Lightning eMotors, Inc.
Q3 2021 Earnings Call Transcript

Published: 15 Nov 2021

[Operator:]

Good afternoon and welcome to the Lightning eMotors Third Quarter 2021 earnings conference call. Today's call is being recorded and we've allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Nich Bettis, director of marketing and sales operations for Lightning eMotors. Thank you Nich, you may begin.

[Nich Bettis:]

Thank you, Operator, and thank you everyone for joining us. Hosting the call today are Lightnings C -- Co-Founder and CEO, Tim Reeser Chief Operating Officer Kash Sethi, and CFO Teresa Covington. Ahead of this call, Learning issued its Third 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 our forward-looking statements if any of our key assumptions are incorrect because factors discussed in today's earnings news release. During this conference call or in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at Lightning eMotors. We do not take any responsibility or duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures, you should refer to the information contained in the Company's third quarter 2021 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial statements. With that, let me turn it over to Tim.

[Tim Reeser:]

Thank you, Nich. And thanks to everyone for joining us today. For today's presentation, we will be referring to the slides that were posted to the Investor Relations section of our website earlier this afternoon. I will start off on Slide 5 with today's agenda. I'll begin with an overview of Lightning and our recent product releases. Discuss the impact of the new infrastructure bill signed today and the law by President Biden and provide and supply chain update and discuss our manufacturing progress. Kash will then provide an update on our order backlog and sales pipeline and Teresa will wrap it up with a financial overview. Moving to Slide 7, we founded Lightning to create purpose-built, hybrid and electric. Specialty commercial vehicles for urban medium-duty fleets to reduce carbon emissions. Today, Lightning eMotors is the only full range manufacturer of Class 337 battery electric, and fuel-cell electric vehicles in the market, including

[Kash Sethi:]

Thanks Tim, I will begin on Slide 14 to discuss our order backlog and sales pipeline. As of September 30 2021, lightnings order backlog included all electric commercial vehicles, all electric powertrain systems, and charging systems for a total of 1,617 units, up 72% from the prior year period, and up 500% since the first quarter of 2020. To quantify that in dollars, that is $171.4 million, versus $124.9 million in the prior year period, and up from 28 million in the first quarter of 2020. The increase in backlog reflects robust demand for our all-electric trucks and buses, powertrain systems, charging infrastructure products and services, telematics, analytics, and other related accessories. Our sales pipeline at the end of the third quarter was $1.32 billion, which represents more than 74% growth versus the prior year period, and up 800% as the first quarter of 2020. Our pipeline is diversified with more than 238 deals in the works across several market segments. We expect the momentum to continue due to successful pilots’ deployments, validating our technology in the field, and expanding sales team now engaging with a wider audience. New vehicle partnerships that unlock new market verticals for us in the commercial vehicle space. And favorable news at the state and federal level that's a just broad support for commercial fleet electrification. As Tim mentioned, we see significant upside potential in the wide variety of funding programs, including new programs funded by the Biden infrastructure bill, the strengthening American leadership and clean cars in trucks Biden executive order, and the build back better build currently before Congress. Given our reach into multiple market verticals within the commercial vehicle space, and our proven record of deploying zero-emission vehicles in sort of only making long-term product clients like several of the 3D companies. We believe we are uniquely positioned to capitalize on these programs, which will increase our order backlog and sales pipeline. Now I would like to turn to Slide 15 to provide an update on some of our strategic partnerships. Starting off with Forest River, we're pleased to announce that we're making steady progress on this partnership and agreement. We have already delivered the first batch of vehicle support Chivor, and expect to deliver additional zero-emission shuttle buses and vans by the end of the year. As a reminder, our servers bus division is North America's largest shuttle bus manufacturer. And our agreement with them has the potential value of up to $850 million or up to 7,500 fully electric power trains, as well as charging products and services over the next 4.5 years. For a silver showcased their Forest Lightning eMotors powered vehicles at the American public transportation associates and Expo in Orlando last week. A testament to Forest River, commitment towards this partnership. During the third quarter, we also announced a strategic partnership in agreement with Collins Bus, our REV Group subsidiary, and a leading U.S. based, a manufacturer of type A school buses. But agreement includes an initial form order commitment, words around $11 million to deploy over 100 all electric type school buses across the U.S. and Canada through the end of 2023. We're pleased to report that the first 9 electrified school buses chassis have already been delivered to Collins. On slide 6 of the presentation, you can see some of these chassis when they were going down our production line. Given the recent momentum, funding from the infrastructure plan, and focus on scooper electrification, we believe the potential here may be much larger than the announced minimum order commitments. We look forward to working with Colin's to lead the school bus industry into a zero-emissions future. Next, we continue to be excited about our partnership with ABC companies. As corporate campuses are expected to resume operations in the coming months, we believe we'll see a strong demand for our motor-coach re-power, and passenger van offerings to ABC. And with that, I'll turn over to Teresa, to provide an update on Lightning's financial results and outlook.

[Teresa Covington:]

Thank you, Kash. I will now provide some commentary on our Third Quarter results, followed by our Fourth Quarter outlook. Beginning on Slide 17 for the Third Quarter, we generated revenue of $6.3 million, which increased 65% from the year-ago period, driven by a 43% increase in vehicle sales. During the Third Quarter, Lightning sold a record 43 vehicles compared to 30 vehicles in the prior year period. Cost of goods sold on the Third Quarter was $7 million compared to $3.9 million during the prior-year period, primarily due to an increase in revenues. As we ramp production and our revenues growth grows, we expect to generate operating leverage as we benefit from higher volumes, Fixed cost leverage on labor and overhead, improved battery supply terms and operational efficiency. The gross margin percentage was minus 12.6% in the third quarter compared to minus 3.6% during the prior-year period, primarily due to higher factory overhead and warranty expenses in the current period. SG and A in the third quarter was $9.3 million compared to $2.8 million in the prior-year period, primarily due to higher administrative expenses related to being a public Company. Research and development expense in the third quarter of was $823,000 compared to $287,000 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, performed product testing, and enhance our in-house engineering capabilities. Operating expenses in the third quarter were $10.1 million compared to $3 million in the prior-year period. The operating loss for the third quarter was $10.9 million compared to $3.2 million in the prior year period. The net loss during the third quarter was $49.5 million compared to a net loss of $18.7 million during the prior year period. The change in net loss was primarily due to a $31.8 million non-cash change in the fair value of the earn-out liability, and a $5 million non-cash change in the fair value of a derivative liability, as well as higher operating expenses and interest expense, partially offset by a gain on extinguishment of debt. The adjusted EBITDA loss for the third quarter was $9.3 million compared to $2.8 million 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 ended the third quarter with $187.2 million in cash, and cash equivalents. Please turn to slide 18. Moving to our outlook for the fourth quarter, as Tim noted earlier, we are pleased with the work we have done to strengthen our position on battery supply, and during the fourth quarter, we are transitioning to a new battery supplier on some of our products. Deliveries from the new supply agreement and our other efforts, should help to mitigate the battery supply challenge in 2022 and beyond. Due to supply chain disruptions with our chassis and other component suppliers, Over the course of the last 45 days, we have pushed out over 60 expected vehicle sales from the fourth quarter into 2022. we continue to experience supply chain challenges, as we are reliant on a number of different suppliers for our components. Delays associated with any of these components may impact the timing of revenue. We have not experienced any order cancellations related to the push-out of the 60 expected vehicle sales. Based on current business conditions, we expect for the quarter ending December 31, 2021, vehicle and powertrain systems sales to be in the range of 40 to 60 units. Revenues to be in the range of $4 million to $6 million adjusted EBITDA loss to be in the range of $13 million to $15 million as Tim mentioned earlier, we have a capital light model for our manufacturing facility. We are continuing to focus most of our capital investments in 3 areas. One, manufacturing facility build-out and equipment to increase capacity and drive cost reductions and factory efficiency. Two, added additional sales demonstration vehicles to deploy at -- pet -- potential customers across the country to drive an increase in sales backlog and pipeline. And three, engineering in our R&D equipment to support our existing and new products and services. Our full-year 2021 capital spending is expected to be in the range of $7 million to $8 million. Now I'll turn it back over to Tim for closing remarks.

[Tim Reeser:]

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 the continued growth in our product portfolio, order backlog and sales pipeline. Over the course of 2021, we have continued to invest in our organization to position ourselves, to capitalize on the market opportunity and our leading market position. The closing of our business combination enabled us to make these investments and has increased our credibility in the market space. It is given us the necessary capital to invest in our people, products and processes. We've made significant improvements in our internal production controls, increased our production capacity and enhanced our testing and product quality procedures. We have doubled the number of our suppliers to reduce reliance on any single vendor for key components. Through these investments, we've continued to improve the quality of our products while also significantly reducing costs. We believe that Lightning stands out to our customers because of our ability to produce and deliver reliable products, which is a significant differentiator in our end markets. Further, we believe the opportunity for Lightning in the EV industry remains robust with less than 1% of the U.S. commercial vehicle population electrified today. We look forward to many years of strong growth ahead. I would like to finish by thanking all of our customers for their commitment to Lightning, our partners for their contributions to our Company's success, and our shareholders for their continued support. I also want to give a special thank you to our employees who are working incredibly hard to navigate the current supply chain environment. And with that, thank you, everyone, and I appreciate your time today. I would like to ask the operator to open the line for questions.

[Operator:]

Our first question today is coming from Colin Rusch from Oppenheimer. Your line is now live.

[Colin Rusch:]

Thanks so much, guys. Can you talk, or just give us an update on how many chances you guys have on hand, and how you're allocating build slots. I'd just love to understand that process.

[Tim Reeser:]

Certainly, Collin. Great to hear from you again. Always a pleasure to hear from you. Thank you for participating. We placed an order of about a year ago for a large number of chassis and those have begun much later than expected began to trickle in. I don't know exactly how many we have onsite today, but then we allocate those based on two things; both based on how quickly a customer wants them, and then also whether we have the additional components required for that particular platform. As you can imagine, a Class 3 platform has different components that may be more or less constrained from a Class 4. and so based on what else is available and what we can ship. The team looks at all of that and then decides what to ship and where to ship it too so. It is a complex internal algorithm with a lot of people actively looking at it. And we will continue to be for the foreseeable future given all the complexities.

[Colin Rusch:]

That's super helpful. And then it's -- it's good to see the pipeline continuing to grow. But we've seen the backlog continued to be flat here for several quarters. I guess I'd love to understand the dynamic, around the conversion of pipeline into backlog and what you guys are looking for and moving that process along. Obviously, there's a lot of uncertainty out there and some of those conversions may take a little bit of time, but just love to understand kind of what's the sticking points have been and what folks are looking forward to. Actually, placed those orders in terms of

[Tim Reeser:]

Kash, can you respond to Colin's question?

[Kash Sethi:]

Yes, absolutely. So, Colin there's several factors behind that. Generally speaking, we're seeing a lot of demand for our product, market engagements. High number of leads coming in, number of new opportunities be creating it's very robust. A lot of new agreements we announced recently, especially the Forest River agreement, which has the potential of up to wait on that $50 million. All of that has not trickled into our backlog yet. We've signed both foundational agreements. We're working with customers like those to identify exactly what products they need and when. So, there's a bit of a lag between assigning these foundational agreements, working with those customers, their dealer net worth and especially customers, airports, transit agencies, packing authorities, to identify the exact specification and quantities. And then having both become for us from purchase orders. So, over the next quarters, you'll see that activity happened. But also -- Go ahead. I was just going to add that generally speaking, we -- it's not linear and on the commercial vehicle market, especially because we're in so many different market verticals. Each market vertical has its own nuances of how soon customers move from one sales stage to another. So, it's not quite linear, we're making a lot of progress and you'll see the impact over the next few quarters. But broadly speaking, our backlog is very, very healthy today.

[Colin Rusch:]

Perfect. That's exactly what I needed. Thanks so much.

[Operator:]

Thanks. Our next question today is coming from Mike Shlisky, from D.A. Davidson. Your line is now live.

[Mike Shlisky:]

Hey, guys, good afternoon. So, your outlook for Q4 has, let's say, call $1 million, or still $1 million change lower on revenues, but about $5 million lower on the adjusted EBITDA line, compared to the third quarter. Could you sort of color on some of the puts and takes there as to how those numbers end up being your forecast, as an SG&A, or some other costs that we're not thinking about here.

[Tim Reeser:]

I think and I'll let Teresa augment my answer here on this as well, but Q4, as you can imagine, when you have this much movement on an almost hourly basis on to Colin's question, which chassis are you're prioritizing and what do you have components for and do you have all the components? And as we've heard several other of our peers say, even if all you're missing is a one little battery connector, you still aren't shipping a vehicle, so and the challenge with that is it makes it difficult to predict mix. And so, as you can imagine, some of our products that are on generation 3 or generation 4 where they're more mature. Our mix is better and we generally will make better margin on those than we will Certain other of our products. So, part of it is a changing mix and that will level out over time as each of the products get to maturity. And then part of it is also how much we ship as you can imagine, as factory overhead and absorption or lower if you don't hit the -- absorb at all, or use at all, you're going to have a lower EBITDA for that quarter than was predicted. Teresa, did I catch that accurately?

[Teresa Covington:]

Yes -- yes Tim. Mike, the other thing is, primary driver on the higher adjusted EBITDA loss is the expectation of higher operating expenses in the fourth quarter. Both on the R&D side, as well as SG&A.

[Mike Shlisky:]

Okay. I think just look forward to 2022, just 3-4 years if you would, you've got quite a bit of growth in your projections out there from the past and how things might turn out in 2022. Let's just say -- like the first of January, all the supply chain issues kind of went away. I probably won't, but if that were the case, do you have the backlog? Do you have the agreements with Forest River and the appropriate quantity is from Forest River and Collins and so forth? Are there enough units that you think you could sell in 2022 if you had on the chances that you need at this point?

[Tim Reeser:]

forecast. And you and I -- I like the fact that we've been carrying on this dialogue for a while. I like the question on where the dialogue goes. As an optimist, I'm always excited to look out at what could the best possible outcome be, and so it's always interesting to look out and say, " hey, if we didn't have all these constraints, do we -- I think your question is, how much back -- do we have enough backlog, and enough orders and demand to fill? And the answer is yes. But I will say, sadly, I don't think the -- especially chassis supply chain we've been told from Ford and GM and others, that it is going to continue to be constrained well into 2022. Consequently, that's not what we're forecasting, but in terms of demand and backlog, we definitely have the demand and backlog to keep us very busy in 2022.

[Mike Shlisky:]

Okay. I'm not big on these headwinds. I had to throw it out there. I want to ask one more if I could. Your first Lightning eChassis you are able to ship in 2022 is that going to be a revenue producing event or just a test vehicle? Can you just give us some kind of feel for the types of customers are clearly interested in that particular product?

[Tim Reeser:]

Yes, certainly Mike. The Lightning eChassis will be a and is intended to be essential. Cab Chassis and so it'll serve the CAb chassis need. So, people like Forest River and Collins, both today buy CAb chassis from Ford and GM. And then it will also provide us a product for the step van environment. So, 2 different product places. You've got folks like Freightliner in for provides step van chassis. So, it will be a competitor to both of those products. The unique part of it is because we make this chassis without a transmission where many of the transmission chip constraints exist today, we won't be constrained in the same way that the legacy OEMs are constrained shipping chassis. So, we do expect to have chassis is to be able to ship. Right now, our plan is still in 2022 to both -- put the first -- what I'll call demonstration so many times demonstration could be revenue, but revenue or non-revenue, but early production chassis out as well as later in the year, full production chassis that our revenue products. So, we are moving quickly. It is a product that isn't -- doesn't have a lot of technology hurdle. So that's why we can move at the pace we can move. And it also is not supply chain constrained on the traditional things that have everyone else supply chain constrained today. So, we're optimistic about it, but there is still ongoing development work here.

[Mike Shlisky:]

Okay. Thank you. I will leave it there. I appreciate it.

[Tim Reeser:]

Thank you, Mike.

[Operator:]

Thank you. Our next question is coming from Steven Fox, from Fox Advisors. Your line is now live.

[Steven Fox:]

Good afternoon. A couple of questions from me. If I could. First of all, as within the sales pipeline, you mentioned 238 deals in the work, which sounds like a massive number for a Company your size. And you just had a couple of foundational wins in the last 90 days. So can you maybe give us a little bit of color on how your expectations around those given supply chain and maybe what kind of deals you're working on that we wouldn't have sought out or how it sort of fills out across the breadth of the niches that you're serving and then I had a follow-up.

[Tim Reeser:]

Thank you, Steven. Great to hear from you as always. So, I'll let ask Kash, if he will give you, his insight.

[Kash Sethi:]

Yeah, absolutely. Our sales team is small, but it's growing very quickly today. We get a lot of inbound requests, so we don't quite have to go door to door to create those opportunities. There is enough interest in the marketplace, and thanks to some of our market-leading partners, they have a lot of brand reputation and dealer networks that bring deals to us. So, we haven't had to do a lot of hard work to create these 238 deals. Some of these deals are for 5-10 vehicles. Some of them are for 50 to 100 vehicles. It's a very wide variety of deals mix in there. It's easy to manage though far in terms of engaging with the customers, most of our customers want to actually try a vehicle and others many EV companies out there with fancy websites, Umbro shows, but not a lot of real products. We have a lot of real products, so we take every opportunity to put our customers behind the steering wheel and get them to experience the technologies. So that's an important part of the sales process we are doing the heavy lifting there. In terms of managing lead times, our customers get it on the commercial vehicles as well be times of gone out to 6, 8 and 12 months. So, we're planning with our customers when do they need to vehicles? When they need them in 3 months? And over the last few months, we have delivered vehicles from PO to delivery within a matter of 2-3 months. Some customers have a 10–12-month planning cycle. Some of them will like the vehicles as soon as possible, but the charging infrastructure is not going to be ready yet to Depot. That's where our Lightning energy division steps in and helps plan it out. So, we have a team besides our sales team, we have a team of technical account managers. We work with our customers to design their project. But again, chart together and make sure their vehicles and charges arrived at the same time. There's a couple of situations where we're actually able to offer quicker lead time than what they would get from 4 or GM with some of the legacy traditional OEMS. So, so far, it has not been hard for us to manage, and I expect that number of deals to grow in the coming quarters as our sales team goes in-house, and all of our partners. And their dealer networks activate around the country.

[Steven Fox:]

Great, that's really helpful color. I appreciate that. And then, as a follow-up, back to the supply chain a little bit. Basically, you're talking about pushing out vehicle demand that's equal to the amount you think you could ship in this quarter. I know it's hard to predict Tim, but can you give us a sense for qualitatively a recovery? You just mentioned that chassis could take a while to come back, but you're also gaining purchasing power in Forest River. So, like, how do we think about just -- it's obviously not going to be a straight line, but give us a sense of what you think about the recovery now, 90 days since you last reported, on terms of supply chain recovery.

[Tim Reeser:]

Yes. So, one of the things and I appreciate it very much, Steven, that that is accurate is we're working as we say here to control the controllable. And there are some things we can control. So, we're adding significant team members to our global supply chain group to be able to work on more supply chain agreements. We're adding a lot of engineers and R and D, which part of what that team does is validate new components and new products to give us more optionality, so that if one product isn't available, we have another product that we can fold right in. And that takes work because you have to design new brackets and new wire harnesses and new software to support each different component. So, we have -- or successfully, I think adding the people to control the controllable. The other part we are adding is the systems to control the controllable. So, both on ERP and MEMs systems, really in enhancing what we're doing on that front so that we have more front-end forward knowledge of what isn't coming or what hasn't come on, what is coming. And that can populate throughout the environment and throughout the Company so that we can more quickly mitigate or resolve those issues as they come up. And then thirdly, as you alluded to as we go out and move from buying in very small quantities, sometimes just kind of on the shelf, so to speak. Now today where we are as we've announced some with battery manufacturers like Proterra, we're putting in place long-term supply agreements, and we're putting in place larger volumes supply agreements. And the combination of those 2 gives us a lot more leverage and a lot more priority, and a lot more visibility with some of the supply chain. So, we do expect all of those things to improve our position. But it won't totally mitigate the macro economy that if some of these folks just don't have anything to ship no matter how high up on the priority we are, we still -- we can't get a chance here or whatever needs to come. The other challenge of course, is you really -- to ship a vehicle, you have to have all of it. So even as we walk through, and mitigate -- you know, really work on these long-term agreements with the top 20 or 30 suppliers; until you get to the bottom 20 or 30 suppliers, you still don't guarantee that you're going to be shipping vehicles on a more regular and predictable basis. From my perspective, we expect kind of the main one that's difficult, which is chassis, to continue to be constrained, and what we're hearing from the legacy OEM players like Ford, and GM, and Hino, and Isuzu, is that they expect to remain constrained, not zero, but constrained through the first half of this year, and then to begin to see improvement in the second 1/2 of this year. I heard one of the OEMs tell one of our customers the other day they're expecting 2021, and 2022 To So, look similar, but a metric -- reverse metric in terms of first half and second half of the year. So, we are making improvements in what we control, but still being very careful about expectations and planning around the things we can't control.

[Steven Fox:]

I appreciate all that color. Thank you.

[Operator:]

Thank you.

[Operator:]

I am not showing any other questions in the queue. This will conclude the question-and-answer session for today. You may now disconnect your lines. Thank you. Have a great rest of your day.