The Lion Electric Company (NYSE:LEV) Q4 2023 Earnings Call Transcript
The Lion Electric Company (NYSE:LEV) Q4 2023 Earnings Call Transcript February 29, 2024
The Lion Electric Company misses on earnings expectations. Reported EPS is $-0.12 EPS, expectations were $-0.09. The Lion Electric Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone. Welcome to Lion Electric’s Fourth Quarter and Fiscal 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the call over to Isabelle Adjahi, Vice President, Investor Relations and Sustainable Development. Please go ahead, M. Adjahi.
Isabelle Adjahi: Good morning, everyone. Welcome to Lion’s fourth quarter and fiscal 2023 results conference call. [Foreign Language] Today, I’m here with Marc Bedard, our CEO, Founder; Nicolas Brunet, our President; and Richard Coulombe, our Chief Financial Officer. Please note that our discussion may include estimates and other forward-looking information, and that our actual results could differ materially from those implied in any such statements. We invite you to review the cautionary language in this morning’s press release and in our MD&A, which contains important information regarding various factors, assumptions and risks that could impact our actual results. With that, let me turn it over to Marc to begin. Marc?
Marc Bedard: Thank you, Isabelle. Good morning, everyone. We will be discussing our Q4 results in a moment, but I first want to address our 2023 performance and highlight some of our achievements. 2023 has without a doubt been a challenging year for the whole EV industry, including for Lion, but it has also been a year of significant progress for our company. First, we saw a significant increase in deliveries, resulting in revenue growth of 81% for the year, in addition to achieving positive adjusted gross margins. We also completed the construction of our vehicle production facility in Joliet and our battery plant in Mirabel, and started production at both facilities. We now have the infrastructure in place, including the production line and equipment, to achieve a production capacity of up to 5,000 vehicles per year and battery production capacity of 1.7 gigawatt-hour, enough to power 5,000 of our vehicles.
With this significant manufacturing infrastructure in place, we do not plan to make any significant investments in gross CapEx for the foreseeable future. We also obtained certification for our MD battery pack, which powers our Lion5 trucks today and will be integrated shortly on our LionC school buses. This represents a significant milestone in the execution of our vertical integration strategy. And last but not least, we started the commercial production of the LionD school bus and the Lion5 truck, and we are planning to start the commercial production of the LionA tractor this summer. With our vehicle lineup nearly completed and with significant production infrastructure in place, we are well positioned to capture market share in the medium and heavy-duty EV space.
Let me now comment on our Q4 results. During the quarter, we delivered 188 vehicles, leading to 29% revenue growth over Q4 2022. Despite maintaining a positive adjusted gross margin during the quarter, the 188 vehicles we delivered are below our expectations. This is mainly explained by two reasons. First, we incurred delays in the initial deliveries of the LionD school buses and the Lion5 trucks, as we wanted to ensure optimal quality of these vehicles, which were the first ones going to customers, and as a result, initial deliveries were pushed out to Q1 and Q2 of this year. And second, our Q4 deliveries and the pacing of new orders were significantly impacted by the substantial delays incurred by the Canadian Government with its Zero Emission Transit Fund program, the ZETF, since several Canadian school bus operators are still waiting for an official approval to start receiving our electric buses.
The continued uncertainty and delays around the ZETF program had a major impact on momentum of electric school bus deliveries in Canada, as the Canadian federal government and our clients currently work to evaluate and process sizable applications for school buses deployment that were filed several months ago. As a result of these delays and its impact on our world liquidity, we are taking immediate action by temporarily laying off approximately 100 employees, mostly impacting our night shift production workforce in Saint-Jerome. We will reassess our production needs on a regular basis in the upcoming months, mainly depending on the pace of the ZETF project approval and deployment. Before turning it over to Nicolas and Richard to provide more detailed insights into our commercial operations and financial performance, let me reiterate that with our 1,850 vehicles on the road that have driven 22 million miles in real operating conditions and considering everything we have achieved over the past 15 years, we believe we are in an exceptional position for continued success.
Our main objectives are an effective liquidity management and achieving profitability by remaining agile and actively focused on cost control. Further, we will continue to proactively improve the quality of our vehicles and increase our field technician service coverage to maximize customer experience and uptime with our vehicles. Nicolas?
Nicolas Brunet: Thank you, Marc. I will start by addressing Q4 and fiscal 2023 deliveries, then discuss the order book and conclude with an update on certain subsidy progress. Starting with deliveries, we delivered 188 vehicles in Q4, consisting of 178 school buses and 10 trucks. 107 vehicles were delivered in Canada and 81 in the U.S. Our school bus deliveries in Canada were impacted by the inability to deliver under the Canadian ZETF program, for which a number of our clients are in discussions with the government to obtain satisfactory approval under the program. Furthermore, as previously explained, we experienced some delays in the first deliveries of the Lion5 trucks and the LionD school buses, which further impacted results.
For fiscal 2023, we delivered 852 vehicles compared to 519 in 2022, a 64% increase on a year-over-year basis. Now, shifting our focus to purchase orders. The order book currently stands at 2,076 vehicles, consisting of 1,791 school buses and 285 trucks, representing approximately $500 million. In addition to the challenging economic environment, the decline in the order book is in part attributable to the timing of certain subsidy programs, which are beneficial in the long-term but can cause some volatility on a quarter-to-quarter basis. For example, EPA awarded in January close to $1 billion of grant funding for purchase of clean school buses, but purchase orders cannot yet be placed under the program’s parameters and hence are not reflected in the order book.
As previously announced, Lion was awarded a grant for 97 school buses and related charging infrastructure in this round, representing a total of $38 million for which we are working with the school districts to obtain formal purchase orders once allowed by the EPA. We see significant potential for additional opportunities for Lion in connection with this round, as we estimate that 70% of units were awarded directly to school districts, financial entities and third-party contractors. We are in dialogue with a number of these parties towards the potential deployment of Lion school buses. We are also very encouraged by customer engagement towards applications for the most recent rebate round of the EPA program, which closed on February 14. The EPA expects to award at least $500 million under this round, with results to be announced in April.
Now that the applications for the EPA’s latest rebate round have closed, we are hopeful to see more momentum in a number of state-level programs, including in California, Colorado and New York, among others. On the truck side, we are particularly excited by two trucking programs from the EPA. First, the EPA’s Clean Ports Program, which was launched yesterday, is expected to allocate up to $2.6 billion towards zero-emission port equipment and infrastructure, including drayage trucks. The application deadline for this program is set for May 28. Second, the EPA’s Clean Heavy-Duty Vehicles Program, which is expected to allocate $1 billion towards the deployment of Class 6 and Class 7 clean trucks, is expected to start in early spring of 2024.
With the Lion5 and Lion6 in commercial production today, and with the start of commercial production of the Lion8 tractor truck scheduled for mid-2024, we believe we are very well positioned for our customers to benefit from such funding. In summary, the grants environment, combined with customers’ strong appetite for electric vehicles, is very promising for the long-term, despite causing some volatility in the short-term, which we expect to persist for at least the next few months. I will now turn it over to Richard to discuss our financial performance. Richard?
Richard Coulombe: Thank you, Nicolas. I will start by commenting on Q4 results and then comment on fiscal 2023. I will then discuss our liquidity position and provide color for 2024. Starting with Q4 performance, revenue amounted to $60.4 million, representing a 29% increase year-over-year. Despite lower than expected sales volume, we posted adjusted gross margin of 1.3%, which excludes the $9.8 million inventory write-down related to the Lion8 and LionM vehicles, as compared to an adjusted gross margin that was negative 10.2% for the corresponding quarter in 2022. Our SG&A expenses, which amounted to $16 million, decreased from 33% of revenue in Q4 2022 to 27% of revenue this year, reflecting our disciplined approach to cost management.
Our Q4 results included an impairment of intangible assets and property, plant, and equipment of $36 million related to our decision to indefinitely delay the start of our commercial production of the LionA and LionM vehicles. We had a significant improvement in adjusted EBITDA, which was negative $6.3 million for the quarter, as compared to negative $13.9 million in Q4 2022, resulting from improved adjusted gross profits and decreasing costs. Q4 CapEx amounted to $13.7 million, a significant decrease as compared to $39.1 million in Q4 2022, marking the end of our growth CapEx. On the development front, we continued to see a reduction in spend, as we bring new platforms in production. Additions to net intangible assets, mostly related to vehicle and battery-related development, amounted to $17.8 million, down $2.5 million, as compared to $21.3 million in Q4 2022.
Now turning to fiscal 2023 performance. For fiscal 2023, revenue, which amounted to $253.5 million, increased by 81%, as compared to $139.9 million in 2022. Worth mentioning, revenue generated in the U.S. more than tripled as compared to 2022 and accounted for over a third of our revenue for the year. We achieved positive adjusted gross margins for the year, with adjusted gross profit of $4.3 million or 1.7% of revenue, as compared to an adjusted gross loss of $12.9 million or negative 9.3% of revenue in 2022. Adjusted EBITDA amounted to negative $34.3 million for the year, as compared to negative $54.8 million in 2022. This is a result of our revenue growth and effort in optimizing our cost structure. Turning to our liquidity position, we ended the year with $93 million of available liquidity, consisting of $30 million in cash and $63 million of immediate borrowing capacity on our revolver.
It is important to note that inventory investment made over the last two years to achieve production ramp-up has been a significant driver of cash outflows. With the bulk of our ramp-up occurring during the supply chain crisis, we have built significant inventory of raw material on the balance sheet. With supply chain now easing, such large inventory position is no longer required. Further, we have a number of finished vehicles on hand, which could be deployed rapidly, particularly in the event that certain customers obtain satisfactory approval from the ZETF. We therefore anticipate that inventory reduction will positively contribute to liquidity in 2024, with a targeted inventory reduction of $50 million to $75 million. Looking ahead to 2024, our focus remains on driving growth in orders and deliveries, while diligently controlling costs.
As previously mentioned, the ramp-up of the LionV -- the Lion5 and the Lion batteries, as well as the upcoming launch of the LionA tractor, will put short-term pressure on our growth margin, particularly in the first half of the year. We anticipate that CapEx will be lower than $10 million, consisting largely of maintenance CapEx. Similarly, vehicle and battery development spending will be reduced by approximately 30% as compared to 2023 and amount to approximately $45 million as the development of new product nears completion and vehicles are brought to market. We remain committed to tight cost management in a concerted effort to reduce working capital, particularly focusing on reducing inventory levels. Last, we will continue to monitor our liquidity requirements, including a significant reduction in our inventory and will stay appraised of potential opportunities to strengthen our balance sheet to ensure financial resilience in the face of evolving market conditions.
In summary, while we have made significant strides in our financial performance, we remain vigilant in navigating the challenges and opportunities that lie ahead, united by our commitment to sustainable growth and financial consciousness. Back to you, Marc.
Marc Bedard: Thank you, Richard. Before we open the line for questions, let me conclude by reiterating that while we expect the current environment to continue to result in volatile order flow and deliveries for at least the next few months, we remain very enthusiastic about our future and fully committed to leveraging all investments made over the last 15 years to reach our ultimate objective of becoming profitable and free cash deposits. Until then, we remain fully committed to taking appropriate measures to safeguard our liquidity. Thank you for your attention this morning and let’s now open the line for questions.
Isabelle Adjahi: Operator, we will now open the line for questions. I just want to ask you to limit to two the number of questions asked to allow other participants to ask their questions. You can, of course, go back in the queue if you have any follow-up questions.
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