The Lion Electric Company Common Shares

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 ajihi vice president investor relations and sustainable development please go ahead miss ajihi good morning everyone welcome to lyon second quarter 2024 results conference call

Bienvenue à la conférence téléphonique sur les résultats financiers du deuxième trimestre 2024 de Lyon. Today, I'm here with Marc Bédard, our CEO funder, Nicolas Brunet, our president, and Richard Coulombe, our chief financial officer. Please note that our discussion may include estimates and other forward-looking information, and that our actual results could differ materially from those implied in any such statements. We invite you to review the cautionary language in this morning's press release and in our MD&A, which contains important information regarding various factors, assumptions, and risks that could impact our actual results. With that, let me turn it over to Marc to begin.

Marc? Thank you, Isabelle. Good morning, everyone. Thank you for joining us today. The challenges that we had signaled at the beginning of the year persisted in the second quarter, and continues to put pressure on the company from a cash flow management standpoint. These challenges stem from continued delays with the Canadian federal ZETEF program, as well as a slowdown in deliveries in the U.S. EPA program, as expected, given that we are currently in between funding rounds. Of course, these lower deliveries had an important impact on our revenue, profitability, and liquidity position. and optimization of our liquidity therefore remains our top priority. And it is critical for Lion to have the right cost structure for today's demand environment. In this context, we are implementing several initiatives to streamline our operations, improve our liquidity, and position us to achieve our goal of being profitable in the foreseeable future. First, we are adjusting our approach to truck manufacturing. to better align with the pace at which truck operators are transitioning to electric. Over the past years, we have built a leadership position in medium and heavy duty electric trucks. We are one of the few companies having deployed a critical mass of vehicles in this space. However, while the electric truck market continues to represent a very high potential opportunity for Lion, industry volumes in the near term have been significantly lower than expected. To address this, we are instating a batch size manufacturing approach for our electric trucks, thus directly aligning manufacturing with our order book. This approach aims at optimizing our liquidity profile while maintaining lines leadership in electric trucks. Second, we are transforming our battery operations into a product line, aiming to sell our battery packs to third parties, since we believe our battery packs are well suited for a lot of different markets. Battery cells are expected to start contributing to revenues and cash flows next year, ultimately better leveraging our current battery manufacturing capacity without any additional capital expenditures. Third, we are launching a process to maximize usage of all of our facilities since we have significantly more footprint than we need in the current market conditions. This footprint reduction also aligns with the changes to our truck manufacturing operations I just alluded to. Specifically, we are launching a process to sublease a significant portion of our Joliet plant. Our 900,000 square foot plant was initially designed and sized for 75% truck production and 25% school bus production. Given that all truck manufacturing will be performed in Saint Jerome for the next few years, We currently have important excess footprint capacity in Joliet. We are therefore aiming to significantly reduce the current rental expense of $5 million per year, while keeping the necessary footprint to maintain our production capacity of 2,500 school buses per year at the Joliet plant. Furthermore, we are looking to sublease certain of our 12 experience centers and partner with additional service providers in specific regions. thus further reducing our rental expenses while expanding our service coverage. Additionally, we will reduce our total workforce by approximately 300 people across the entire organization to align with the action plan I just mentioned. Many of the affected positions will be in product development, considering that the development of new platforms is now behind us. This workforce reduction should reduce our payroll costs by approximately $25 million on an annual basis. We are extremely thankful to all of our employees, and we deeply regret the impact that this measure will have on those affected. We are, of course, committed to assist them through this transition. Finally, we are working to also significantly reduce our non-salary cost structure by decreasing our operational expenses in areas such as third-party logistics, consultants, and selling an administrative cost. Our adjusted cost structure will be well aligned to support the increasing electric school bus demand and maintain our leadership position while allowing us to keep supporting truck operators in their electric transition. In Q2, we also made a number of important operational and financial achievements, which I will now highlight. We certified our second model of battery packs, the Lion HD battery. With all our battery pack certifications behind us, we are now working on integrating these packs on all of our vehicles and selling our packs to third parties. We performed the commercial launch of our Lion-8 tractor truck, a game changer with its 127,000 pounds GCWR capacity. Equipped with our proprietary Lion HD batteries, the Lion-8 tractor truck is the pinnacle of heavy-duty electric vehicles tackling the largest addressable market in the truck space. Commercial production and customer deliveries are expected to take place later this year. We reached an important milestone with the EPA Clean School Bus Program, having just recently finalized the agreement allowing us to execute formal purchase orders with customers for our EPA grant of 97 units, representing $38 million. Additionally, Lion clients were awarded 127 school bus rebates as part of the latest round of the EPA program, representing $39 million. For both of these rounds, we are actively working with customers to obtain formal purchase orders and fulfill other requirements to claim payments from the EPA. Those two rounds together represent a potential of approximately $77 million in upfront payments in the coming months. Both rounds represent important sources of additional potential purchase orders, since a number of school districts and contractors have been awarded directly and considering doing business with Lion, given our reputation of delivering a complete solution, including the charging infrastructure installation, in a timely manner. We also continue to execute our inventory reduction plan with a $20 million year-to-date inventory reduction as of June 30th. We reiterate our objective to reduce inventory by $50 to $75 million over 2024, and we are heading in the right direction, considering the significant decrease of $23 million of our raw material and WIP inventory in Q2. Looking forward, our priorities for the rest of 2024 are managing and optimizing liquidity, including through our cost reduction action plan I described earlier, as well as opportunities to straighten our financial position. Growing our order book and increasing deliveries, integrating Lion batteries on our vehicles, and advancing our new battery product line, and working closely with the Canadian government to increase the approval of applications under the ZET ETF program. I will now turn it to Nicolas.