GreenPower Motor Company Inc.
Q3 2021 Earnings Call Transcript

Published: 11 Feb 2021

[Operator:]

Good day, and welcome to the GreenPower Motor Company Third Quarter Earnings Conference Call. All participants will be in a listen-only mode . After today's presentation, there will be an opportunity to ask questions . Please note this event is being recorded. I would now like to turn the conference over to Michael Sieffert, Chief Financial Officer. Please go ahead sir.

[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 for the period ended December 31, 2020. I'm here today with our Chief Executive Officer, Fraser Atkinson and our President, Brendan Riley; and our VP of Sales and Marketing, Ryne Shetterly.

[Fraser Atkinson:]

Thank you, Michael. Before we start, I'd like to extend a heartfelt thanks to our entire team at GreenPower, who have worked tirelessly over the last three quarters under incredibly difficult circumstances to reach the aggressive operational milestones that we put forward. Their effort has been tremendous. Based on where we are now we can see signs of recovery this spring, and we are incredibly well positioned as a company to take full advantage as the environment begins to normalize. In the fall, we increase production of our EV Stars, including passenger and cab and chassis and our all electric purpose built school bus the B.E.A.S.T. At that time, we entered into production for 20 EV Stars per month, representing potential revenue of over $8 million on a quarterly basis, and five school buses representing potential revenue of more than $5 million on a quarterly basis. In response to a growing pipeline and significant growth opportunity for all electric school buses, in January, we doubled our production of D school buses to 10 per month. This takes us to potential revenue of approximately $75 million per annum with the next increase in production taking us to potential revenue of $100 million. While we work in parallel with our supply chain to further accelerate our production from these levels.

[Michael Sieffert:]

Thank you, Fraser. For the three month period ended December 31, 2020. GreenPower recorded revenues of $2.4 million and cost of revenues at 1.5%, generating a gross profit of over $900,000 or 37.9%. Revenue was generated from the sale of our first EV Star Cargo Plus to the City of Vancouver. One EV Star Plus and one EV Start to ABC bus our dealer in the State of New York and 14 EV Stars for which the Company provided lease financing, and which were accounted for as finance leases, as well as revenue from existing finance and operating leases. We achieved the gross profit margin that was higher than our target this quarter due to the sale of three vehicles in the quarter where sales commission on these vehicles was accounted for an SG&A. For the nine month period ended December 31, 2020. GreenPower recorded revenues of over $7.5 million and cost of revenues of approximately $5.1 million, generating a gross profit of $2.4 million or 32.1% of revenues. Revenue was generated from the sale of 52 EV Stars towards the company provided lease financing, and which were accounted for as finance leases. From the sale of one all electric school bus to create a bus sales. One EV Star Cargo Plus to the City of Vancouver, one EV Star Plus and one EV Star to ABC bus from the sale of spare parts to a transit customer as well as revenue from existing financing operating leases. We finished the quarter with finished goods inventory of approximately $2.2 million comprised of eight EV Stars, three EV STAR cab and chassis, and when all-electric school bus one EV350 and charging stations. As well as working process inventory was $7.1 million, which included five EV250s 20 D school buses and 58 EV Stars of various models as well as parts inventory.

[Ryne Shetterly:]

Thank you, Mike. Our sales efforts continue at a brisk pace and our pipeline has strengthened considerably as a result despite the pandemic backdrop. We expect this trend to accelerate as we continue expanding our sales team, much as we did this quarter with new hires to cover both the Southeast and Midwest regions. We have a strong demonstration schedule set for the coming months and now have additional assets in place we can leverage to get GreenPower units in front of prospective buyers. During the period, we continue to take the steps necessary to position the company for an aggressive ramp as we move deeper into 2021. A good example is the recent inclusion of the EV Star, EV Star CC, EV Star Plus and cargo models being added to the New York VIP program. In addition, we also delivered our first EV Star and EV Star Plus to our distribution partners at ABC bus in New York. We see the New York market as a massive opportunity over the coming quarters and these two demonstration units will be available for prospective customers going forward through the ABC sales team.

[Brendan Riley:]

Thank you, Ryne. And it's really a pleasure to be presenting to you today. And thank you everyone who's on the line today. Today is undoubtedly one of the most significant days in GreenPower’s history. As just moments ago, we announced a major agreement with Forest River, Berkshire Hathaway own company, we're going to be supplying them with EV Star cab and chassis within their supply chain. This agreement with Forest River allows the GreenPower to exponentially expand our effective reach into the shuttle in RV market with recurring business. We have one touch point to focus on and that plays to our strength, which is designing and building and delivering EV. Forest River we'll be building their shuttle and RV body and putting them onto our vehicle, distributing and supporting these vehicles through their network of sales, parts, service, which is their proven strength.

[Operator:]

And the first question will come from Chris Souther with B. Riley. Please go ahead.

[Christopher Souther:]

Hi guys congratulations on the announcement. Could you provide a bit more context on and background on how long these discussions were held with these guys and what the process was as far as testing and why you think I guess the RV market is particularly well suited for electrification here?

[Brendan Riley:]

Yes. So this is Brendan. Thank you Chris for that question. Ryan and I started talking to Forest River as earlier than last summer. We actually brought out some vehicles to them and actually left behind one of our cab chassis for them to really investigate properly. So this has been an ongoing relationship that really started months and months ago and it took I would say approximately four months to fully develop. We do believe that our vehicles are not only a good candidate for their RV line but for the shuttle bus line. The RV line will be more of a niche product and we would see them for people that don't go traveling across country and RVs maybe local trips or people that are interested in doing EV style trips where you would stop at a charger and charge up and travel maybe for 150 miles. But the way we see it this is a burgeoning market and Forest River is the leader in the RV space, the leader in the shuttle bus space. They really are our target customer and we're just so excited about moving ahead with them. Please stay tuned for more updates as we get further along in our relationship. Thank you Chris.

[Christopher Souther:]

It's great to hear. It makes sense. So can you talk a bit about the exclusivity that is mentioned in the release that you guys would be the sole provider of electric solutions for them? Is it exclusive on the other end where you could wouldn't go after other RV type manufacturers or am I kind of missing about there?

[Brendan Riley:]

It's exclusive both ways for the address products.

[Christopher Souther:]

Got it. That's great and then maybe shifting gears around the ramp up in deliveries that you're talking about you mentioned the 75 million rate which it sounds like exiting the June quarter we'll have that for both of the vehicles. What would you need and you had mentioned a next leg of 100 million kind of annual run rate. What would you need from a visibility standpoint to be talking about raising the production for that next leg? Is that something you're looking at this year you think and is it certain number of customers that you're in advanced discussions where you'd be talking about doing that or how should we think about that?

[Brendan Riley:]

Well that's a great. I'll start it off and then other members of the team may pick up the thread from there. So at a high level the 75 million of the potential revenue run rate that you referred to is really where we are now in terms of what we see with the orders that we're working on, with the pipeline, with the activity level and so on and so the next leg up if you will is really will be a byproduct of a another significant deal or another couple of deals where we're pressed to fulfill all of the potential requirements that we see you in the ensuing number of quarters at which point in time we'll be stepping up to the next level and then so on and so forth as we move forward. And just to remind you on our approach our DNA has always been to move this forward on a measured basis and not on one hand get ahead of ourselves but on the other hand have inventory that is available to be delivered when we have deals that are near in and once again the Forest River is a great example in that the plan is to deliver six cabin chassis this quarter. So without an increased production plan as we have been working through over the past year and a half two years we wouldn't have been in a position today to be able to do that.

[Operator:]

Our next question will come from Greg Lewis with BTIG. Please go ahead.

[Greg Lewis:]

Thank you and good afternoon everybody. I just wanted to follow up a little bit on the Forest River in terms of the exclusivity that you mentioned not really interested in the RV side I'm interested in the minibus side. I guess, I'm curious like kind of how we should think about that 150 numbers as I go through the Forest River website, I mean it looks like they have like six to nine shuttle bus divisions. Is there any kind of way, any kind of color is that, are we focused on of those specific brand models any more color around that you're able to share with us right now as we try to understand is that is there opportunities to build on that 150 number maybe before the three years is even up? If there's customer acceptance? Just trying to understand a little bit more about the potential for this partnership.

[Ryne Shetterly:]

Yes. This is Ryne Shetterly, Vice President of Sales and Marketing. So the total cutaway bus market here in North America so the U.S. and Canada is about 13,000 units a year. Forest River builds and delivers 9,000 star craft cutaway buses per year and their dealer is creative bus sales and creative bus sales delivers somewhere between 5,000 and 6,000 Forest Rivers market share. So there is a strategy moving forward. We have not gotten that out into the market yet, but essentially they're going to be building six units immediately. Those units are going to be going to key accounts. Based off those key accounts we'll start developing forecasts and yes so the answer to your question is this has a lot of legs and we do expect it to take off relatively quickly as Brendan mentioned based off of our first meeting with Forest River them seeing the EV star cabin chassis they opted to take it literally after the first meeting. Integration has already worked its way down the line and we expect to have a first article here very shortly and then begin distributing the next five out across the country based off of Forest River's guidance.

[Greg Lewis:]

That was super helpful. Thank you for that and good luck. My other question was around I mean there's a couple ways to ask it I guess whether we want to talk about the margin but like I get the gross profit margin getting higher but really I guess it's around the average selling price for those 17 vehicles I mean it doesn't sound like we had a larger school bus in there. It sounded like it was really just different variants of the EV Star. So just kind of curious what kind of drove it what looks like based on the revenue? I'm looking at what kind of mix drove that average selling price higher?

[Michael Sieffert:]

Hi Greg, this is Michael Sieffert. I can take this for you. So really the primary driver of that is that there was a selling commission which actually is accounted for in SG&A. It was over a hundred thousand dollars related to those sold units and so if that was included in cost of sales we would have had gross profit margin that was in the low 30% range which is much closer to what people are used to seeing. So I think this is really more of an accounting question as opposed to any real change in sales mix. However, the one thing to highlight and I think we've said this consistently is that on our larger volume sales we typically do expect for margins to be lower and because the three sales this quarter were smaller number of say sorry smaller number of units those profit margins were slightly higher as a result of that but all in it was definitely within range.

[Greg Lewis:]

Super helpful for that. Thanks. And then I just wanted to squeeze another one in because it seems like you're really ratcheting up the sales effort here. You mentioned the hiring in the different regions. Is there any way to kind of match your sales strategy versus potential incentives like if I want to think about where GreenPower wants to focus its efforts are you kind of looking at obviously we're in California but as we think about broadening out across the U.S. should I be trying to track state incentive programs for their buses as kind of a way to think about where we're targeting or I'm just trying to understand as I think about as you kind of go across North America like how you're targeting and realizing that each market has its own limitations or constraints or issues that need to be addressed?

[Ryne Shetterly:]

So this is Ryne. Yes you're exactly right and because of that we've actually upped our efforts and our resources in terms of grants and contracts administrator who is full-time is helping customers not only fill out grant paperwork but also make sure that our dealers are well educated giving the fact that creative bus shelves has 17 locations throughout the U.S. which represents really significant coverage and pair that with the three states that ABC has we are constantly sending out available funding mechanisms to sales reps, general managers across the country. Our salespeople's responsibility is to make sure they understand these grants and programs as well and start targeting more surgically customers that would be able to leverage those whether it's a requirement for a disadvantaged community or of some sorts like that. So the answer to your question is yes. We can't have somewhere everywhere there's a grant but we can have somebody on top of where they all are and make sure that the sales force that we have throughout the country which is over a hundred individuals representing GreenPower that they all know and fully aware of everything that's available within their region.

[Greg Lewis:]

All right. Super helpful. Have a good night guys. Thanks.

[Operator:]

Our next question will come from Tate Sullivan with Maxim Group. Please go ahead.

[Tate Sullivan:]

Hi thank you and thanks for the detail on Star River too just a couple fall to start on the electric school bus market. Ryne you mentioned some New York market vouchers is these new programs for you? Can you just get more detail there that you mentioned earlier in the remarks.

[Ryne Shetterly:]

The New York NYSERDA program as well as the New York Clean Truck program it's going by NY VIP. It's basically a voucher program very similar to California's HVIP program and essentially what it does is the first phase of this required a scrapping of a 2009 or older model vehicle with a gross vehicle weight rating of over 14,000 pounds. GreenPower motor company we just became eligible for it this within the last 30 days or so. There are some requirements that they have to meet by America compliance and then you also have to have a brick and mortar within the area. So we had to make sure that we met all those prerequisites. We did. We went through their evaluation. It took a little bit more time than we had expected but with everybody at the NYSERDA program working from home we did as good as we could and we ultimately got the result that we were after.

[Tate Sullivan:]

Great. Thanks and relates that you mentioned additional grant money for electric school buses. When you say grant are you relating to I mean charitable foundation money or is it federal grant money that may come through? Eventually what are you referring specifically?

[Ryne Shetterly:]

My apologies. Those are funding mechanisms put forward by the state that generally come on a first come first serve basis for entities that qualify whether they're public or private. The funding amounts are a little bit different but irregardless of who's buying it the vehicle manufacturer has to go through a process in order for them to determine whether or not you're eligible. GreenPower did meet that criteria and we did successfully complete all the prerequisites.

[Tate Sullivan:]

Thank you. Those are the last follow-ups for me. Thank you all.

[Operator:]

The next question will come from Robert London with London Family Trust. Please go ahead.

[Robert London:]

Yes I'd like to ask if the company could comment on the EV credits that will now be available in California for buses medium and heavy duty buses.

[Brendan Riley:]

Yes. This is Brendan Riley the President of GreenPower Motor Company. Bob actually buses are there's a different program for buses. The EV credits right now is for truck products and it allows us to actually every 2021 model year truck, bus any product that we sell that class four can hire we start getting credits for these. You probably are familiar with Tesla motor companies collecting close to half a billion dollars last year on their EV credits alone. The California air resources board has now expanded the program to include medium and heavy duty vehicles. So the way it's going to work in 2024 every vehicle manufacturer that sells vehicles more than 500 units into California that would be trucks and other medium heavy-duty vehicles is going to be required to have a certain percentage of their sales be EV and what they're going to need to do is they're going to need to start buying credits and stockpiling credits so they're not fine because if they sell too many vehicles that aren't EVs and don't have enough EVs to offset them they start getting fined and that's what Tesla's been doing. They've been capitalizing on this program to other manufacturers who sold too many internal combustion cars and not enough EVs. Tesla actually sold their EV credits which is all they generate. So we expect those to, we can start banking them model 2021 year moving forward we get to have that those credits in our essentially our bank account for 10 years and as we get closer and closer to 2024 companies are going to start buying and trading these credits. So the fine right now is $17,000 per credit and like our school bus is worth two credits. Typically that's the bottom of at least it has been in the past. It's the bottom of the price for each one of those credits that they sell them for like Tesla has been selling theirs for I believe it's $7,000 of credit that is the bottom of the fine. So we anticipate that as an additional revenue stream and will give us leverage to be able to sell those credits as the fully transferable bankable, savable. We expect a good deal of income to come from those as Tesla has been enjoying over the past years.

[Robert London:]

Thank you.

[Brendan Riley:]

That's a very exciting part of the future for EV here in California. I'd also like to add that there are 15 other states that are looking at enjoying this program and would likely have the same program in effect over there. So we would have reciprocity with those states in California and those credits would be available for people selling vehicles in those states also not just California. So we're excited that this it could really mean a big amount of revenue to our bottom line just from these credits alone.

[Robert London:]

Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Fraser Atkinson for any closing remarks. Please go ahead sir.

[Fraser Atkinson:]

Well thank you everyone for participating on our call today and as Brendan has outlined we're really excited about the Forest River opportunity going forward and seeing that expand over the course of even this year alone. One thing I would like to add is a and I think it's on Ryne's comments kind of got cut off there but in terms of the demonstration tour that he will be spearheading in this year on EV Star fully autonomous EV Star is that one of the partners first transit is one of the largest transit solution providers in the country. So this tour will have a number of aspects to it. First off being a first to market fully autonomous class 4 vehicle as well as really showcasing that vehicle with a leader in terms of transit solutions across the country. So looking for a lot of exciting feedback on that tour when Ryan gets that going over the next or in a couple of months time but overall if you do have any other questions feel free to reach out to any of us. We're very easily accessible in terms of contact information through our website and we are very excited in terms of moving our business forward and over the next quarter or two and as discussed we have a lot of activity hitting the accounts in spring and summer of this year. So we are looking at really distinguishing ourselves as an EV manufacturer. So with that that concludes our Q3 earnings call and thanks to everyone for listening in.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.