Vicinity Motor Corp (VEV) 2022 Q2 法說會逐字稿

Greetings and welcome to the Vicinity Motor Corp. Second Quarter 2022 Corporate Update Conference Call. (Operator Instructions) 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 will also refer you to the company's website for more supporting industry information.

I would like now to hand the call over to William Trainer, Founder and Chief Executive Officer of Vicinity Motor Corp. William, the floor is yours.

Thank you, operator, and good afternoon, everybody. I'm pleased to welcome you to today's second quarter 2022 Corporate Update Conference Call.

The second quarter of 2022 was marked by additional sales and distribution wins for our portfolio of electric vehicles, further validating our transition to electric vehicles. This traction is a testament to the incredible interest and support we are receiving from enterprise customers and government agencies.

From new government incentives, for EV adoption to new financing strategies, such as the Sustainability Partner's Electric Vehicle as a Service program, the market is quickly optimizing for an electrified future. Taken together, our backlog grew to over USD 90 million, the majority of which are for electric vehicles.

We delivered 34 vehicles in the second quarter, surmounting supply chain issues in some areas while facing new obstacles in others. The global automotive industry supply chain continues to be stretched. Until such time that it catches up to demand, we will continue to work to engineer creative new solutions to address new problems as they arise. Our goal is to continue to provide vehicles to our customers despite this environment, and we will continue to do so to the greatest extent possible. That being said, given the pressures we are seeing, we are suspending our prior financial guidance as the current supply chain environment makes it difficult to forecast, and it appears many orders may be pushed from 2022 to 2023.

Our Ferndale, Washington facility is nearing completion, helping us to meet customer demand and capture market share in the U.S. with an American-built, Buy-America compliant product. We also plan on making this the new home to support our electric industrial truck line starting with the VMC 1200.

We continue to expand our distribution across the United States during the second quarter as well, adding strategic dealers in Hawaii, the Pacific Islands, Alaska, Washington, Oregon, Idaho, Michigan, Indiana, Ohio and the entire central region of the U.S. The expanded territory will help us build additional traction from established dealers to offer customers on all electric options that mitigate exposure to energy and carbon costs, while providing the range, speeds and great ability required in daily real-world operation.

Now with that, I'll turn it over to Dan to review the financial results for our quarter ended June 30, 2022. Dan?

Thank you, William. Good afternoon, everyone. I will constrain my portion to a brief review of our financial results. A full breakdown is available in our regulatory filings and in the press release across the wire after market close today. Please note, I'll refer 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. In addition, all figures are in U.S. dollars unless stated otherwise.

Revenue totaled $11.7 million in the second quarter of 2022, as compared to $15.5 million in the second quarter of 2021. The decrease in revenue was primarily driven by the delivery of 34 vehicles in the quarter, compared to 46 deliveries in the second quarter of 2021. Revenue totaled $14.9 million for the 6 months ended June 30, 2022, as compared to $37.1 million in the 6 months ended June 30, 2021. The company delivered 40 vehicles in the first half of 2022 as compared to 113 deliveries for the first half of 2021, with the decrease primarily a result of global supply chain disruptions.

Gross profit in the quarter ended June 30, 2022, totaled $1 million or 8.7% of revenue, as compared to $1.7 million or 11.1% of revenue for the quarter ended June 30, 2021. Gross profit totaled $1.2 million or 8.3% of revenue for the 6 months ended June 30, 2022, as compared to gross profit of $5.1 million or 13.8% of revenue for the 6 months ended June 30, 2021. Gross margins were affected by product mix and the low volume of buses delivered, shipping difficulties and global supply chain disruptions and the availability of chassis for our VMC Optimal products, and certain bus components continue to delay deliveries.

Cash provided by operating activities in the 6 months ended June 30, 2022 totaled $0.2 million, as compared to cash provided by operating activities of $12 million in the first half of 2021.

Net loss in the quarter ended June 30, 2022, was $3.8 million or $0.10 per share, as compared to a net loss of $0.3 million or $0.01 per share in the second quarter of 2021. Net loss for the 6 months ended June 30, 2022 was $6.7 million, as compared to net income of $1.3 million for the 6 months ended June 30, 2021.

Adjusted EBITDA loss for the 3 months ended June 30, 2022 totaled $1.3 million as compared to an adjusted EBITDA of $0.2 million in the same year ago quarter. Adjusted EBITDA loss for the 6 months ended June 30, 2022 was $3.3 million, as compared to an adjusted EBITDA of $2.3 million for the 6 months ended June 30, 2021.

Cash and cash equivalents as of June 30, 2022 totaled $9.4 million, as compared to $4.4 million as at December 31, 2021.

We have a strong balance sheet, are well positioned to execute and the fundamentals of our operations remain strong. While we have suspended guidance for the full year 2022, given an uncertain supply chain environment, demand remains very strong, and we are well positioned for a high level of operational execution in 2023.

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.

Thank you, Dan. Looking ahead, our expanded dealer network, new facility coming online and strengthened supply chain are positioning us for a ramp-up of production and significant growth in the months ahead as we deliver upon our $90 million U.S. backlog. We continue to believe we're incredibly well positioned to create long-term value for our shareholders as we empower our customers to create more sustainable public transportation system. I look forward to providing additional updates in the months to come.

And now with that, I'd like to hand it over to the operator to begin our question-and-answer period. Operator?

(Operator Instructions) The first question comes with Chris Souther with B. Riley.

Maybe we could talk just a little bit about what some of the biggest challenges are right now from the site, which components and vehicles are most effective, how do we think this dynamic changes as we start to ramp up in Washington and how you guys are thinking about kind of the working capital needs as we do ramp up there given supply chains are challenged right now?

Yes. Okay. Thanks, Chris. It's Will here. Yes, we have not been immune to the supply chain issues. You look at some of our bigger -- biggest competitors out there, they're building and parking buses for a lack of some specific components. We see -- it's really the components that have the microprocessors in it, any of the chips. That's where we see some issues. We've had multiplexing issues with one of our suppliers that's holding up some deliveries, and just plagued with small problems like that, that are affecting getting our buses and vehicles delivered.

Got it. Okay. So it's basically kind of the whole fleet is kind of similarly affected or any specific products kind of more that you guys have?

No, no, not specifically. The multiplex would be, I guess, the main issue that we see, but we have had some issues, much like our competitors out there. I think your second question there was to do with the factory down on Ferndale. We are planning -- we should have substantial completion completed in Q3 here of the factory. And then it's our intent to get it up and running as quickly as we can.

On that note, we have had a couple of issues down there as well. While I was just down at the factory, we had a Board meeting down there this week. And I might say it's looking pretty nice as a completed facility there. But one of the main issues that we're running into there was really with the electrical switching unit. That would be the switching unit that brings the power from -- really from the grid inside the building. And we were -- we got indication that we're having an issue with that switching gear. To what extent and how long, I'm not sure, but that, I would say, would be one of the only real issues that I've seen for supply chain with the factory.

Okay. Got it. And then it looks like we're seeing to start delivering some of the 1200 in the third quarter. The volumes in the back half that you do have visibility for, as with that vehicle or some of the other ones based on supply chain in kind of order book. Just how do we see kind of near-term visibility shaking out given the challenges?

Well, we're trying to get as many vehicles delivered as we can. We have the order book. That's not the issue. It's just been like we stated, some of the supply chain has not been as cooperative as what we anticipated.

The VMC 1200 has not been plagued with the same sort of problems. We are anticipating starting delivery with our VMC 1200 here towards, I would say, the end of Q3 here. Beginning of Q4, we'll start delivering it. We have a pretty massive media event teed up for that. We've got pent-up demand for those vehicles and customers waiting for them. So we will do a pretty large media event, trying to get the news out here and some of the government officials, particularly for this province out for the first deliveries.

Now the second question comes with Poe Fratt with Alliance Global Partners.

Yes. I was just wondering on Ferndale. I mean it's substantially complete. You had a little bit of an issue with the connection with the grid. When do you think you'll officially roll out the first one off that line? And then with as far as its current configuration, can you give us an idea of sort of the expected ramp over the next couple of quarters on production out of Ferndale?

Yes. I wish I could give more clarity on that, Poe. It's -- we're trying to get it going as quickly as we can down there. Until we find out what's happening with the switching gear, I can't really give the clarity that you're looking for. But we are planning on building vehicles out of there. We've got orders for vehicles to come off that assembly line. And we're also going to make that the home of the -- of our electric trucks as well, which has a pretty significant backlog as well. So we just have to -- we'll hopefully be able to give some more clarity on that here in the near future.

Okay. And then you said the uncertain supply chain and then you mentioned other obstacles. Would the other obstacle be the Ferndale and the switching gear? Or are there other obstacles that you're trying to address, too?

No. I think Ferndale is the only issues that we've seen there and what our contractors brought to our attention is that switch gear, and they're trying to work with -- it's a large U.S. company that's supplying that switch gear, and they're even trying to look to see if they can find a used switch gear for us to put in there. But as we speak, there is no switch gear. So we'll keep everybody abreast of it as we find out ourselves.

Interesting. The Transport Canada looks like an interesting program from the standpoint of being approved for that. Is it something that would have an impact in 2022? Or are you going to see more an impact in fiscal '23 from that program?

Well, that Transport Canada program is a great program. There's actually a couple of different parts of it. We have applied for both of our trucks and our buses for the program. I think that the truck qualifies for like upwards to $40,000, which is quite amazing because even here in the province of BC, we have a $40,000 credit. So in theory, this province alone, you'd buy the vehicle cheaper than you can buy a gas or a diesel truck. We're just trying to get clarity on how the 2 programs combine together. But there's some great incentives coming out of there that's what we like to see. We really see that, that being a big catalyst for pushing our vehicles.

Great. And then, Dan, if you could talk about working capital is pretty positive in the quarter, it looks like. Is that going to potentially unwind in the third quarter? Or can you give us sort of an idea of the working capital cadence over the rest of the year?

Sure. So yes, we do have cash at this point, and we still have a credit line open to us of CAD 20 million through our ABL line that currently we have not drawn upon. So from a working capital standpoint for operations, we'll be fine. We still do have some CapEx coming up for completing the plant, but we're substantially complete there. But at this point in time, we're looking okay from a working capital perspective. And if we do foresee anything in the future, we still have the capability to take on more debt if we had to in the future. But we see no needs for any financings or anything at this point in time.

Would you give us a full year 2020 CapEx number then, if you wouldn't mind?

I would say for the remainder of the year, we probably have about $3 million to spend for the remainder of the year.

Okay. So it'll be a little bit north of $10 million total for the year?

That sounds where we're at.

(Operator Instructions) The next question comes with Robin Cornwell with Catalyst Research.

I have a question on the supply chain. Are batteries an issue with the supply?

No, batteries have not been the issue for us. We entered into some nice supply agreements with a couple of different battery manufacturers. We got BMW and we've got Proterra batteries and even a third one in there as well. So that has not been an issue at all for us, Robin.

What about -- there's a lot of complaints on shipping costs, not just backlog of shipping, but the actual cost of shipping starting to increase very dramatically. Have you had any issues with that?

Yes, we have. Shipping costs, it has peaked. I think it peaked out earlier this year, and we follow that on a daily basis. I was just had that communication with -- discussion with Dan this morning on how it was coming down on a global platform, which is really good for us because we do, do shipping -- quite a bit of shipping.

So with all these issues, have you had any orders that have been lost?

No, we have not. We haven't lost one single order.

Terrific. And now the switching gear that you're talking about, can you tell us a bit more about what that is? And how...

Yes. I was surprised, too, when we got the letter from our contractor there that said they're having an issue with the switching gear. So the easiest way for me to explain it is you have the power grid that comes off of the power poles and you need to get that power into your building. It has to go through what they call a switching gear that converts it over to the right voltage and amperage to come into the building. And that has become an issue. That's a U.S.-made part, and it's become an issue.

Now we may be able to put a smaller switching gear in or they're trying to find us a used switching gear that's out of a mothballed building right now. But it has -- the switching gears, of course, have microprocessors in them, and this has been the issue. And we -- I think when we find out with it, Dan, just recently, yes, just within the last week or 2, we found out that they're having an issue with the supplier.

Okay. Well, that's too bad. My next question is kind of based on the new subsidy programs. And because there are multiple levels, I guess I call it stackable, have you any plan to help your clients or even potential clients to navigate through these programs and probably save them some time with maybe your experience on how these programs could be stackable and help them navigate through?

Yes, we do. Very good question. Thanks, Robin. Yes, we have -- internally here, we have some of our staffing is working on solutions and helping the customers submit. So -- and this is on both sides of the border. So we have the Transport Canada and other subsidies and programs here in Canada, and it's coming in federally and provincially. But in the U.S. is where we really see it's just billions and billions of dollars that are stacked up, and there's many different programs. So we actually have a program manager that helps the agencies navigate through it. In fact, I do believe we've got numerous applications.

And one of the nice ones in the U.S. is what's called the Low-No Program. And it was funded with $5 billion at the beginning of this year alone for that program. And what that does is that Low-No stands for low on oxides. And the customers, you find a customer that wants to apply for the grant, and this is 100% funded in the U.S., so you partner with the agency and submit the application. And in the applications, I believe, are taking a look at and fund it every quarter. And we've got just numerous, numerous applications in right now. We're hoping to get some good news on some of them here in the next little while. But that's one of the programs down there, but there's about 3, 4, maybe 5 different programs you have to navigate through. And we do have an expert that helps the customers with that.

For us, we're kind of excited, jumping off script here on some of the stuff is. We've got the large California contract just closing as well. And that will be a lot of the customers that are going to be buying off of that program, who want to use this Low-No bill. The California, the CALACT contract, we're hoping to get some visibility on that even on some limited visibility this month. And it's a -- it's what will we see like an RFP that's out there. And the state of California expects to buy between 5,000 and 8,000 buses off of that -- all midsized buses off of that 5-year contract, and we're extremely well positioned for it. So I'm hoping to get some news over this month on it.

Just a final question, curiosity, what -- could you give a percent of the final cost of a vehicle that these programs could actually finance? Like they seem to be positioning to finance a very large piece of the final purchase price.

Yes. So on the Low-No, I believe it's 100% funding to the agencies. And they have to be government agencies and they have to take high-emission vehicles, diesel or whatnot off the road. So that's 100%. On the standard FDA-funded programs that are in the U.S., it's 80%. They fund up to 80% of the value of the vehicle.

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

Thank you. And thank you, operator. I'd like to thank each of you for joining our earnings call. We look forward to continue to update you on our ongoing progress and growth. If we are unable to answer any of your questions, please reach out to our U.S. IR firm, the MZ Group, who will be more than happy to assist. Thank you all now.

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.