Vicinity Motor Corp (VEV) 2021 Q3 法說會逐字稿

Greetings, and welcome to the Vicinity Motor Corp. Third Quarter 2021 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 would also refer you to the company's website for more supporting industry information.

I would now like 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, everyone. I'm pleased to welcome you to today's third quarter 2021 corporate update conference call. The third quarter of 2021 was instrumental in our foundation building for 2022, having secured exciting new lines of business, namely EV chassis sales, alongside EAVX and low-floor electric shuttle bus sales through our new partnership with Optimal-EV.

While revenues from our transit bus business are, at times, irregular and see some periods of lower deliveries, as illustrated with this quarter, per our financial guidance we've released, we're on a trajectory to realize over $140 million in revenue next year, marking what will be a record-breaking year for Vicinity by any measure.

Our entry into the high-demand electric truck and shuttle bus market is expected to fill the gaps for periods of lower transit bus deliveries in the future. We are leveraging our strong momentum to accelerate the launch of next-generation electric vehicle products, including our breakthrough Vicinity Lightning EV and our new VMC 1200 Class 3 truck, the S1 and E1 cutaway product lines from our strategic partner Optimal-EV; and finally, EV sales for upfitting into next-generation municipal and delivery vehicles, alongside EAVX, our strategic partner and business unit of North American commercial automotive leader, JB Poindexter.

The land grab for EV market share is well underway, and we are positioned to gain traction through our longstanding partnerships with North American transit agencies and a continent-wide dealer network. Given the capital needs to fully fund our Washington State manufacturing facility and these exciting new business lines, namely our exclusive North American distributor agreement with Optimal-EV and our strategic collaboration for chassis sales, alongside EAVX, we've made significant moves towards fortifying our balance sheet in recent months, as well to support some of these exciting new growth initiatives, supplementing our $20 million line of credit with a $10.3 million debt financing and proceeds from a USD 17 million underwritten public offering.

To support our 2022 financial guidance for revenues of at least $140 million and adjusted EBITDA of at least $10 million, numbers which we believe are conservative and provide room for significant potential upside, driven by our continuously strong North American sales momentum, we have appointed respected commercial transportation veteran Brent Phillips as our Senior Director of Sales in North America. Brent is an incredibly well-networked and talented individual, a perfect example of our ability to create a Tier 1 organization and setting up for an accessible future.

We attended key investor -- industry events in this quarter as well, namely the SNN Network Summer Virtual Event, the H.C. Wainwright 23rd Annual Global Investment Conference and the LD Micro main event on the investor side of things, as well as the CALACT 2021 Autumn Conference and Expo and the APTA TRANSform Conference & EXPO on the industry side, both significant industry trade events where we're showcasing our newest, most advanced products for potential customers to familiar ourselves -- familiarize themselves with.

Now with that, I'll turn it over to Dan to review the financial results of this quarter ended September 30, 2021. Dan?

Thanks, William. Good afternoon, everyone. I will constrain my portion to a quick review of our financial results. A full breakdown is available in our regulatory filings and in the press release that crossed 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 Q3 MD&A, which is available on SEDAR.

Revenue decreased 67% to $2.9 million for the 3 months ended September 30, 2021, as compared to $8.9 million in the 3 months ended September 30, 2020. The decreased revenue was primarily driven by the delivery of 6 buses in the quarter as compared to 20 buses in the third quarter of 2020, reflecting low order intake during the first 9 months of the pandemic and delivery delays related to shipping and the global supply chain challenges for certain parts currently experienced in the industry.

Revenue grew 128% to $49.3 million for the 9 months ended September 30, 2021, as compared to $21.6 million in the 9 months ended September 30, 2020. The company delivered 119 buses for the 9 months ended September 30, 2021, as compared to 49 buses for the 9 months ended September 30, 2020.

Gross loss totaled $0.7 million or negative 24.9% of revenue in the third quarter of 2021 as compared to a gross profit of $0.6 million or 6.3% of revenue in the same year ago quarter. Gross profit increased to $5.7 million or 11.6% of revenue for the 9 months ended September 30, 2021, as compared to gross profit of $1.2 million or 5.3% of revenue for the 9 months ended September 30, 2020.

The margins for the 3 months ended September 30, 2021, were negatively affected by the sales of higher-than-average cost buses in inventory and the sales of fewer buses compared to the prior year period. The gross profit in the 9 months ended September 30, 2021, was positively affected by sales mix with 2021 deliveries generally having higher margins than those realized in 2020.

Net loss for the third quarter of 2021 was $4.8 million or $0.16 per share -- negative $0.16 per share as compared to a net loss of $1.3 million or negative $0.05 per share in the same year ago quarter. Net loss for the 9 months ended September 30, 2021, was $3.1 million as compared to a net loss of $3.8 million for the 9 months ended September 30, 2020.

Adjusted EBITDA loss for the third quarter of 2021 was $3.5 million as compared to an adjusted EBITDA loss of $0.7 million in the same year ago quarter. Adjusted EBITDA loss for the 9 months ended September 30, 2021, was $0.5 million as compared to an adjusted EBITDA loss of $2.4 million for the 9 months ended September 30, 2020.

Cash and cash equivalents as at September 30, 2021, totaled $5 million, further fortified through the addition of $10.3 million in debt financing and the proceeds from a USD 17 million public offering subsequent to quarter end.

Working capital as at September 30, 2021, totaled $16.4 million as compared to $16.7 million as at December 31, 2020.

Our company is in a strong position. We have a strong balance sheet, are well positioned to execute on our robust 2022 financial guidance, and the fundamentals of our operations are very positive. We remain well positioned for future growth.

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 into 2022, we are incredibly well positioned to create long-term value for our shareholders. We are intensely focused on delivering upon our robust $140 million 2022 revenue guidance, completing our U.S. manufacturing plant and securing new purchase orders for our ever-expanding line of electric vehicles, addressing the needs of an increasingly diverse customer base as we empower their drive to create a more sustainable public transportation system.

I look forward to providing our shareholders with further updates in the near term as we launch new products, announce new customers and successfully execute on our business plan.

I thank you all for calling in, and now I'd like to hand back to the operator to begin our question-and-answer period. Operator?

(Operator Instructions) Our first question today comes from Chris Souther with B. Riley.

Maybe we could just start on the visibility on the 2022 target, the $140 million. You gave a breakdown of some of the units you're expecting between Optimal, the VMC 1200, the Lightning and the Classic. Maybe you can just touch where we are from an order book standpoint on those units. Are there any areas where you still have some work to do between now and the end of next year to kind of hit those numbers? Or how fully booked is that?

Sure. It's Dan here. So if we're looking at next year, we do have some good visibility already into next year. Our backlog is definitely increasing. We don't have all of these orders in hand yet. But if we're looking at our backlog right now, it's near $90 million already for the backlog.

Where we know that we're getting orders still is on the truck side. We were budgeting for 200 trucks next year, and that's probably light from where we think it's going to go. But that's where you'd still see some orders coming in, and the lead time for trucks is a lot lower. Same with the Optimal-EV products, the lead times will be a lot lower. But we're well on our way to achieving that target and hopefully beating it by a significant margin.

Got it. Okay. Yes. I mean, the 100-unit order for the truck is certainly going to move the needle. So I guess the truck and the Optimal would be the 2 areas, from a unit standpoint, where you think there's most upside. And then I'm curious, on the Optimal, what is the initial activity in speaking with your customers about that? Then like, thus far, I recognize it's only been a month, but I'm curious the -- in the press release, you quoted firm orders and LOIs that are consistent with a month ago. So what is the initial feedback been there?

Well, I mean, the initial feedback on the Optimal product, I'll let William talk in a second, but we were just at APTA here and showing the Optimal product, and people are excited. They're extremely excited.

Yes. We had a very good showcase here with the Optimal. I think it probably generated a lot of attention. Probably when we look at the customer base and who was coming through looking at it, it definitely was high on everybody's regard to get in to take a look at that vehicle.

We really like the vehicle. It's an easy manufacturing, a very short manufacturing time frame. We're set up extremely well in Elkhart, Indiana. The production levels that we could actually hit out of that factory are 6,000 to 8,000 units per year. It's quite amazing. And the actual people looking at it, it was just we had great feedback.

That's great to hear. And then you obviously boosted the balance sheet here. How should we be thinking about capital and working capital needs through the ramp over the next few months and quarters? How much cushion do you think is baked in kind of currently to get towards cash flow positive next year?

Yes. That's a good question. Obviously, we're seeing a lower second half than we had for the first half. That's directly related to just lower intake that happened during the first 9 months of COVID. The backlog is there now. And when we are producing for sales, we're producing profitably for all new orders.

So it's -- we don't really see being cash flow negative for too long here. This is definitely going to be a cash flow positive year in 2022, as you can see with our $10 million EBITDA projections, so I'm not too concerned there from a liquidity perspective. I still have not drawn on our $20 million ABL, so liquidity here is behind right now.

Okay. And then just last one, when you're speaking with kind of transit side customers, any kind of update you can provide on where momentum is from those customers? Are people waiting for some of this infrastructure spending to start to have more visibility? I'm curious, are conversations starting to heat up here as COVID starts to improve? Where do we stand?

Yes. We're just in the -- we feel we're just in a perfect position here right now. Funding has -- it's at record highs. We've got the transportation bill that's just finished being passed in the U.S. here, which is really targeting billions and billions of dollars towards the cleaner, greener transit vehicles. It's -- we -- on the Canadian side as well, we see 5,000 vehicles, 1,000 vehicles a year being funded through greener initiatives. So we're positioned extremely well.

I think if we really have a look at the market, coming out of the pandemic and coming out of some lower riderships on the transit side, a midsize bus now really makes better sense than it ever has in the life of the vehicles. There's a lot of people, a lot of talk from the transit authorities that were coming through the show here. We're rightsizing, and funding is in place. So we're just well positioned, I think, to grab a lot of this business that's coming up.

Yes. We should say, too, that we showed the Vicinity Lightning for the first time at APTA, and the excitement around that was huge. So we're definitely poised to have a lot more Lightning sales coming in the near future.

Our next question comes from Bruce Chan with Stifel.

Just a couple of questions left from my side. You gave some great color on what we should be looking for next year, and I know we're still focused on building the foundation. But when you think about 4Q, what are your expectations for deliveries? Directionally, are we going to be seeing maybe more of the same as what we saw this quarter? Are we going to see some improvement, some deterioration? Maybe just some color there.

Sure. Dan here. It will be slightly better than the third quarter, so we're still -- we guided before that we would -- we were looking to do 130 buses for the year. We're at 119 right now so that's -- that guidance still stands.

Okay. Got it. That's helpful. And then just thinking about the P&L next year, we have that, I guess, if you do the math, 7% bogey for EBITDA margin at the end of the year. But thinking through some of the expense line items, labor inflation, some of your R&D efforts ramping up that Washington facility, where do you think some of the opportunities are to potentially get better than that? And where are some of the risks that might put that EBIT number in question?

I can tell you that SG&A has gone up from the past. If you compare this year's SG&A to last year's SG&A, it's not really apples to apples because we did have a pandemic in full swing last year with no travel. We had government assistance on the salary side, but we're also ramping up our staffing right now to be ready for the increased demand and to actually address our sales network a little more.

So I would see the SG&A going up for the future. I would say that it would top out at $800,000 to $900,000 a month, which would be $2.4 million to $2.7 million a quarter for next year. So that would be the largest increase that we would see on the costs side.

Okay. That's helpful. And are you having any problems finding people to staff up facilities and kind of prepare yourself for growth next year?

No. Not right now. I mean, we just hired Brent, as we announced, which was a very big addition to our team. So we will probably staff up on the sales side as well to increase our exposure now in the U.S. and now that we have the Optimal product as well, but that's probably where we would look to increase.

And for our plant in Washington, we don't foresee a ton of issues there, where we've -- well, we're in the process of hiring the U.S. production manager right now. And so -- oh, apparently, we have. So that's hot off the presses. We have hired -- started to hire there. So yes, we're starting, and that's the first step to filling that plant and getting the right people in place.

Okay. Awesome; and I imagine you're still on track for that sort of mid-2022 start-up on that Washington facility?

That's correct.

Yes. We see the factory -- actually, the building being completed sometime towards the end of this year. And then we just need to outfit it with the specialized equipment to get into production.

Okay. So units will actually be rolling off the floor by mid-'22 at least?

Yes. We're hoping to have it up in -- by Q2, get some production running.

Okay. Terrific. And then just one final question here. You all have made some great progress with the product portfolio this year, a lot of big changes. When we think about the products white space and your current offering, where do you see opportunity? Are you pretty complete at this point? Or is there a potential to kind of move into some parallel segments? I imagine you're not going sub-Class3 but maybe some kind of higher classes. Any thoughts there?

Yes. We are -- right for now, we're just focused on that midsize and below. That's where we believe this Optimal partnership really rounds out our portfolio. We're selling that vehicle in the same customer base that we were selling our existing vehicles into, and we're just staying focused on that midsize at this point in time. We really want to dominate that midsize market.

This concludes our question-and-answer session, and I'd like to turn the call back over to Mr. William Trainer for some closing remarks.

Thank you, operator. I'd like to thank each of you for joining our earnings conference call. We look forward to continuing to update you on ongoing progress and growth. If you are unable -- if we were unable to answer any of your questions, please reach out to our IR firm, the MZ Group, who would be more than happy to help you and assist. Thank you.

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