Earnings Call Transcript - EVTV Q1 2022

Operator, Operator

Good day, everyone, and welcome to Envirotech Vehicle, Inc.'s first-quarter 2022 earnings call. All lines are muted for listening only, and we will open the floor for questions and comments after the presentation. I am pleased to introduce Jane Belodeau from IMS Investor Relations. Jane, the floor is yours.

Jennifer Belodeau, Investor Relations

Thank you, Tom. Good day and welcome to Envirotech's first-quarter 2022 earnings call. With me are Phillip Oldridge, Chief Executive Officer, and Christian Rodich, Chief Financial Officer. I will start by reading the safe harbor statement. All statements made on this call, except for historical facts, may be considered forward-looking statements as defined by securities regulations. Although Envirotech believes that these expectations are reasonable based on current information, we cannot guarantee that they will be correct. These forward-looking statements are subject to various risks, uncertainties, and assumptions that could lead to actual results differing significantly from our expectations. This is due to changes in operating performance, technical and economic factors, and other risks outlined in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. Any forward-looking statements made during this call are valid only as of today’s date. Envirotech is not obligated to update or supplement these statements unless required by law. We cannot assure you that projected results or events will be realized. Now, I will turn the call over to Phillip Oldridge, Chief Executive Officer. Please go ahead, Phillip.

Phillip Oldridge, CEO

Thank you so much and welcome everybody. While I gave you some color around our continued progress in the first quarter on our year-end call just a few weeks ago, I wanted to take this time to provide a brief update now that we've officially closed out Q1, 2022. We've achieved several milestones throughout the first quarter, including increased revenues, new partnership agreements, and progress with our new U.S.-based manufacturing facility. First-quarter revenues improved significantly to slightly more than $1.1 million, with an increase reflecting the sale of 12 vehicles during the quarter generated internally. We're also seeing heightened activity with our approvals from state incentive programs like the New Jersey zero emissions program and the New Jersey ZIP program. As I mentioned before, our foreign network and our status and qualification are approved, and we're receiving the vendor incentive program for New Jersey’s ZIP. This has been a major driver of our considerable growth in sales, both sequentially and year-over-year. The favorable legislative incentives related to EV adoption at the federal, state, and local levels are providing us with ample opportunities, and we're focused on driving sales growth in this favorable environment. To meet this growing demand for our vehicles, we placed an additional order for 100 classified cabin chassis trucks and an additional 100 Class 4 vans. We expect the deliveries of these vehicles to begin in late Q2 and early Q3, continuing monthly throughout the year, with final assembly to take place at our 580,000 square-foot manufacturing facility in Osceola, Arkansas. This order is especially exciting for us, as we've been focused on offering classified trucks to our customers, and they are currently in very high demand. While we expect delivery of these vehicles to begin in late Q2 and continue through the end of the year, supply chain issues remain a factor across the entire industry. That being said, we are enthusiastic about the high demand that we're seeing for our vehicles and we look forward to adding these classified trucks and additional vans to our inventory. Shifting to our manufacturing facility in Osceola, I'm happy to report that we've successfully completed the first phase of our renovations within the office facility, and we're moving forward with the next phase of construction. This facility represents a tremendous step forward in the growth of our company and positions us to be one of the only EV companies with a manufacturing facility in the United States. Osceola is well-situated close to a major interstate and the Mississippi River, which provides us with a variety of options to efficiently transport vehicles to our customers. The area also offers a robust business climate and highly capable workforce as we look forward to staffing the facility with close to 800 employees over the next few years. This is an exciting time for both our company and the EV industry, and we're intent on capitalizing on the opportunities we're seeing as a premier provider of zero-emission electric trucks and vans. As we move through 2022, we're optimistic about our prospects, energized by what's on the horizon for Envirotech Vehicles. At this point, I'd like to turn the floor over to our CFO, Christian Rodich, who will briefly walk you through the first-quarter financials.

Christian Rodich, CFO

Thank you, Phil. Good afternoon, everyone. Sales were $1,108,500 for the three months ended March 31, 2022, compared to $470,793 for the three months ended March 31, 2021, reflecting an increase of 235%. The sales increase was primarily related to the sale of 12 vehicles in the first quarter of 2022 versus five vehicles in the same period in 2021. Total net operating expenses for the first quarter of 2022 increased by approximately $2.4 million compared to the first quarter of 2021, which included approximately $1.6 million of non-cash charges related to stock-based compensation expense and depreciation expense. Net losses in the first quarter of 2022 were approximately $2.5 million compared to a net loss of approximately $659,000 in the first quarter of 2021. As of March 31, 2022, the company had cash, cash equivalents, restricted cash, and marketable securities of approximately $9.1 million, with total liabilities of approximately $961,000 compared to $12.9 million of cash, cash equivalents, restricted cash, and marketable securities and liabilities of approximately $1.6 million as of December 31, 2021. Working capital at the end of the quarter, March 31, 2022, was approximately $21 million compared to working capital of approximately $21.5 million at the end of last year, December 31, 2021. That concludes my remarks for today. We can now open the call up for questions.

Operator, Operator

Thank you very much. Ladies and gentlemen, the floor is now open for questions. If you are listening on speaker phone today, we ask that you please pick up your handset while asking your question to provide optimal sound quality. Please hold a moment while we poll for questions. And the first question today is coming from Frank Jones from Barlow Capital. Frank, you may go ahead.

Frank Jones, Analyst

Thanks, guys. First of all, congrats on the progress. My first question is, could you provide a little more color as to who the end customers are for the vehicles that you sold during the quarter?

Phillip Oldridge, CEO

Sure. This is Phillip. I think we can do that. Actually, I think probably Sue Emry, our Vice President, would probably be best for that. Sue, can you just shed a little light on that?

Susan Emry, Vice President

Absolutely. So first quarter sales deliveries included one to a municipal airport authority here in the state of Arkansas, several went to a California-based company that does upholstery, and several vehicles went to a national solar company located in Utah. We also had some deliveries to local New Jersey public libraries.

Frank Jones, Analyst

Great. Okay. Awesome. And then just a second question. So obviously, fuel prices have been very high recently. Has the increased prices impacted interest in your vehicles, and are you seeing more opportunities in your pipeline?

Phillip Oldridge, CEO

Sure. Absolutely. This is Phillip, and that's a great question. The answer to that question is yes. More and more people are noticing. Especially as we've had a lot more vehicles out and they see the reliability of them. We're finding that the price difference and the variation in price between a diesel-powered vehicle, which would run in the mid to upper $60,000 range fully loaded, compared to an electric vehicle, which would run in the $90,000 range, the operating costs of that diesel vehicle if it's averaging 100 to 150 miles a day burning between 10 and 15 gallons of fuel, actually, the fuel burn alone more than covers the price difference. So we're really starting to see a lot of inquiries about that, a lot of customers turning that way. And of course, now that we're manufacturing a larger volume of vehicles and our prices are coming down, we're expecting a substantial drop in our pricing of over $10,000 before the end of the year. So yes, I think we're going to see many customers going that way.

Frank Jones, Analyst

Great. Alright, that's helpful. Thank you. That's it for me. Congrats on the quarter, guys. Thanks.

Phillip Oldridge, CEO

Thank you.

Operator, Operator

Thank you. And your next question is coming from Dave Hannon. Dave, your line is live. Please go ahead.

Unidentified Analyst, Analyst

Thanks very much. Hi, Phil and team. Congrats on the progress. I think it looks good. We always want more, but directionally moving in the right direction, so that's good. I've got like three or four questions, and I'm hoping we can just kind of zip through them. The first topic for me is the litigation and the disclosure, particularly in the annual report, was really good and helpful. But I'm always looking for more. The dispute with GPV is, for me, the greatest concern. I think frankly for both sides, it's an overhang, and I don't think investors like it. I think potential customers probably have concern. I think strategics or even the right acquirer would look at it on either side and have issues. I think it needs to be settled. So my question is, is there anything you can share with us, maybe it's subsequent to the quarter, something current that helps us understand the likelihood or willingness that we see this resolved in either arbitration or somehow concluded altogether?

Phillip Oldridge, CEO

Green Power contacted us earlier this year to discuss settling the agreements. While I can't go into all the details, we agreed to settle, but then they introduced some terms at the last moment that we considered non-negotiable. We believe those terms were never part of the original agreement, and when they tried to reintroduce them, we declined. We have filed our defense in response to the case they brought against us, which mirrors another case they filed in Canada three years ago, so we don't see that progressing for them. We're hopeful that we can eventually reach a settlement that reflects both sides' interests, but right now, it seems to have changed at the last moment. Both parties are in discussions, and regarding other legal disputes from prior automotive issues, those have all been resolved. The only outstanding matter is the GPV case, which we believe ultimately needs to be settled for everyone's benefit. There is some ego involved right now, but I think it will ultimately be resolved. I hope that addresses your question.

Unidentified Analyst, Analyst

Yes, it's a sensitive topic, so I appreciate your comments on it. My second question relates to the financing. I understand you might not be able to share much, but we're looking at a potential $50 million raise, a $0.27 quote, and a market cap under $100 million in light of this financing. Can you provide any insight into your and the Board's views on dilution, as a raise of this magnitude is concerning given the market cap? Also, are you exploring other options, such as debt financing, or considering strategic partnerships or other methods to fund this ambitious growth?

Phillip Oldridge, CEO

Yes, great question. Obviously, there's a reverse split coming, so we need to tighten the stock. In terms of the debt financing, we've been offered debt financing right now and received approval for up to $250 million in an industrial bond for our expansion, which is very exciting. After we do the reverse split, we are not sure what that's going to look like just yet because we're still pricing that, and there will be a concurrent financing that will come with it. When we say up to $50 million, it doesn't necessarily mean that that's what we would take. For those of you who have been around me for many, many years, you'll know I'm not one of those guys that likes to raise money for the sake of raising money. If you look at our financials and consider our current cash position today, what we raised almost two years ago, what we're sitting with today, and what we have in inventory, our burn rates are very low, and we're very conservative in the way we do things. On the flip side, we’ve seen issues with larger companies, and I’m very grateful that we’re not a company that has just a concept. We are one of the few companies that is fully homologated and certified. We've completed the USDOT, NITSA, and FMVSS, and we have our own bin number. We are far from those companies out there just touting their stories about being around the corner. We're very grateful; we have vehicles on the road. We recently completed homologation of our right-hand drive vehicles, so we’re excited about our opportunities ahead.

Unidentified Analyst, Analyst

So you actually touched on a couple of my other questions; I didn't have to ask you. I just got you talking, so that's very helpful. On the reverse split subject, I was going to ask you, what are we waiting for? So did I understand that correctly, that in conjunction with this deal, you're basically in a position to move forward?

Phillip Oldridge, CEO

That is correct.

Unidentified Analyst, Analyst

Opening the door to institutional and ultra-high-net-worth investment on Nasdaq is a significant improvement over the current setup, which is positive. You also mentioned the right-hand drive vehicles. I was curious about the trucks. Can you give us an update on the potential for taking this to the next level? While the singles are good, we all recognize that a game-changing headline is necessary. Do you have any insights regarding the pipeline or prospects for delivering that breakthrough moment?

Phillip Oldridge, CEO

Sure. While the post office is a good example, we all know that the post office handed out a $1.7 billion contract to a company providing them left-hand drive and gas-powered vehicles, which is going to attempt to make at least 20% of those electric over the next two years. Several states have filed lawsuits against that United States postal service in conjunction with that award. We feel very confident as we look in the market. I can tell you right now, there is nobody in North America that has a right-hand drive vehicle that is homologated and would have bin number, and has gone through EPA except for us. We’re very excited about that, and we’re just starting to get that out into the marketplace now. Like I said in the past, we’re changing our ways more, and we’ve done a great job at building a good cross-section of vehicles, and I also think we’re very valuable because we have a very strong presence in the U.S. and Canada. I think our focus is to attack the fleet markets with a school bus, which we're unveiling this fall. Not only will we have the school bus available, but we’ll also provide a charging platform and a renewable energy aspect. This robust program will surround our future sales, not just for our commercial vehicles, but later this fall with the unveiling of our school bus, which we are very eager about. I am confident in our unique position with fully homologated vehicles producing incredible prospects for our future.

Unidentified Analyst, Analyst

Thank you, Phil. My last question is regarding ProGreens. What’s going on with that, and are there any other entities being considered either to share or utilize the plant? Thank you for taking my questions, congrats on all the progress. I'll step back and listen to your answer. Thanks so much, guys.

Phillip Oldridge, CEO

Yeah, another great question, Dave. I guess that's a question that's been asked by a number of people paying attention to the market. We are underway with ProGreens and we will not make any further advancements until we complete the reverse split and our listing on the Nasdaq. It is our intention to start manufacturing batteries here in the Osceola plant and we are in discussions with another company in the solar business right now about potentially manufacturing solar panels within this facility. People may question why that matters. Quite simply put, if someone came to us tomorrow and said they wanted to buy a thousand vehicles, we also need the infrastructure to charge those vehicles. Currently, that infrastructure is lacking. Therefore, we are working diligently with several states to establish an infrastructure along with Electric Storage Systems for charging solutions. Most importantly, we aim to provide a comprehensive platform that can support renewable energy charging, ultimately giving us a competitive edge over others who do not have this solution in place. We are excited for our future as we seek to launch our school bus and provide the complete infrastructure that is crucial for commercial vehicle operations.

Unidentified Analyst, Analyst

Alright. Thanks very much, Phil. Also, I heard your IR team is on the call at the beginning. Can you guys update the site with the latest information? I believe it’s been from August, right? There's a lot of progress to showcase.

Phillip Oldridge, CEO

Yeah, I think we can do that, and we’ll have the guys working on that update it and get it out there for everybody.

Unidentified Analyst, Analyst

Alright. Thanks so much for all the progress, guys. Thank you.

Phillip Oldridge, CEO

That's great. Well, thanks, Dave. Ladies and gentlemen, if there are no more questions, I'd like to thank everybody for joining us and let you know that I look forward to speaking to you next quarter. God bless all of you. Thank you.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.