GP - GreenPower Motor Ramps Up Deliveries With Large Backlog

Summary

• GreenPower Motor Company reported FQ2 2023 financial results on November 15, 2022.
• The company designs and sells a variety of battery electric buses and shuttles in the United States.
• GP has materially increased deliveries and is operating in an enticing electric school bus environment.
• My outlook is a Buy at around $3.50 per share.

A Quick Take On GreenPower Motor Company

GreenPower Motor Company ( GP ) reported its FQ2 2023 financial results on November 15, 2022, beating revenue but missing EPS estimates.

The firm designs and manufactures battery electric buses, shuttles and other commercial vehicles for the U.S. EV market.

Given GP’s backlog of over 2,000 vehicles and ‘almost all of these are supported by firm contracts or federal and state funding,’ for investors that can accept the potential for a bumpy ride, my outlook on GreenPower is a Buy at around $3.50 per share.

Overview

Vancouver, BC, Canada-based GreenPower was founded to become an original equipment manufacturer of Class 4-8 commercial bus chassis and related products for all-electric buses ranging in length from 25 feet to 45 feet.

Management is headed by Chairman and CEO Mr. Fraser Atkinson, who owned at least 10% of company stock pre-IPO.

The firm uses various contract manufacturers in Asia for sub-components and assemblies while assembling buses in its Porterville, California facility.

The company’s primary offerings include

• EV Star Buses

• Synapse School Buses

• BEAST Buses

The company has an in-house direct sales force that sells products to commercial transportation firms, transit operators, government agencies and school districts.

In the short term, management is focused on its EV Star line of buses, as it 'can produce the EV Star in the shortest time compared to any of our other products and given the ease with which we can deploy an EV Star...'

Market & Competition

According to a 2020 market research report by ResearchAndMarkets, the North America electric bus market has expanded significantly in the last five years, especially the United States, which has seen commitments to zero-emission fleets by major cities.

Of note is California, which intends to phase out purchases of nonelectric buses by major transit agencies starting in 2029.

The overall North American market is expected to grow at a CAGR of more than 20.0% from 2020 to 2025.

The main drivers for this expected growth are advances in bus technology, an influx in new market participants, a sharp decline in battery costs and a reduction in ongoing maintenance costs.

Major competitive or other potential new industry participants include:

• Proterra

• BYD Motors

• New Flyer of America

• Blue Bird ( BLBD )

• Nova Bus

• The Lion Electric Co

• Thomas Built Buses

• Collins Bus Corp.

• Trans Tech

Recent Financial Performance

• Total revenue by quarter has increased sharply in the most recent quarter:

• Gross profit margin by quarter has fluctuated without a discernible trend:

• Selling, G&A expenses as a percentage of total revenue by quarter have also varied significantly, as the chart shows here:

• Operating income by quarter has worsened in recent quarters:

• Earnings per share (Diluted) have also remained heavily negative, as shown below:

(All data in the above charts is GAAP)

In the past 12 months, GP’s stock price has fallen 31% vs. the U.S. S&P 500 index’s drop of around 7.9%, as the chart below indicates:

Valuation And Other Metrics

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Commentary On GreenPower Motor

In its last earnings call (Source - Seeking Alpha), covering FQ2 2023’s results, management highlighted the launching of its South Charleston, WV manufacturing facility as its primary center for the Eastern U.S.

The company has been busy with new pilot programs in West Virginia and obtaining tax credit vouchers for various programs in California.

Deliveries for various of its models continued as did the integration of its acquisition of Lion Truck Body, a truck manufacturer that it acquired to deepen the firm’s vertical integration.

As to its financial results, total revenue rose 67% year-over-year to $7.7 million and was generated from the sales of vehicles from across its product lines.

Management continues to invest in sales, production and operations employee headcount.

As a result, operating losses remain significant at the firm’s level of revenue.

For the balance sheet, the company ended the quarter with $1.1 million in cash and equivalents and $10.9 million in total debt.

Over the trailing twelve months, free cash used was $19.4 million, of which capital expenditures accounted for only $600,000. The company paid a hefty $6.8 million in stock-based compensation.

Looking ahead, while management did not provide forward guidance, it does expect a higher cadence of deliveries, although likely at lower gross margins due to changes in product mix at a higher delivery rate.

Regarding valuation, the market is valuing GP at an Enterprise Value / Sales multiple of 5.0x.

The primary risk to the company’s outlook is the potential for ‘lumpy’ delivery rates from quarter to quarter as potential buyers wait for further tax credit options.

Notably, GP’s EV/Sales multiple [TTM] has compressed by 18.7% in the past twelve months, as the Seeking Alpha chart shows here, although that compression has reduced recently:

Overall, the company's prospects are looking up with the increased school bus subsidies from federal and state sources.

In January 2023, the firm provided a delivery update for Q4 2022 that was apparently a catalyst for a sharp stock increase, as it also indicated a strong delivery cadence for the beginning of 2023.

Given the firm’s backlog of over 2,000 vehicles and ‘almost all of these are supported by firm contracts or federal and state funding,’ for investors that can accept the potential for a bumpy ride, my outlook on GreenPower is a Buy at around $3.50 per share.

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