Vicinity Motor Corp.
Q2 2021 Earnings Call Transcript

Published: 13 Aug 2021

[Operator:]

Greetings, and welcome to the Vicinity Motor Corporation Second Quarter 2021 Corporate Update Conference Call. As a reminder, this conference is being recorded. Before we begin the formal presentation, I’d like to remind everyone that statements made on today’s call and webcast, including those regarding future financial results and industry prospects are forward-looking, and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the Company’s regulatory filings for a list of associated risks, and we would also refer you to the Company’s website for more supporting industry information. I would now like to hand the call over to William Trainer, Founder and Chief Executive Officer of Vicinity Motors Corporation. William, the floor is yours.

[William Trainer:]

Thank you, Operator. And Good morning, everyone. Actually, good afternoon for most of you. I’m pleased to welcome you today to the Second Quarter 2021 Corporate Update Conference Call. The second quarter of 2021 was highlighted by our ongoing sales momentum, having delivered 290% more buses in the first six months of 2021 than we did in 2020. This ongoing traction continues to prove our market leadership, and flagship status with transit authorities and operators as we attract reoccurring orders from our large base of satisfied long-term customers. We are leveraging our strong momentum to accelerate the launch of our next generation electric vehicle EV products, including our breakthrough Facility Lightning EV, and our new VMC 1200 Class 3 truck, as well as other exciting to be announced EV opportunities we are pursuing in the background. The land graph for EV market share is underway, and we are well positioned to gain traction through our long standing partnerships with North American transit agencies. Our world-class purpose built EV design includes key parts from world-class technology partners, allowing us to integrate proven battery systems and components from top sellers such as BMW. Recently, we partnered with Danfoss Editron, a business division of Danfoss to utilize its drivetrain systems. Development and production of a mid-sizes, low floor fully electric transit bus with proven readily available technology is a huge step forward for our Company and the increasingly sustainability minded public transit industry. During the quarter, we received a second order for 14 Vicinity Lightning EV buses valued at over $6 million from Calgary transit, bringing the total current orders for our EV buses to 24. We expect additional customer orders to be announced soon. In the second quarter, we entered into the medium duty truck market with the development of a fully electric Class 3 vehicle with a 12,000 pound GVWR rating. The new BMC medium duty electric truck will utilize proven EV technology with a smaller environmental footprint. The size and design of the medium duty truck line provides maximum versatility to support multiple applications utilizing high quality commercially available technology and industry standardized charging solutions to enable rapid adoption. Designed with a popular cab over design, the first electric trucks will be offered in the Class 3 rating, with plans to later add a Class 5 truck in 2022. The EV truck is expected to appeal to customers an urban delivery applications with daily usage under 150 miles. Vehicles will be sold through a network of existing dealerships throughout North America. All production and commercial deliveries of the VMC trucks is scheduled to begin in the fourth quarter of 2021. In July, we received the initial order from a private operator in British Columbia for 10 VMC 1200 Class 3 trucks, and we expect to sign a lot more orders in the months ahead. Our operations are running very smoothly, and we continue to refine our strategy to continue to meet a new level of demand. Last month we had a successful ground-breaking ceremony to mark the construction of our Washington State Manufacturing Plant in U.S. Headquarters, with operations expected to commence in early 2022. We are joined by employees, state and local government officials, including Washington State Governor Jay Inslee, and Roman Cornell, President of the ABC Group of Companies, our U.S. distributor partner. During the quarter, we received additional confirmation of support from the State of Washington with receipt of a $300,000 economic development grant, to assist in the build out of our production capacity for our EV assembly line. We have a solid U.S. growth strategy in place, as our manufacturing facility are spooling up. In the second quarter, the states of Washington and California selected Vicinity buses for statewide purchasing contracts that gives the state transit agencies the right to purchase directly from the Company’s diverse bus portfolio. We expect to see similar contract wins in other U.S. states in months to come. For our EVs we received support from the Canadian Government to spur adoption of EVs with $40,000 to $100,000 rebates offered to customers through the CleanBC Go Electric Speciality Use Vehicle Incentive Program in British Columbia, Canada, for both our Vicinity Lightning EV bus and our VMC 1200 trucks. Finally, during the quarter, we celebrate a significant milestone with our shareholders completing our uplisting to the NASDAQ to introduce our Company to a broader base of institutional investors. Now, with that I’ll turn it over to Dan to review the financial results for the quarter ended June 30, 2021. Dan.

[Dan Buckle:]

Thanks, William. Good afternoon, everyone. I will keep my portion to a quick review of our financial results. The full breakdown is available in our Regulatory Filings, and in the press release across the Wire after markets closed today. Please note that I will be referring to Adjusted EBITDA and other non-GAAP measures. For the calculation of Adjusted EBITDA and other non-GAAP measures, please refer to the Q2 MD&A, which is available on SEDAR. Revenue grew 119% to $19.1 million in the second quarter of 2021, as compared to $8.7 million in the second quarter of 2020. The increased revenue was primarily driven by the delivery of 46 buses in the quarter, as compared to 23 buses in the second quarter of 2020. Revenue grew 266% to $46.4 million for the six months ended June 30, 2021 as compared to $12.7 million in the six months ended June 30, 2020. The Company delivered 113 buses in the first half of 2021, compared to 29 buses for the first half of 2020. Gross profit increased to $2.1 million, or 11.2% of revenue in the second quarter of 2021 compared to a gross profit of $0.5 million or 5.7% of revenue, in the same year ago quarter. Gross profit increased to $6.5 million or 13.9% of revenue for the six months ended June 30, 2021, compared to gross profit of $0.6 million or 4.7% of revenue for the six months ended June 30, 2020. The profit margins in 2021 were positively affected by sales mix and the number of buses sold with 2021 deliveries generally having higher expected margins and those realized in 2020. Net loss for the second quarter of 2021, decreased to $0.4 million or negative—or $0.01 a share - sorry, $0.01 a share, as compared to a net loss of point $0.8 million or negative $0.03 per share in the second quarter of 2020. Net income for the six months ended June 30, 2021 was $1.7 million, compared to a net loss of $2.5 million for the six months into June 30, 2020. Adjusted EBITDA for the second quarter of 2021 increased to $0.3 million as compared to an Adjusted EBITDA loss of $0.5 million in the same year ago quarter. Adjusted EBITDA for the six months ended June 30, 2021 was $2.9 million, compared to an Adjusted EBITDA loss of $1.8 million for the six months ended June 30, 2020. We ended the quarter with a strengthened balance sheet of $10.2 million in cash, our $20 million credit facility undrawn, all significant debt facilities repaid and all warrants exercise. Working capital, as at June 30, 2021 totalled $24.4 million, compared to $16.7 million as at December 31, 2020. Working capital has increased due to strong demand for the Company’s buses with ongoing liquidity provided by primarily by robust revenues and the exercise of all outstanding warrants. Financially, our Company is in a strong position. We have a strong balance sheet, regained profitability, and the fundamentals of our operations are very positive. We remain well positioned for future growth and profitability. I’d now like to pass it back to William to offer some closing remarks, after which we will begin our question-and-answer session.

[William Trainer:]

Well, thank you for those great results Dan. Looking ahead into 2021, we are incredibly well positioned to create long-term value for our shareholders. We are intensely focused on delivering upon our 2021 order book, completing our U.S. manufacturing plant, and securing new orders for innovative new Vicinity Lightning EV, and our medium duty VMC electric trucks. I expect to see year-over-year growth throughout the remainder of 2021 empowering our drive to create a more sustainable public transit system. I look forward to providing our shareholders with future updates in the near term, as we launch new products, announce new transit agency customers and successively execute our business plan. I thank you all for calling in. Now, I’d like to hand the call over to the Operator to begin our question-and-answer session. Operator?

[Operator:]

Thank you, William. The first question comes from Chris Southers with B. Riley, please go ahead.

[Chris Southers:]

Hey, guys, thanks for taking my question here. Maybe just to start, can you talk a bit about part commonality between the lightning and the 1200 platforms? Then are there other additional end markets you guys could be potentially looking at here beyond the bus and Class 3 commercial vehicle that utilize similar platforms, components that you guys are working on?

[William Trainer:]

Yes, thanks Chris that’s a great question. Yes, we have tried to develop the truck much in line with what we’ve done with the bus. When you go ahead and you first develop your EV product, there’s a lot of capital outlay, a lot of work, engineering work that has to go into it. So, we wanted to take and utilize what we’ve done on the bus and really use the same sort of operating system, and put it on to onto the truck. We’re consistently looking at, where we can, and what we can do with our developed product. One of the things that we’re looking at right now is we’ve got a 22,000 pound GVWR chassis on our bus. Where can that thing best fit? There’s a lot of usage out there, whether it be RVs, work trucks, step vans, and we’re actively looking to see where we can take our technology and the products that we have all of our EV products and put them into other platforms. So, thank you that was a good question.

[Chris Southers:]

Great. Then maybe on the commercial vehicle side, do you plan to utilize the same kind of distribution platform in the U.S.? Are you looking at other sales and service partners? What’s kind of the strategy there?

[William Trainer:]

Yes, so on the bus side, we’re set up. We have a very strong distribution partner with the ABC group of companies, they’re nationwide. But when you look at the, at what the truck is? The truck is a different—it has a different type of dealer network. So, what we’ve done is we’ve started marketing ourselves through the dealer networks in the U.S., the existing truck dealerships, and it’s just been overwhelming the amount of interest that we have. In the near future here, you’ll see some of our news releases coming out announcing the new dealers that we’re putting in and the sales that we have with these new dealers. The market for the trucks is over 400,000 annual vehicles, and we’re in a space with this—with our initially—with our Class 3 truck, that there’s not a lot of competition with those trucks. So, I think that we’re very, very well positioned, and with the dealer network, we’re looking to setup, I think there’s, there’s some really great opportunity here for us.

[Chris Southers:]

It’s great, and then just the last one here for me. Looking at the margin profile today versus when the EV start to become a more meaningful kind of piece of the sales here, can you talk a little bit about the puts in case we should be looking at from a margin perspective as those sales start to ramp?

[William Trainer:]

Yes, very good question as well. Thank you, Chris. Yes, see, when we look at the EV business, the EV business has higher margins, and we’re looking to see those higher margins. Those higher margins equate into stronger EBITDA, and that’s what we’re expecting here with our EV sales. Margins are considerably better than then bus sales.

[Chris Southers:]

That’s great. I’ll hop in the queue. Thanks guys.

[William Trainer:]

Thank you.

[Operator:]

Our next question comes from Bruce Chan with Stifel. Please go ahead.

[Matthew Milask:]

Hi, everyone, this is Matt on for Bruce.

[William Trainer:]

Okay, hello Matt.

[Matthew Milask:]

I was wondering if you guys could give some color on the battery strategy from the commercial truck side, is this you’d be buying fully assembled packs, and your sort of comfort level with the ability to secure capacity there?

[William Trainer:]

Yes, our strategy has been—on our supply chain is to have two suppliers for every major component that we that we have that that cuts down the exposure that we have in case some of the first supplier can’t deliver in the timeframe that we want, but we have a strong two strong battery supply contracts in place right now. Our strategy has been a little bit different on the battery side. We’re really looking—when we look at the battery, we need to have one, the battery well priced for what the market conditions are and follow the supply of the market, and the impact of battery prices coming up or coming down as the market changes, we want to be in the market, but we want strong suppliers, and we want long-term suppliers that have the safety ratings in place. Safety, is what we see is one of the key points in selling an electric vehicle, and when you look at the safety rating, we also are choosing suppliers that when they have—that have long-term warranty positions, but the batteries should not be opened up from the—they should be if there’s a battery issue, they go back to the battery supplier and they go back as a as a major pack. That’s what the industry wants to see. They don’t want to be changing batteries in the field and having their personnel exposed to high voltage battery (inaudible).

[Matthew Milask:]

Great. Thanks for the color there. If I can ask another thing, staying on the EV truck side. Can you talk a little bit about the production strategy there? Is this—will these be produced in Washington as well, or do you plan to sort of preserve that capacity for the by America? You know, municipal type mandates?

[William Trainer:]

No, when we can showcase our facility down there, we really have what we consider to be a campus in our facility down in Washington State, and no we want to we want to deliver trucks from the Washington State facility as well, and we have the capacity to do so without impacting any bus deliveries.

[Matthew Milask:]

Great, sort of leads me to the final follow up there. Any color on what sort of capital investment will really be required to jumpstart truck production?

[William Trainer:]

Our initial outlay has been really put into what the bus development has been, and we’re not looking at any really higher expenditures capitalization into getting the truck side up and running.

[Matthew Milask:]

Great. Thanks a lot..

[Dan Buckle:]

Thank you.

[William Trainer:]

Thank you, Matt.

[Operator:]

At this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. William Trainer for his closing remarks.

[William Trainer:]

Thank you, Operator. I’d like to thank each of you for joining our earnings conference call today. We look forward to continuing to update you on ongoing progress and growth. If we’re unable to answer any of the questions, please reach out to our IR firm MZ Group who’d be more than happy to assist. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.