The Lion Electric Company Common Shares

Good morning, ladies and gentlemen. Welcome to the Line Electric's third quarter 2022 results conference call. At this time, all participants are in a listen-only mode. A brief quotation and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would like now to turn to the call that is about Atani, Vice President, Investor Relations and Sustainable Development. Please go ahead, Ms. Atani.

Good morning, everyone. Welcome to Lions' third quarter 2022 results conference call. Bienvenue à la conférence téléphonique sur les résultats financiers du troisième trimestre 2022 de Lyon. Today, I'm here with Mark Bedard, 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 earnings 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. Good morning, everyone. there are three key elements we will be discussing on today's call. First, we are announcing this morning a recurrent number of deliveries, with 156 vehicles delivered in Q3, our highest quarterly number ever, and the fourth consecutive quarter of sequential delivery growth. Second, as announced last week, we have reached a historical milestone as we assemble the first electric school bus unit at our US Joliet manufacturing plant. Third, we continue to see an unprecedented shift to vehicle electrification, both in the bus market, which is supported by the $5 billion EPA program, and in the truck market, a segment where we posted record deliveries with 48 trucks in Q3. We will now elaborate on each of these points. Let's begin with vehicle deliveries and purchase orders. we delivered 156 vehicles in Q3 consisting in 108 buses and 48 trucks. This represents the highest number ever for a quarter and the fourth quarter of sequential growth in a row. This is almost four times the number of 40 units delivered in Q3 of last year and an increase of almost 50% compared to the 105 units delivered in the last quarter. Also, The 48 trucks delivered in Q3 is more than three times the number of trucks delivered in the previous quarter. Year to date, we have delivered 345 vehicles compared to 196 delivered in all of fiscal year 2021. As important as deliveries are the names to whom we either delivered or sold trucks to in Q3. These customers included companies such as DHL, a global leader in the logistics industry, Family Pre, a pharmacy network with over 400 retail locations, Simons, a fashion retailer with department stores in the four biggest Canadian provinces, The Brick, which operates more than 155 retail stores, the Quebec government, and the New York Times. Our PO book is now at 2,408 vehicles consisting of 323 trucks and 2,085 buses, substantially all of them being conditional on the grant of subsidies and incentives. This includes purchase orders for 49 buses from the first round of awards under the EPA program. As of today, the order book represents a total combined order value of $575 million. Let me now discuss our US factory and our battery plant. As announced last week, we completed the assembly of the first electric school bus unit at our US Joliet manufacturing plant, which positions us to deliver made-in-America electric school buses. This is the result of years of innovation and investment in an industry that is a key pillar in the transition to a low-carbon economy. I would like to thank our employees for their hard work and dedication towards achieving this significant milestone and Governor Pritzker and his team for their great support. This is also a timely development, as governments are increasingly supporting the shift to electrification, as demonstrated by the recent awards of the $5 billion EPA program, which we will discuss shortly. Now that our first unit is out of the assembly line, we expect our Joliet plant to produce a few additional electric bus units in Q4 of this year, followed by a gradual ramp up of production over next year. As previously mentioned, production at the Joliet plant will initially be focused on electric school buses with the timing of trucks commercial production to continuously be reassessed based on market demand and factoring our truck production capacity in Saint-Germain. With respect to the Lyon campus, our battery factory is also advancing very well. we expect to reach another important milestone next month with the production of our first battery pack at our battery plant. Construction work for the battery plant building is advancing as planned and is expected to be completed next month as well. In the next few weeks, we will be transferring the battery assembly line, which has been producing batteries at the JR Automation Facility in Michigan, to our Mirabel plant, and we expect to start production of battery packs in Mirabel by the end of the year. This will be followed by a gradual ramp-up of production in 2023 as we complete the integration of our reliant batteries on our vehicles, thereby gradually transitioning from the BMW batteries we are currently using. Last, the shell work of the Innovation Centre building should be substantially completed by the end of the year, as previously announced. Let me now provide an update on the EPA program and the IRA, the U.S. Inflation Reduction Act, which should both positively impact our industry in the near term. First, the EPA program. Late October, the EPA announced recipients of the first round amounting to $913 million of federal funding under the Clean School Bus program. If you recall, this program was part of the bipartisan infrastructure law to allocate $5 billion from 2022 to 2026 for the purchase of clean school buses. As part of this first award, we were pleased that 41 school districts across 16 US states for which applications were filed through Lion were awarded vouchers to purchase 207 electric buses for a total of $82 million. As mentioned earlier, to date, We have already received purchase orders for 49 electric school buses and we are confident that this number will increase between now and next April, the deadline to place purchase orders. In parallel, we are in active discussions with other school districts and operators that have directly submitted and received vouchers, which we are hopeful will translate into additional purchase orders. As a reminder, Mayor Mrakas, Priority districts were eligible to receive $375,000 per electric school bus and up to $20,000 for charging infrastructure and all buses need to be delivered before October 2024. Mayor Mrakas, The first round of awards is very timely, with the start of manufacturing of our joining a plant. Mayor Mrakas, which we believe is essential to support our strategy to seize maximum opportunities on their the existing EPA around the funding. and any subsequent fraud. Now a few words on the IRA, the Inflation Reduction Act, which was signed into law last August and that we are also closely monitoring. Here again, this could have a significant impact to boost the execution of our growth strategy. The Act includes a tax credit of $40,000 for electric commercial vehicles over 14,000 pounds, which will reduce the upfront purchase cost for customers thereby decreasing the total cost of ownership for electric trucks. It also includes multiple incentive programs with billions of dollars of budget, which could potentially be used for the purchase of medium and heavy duty zero emission vehicles. The IRA also includes other programs which could serve to fund parts of future CapEx at our Joliet facility, either through investment tax credits or loans. We will of course continue to monitor closely the upcoming announcements and guidelines that should be released in the next few months. Let me now provide an update on our supply chain. For both critical and non-critical components, we continue to see improvements as compared to the peak of the pandemic, even if we still experience continued challenges at both the supplier and sub-supplier levels, which is causing disruptions for some parts. We do not expect those supply chain challenges to disappear in the short term, and expect to continue to see challenges at least through 2023. We have been able to reduce the impacts of this supply chain crisis by putting in place many creative actions, including creating both supplier and component redundancies, and also integrating longer lead times from our suppliers for the majority of our components in our manufacturing processes. As far as batteries, we have over 5,000 battery packs on hand. This is enough battery pack inventory for us to gradually transition to our Lion batteries starting early next year. Therefore, we are not planning to purchase any additional BMW batteries packs at this time. Now turning to new vehicle models. We continue to progress with the launch of new vehicle platforms. Among other things, we plan to deliver our first customer unit of the Lion 8 refuse truck and the Lion-8 bucket truck before the end of this year. As for the Lion-8 tractor, we intend to launch it in H1 of next year. However, short-term deliveries of the Lion-8 tractor are dependent upon battery packs to be supplied by Romeo Power, which was recently acquired by Nikola Motors. To date, we experienced delays in the deliveries of packs, and we have received indications that they may not comply with their obligations on their hour contract. As a result, we have initiated arbitration proceedings to enforce the terms and conditions of the contract. Finally, the Lion-A commercial production is now planned in 2023 from our Joliet factory, and timing of the Lion-M shuttle bus, which leverages the Lion-A platform, will be reassessed based on future purchase orders. Nicholas will now further discuss our financial performance for Q3.