Vicinity Motor Corp (VEV) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Vicinity Motor Corp, Previously Grande West Transportation Group Fourth Quarter and Full Year 2020 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 Motors. William, the floor is yours.

Thank you, operator, and good morning, everyone. I'm pleased to welcome you today to the fourth quarter and year-end 2020 corporate update and conference call.

The story of 2020 has been one of transformation as we've all faced the global pandemic. The team at Vicinity strove to fulfill our deliveries to customers throughout North America, while facing unprecedented challenges. Given the pandemic, 2020 was a year of foundation building, highlighted by the addition of innovative new electric vehicles to our product lineup and the preparations for successful expansion into the U.S. market as we put in place the pieces necessary to launch our Buy America compliant U.S. assembly factory.

Despite countless logistic challenges brought on by the global pandemic, we were able to deliver 55 Vicinity buses in 2020. More importantly, we expect to deliver over 100 buses in the first half of 2021, representing over $45 million to $50 million in revenue, an incredible feat considering we have only just begun our U.S. expansion.

From an innovation perspective, the launch of our innovative Vicinity Lightning EV was a crucial inflection point for the company, positioning us to deliver upon the future needs of an increasingly sustainability-minded public transit market.

Our world-class purpose-built EV design includes world-class technology partners, allowing us to integrate proven battery systems and components from Tier 1 suppliers like BMW, the development and production of a midsized, low floor, fully electric transit bus with proven, readily available technology that can accommodate up to 4 wheelchair positions is a huge step forward for our company and the transit industry.

The Vicinity Lightning EV received its first orders in 2021. With further indications of interest and additional customers expected shortly, 25 Vicinity EVs are currently in the production phase to meet near-term anticipated demand. Our operations are running very smoothly, and we continue to refine our strategy to meet expected demand as we transition into 2021.

We strengthened our management team with the addition of respected Canadian transit leader Manuel Achadinha as Chief Operating Officer and initiated the development of our Washington State manufacturing plant in U.S. headquarters with operations expected to commence later this year.

In his new role, Mr. Achadinha will drive innovation and efficiency to maximize our operations and engineering teams, position the build of our Washington manufacturing facility to support optimal output and scale and increase overall productivity in the organization as we are poised to rapidly scale.

We have a solid U.S. growth strategy in place as our manufacturing facility there is spooling up. In order to grow our sales in a significant U.S. market, we've entered into a strategic distribution agreement with ABC Companies, a leading provider of motorcoach and transit equipment in North America to distribute Vicinity heavy-duty vehicles throughout the United States.

This partnership will allow us to scale operational in this critical growth market and is more significant in many ways than many may realize. In addition, recently, the State of New Mexico selected Vicinity buses in a statewide purchasing contract that gives the state transit agencies the right to purchase directly from the company's diverse bus portfolio.

We expect to see similar contract wins in other U.S. states in the months to come. Along with these strategic shifts, we've recognized the need to change our corporate name to better reflect our increasing focus on the commercialization of our industry-leading Vicinity buses, particularly our new electric lineup.

The updated name will bring together our sales and marketing branding with our corporate identity to take us forward as a major player in the North American public transit market space.

Now with that, I'll turn it over to Dan to review the financial results for the quarter and the year ended December 31, 2020. Dan?

Thanks, William. Good afternoon, everyone. I'll constrain my portion to a brief review of our financial results. Full breakdown is available in our regulatory filings and in the press release that crossed the wire after markets closed 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 Q4 MD&A, which is available on SEDAR. Revenue for the full year 2020 totaled $26.1 million, of which $4.5 million or 17.2% was earned in the fourth quarter. This compares to revenues of $24.6 million for the full year of 2019, of which $5.4 million was earned in the fourth quarter.

Our gross profit was $3.3 million or 13% of revenue for the year ended December 31, 2020, as compared to a gross profit of $4.3 million or 18% of revenue for the prior year. Gross profit for the fourth quarter of 2020 was $2.2 million or 49% of revenue, as compared to $0.7 million or 13% of revenue in the fourth quarter of 2019. The margins in 2020 were negatively affected by sales mix and our '21 deliveries generally have higher expected margins than those realized in 2020. Looking ahead, product mix and margins before allocating any overheads are expected to be more in line with those realized in 2018 and 2019.

Total operating expenses for 2020 were $7.6 million, of which $2.7 million were incurred in the fourth quarter. Total operating expenses for 2019 totaled $9.3 million, of which $2.4 million were incurred in the fourth quarter. The decrease in expenses for 2020, as compared to 2019 is mainly attributable to the elimination of external commissions in Canada that took effect in late 2019, a reduction in salaries due to government subsidies and a reduction in travel expenses for 2020. Cash used in operating activities for the full year ended December 31, 2020, totaled $7.7 million compared to $3.8 million for the full year ended December 31, 2019. The decrease from previous year was mainly due to the change in noncash working capital items.

Net loss for the full year 2020 was $4.4 million or $0.17 per share as compared to a net loss of $5 million or 21% -- $0.21 per share in 2019. Net loss in the fourth quarter of 2020 totaled $600,000 or $0.02 per share compared to a net loss of $1.8 million or $0.07 per share in the fourth quarter of 2019. The reduction of net loss is mainly a result of SG&A savings of $1.2 million in 2020 versus 2019, offset by lower overall bus margins in 2020 due to product mix.

Adjusted EBITDA loss for 2020 was $2.3 million compared to an adjusted EBITDA loss of $2.4 million for 2019. Adjusted EBITDA for the fourth quarter of 2020 was positive $0.2 million, compared to an adjusted EBITDA loss of $0.8 million for the 3 months ended December 31, 2019.

Working capital as of December 31, 2020, totaled $16.7 million compared to $12.2 million as at December 31, 2019. Throughout the year, we were able to ensure ongoing liquidity through delivering on existing orders, renegotiating credit facilities and product line expansion.

Financially, our company is in a strong position. We fortified our balance sheet, which has very few long-term liabilities, and our liquidity is not an issue. Overall, the fundamentals of our operations are very positive, and we remain well positioned for future growth and profitability.

I'd like to now pass it back to William to offer some closing remarks, after which we will begin our Q&A session.

Thank you, Dan. Looking ahead into 2021, we are incredibly well positioned to create long-term value for our shareholders. We are intensely focused on our 2021 order book, completing our U.S. manufacturing plant and increasing orders for our innovative Vicinity Lightning EV.

We believe that we will realize twice our full year 2020 sales in the first half of 2021 alone, an incredible feat and a testament to the demand we're seeing in the marketplace to date. We look forward to announcing new sales, product and strategic milestone achievements in the months ahead.

I thank you all for calling. And now I'd like to hand the call back to the operator to open our question-and-answer period. Thank you.

(Operator Instructions) The first question comes from Mike Shlisky with Colliers Securities.

I wanted to start off by maybe asking if it's possible to ask about your bid pipeline. Can you give us a sense as to the number of units or the dollar amount that you're bidding on or looking at this year versus this time last year, is there a much larger pie of orders to pick from these days?

Yes. Thank you, Mike. Good question. Yes, 2020 was really a flat year. We didn't see a lot of tenders coming out, not very many RFPs at all. And 2021 has really shaped up. We see a lot of activity in the marketplace right now. In fact, we just recently announced that New Mexico bid that we're successful on. We see a lot of other bids coming forth. Some of them are very close to closing off for us right now. And we see that on both sides of the border. We see that in the U.S., and we see it on the Canadian side and a lot of interest in our EV product to date.

Great. That's great color. And maybe I'll go straight into my next question here about the EV environment. Can you give us a sense as to what the competitive environment is on EV tenders compared to other propulsion? Are there the same number of competitors when you bid on those and I'm curious, is there any kind of pricing differences between EV and ICE versions of the buses?

Yes. Another good question. Yes, our product, we developed our Vicinity Lightning product to actually come to the marketplace and be competitive in around the USD 300,000 to USD 350,000 bid range. We are seeing a lot of our competitors come in at USD 600,000 million to USD 700,000. So we think we've got a very extreme competitive edge.

And I think that you really have to get down to what we did to get our bus into that price range. Our Vicinity Lightning, we really think it's going to be a super competitively priced vehicle and do well in the market with that price range. What we did is we really aligned ourselves more of what the automotive industry is doing.

The automotive industry, when you look at what their battery packs particularly are, they're a 400-volt battery pack. It's easily charged. Our vehicle has an onboard charger that allows it to charge 6, 7 hours on an overnight charge. And we're not seeing that with the competitors' vehicles.

There a lot -- a lot of the competitors vehicles are taking a lot more effort and infrastructure to actually bring in a 3-phase power grid to charge the vehicles. So we think we've positioned ourselves extremely well.

The other thing that we've done that I think will really lead us as a technical advantage is we kept our EV under 22,500 GVW. And the reason we did that was so that we could incorporate a hydraulic brake system into the vehicle. With a hydraulic brake system, it allows the customers to buy it and operate it without an air break, a commercial air break ticket. So it's -- again, we see that as being a huge advantage in the market as we move forward.

Got it. I wanted to turn to the outlook for '21 as well. If you wanted to give us guidance, you would have, but I want to just ask this. I mean looking at the increase, just the first half alone, the increased revenues, looking at the different plateau for gross margins, I don't know much about the SG&A. It sounds like you might have some, if anything, just a small amount of growth there to (inaudible) sales. But is there a way you can tell us whether you think you'll be positive on the EBITDA side firmly in 2021?

Dan, you want to answer that?

Yes, no problem. Yes. We expect to be EBITDA positive for sure for 2021. I think that even with the guidance that we've shown for our expected deliveries for Q1 and Q2, I mean, we're going to be EBITDA positive here for Q1 and Q2 as well, most likely. So I think that for trailing 12 months, you'll see us be EBITDA positive very soon here and continue on for the rest of the year.

I do want to follow-up with 1 last 1 before I pass it along. On the working capital side, you've got positive EBITDA, but you've got pretty tremendous orders to build here over the next week, already built some, you have more to come here. Do you have a large working capital investment that has to be made throughout for the rest of the year?

We do. We have some working capital that we will have to invest. But we do have an operating line of $20 million in ABL. And we have -- we do have positive working capital right now. So we're in a pretty good position to grow for sure. And we can grow our facility -- our facilities as needed to try and help out with any working capital needs. But yes, definitely, there will be especially with new product lines, we'll definitely have some increased expenditures into inventory as we go on.

The next question comes from Chris Souther with B. Riley.

I just wanted to start out a little bit more on 2021, not giving guidance here, but maybe just talk a little bit about the cadence and where we are with this first half orders that you talked about with the books closing for the first quarter. Maybe just provide a little bit color on kind of the progress for the first quarter and visibility in the second quarter and the back half year. Any color you could provide would be helpful.

Sure. I think -- this is Dan here again. We've given some guidance here. We're trying to stay away from giving full guidance for the year. But the first half of the year, we'll definitely see over 100 buses. That's for sure.

The first quarter, I think, will be a very positive surprise for everybody. And that's just a good change from the last year. We'll definitely outsell the first -- in the first quarter, we'll outsell all of last year. Let's put it that way. And yes, we expect that to continue into the second quarter.

We do have the -- we will be heavy in the first half, though, I'll say that. That won't -- that momentum will continue into Q3 and Q4, but we still expect to have some good deliveries for the rest of the year. We have good orders coming in right now. It's just whether we'll be able to deliver all of them before the end of the year or not. We're just kind of finalizing those projections right now.

Understood. So maybe just you could talk a little bit more about that New Mexico win here. What is the timing and scope you think of that win? Can you just give a little bit more color there?

Well, what we see with a lot of these state contracts is you qualify on a state contract for transit authorities to purchase off of it. It's a great system. Now we just got to get the sales team in there and take purchase orders. We're extremely competitively priced, and we really expect to gather up a lot of sales in the areas that we're winning these contracts in.

Okay. That's very helpful. And then maybe just a little bit on the lightning side, obviously, Biden's plan today highlighted need for replacement of a large fleet of vehicles here that we're talking about for buses. And I wanted to get a sense of the timing of the Lightning starting to shipped out. You've got the first 5 and then you talked about having 25 in production.

I think, previously, you had mentioned capable of producing up to 200 of those this year. Where are we in kind of building out that production? And what is kind of the plans over there?

Yes. We're excited with the EV product. We currently have 25 in production. We actually have orders for 15 of the first 25 that are coming -- that are firm purchase orders in hand as we speak. We've been in production here. We expect the first models actually to be able to get out to for demonstration purposes sometime in June.

The first 5 that come -- that we have available, really, we've got 1-year mark for demonstration purposes in Canada. We've got 2 for the U.S., 1 for East Coast, 1 for West Coast. We've got 1 that has to go have some EPA testing done on it for range testing to -- you need to qualify your kilowatt per hour usage for mileage and then the other 1 is we want to send 1 down right away to the Altoona test grounds.

In the U.S., a lot of the tenders are FTA funded. So the FTA traditionally gives up to 80% of the purchase price to the transit authorities on a bid. Some of that criteria is you need to meet 70% U.S. content. We tick that box. You need to have an Altoona test done. We've got that with all of our other vehicles. We just need to have it with the EV, but we're not expecting any difficulty there.

Our standard buses that we've put through, particularly take a look at our 30-foot heavy-duty vehicle we put through Altoona, it was best-in-class. So it's built with the same type of platform, same engineering principles. So we're expecting it to do extremely well at the test grounds. And the third thing you need is you need to have that assembly factory, which we're well underway on to have completed in Washington state.

Excellent. And maybe on the Washington facility, you could just talk a little bit about the CapEx cadence and the pace of hiring that you expect to see throughout the year to get that facility up and running around year-end, it sounds like?

Sure. Yes, yes, so Dan here again. So for CapEx, we're looking at spending around $10 million this year, kind of by year-end, we'd be looking to have spent that much for CapEx.

Got it. And then just hiring as far as kind of staffing the facility, where are we as far as kind of preparing for that action there?

Yes. We have our new Chief Executive Officer -- our Chief Operating Officer, sorry is handling that. We're well underway to put the staffing and everything in place that we're going to need for the facility. Yes. And we're working very closely with the State of Washington as well for all the incentives and grants and training programs that are in place.

The next question comes from Bruce Chan with Stifel.

Congrats on all the progress. At the risk of beating a dead horse a little bit. When I think about the 100 first half deliveries, is there a way to benchmark how much of those are pull forwards from last year? And how much of those are coming from organic new order growth?

Yes. So we did announce last year that we had a pretty large order that we were trying to complete before the end of the year, and that was around 90 buses. Some of them we got into last year, but the majority of those we've been delivering this year. But we're still within our customer expected time lines there.

So that did push into this year. As Will stated, things really slowed down last year for orders as well. So we are completing off -- we are -- we do have quite a few orders that we took at the end of last year, kind of when things started to get a little better here in Canada. And we'll be delivering on those over the next quarter to 2 quarters. And we do have orders that we've started to receive that we are rushing to get done as quickly as we can this year.

We still think we can get quite a few orders done this year for Q4. And just -- we're still talking about taking a couple of orders that we can still deliver this year right now. So we are starting to see new orders come in. And the pipeline is definitely getting a lot bigger. And that's where we're trying to build into next year right now, but we're definitely seeing a lot more interest right now and interest in our EV product as well. That's really encouraging.

Okay. That's kind of very helpful. Maybe just another 1 here for you, more of a background question. But as we think about seasonality of revenue and GP and SG&A through the year, can you remind us if there are any typical patterns that we should look out for in terms of the bid cycle and parts ordering and factory shutdowns and how that may play out through the model?

Yes. It's Dan here. Again, it doesn't really affect us that much. Other than we try to get things done before the year-end sometimes. And if you have some public entities that are bidding for buses, they have their own budgets that they have to watch out for us. So they want to be spending money within a current year, within a certain year. But other than that, there's not really -- there's not really any cyclicality that we see from a delivery standpoint.

Okay. Great. And then maybe just 1 more here. And we talked a lot about the EV buses, the Lightning, but we haven't spent a lot of time on the CNG product, which seems to be pretty good go between in terms of the offering. What does demand look like for those CNG units? And have you seen many customers that are cross-shopping CNG and EV? Or are the CNG units mostly replacing the diesels?

Yes. We've seen a greatly increased demand on CNG buses. Most agencies now are looking to see how they can reduce greenhouse emissions and be a lot greener. And the CNG does fit that bill. The name for the CNG engines are near 0, and there's a reason for that. They're very low on the emission output. And we see a lot of activity on CNG still as we speak. We look at the -- at the EV.

The EV business, definitely, there's more activity, a lot of activity coming for the EVs. And we have quite a few outstanding tenders here that we've bid on EV that we're waiting to see what happens, which is very interesting because we're just entering in with our first product. And once we launch the EV, the built-up information that was requested for it is just amazing. And that's on both sides of the border. But the EV is going to be -- it's going to take a while before you see the EV market take over 100% of the vehicles. And I think that's where we're in a very good position as we're transitioning into that EV market, we have existing product like the CNG bus that fits the needs for a lot of customers.

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

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

Thank you.

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.