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spk08: Greetings and welcome to the Lightning eMotors fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now turn the conference over to our host, Brian Smith, Vice President of Investor Relations. Thank you. You may begin.
spk05: Thank you, Operator, and thank you for joining us. Hosting the call today are Lightning's co-founder and CEO, Tim Reeser, Chief Revenue Officer, Cash Sethi, and CFO, Teresa Covington. Ahead of this call, Lightning issued its fourth quarter 2021 earnings press release and presentation, which we will reference today. These can be found on the investor relations section of our website at lightningemotors.com. On this call, management will be making statements based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements due to risk factors that are listed in today's earnings release and in our filings with the SEC, which can also be found on our website. We do not assume the duty to update any forward-looking statements. Today's presentation also includes non-GAAP financial measures. Please refer to the information contained in today's earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP measures. With that, let me turn it over to Tim.
spk06: Thank you, Brian, and thanks to everyone for joining us today. On today's call, we will be referring to the slides that were posted to the investor relations section of our website earlier this afternoon. I'll start off on slide four with today's agenda. We will begin with an overview of Lightning and how we continue to strengthen the company. We will provide a supply chain update and discuss our manufacturing expansion. Cash will then provide an update on products and markets, partnerships, sales and business development, and Teresa will wrap it up with a financial overview. Moving to slide six, we believe Lightning eMotors is the only full range manufacturer of class three through seven battery electric and fuel cell electric vehicles in the market, including ambulances, shuttle buses, utility trucks, school buses, and motor coaches. We're the only company currently shipping product in all of these classes. We started in 2008 with commercial vehicle hybrid solutions and have now shipped over 240 zero emission vehicles with over 1.3 million zero emissions miles driven by our customers. With every vehicle we ship and every mile our customers drive, our lead grows. Moving to slide seven. We have built a modular software and hardware architecture that allows us to serve a highly segmented and customized market with a cost-effective solution. Our high level of software and hardware customization that is required for commercial electric vehicles is something that legacy OEMs have not historically performed and are not well suited for. Companies like Ford and GM are building light-duty commercial trucks and vans in high volumes and do not have a business model that supports manufacturing electric vehicles for the medium-duty segment. Moving to slide eight, we recently announced our partnership with General Motors. The agreement covers a broad range of class three through six commercial vehicle chassis from shuttle buses to delivery trucks to school buses. This agreement broadens and diversifies our platform offerings as well as our chassis supply and expands our partnerships with Forest River and Collins school bus. GM has delivered a chassis and our engineering development work has started in earnest. We expect to receive production chassis in volume later this year and we'll begin to see the impact of this agreement within the next four quarters. Moving to slide nine, let's discuss the supply chain. We are experiencing strong and growing product demand. However, supply chain disruptions continue to serve as obstacles for our business. There is good news, though. The battery partnership agreements we have announced previously have put us in an excellent position regarding battery supply, with inventory on hand today. Major chassis OEMs like Ford have publicly announced lengthy factory shutdowns of their commercial vehicle chassis plants, limiting commercial vehicle chassis availability, and we expect these shutdowns to result in continued chassis availability constraints for the next few quarters. Limited chassis availability has been impacting both commercial ICE vehicles as well as electric vehicles, exacerbated by a lack of transparency regarding chassis ship dates. Our engineering, manufacturing, and supply chain teams have been taking measures to adapt to these circumstances with continued progress on our previously announced lightning strip chassis and cab chassis products that are not limited by chip shortages. We will be providing further details on our e-chassis in the coming months. In addition, we announced today a partnership with Forest River to supply factory-certified lightning repower powertrains to support over 50,000 eligible Forest River shuttle buses on the road today. This partnership validates the value of our unique re-power powertrains in a market where it is one of very few options for fleets to continue servicing their routes with reliable vehicles. Lightning is the only electric commercial vehicle OEM today to offer powertrains to replace and upgrade ICE and EV powertrains in school buses, shuttle buses, transit buses, and motor coaches. Finally, we continue to grow our lightning energy business, which is also not chassis-dependent. And we have a lengthy, healthy sales pipeline for our proprietary charging and energy solutions that are tightly integrated with our vehicles. Although our Q2 and Q3 2021 revenue was constrained by battery supply and other components, and Q4 revenue was constrained by chassis availability, we were able to mitigate several other supply chain constrictions and sell a record 146 complete zero-emission vehicles in 2021. It is important to note that we have not lost any sales due to the supply chain delays. Rather, revenue is simply being pushed forward to future quarters. Moving to slide 10, let me now provide an update on our manufacturing capacity expansion. We released a new video, we released a new press release and video earlier this quarter showcasing our manufacturing expansion and automation. In the video available on our website, you can see some of the automation and other factory improvements we made to reduce the labor cost per unit and improve efficiency and reliability as we drive towards an expected factory capacity of up to 3,000 vehicles and or powertrain systems per year. Specifically, we invested in advanced laser cutters, collaborative robots, and augmented reality software to improve both quality and productivity. We are renovating 3,700 square feet to create a research and development lab, which will include a vehicle dynamometer and battery test center. Lastly, we believe we can readily expand and add the additional square footage needed on our 1 million square foot campus that, along with our OEM customers' installation capabilities, will allow us to support capacity of up to 20,000 vehicles and powertrains per year. We believe we are one of very few companies in the U.S. zero-emission commercial vehicle market with a fully operational and scalable factory. And now I'll turn it to Cash to provide an overview of the order backlog, sales pipeline, and key partnerships.
spk02: Thanks, Tim. I'll begin on slide 12 to provide an update on products, partnerships, pipeline, and backlog. Our core vehicle products, all electric zero-emission cargo vans, delivery trucks, passenger vans, and school buses continue to drive the business forward. Our strategic partnerships with market-leading OEMs and specialty vehicle builders like Forest River and Collins have enabled us to engage with a wider range of customers by leveraging our partners' brand reputation and extensive nationwide dealer network. As a result, we continue to receive repeat orders, and demand for these products is strong. Our sales pipeline as of March 14, 2022, was $1.5 billion, and backlog was $169.3 million. Our auto backlog included all electric commercial vehicles, all electric powertrain systems, and charging systems. Backlog generally comprises of binding and non-binding agreements and purchase orders from customers. Sales pipeline consists of sales opportunities in various stages of our sales cycle prior to the receipt of a purchase order. On slide 13, we showed some additional vehicle applications and partnerships ambulances, transit bus and motor coach repowers, and RVs. Pilot units for these vehicle applications are now in customer hands, and we anticipate growing demand for these vehicles over the next 6 to 12 months. We continue to explore additional vehicle partnerships and look forward to sharing those details in the near future. Now I'd like to turn to slide 14 to discuss the forces that continue to drive adoption of zero-emission commercial vehicles. Government regulation and mandates grant funding programs, and fleet sustainability targets. California has act regulation, transit rule, airport shuttle rule, and a 15-state MOU on zero-emission vehicles are all delivering a strong message to the market. The future is electric. Beyond the mandate, state and federal governments are now providing even more funding to accelerate the adoption of zero-emission vehicles. Programs like the Federal Transit Authority's low or no-emission vehicle program and California's HVIP will provide significantly more money this year than they ever have. New mechanisms, like the EPA's Clean School Bus Program, are benefiting from the Infrastructure Investment and Jobs Act. Lastly, many cities continue their march towards electrification simply due to corporate sustainability goals. The recent increase in gas prices has accelerated the interest of many corporations looking to go electric, seeking lower total cost of ownership. Moving to slide 15, as Tim mentioned, the industry is facing a once-in-a-lifetime supply chain challenge with chassis, which has created new opportunities to repower commercial vehicles to zero emissions. Lightning has been repowering vehicles for nearly a decade, so we are positioned very nicely to capitalize on this opportunity. In addition to our current partnership with ABC to repower vans, buses, and motorcoaches, Earlier today, we announced a new partnership with Forest River to offer zero-emission repowers for passenger vans and shuttle buses through their nationwide dealer network. And with that, I'll turn it over to Teresa to provide an update on Lightning's financial results and outlook.
spk01: Thank you, Kash. I will now provide some commentary on our fourth quarter results, followed by our first quarter outlook. Beginning on slide 17 for the fourth quarter, we generated revenues of $4.2 million, which increased 13% from the year-ago period. During the fourth quarter, Lightning sold 36 vehicles compared to 27 vehicles in the prior year period. Cost of goods sold in the fourth quarter was $6.9 million compared to $4.9 million during the prior year period, primarily due to an increase in revenues. As we ramp production and our revenues grow, we expect to generate operating leverage as we benefit from fixed cost leverage on labor and overhead, improve battery supply terms, and operational efficiency. The gross margin percentage was minus 63.5% in the fourth quarter compared to minus 31% during the prior year period, primarily due to higher factory overhead and expenses related to the transition of a new battery into production. SG&A in the fourth quarter was $13.6 million, compared to $3.5 million in the prior year period, primarily due to higher administrative expenses related to being a public company. Research and development expense in the fourth quarter was $875,000 compared to $567,000 in the prior year period, primarily due to higher engineering headcount to advance the development and design of new vehicle platforms, refine and improve our production processes, perform product testing, and enhance our in-house engineering capabilities. Total operating expenses in the fourth quarter were $14.5 million compared to $4 million in the prior year period. The operating loss for the fourth quarter was $17.2 million compared to $5.2 million in the prior year period. Net income for the fourth quarter was $22.2 million compared to a loss of $13. $13.4 million during the prior year period. The positive net income was primarily due to a $40 million non-cash gain from the change in the fair value of the earn-out liability and a $3.9 million non-cash gain from the change in the fair value of a derivative liability, partially offset by higher operating interest expenses. The adjusted EBITDA loss for the quarter was $15.9 million compared to a $5.1 million loss in the prior year period. The change is primarily related to higher operating expenses in the current period. A reconciliation of net loss to the adjusted EBITDA can be found on slide 19. Turning to our balance sheet, lightning into the fourth quarter was $168.5 million in cash and cash equivalents. Turning to slide 18, our outlook for the first quarter. As Tim noted earlier, our new battery partnerships have helped us helped us mitigate much of the battery risk we had in 2021. We continue, however, to experience supply chain challenges with chassis and other components. Delays associated with any of these components may impact the timing of revenue. Based on current business conditions, we expect for the quarter ending March 31, 2022, vehicle and powertrain system sales to be in the range of 65 to 75 units, revenue to be in the range of $5 million to $6 million, adjusted EBITDA loss to be in the range of $15 million to $17 million. We invest capital in our factory and other revenue-enhancing projects. Most of our capital investments will be directed towards three areas, manufacturing facility build-out and equipment to increase capacity and drive cost reductions and factory efficiency, additional sales demonstration vehicles to deploy at potential customers across the country, to drive an increase in sales backlog and pipeline, and three, engineering and R&D equipment to support our existing and new products and services. Our full year 2022 capital spending is expected to be in the range of $10 million to $15 million. The Q4 and 2021 information we have discussed reflects our preliminary unaudited results and is based on the information available as of date of this call. The audit may require adjustments which could result in changes to the company's unaudited financial results included in the press release. Included in our operating expenses in Q4 is $1.8 million worth of bad debt expense. This expense is still under review with the auditors. There are three options that we have, no change to our financial statements. One is we could end up with a decrease in revenue by 1.8 million and removal of the bad debt expense with no change to income state net income for EPS or EPS in 2021. Or we could have a decrease in the bad debt expense and record a perspective change with a decreased revenue in the first quarter of 2022. With that, I turn it back to Tim for closing remarks.
spk06: Thank you, Teresa. In closing, while in the near-term, Lightning is experiencing the same supply chain headwinds as other companies in our space, we feel confident in our longer-term outlook, as evidenced by our strong backlog, pipeline, and the OEM partnerships we have announced. In fact, we see the current industry disruptions, focus shifts, and market transformation as bullish for our business in the medium and long term, as we are well positioned with products, customers, and experience. Over the course of 2021, we dramatically strengthened our organization in many ways. One, we increased the capacity, productivity, and quality of our manufacturing operations. Two, our engineering team developed and introduced a multitude of unique new products and services. Three, we doubled the number of suppliers to reduce reliance on any single vendor for key components. Four, we partnered with quality organizations and OEMs to increase the value we provide to our customers. And five, we brought in world-class team members, both management and individual contributors, who have the experience, expertise, and passion to accelerate the business at lightning pace. And we are confident we will be able to continue to attract the best of the best to join our mission. In our view, Lightning stands out to our customers because of our ability to produce and deliver a full suite of unique vehicles and infrastructure solutions they require to run their fleets today. Further, we believe the opportunity for Lightning in the EV industry remains robust, with multiple drivers of ZEV adoption, including new sustainability and air quality mandates and billions of dollars in new federal and state funding that will be available to fleets over the next year. With less than 0.1% of the commercial vehicle market having adopted zero-emission vehicles, we look forward to many years of strong growth ahead. I would like to finish by thanking all of our customers for their confidence in Lightning, our partners for their contributions to our company's success, and our shareholders for your support. I especially want to thank our employees who are executing at a high level through a challenging operating environment. And with that, thank you, everyone, and I appreciate your time today. Operator? We're now ready to open the line for questions.
spk08: Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from Mike Schliske with DA Davidson. Please state your question.
spk11: Hi, everybody. Good afternoon.
spk08: Good afternoon, Mike. How are you?
spk11: I'm great. Thank you. I wanted to ask you about the new repower announcement here. I just want to clarify a few details. That's not part of the original agreement. There's an extra additional business on top of that.
spk05: Correct.
spk11: Great. Perfect. Can you tell us how soon and how much – to start seeing that business in 2022 and 2023.
spk06: One of the great parts about this product is it's a product we already make. So we make E450 powertrains. Those of you that have seen pictures or video of our factory know that we have an assembly line that makes E450 powertrains. And we both install them here as well as ship them to Forest River to install them. So the opportunity now to use these in a different capacity rather than putting them in new vehicles to put them in the potentially up to 50,000 of these vehicles that are already on the road, we see as obviously very exciting and a significant opportunity. I wouldn't say, though, yet that us nor Forest River fully understand the extent of the demand. So we are actively now, obviously this is a brand new announcement today and something we're working on together to respond to the fact that Many of Forest River customers can't get a product today, meaning they can't buy a new shuttle bus. If you're a transit agency and you want a new shuttle bus today, you aren't going to be able to get one because they aren't available as gasoline or electric, either one. So the opportunity for those people to be able to keep a reliable vehicle on the road by repowering them we believe is compelling and exciting, but we'll certainly get a better idea over the coming weeks and months how the market responds to it.
spk11: Okay, great. I also want to touch on your backlog here. I just wanted to make sure what's in your backlog now does or does not include Forest River and Collins Bucks, or is it just like what they've got on your current production schedule? I know these are multi-year agreements. Just make sure I know what's in there and what's not in there.
spk06: Cash, can you respond to that?
spk02: Yeah, absolutely. So we do have units with both Forest River and Collins in our backlog. Many of those are in production. Some of them have already been shipped and are with them and their dealers and their customers. We do not have all of the potential from those agreements in the backlog because they are multi-year agreements. So as that demand gets firmed, we will add it to the backlog. So, Mike, it's a mix. We've got some in there, but we've got a lot of potential that's not in there yet.
spk11: Okay. Just follow up on backlog here. It looks like actually, if I'm looking at this correctly, it's actually down a bit from the previous quarter in dollars and in units. Can you maybe just clarify what exactly some of the moving parts are as to how that may have happened in such a strong demand environment?
spk02: Yeah, so our backlog has both binding and non-binding contracts. Our backlog does not have a bunch of pre-reservations that anybody can fill on our website. They're from commitments from our customers. And as time goes on, we're constantly bringing new things into the backlog. Some customers may elect to no longer take those vehicles for either operational reasons or if they no longer have the demand for it. But generally speaking, we are very bullish about our backlog. It more than covers the supply constraints we have over the next few quarters. So I am more focused on improving the quality of the backlog, bringing higher margin products into the mix, signing new partnerships, bringing customers who won't just order the first 20, but will buy the next 100 and 500 after the 20. So it is relatively flat compared to last quarter, but I think the mix has gotten better. We have better partnerships and better customers in the mix now.
spk11: Okay, I appreciate that answer, guys. I'll leave it there. Thank you so much.
spk08: Thank you, Mike. Our next question comes from Donovan Schaffer with Collier Security. Please go ahead.
spk00: Hi, guys. So I want to ask about ASPs just because it looks like, you know, they're down a bit, you know, quarter per quarter, and then for the first quarter guidance, they're going to be down again. And I'm, I'm guessing this is sort of being driven by, you know, the, this idea of moving from being more of a vehicle, uh, manufacturer to, uh, we've talked about kind of like the Cummins of EVs shifting more to power trains. Um, but just any color you can give there on what's driving the declining ASPs. Uh, maybe some of that has to do with the forest river, uh, repowering agreement.
spk06: Thank you, Donovan. You're exactly right in the sense that as we do a mixture of vehicles plus just powertrains, that mixture changes the ASP on a quarter-by-quarter basis. In this case, we had in Q4 a lot of powertrains where the customers had provided the vehicles. We weren't doing any repowers during Q4, so it did not include any repower business in Q4. But it was business that was just powertrains without the vehicles attached, which changes ASP. It was also Q4 was very weighted towards a lot of class three vehicles, which are the less expensive of our options. Obviously, as people buy bigger and bigger powertrains, they are more and more expensive because you have obviously more battery associated as well. So at the bottom end, where we could get a lot of class three chassis, we ended up doing a lot of Class III in Q4 and also in Q1, whereas in times past and certainly in the future, we expect to see a mix of some of our bigger vehicles, more of our bigger vehicles as some of the chassis constraints ease up a bit.
spk00: Okay. And then as a follow-up on that, if the mix of powertrains increases relative to complete vehicle sales, all else equal, those tend to be higher costs. margin sales? Because you can imagine if your sort of secret sauce isn't in the enclosure or the box that is the vehicle, then that might be a cost you just sort of pass through. Whereas if you're stripping it down just to kind of your secret sauce of the drivetrain, is that going to be a, all else equal, tend to be a higher margin product, or would they be the same?
spk06: Your intuition is, again, accurate, Donovan. So I'd say When we're just selling a powertrain, whether repower or new, it is higher margin because when we package it with a vehicle, the vehicle tends to be lower margin and thus dilutive to the overall margin proposition. But also that this does begin to evolve as we begin to release our own e-chassis. Then in those cases, we will have better margin on our own e-chassis because the e-chassis does have some significant value in terms of features where it can, we believe, we can get a premium for that product. So this will evolve as we get to our e-chassis, but today exactly what you said is correct.
spk00: Well, you just cued me out for the last question. So my last question was going to be where you are in the development process for the e-chassis. So just in terms of the specifics, like what, I'm sure there's kind of a roadmap or certain checkpoints that you get to you know, initial design engineering phases and testing and such. So where are you guys right now with the e-chassis?
spk06: So still in the design and validation stages, beginning to work with our customers to make sure it meets their expectations and requirements. It is making good progress. We have allocated, continue to allocate more and more engineers, recently hired additional new people who are, you know, absorbing the work required to accelerate that activity. So We see it as absolutely critical to the company, but it's also in the e-chassis. It has to be done right. Clearly, we want the highest quality e-chassis out there. We also want a product that plugs right into our current customers' assembly lines and makes it easy. So those things have to be done right. And ultimately, on an e-chassis, we own the safety features. And so obviously, we're doing a lot of work to make sure those safety features are best of the best in the industry. So It is absolutely moving forward, but hard to put an exact timeline on it right now.
spk00: Okay, great. Thank you. I'll take the rest offline. Thanks.
spk08: Next question comes from Stephen Fox with Fox Advisors. Please state your question.
spk09: Hey, thanks. Good afternoon, everyone. I guess, first of all, can you just explain the bad debt expense a little bit clearer, like what were the circumstances behind it? And then I had a couple of follow-ups.
spk01: Karen Grove- yeah on the bad dead, as I mentioned that we had that it within our operating expenses in the quarter, we have 1.8 million a bad debt around a. Karen Grove- A sale that we had in 2021 and. Karen Grove- You know, this is our first 10 K and so we're going back with the auditors our position, the sale was complete and we. at this time have deemed the amount uncollectible. So we took a bad debt for that. So what we're working on with our auditors is the three options that I spoke about today.
spk09: Right. So I understand all that. I was trying to understand, like, the circumstances by which the company was unable to collect. Did your customer go bankrupt? Did they have a problem with the vehicles? Any detail there?
spk06: Yeah, it is actually a complex deal with both a government voucher and a customer, thankfully. So I will say categorically that vehicles are running, they're on the road, they're with the customer, and they're happy with them. So that part I can answer in terms of why the specifics around the combination of the subsidy side and the customer side are being argued. Obviously, I can't speak to, but in terms of because it's under... review. But the actual, to answer the first question, the vehicles are indeed in route, you know, running today regularly and fully operational and the customer's happy with them. And we did receive partial payment for them. We just did not receive the government subsidy side of the payment. So from that side, we are very, you know, firm and confident on. That's really helpful, Tim.
spk09: Appreciate that. And then in terms of looking for the full year, Obviously, supply chains are tougher to call than last year, even a month ago, for obvious reasons. But how confident are you in your ability to sort of source at higher volumes, whether it be for full vehicles or just powertrains versus, say, 90 days ago? It seems like there's a lot of moving pieces. Some are pulled in, some are pushed out, et cetera.
spk06: Yeah, it's true. And then, of course, we've got China now claiming COVID again. So that it is difficult and a moving target. What I'll tell you is the things we've done, and I say this a lot on other calls, we work to control the things we can control. So one of those is obviously our systems and our procurement team. And I've indicated in past and will say it's continued, we continue to increase the size of our global supply chain team. We've also added significant new software systems, logistical systems to really ensure we understand where we're at. So At the very least, I can tell you we have far better visibility than we used to have. The other thing is we've added a lot of new suppliers to it, a new supply chain, so we feel much better about that and we're no longer at the behest of single source supplies in most cases. We're also working very hard to insource some things and build some of our own components where necessary to control it, but also working in some cases where we do rely on suppliers to continue to add additional diversification to that supply chain. So a long answer to say it is difficult to predict, and obviously we all see the news every day, whether you're talking about steel coming out of Russia, whether you're talking about logistics challenges at the Port of Long Beach, or whether you're talking about COVID challenges in China, each of those on a daily basis can pop up. What we're doing is really making the investments we need to make to be at the front of that. I'd also say we've placed some significant long-term agreements in many cases which have enhanced our prioritization with suppliers, and we expect that to continue. We continue to build really strong relationships and place pretty significant orders now that move us up on the priority list. So all the things we can do, we're doing, but obviously all of us are still at the behest of the macro situations that are a bit unpredictable on a day-to-day basis.
spk09: Yeah, that all makes sense and is really helpful. And then just as a follow-up to that, I guess, would it be safe to assume that the supply chain could also dictate some of the production schedules in terms of mix of business for the rest of the year, like powertrain becoming a bigger portion of sales, et cetera?
spk06: Absolutely. And I think any good company has to be able to be a bit agile in the approach we take, and we are. So we're looking out every day saying what do we know we can get and what can we build and what can we revenue, and obviously looking at that in conjunction with what is in our backlog and what our customers want and where are the urgency opportunities, and that's why we've really looked at this opportunity around repowers and taking advantage of that while medium-duty chassis are constrained and taking advantage of some of the opportunity to build lightning energy infrastructure preemptively before some of the customers get their trucks. Many of them are wanting to do that and willing to do that. So we're absolutely looking opportunistically at the markets and looking carefully at where the constraints are and trying to work around those.
spk09: Great. That makes a lot of sense. Thank you.
spk08: Our next question comes from Sharif El-Sabahi with Bank of America. Please state your question.
spk10: Hey, how are you guys? Doing great, Sharif. How are you? Doing well, doing well. So I just wanted to ask a bit, looking at the guidance, it seems like you have a bit higher revenue on relatively flat EBITDA. So I just ask if there's any underabsorption on labor and overhead, given that you've expanded the capacity or any of the moving parts there.
spk01: Yeah, Sharif, this is Teresa. Yes, the What we're finding now at these volumes is we do have underabsorbed overhead in the factory. Part of it, as we think about driving to improve gross margin, one of the key things is really getting that production ramp so that we can absorb the overhead on a per-unit basis going through the factory.
spk06: Yeah, I'll expand on that, Sharif. As we've said, we've got a factory that can build in a single shift 1,500 units. So exactly to your intuition, the further away one is from 1,500 units, the less absorption there is. The closer we get to 1,500 units, the more absorption there is. So we see a real strong urgency, obviously, to solve some of these supply chain and obviously move towards the places we can get volume because any volume we can use in the factory obviously improves margin significantly.
spk10: Thanks for that. And apologies if this was discussed earlier, but looking at the top line, it seems as if the ASPs are declining. It's about 79,000 guided for Q1. Is that purely on the repower agreement, or what are some of the moving parts there?
spk06: Yeah, the biggest moving part is whether or not it includes a new vehicle. So We do have in Q1 quite a few vehicles for a major customer where they're providing the chassis. So it's not a repower. It is a new vehicle, but they're providing the chassis, and so we don't take the revenue on the chassis, and that reduces ASP. The other thing is Q1 is very heavily because the bigger chassis have been more highly constrained. We have been fortunate enough to get some of the Class III chassis, quite a few Class III chassis, and that's what we've been building. and the powertrains and Class III chassis are less expensive than the larger chassis, less battery involved. So the combination of those two, building the smaller end of our spectrum and also building more powertrains and less complete vehicles in terms of the way the invoicing works out does change the revenue mix. But I would expect as some of the supply chain eases up around the larger chassis, and also as we do some of the larger repower units that our ASP average will go up.
spk09: Understood. Thank you, Gus.
spk08: Just a reminder to ask a question, press star 1. Our next question comes from Colin Rush with Oppenheimer. Please state your question.
spk07: Thanks so much, guys. Can you talk a little bit about the customer dynamics right now in terms of any sort of de-bookings that you have, or on a more positive note, customers that are going away and looking at some of your competitors and coming back to work with you on their vehicles. Cash, can you take that one?
spk02: Absolutely. So we know there are customers who really want to go electric quickly. They go to the market. They value that option. Typically, we win the round one because we have real vehicles they can touch and drive today. Many of our competitors have websites and brochures. So we'll usually win the round one where, okay, we've got a real product they can touch and drive. Then when it comes to pricing, we are careful. We want to be careful on how we play the pricing aspect. We would like to make money, but we understand the customers are looking at it from a total cost of ownership perspective. So there are cases where we refuse to go as low as some of the competitors are. especially when the competitor is a company that has not been building products for very long. It's easy for that company to take a very bullish approach on how low they can get their costs. So we've had some cases where customers have elected to go elsewhere because of the lower price, and then six to nine months they've come back to us saying, hey, the product didn't work out, or hey, I still don't have my product that I placed an order for six to nine months ago. Let me talk to you guys again. So that happens often both in the bus space and also in the truck space.
spk07: Perfect. I'll take the debugging question offline. The next question is really around the leverage that you guys are getting out of your software investments. Obviously, you're one of the few medium-duty truck companies that really has invested heavily in software. Can you talk a little bit about the areas that you're investing in on the software this year and how much leverage you're getting out of those investments from a cost structure?
spk06: Thank you, Colin. It's a great question, something I'm you know, as a former software person, very passionate about. Obviously, in the times past, I've separated or segmented our software in three segments. We have the software that controls the vehicle that is proprietary that we build. That software, we do believe we're the best in the business. And if you look at the efficiency scores on carb dyno tests, we are at the very top in most categories. And so we do believe we do a great job in that software. But what makes it unique is the fact that it's modular. We can take that software and very easily port it to a bigger vehicle, a smaller vehicle, a different vehicle, a vehicle with different equipment on it. And that's what's made us unique is the speed and the agility at which we can take that software and move it to different components and different platforms and different size vehicles. The second piece of software is the way we integrate into a specific vehicle. And again, this is modular. Some vehicles have air brakes. Some vehicles have hydraulic brakes. Some vehicles have rear lift gates. Some vehicles have, you know, rooftop air conditioning. And our ability to integrate to all of that effectively and cost-effectively modularly is, again, unique to us and something we're very proud of. And thirdly, we have our industry-leading telematics and analytics, one hertz. And that's what's given us a big leg up is today we have one-second telematics on every single vehicle in the field today. We understand what happens when it's colder, when it's hotter, when there's high payload. We can tell you the difference between a driver who drives with really good regen and a driver who doesn't pay attention to regen. So those three areas are great, but we're now adding a fourth area this year that I'm very excited about in terms of investment, and that is the integration of our charging and energy solution to our vehicles. So when the customer said what's really valuable to us as they scale, as they scale, they're beginning to understand the complexity of and the need to be very careful about when they charge, where they charge, how much they charge, and how they manage that across a scaling fleet. Demand charges can get very expensive if you charge too many vehicles too fast or too close together. So the ability to manage the vehicle with the charger, and for example, when that vehicle comes back to depot, the vehicle and the charger talk, and they know together how much energy it needs, by when it needs that energy, and how much energy it's going to need in the next day. All of those are things we're excited about and opportunities we see to continue to add value to the software side of the business. Great. Thanks so much, guys.
spk08: Our next question comes from Michael Ward with Benchmark. Please state your question.
spk03: Thanks. Good afternoon, everyone. A couple of things. First off, on General Motors, have they given you a volume commitment for chassis?
spk06: Yes. Yes. I don't know that we can talk about it today. I think it's still under wraps, but we do have a commitment from them on what they'll give us chassis, which is important to us, obviously, in order to be able to get chassis out this year.
spk03: Okay. And second, on the repower, can you talk a little bit about some of the financial dynamics, cost, revenue, capacity? I mean, 50,000 potential vehicles just at Forest River to repower is that can be going out decades based on your kind of your capacity projections. How much space does it, I assume it's in the current facility that you'll do these repower, the manufacturing of those before they're shipped out? Does it take up less space? What does it do to the capital side of the equation and those sorts of things?
spk06: Yeah, it's a very good question. And when you look at videos of our manufacturing or those of you that have visited us, you'll see we've got assembly lines for powertrains. And so this repowered powertrain is identical to the other powertrains we built. So whether we build the powertrain and ship it out to be installed somewhere else or whether we install it at this factory, the powertrain side of the assembly line is the same. It's very efficient. We've talked about this year being able to do 3,000 powertrains in this factory this year on two shifts. So we've got pretty good capacity. And in terms of if we focused entirely on just powertrains or if we had a much bigger mix of just powertrains versus powertrains plus install on vehicles, we could do even a bigger mix of just powertrains. It is the lowest floor space use and the lowest manpower use of everything we build. When we take that powertrain and install it in a vehicle here at our factory, it takes a lot more space, as you can imagine. It also takes a lot more manpower. So This is the most efficient way to use our factory space and also the most efficient way to leverage our partners who already have facilities in the field where they've historically put new powertrains and vehicles anyway. So it's a great use of the ecosystem and the partnerships that exist.
spk03: And is it a fair assumption that from a revenue standpoint, the repower side is about 40% of the total cost of a vehicle?
spk06: Probably. I think that's fair. I haven't done the math recently, and it does change depending on the size of the vehicle and some of the features, but I think that's in the ballpark.
spk03: Okay. And I assume it's got to be less capital intensive. So from that standpoint, it's a way to accelerate revenue pretty quickly. Do you have an exclusive right now with Forest River, or can other people do it?
spk06: Yes. We have an exclusive with us today on Forest River, correct.
spk03: Awesome. That's great news. Thank you.
spk06: Thank you.
spk08: Our next question comes from Vicki Benjamin with Karner Blue Capital. Please state your question.
spk04: Good afternoon, Tim.
spk08: Good afternoon, Vicki.
spk11: Great to hear from you again.
spk04: Yes. I think one of your fans love your product. Just a couple of quick questions, and I'm just feeding off of some of the other questions. First of all, So we know that you have 1,500 capacity for vehicles, 3,000 if you're running two shifts. I know that this was asked at the previous question, but what's the approximate number of powertrains, if you only did powertrains, that you could do at your current capacity?
spk06: I'll have to offer to find that later. I don't know yet, to be honest. I haven't asked my team to go do that math.
spk04: It's certainly, as we talked about from a foresight... Well, I was trying to figure out how much time it takes on the... It seems to take about eight hours a vehicle, and I was just wondering if powertrains are about half.
spk06: Yeah, less than half. Powertrains are much faster, and when you tour the factory, you'll kind of see that. When you look up there, you can see the powertrains happen very... A lot more automation on the powertrain side And so the powertrains do happen much faster than vehicles. And this is true, interestingly enough, even we spend a lot of time with our partners who build, you know, vehicles. And as the size gets bigger of what you're working on, the speed slows down, I think, exponentially. So powertrains being so much smaller, they are much, much faster. We bottleneck here on the vehicle side by far, absolutely. So both from a capacity of people side and a capacity of floor space size, it's it's very significantly tilted towards the full vehicle assembly taking a lot more than just powertrain.
spk04: So just on that point, are virtually all of the parts from the U.S. on the powertrains or in-house? Because we know you have all the contracts with batteries, so we don't have to worry about that. You're creating your own software, so... Are we still down to missing little small plastic parts? Or with the powertrain, are you pretty much sourced domestically?
spk06: So today, there are still some things that ship in, depending on the specific size of vehicle and the type of vehicle. But it is much more contained. So internally, when we think about the constraints and supply chain constraints around supply chain, we have a much higher comfort level than we do around chassis today. And a lot more things we can control and we can buy more and we just have much deeper relationships there than whereas chassis, we don't have a lot of leverage on chassis. So we do feel more confident, but I don't want to make it seem like there's no macro situation that could still derail it because with everything going on in the world, we've become very careful with sounding overly confident that nothing will go wrong. But today your intuition is accurate that there's a lot less risk on just the powertrain.
spk04: And just one more follow-on question with two parts. So I think everyone on the phone probably got excited about seeing the number 50,000 with Forest River. And given the backdrop of rising diesel costs, gas costs, the lack of chassis from any OEM, it would seem like that 50,000 that you folks have done at least with David over at Forest River, some exploration on demand on that side. Do you have any expectations? Do you have any forecast for that? And yes or no, is any of that in the Q1 numbers?
spk06: So I'll answer the last one first. None of that's in Q1 numbers and none of it is in backlog yet. So none of this has been, it is a fresh conversation where everybody's including Forest Rivers, trying to adapt to this new world of not being able to get any kind of chassis for their customers. So the straightforward answer is both Forest River and us are actively looking and out there talking to the dealers and the customers about what the demand looks like, and we don't have a good answer yet because this is so fresh. We're both optimistic or we wouldn't have made, obviously, the work to put this in and build this factory-certified opportunity But the truth is we're just in the early stage of looking at demand and customers, and it's not yet in our backlog or in Q1.
spk04: Great. Just one final question is, notice that in your disclosures that you had about $165 million left in cash. That's great. Any concerns about liquidity? Any plans for liquidity in the near-term future?
spk01: Yeah. You know, we believe our cash and cash equivalents, as you mentioned, our balance at the end of 2021 was $168.5 million, which we believe is sufficient to continue to execute our business strategy over the next 12 months. We will need additional capital in the future, and we continue to evaluate our capital needs and financing alternatives. Great. Thank you very much, Teresa.
spk04: Thank you.
spk11: Thank you, Vicki.
spk08: Thank you. And that was our last question for today, and that concludes today's conference call. All parties may disconnect. Have a great day. Thank you.
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