GreenPower Motor Company Inc. (GP) Q3 2021 Earnings Call Transcript

GreenPower Motor Company Inc. (GP 1.73%)
Q3 2021 Earnings Call
Feb 11, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the GreenPower Motor Company third-quarter earnings conference call. [Operator Instructions] Please note this is being recorded. I would now like to turn the conference over to Michael Sieffert, chief financial officer. Please go ahead, sir.

Michael Sieffert -- Chief Financial Officer

Thank you. This is Michael Sieffert, the chief financial officer of GreenPower Motor Company. I'd like to welcome everyone to our call to discuss GreenPower's third-quarter financial results for the period ended December 31st, 2020. I'm here today with our chief executive officer, Fraser Atkinson; our president, Brendan Riley; and our VP of sales and marketing, Ryne Shetterly.

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 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 filed on SEDAR and is also located on our website at www.greenpowermotor.com. I'll now pass the call over to GreenPower's CEO, Fraser Atkinson.

Fraser Atkison -- Chief Executive Officer

Thank you, Michael. Before we start, I'd like to extend a heartfelt thanks to our entire team at GreenPower who have worked tirelessly over the last three quarters under incredibly difficult circumstances to reach the aggressive operational milestones we put forward. Their effort has been tremendous. Based on where we are now, we can see signs of recovery this spring, and we are incredibly well-positioned as a company to take full advantage as the environment begins to normalize.

In the fall, we increased production of our EV Stars, including passenger and cabin chassis and our all-electric purpose-built school bus, the BEAST. At that time, we entered into production for 20 EV Stars per month, representing potential revenue of over $8 million on a quarterly basis, and five school buses, representing potential revenue of more than 5 million on a quarterly basis. In response to a growing pipeline and significant growth opportunity for all-electric school buses, in January, we doubled our production of these school buses to 10 per month. This takes us to a potential revenue of approximately $75 million per annum, with the next increase in production taking us to a potential revenue of $100 million, while we work in parallel with our supply chain to further accelerate our production from these levels.

The first of these EV Stars will be available this spring; and the first of these BEAST school buses this summer. With deliveries to customers and the recognition of revenue, you will see the results of these efforts in our financial statements over the coming quarters. During our second fiscal quarter ended September 30, 2020, we completed our uplisting of the company's shares on the NASDAQ capital market and IPO for gross proceeds of over $37 million. During the third fiscal quarter, the balance of convertible debentures were converted into shares of the company as well as loans were repaid from proceeds from exercise warrants.

This has cleaned up our balance sheet, further improving our shareholders' equity and eliminated almost all of our interest costs. This time, I'll pass the call back to Michael Sieffert, GreenPower's CFO.

Michael Sieffert -- Chief Financial Officer

Thank you, Fraser. For the three-month period ended December 31, 2020, GreenPower recorded revenues of 2.4 million and cost of revenues of 1.5 million, generating a gross profit of over $900,000 or 37.9%. Revenue was generated from the sale of our first EV Star cargo plus to the city of Vancouver, one EV Star plus and one EV Star to ABC Bus, our dealer in the state of New York; and 14 EV Stars, for which the company provided lease financing and which were accounted for as finance leases, as well as revenue from existing finance and operating leases. We achieved a gross profit margin that was higher than our target this quarter due to the sale of three vehicles in the quarter where sales commission on these vehicles was accounted for in SG&A.

For the nine-month period ended December 31, 2020, GreenPower recorded revenues of over 7.5 million and cost of revenues of approximately 5.1 million, generating a gross profit of 2.4 million or 32.1% of revenues. Revenue was generated from the sale of 52 EV stars for which the company provided lease financing and which were accounted for as finance leases from the sale of one all-electric school bus to create a bus sales, one EV Star Cargo Plus to the city of Vancouver, one EV Star Plus and one EV Star at ABC Bus from the sale of spare parts to a transit customer as well as revenue from existing finance and operating leases. We finished the quarter with finished goods inventory of approximately 2.2 million, comprised of 8 EV Stars, 2 EV Star cabin chassis, one all-electric school bus, one EV 350 and charging stations, as well as work-in-process inventory worth 7.1 million, which included five EV 250s, 20 Beast school buses, and 58 EV Stars of various models, as well as parts inventory. As Fraser mentioned, we continue to significantly ramp up our production across products with a focus on our EV Star platform and our BEAST school buses.

We're currently producing EV Stars at a rate of approximately 20 per month and Beast school buses at a rate of 10 per month. This increased investment in inventory has been funded by proceeds from our NASDAQ uplisting, and we ended the quarter with ample liquidity to continue on this path, including over 31.3 million in working capital, 21 million in cash and an undrawn line of credit. We continue to see a significant number of our warrants exercise, totaling over 4.2 million for the nine months ended December 31, 2020. Proceeds for more exercises were used to repay over 1.9 million in high-interest loans during the third quarter, which will significantly reduce our cash interest expense going forward.

In addition, during the quarter, all of our remaining convertible debentures were converted into equity. We ended the quarter with very little interest-bearing debt outstanding and expect that our cash interest expense will be less than $10,000 pe quarter, while leverage remains at these levels. Cash costs during the quarter increased to approximately 1.9 million. du to increased staffing levels, higher selling expenses and increases in other general and administrative expenses as we continue to build out our infrastructure and resources to continue to grow our business, and we anticipate the cash costs will continue to increase over time.

I'll now pass the call over to Ryne Shetterly, GreenPower's vice president of sales and marketing, to discuss our recent sales activity.

Ryne Shetterly -- Vice President of Sales and Marketing

Thank you, Mike. Our sales efforts continue at a brisk pace, and our pipeline has strengthened considerably as a result despite the pandemic backdrop. We expect this trend to accelerate as we continue expanding our sales team, much as we did this quarter with new hires to cover both the southeast and midwest regions. We have a strong demonstration schedule set for the coming months and now have additional assets in place we can leverage to get GreenPower units in front of prospective buyers.

During the period, we continue to take the steps necessary to position the company for an aggressive ramp as we move deeper into 2021. A good example is the recent inclusion of the EV Star, EV Star CC, EV Star Plus and cargo models being added to the New York VIP program. In addition, we also delivered our first EV Star and EV Star Plus to our distribution partners at ABC bus in New York. We see the New York market as a massive opportunity over the coming quarters, and these two demonstration units will be available for prospective customers going forward through the ABC sales team.

Additionally, we received a pre-award letter from Grant Transit in Washington for our first Buy American-compliant order and first successful loan application. As we have stated over previous quarters, we will seek to leverage all available means of EV funding, including numerous programs outside the state of California. And I think we will continue to see GreenPower sales footprint expand considerably as a result. Our BEAST all-electric school bus is ideally positioned to benefit from the aggressive stance of the new administration, that of taking on the electrification of 480,000 school buses by 2030.

As Fraser mentioned at the top, we are ramping our production with the school bus based on the feedback that we are getting from recent demonstrations. There is an unprecedented level of excitement and a real sense of urgency in this segment, and we have high expectations that school systems begin to normalize. The level of support from both the federal and state level is expected to be tremendous, and we anticipate additional grant funding to open up in the very near future, further accelerating sales opportunities within our pipeline. The fact that GreenPower can put units on the road in 2021 and ramp volumes aggressively into 2022 and beyond gives us significant early mover advantage with the proven purpose-built EV school bus.

Finally, we are producing a second fully autonomous EV Star in partnership with Perrone Robotics and First Transit to be used in a nationwide demonstration tour, which will be spear -- which I will be spearheading in the next couple of months. First Transit -- excuse me. At this point, I would like to pass the call over to Brendan Riley, president of GreenPower Motor Company.

Brendan Riley -- President

Thank you, Ryne. And it's really a pleasure to be presenting to you today. And thank you, everyone who's on the line today. Today is, undoubtedly, one of the most significant days in GreenPower's history as just moments ago, we announced a major agreement with Forest River, a Berkshire Hathaway-owned company.

We're going to be supplying them with EV Star cab chassis within their supply chain. This agreement with Forest River allows GreenPower to exponentially expand our effective reach into the shuttle and RV market with recurring business. We have one touch point to focus on, and that plays to our strength, which is designing and building and delivering EVs. Forest River will be building their shuttle and RV body and putting them on to our vehicle, distributing and supporting these vehicles through their network of sales, parts, service, which is their proven strength.

Quite simply, Forest River is the most respected, high-volume manufacturer in their space. They've delivered over 100,000 units to date. The significance of this agreement for GreenPower cannot be overstated. Forest River has approximately 27 different business lines, encompassing a wide variety of vehicles and trailers types, many of which are well-suited to potentially utilize GreenPower's all-electric cabin chassis.

While the initial agreement is a multiyear 150-unit agreement, there is tremendous opportunity and potential to expand beyond this, given Forest River's depth, breadth and position as a leader in this space. I think it's also important to note that deliveries are expected to begin within the next two months and accelerate thereafter. Our goal at GreenPower is to seek out the best-of-breed partners that can leverage the value of our EV Star platform, and that is exactly what we've accomplished with this agreement. We could not be more excited to be working with Forest River.

While this is monumental news, I don't want to overshadow the great progress we've made across a variety of GreenPower product lines. Our team, the best in the business, has worked tirelessly to position the company for significant growth from our electric school buses to our EV Star cargo and beyond. We have long said there is great value in our potential to leverage our purpose-built EV Star platform. I think today's news further validates that statement.

With that, I'd like to turn over this call to the operator, Chuck, for Q&A. Thank you all.

Questions & Answers:

Operator

Thank you. [Operator instructions] And the first question will come from Chris Suther with B. Riley. Please go ahead.

Unknown speaker

Hey, guys. Congratulations on the Forest River announcement. Could you provide a bit more context on -- and background on how long these discussions were held with these guys and what the process was as far as testing and why you think, I guess, the RV market is particularly well-suited for electrification here.

Brendan Riley -- President

Yeah. So this is Brendan. Thank you, Chris, for that question. Ryne and I started talking to Forest River earlier than last summer.

We actually brought out some vehicles to them and actually left behind one of our cab chassis for them to really investigate properly. So this has been an ongoing relationship that really started months and months ago. And it took, I would say, approximately four months, to fully develop. We do believe that our vehicles are not only a good candidate for their RV line, but for the shuttle bus line, the RV line will be more of a niche product, and we would see them for people that don't go traveling across country in RVs, maybe local trips or people that are interested in doing EV-style trips where you would stop at a charge or and charge up on travel maybe for 150 miles.

But the way we see it, this is a burgeoning market. And Forest River is the leader in the RV D space, the leader in the shuttle bus space. They really are our target customer, and we're just so excited about moving ahead with them. Please stay tuned for more updates as we get further along in our relationship.

Thank you, Chris.

Unknown speaker

That's great to hear. It makes sense. So could you talk a bit about the exclusivity that is mentioned in the release that you guys would be the sole provider of electric solutions for them? Is it exclusive on the other end where you wouldn't go after other RV type manufacturers? Or am I kind of missing the boat there?

Brendan Riley -- President

It's exclusive both ways for the addressed products.

Unknown speaker

Got it. OK. That's great. And then maybe shifting gears around the ramp-up in deliveries that you're talking about.

You mentioned the 75 million rate, which just sounds like exiting the June quarter, we'll have that for both of the vehicles. What would you need? And you had mentioned a next leg of $100 million kind of annual run rate, what would you need from a visibility standpoint to be talking about raising the production for that next leg? Is that something you're looking at this year, you think? And is it a certain number of customers that you're in advanced discussions where you'd be talking about doing that? Or how should we think about that?

Brendan Riley -- President

Well, that's a great question. I'll start it off, and then other members of the team may pick up the thread from there. So at a high level, the 75 million of the potential revenue run rate that you referred to, is really where we are now in terms of what we see with the orders that we're working on with the pipeline, with the activity level and so on. And so the next leg up, if you will, is really -- will be a byproduct of another significant deal or another couple of deals where we're pressed to fulfill all of the potential requirements that we see in the ensuing number of quarters, at which point in time, we'll be stepping up to the next level.

And then so on and so forth as we move forward. And just to remind you on our approach or our DNA has always been to move this forward on a measured basis and not on one hand, get ahead of ourselves, but on the other hand, have inventory that is available to be delivered when we have deals that are nearing. And once again, the Forest River is a great example, and that the plan is to deliver six cabin chassis this quarter. So without an increased production plan, as we have been working through over the past year and a half, two years, we wouldn't have been in a position today to be able to do that.

Operator

Our next question will come from Greg Lewis with BTIG. Please go ahead.

Greg Lewis -- BTIG -- Analyst

Hey. Thank you. And good afternoon, everybody. I just wanted to follow-up a little bit on the Forest river in terms of the exclusivity that you mentioned.

I'm not really interested in the RV side. I'm interested in the minibus side. I guess, I'm curious, like kind of how we should think about that 150 number. As I go through the Forest River website, I mean, it looks like they have like 6 six to nine shuttle bus divisions.

Is there any kind of way, any kind of color? Is that -- are we focused on one of those specific brand models? Any more color around that you're able to share with us right now as we try to understand. Is that -- is there opportunities to build on that 150 number maybe before the three years is even up? Is there customer acceptance? Just trying to understand a little bit more about the potential for this partnership.

Ryne Shetterly -- Vice President of Sales and Marketing

Yes. This is Ryne Shetterly, vice president of sales and marketing. So the total cutaway bus market here in North America, so the U.S. and Canada, it's about 13,000 units a year.

Forest River builds and delivers 9,000 Starcraft cutaway buses per year, and their dealer is Creative Bus Sales, and Creative Bus Sales delivers somewhere between 5,000 and 6,000 of Forest River's market share. So there is a strategy moving forward. We have not gotten that out into the market yet. But essentially, they're going to be building six units immediately.

Those units are going to be going to key accounts. Based off those key accounts, we'll start developing forecasts. And yes, so the answer to your question is this has a lot of legs, and we do expect it to take off relatively quickly. As Brendan mentioned, based on our first meeting with Forest River, them seeing the EV Star Cabin chassis, they opted to take it literally after the first meeting.

Integration has already worked its way down the line, and we expect to have a first article here very shortly and then begin distributing the next 5 out across the country based on Forest River's guidance.

Greg Lewis -- BTIG -- Analyst

OK. Yes. That was super, super helpful. Thank you for that and good luck.

My other question was around -- and there's a couple of ways to ask it, I guess, whether we want to talk about the margin, but like the gross profit margin getting higher. But really, I guess it's around the average selling price for those 17 vehicles. I mean, it doesn't sound like we had a larger school bus in there. It sounded like it was really just different variants of the EV Star.

So just kind of curious, what kind of drove -- what looks like, based on the revenue I'm looking at, what kind of mix drove that average selling price higher?

Michael Sieffert -- Chief Financial Officer

So hi, Greg. This is Mike Sieffert here. I can take this for you. So really, the primary driver of that is that there was selling commission, which actually is accounted for in SG&A.

It was over $100,000 related to those sold units. And so if that was included in cost of sales, we would have had a gross profit margin that was in the low 30% range, which is much closer to what people are used to seeing. So I think this is really more of an accounting question as opposed to any real change in sales mix. However, the one thing to highlight, and I think we've said this consistently is that on our larger volume sales, we typically do expect for margins to be lower.

And because the three sales this quarter were smaller number of -- sorry, smaller number of units, those profit margins were slightly higher as a result of that. But all in, it's definitely within range.

Greg Lewis -- BTIG -- Analyst

Super helpful for that. Thanks. And then I just wanted to squeeze another one in because it seems like you're really ratcheting of the sales effort here. You mentioned the hiring in the different regions.

Is there any way to kind of match your sales strategy versus potential incentives? Like if I want to think about where Green power wants to focus its efforts, are you kind of looking at -- obviously, we're in California, but as we think about broadening out across the U.S., should I be trying to track state incentive programs for their bus as kind of a way to think about where we're targeting? Or I'm just trying to understand as I think about -- as you kind of go across North America, like how you're targeting or realizing that each market has its own limitations or constraints or issues that need to be addressed?

Ryne Shetterly -- Vice President of Sales and Marketing

So this is Ryne. Yes, you're exactly right. And because of that, we've actually upped our efforts and our resources in terms of grants and contracts, and a grants and contract administrator, who is full-time, is helping customers not only fill out grant paperwork, but also make sure that our dealers are well-educated, given the fact that Creative Bus Sales has 17 locations throughout the U.S., which is -- represents really significant coverage, and pair that with the three states that ABC has, we are constantly sending out available funding mechanisms to sales reps, general managers across the country. Our salespeople's responsibility is to make sure they understand these grants and programs as well and start targeting more surgically customers that would be able to leverage those, whether it's a requirement for a disadvantaged community or some sorts like that.

So the answer to your question is, yes, we can't have somewhere, everywhere there's a grant, but we can have somebody on top of where they all are and make sure that the sales force that we have in the -- throughout the country, which is over 100 individuals representing GreenPower that they all know and fully aware of everything that's available within their region.

Greg Lewis -- BTIG -- Analyst

All right. Super helpful. Have a good night, guys. Thanks.

Ryne Shetterly -- Vice President of Sales and Marketing

Thanks, Greg.

Operator

Again, if you have a question, our next question will come from Tate Sullivan with Maxim Group. Please go ahead.

Tate Sullivan -- Maxim Group -- Analyst

Hi. Thank you. And thanks for the detail on Star River 2. Just a couple follow up, to start on the electric school bus market.

Ryne, you mentioned some New York market vouchers. Are these new programs for you? So you mentioned it, can you just give more detail there that you mentioned in your remarks?

Ryne Shetterly -- Vice President of Sales and Marketing

The New York NYSERDA program as well as the New York Clean Truck program, it's going by NY DIP. It's basically a voucher program, very similar to California's HF program. And essentially, what it does is the first phase of this required scrapping of a 2009 or older model vehicles with a gross vehicle weight rating of over 14,000 pounds. GreenPower Motor Company, we just became eligible for it this -- within the last 30 days or so.

There are some requirements that they have to meet. NHTSA Buy America-compliant. And then you also have to have a brick-and-mortar within the area. So we had to make sure that we met all those prerequisites.

We did. We went through their evaluation. It took a little bit more time than we had expected. But with everybody at the NYSERDA program working from home, we did as good as we could, and we ultimately got the results that we were after.

Tate Sullivan -- Maxim Group -- Analyst

Great. And related to that, you mentioned additional grant money for electric school buses. When you say grant, are you relating to, I mean, charitable foundation money? Or is it federal grant money that may come through eventually? What are you referring specifically to?

Ryne Shetterly -- Vice President of Sales and Marketing

My apologies. Those are funding mechanisms put forward by the state that generally come on a first come, first serve basis for entities that qualify. Whether they're public or private, the funding amounts are a little bit different. But irregardless of who's buying it, the vehicle manufacturer has to go through a process in order for them to determine whether or not you're eligible.

GreenPower did meet that criteria, and we did successfully complete all the prerequisites.

Tate Sullivan -- Maxim Group -- Analyst

OK. Thank you. Those are the last follow-ups for me. Thank you, all.

Operator

The next question will come from Robert London with London Family Trust. Please go ahead.

Robert London -- London Family Trust -- Analyst

Yes. I'd like to ask if the company could comment on the EV credits that will now be available in California for the -- for buses, medium and heavy-duty presses.

Michael Sieffert -- Chief Financial Officer

Brendan, you want to --

Brendan Riley -- President

Yes, this is Brendan Riley, the president of GreenPower Motor Company. Bob, for -- actually, buses are -- there's a different program for buses. The EV credits right now is for truck products and it allows us to, actually every 2021 model year truck, bus, any product that we sell that's Class 4 and higher, we start getting credits for these. You're probably are familiar with Tesla motor company collecting close to $500 million last year on their EV credits alone.

The California Resources Board has now expanded the program to include medium and heavy-duty vehicles. So the way it's going to work in 2024, every vehicle manufacturer that sells vehicles more than 500 units into California that would be trucks and other medium and heavy-duty vehicles is going to be required to have a certain percentage of their sales. And what they're going to need to do is they're going to need to serve buying credits and stockpiling credits so they're not fined. Because they sell too many vehicles that aren't EVs and don't have enough EVs to offset them, they start getting fined.

And that's what Tesla's been doing. They've been capitalizing on this program to other manufacturers who sold too many internal combustion cars and not enough EV. Tesla actually sold their EV credits, which is all they generate. So we expect those to -- we can start banking in model 2021 year.

Moving forward, we get to have that -- those credits in our, essentially, our bank account for 10 years. And as we get closer and closer to the 2024, companies are going to start buying and trading these credits. So the fine right now is 17,000 instead of $17,000 per credit -- and like our school bus is worth two credits. Typically, that's the bottom of the -- at least it has been in the past.

It's the bottom of the price for each, one of those credits that they sell them for. Like Tesla's been selling theirs for I believe, is $7,000 of credit. That is the bottom of the fine. So we anticipate that as additional revenue stream and will give us leverage to be able to sell those credits as fully transferable, bankable, savable.

We expect a good deal of income to come from those as Tesla has been enjoying over the past years. Thank you. And that's a very exciting part of the future for EVs here in California. I'd also like to add that there are 15 other states that are looking at enjoying this program and would likely have the same program in effect over there.

So we have reciprocity with those states in California, and those credits would be available for people selling the vehicles in those states also, not just California. So we're excited that this -- it could really mean a big amount of revenue to our bottom line just from these credits alone.

Robert London -- London Family Trust -- Analyst

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Fraser Atkinson for any closing remarks. Please go ahead, sir.

Fraser Atkinson -- Chief Executive Officer

Well, thank you, everyone, for participating on our call today. And as Brendan has outlined, we're really excited about the Forest River opportunity going forward and seeing that expand over the course of -- even this year alone. One thing I would like to add is -- and I think it's on Ryne's comments kind of got cut off there. But in terms of the demonstration tour that he will be spearheading in this year on our EV Star, fully autonomous EV Star, is that one of the partners, First Transit, is one of the largest transit solution providers in the country.

So this tour is -- will have a number of aspects to it. First off, being a first-to-market fully autonomous Class 4 vehicle, as well as really showcasing that vehicle with a leader in terms of transit solutions across the country. So looking for a lot of -- looking for a lot of exciting feedback on that tour when Ryne gets that going over the next -- or in a couple of months' time. But overall, if you do have any other questions, feel free to reach out to any of us.

We're very easily accessible in terms of contact information through our website. And we are very excited in terms of moving our business forward and over the next quarter or two. And as discussed, we have a lot of activity hitting the accounts in spring and summer of this year. So we are looking at really distinguishing ourselves in the -- as an EV manufacturer.

So with that, that concludes our Q3 earnings call, and thanks everyone for listening in.

Operator

[Operator signoff]

Duration: 35 minutes

Call participants:

Michael Sieffert -- Chief Financial Officer

Fraser Atkison -- Chief Executive Officer

Ryne Shetterly -- Vice President of Sales and Marketing

Brendan Riley -- President

Unknown speaker

Greg Lewis -- BTIG -- Analyst

Tate Sullivan -- Maxim Group -- Analyst

Robert London -- London Family Trust -- Analyst

Fraser Atkinson -- Chief Executive Officer

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