VEV - Vicinity Motor Corp. (VEV) Q3 2023 Earnings Call Transcript
2023-11-18 07:56:10 ET
Vicinity Motor Corp. (VEV)
Q3 2023 Earnings Conference Call
November 13, 2023, 4:30 PM ET
Company Participants
William Trainer - Founder and Chief Executive Officer
Dan Buckle - Chief Financial Officer
Conference Call Participants
Robin Cornwell - Catalyst Research
Poe Fratt - Alliance Global Partners
Presentation
Operator
Greetings and welcome to the Vicinity Motor Corp. Third Quarter 2023 Corporate Update Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. 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 the 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 on the call. Please refer to the company's regulatory filings for a list of associated risks, and we'd also refer to your 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.
William Trainer
Thank you, operator, and good afternoon, everyone. I'm pleased to welcome you to today's third quarter 2023 corporate update conference call. The third quarter of 2023 was focused on the build-out of our VMC 1200 dealership network across Canada and deliveries of our VMC 1200 electric trucks and transit buses.
During the quarter, we made 26 successful deliveries of our VMC 1200 electric trucks to eager customers as well as eight transit buses. To meet growing demand, during the quarter, we announced a new VMC 1200 dealership partner in Quebec. And we have several other additional LOIs in place to formalize new EV-specific dealerships, expanding the VMC 1200 sales and service coverage in strategic markets across Canada.
Our new partners have strong fleet service know-how that supports local businesses and government customers, making them well suited to drive the future electrification of our clients' commercial fleet needs. Their customers are attracted to the VMC 1200 by an extremely competitive price point, inclusive of tax incentives. In addition to delivering immediate cost savings and contributing to carbon emission reductions, the VMC 1200 also qualifies for a federal rebate nationwide of CAD40,000 from Transport Canada.
For our company, the VMC 1200 carries a healthy margin profile and the year-round purchasing habits of the diversified customer base helps us smooth out traditional revenue lumpiness of our established transit bus business.
We also announced exciting news for our Vicinity Lightning EV transit bus. During the quarter, we partnered with an automated driving software platform provider, ADASTEC, to create an SAE Level-4 automated variant of our upcoming Vicinity Lightning EV transit bus, which will be called the Vicinity Autonomous Lightning EV for the North American market.
Over the last year, we worked very closely with ADASTEC, recognizing our leading position in the industry to formalize our partnership agreement while jointly pursuing opportunities to deploy automated solutions. The collaboration marks a substantial leap in the realism of transportation with strong emphasis on automated, connected and shared solutions, driving innovation, accessibility and sustainability.
The partnership brings together our expertise in medium-duty, accessible, fully electrified low-floor transit vehicles with ADASTEC's SAE Level-4 automated driving software platform. Together, we aim to revolutionize the mobility sector and make a lasting impact on communities and passengers.
To this end, we will jointly deploy initial Vicinity Autonomous Lightning electric transit buses at Michigan State University and the Buffalo medical campus in mid-2024, making history as the one and only full-sized automated bus deployed on public roads in the US to transport passengers within their communities. Our ADASTEC partnership has allowed us to accomplish exciting new applications for our all-electric Vicinity Lightning bus, powering the next-generation public transportation system a forward-looking organization nationally.
In the transit bus business, during the third quarter, we continue to see strong demand for our Vicinity Classic transit bus line as it continues to help grow our backlog and serve as a foundational building block of our revenue mix.
Orders during the quarter included a seventh reorder with Simcoe County, Ontario, illustrating our commitment to building long-term multi-order relationships and why we continue to serve as the dominant Canadian supplier in the mid-sized heavy-duty bus market; as well as an order from the Village of New Square New York, demonstrating our ability to serve both large public transportation systems and small communities, fulfilling immediate needs and positioning us to address an incredibly wide variety of customer needs.
As supply chains have improved, we've restarted delivery of our transit buses to customers as of spring 2023 with eight delivered in the third quarter. We believe our ability to offer both legacy and next-generation electric vehicles in a variety of classes and configurations positions us to address an incredibly wide variety of customer needs.
Our new manufacturing campus in Ferndale, Washington initiated production during the quarter, which we celebrated with a grand opening ceremony in September, attended by Washington Governor, Jay Inslee. We are now ramping up our production rate to tackle the fulfillment of our growing order backlog, which as of September 30th, exceeded US$150 million, the vast majority of which are for electric vehicles.
The facility is designed to meet our current and our future production needs with annual capacities of up to 1,000 buses or over 6,000 VMC all-electric trucks. With a new US$9 million credit facility with the Export Development Bank of Canada complementing our previous $30 million credit facility, we now have greater financial flexibility to invest in Vicinity's next growth -- next phase growth with the VMC 1200.
As we stand today, we are aggressively building out our VMC 1200 dealer network continent-wide and are ramping up production in our Ferndale manufacturing facility. Our Vicinity Lightning next-generation electric bus continues to attract attention from industry players, and our Classic bus line continues to drive sales as the leading Canadian supplier in the mid-sized heavy-duty bus market.
In summary, we are executing across our product line and positioning Vicinity for future success as we deliver against our incredible $150 million backlog.
Now with that, I'll turn it over to Dan to review the financial results of the quarter ended September 30th. Dan?
Dan Buckle
Thank you, William. Good afternoon, everyone. I will keep 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.
Revenue grew to $6.5 million in the third quarter of 2023 as compared to $1.5 million in the third quarter of 2022. The increase in revenue was primarily driven by a change in product mix represented by 26 truck and eight bus deliveries in the third quarter as compared to two buses in the third quarter of 2022. Revenue totaled $14 million for the nine months ended September 30th, 2023, as compared to $16.4 million for the nine months ended September 30th, 2022.
Gross profit in the third quarter of 2023 totaled $0.5 million or 8% of revenue as compared to a gross loss of $0.2 million or negative 15% of revenue in the third quarter of 2022. The higher margins realized in 2023 are mainly a result of a product mix that has shifted to electric trucks, which generally have a higher margin profile as compared to transit buses.
Gross profit totaled $2.6 million or 18% of revenue for the nine months ended September 30th, 2023, as compared to $1 million or 6% of revenue in the nine months ended September 30th, 2022. The gross margin for the nine months ended September 30th, 2023, was positively affected by expired warranty of $0.9 million during the period.
Excluding these adjustments, the gross margin for the nine months ended September 30th, 2023, would have been 12%. Cash used in operating activities totaled $19 million in the nine months ended September 30th, 2023, as compared to $5.2 million in the nine months ended September 30th, 2022.
Net loss in the third quarter of 2023 totaled $4.4 million or $0.10 per basic and diluted share as compared to $7.4 million or a negative $0.19 per basic and diluted share in the third quarter of 2022. Net loss for the nine months ended September 30th improved to $7.6 million or negative $0.17 per basic and diluted share as compared to $14.1 million or negative $0.37 per basic and diluted share in the nine months ended September 30th, 2022.
Adjusted EBITDA loss in the third quarter of 2023 totaled $1.9 million as compared to $2.7 million in the third quarter of 2022. Adjusted EBITDA loss for the nine months ended September 30th, 2023, totaled $3.7 million as compared to $6 million in the nine months ended September 30th, 2022.
Cash and cash equivalents as of September 30th, 2023, totaled $2 million as compared to $1.6 million as at December 31st, 2022. We believe we are well positioned for a high level of operational execution in the quarters ahead as we ramp production at Ferndale and continue to deliver against our robust $150-plus million backlog.
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.
William Trainer
Thank you, Dan. During the quarter, our accomplishments included continued diversification of our dealership network across North America, ramping up production in our Ferndale manufacturing campus, a growing sales funnel and a record backlog that includes continued strength from our transit bus line.
Market fundamentals continue to support our business strategy with government incentives, corporate sustainability goals and the declining cost of ownership, all pointing towards a surging EV adoption rate. As we move forward 2024 and continue to execute against our key milestones, I believe that we have built the foundation of a business that can deliver value to its stakeholders and their communities for years to come.
Now with that I'll hand it back to the operator to begin our question-and-answer session. Operator?
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Robin Cornwell with Catalyst Research. You may now go ahead.
Robin Cornwell
Thank you, and, hi, thanks for the update, Will and Dan. My first question is, can you tell us what the inventory is at Aldergrove like the number of partially deliverable buses and trucks, maybe not trucks, but the buses like the -- how many that you are in process but haven't delivered?
William Trainer
Yes. Dan, do you want to take?
Dan Buckle
Yes. Sure. I can tell you for buses, we have quite a few buses still in our backlog that we're just starting to deliver. At quarter end, we probably had around 10 complete buses that were being ready for delivery. And we have quite a number of buses that are in various stages of production. We probably have, I would say, 30 buses right now that are in various stages of production and then more that are -- actually, we have more than 30 that are in various stages of production. You'd have really pushing 40 that are in various stages of production and some that are ready to start production as well.
Robin Cornwell
Okay. So have there been any changes in the contracts of those buses? Because I guess you've had them for a while and the supply chain held things up. But have contracts changed? Or have you had to modify the buses very significantly to get those -- I know you've got 10 complete, but get those 30 buses deliverable?
Dan Buckle
No, nothing's changed in the contracts to get the buses deliverable. I mean we have -- our backlog is obviously higher than the 40 buses as well. Our backlog is probably right now just over 100 buses that we've started buying -- we started buying components for and were in various stages of those production lines, but those ones are a little bit further from being delivered. But there hasn't been any change at this point in contracts.
Robin Cornwell
So the 100 buses would be in addition to the 30 that are getting closer to deliver?
Dan Buckle
Yes. I would say -- well, it's including. So it's over 100 in total that we have to deliver. We probably have about 120 buses to deliver right now, and we're getting orders for even more.
Robin Cornwell
Okay. And so is it likely then that without supply chain issues now or limited ones that these buses could be available for delivery in 2024?
Dan Buckle
Absolutely. So that's -- absolutely. So right now, we're seeing the buses, they're definitely being completed a lot quicker now and they're coming through the production line. I don't know if you have anything to add to that, Will, for.
William Trainer
No. We see very good visibility on getting these -- our current backlog all delivered between now and into 2024.
Robin Cornwell
Okay. And now just -- I know I'm talking very near term here, 2024. But I get a lot of questions as to the visibility of revenue next year, particularly. And so that leads me to the question of profit margins on these vehicles that -- specifically, I guess, the Aldergrove vehicles.
William Trainer
Well, the older ones are definitely -- because of the time frame, are lighter profit, I would say. But all the newer ones that are coming through, I think we've worked through that and the profit will be much similar to what we've seen in the past. But where we really see -- so the buses we see good visibility on getting them all out and being profitable on definitely the newer buses that are in production right now. But on the trucks, Robin, we're setting up our dealer network across Canada here, and we want to have 10 dealers in place before the end of Q1. And each one of those dealers, we expect them to be doing a minimum of 100 trucks per year. So we see really good visibility on being able to get 1,000 trucks in the delivery hopper for the Canadian marketplace throughout next year.
Dan Buckle
So if I could add to that, just for profitability, we're seeing the margins increase as we start shifting to more and more electric vehicles. So we'll see our gross margins quite easily -- if we're delivering on the level of buses and trucks that we expect to be delivering on for 2024, we should see margins easily in the 20% range for gross margin.
Robin Cornwell
And so I didn't quite get, the 20% applies to trucks or buses or?
Dan Buckle
No, that will be a blended rate. So we'll have some that are higher than that, but that should be a blended gross margin rate. I mean that's always what I've been aiming for, for a gross margin rate, and I think that we should be able to hit that.
Robin Cornwell
Okay. And one last question is basically on Ferndale. You've got production started. That's tremendous. And what level of staffing are you at? And what kind of ramp up for deliveries over the next SIX months?
William Trainer
Well, we have staffing in place down there right now, and we're continuously adding as we get the volume up.
Robin Cornwell
I know I'm trying to get a little bit of a forecast, but any numbers that you can put out on the possible deliveries of trucks over the next six months?
William Trainer
Well, like I said, we have -- we want to have 10 strong dealers on the Canadian side here set up really before the end of Q1, each doing 100 trucks per year. And I think that's well within what we want to accomplish. And then, of course, we'll be looking at the US marketplace. We're just formulating how we're going to tackle the US marketplace. But we've got very good support definitely in Washington State, and there's a lot of good incentives down the California side. We're just looking at where -- how we enter the US marketplace right now.
Robin Cornwell
Okay, great. Thanks very much. That's all for me.
William Trainer
Okay. Thank, Robin.
Operator
[Operator Instructions] Our next question will come from Poe Fratt with Alliance Global Partners. You may now go ahead.
Poe Fratt
Yeah, hi, good after. Can you do the same thing you did with Aldergrove as far as what you have in inventory at Ferndale on the truck side, what's in work in progress? And that would be helpful?
Dan Buckle
Sure. Yes. Hi, Poe. We have -- right now, I would say we have about 100 units for trucks on the ground. If we look at what we have in various stages of production right now, we have about 400 trucks in various stages of production. So that would -- that includes the 95 to 100 they would have on the ground for quarter end. We won't have all of those ready for year-end, but that's what we have right now that have actually hit the production line and are at some other stage of production.
Poe Fratt
So Dan, did you say you have 100 completed in inventory ready to get delivered? And were there any deliveries out of Ferndale in the third quarter?
Dan Buckle
Yes, actually. So we have trucks going through Ferndale right now. So it's -- we're sending pretty much all of our inventory through Ferndale that's coming through the system.
Poe Fratt
So the 26 trucks, you consider those all from -- none were associated with Aldergrove? Those were all out of Ferndale?
Dan Buckle
No. We had -- the 26 would have come from Aldergrove. But the inventory that's on the ground is all coming from Ferndale right now.
Poe Fratt
Okay. So if you look at that 400 number, when do you think those will all be converted to revenue or delivered to customers?
Dan Buckle
Well, we should have the 400 complete, I would say, by sometime in Q1.
Poe Fratt
Okay. So 100 a decent working number for deliveries in the fourth quarter. Is that fair?
Dan Buckle
Yes. That's right. I mean we have -- as Will said, we're working on a number of dealers right now, and we expect to have more dealers signed before year-end that we can announce fairly shortly. But yes, I would expect us to work our way through our inventory and into some of the other inventory that we're working on as well.
Poe Fratt
Got you. And then it looked like -- was there any reason that deliveries were down quarter-over-quarter on the truck side? You delivered 34 in the second quarter, 26 in the third quarter. Why didn't that build -- why didn't that deliveries build over the course of the quarter as opposed to dropping?
Dan Buckle
Right. I think right now, Poe, we're working on signing up some new dealers that we have allocated inventory for that were really in the last stages of the paperwork to get them signed up and get these deliveries to them. But our strategy is to have a Canada-wide network and to be delivering across Canada as quickly as we can. I mean these -- we're definitely finishing up quite a bit of inventory right at quarter end that we will definitely move in Q4.
Poe Fratt
Got you. And then can you talk about the refinancing that you recently did? And just sort of what's on the horizon for other financings? You had the convert debt that's -- all your debt is less than a year out right now, right?
Dan Buckle
Right. It's all around a year right now. I think the convert was just under a year, and then the refinance debt would have been just over a year for the final payment. But basically within a year. So yes, we did think it was prudent to push out the debt that was due this October into next year just so that we could be delivering trucks and have the cash flow in hand to ensure we can build all the trucks we need to and get them into customers' hands. Right now, we don't see any need for doing any financings in the near future.
Poe Fratt
Got you. Okay. And then when you look at the litigation with Optimal, is there any movement forward on that?
Dan Buckle
We can only talk so much about Optimal, but we're in the discovery stage right now. We're going through quite a few documents. We can't comment on where we're at with the case or individual pieces of the case, but we will be going to arbitration on that next year. I would say, probably Q2-ish of next year that we should be in arbitration.
Poe Fratt
Great. Thanks for your help.
Dan Buckle
Thanks, Poe.
William Trainer
Thank you.
Operator
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.
William Trainer
Thank you, operator. So I'd like to thank each of you for joining our earnings conference call. We look forward to continue to update you on our ongoing progress and growth as we continue our rapid pace of operational execution. 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 assist you with any questions you may have. Thank you.
Operator
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.
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Vicinity Motor Corp. (VEV) Q3 2023 Earnings Call Transcript