bus in priority districts while other school districts can receive up to $250,000 per school bus. As per the rules of the program, infrastructure installation and vehicle delivery must take place no later than October 2024. We believe that we are ideally positioned to serve eligible customers. Given our leadership in the industry, our Lion ecosystem, 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. Still in the U.S., we were also pleased to see that the Inflation Reduction Act is on its path to passage in the next couple of weeks. This legislation, once voted, will significantly increase federal funding to clean OEMs, and it will represent the single biggest climate investment in U.S. history. The Act currently includes over $60 billion to increase domestic production of clean energy and transportation technologies, and $1 billion specifically for clean heavy-duty vehicles, including school buses and garbage trucks. Last, on the Lion Energy front, our order book consists of 226 charging stations, representing a total order value of approximately $3 million. Our order book has also been impacted by the postponement of commercial production and delivery of some of our models, mostly the Lion-A and Lion-D models. This resulted in some POs being canceled due to funding being expired and in the removal by us of certain orders from our order book. Given that the postponement might create uncertainty relating to the payment of subsidies. That said, we are in dialogue with customers and agencies to find alternative arrangements to be able to preserve those orders. Let me finish by providing an update on our vehicle rollout. As we look back into the last few months, supply chain challenges put pressure both on manufacturing and development activities. We achieved some important milestones this quarter in the development of new models, including the first prototype units of the Lion-A school bus, the Lion-D school bus, the Lion-A bucket truck, and the Lion-A tractor truck Despite this important progress, supply chain challenges and delays incurred at the test centers impacted our commercialization timeline, mostly for the Lion-A and the Lion-B models, and to a lesser extent for certain other platforms that will be commercialized in the first half of next year instead than by the end of this year. This is further detailed in our MD&A. With respect to the Lion team, Our headcount now amounts to approximately 1,300 employees, including more than 300 engineering and R&D professionals. Recent key hires include Cindy Dunn as Vice President Truck Sales for the U.S. market, and Dominic Beckman as Vice President Marketing and Communication for the U.S. as well. Cindy brings 20 years of sales and operations leadership experience to Lion, including at Electromechanica and General Motors, while Dominic joins us from Eno Trucks, a Toyota Group company. Before turning it on to Nicholas, I would also like to officially welcome Ms. LaTasha Koma and Mr. Dane Parker, who recently joined Lions Board of Directors. LaTasha is the operating partner at GenEnix 360 Capital Partner. She previously held several executive leadership positions at Arlie-Davidson and Chrysler. As for Dane, He was Chief Sustainability Officer and Vice President of Sustainable Workplaces at General Motors. He also held several leadership positions at Dell and Intel Corporation. They both have been appointed to the board as independent directors, and we look forward to working with them. Nicholas will now further discuss our financial performance and our expected spending for the remainder of 2022. Thank you, Martin.

We posted record deliveries and revenues in the history of our company in the second quarter of 2022. Not only did we post growth as compared to last year, but we also posted sequential growth in deliveries for the third straight quarter. In Q2, we delivered 90 buses and 15 trucks for a total of 105 vehicles, translating into revenues of $29.5 million for the quarter. Of these units, 91 were in Canada, and the remaining 14 in the U.S. This compares to 61 units in Q2 2021 and to 84 units in Q1 2022. The average selling price of these vehicles was slightly higher than in Q1, which is mostly a reflection of the unit mix. Despite setting a new quarterly record this quarter, we believe the number of units delivered still could be significantly below what we can achieve with our current resources and manufacturing ramp-up investments. we posted negative gross margins of $3.5 million, reflecting increased fixed manufacturing and storage costs. The positive impact of increased sales volume was mainly offset by increased fixed manufacturing and inventory management system costs related to the ramp-up of production capacity for future quarters and the impact of continuing global supply chain challenges. Continuing with administrative expenses, They amounted to $11.7 million, including $2.6 million in non-cash share-based compensation. If we exclude share-based compensation, this represented an increase of $4 million as compared to the $5.2 million in Q2 2021, and a more modest $0.9 million increase as compared to Q1 2022. The increase mostly results from additional expenses in the context of the expansion of Lion's head office capability. as well as professional fees related to supply chain and strategic project optimization initiatives. Selling expenses amounted to $6.7 million, including $0.8 million in non-cash share-based compensation. If we exclude share-based compensation, this represented an increase of $2.6 million as compared to the $3.3 million in Q2 2021 and a $1.5 million increase as compared to Q1 2022. The increase, as compared to last year, was primarily due to line expanding its sales force in anticipation of the ramp-up production capacity and an increase in expenses because of the opening and operations of new experience vendors. During Q2, we recorded a $2.1 million gain related to the balance sheet removal of a financial liability related to previously acquired dealership rights that we had acquired from a private party and for which all payments expired on May 7, 2022. We maintain all dealership rights associated with this acquisition, but we will not have to incur any related costs in the future. Now turning to adjusted EBITDA, it was negative 14.4 million for Q2. Adjusted EBITDA for the quarter was mostly impacted by gross margin and to a lesser extent by sequential increase in SG&A. Let me now spend a few minutes on our expected capital spend. As previously mentioned, We believe our balance sheet provides us with runway and flexibility as we continue to focus on achieving our growth project and ramping up our production. We remain very focused on the prudent management of our cash resources and thus implementing action to support our growth strategy and accelerate return on investment. This would positively impact our capex. First, for the Joliet facility, we expect to incur a total capex of $80 million in 2022. a $35 million reduction versus the $150 million previously disclosed. As of June 30, 2022, we had incurred capex of approximately $36 million in the plan for 2022, including approximately $22 million during the second quarter. As Mark mentioned, this investment is expected to bring us to commercial production of school buses in Joliet by the end of 2022. For the Lyon campus, we continue to expect to incur approximately $100 million of total capex in 2022, of which approximately $39 million has been incurred this year as of June 30. Again, this amount is expected to lead us to production of battery packs by the end of the year. While the total cost estimates for the full build-out of the Joliet facility and Lyon campus remain unchanged, the timing of the full build-out of the facility and the related capital spent will be dependent upon prevailing economic conditions, the demand environment for the company's products, and the company's growth and liquidity profile. Depending on our liquidity profile, we expect to further review the cadence of our investments and to take additional measures to optimize our required production capacity in light of projected delivery and to monitor our liquidity. Let me now turn to our balance sheet and liquidity profiles. Our cash position amounted to $83 million as of June 30, 2022. We also have access to a committed revolving credit facility of up to $200 million, subject to a borrowing base, which was estimated to translate into a total availability of approximately $75 million as of June 30. Last, we have access to support from the Canadian federal and Quebec governments of up to approximately $100 million Canadian dollars in connection with the build-out of the Lion Campus. As of June 30th, $3.7 million was drawn on the provincial loan. We expect to perform our first draw on the federal loan during the third quarter. As of today, we estimate that approximately $40 million of the capex to be incurred in 2022 on the Lion Campus will be funded through the government support subject to the related claim process and timing. At the end of the quarter, our debt amounted to approximately $14 million, which includes the first provincial loan draw that I just mentioned. Despite our current runway in liquidity, we expect to seize opportunities that may become available to raise additional capital. This could be performed over time through the $125 million at-the-money equity program, which we established late in Q2 and for which no amounts have been raised yet, or through other financing transactions. With that, I will pass it back to Marc for concluding remarks.

Thanks, Nicolas. Before we open the lines for questions, let me conclude by stressing that we are pleased with the momentum we built over the past months, and we aim to further accelerate our growth in terms of vehicle deliveries and manufacturing vehicle output. We are focused to accelerate return on investment while reducing 2022 capex and protecting liquidity without compromising our long-term growth. The EV incentives have reached an unprecedented level with the recent announcements in the US and Canada. And as we play an integral role in helping our customers meet their GHG reduction targets and their overall ESG mission, we believe more than ever before that we are exceptionally positioned to capture our share of the medium and heavy duty EV market much faster than most of the other OEMs. Thank you, everyone.

Operator, we will now open the line for questions. I just want to ask you to limit to two the number of questions asked to allow all the participants to ask a question. You can, of course, go back in the queue if you have any follow-up questions.

If you'd like to interact, that's star one to ask a question today. Our first question comes from Mike Schliske from DA Davidson. Mike, please go ahead.

Good morning and thank you. I wanted to maybe start off by touching on the battery plan and the strategy for batteries going forward. You had announced a battery supply agreement with an outside provider last year. That provider is now about to be acquired and it's about to exit some of their contracts, which presumably would include yours. You do have your facility opening soon, which is great. But other companies that are using that other supplier have announced that they want to still have a dual-source battery strategy. Would you maybe discuss what the acquisition of this third-party supplier means to Lion and kind of your plan? Does it make sense, given supply chain, to have a very robust multiple battery supplier strategy going forward?

Good morning Mike, this is Mark. We feel more than ever before that the strategy we've put in place in the last few years is the right one. We've been talking about vertical integration, we've been talking about cost savings, and we feel that everything we've been doing is exactly what needed to get done. So you alluded to this agreement with the third party, so as you know, this agreement is public. It has been publicly disclosed in the last few years. So just a reminder, it's a long-term agreement that we've entered into in 2021. It's a five-year agreement. And as they were saying back then, they are expecting to generate about $234 million of of revenue over over five years um and you probably remember also that this agreement i mean is for the supply of our back of the of those batteries for the lionate tractor model um so this is one thing i just wanted to make sure you know it's well it's well understood speaking of our battery factory it's going very well uh you probably remember at scale we will have a five gigawatt hour manufacturing capacity. This is going very well. The first battery packs will be manufactured this year and we're talking about battery packs for the trucks mostly to start with. So again, no delay. We are absolutely on schedule.

Okay, okay. I also wanted to ask about the cadence of production going forward here. Now, I know you don't give guidance typically, but we are entering a bit of a tricky point in Lion's history as the new facility is open and we have the supply chain issues. Could you at least confirm with us or let us know whether you feel like you'll have a little bit better production in Q3 versus Q2 and then Q4 versus Q3? I mean, are you on the upward trajectory here?

Yeah, no, Mike, so you do. You remember in Q1 we had 84 deliveries, 105 this quarter, so obviously it's going the right way. There have been some supply chain challenges and those supply chain challenges, I mean, will remain. That being said, I mean, we are, the pace of our manufacturing is getting better and better. I was just, you know, saying it earlier this morning, we have a better rhythm in everything we're doing. So in a nutshell, I mean, supply chain is, well, everything, you know, takes a little bit longer with the supplier. So what used to take a couple of months is now, you know, many, many times, like, you know, we do have like four months, five months of delay when receiving those parts. And now it's being considered into, you know, the supply, the procurement process. So all in all, I mean, it's going well, still challenging, but we expect that the next quarters will keep increasing. So you are right. We are not providing guidance, but we see growth in manufacturing, and we see growth in deliveries as well.

Thank you. That's great, Keller. I'll pass it along. Thank you, Mike.

The next question comes from Craig Irwin of Roth Capital Partners. Craig, please go ahead.

Good morning. Thanks for taking my question. So the notable improvement in gross margin performance this quarter, it's nice with the increased volumes, obviously better coverage of overhead. But can you maybe help us unpack what the additional expense burden is that you're carrying? I know you could have made these vehicles without building out your new facilities? And if we were to maybe just look at the historical performance, where you have had margins in the 30s, how do you feel about the natural margins on these products, or I guess the variable margins, excluding these additional expenses that you're incurring for growth?

Hey, Craig. Nick here. The gross margin was negative $3.5 million this quarter. So obviously very much impacted by our expenditures towards growth. Ultimately, what's really impacting gross margins is that investment in scaling up our production and ultimately our delivery. A good example of this is we're incurring storage and at times transportation costs for the inventory that that could be spread across much more production as we're ramping up and we incur the fatality of those costs. And so ultimately it's a matter of fixed cost absorption when you look at the results isolated in one quarter. Where we take a lot of comfort, of course, is in what I like to call the unit level economics or the unit level margins. We have what we believe is a very healthy margin over the bill of materials. And when we look at a production rate that's more reflective of certainly increased usage of the capacity of our plants, we feel that it's a model that scales really well. You will also have picked up in Mark's remarks that We started rolling out this quarter some price increases, which will help as well. That's a matter of protecting ourselves in the current inflationary environment. But I won't give specific figures, but ultimately it's all about fixed cost absorption for the immediate quarter and looking at long-term, just having unit-level margins that we think scale very well.

Excellent. Thank you for that. So as a follow-up, you're very clear about the healthy margin over the bill of materials, and that's what we would expect if we look sort of at the historic performance, the way you set up the company. So your major competitor in electric school buses has made commitments, fixed-price commitments, underwater, right? They've had, let's say, 25% pricing and they still don't have a clear line of sight on making profit on the buses that they're selling today. They have to deliver buses where they wrap them in dollar bills on the bill of materials. Can you just remind us how you price your buses and whether or not you see this 25% price increase from your major competitor as an opportunity, or if you're likely to be a lot more metered in the way you approach things given your long-term commitment to customers?

Yeah, that's a good question, Craig. The order book that we have is on a fixed price basis, so any price adjustments that we make going forward would be for new orders. That said, when I talk about the unit-level economics working well, it certainly applies to to the upcoming deliveries in the order book. And so, yes, we view price increases from competitors certainly as an opportunity for us. At the same time, we aim and we are able to, we believe, be very nimble in how we tackle price increases. We have a direct sales force, which is obviously much easier to roll those through, but they would be for post what's in the order book days.

Hey Craig, this is Mark. Maybe just one additional comment on your question. I think we are seeing the benefits of the vertical integration we've been doing for all of those years. We've been talking about this for years and we've been doing it and we've been building the foundation for many, many years. We see the benefits of what we're doing. We believe we can be the lowest cost manufacturer. And it seems that what's happening in the market right now is proving that we're doing the right thing. And also, I think the focus on EV makes a huge difference. I mean, this is what we're doing. We are an EV business. We're not selling everything. CNG, propane, diesel, EV, like some other companies are doing. So when you're focused on something, you usually get better. And this is what we are doing. And also, I think our customers, they see the benefit of the Lion ecosystem. They're buying a bus. They want to make sure it's going to be delivered on a timely basis. They want to make sure they will be getting the charging stations as well at a fair price installed at the right location, obviously, at the right time. And this is exactly what we can offer. So it's not only like buying a vehicle, it's buying the whole Lion experience. And I think it makes a huge difference.

Thank you for that, and congratulations on the delivery's traction. It's impressive progress.

Thank you, Greg.

The next question comes from Rupert Merritt from National Bank.

Rupert, please go ahead.

Hi. Good morning, everyone. Good morning, Rupert. With the reduced capex in Joliet, what are you giving up in terms of capacity initially? And maybe can you talk to us about what do you expect your production capacity to be at the end of the year and how quickly can you ramp up production?

Yeah, so, yeah, Rupert, with respect to John, basically, you know, we're focused on delivering our order book. And the order book is very much, you know, well, we have more school buses right now than we have trucks. and we are building the truck pipeline and the truck order book. While we do that, we do have truck capacity in Montreal, significant truck capacity in Montreal. The decision we've made is to postpone some CapEx in Jolnia to focus on electric school buses, meaning all the models of electric school buses, the Type C, the Type D, the Type A as well, and also the Lion M, which is the MFSTB and the shuttle bus as well. So that's basically what Joliet will be doing at the beginning. So again, to remain very focused and to deliver Made in America buses for our U.S. customers. So very exciting, and we will start by the end of this year. I mean, the first couple of buses will be manufactured in Joliet. This is great. And the line was not so good, Rupert. The second part of your question, was that about the Joliet factory, the manufacturing capacity, or was that about the battery factory?

Yeah. With the Joliet factory, so if we think about the numbers you've given us for the Quebec production facility historically, you've talked about maybe 800 unit per year capacity capacity. that you're ramping up to, is there an equivalent number of how we should be thinking about Joliet with the new CapEx plan? What's the, how much capacity are you building with the new CapEx plan?

Yeah, no, sure. So the good news, Rupert, is that, you know, nothing has changed with respect to the, at full scale, we're going to be at 20,000 units. So it's a mix of trucks. and buses, but we wanna make sure, like we're cash conscious, we wanna make sure also that we're ramping up manufacturing capacity according to the order book. So right now, the order book we have and the order book we are expecting will not be impacted. So there will be no delays in delivering our vehicles because of the CapEx push that we are doing. So we have all the capacity we need. uh in johnny to to manufacture everything so we're not getting into you know all the specifics of you know the number of units uh we we uh we deliver or we can deliver but we do have the capacity to deliver you know the uh on the order book that we're expecting okay great uh thanks and then on the capital needs i know you talked about this a little in your prepared comments so wondering if you can get a little more color on liquidity

what we should anticipate as far as the debt drawdown goes over the next few quarters and maybe any plans you may have to access the ATM.

Yeah, I'll take this one, Rupert. Look, as you saw in the prepared, or you heard rather in the prepared remarks, we're taking action that's focused on liquidity, of course. That includes the reduction in the 20.2 capex that we just talked about and Obviously, the same mindset will apply going forward, i.e., to match spend with expected demand and to spend where we get immediate return, if you will, or near-term return, I should say. In terms of liquidity profile, it continues to provide us with flexibility. We have the $83 million of cash on hand as of today. We have a committed $200 million revolving facility that is borrowing-based, I guess, And as of today, 75 million of that could be issued, could be borrowed right away. It's a figure that we expect will continue to increase over time. And then in terms of the government loans, recall we have the 80 million government loans for the project here in Quebec, for the campus. And we expect that as we, with the spend that we're going to do this year, 40 million of that will be unlocked, if you will, subject to the process and the timing to claim that money. With all that said, and even with that flexibility, what we explained this morning is that we look to seize opportunities to raise additional capital. This can be done through the $125 million ATM that we put in place, which remains untapped as of today. Ultimately, the timing and the quantum of of any raise will be dependent on market conditions and the opportunities we see. That's really how we're thinking about it as of today.

Excellent. Thanks for the call.

Thank you.

The next question comes from Michael Glenn of Raymond James. Michael, please go ahead.

Hey, just a couple of questions. On the truck program in Canada, does that program have a Made in Canada stipulation? within it? Good morning, Michael. No, it doesn't. Okay. And then just in terms of the capital needs, can you indicate what your working capital is expected to look like for the back half of the year?

Not in great detail, Michael, but when you think about it, we're going to continue. We plan to continue to ramp up, obviously, our production and our deliveries. That's the objective. And we want to make sure that we're well-stocked for batteries. We plan to continue to invest in working capital in the coming course.

Okay. And the inventory investment that you've been making so far year-to-date, we should expect that to... continue around same levels?

Well, yeah. Given that we want to make sure we're well stocked in batteries and in the current supply chain environment, part of the strategy is to be very well inventorized. When I speak of the working capital, it's mostly from an inventory standpoint that we expect to use cash flow that you want. Okay. Thank you. Thank you, Michael. Thank you, Michael.

As a reminder, that's star one on your telephone keypad to ask a question. The next question comes from Mark Neville from Schroders. Mark, please go ahead.

Hey, good morning. Morning, Michael. Morning. Just first on the Juliet. In terms of the equipment that you deferred, is there a certain time where you need to make a decision on whether or not you're going to accept that equipment?

Yes, we are. Basically, you know, this is with respect to the truck, mostly the truck equipment, Mark. So we have, you know, we have a lot of time in front of us. So the relationship, you know, with our suppliers is great. But yes, there's a timeline at which we need to make decisions at some point, obviously, if we want those equipment to be installed in Johnhead, yeah.

Okay. And is that sort of near term or is it 2023? I'm just trying to get a sense for when sort of something like that would need to be made.

Yeah, we're, we're good to adapt. I mean, with the increase in the order book. Um, so right now, as I was saying earlier, I mean, we have, we do have a lot of capacity in, uh, in the Montreal factory for trucks. And, uh, well, the goal is to install, you know, those truck equipment as soon as needed in, uh, in John. Yeah. So we're pretty well prepared and we have, you know, a lot of, uh, truck experts as well to take care of that. But we just want to make sure that we are following basically the ramp up of the order book. But yeah, it could be done on a near-term basis. Yes.

Okay, understood. Just in terms of the line campuses, I want to make sure I'm understanding this correctly. So you're still going sort of full steam ahead on the battery assembly capacity? We're not really clear sort of what you're deferring in terms of the full build-out. Yeah, if you can maybe just clarify what's all that.

Sure. Yeah, so Mark, there's two buildings at the Lanyan campus. The first one is the battery factory. The battery factory is key in everything we're doing, part of our vertical integration strategy. This is where we are saving costs. We're controlling all battery technologies, so this is amazing. Glad we made the decision years ago to do that because there is no way we will be able to manufacture those before the end of the year if we would not have made that decision years ago. So battery factories, we are going full steam into this. First batteries before the end of the year, so this is amazing. So basically, we're pushing out a little bit with respect to the innovation center. So the Innovation Center, you probably remember, this is where, you know, it's basically the hub, you know, for our engineering resources. So right now we have many hubs, you know, for the engineering resources, and a lot of them, you know, are working from Saint-Jerome. So it's really a place where, you know, all of them, or almost all of them, you know, will be together. We do have a test center as well, and we do have a track where we can test our vehicles. So basically, you know, the track is there. I mean, it's all ours, so it doesn't change anything. With respect to the testing that we will be doing, we will still be doing that. So basically, all the testing, it's great. We will also be building the prototypes in this place as it was planned. So basically, you know, everything that we will basically get, you know, a return on investment on a short-term, medium-term basis, we're still doing it, but we've decided basically to use the engineering offices for warehouse capacity. I mean, right now, the square footage everywhere is going to the roof, as you probably know, and it's very close to our operations. So we decided on a short-term basis to use it as a warehouse for warehouse capacity. So that's really a change we're doing, and obviously we are able to push some CapEx because of that, and this CapEx was mostly a little bit for some equipment, but mostly for the building of the engineering offices.

Okay, that's understood. Maybe just one last question, just for Nick. In terms of the revolver, Just curious, the minor savings was that you had full access to it. In terms of the incremental $125 million, how do you get access to that?

It really is what I'd say a traditional borrowing-based ABL facility. So it's a matter of margining on the receivables and the inventory. And so how we get access to it is as we continue to scale up, have more

Okay, but was there a change or was it always like that?

It's always been a forum-based, as mentioned in the past.

Yeah, okay.

All right, thanks. Thank you.

We have no further questions, so I'll hand back to the management team for any concluding remarks.

Well, thanks, everyone, for joining the call today. We really look forward to continuing the discussion with you. And feel free to contact us for any further questions you may have. On this, you have a nice day.

Thank you. This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.