Earnings Call Transcript - GP Q4 2024

Operator, Operator

Good morning and welcome to the GreenPower Motor Company Year-End Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Michael Sieffert, CFO. Please go ahead.

Michael Sieffert, CFO

Thank you. This is Michael Sieffert, the Chief Financial Officer of GreenPower Motor Company. I would like to welcome everyone to our call to discuss GreenPower's financial results for the fiscal year ended March 31, 2024. I'm here today with our CEO, Fraser Atkinson, and Brendan Riley, our President. 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. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our quarterly interim results and MD&A filed on SEDAR and on EDGAR. In addition, these forward-looking statements relate to the date on which they're made. 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 may refer to certain non-IFRS financial measures. Reconciliation of these non-IFRS measures can be found in our MD&A. For additional information on the results of operations for the year ended March 31st, 2024, you can access the audited financial statements and MD&A posted on GreenPower's website, as well as on SEDAR and or filed on EDGAR. I'll now pass the call over to GreenPower CEO, Fraser Atkinson.

Fraser Atkinson, CEO

Thank you, Michael. GreenPower has accomplished a great deal in the past year, and I'm proud to be working with the team at GreenPower, as we've set a new path for our business. Today GreenPower has two fully operational production facilities; one on the West Coast in Porterville, California; and one on the East Coast in South Charleston, West Virginia. This positions GreenPower as a national company with production, sales, and service from coast to coast. With the full line of commercial vehicles and the only EV school bus OEM to manufacture both a Class 4 Type A and the larger Type D all-electric purpose-built school bus, GreenPower is positioned to be a core supplier of electric vehicles in the medium and heavy-duty space. Let there be no doubt, over the past year, the EV sector has encountered significant headwinds. Despite these headwinds, GreenPower has made significant progress with our roadmap to transition to a production plan driven by customer orders. In the past, we've manufactured to inventory so that we were able to complete sales when we receive the customer order. Now that we are receiving large orders, including some with deposits, we must be able to produce pursuant to those customer orders. As Michael will discuss in his remarks, this provides for more efficiencies and fewer touchpoints, which should improve our gross profit over time. In order to make this transition, GreenPower needed to expand its manufacturing capabilities, both in California and West Virginia, make investments in GP Truck Body to provide a complete range of commercial vehicles, and obtain production financing. Brendan will discuss the transition with our manufacturing, and Michael, our capital structure in order to achieve this plan. Hand-in-hand with the production plan is the sales strategy that focuses on long-term prospects with mandates and funding. To provide some context on mandates, when a customer is interested in the Tesla Model 3, a Rivian pickup truck, or Lucid Air automobile, they are not required to buy any of these. Because mandates do not exist for light-duty vehicles, growth in the market for these vehicles can at times stagnate. However, mandates do now exist for medium and heavy-duty vehicles like the Class 4 commercial vehicles and school buses manufactured by GreenPower. That is why GreenPower has chosen to focus on these two markets. Many states have requirements for school districts to purchase all-electric school buses by certain dates. In states like New York and California, this has to happen over the next 10 years. Those two states alone operate 80,000 school buses, representing a market opportunity of approximately $25 billion. For the Class 4 commercial space, California has recently introduced legislation requiring roughly 10% of new purchases by fleet operators to be zero-emission vehicles, creating demand for GreenPower's EV Star commercial vehicles. This requirement will increase to 75% over the next 10 years, amounting to a multibillion-dollar annual market opportunity in that state alone. Several other states are copying the California initiative, further expanding this market opportunity. While these mandates represent strong growth drivers, they are only as effective as the funding available to support the initiatives. In the case of California, the HVIP voucher program has recently introduced the small fleets plus-up, which doubles the amount of the vouchers available to purchase our EV Star products. These plus-ups help small fleet operators get into GreenPower commercial vehicles for nearly no cost when combined with the federal IRA tax credits. Additionally, HVIP introduced the zero-emission school bus initiative with $500 million, which is in addition to existing funding programs from air quality management districts and the school bus set-aside fund. Further, the EPA has been slow in getting out contracts for awards, but we expect to see that activity in the current fiscal year. The combined GreenPower production and sales strategy designed to meet the customer needs in the most cost-efficient manner possible, while focusing on the incentive funding available where the mandates required adaptation, will continue to provide for the best growth trajectory for our company. I'll now hand it over to Brendan for a discussion on our operations.

Brendan Riley, President

Thank you, Fraser, and good morning to all those on the call. During the year, GreenPower completed the build-out of the company's South Charleston, West Virginia manufacturing facility and delivered the first all-electric school buses produced at the facility with the first delivery of our Four Nano BEASTs and Nano BEAST Access Type A school buses in December of 2023. We also commenced manufacturing of our BEAST Type D all-electric purpose-built zero-emission school buses. And subsequent to the year-end, we delivered the first Type D manufactured in the West Virginia manufacturing plant to the Kanawha County School District in West Virginia. These production milestones should not be taken lightly. It is also no small feat to set up a U.S.-based ground-up purpose-built EV manufacturing facility in a region not accustomed to that type of skilled manufacturing required to produce these innovative vehicles. Training of the workforce was a major undertaking, complemented by our partners at Bridge Valley Community and Technical College and the state of West Virginia. Moreover, the production line verification and validation is necessary to ensure that the products coming off the line meet the highest standards of quality and safety, especially in the school bus production. These startup challenges were timely met and have set the stage for continued ramp-up of production at the facility. Equally significant as the first products rolling off of our West Virginia plant is the increase in sales and deliveries of GreenPower's all-electric, purpose-built, zero-emission school buses. Specifically, GreenPower enjoyed a fourfold increase in the number of GreenPower school buses sold in the 2024 fiscal year. Those sales were in markets where GreenPower school buses have been delivered in the past, as well as new states where we deployed the first GreenPower school buses. We anticipate that school bus deliveries will continue to grow in the current fiscal year as we have live orders for more than 100 GreenPower all-electric school buses, including an additional 37 being manufactured in West Virginia. And we have a qualified lead pipeline of more than 160 GreenPower school buses. This represents a potential for $100 million in revenue. Lastly, in the 2024 fiscal year, GreenPower continued to push innovation forward in the school bus sector by introducing the Mega BEAST. The Mega BEAST is a 40-foot Type D all-electric, purpose-built, zero-emission school bus that delivers class-leading range of up to 300 miles on a single charge via a 387 kilowatt-hour battery pack. It provides the longest range, has the biggest battery in the school bus market, and provides more uphill climbing power and has the most desirable V2G capability for a more stable electric grid and community sustainability in areas where it is deployed. Turning to the production line, GreenPower has made significant investment with our in-house body division, GP Truck Body. The focus has been to improve delivery time of upfitting our EV Star Cab & Chassis with truck bodies for customers, providing a seamless one-stop shop opportunity. Through GP Truck Body, GreenPower has been able to develop a comprehensive suite of products with new truck body designs including our all-aluminum stake bed, our landscape bed, our dump truck, our utility truck service body, and the new state-of-the-art refrigerated box truck, which we branded the EV Star REEFERX. The REEFERX has the X factor in that it weighs less, performs better, is built stronger, is more affordable, and has a longer warranty than typical competitive products. These new designs open exciting new markets for GreenPower and demonstrate the flexibility of the EV Star platform. As a result of these efforts by our commercial truck sales team, GreenPower has increased sales of the upfitted commercial EV Star line by nearly 50% during the fiscal year from 79 to 117 vehicle deliveries. GreenPower also won the 2023 Green Car Product of Excellence for the EV Star Cab & Chassis. Green Car Journal said that the award honors commercial vehicles that feature greater environmental performance through higher efficiency, the integration of advanced technology and electronics, and innovative powertrains that achieve decarbonization goals with low or no carbon emissions. All in all, the fiscal year was a success for GreenPower with the first school buses manufactured in West Virginia, the launch of its commercial and school bus products, and an increase in sales in both the company's school bus products and upfitted EV Stars trucks and vans. Next, I will turn it over to Michael Sieffert, GreenPower's CFO, who will cover the financial highlights.

Michael Sieffert, CFO

Thank you, Brendan. For the year ended March 31, 2024, GreenPower generated revenues of $39.3 million with cost of sales of $33.9 million, yielding a gross profit of $5.4 million. GreenPower continues to be one of the few EV OEMs that consistently post a gross profit. This past year, our gross profit margin declined due to inventory write-downs as we began production in West Virginia and delivered our first vehicles produced in the factory. We believe that transitioning production pursuant to customer orders will help alleviate the adjustments, and an increased throughput in West Virginia should reduce the fixed overhead allocation per unit, which over time should help improve our overall gross profit. For the 2024 fiscal year, we delivered 222 GreenPower purpose-built, zero-emission vehicles consisting of 122 EV Star Cab & Chassis, 18 EV Star Cargo, 6 EV Star Cargo Plus, 33 EV Star Passenger Vans, 31 Type D school buses, 10 Type A Nano BEAST and Nano BEAST Access school buses, as well as 2 EV250s. This past year has been a transition, in deliveries to a broader group of dealers and customers, as well as extending our geographic reach. Excluding the deliveries of cabin chassis to other OEMs, we enjoyed a 50% increase from 79 vehicles in the previous year to 117 in the current 2024 fiscal year. Fraser and Brendan talked about the transition with our production, and this transition has been facilitated by changes to our capital structure. During the year, we entered into a revolving $5 million term loan facility, as well as obtaining guarantees for letters of credit for a further $5 million with Export Development Canada or EDC. Both the facility and the letter of credit guarantees are used to finance the production of GreenPower all-electric vehicles pursuant to existing customer orders. They've therefore been instrumental in our transition. EDC has supported GreenPower's production of zero-emission vehicles and has been a great partner for GreenPower. During the fiscal year, GreenPower commenced monthly lease payments on a lease purchase agreement with the State of West Virginia, through a production facility located in South Charleston with more than six acres in an 80,000 square-foot building. Lease payments totaled $600,000 for the year and these will be applied in full to the purchase of the property. The state will also provide up to $3.5 million in employment incentive payments to GreenPower for jobs created in the state, as well as for production increases over time. Title to the property will be transferred to GreenPower once total lease and incentive payments reach $6.7 million. With that, operator, please open the call up for questions.

Operator, Operator

We will now begin the question-and-answer session. The first question comes from Tyler DiMatteo with BTIG. Please go ahead.

Tyler DiMatteo, Analyst

Hi, everyone and good morning. Thanks for taking the questions here. I wanted to start on the shift in the production plan and how you are thinking about managing that more towards orders. I know you highlighted some color on the inventory side of things. I'm just curious about any other tangible steps you can kind of point to here in terms of how you're thinking about exactly doing that. Any other color there? Thanks.

Fraser Atkinson, CEO

I'll begin, and Brendan and Michael can add their insights. For instance, in West Virginia, our production is referred to as component knockdown, which means we need to manage our supply chain so we can move or manufacture the product in West Virginia instead of relying on contract manufacturers as much as we did before. This represents a significant change in our production approach. While it doesn’t necessitate a large capital expenditure, we have incurred notable costs this past year to prepare the facility for this type of production and to establish the necessary processes. On the financing front, we are securing a line of credit backed by finished goods and accounts receivable. However, our situation is different; we are arranging financing specifically for production, which is not supported by finished goods or any other inventory forms typically used for lines of credit. EDC is a valuable partner for us, and they have a facility well-suited to the production financing needed for this shift.

Tyler DiMatteo, Analyst

Okay. Great. Thanks Fraser. Really appreciate that. And then my follow-up here, I wanted to talk a little bit about the order book. I think you pointed to more than 100 in the order book units, pipeline, 160-plus call it. You also had that nice order with West Virginia for the incremental 88 units for school buses. I guess can we talk about that a little bit, maybe how you're thinking about that, the timing of those deliveries and just general update on maybe that contract?

Fraser Atkinson, CEO

The 37 units are currently in progress related to the 88 you mentioned, and Brendan addressed this earlier today. Our goal is to complete those deliveries within the current fiscal year, so you can expect some deliveries later this year and continuing until all 37 are delivered. The primary distinction between live orders and qualified leads is that most qualified leads represent customer orders with secured or identified funding. We are currently navigating the contract process, but the EPA has been slow in finalizing their contracts. Therefore, we do not have a specific delivery date for those. In contrast, for live orders, we are primarily dealing with production that has established delivery dates or expectations for when the vehicles will reach customers or dealers. For qualified leads, we lack delivery timelines. Additionally, there are instances where customers or dealers want to ensure that the end users have their infrastructure, such as charging stations, installed before the delivery.

Tyler DiMatteo, Analyst

Okay, great. And just one last question I want to ask. What does the 88 add to the total contract? Is it around 100 now?

Fraser Atkinson, CEO

It's over 100.

Tyler DiMatteo, Analyst

Okay, great. Thank you guys. I really appreciate the time. I’ll turn it back to the queue.

Operator, Operator

The next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

Craig Irwin, Analyst

Hi, good morning. Thanks for taking my questions. Fraser, we all completely understand the repositioning of the company towards new manufacturing and the school bus markets, which look really exciting right here with billions of dollars being allocated by our President, that opportunity to give our kids clean air, right, clean air while they go to school and come home. Can you maybe talk a little bit about the challenges in the medium-term, short-term, as far as the delivery on those contracts? You have the orders, but many of these school districts have faced issues around charging infrastructure. And there were some early issues around capital access. I believe some of this has been handled, maybe a lot of it. Can you just talk about what you are hearing from the different districts as you work with them? And can you maybe shape it for us how we should expect momentum to come together for GreenPower in this market?

Fraser Atkinson, CEO

That's an important question. One major challenge is that while federal initiatives and mandates are rapidly announcing awards, we, as an OEM, are still waiting for contracts. This has caused delays. In the past year, we received no revenue from EPA funded projects, despite their presence in the market. Regarding charging infrastructure, this is a significant obstacle we face, particularly with less sophisticated purchasers like school districts. Unlike large fleet operators who have dedicated teams to manage charging installations, many school districts aim for the best Level 3 charging stations without recognizing that their facilities may not have the power to support them. This lack of practical planning hinders the deployment of all-electric school buses. There is still much education needed and support required, which has affected our ability to convert qualified leads into actual orders.

Craig Irwin, Analyst

Is it accurate to say that the power requirements of the Mini BEAST are significantly lower than those of the BEAST, making it easier to install and site the charging infrastructure? Could we expect to see more immediate growth in that segment of the market, possibly as a cleaner alternative to the Type C school bus? Additionally, could you discuss your ability to meet demand in this area? Is there potential to scale up to tens or even dozens of units per month? How should we approach that?

Fraser Atkinson, CEO

Our Type A school bus is the only purpose-built Class 4 school bus available. In California, we face competition from three other companies that utilize a Ford E450 heavy-duty cabin chassis. This places us in a unique category where those looking to purchase a purpose-built school bus will choose ours. We appreciate that platform since it's developed on our EV Star Cab & Chassis, which has a proven track record in our commercial vehicle group and is sold to other OEMs. This allows for either a Level 2 charger or a DC fast charge. Due to the vehicle's battery capacity, users can often fully charge it between morning and afternoon runs using a 19.2 kW Level 2 charger. This option is more affordable, easier to install, and has lower power requirements compared to a DC fast charger. Thus, our vehicle class offers significant advantages. We believe this could become our leading product in the school bus sector, establishing us as a front-runner in the industry.

Craig Irwin, Analyst

Excellent. So my last question if I may. Your balance sheet, right? You've done a very good job managing working capital. I guess working capital down almost $10 million over the year-ago period, while for the fiscal year, your revenue was very similar. Can you talk about the ability to maybe liquidate inventory that is there? What should we think about working capital to serve the ramping school bus opportunity?

Fraser Atkinson, CEO

We anticipate that there will be ongoing work in process linked to production in West Virginia and Porterville based on customer orders. However, we expect to see a continued decrease in our finished goods inventory, with finished goods representing a smaller proportion compared to work in process. Additionally, we are observing a reduced percentage in our accounts receivable relative to our sales, which is influenced by the sales mix.

Craig Irwin, Analyst

Understood. Well, congratulations on the success repositioning the company. We're hoping the spring is let loose, and we get to see the real potential as the school bus deliveries materialize this year.

Fraser Atkinson, CEO

Thanks, Craig.

Operator, Operator

The next question comes from Tate Sullivan with Maxim Group. Please go ahead.

Tate Sullivan, Analyst

Thank you. Good morning. Back in April, you mentioned the school bus deliveries, specifically 88 for fiscal year 2025, and provided details about the EPA grant of $18.6 million. Will you receive that grant money upon delivery, or possibly before delivery? Can you discuss that a bit, Fraser, please?

Fraser Atkinson, CEO

We are still waiting for the contract. Until we have that completed, we cannot provide specific or final delivery dates related to that award. We will announce it in a timely manner.

Tate Sullivan, Analyst

And you're still waiting for the contract part from the EPA or from the school district customer in West Virginia, or what is it?

Fraser Atkinson, CEO

From the EPA.

Tate Sullivan, Analyst

Okay. Perfect. And then the April comment about delivering 88 school buses in West Virginia in fiscal year 2025, is that still intact, that type of timeline there?

Fraser Atkinson, CEO

We are currently working on the 37 Type B school bus order and recently delivered our first BEAST school bus from the West Virginia facility, demonstrating our capability to produce these vehicles. In December 2023, we delivered four Type A school buses. Now that we have achieved this milestone, we will continue with the 37 Type B school bus deliveries slated for the fall and winter, before the end of the current fiscal year.

Tate Sullivan, Analyst

Thank you, that sounds great. Brendan, you mentioned the qualified pipeline of 160, which is in addition to the live orders for over 100, if I understood that correctly. You also stated there is a potential for $100 million in revenue. Is that figure based on the amount of grant money they are providing? That seems to suggest a substantial price tag. How did you arrive at that number?

Brendan Riley, President

That's just the estimate of potential revenue. So that's what we have as far as our qualified leads. If you extrapolate the value of those orders, that's the value.

Tate Sullivan, Analyst

All right. Great. Thank you all.

Operator, Operator

This concludes our question-and-answer session. I’d like to turn the conference back over to Fraser Atkinson, CEO, for any closing remarks.

Fraser Atkinson, CEO

Thank you. We expect to be very busy this summer in securing contracts for our school buses and generating orders from new markets for our commercial vehicles. This will be the start of the realization of our strategy focusing on the school bus sector and Class 4 commercial vehicles where there are mandates and funding. We look forward to providing you with timely updates on our progress. In the meantime, if you have any questions, feel free to reach out to Brendan, Michael, or myself. Thank you for your continued support, and this concludes our call.

Operator, Operator

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