Vicinity Motor Corp. (NASDAQ:VEV) Q4 2021 Earnings Conference Call March 30, 2022 8:30 AM ET
Company Participants
William Trainer – Founder and Chief Executive Officer
Dan Buckle – Chief Financial Officer
Conference Call Participants
Robin Cornwell – Catalyst Research
Jeffrey Campbell – Alliance Global Partners
Chris Souther – B. Riley
Andrew Cox – Stifel
Operator
Greetings and welcome to the Vicinity Motor Corp.’s Fourth Quarter and Full Year 2021 Earnings 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 Web site 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 morning, everyone. I’m pleased to welcome you to today’s fourth quarter and full year-end 2021 earnings conference call. The fourth quarter of 2021 in subsequent period was marked by continued order momentum across our continually expanding product portfolio, combined with multiple strategic partnerships and agreements to expand our breadth and depth as a company. While revenues from our transit bus business are at times irregular, and we see some periods of lower deliveries, our foundation building in 2021 has positioned us with the capability to deliver our backlog of over CAD100 million in 2022. This is a significant accomplishment made possible through our Tier 1 strategic partnerships and the continued expansion of our all-electric product line, which has positioned Vicinity as an emerging leader in the EV transit vehicle sector.
The highly successful rollout of our VMC 1200 EV truck, for which we already have over 250 orders from several dealers across Canada, will help smooth out the fluctuating revenues from our transit bus business. This supplemented with EAV — this supplemented by partnerships with EAVX for EV chassis sales and sales of our Optimal-EV vehicles that we maintain exclusive license to providing additional revenue streams that are less correlated to our core bus business. To prepare for the robust growth we see ahead, we have taken steps to shore up our supply chain in this time of uncertainty. Chiefly, we have secured a 600 vehicle battery supply agreement with Proterra, a leading EV battery systems provider supplementing our supply from various other providers such as BMW and Electrovaya. These steps are taken with the goal of eliminating any single point of failure within our battery supply chain, a common pain point for many EV manufacturers are facing.
Taken together, we enter into 2022 with a strong foundation for growth. The land grab for the EV market share is underway, and we are well positioned to gain traction through our long-standing partnerships with North American transit agencies and expanding continent wide dealer network. During the quarter and into the new year, we have received several hundred orders for EVs, reflecting the rapid diversification of our portfolio in this EV space. We ended the year with a fortified balance sheet to support our growth initiatives, supplementing our cash position and our CAD20 million line of credit with strategic financings to support product line expansion and construction of our Buy-America compliant US assembly facility in Ferndale, Washington. Construction of our Ferndale facility is on track, and we expect to begin initial shipments in the second half of this year, allowing us to further penetrate the US market with an American built offering.
With that, I will now turn it over to Dan to review the financial results for our quarter and year ended December 31, 2021. Dan?
Dan Buckle
Thank you, William. Good morning, everyone. I will keep my portion to a brief review of our financial results. A full breakdown is available in the press release and MD&A that crossed the wire before market opened today. Please note that all figures will now be reported in US dollars unless stated otherwise. In addition, I’ll refer to adjusted EBITDA and other non-GAAP measures. The calculation of adjusted EBITDA and other non-GAAP measures, please refer to the fiscal year 2021 MD&A, which will be available on SEDAR. Revenue in 2021 grew to $41.7 million, a 113% increase as compared to revenue of $19.6 million in 2020. Revenue in the fourth quarter of 2021 totaled $2.3 million as compared to $3.5 million in the fourth quarter of 2020. Gross margin in 2021 grew 64% to $4.2 million or 10% of revenue as compared to $2.6 million or 13% of revenue in 2020. Gross margin in the fourth quarter of 2021 totaled negative $0.3 million as compared to $1.7 million in the fourth quarter of 2020. Gross margins were affected by sales mix as well as the loss on disposal of eight buses sold from the company’s lease pool relative to the low volume of buses sold in the fourth quarter.
Cash provided by operating activities in 2021 totaled $3.6 million as compared to cash used in operating activities of $5.7 million in 2020. Net loss in 2021 was $7.3 million or negative $0.24 per share as compared to a net loss of $3.2 million or negative $0.13 per share in 2020. Net loss in the fourth quarter of 2021 totaled $4.8 million or negative $0.14 per share compared to a net loss of $0.4 million or negative $0.02 per share in the fourth quarter of 2020. Adjusted EBITDA loss in 2021 totaled $2.7 million as compared to an adjusted EBITDA loss of $1.6 million for 2020. Adjusted EBITDA loss for the fourth quarter of 2021 totaled $2.2 million as compared to an adjusted EBITDA of $0.2 million in the fourth quarter of 2020. Cash and cash equivalents as of December 31, 2020 totaled $4.4 million as compared to $1 million as at December 31, 2020.
Subsequent to the close of the fourth quarter, the company fortified its balance sheet through a $12 million financing to fully fund the Ferndale, Washington facility, in addition to being awarded a CAD2.6 million non-repayable grant from a Canadian government foundation. In summary, our company is in a strong position. We have a robust balance sheet, are well positioned to make sustained revenue growth and the fundamentals of our operations are very positive. 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. Looking ahead, continued sales of our expanded EV product line will strengthen our offering within the next generation electric vehicle space. And the addition of our partnerships with EAVX and optimal EV will serve to further solidify our emerging leadership position. Taken in tandem, we are well positioned to create long term value for our shareholders I thank you all for calling in. And now I’d like to hand it back to the operator to begin our question and answer. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Robin Cornwell from Catalyst Research.
Robin Cornwell
I have a couple of early questions, one is the cost overruns. Were there any cost overruns or other cost overruns on the Washington plant that require the additional financing?
Dan Buckle
No, there were no cost overruns for the plant that require the financing. The plant is actually running very well right now. The building is running very well. We’re scheduled to be complete in Q2 of this year but it is on budget and we’re quite happy with the way it looks right now.
Robin Cornwell
And I guess, continuing with cost overruns, how about materials. We’re leading, we’re hearing so much about material costs rising and whether that is being passed on in pricing, is a difficult question. So it’s just not materials, I guess, it’s also labor. Can you address that?
William Trainer
Are you — is this related to our production or just in general, the Ferndale facility?
Robin Cornwell
Well, no, to your overall production, so your entire protection costs and stacking costs, but also materials, for example, batteries, et cetera, if you’re seeing any price inflation coming from your suppliers.
William Trainer
No, we have not seen that. That’s why we’ve really tried to diversify our supply agreements out there, much like I was talking about, we have three major battery supply agreements in place, and that’s really to reflect the market and ensure that we can have supply in line. The big supply agreement we have with the Proterra batteries is a five year contract and it’s pretty well price protected. I don’t know if you’ve got anything to add to that, Dan.
Dan Buckle
The pricing on that is — we have very good pricing in the contract. There’s no real escalators in there. The only thing I will add is in 2021, we did see some difficulties for sure, with — I would say, shipping prices were through the roof, we did have difficulties getting some materials, which ended up having a higher cost to us, which brought down our margins. But going forward, we see the supply chain issues resolving themselves here. And it’s more of a timing issue for us for deliveries rather than a cost issue at this point.
William Trainer
And I think that’s in the diversification as well, if you look at the battery supply agreement that we have, we use the Proterra battery in the optimal product as well. So our combined unit capacity going forward has really helped us group those together and get a much better pricing level.
Robin Cornwell
Next question is on the Lightning book. How is that progressing? And what stage are we at, is there an order book, et cetera?
William Trainer
We’re quite happy with the way the Lightning is progressing. Since bringing that to market, we’ve secured some pretty nice contracts with it, particularly the one at Alberta, the Calgary contract, that contract was really the largest midsized bus contract that’s been RFP in North America. And that’s a five year contract. They initially — we have I think it’s 14 buses we’re delivering in there. I think we start in May or June, delivering the product to them. So we’re doing extremely well to the — where we want it to be time-wise and bringing it to market. But we have some major opportunities coming up with this lightning product. When we built that product, we really built it to be price competitive in the marketplace and have ease of use for the customers. And one of the largest contracts coming out is actually in California, the CALACT tender, and we’re extremely well positioned on that tender.
Robin Cornwell
Is it possible, I know this is a little bit — you did release some numbers I see in your press release. But going into [2022] is there any way you can give us an idea of the $100 million backlog broken down by vehicle?
William Trainer
I think if you look on our investor deck, I think we have that broken down pretty well.
Robin Cornwell
So it’s still the same expectation?
William Trainer
We see some challenges on some of the products in the supply chain, but we see some opportunities as others to really pick up expanding sales.
Dan Buckle
Yes. I agree with that. So we do have previous guidance that’s out there on products. We’re not changing that right now. We’re updating that at this point. So the split is pretty similar with — as Will said, we see some definite opportunities to do better in some areas. A good example of that is the trucks right now, the VMC 1200, we’re seeing a lot of demand for right now, and we’re just trying to determine ways that we can actually ramp up and deliver as many as our demand is right now.
William Trainer
That vehicle in itself, if you look, I think we’ve guided a couple of hundred buses — or a couple of hundred trucks. We have over 250 orders, firm orders in hand right now. And that’s only for two of the provinces in Canada. We have expansion in sales pipeline that we’re trying to push and sign some other dealers throughout the other provinces. So I could see hundreds and hundreds of those trucks coming in this year orders.
Robin Cornwell
Just quickly on the expected margins. So can you address what do you expect for margins going into 2022? Is that possible?
Dan Buckle
We don’t really give guidance on the margins. It’s difficult to give blended guidance on margins just because of product mix. But if you’re looking at where we’ve been in the past for margins on specific products, 2020 and 2021 were lower-margin years for us. 2020 because we didn’t sell very many buses. 2021 because we had some issues with supply chain and some costs there. But if you look back to 2019 margins, we’ll be more in line with that on an overall basis. And we always aim to have overall margins in the high teens after everything is said and done for our overall product mix. But that doesn’t mean that each product is there. We expect to see higher margins than that for specific products, for sure.
William Trainer
The margins are higher than the standard bus.
Operator
The next question comes from Jeffrey Campbell from Alliance Global Partners.
Jeffrey Campbell
Regarding the Proterra agreement, will these batteries be aligned to specific dams models or are they broadly applicable to most or all of your newer vehicles?
William Trainer
For most of our product line, we’ll see that battery in there. Our Vicinity Lightning definitely will have it in there and our optimal product we’ll have it in there. We’re still looking at some of the other vehicles to see how they fit in there as well.
Jeffrey Campbell
Regarding the BMC 1200 EV demand, is there a specific use case or cases that are driving these sales? And are they specific to Canada or are they applicable or elsewhere?
William Trainer
No, it is North American wide. The VMC 1200 competes in a market space where you see over 400,000 vehicles in a Class 3 to Class 5 sold per year. So it’s pretty large addressable market. But for us, where we see the initial thought pattern we brought the VMC 1200 was really to take some of the lumpiness out of the transit market sales. And a lot of those 1200s go to the existing customer base. It works very well for a municipal truck. So we have that customer base built in a lot of the municipalities and cities that are running the buses, they run the — their maintenance yard out of the same facility. So it was a natural fit for us. That’s just one use for it. A lot of the municipalities — what we like to see is you have a lot of parks and the parks have to have the garbage collected every day and it’s not a standard garbage truck can’t get in there. So a lot of these small vehicles, they have a little dump box on the back and the municipality sends out employees to change the garbage bags. That’s probably one of the number one uses for it.
Jeffrey Campbell
And is that — that’s an interesting use case. And do you think that, that has the potential to actually create new customers over time, or the way you described it, it sounds like the progression is maybe customers pick buses first and then these are or follow-on sales?
William Trainer
No. So Jeff, if you look at our marketing strategy for that was to roll that vehicle out and we had existing customers that had specific uses for it. But we look at that as that’s our — that’s what we call our B2B business that we look after ourselves. But we’ve rolled out, particularly on the Canadian side here. We’ve rolled out dealerships like an auto dealer, some of the large orders we’ve had here, just use BC, for an example, there’s 100 orders from one auto group that’s got 17 locations throughout the province here. They’re expecting those trucks and they’ve actually got, I think, firm orders on the existing 100 that they have coming in that they want us to deliver here as quick as possible. And those are all retail, complete retail. So we’re working with EAVX through one of their divisions, readying to supply the boxes and the various setups that go in the back, whether it be a flat deck or a dry freight box van on the back of the truck. And the auto dealers are buying these things off and putting them on yards and are expecting drive-in sales traditionally the same way that you buy a car or a pickup truck. So that’s our go-to-market strategy, and it’s rolled out extremely well in Canada here. And once our factory is up and running in Washington State, we’ll roll it out in the US as well.
Jeffrey Campbell
And you mentioned EAVX. And my last question was, when you look at the Optimal EV and then the collaboration with EAVX and they both described delivery vehicles. Do you see any overlap or competition between the two platforms, or are they intend to be more complementary? Just some color there.
William Trainer
Yes, I see it to be complementary. If you look for those who look on our Web site and pick up our investor deck, you’ll see the lineup of vehicles that we have. We have — starting with the VMC 1200 is really a Class 3 vehicle. And the Optimal E1 is a Class 4 or 5 vehicle and then so on up the path. But we like to say we’re laser-focused on that specific market segment, which is the Class 3 up to that Class 5, 6 vehicle. And some of those opportunities that we have like the EAVX. EAVX is division of the JB Poindexter group, which is over $2 billion a year in sales. They’re the number one body builder manufacturer in the US. So when you look at the vehicles and the bodies that are going on the back of them, whether it be a work truck or a delivery van or a walk-in van, they have a significant share of that market. They’re one division alone, the Morgan Olson division. I like to say that’s the golden goose that everybody is chasing. That’s your — a lot of your last mile deliveries and that’s with a walk-in van. And that walk-in van market is 40,000 vehicles per year on an annual basis. And the one group, the Morgan Olson Group sells 30,000 of that 40,000 vehicles sold per year.
And we have a collaboration agreement where we’re designing and building some chassis for them, and we’ll deliver chassis this summer to them that will fit right underneath their walk-in van vehicles. And that’s — I think that’s an amazing opportunity for us because with them selling 30,000 and traditionally, they would buy like an F59 chassis from Ford and Ford doesn’t have an electrified chassis. So our chassis from our Vicinity Lightning is 22,500 GVWR and it’s the only one within the segment that when we look at ourselves as an OEM that has hydraulic brakes and batteries in the low-floor section. So we take the bus body off of that and modify it and deliver it out to the EAVX group so that they can mount some of their walk-in bodies on that. And I think that’s the collaboration agreement. That’s the major opportunity for us that we keep pointing out.
Jeffrey Campbell
Well, we’ll look forward to hearing more about that as summer rolls along and the chassis gets a chance to meet the box.
Operator
The next question comes from Chris Souther from B. Riley.
Chris Souther
So the visibility on the $140 million revenue target for 2022 seems pretty good based on that current CAD100 million backlog. Is that — so that and the $10 million EBITDA target are still in effect here?
Dan Buckle
Yes, we’re not changing our guidance right now. The demand is there, for sure. But just like everybody else, we’re definitely seeing some supply chain issues still in the marketplace, which need to be resolved. So that’s the only risk that we would see out there right now to those targets. But right now, the guidance is unchanged but we’ll keep monitoring the supply chain for sure, and update any guidance if we need to in the future.
Chris Souther
You’ve got the battery supply seems pretty short up. But what are the other key components that you guys are seeing challenges on the supply side? And are there any other things that you guys are going to try to build up inventory, can you kind of talk about the strategy of it?
William Trainer
Chris, the strategy has always been to have multiple vendors in each category. And I think we’ve done that definitely with the battery. We’ve done that with the motor suppliers. And we’ve done that with some of the other areas where we’ve seen some difficulty. We have very sophisticated multi-system on there, multiplex electrical system on there. We have seen some issues, particularly with the DASH monitor. But we’ve been able to work with the suppliers and actually have some modification changes to it with the chips that they’re using in it and be able to keep our supply rolling. I think this is one of the strength that we have as a corporation. We’ve developed a lot of this vehicle control units and so on, that actually is the heart and brains of the vehicle. And we have our own in-house programmers and electrical engineers that can change those things fairly quickly. And I think the nimbleness of us as opposed to some of the large OEMs was one of our strengths.
Dan Buckle
We are seeing some difficulties though in the chassis area for the optimal products and availability of chassis just like the rest of the automotive market. So that’s probably the biggest risk for us is just availability of chassis but it’s — that has been a problem for 2021, for sure, and that is bled into 2022. And we do expect some relief there in the near future, but that’s the biggest risk right now.
Chris Souther
How should we think about the cadence throughout the year and also the mix between US and Canada sales? Should the US sales largely be coming once the Washington facility comes online, it seems like in the back half of the year here, we’ll start to see production there?
Dan Buckle
Yes, you’re right with that. So we would definitely see more weight towards the last half of the year for sure. And even in the first quarter, we’ll be light just because of — we saw some serious shipping issues in Q4 of 2021 that continued into 2022. Actually, we had some difficulties at our port in Vancouver. We had difficulties just across Canada for a little while with shipping, and that will be in the Q1 a little bit. So you’ll see more weight, definitely in the last half of the year and it’s a little bit more in Q2 than Q1 as well.
Chris Souther
And then the last one, it looks like there was a little bit of funky accounting treatment. Some of the leases were sold. Can you just walk through the economics versus kind of the accounting on some of those vehicles that were sold?
Dan Buckle
So we do have a lease pool of buses, and we had one very large customer that we had leased quite a number of buses to while we were making an order for them. And those buses usually get leased to multiple customers over their life — and over their life, we recognize revenue from the lease as the leases out there. So as we actually receive cash, we recognize that lease revenue. But our lease pool gets recorded as PP&E assets. They’re not inventory. So when they do get sold, they get recorded as a gain or loss on sale, which does not hit revenue that goes through cost of sales. So even though it looks like there was a loss on those sales, over the life of those assets, the revenue far exceeds the cost that we had on the books. But it’s a loss in the quarter for the year that we — for the time that we actually sold them. So we sell them as used buses at that point. We do have customers that are interested in used buses or other than new buses, we are happy to sell them whatever we have.
Operator
The next question comes from Bruce Chan from Stifel.
Andrew Cox
This is Andrew Cox filling in for Bruce Chan. I just wanted a clarification on the first set of questions. I think someone asked about production outlook, and you may have said that there was no change to that. I just wanted a clarification on that once the Washington facility gets up and running. Is there any change to production outlook for 2022 and possibly ’23?
Dan Buckle
Right now, we’re not changing guidance right now. I think from a production standpoint, in the US, we’re well on track to be up and running when we want to be there. We’re not planning on starting at 100% in the facility. There will be a ramp-up. But right now, we’re definitely looking at a very positive year for us that we’re quite excited about.
Andrew Cox
And then just last question. On the Proterra contract, just kind of wanted some clarity on what were the main variables that drove you guys to Proterra? Was it pricing? Was it this adaptability, being able to put them in multiple models? Was it simply an availability issue, what attracted you to Proterra over others?
William Trainer
Well, for us, safety is probably the number one concern that we have on the batteries, and they have a very high safety rating. So it fit well within — for the transit market for us. And just overall, we need to — when we get into production down in the US factory, we need a very high Buy-America content. And their factory is very close so to speak. It’s in California. So shipping is a lot less for us to bring it up to Washington. And then just overall, we wanted to make sure that we had diversification in the supply chain.
Dan Buckle
And price security.
William Trainer
And price security, yes, good point, Dan.
Operator
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.
William Trainer
Thank you, operator. I’d like to thank each of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we are unable to answer any of your questions, please reach out to our US IR firm, the MZ Group, who would be more than happy to help you and assist. Thank you so much today.
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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