The Lion Electric Company (LEV) Q2 2024 Earnings Call Transcript
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Overview
The earnings call highlights several challenges: declining revenues, negative gross margins, and significant EBITDA losses. Despite cost control measures, workforce reductions, and potential funding from EPA programs, the overall financial health is weak. The Q&A session revealed slow electric truck demand and unclear management responses on funding reallocations. While there are efforts to improve cost structure and inventory, the lack of a shareholder return plan and negative booking in Q2 suggest continued investor concerns, likely resulting in a negative stock price movement.
Key Financial Performance
Quarterly Revenues $30 million, down from previous year due to lower unit sales and increased manufacturing costs.
Gross Margin Negative $15 million, impacted by lower revenues and increased manufacturing costs.
EBITDA Negative $20 million, reflecting the challenges in revenue and cost structure.
SG&A Expenses $14.7 million, down over $1 million from prior year.
Capital Expenditures (CapEx) $1.3 million, down approximately $18 million from last year.
Research and Development (R&D) Expenses $9.4 million, down approximately $8 million from last year.
Inventory Reduction $20 million year-to-date reduction as of June 30, with a $7 million decrease in Q2.
Available Liquidity Approximately $25 million as of June 30.
Workforce Reduction Impact Reduction of approximately 300 employees expected to decrease payroll costs by approximately $25 million annually.
Rental Expense Current rental expense of $5 million per year, with plans to reduce this through subleasing.
Order Book Value Approximately $475 million, consisting of 1,994 vehicles.
Potential Upfront Payments from EPA Programs Approximately $77 million from recent EPA programs.
Lion Energy Order Book Currently stands at $9 million, a significant increase from prior quarters.
Operating Highlights
New Product Launch: Commercial launch of the Lion8 tractor truck, equipped with proprietary Lion HD batteries, expected to start customer deliveries later this year.
Battery Operations Transformation: Transforming battery operations into a product line to sell battery packs to third parties, expected to contribute to revenues next year.
Market Expansion: Significant funding opportunities from various programs, including over $6 billion available for school bus and infrastructure purchases.
Order Book Growth: As of July 30, 2024, Lion's vehicle order book stands at 1,994 vehicles valued at approximately $475 million.
Operational Efficiency Initiatives: Implementing batch size manufacturing approach to align production with order book, and reducing workforce by approximately 300 people to cut payroll costs by $25 million annually.
Inventory Reduction: Achieved a $20 million inventory reduction year-to-date, with a goal of $50 million to $75 million for 2024.
Strategic Shift: Adjusting truck manufacturing approach and subleasing a significant portion of the Joliet plant to reduce rental expenses by $5 million per year.
Cost Structure Optimization: Working to reduce non-salary operational costs, including third-party logistics and administrative expenses.
Risk or Challenges
Cash Flow Management: The company is facing challenges in cash flow management due to delays with the Canadian Federal's ZETF program and a slowdown in deliveries in the U.S. EPA program, impacting revenue, profitability, and liquidity.
Manufacturing Adjustments: Lion Electric is adjusting its truck manufacturing approach to align with the slower transition to electric trucks, which has resulted in lower industry volumes than expected.
Workforce Reduction: The company plans to reduce its workforce by approximately 300 employees to align with its operational changes, which will impact payroll costs by approximately $25 million annually.
Regulatory Delays: Persistent delays with the ZETF program and timing issues with the EPA's Clean School Bus Program are affecting delivery schedules and order momentum.
Operational Costs: Lion Electric is working to reduce non-salary operational costs, including third-party logistics and administrative expenses, to improve its financial position.
Liquidity Risks: The company is actively managing liquidity, having amended loan facilities to provide relief on financial covenants and maintain a minimum liquidity of CAD 15 million.
Market Demand: The electric truck market is experiencing lower than expected volumes, which poses a risk to revenue generation and overall business growth.
Inventory Management: While the company is reducing inventory, the need to manage inventory levels effectively remains a challenge in the current market conditions.
Guidance & Outlook
Manufacturing Approach: Instating a batch size manufacturing approach for electric trucks to align with order book and optimize liquidity.
Battery Operations: Transforming battery operations into a product line to sell battery packs to third parties, expected to contribute to revenues next year.
Facility Utilization: Launching a process to sublease a significant portion of the Joliet plant to reduce rental expenses of $5 million per year.
Workforce Reduction: Reducing total workforce by approximately 300 people to align with the new operational strategy, expected to save $25 million annually.
Cost Structure Optimization: Working to significantly reduce non-salary operational costs, including third-party logistics and administrative expenses.
Revenue Expectations: Q2 revenues were $30 million, impacted by lower unit sales and increased manufacturing costs.
Inventory Reduction: Objective to reduce inventory by $50 million to $75 million over 2024, with a $20 million reduction achieved year-to-date.
Order Book Value: As of July 30, 2024, the vehicle order book stands at approximately $475 million.
Liquidity Position: Available liquidity of approximately $25 million as of June 30, with ongoing efforts to improve financial position.
Future Deliveries: Expect deliveries related to EPA program to start mostly towards the end of the year, with potential for $77 million in upfront payments.
Shareholder Return Plan
Shareholder Return Plan: None
Key Q&A
Earnings Word Cloud
LEV Transcript
Basic Financial Performance (2): Quarterly revenue and gross margin are down, indicating financial struggles. Product Development and Business Update (3): Delays in production and regulatory challenges, but potential for future growth. Market Strategy (3): Plans to capture market share, but competitive pressures and economic factors present risks. Expenses and Financial Health (2): Liquidity risks and increased costs despite cost-cutting. Shareholder Return Plan (2): No significant positive announcements. Q&A reveals concerns about liquidity and management's unclear responses. Overall, negative sentiment due to financial instability and uncertainty.
The earnings call highlights several challenges: declining revenues, negative gross margins, and significant EBITDA losses. Despite cost control measures, workforce reductions, and potential funding from EPA programs, the overall financial health is weak. The Q&A session revealed slow electric truck demand and unclear management responses on funding reallocations. While there are efforts to improve cost structure and inventory, the lack of a shareholder return plan and negative booking in Q2 suggest continued investor concerns, likely resulting in a negative stock price movement.
LEV Report
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