GreenPower Motor Company Inc. (OTCQX:GPVRF) Q3 2020 Results Earnings Conference Call February 27, 2020 4:30 PM ET

Company Participants

Michael Sieffert – Chief Financial Officer

Fraser Atkinson – CEO

Brendan Riley – President

Conference Call Participants

Ashok Kumar – ThinkEquity

Tony Pollock – Aegis Capital

Dana Jansen – Private Investor

John Jay – Private Investor

Ted Dixon – INK Research

Matt Koon – Private Investor

Operator

Welcome to the GreenPower Motor Company Inc. Fiscal Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded.

I would now like to turn the conference over to Michael Sieffert, CFO. Please go ahead.

Michael Sieffert

Thank you. This is Michael Sieffert, the Chief Financial Officer of GreenPower Motor Company. I’d like to welcome everyone to our call to discuss GreenPower’s third quarter financial results. I’m here today with our Chief Executive Officer, Fraser Atkinson; and our President, Brendan Riley.

During today’s call, we may make comments or statements about our future expectations, plans and prospects which may constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995, and applicable Canadian securities laws.

Actually results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent MD&A and quarterly results filed on SEDAR.

In addition, these forward-looking statements relate to the date on which they are made and we anticipate that subsequent events and developments may cause the company’s views to change. GreenPower disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Also, during the course of today’s call, we will refer to certain non-IFRS financial measures. Reconciliation of these non-IFRS measures can be found in our MD&A filed on SEDAR and in our press release that was also issued today, which is located on our website at www.greenpowerbus.com.

I will now pass the call over Brendan Riley to discuss operational highlights.

Brendan Riley

Good afternoon, everybody. My name is Brendan Riley and I am the President of GreenPower Motor Company. I would like to thank you all for being on the call today and today and let you know that it really is a distinct pleasure to be here today with you.

We’ve had a really excellent quarter regarding both unit deliveries which totaled 35 in the period, as well as making significant progress on several key milestones which we believe put us in an amazing strategic position heading into the spring. None of our milestones were really as significant or more important impactful to your future, as the Altoona Testing of our flagship vehicle, the EV Star.

For some of you aren’t familiar with Altoona Testing and what Altoona Testing is about. Altoona is the name of a town in which federally mandated testing occurs for buses that leverage federal funds. And it happens to be a very vigorous testing process that usually takes anywhere from several months to over a year to complete. And this process is exhaustive process. It’s designed to test basically the limits of the vehicles that are going to be purchased by transit properties and ensures that the vehicles meet the owner’s demands of transit service here in the US. Basically the testing simulates the harshest terrain environments that the vehicles would be exposed to, while running on public transit routes.

This testing also goes through maintenance service simulations and other items that transit properties can expect. And it used to be a buyer beware. We used to have the vehicles tested by Altoona and then a report came out. The new Altoona Testing protocol does give you a pass, fail score and we are very anxious to be getting that in our final report.

We have to tell you that we’re incredibly pleased with the performance of our EV Star during this process. We do expect to report any day now to really give us great news. We can’t speculate as to the details in the final Altoona report, but again our expectation is that we fared very well indeed.

Currently if the EV Star is both Altoona certified and by America compliant, public transit agencies are eligible for incentives that cover about 80%, up to 80%, in some cases a little bit more, but let’s say 80% of the full purchase price under the FDA funding programs.

What this means is that a typical price for an EV Star and figure to transit service $200,000, effectively becomes $40,000 to that transit agency, making it a very attractive value proposition to these public transit buyers.

We’re seeing significant traction on the EV Star even before we were able to leverage these funds, so we are incredibly excited and we hope you can understand that excitement at the prospect of qualifying for them. And as it stands right now there are no other Altoona certified by American compliant units in our class that are on the market today. And we believe that this will give GreenPower a massive first mover advantage.

It’s also our position that the remarkable performance of the EV Star during this rigorous demanding test is due to the fact that the vehicle was built the way we built it. It’s a purpose-built, clean sheet designed, all-electric vehicle that from the beginning it was built as an EV. It wasn’t modified as some of our competitors. Again, it was designed, engineered and manufactured as an EV from day one.

Other vehicles in the marketplace that are available, that are considered similar are buses that were basically a traditional vehicle or some removed the diesel or gasoline engines and replace it with electric components. And we believe like any retrofit they just can’t compare to the purpose-built vehicle when it comes to performance, quality, reliability and durability.

Information. The GreenPower product is a premium product and the marketplace is beginning to realize this. Our growth and reputation is a testament to our team and that we believe our team is the best in the industry. We are truly capable of designing, building and delivering and maintaining and supporting these vehicles like no one else in our sector.

I’d like to invite all of you to visit our website to view some of our recent testimonials and new segments where you can hear firsthand from what our customers, such as San Diego airport parking are saying about GreenPower’s EV Star. Their comments highlight and I’m so proud of what the GreenPower team has accomplished and why we are so excited about the future.

I would like to now pass over the presentation to Michael Sieffert to discuss our financial results. Thank you.

Michael Sieffert

Thanks, Brendan. During the third quarter of 2020 GreenPower achieved record quarterly deliveries of 35 buses. This generated quarterly revenue of $5 million compared to $1.1 million last year, an increase of 350%. These sales generate a gross profit of $1.5 million or 29% of revenue.

Sales of the three EV Stars with side loading 88 lifts to Sacramento Regional Transit and on 30 EV Star to Green Commuter contributed positively to our gross profit. However, we did not have a margin of the sale of two Synapse school buses. These vehicles were some of the first school buses constructed by GreenPower and incurred higher costs as a result.

We reported quarterly adjusted EBITDA loss of $115,741 in the current quarter compared to an adjusted EBITDA loss $330,192 in the prior year. The improvement was driven by strong sales and gross margins that was partially offset by higher sales, higher general, administrative and administrative costs and other expenses as we continue to invest in growing our business and increasing the number of employees.

Our cash cost for the second quarter were $1.8 million. This increased approximately $400,000 from the previous two quarters, primarily due to increases in salary expense, driven by increases in the number of staff and due to higher selling and administrative costs and product development costs.

We reported a loss for the quarter of $1.1 million or $0.01 a share which included approximately $675,000 in non-cash expenses. GreenPower finished the quarter with a cash and restricted cash balance of $244,000 with $25,000 available on our operating line of credit and we have working capital of over $2.3 million.

Total inventory at the end of the quarter was $4.8 million, including $2.5 million in finished goods and $2.3 million work in progress. For the nine months ended December 31 2019, revenue was $12.9 million, which is more than three and a half times the revenue for the same period in the prior year and was more than double last year’s entire annual sales of $6.1 million.

At this point, I will turn the call over to Fraser Atkinson.

Fraser Atkinson

Thank you, Michael and Brendan for your comments. In the third quarter we made significant investments with our sales activities, which included a cross-country tour by Ryne Shetterly to various creative business sales locations in the United States.

We also made investments with the previously mentioned Altoona Test of our EV Star, a two week demo tour with our EV Star in New York, as well as enhancing supplier relationships to improve our supply chain. Very proud to be part of a team that in the last six months has delivered a total of 62 all-electric GreenPower buses. We’ve gone from delivering three to six GreenPower vehicles in a quarter or one to two per month to 10 per month in the last six months. Big thanks to Brendan for building a team that is making GreenPower a competitive force.

Other than Tesla, we’re the only public company EV manufacturer based in North America that is scaling its deliveries of all-electric vehicles. Since the end of the third quarter we continue to make significant strides with our business. We’ve leveraged our EV Star platform with passenger models that address new sectors for GreenPower, as well as cargo models that position us in new markets.

In January, we obtained an increase of US$3 million in our operating facility with BMO Bank of Montreal. This addresses our immediate financial requirements in a non-dilutive fashion and has allowed us to increase our production of all-electric vehicles. Pleased to report, that we are in production with our four 50 EV Stars and in preproduction for another 50 EV Stars.

In February we filed the Form F1 Registration statement which is a key step in moving forward with our previously announced objective of up listing on NASDAQ. I would like to thank Michael Sieffert for his efforts in getting us to this stage of this process.

This point, I’d now like to turn the call back to the operator so we can receive questions and respond accordingly.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question today will come from Ashok Kumar of ThinkEquity. Please go ahead.

Ashok Kumar

Good afternoon and congratulations. Three part question. Our first one from a global supply chain, given some of the macro shocks, would that put you in a competitive advantageous position, vis-à-vis, BYD for some of the contracts as you look out for the next business cycle?

And then also could you update us on further initiatives with creative business sales in terms of any new initiatives that could further accelerate your sales there? And then in terms of any update on the VW Mitigation Trust, I think earlier you had indicated that the State of California had announced a push on its funding of $65 million, any updates there. And also related to that is the HVIP program in terms of how many vehicles are qualified because in your prior statistics [indiscernible]? Thank you.

Brendan Riley

This is Brendan, Ashok. And thank you very much for the question. As far as our competitive advantage with supply chain, we do have a very diverse supply chain. That’s one of the things that we’ve been working on diligently over the past three years. And we do believe we have a more diverse supply chain than competitors, such as BYD.

But I cannot speak to their supply chain strengths or woes at this point in time. And we’d just like to tell you that we have a very robust supply chain and we feel extremely confident that it not only will become more robust, but that we have one of the best in the industry.

As far as the VW Mitigation funds are concerned, there have not been any awards made of the VW funds as of yet. We are cautiously optimistic that we will be receiving some of those funds and we will let the market know as soon as those come through.

As far as HVIP, GreenPower is currently receiving some of the HVIP funding, actually our customers are – from fiscal year 2019, fiscal year 2020 has been completely over subscribed and we are waiting for an update on that any day now. They’re actually revamping that program and we anticipate some more funds being released.

But as it stands right now they are not accepting any further applications for fiscal year 2020 or 2021 with that. We are still collecting though again on fiscal year 2019 HVIP vouchers and we have – if I’m not mistaken 7 million vouchers still committed, but that would be a great question for Fraser to answer.

Fraser Atkinson

We have 85 voucher request for $9 million.

Brendan Riley

There you go.

Fraser Atkinson

Even better.

Ashok Kumar

Great. And just one last question is the all-electric Type D school buses and so you’re saying early deliveries are at low margins and when do you expect that – those transactions to normalize from a profitability perspective? Thank you.

Brendan Riley

Thank you. So the first builds were all very early design. There were early designs even though the design locked down, we had manufacturing, we had issues throughout the first articles, those have been – the issues have been completely resolved as far as we’re concerned and we anticipate all of our subsequent deliveries from now ad infinitum [ph] of this current – of this particular model to be profitable. It was just again having to do with the fact that these were very, very early products and we had some bumps in the road along the way.

Fraser Atkinson

Yeah, just to add to Brendan’s comment there is, at a macro level what GreenPower brought to market, this being a purpose-built, clean sheet design school bus that is very modern looking, it’s unlike anything on the market. So not only did we have sort of the usual growing pains but there is no reference of all product or even anything close to the school bus that we brought to market.

So I think long term it positions us into tremendous opportunities down the road. But as you’ve probably gathered from our earlier comments, right now we’re pretty heavily focused on so many of the opportunities with the EV Star. But having said that, we want to build out a strategy that the school bus nicely fills in and down the road, whether that’s later this year or through next year.

Ashok Kumar

Thank you.

Operator

Our next question will come from Tony Pollock of Aegis Capital. Please go ahead.

Tony Pollock

Good afternoon. You’re talking about you’ve been doing 10 vehicles for a month. Can you give us some clarity on what you expect to have going forward and what’s your breakeven point? Can you hear me?

Brendan Riley

Yeah. Sorry, Tony. My phone was on mute.

Tony Pollock

Okay.

Brendan Riley

So as you can see, we’re very close to – we’ve been scaling up our company. So from my humble perspective, we’re ready at a breakeven point at the run rate which we we’re at or even then a positive point from the run we’re at.

We will be finding more efficiencies as we continue to build these out our manufacturing capabilities, and as we start getting better pricing on components and subcomponents. But our run rate right now is in excess of 10 units a month, if you average it out and we anticipate increasing that – that run rate to our target of 30 units a month and we anticipate a higher profit margin per vehicle along that way.

Tony Pollock

Okay. When do you thinking get to 30?

Brendan Riley

What I’ve been telling internally to the company and externally to the world is by the end of this calendar year you’ll be at a run rate of 30 units per month.

Tony Pollock

Great. Thank you.

Brendan Riley

You’re welcome.

Operator

[Operator Instructions] Our next question will come from Dana Jansen, a Private Investor. Please go ahead.

Dana Jansen

Hi. Good afternoon. Fraser, how is it going?

Fraser Atkinson

Very good. Thank you.

Dana Jansen

Okay. Kind of a bad day to bring out a good earnings report. Any problems with – we’ve totally dependent on China for any supply issues on the units?

Fraser Atkinson

I shall let Brendan start with this, but that is – first off as far as the earnings release, we can’t control what the rest of the market is or the world is doing. We’ve got to focus on running our own business. But in terms of the – I believe you’re referring to the coronavirus and I’ll let Brendan explain what we have been doing as a company and the related impact.

Brendan Riley

Yeah. So Dana, thank you for that question. That’s the question that’s I’m sure on all of our minds these days. As it stands right now, we have not seen that great of an impact from the coronavirus from really any of our supply chain. At most, we’ve seen maybe a week or two delays from certain vendors that could be related to this event.

But we really don’t know what this about – what this virus has in store for any of us. Supply chain is a very interlinked these days. There are components in all motors, electric motors that are basically used in vehicles like we produce, for all of manufacturers, including those companies that make their own motors that have a supply chain that’s linked to China, Neodymium is almost exclusively – it’s a magnetic material, where if magnetic material almost exclusively from China.

So we could see that theoretically we could have a supply chain impact. At some point we’re just not seeing it yet. And we have a very diverse supply chain. We get components. We have parallel purchasing efforts from not only from Asia, we have Europe and the US.

So we have a very diverse supply chain. We feel that we’re very well prepared to really weather this storm. But as it stands right now, we don’t even know how big of a storm this really is. It will make itself clear in the coming weeks and months.

Dana Jansen

You bet. Okay. Well, thank you very much for the information.

Operator

Our next question today will come from John Jay, the Private Investor. Please go ahead.

John Jay

Hi, Brendan. Very nice quarter. I was wondering about the run rate of 30 months. Is that not a single shift that the California stat and does that – that include possible augmentation out of Malaysia?

Brendan Riley

So John that’s a blended run rate that includes one shift at our Porterville facility and then you know, standard production from our Malaysia. Again, it’s blended where we can actually increase that number as far as production. But realistically it’s not just production that we’re talking about here. You also have to make sure you have the right amount of people for delivery, for support, all that stuff.

So that’s why we have that number, its a very realistic conservative number. It’s not – and I use it as production, but basically we’re not going to make any more vehicles than we can deliver or support. And that’s our pack [ph] right there.

So it is a blend of both. I mean, we could easily – if we leverage our entire global supply chain and our resources, even contract manufacturers, we could do a lot more than that. The question is could we deliver them reliably with happy customers all over the place and I would submit to you that if you really want to know what the limiting factor is it’s that.

Michael Sieffert

One of the things that is going to help us moving forward John is where we move to orders that are beyond the ones, twos, threes and five that we’ve enjoyed to date and that with orders and especially from transit properties and large fleet operators, the orders of 20, 30 or 40, they’ll be looking at getting implementations or deployments of say five a month.

So if we have customers where you can see deliveries and deployments over an extended period in time, it really smooths out your capabilities in your production planning and all of the other things, whereas today we’ve been much more of a batch process. We just completed 50 EV Stars. We’ve now undertaken and started a 100. So with these larger orders we’ll hopefully or eventually get to a point where it’s almost a continuous process.

John Jay

Was there a need help getting those babies on the road, let me know, I’ll get out there and give you a hand.

Michael Sieffert

Thank you for your help, John.

Brendan Riley

Thank you, John. We’re looking for you now.

John Jay

Okay. Good luck.

Operator

Our next question today will come from Ted Dixon of INK Research. Please go ahead. Mr. Dixon. Your line is live, you maybe muted on your end.

Ted Dixon

Thank you. Thank you. Hello everyone. A quick question, just on the – if there is an update on the convertible debentures that you were seeking to have repriced. Can you share any update on that. And just to clarify, you had your line of credit increase subsequent again to the year. And how much can you tell us is available or left on that? Thank you.

Michael Sieffert

Well, the first question with the convertible debentures it’s in front of the TSX Venture Exchange for their review. This is an area that requires their review and approval because ultimately we’d be issuing some additional shares from what was originally approved by them.

And to complicate matters this is in an area that there isn’t a set of policies or procedures as in other areas with the TSX Venture Exchange that would set a very clear path in terms of what we’re allowed to do or not allowed to do.

So in short we’re waiting for their approval, once approved we would be issuing a press release and communicating with the debenture holders and as they would have a 30 day period in which to take advantage of the lower pricing if it’s approved by the TSX Venture Exchange.

As for the increase in the line, if I told you where we’re at, it actually would be mid, quarterly information that we wouldn’t normally be disclosing. I can say that it is – we secured the additional facility to as a plan to move forward with our production, which isn’t just the current quarter or even the next quarter, but to handle what we’re launching into through the balance of this calendar year. But we wouldn’t normally be disclosing on an ad hoc basis what we are on the line or not on the line with.

Ted Dixon

Fair enough. Great. Thank you. And congratulations on a great quarter. I did have my phone muted and that was very encouraging news with your production and good luck, good luck for the rest of the year here.

Michael Sieffert

Thank you, Ted.

Brendan Riley

Thank you.

Operator

Our next question will come from Matt Koon, the Private Investor. Please go ahead.

Matt Koon

Oh, hi. Thanks for taking my call today. It sounds like everything’s been going wonderful with the company and you’re growing it nicely. I just had a question with regards to what you potentially could see over the next say one to three years as you grow the company, what you foresee your net profit margin would be at, would it be at 5% of gross revenue, would it be 10%, 15% of gross revenue based on you know, just curious what that net profit margin that you tried to – try to obtain over the next few years as you grow?

Fraser Atkinson

Well, I’ll start this off and then both Brendan and Michael can weigh in. We did not give – we specifically stated actually on our last quarterly earnings call. So it’s worth restating on this one, that until such time as we hit our sustained positive cash flow, which we expect later in this calendar year, we have stated that we’re not in a position to issue guidance along the lines that you’re suggesting or requesting.

But what I can say is that, if you look at our burn rate average doubt over the last three quarters, which would be our cumulative for the year-to-date in our current fiscal year, which showed to be $1.5 million, $1.6 million of cash for the – and that covers everything, that covers product development costs, sales and marketing, our cash interest costs, everything all in. And our margin on our last quarter was 29 plus percent. So $5.5 million of gross revenue and 29.4% is we’re breakeven/positive cash flow.

Matt Koon

Cool. Oh, that’s great. That’s very wonderful…

Fraser Atkinson

The headlines for you going forward from GreenPower is where you can see that – we’re continuing the trend that we’ve shown in the last six months, where we’ve got those monthly and quarterly deliveries that are getting us to those kind of metrics.

Matt Koon

Right. Yeah, that’s great. And like you say as you grow over the next one to three years, you know, as you obviously get more volume and more revenue, like you say you will hit a certain threshold based on gross revenue to hopefully eventually like you say, you become profitable.

Fraser Atkinson

And positive cash flow. That’s…

Matt Koon

Yeah. When do you see yourself potentially being positive cash flow? I know it’s tough to project, but based on the sales that you’re increasing in the run rate is increasing. And if you can increase to 30 per month, do you see where you could have a positive cash flow from operations by the end of this year?

Fraser Atkinson

I think I answered that in a different way. That you know, until we get there we’re not issuing guidance. So we certainly have internally some very tight targets and goals and metrics that we’re shooting for, but externally until we hit the all important, some positive cash flow from operations, we’re not in a position to provide guidance in that area.

Matt Koon

Okay, wonderful. Great. Okay. Thank you very much.

Fraser Atkinson

Part of that is driven by, you look at especially over the last year where so many companies went public and has many in the – many of the seasoned veterans in the industry would talk about these companies being absolutely game changers and industries, but where is their path to profitability.

And I think in our case you know, as Brendan mentioned in his discussion at the outset of this call, the beginning of this call, we have been building up the team, as I mentioned we have been making a lot of investments and taking all of those into consideration, we believe that we still have done a great job in managing our overall cash costs, our burn rate such that we do have a path to profitability.

And so lots of challenges to get there in terms of fulfilling the level of production and bringing onboard the orders and deployments that we’re able to match with those. But we were pretty excited about where GreenPower is heading.

Matt Koon

That’s awesome, you’re in a wonderful industry that’s growing. So it’s kind of like the Tesla buses, it sounds good.

Fraser Atkinson

Someone should write an article like that.

Matt Koon

Yeah, exactly. Wonderful. Well thanks guys, appreciate it. You guys are doing an awesome job and don’t mind putting my investment money towards that when it’s going to good use. So thanks again.

Fraser Atkinson

Thanks for your support.

Operator

[Operator Instructions]

Fraser Atkinson

Well, if there are no other questions then we’ll bring the earnings call to a close and before signing off you know, Brendan, Michael and I would thanks everybody for either listening in or participating on the call with your very helpful questions. We’d like to thank all our shareholders, employees, customers and all the rest of the stakeholders that have supported GreenPower. But as Brendan said – said it best at the opening, we’re very, very excited about where GreenPower is headed.

And one closing comment to make is that a few years ago our industry was impacted or driven in large part in very small geographic areas across North America by money and vouchers and the like. We’ve now moved to in the past year to where it’s not just money, but its mandates and money that are really going to accelerate the adoption of heavy duty electric vehicles. So we couldn’t be better positioned. And we’re very excited with the team that GreenPower has to move us forward. So, thank you everyone. And if you have any other follow on questions feel free to give any of us a call.

Operator

The conference has now concluded. And we thank you for attending today’s presentation. And you may now disconnect your lines.

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2020-02-29