Vicinity Motor Corp (VEV) 2018 Q1 法說會逐字稿

Good morning, and welcome to the 2018 first quarter financial results. My name is Brandon, and I'll be your operator for today. (Operator Instructions) Please note, this conference is being recorded.

And I will now turn it over to John LaGourgue. You may begin, sir.

Good morning, everyone. Welcome to our first quarter earnings call here for Grande West Transportation. I've got our new CFO here, Dan Buckle with us; our -- J.M. Landry, our CEO; and also have Aaron Triplett here.

Before we get started, I'm just going to talk about forward-looking statements. This call will contain forward-looking statements, which reflect the expectations of management regarding Grande West future growth, results of operations, performance and business prospects and opportunities. The words believes, anticipates, plans, expects, intends, projects, estimates and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation. Such forward-looking statements are based on a number of material factors and assumptions. This call does not form part of any offer of securities or constitute a solicitation of any offer to purchase or subscribe for securities. The sole purpose of this call is strictly for information.

And with that, I will turn it over to J.M.

Good morning, thank you. Good morning, and welcome. I'm pleased to be presenting our financial results for the first quarter. As mentioned in our call about 6 weeks ago, we're expecting to deliver approximately 240 buses during fiscal year 2018, and we're doing our best to normalize the deliveries quarter-over-quarter so that operations and staffing is optimized. We delivered 58 buses in Q1, resulting in the following financial results: Bus and aftermarket parts revenue of CAD 22.4 million compared to CAD 4.5 million for the 3 months ended March 31, 2015; net income of CAD 420,000 compared to a net loss of close to CAD 1.1 million for the 3 months ended March 31, 2017; adjusted EBITDA of CAD 1,675,000 compared to a loss of CAD 364,000 for the 3 months ended March 31, 2017. Since our year-end call about 6 weeks ago, there have been no major changes. Our corporate focus remains the same.

We recently announced Dan Buckle as our new CFO. He started last week and has been working with Aaron during the transition period. I'd like to thank Aaron for his contribution over the last 3 years as CFO of Grande West. We've really come along way over the last 3 years. When Aaron joined the company we really been have a lot of revenues, was a completely different company. We've reached record revenues and results over the last, basically, year. And really Aaron was a key part of that growth and success that we've had at Grande West, so I'd really like to thank you, Aaron, for all the contribution. We are also pleased to have Dan join us and take -- be part of growing Grande West to the next level. We've also announced in the last -- or in this quarter -- or in the last few months that Rob Mowat, the new VP of sales of marketing has joined the company. So now he's fully integrated into the company and he's making progress on his 2018, 2019 sales plan. So basically, the executive team is in place, the changes that we wanted to make or needed and wanted to happen are all done. So we're pleased with that and really looking forward to the next several months of execution.

On the execution side, exactly. 2018, as I mentioned before, is a pivotal year for Grande West. Our priority is still the U.S. market. We see our expansion happening in the U.S, and we're focusing all efforts on making that happen. Our Buy America certification is moving forward. The third-party audit is still ongoing. And we're in line to completing that by the end of the second quarter, as previously announced. Our U.S. plant is up and running, as mentioned before, and we'll ramp-up production based on our U.S. sales. We are also working very hard on optimizing processes and cost controls. And then the ERP, the last but not least, our ERP information is -- implementation is almost complete and going according to plan. Again, to summarize, no major changes, a strong push and U.S. sales, optimizing processes and cost control.

With that, I'd like to turn it over to Dan Buckle, our new CFO, and I'll let him introduce himself.

Thanks, Jim. Hello, everybody. As mentioned, I'm Dan Buckle, the new CFO, been here for 1 week. And so I'm just really getting to learn about the company, focusing on exploring opportunities to really focus on improving results. Really excited to be here. It's a great team, and we have tons of growth potential and it's a great opportunity.

Just a quick background about myself. Spent the majority of the last 20 years, really in 2 key positions. The most recent being Fortress Paper, I was the Finance Director and Corporate Secretary. Fortress, a high-growth manufacturing company that was really involved with niche products with global manufacturing facilities. I was part of a very small management and executive team. So I was really involved with almost all aspects of the business. Prior to that, I was at PricewaterhouseCoopers. I spent 8 years there in the audit insurance practice, dealing with companies of all different sizes, public and private. My concentration here for the next few months, really, and the next quarter especially is, we're dealing with the ERP implementation, which will be live very, very shortly here. We've been running parallel for a while, but we're ready to turn it on. That gives us a great opportunity, really, in the upcoming months. We can concentrate on forecasting and learning more about the future of the company. We can improve our financial reporting, which is quite important. And most important, it gives us a chance to take a look at our costs and to look for ways to improve the bottom line. So I'm quite excited about that and quite excited about the opportunity for the next few months.

And with that, I'll pass it back to John.

Great, thanks, Dan. And with that, I think we should open up here for Q&A.

(Operator Instructions) And from Beacon Securities we have Ahmad Shaath.

I guess my first question is just help us understand the backlog. I know, just on the language, what is the total backlog, not just 2018, just the total backlog you have in number of units?

Yes, that backlog includes all firm orders that we have, Ahmad. So there's approximately 240 for about CAD 85 million of revenues.

That's all just for 2018? Or is it beyond 2018?

Yes, well, most of that will be produced this year. But some deliveries will, obviously, go into next year. We'll do 240, approximately, this year, because we just delivered 58. So some of that'll go into Q1 and Q2 of 2019. And now like to (inaudible).

So just to clear any confusion, we're expecting deliveries of 240 in 2018, and the backlog is 240 as well, right?

Exactly.

So the remainder of the year is 182, so if I got that correct, right?

Yes.

Okay, perfect that's very helpful, John. And on the ASP and, I guess, gross margins is tied to that. How should we look at the remainder of the year on the gross margin levels now with the new way of reporting, with knowing the BC transit is lower pricing going forward, should be in line with what we've seen in Q1. So how should we think about gross margins, 12.5% and 370K in ASP, is it a good ballpark going forward? Or should we see some lumpiness in that?

Yes. I think if you -- there's not going to be any major changes here. I think when we talked about it 6 weeks ago, we just kind of tried to stay away from guiding it. We're obviously working on our costing and you'll see that average sales price increase overtime. And so let's see how we do in Q2 and then we can have a conversation then.

Okay. So I guess it's safe to assume it's somewhat in line with Q1 going forward, is a reasonable number, right?

Yes.

Yes, okay. That's very helpful. And in terms of SG&A, it that a good quarterly run rate we have right now? Or should we see, especially as you guys try to ramp-up your U.S. facility towards the second half of the year, should we see some uptick in that? Or is CAD 1.7 million is a good quarter run rate?

Well, the CAD 1.7 million, when you take out the stock-based compensation, it's fairly consistent with we said in the previous quarter. So it will -- it stays consistent with what we've stated in the past after removing the noncash items.

Okay, so if we take out the stock based comp, so CAD 1.4 million is the good run rate, right? CAD 1.5 million?

Yes, we don't see -- there shouldn't be any major changes.

Changes okay. No, that's very helpful. And in terms of CapEx, there are no major changes. Most of the money you need to put in work in the U.S. is put in by ABG? Or you guys are going to have to put in some more money in terms of CapEx?

No major additional investment this year in the U.S. on the CapEx side.

In the U.S. on the CapEx side. Okay, that's very helpful. And how is -- would you be able to give us a little more color on the audit, like how far have we come along? Is there like -- just a quick -- any update on the audit?

You're talking about the mock audit in the U.S.?

Yes, the mock audit in the U.S. that's it.

It's progressing. It was planned that it would take a while, so it's moving along well. No major -- nothing really to be report until it's all done. It's still work in progress. It's progressing. We're online for time wise. So nothing really special to report. It's moving along quite well.

And from Echelon Partners we have Amr Ezzat.

Maybe, again, on your guidance, you did deliver like, I think, 8 more buses than you anticipated for the quarter, but maintained your outlook. Anything to read into that or is that just like timing of deliveries?

No. I think we're trying to be conservative and realistic about -- not being conservative, but realistic about our deliveries at this point. So just basically mentioned -- we're going to try to rationalize that delivery of 240 over the year and try to even out every quarter, just so it's just a smoother operation for staffing and things. So things are going quite well from an operational standpoint deliveries.

Understood. Then back on, I guess, like the American side. Can you speak to us some of the hurdles you had getting that first Buy America bus Audi production line? Then on the mock audit on that bus, does it have a home yet, that bus? Or you're still sort of trying to place it?

Well, that one, we have, in our -- as a standard business progress, we have demo buses. So that one is not -- that's the bus that will be sold. But it's -- for now, we have a customer name on that bus and a number for the buses, but the order is not in yet. So for now, we're using really, what we have for that bus specifically is being used for the mock audit. When that whole process is done, we'll find a home for it. But that is not a big -- a really big concern at this point. We're a lot more focused on building our pipeline going forward. And that bus will be -- will become a bus that will be sold. But right now, it's all about going through the mock audit and we'll sell it when the time has come.

Any significant hurdles happening with the mock audit or...

No, nothing. It's just going through the process, going through the motions. As I mentioned before, it will take some time to get the whole process done, and we're moving along quite well. We're moving -- so it's on schedule, and we expect to finish on -- as per plan.

Understood. Maybe just one last one from me, it's a housekeeping item, how much commissions are embedded in your operating expenses? Would you guys know that off hand?

Do we -- is that shown in our numbers?

So I'm talking about commissions that you guys would pay to Eastern Canada or to BC transits or other -- any of your sales agents?

Yes, we have -- I don't think we've shared that information. I'm not sure where it's shown in our financials.

Well, you just put it out in the past.

Yes, just for competitive reasons, we want -- how we reported commissions.

Yes, it's in sales and admin. And Amr, I can jump on a call with you after and we can go over that.

From Gryphon Investments we have Ron Kaulbach.

Jean-Marc, in your written review that I see this morning, you talk about reaching 10 buses per month in the Atlanta facility. Is that your maximum that you can do? Or what would be your maximum at a full 100% run rate?

No, the capacity is higher than that. That's -- our short to midterm goals is to get to 10 buses a month. That facility can easily take double that volume. If we really want to stretch it, we can do more than that. But for now, we're taking it in stages and our first step is to really get to 120 buses a year. And then we'll revisit what kind of -- how quickly we're growing into our pipeline in the U.S. and what the needs are going to be going forward. But for now, that 120 should be good to get us going to the next point where we need to decide how big we want to go. But for now, the facility has got some -- has got potential to do more than the 10 a month.

Okay. Re margins, what would you and Dan and the team be comfortable with as far as a margin expectation going forward, once things are moving properly?

Well, as John said to the previous caller, maybe we can revisit this at the next quarter. We are working really, really hard to look at our numbers and go into greater details and get better at that forecasting. We're making some changes and tightening things up. So right now, we're basically saying expect about the same as what you're seeing now. And as Dan gets into his new role, and we have the rest of the executive team looking into some of the areas of the company as we're getting bigger, we're going to tighten things up. And then we'll have probably better forecast for you or more clarity on going forward numbers and expectations.

And we have a follow-up from Ahmad Shaath.

Follow-up on some housecleaning items, I guess. In terms of the parts sales, the parts revenue, it came in both a little bit stronger as a percentage of total revenue and the margins came in better than expected. So how should we think about that for the remainder of the year? I know the rule of thumb you guys had for us is around 2% to 2.5% of bus sales is parts revenues. Does that still hold? Or should we -- should it ramp up for the remainder of the year and the margins coming in at 19.5%, is that a good number as well?

Yes, I think part sales, they are a little bit higher right now. So that does happen when you do have specific customers doing stocking orders for parts. I think the guidance we've given in the past is probably still appropriate.

And how about margins on the bus parts, is high double digits is safe to assume on the gross margin for the spare parts?

Yes.

And we have [Dan Michael] on the line.

I'm just wondering if you can go back over the sales backlog, and maybe just talk a little bit about what (inaudible)...

[Dan], you're a little hard to hear.

If you can go to the sales plan again, the backlog for 2019, and where are we now in the bid cycles that you -- in terms of your sales efforts, both in Canada and the United States?

Okay. So backlog, I think we already answered that question during the call here, on the backlog, where it stands today. We are -- on the pipeline or the bid cycle, we have still a little bit of the same status as the call 6 weeks ago. We have several -- a good number of bids that are out. There are different stages. Some are closed, waiting to award; some it's been for a very long time. We've mentioned in the past that some of the bids that we still think that we're going to win, they're taking -- they have been taking longer to award than everybody would expect. But it's still no major changes. There's not -- there's still a lot of opportunities. We have some -- we're bidding on some new stuff every week, some close on a regular basis and we expect to see some awards in the near or sometime when they're ready to award. I'd hate to put a date on that. But we do have some things in the pipeline that should award in the reasonable near future.

Okay. Just to go back over the backlog question. I'm sort of confused about what was said. The total backlog for the company is only 240, so you've got no -- you have got nothing in the backlog for 2019.

Yes. So if you look there, we'll deliver 240 this year. So it's going to -- 180 or so of those buses will go out and become revenue this year. The rest will fall into deliveries in 2019, first and second quarter. And then we're just working on building that sales pipeline for 2019 now.

Okay. So (inaudible) could roll over for revenue in 2019, is that what you're saying?

Yes.

(Operator Instructions) I'm not showing -- no further questions at the moment. I'll turn it back to John for closing remarks.

Great. Just want to thank everybody for joining us here this morning on our first quarter. We're really excited about the recent additions we've got here with the company. Really, really focused on building the U.S. and working on our cost control. So looking forward to speaking to you everybody in a few months here for Q2. Thank you so much.

Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.