Good morning, ladies and gentlemen. Welcome to Lion Electric Fourth Quarter and 2021 Results Conference Call. [Operator Instructions] 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, Ms. Adjahi..

Good morning, everyone. Welcome to Lion’s fourth quarter and 2021 results conference call. [Foreign Language] Today, I am here with Marc Bedard, our CEO, Founder and Nicolas Brunet, our Executive Vice President and CFO.

Please note that our discussion will include estimates and other forward-looking information, which our actual results could differ from in the future. We invite you to review the cautionary language in yesterday’s earnings release and in our MD&A regarding the various factors, assumptions and risks that could cause our actual results to differ.

With that, let me turn it over to Marc to begin.

Marc?.

Thank you, Isabelle and good morning everyone. Thanks for being with us today to discuss our performance during our first year as a public company, a performance we are very proud of. Indeed, 2021 was the best year ever for Lion.

We consolidated our commanding leadership position in the electric bus market, where we have been selling and delivering vehicles since 2016, while at the same time, starting to sell our electric trucks.

Despite the supply chain crisis and the COVID challenges, we also proved to be a very resilient company and started the construction of both the Joliet manufacturing plant and the Lion Campus and we continue to hire talented employees, including key senior leaders.

All this, while growing our order book by over 2,000 units, delivering about 200 vehicles and developing new platforms. I would like to discuss those three elements on today’s call before passing it on to Nicolas, who will discuss our financial results. First, we delivered on our 2021 strategic objectives.

Second, we continued to proactively manage supply chain challenges, and we increased the pace of vehicle deliveries in Q4 of 2021. And finally, we are entering 2022 with optimism, our main objective being the scale-up of our manufacturing and commercial operations. Let me start with our 2021 main achievements.

We are pleased that in 2021, we surpassed pre-pandemic levels and delivered 196 vehicles, more than double the 80 buses delivered in 2020. With respect to the order book, we drastically increased it to $575 million consisting of 2,025 and 300 trucks for a total of 2,325 vehicles.

This compares to an order book of 300 vehicles when we announced our planned public listing in November 2020. It also includes an order from a customer with a leader in the retail industry for 50 Lion8 Tractor trucks.

We are seeing a similar trend in the LionEnergy PO book, which consists of 278 charging stations and related services, representing a total order value of $3 million. LionEnergy is a key element as we support our clients in their transition journey to EV.

With the same objective of supporting our customers, we announced earlier this week a partnership agreement with Cox Automotive that will complement our experience centers by giving our customers access to an additional 25 service centers, more than 1,000 technicians and nearly 800 mobile service trucks in the field.

We also made significant progress on our two construction projects and delivered on key milestones for each of our manufacturing facilities. First, with respect to our state-of-the-art vehicle factory in Joliet, Illinois, we finished the construction of the shell building and took possession of our 900,000 square foot manufacturing plant.

With tenant improvement work and the purchase of critical manufacturing equipment progressing as scheduled, we are still on track to start vehicle production in the second half of this year. This will be the largest U.S. production site for zero-emission, medium and heavy-duty vehicles with a capacity of 20,000 vehicles per year.

Hiring is ongoing, and we have started to fill key positions such as Eric Pansegrau, who recently joined Lion as General Manager for the Joliet facility. Now turning to the Lion Campus, during the year, we broke ground in the construction of what will house our new battery plant and innovation center. Construction work is on schedule.

We have now completed the building foundations for the battery plant and started to mount the structure of the building. On the technical front, we are working with JRA, a Hitachi company to purchase and set up production equipment.

Here again, we are on schedule and still planning to start producing the first batteries in the second half of this year. With respect to the Lion Team, the build-out is also going according to plans. Our headcount has increased by 550 employees since November 2020.

It now amounts to over 1,000 people, including more than 300 engineering and research and development professionals.

Recent key hires also include Richard Coulombe as Senior Vice President, Strategic Initiatives; David Scott as Vice President, Operations; and William Blanchard as Head of LionCapital Solutions, on which Nicolas will further elaborate in a moment.

On the product development side, we spent $46 million in R&D in 2021 as we continue to develop new platforms that will complement our current 7 models. During the year, we were proud to unveil the first purpose-built all-electric ambulance that we developed in partnership with Demers, one of the largest ambulance manufacturers in North America.

Let me now provide a brief update on supply chain. 2021 supply chain challenges proved the importance of having a robust supply chain tailored to electric vehicles, which is precisely what we have here at Lion.

Unlike newcomers or even incumbent OEMs entering the field of EV, our 10 plus years of experience in the EV space, have been key in managing this global supply chain crisis.

It took us over 5 years to build a deep supply chain tailored to EVs, and this has been a differentiating factor for us in 2021 and will remain a key competitive advantage for our long-term growth. During Q4, we were pleased to see an improvement in the pace of production as compared to Q3.

Not only do we have more visibility on potential upcoming issues, but we are also starting to feel the tangible impact of proactive initiatives we previously undertook to address these supply chain challenges.

But we remain cautiously optimistic for this year, as we continue to see disruptions in the global supply chain in addition to labor shortages driven in part by COVID that affect both our operations and our suppliers’ operations. In a nutshell, supply chain challenges are eased, but not fully resolved yet.

I will now provide more color on our 2022 key priorities. First, on the deliveries and purchase order front, we remain focused on increasing our purchase order book with the objective to establish our leadership position in the electric truck market, as we have already done in the electric school bus market.

The strong secular tailwinds driving EV adoption should further support this objective, as we anticipate that government programs funded by the bipartisan infrastructure bill in the United States, in addition to many other programs will formally materialize in 2022.

As a reminder, the infrastructure bill includes a $5 billion funding package towards the replacement of existing school buses for zero-emission ones and $7.5 billion for EV infrastructure. With respect to the ZETF program in Canada, it includes $2.75 billion to support school bus and public transit electrification.

Although we cannot confirm the exact timing of funding approval, we are pleased to announce that Student Transportation of Canada, which has placed a conditional order for 1,000 all-electric LionC school buses under the ZETF has formally been accepted by the government for the last step of its funding application.

Now, turning to our two new manufacturing facilities, in Joliet, we will start receiving manufacturing equipment to start production of buses over Q1 and Q2 of this year and equipment for trucks will be received later during the year.

As of December 31, in addition to tenant improvements, we have spent $13 million in CapEx and as of today, have engaged an additional $40 million on building and equipment such as AGVs, lifts, overhead cranes and toolings.

We will first focus on the installation of a production line for buses to keep up with the very strong momentum for our electric school buses as reflected in our order book. Simultaneously, we will ramp up our manufacturing capacity by setting up additional production lines, including the one for truck.

Our headcount in Illinois should amount to approximately 500 employees at the end of this year. Now with respect to the Lion Campus, the battery module assembly line, which will be highly automated, has already been ordered for initial testing, production of module prototypes and commercial production.

The orders for the equipment requiring long lead time such as conveyors and wire bonders have also been placed and both delivery and installation are on schedule. As of December 31, we have spent $5 million in CapEx. And as of today, we have engaged an additional $55 million on equipment and building.

Furthermore, we are currently in active negotiations with cell suppliers to finalize long-term supply agreements. And finally, the start of module and pack production is planned for the second half of this year. As you can see, all is going according to plans.

As far as our innovation center, which will mostly have our R&D activities, it will be completed and operational in 2023. Which takes me to the last element on which we will focus in 2022, the initial delivery and commercialization of additional models.

We are pleased to announce that during the year, we will start delivering the first Lion8 Tractor and Lion8 Refuse trucks for which we already have orders. We also expect to begin this year the commercialization and delivery of the LionD bus, the Lion5, the Lion8 Bucket truck and our electric ambulance.

However, we have decided to push to 2023, the commercialization of the Lion7, the LionBoom truck and the LionUtility truck as on the front of supply chain challenges, we want to allocate all efforts on models for which we already have a strong demand or for which we are in active commercialization.

With that, let me now turn the call over to Nicolas, who will comment on our financial results..

Thank you, Marc. Before we jump into Q&A, let me give you a quick overview of the Q4 and 2021 results. We were pleased to complete 2021 on a positive note with a sequential growth in deliveries and an improvement in margin.

We delivered 71 vehicles in Q4, 57 and 14 trucks, a significant increase as compared to the 46 delivered in the same period last year and the 40 vehicles delivered in Q3 2021.

Please note that this number includes the delivery of approximately two-thirds of the vehicles that were 90% plus completed as of the end of Q3 and awaiting components to be finalized and delivered, 43 of the Q4 deliveries took place in Canada and 28 in the United States.

This translated into revenues of $22.9 million, up $9.4 million as compared to $13.5 million last year. Our gross profits were $2.2 million or 10% of revenue, a significant improvement over margins achieved through the year as we continue to scale our business.

Net earnings were $28.3 million and included a gain of $46.6 million related to the non-cash change in fair value of share warrant obligation and $5.1 million of non-cash share-based compensation expense. Last, adjusted EBITDA was negative $7.5 million in Q4.

As a reminder, adjusted EBITDA includes adjustments for certain non-cash and non-recurring items, namely change in fair value of share warrant obligation, share-based compensation and other non-recurring expenses. Let’s now discuss cash flow.

Cash flow from operations for Q4 was negative $59 million, inclusive of $47 million of changes in working capital as we continue to invest in working capital and prepare for a continued increase in production.

We also invested $10 million in research and development and $19 million in CapEx, of which $9 million was included in trade payables and accrued liabilities as of December 31. The CapEx amount includes $11 million for leasehold improvement at our Joliet plant and $5 million for the construction of the LionCapital.

I will discuss this in more detail in a few minutes, but note that as we took possession of the Joliet building and are in parallel advancing with the construction of the battery plant, we expect CapEx to significantly increase in 2022. Now, let me make a few comments on selected 2021 pro forma guidance.

We were extremely pleased with what we have accomplished. In addition to consolidating our commanding leadership in the electric school bus market, we managed challenges outside of our control and posted record delivery and revenues in the history of our firm.

Specifically, we delivered 151 and 45 trucks for a total of 196 units in 2021 as compared to 80 buses in 2020. 134 of these deliveries took place in Canada and 62 in the United States. This translated in revenue of $57.7 million, up $34.3 million or 146% as compared to $23.4 million a year earlier.

Our gross profits were at breakeven, down from $3.1 million a year ago as we incurred significant manufacturing ramp-up costs in 2021. Net loss for 2021 was $43.3 million and included a gain of $85.8 million related to the non-cash change in fair value of share warrant obligation and $71.1 million of non-cash share-based compensation expense.

Adjusted EBITDA was negative $27.6 million for 2021. Last, but not least, let me speak to select balance sheet items and liquidity. First, we ended the year with $242 million in cash in addition to untapped government loan facilities for approximately $80 million for the LionCapital.

In addition, our revolver, which remains undrawn, was increased to $200 million. While we do not have any immediate needs for the revolver, we had an opportunity to increase the facility and did so in order to build additional liquidity as we continue to ramp up production. Finally, we finished the year with inventories of $116 million.

The vast majority of this consists in raw materials as we continue to prepare for increased production and aim to minimize the potential impact of supply chain disruption. This also includes approximately 3,000 batteries on hand in line with our strategy to overstock key EV components in the current environment.

My last comments before turning the microphone over to Marc will pertain to 2022. Although we will not be providing financial targets, it is important for us to give you color on what could impact the year.

Although pleased with our Q4 delivery, we still expect Q1 manufacturing and delivery to be impacted by supply chain challenges, but we expect this issue to be reduced as we move forward in the year. With no supply, we also expect some upward pressure on the cost of raw material driven by inflation.

All this should increase our operating costs and we expect this to continue for most of the year. Of course, we will work to mitigate the impact of such cost pressure and could potentially adjust our pricing strategy accordingly. Let me now spend a minute on CapEx investment.

2022 is expected to be a big year as we intend to invest approximately $215 million towards our 2 new plants. For Joliet, total CapEx to completion is expected to amount approximately $150 million, including approximately $115 million expected to be spent in 2022.

The increase in total costs as compared to the $130 million initially announced is mainly the result of inflationary pressure and a slight increase in the scope of the project as we refined it to optimize the efficiency of our plant. We intend to work to optimize the project CapEx.

For the Lion Campus, total CapEx is expected to amount to approximately USD180 million or CAD220 million, including approximately USD100 million expected to be spent in 2022.

The increase in total costs as compared to the $145 million initially announced is the result of both inflationary pressure and an increase in the scope of the project as we have elected to equip the innovation center part of the campus with the climate testing and battery destruction room.

Please note that the $180 million mentioned above excludes the potential proceeds from a sale-leaseback transaction that we are currently exploring for the battery building. Should we go ahead and close this transaction, we expect the capital outlay to be closer to the total CapEx amount of $145 million that we had initially announced.

On a final note, I am pleased to announce that we are making great progress in our objective to enhance our offering of vehicle financing solutions to our client, and that William Blanchard has joined our team as Head of LionCapital Solutions.

His mandate will be to design and implement programs to offer financing to our customers for the purchase of our electric vehicles and charging infrastructure, as well as for the monetization of carbon and other credit on behalf of our client.

We plan to achieve this via partnerships with large financing institutions, many of which are already offering financing solutions to our clients.

We believe these to be important aspects to ease the transition to EV for our customers as long-term financing solutions significantly smoothen the cash flow profile and the transition to EV, and in many cases, allow the customer to benefit from a favorable TCO from day 1.

We will update you as we progress towards building these Lion proprietary financing solution, which will ultimately aim to further accelerate our purchase order book and pace of delivery. And with this, I will turn the call back to Marc..

Thanks, Nicolas. Before we open the lines for questions, let me conclude by saying that 2021 proved us that electrification was not a question of if, but when, and this when is clearly happening right now for Lion.

Looking at the entire EV landscape, I’m more than ever before convinced that we are in a unique position to consolidate our leadership in the electric bus market, while becoming a key player in the medium and heavy-duty electric truck sector.

As we look ahead, we expect to reach key milestones again this year, which will significantly accelerate our long-term sustainable growth in 2022 and beyond. Let me finish by thanking our employees for their agility, dedication and resilience, as well as for their hard work throughout this past year.

I would also like to thank our customers and our shareholders for their support throughout the year. And we are looking forward to our continued interaction in 2022 and beyond. Thank you..

Operator, please go ahead with your question session. Thank you..

Your first question comes from Benoit Poirier with Desjardins Capital..

Yes, okay. Good morning. I guess it’s my name. Good morning, everyone. Okay..

Good morning, Benoit..

Good morning. Okay, thank you very much for taking my questions.

Just you ended the year with purchase orders around 2,325 units, what about the timing for these deliveries, Marc?.

Yes, Benoit, in fact, those – half of those units are deliverable this year, so a little bit over, let’s say, 1,000 units are deliverable in 2022. So we are working very hard on this. I can tell you that right now, our pace of manufacturing in Q1 is about the same as the one that we had at the end of last year. So, it’s going well.

We are recovering slowly, but surely from everything that’s happening and that happened with the supply chain crisis and with COVID, but the supply chain challenges though remain for 2022 as I was just saying earlier. So, we will be ramping up this year slowly, but surely, but we do have the manufacturing capacity to deliver those units up..

Okay, perfect.

And could you provide a color on how your bidding pipeline has increased versus the 6,000 units you had at the end of 2020?.

Yes, absolutely. The – well, the pipeline is increasing a lot, as you know, we have decided, I mean, not to disclose the pipeline.

It’s not giving a lot of information in what we have our orders, real orders in the purchase order book and I know this is not the way that a lot of other OEMs have been acting, but this is what we feel is information that the market can trust. So, we issue or we disclose the real order book when the customers are sending us the purchase order.

So dialog with customers are going very well. In the truck market, we have 300 – we have orders for 300 units right now. Last week, we got an order for 50 units from a leader in the retail industry space and the name will be disclosed within the next few weeks. And this is the kind of dialog we are having with customers now.

And we do have a lot of customers seeing the need to electrifying their whole suite and this is very, very promising. So we will not disclose detailed information on the pipeline, but let me tell you that the pipeline is growing as the order book, they grow as well in the last year..

Okay.

And could you maybe provide an update on your relationship with Romeo, given the plunge in their share price? And also what kind of output we might expect from the battery land in 2022?.

Yes. Well, we – as you know, we have committed ourselves to buying a little bit over $200 million over the next years from Romeo, we decided to start putting those batteries on the Lion8 Tractor to start with. So we started receiving some battery packs. And we are expecting to receive many, many more battery packs from them within the next few months.

So we’re not really looking at the share price with respect to Romeo. It’s more a question of relationship and their ability to deliver the units that we are looking at..

Okay.

And last one for me, what about your comfort level around the cash position given the CapEx outlook that was provided earlier, maybe Nicolas?.

Yes. Hi, Benoit. Look, we believe we have a very solid balance sheet. We currently have access to a little bit over $520 million, that’s $240 million – or $242 million of cash, $80 million in the government loan or grant loans and an undrawn revolver of the tune of $200 million.

The capital requirements for the two projects as I mentioned earlier is about $330 million, of which $215 million is to be spent in 2022. And, of course, we continue to invest in working cap and R&D as we continue to ramp up production and sales.

But we feel good about the current capital situation provides us with good flexibility and a lot of runway. That said, we will remain focused on the management of cash resources, and we will be very vigilant and always set alternatives in this regard..

Okay, thanks very much for the time..

Thank you..

And your next question is from Rupert Merer with National Bank..

Good morning, everyone..

Good morning, Rupert..

If I can come back to production capacity, you mentioned you have the capacity to deliver 1,000 units, if you didn’t have supply chain issues, where would you say your production capacity is today if there were no supply chain issues? And when would you need to do to get that to your rated 2,500 units per year?.

Yes. Our manufacturing capacity right now, Rupert, with respect to the equipment is 2,500 units per year, and we have the labor to do about two-third of that. So same thing we said last year, this is exactly the same thing we do have right now, so about two-thirds of 2,500 units on an annual basis is our manufacturing capacity right now..

Okay, great.

And you did mention some labor shortages give us a little more color on that? Are you seeing much turnover in your staff and would you hire more people if you could find them at this point?.

Yes. Well, that’s a good question. I mean, we – I think what is really helping us right now is the Lion’s mission. The people we want to work at Lion, they are well paid as well. They are excited about our ESG mission.

They are excited that we’re helping customers reaching their ESG goals as well which is what all companies are looking at doing right now, and we feel we’re in a great, great spot because of that as well. So the people are coming to Lion for – well, first of all, because of what they are doing for a company that they respect the values.

So that’s the first thing. Second thing, obviously, is always how much you’re getting paid. So we are able right now to hire the people that we need. Is there some turnover, yes. Like in all the places, there is a turnover of employees, but I would say it’s under control.

And if you’re looking at the number of employees from one quarter to the other, we are always growing this number. We passed the 1,000 people and – number, and this is something that everybody is very proud of..

So how did that number change quarter-over-quarter? And in particular, how many are in the U.S.

now, and how do you see that growing towards your target of 500 by year end?.

Yes. So yes, we’re ramping up. The – we will be receiving, as you know, the manufacturing equipment in Joliet, and at the same pace, we’re ramping up the number of employees in Joliet. So it’s going to be mostly in the second half of this year. So we have a few employees on site right now, and we will be hiring on a regular basis.

And most of them will be coming in, in the second half of next year to start manufacturing some vehicles in the second half of next year. So more and more employees on the U.S. side and it’s not only with respect to manufacturing, but it’s also with respect to procurement. We have HR people. We have salespeople.

As you know, we do have Experience Centers that we are opening as well, and we’re putting more and more people in those Experience Centers. I think the big difference with – between Lion and some other companies is that we have the whole ecosystem.

And this ecosystem is key in selling the vehicles, and obviously, a lot of that growth is coming on the U.S. side..

Great. I will leave it there. Thank you..

Thank you, Rupert..

Your next question is from Kevin Chiang with CIBC..

Hi, thanks for taking my question and good morning..

Good morning, Kevin..

Good morning. Just wondering, just given the inflationary environment obviously creates a little bit of uncertainty as you build your backlog.

Is that changing how you build the order book, like are you maybe a little bit more apprehensive building too far out, just given the uncertainty around raw material costs and you don’t get caught offside with gross margins here?.

Yes. Hey, Kevin. It’s Nic here. Obviously, we factor that in how we build the order book. There are, for us, two things sort of working in on the opposite direction. We have a cost down program, as you know to bring our overall production cost and at the same time, we are seeing some inflationary pressure without a doubt.

We – that said, it’s still the intention to build the pipeline in the longer term. It does inform how we’re going to curve of that cost down, but it remains our goal. And what we’re doing or focus to lower the cost of the vehicles over the year, and we have a good grip on that where that’s going over the next few years. Yes.

So, and, of course, we haven’t adjusted the pricing in the near-term. It’s always something that we could do, but for the time being, we’re seeing our competitors increase their prices. We saw some price increase as high as 15% that makes our products relatively more attractive. And we feel that the unit level economics continue to work very well.

And so it’s something we’re very mindful of, but it doesn’t change the long-term strategy..

Okay. And then, Marc, you commented on, I guess, how people define the backlog, and I think you view, the way you define it as maybe more conservative, so the cash flow purchase order versus maybe others.

Lumpiness things like in pension and stuff like that, just wondering for big customers that you’re going after was, were they signed large LOIs or some sort of handshake agreement with another OEM or do you find that those customers are still open to talking with you even if they signed a large or has not signed, but have indicated an intention to buy some electric vehicles from another OEM?.

Well, you know what, Kevin we feel that’s exactly the other way around. I mean, we – the operators are looking for a real solution. They are not looking for a press release to announce that they have been ordering trucks when they do not order trucks. So basically, we think our strategy is the right one. And it’s been the same since day 1.

We are real – we have real operations. We have real customers. We are having products on the road. We saw some newcomers, I mean saying that they – hey, they sold units in 2021, when you’re looking, I mean, they sold units for zero. I mean, so it’s only units on the road. We have a lot of units on the road. We have a lot of mileage.

So we don’t need those kind of things. So the dialog we are having with customers are the kind of dialog that the customers are expecting. Basically, we are there for them. And they want to put trucks on the road. They want to put buses on the road. They want to put them without distracting their operations right now.

They are making money delivering products, and this is what we’re doing with them. So we’re selling them the right vehicle with the right specs at the right time with the appropriate charging infrastructure as well at the right price, and this is exactly what they are looking at.

So they want people who know what is their duty cycle, the duty cycle of their products and that will be providing them with the real charging infrastructure. So when we are selling, let’s say, trucks, for example, and that’s one of the reasons maybe for the slower ramp-up because we’re in a very good, very serious dialog with customers.

Well, it’s most of the time. It’s the whole thing that the customers are buying. You see that the Lion Energy PO book is growing. Also, we have a very good growth in that place as well. So they are looking for the charging infrastructure. They are looking for a one-stop shop, and that’s exactly what we’re giving them.

So we feel exactly the other way around. It doesn’t preclude us from having any discussions with them. If there is something, I think that we feel that they are talking to the right OEM and they are talking to us..

Okay. That’s helpful. And I apologize if I missed this and last one for me. You talked about some of the manufacturing ramp-up costs that are weighing on gross margin.

Did you quantify what those were some of to try to separate kind of those ramp-up costs versus direct cost of goods sold associated with the vehicles that you delivered in the quarter?.

Yes. No, Kevin, we don’t separate those and obviously there is a lot of sensitive information in there. I’d say the 10% gross margin off of the 71 vehicle sales is a big improvement on what we’ve seen over the rest of the year. I’m very happy with that, as I mentioned before, at the unit level, the model works really well, it’s a matter of scaling it.

We are incurring costs today, and those costs are really going through the P&L today, but they are really targeted for resources that are targeted at tomorrow’s production, and that’s sort of the – what we’re going through to grow the production and the sale.

But I’ll reiterate it works well at the unit level, and then we expect gross margin to continue to increase with scale in production in those..

Thank you for taking my questions. Have a great weekend, everybody..

Thank you..

Thank you..

Next question is from Brian Johnson with Barclays..

Four questions.

As we look at the 4Q run-rate, how much was in – how much were trucks that were largely assembled in 3Q that you have parts for? How much then were kind of fresh from job – from scratch trucks? And then you caught some kind of bit about 1Q, but how do we think then about the cadence through ‘22 of builds?.

Yes. Maybe I’ll start with the question on Q4 and Marc will take the cadence going forward. So we talked about 50 trucks that were 90% – 50, excuse me, vehicles, not trucks that were 60% – 90% plus completed as of the end of Q3. This is a figure that we provided given the impact that the supply chain issues have had on the quarter.

In the fourth quarter, about two-thirds of those specific vehicles were delivered and then assume that the rest were either starting from scratch on the quarter or starting before, but we’re at a much lesser completion rate. So that’s for the Q4 look..

Yes, Brian, let me – well, Good morning, Brian. Let me take the cadence for 2022. As I said, I mean, we see the cadence right now in Q1 being about the same as the one at the end of last year. What we’re seeing right now with the supply chain challenges, it’s evolving very, very fast.

I will say that what we’re seeing the most right now is longer lead times from our suppliers. So most of the issues like with no delivering, I mean, we’re past that, but longer lead times on average, it’s 2 additional months. On average, it’s something that we’re taking like 1 month previously it’s taking about 3 months. So that’s on average.

And when we do add overseas suppliers, well, it’s even worse because obviously, they are longer lead times, but also you need to add to this the logistic challenges, so logistic challenges because there are less availability from the carriers. So when we – this is exactly what we factor.

We factor all of this right now in our cadence and we see a ramp-up throughout the year 2022. So Q1, about the same pace as you – we had in Q4, but we’ve already put in the orders to significantly ramp up after that.

So it’s going to be a constant ramp-up throughout the year to deliver as much as possible the number of units that are being – that are deliverable this year in 2022.

Let me maybe add on your – in my answer, Brian, that in all the things that we’ve been doing with respect to the supply chain challenges, in addition to everything we said in the past, like stacking more components, stacking less critical components as well, all of that, we’ve been adding to the suppliers redundancy even more, and we started to build our U.S.

procurement as well. So we’re getting ready to manufacture in Joliet, and many of those suppliers that we will be supplying the Joliet operation have already started supplying the Montreal operation as well. So we’re pleased to do that, and we’re building that U.S. ecosystem at the same time.

So it’s really, really helping us ramp up our manufacturing even on the Canadian side right now..

Right. I get that. Look forward to you launching here in Illinois. Second question kind of related to that. A lot of specs – spec graduates investors are very worried about follow-on funding rounds that could be dilutive. And so I just want to get on the table because selling the cloud for anyone who went out ways back.

So as I kind of look at your cash plus liquidity, but then there is some big chunks of CapEx coming up. So it seems like in Canada, the campus will largely be paid for through that $80 million. There is a big chunk of CapEx down in Joliet for $100 million. You mentioned the sale-leaseback.

But just how do we think about – you have the gross CapEx in the presentation, but what it’s likely to do in terms of actual CapEx coming out of the cash flow and cash balance for the course of ‘22, given all the various options you have to fund those hard assets?.

Yes. Hey, good questions, Brian. So the – for the sale-leaseback, I won’t provide a specific figure and this is something that we’re exploring right now. It’s 175,000 square foot building, that industrial building, just a box. And so we’re – we think our capital is better than elsewhere.

The – in terms of the $80 million government loans, view that as being very sort of proportionate. So the draws on there will be proportionate to the spend of the overall project.

And then on the back to – for the rest back to the point that when you add all these things together, with $520 million of liquidity, and the project is $215 million that gets spent this year on the project, and that is before any proceeds of a sale-leaseback. So we feel very good about the current capital situation.

We have good runway, good flexibility, but as I mentioned before, we will be very focused on the management cash resources and stay vigilant around alternatives for this..

Okay, thank you..

Thank you, Brian..

Your next question is from Nauman Satti with Laurentian Bank..

Hi, good morning, everyone. And thanks for taking my question..

Good morning, Nauman..

So I think Nicolas, you had mentioned that at the end of last quarter, you had about 50 vehicles, which were close to its finish model and two-third were delivered.

I’m wondering, in the end of the fourth quarter, what sort of number for almost finished vehicles look like?.

Yes, Hi, Nauman. Hey, as I mentioned before, this was a figure that we provided at the end of Q3 because of the severe impact that the supply chain has had on our production at that point. It’s not a figure that we plan to update the Street on a quarterly basis.

I will say though, we’re still in a situation where we’re advancing vehicles and we’re putting their components or few missing components that prevent us from finalizing certain bids roughly..

Okay, okay. That’s fair.

And when I look at your backlog growth in terms of the new truck orders, I am just wondering if there were any repeat orders as well or were these from new customers?.

Yes. We have a mix of both, Nauman. I mean we do have repeat orders. Well, you know the story on this order of 1,000 units from STC, obviously, that’s been a major repeat order, but we have new customers as well. So, I will say that on the bus side, many, many repeat orders, we have new customers as well.

On the truck side, obviously, new customers because we just started delivering the – our electric trucks in 2021..

Okay, that’s fair. And just – this is more a general question in terms of the bidding activity that you are doing.

I am just wondering how big is your sales team now? And what sort of incentives are there? And how aggressive are you in those bidding activities? I am just trying to get a sense of what sort of incentives are there for your sales team?.

You mean the sales – for the salespeople?.

Yes..

Yes, well, I mean, no, they are well paid. We do have a major incentive of making the – well, basically easing the reach of our customers in the ESG goals, which is great, so very well paid people. Many of our people are very seasoned people in sales as well. We have many – well, our sales forces in the U.S.

and also in Canada, and we have local people in almost all of the states and provinces that we are targeting right now. So, I don’t want to get into the details, obviously, because it’s very sensitive with respect to the other OEMs we are competing with, but they are very well paid throughout and then they are doing their job..

Okay, that’s great. And maybe just one last one for Nicolas, maybe if you could remind us, so you have this committed credit facility of $100 million.

Just – I think which was upsized to $200 million, but I am just wondering if there are any covenants or restrictions on when you can draw on it or it’s just like fully committed, you can do it anytime you want without any restrictions?.

Yes, no, it’s certainly fully committed. It’s an ABL like facility. So, it’s subject to a borrowing base. Obviously, we are growing working capital quite fast and this is the ideal instrument for that. There are some covenants related to that, that we feel are very, I would say, more order-friendly. Yes, no, I will leave it at that..

Okay, no, that’s very good. So yes, that’s it from me and thanks for taking my questions. Thanks..

Thank you..

Your next question is from Jonathan Lamers with BMO Capital Markets..

Hi. Good morning..

Good morning Jonathan..

Marc, on the Lion Financing Solutions division, could you discuss the need for this you saw in the truck market and how you expect it will support sales going forward?.

Yes. Thank you, Jonathan. Well, I think it’s really going to help selling buses and trucks. Earlier, I was talking about the customers looking for the whole ecosystem. So right now, it’s not only about just buying the truck like they have been doing with diesel.

It’s buying the whole charging – the charging infrastructure, getting your end also on any amount of subsidies out there. But it’s also the financing of those trucks and buses. The higher upfront cost is the challenge with EV. So, with LionCapital Solutions, we will be able to lower the upfront cost.

Sometimes we will be able to eliminate, I mean the whole cost, it’s really as a service kind of financing that we are doing. So, in our opinion, that was like the missing link in everything that we were offering and we think that this is going to have a major, major impact on ourselves going forward..

Will you be taking anything on your balance sheet or is it all third-party?.

Hey, Jonathan, the idea is really third-party, that’s the whole point of to be able to leverage the capital of others. And it’s something all partners we have been working with, and it’s a matter of formalizing and making it more programmatic.

The impact on our balance sheet should be very minimum and we are talking about potentially helping with some reserves here and there, but nothing major..

Thanks. And on the sales pipeline, great to see the order from the large retailer, Marc, I believe you previously mentioned discussions with some very large fleet operators regarding some potential large orders.

Could you comment on how discussions with that segment are continuing, and whether any large fleet operators are close to trialing a few vehicles?.

Yes, absolutely, Jonathan. It’s going very well. I mean we are in constant dialog with them. I mean many of them, they have already tried our products. So, they like driving the problem, that’s the first thing. Some of them have been running some tests on the – on our telematics system as well, which is key for them.

Our capacity to deliver the charging infrastructure and almost any types of charging infrastructure as well, I mean it’s – and all the credibility that we have been gaining in the marketplace being – well, the first one in the market, but adding purpose-built electric vehicles, which is exactly what the operators are looking for.

They are looking at lowering their maintenance cost and this is exactly what they are getting with our products. I will say it’s going very well. What is very promising also is that, especially on the truck side, you will see that many of those operators are basically going for very significant numbers.

As the number 50 that we saw earlier this week, but even bigger numbers than that. So, many of them are looking at electrifying the old fleet within a number of years, which is very, very promising because they do understand the total cost of ownership.

They get it, and they are spending most of their money on maintenance, on the cost of energy as well. So, the upfront cost is something that it’s really all the costs that they we will be maturing after that, which is very significant for them.

So, when they are looking at EV, they fully understand that they are saving a lot of money on an annual basis. Well, at Lion, we do have the – all the experience over the last 5 years, 6 years, very good technology as well. So, those discussions with the customers, I mean they are better and better and better all the time. Yes..

Thanks. And Marc and Nicolas, I believe you mentioned based on the raw material cost inflation you are seeing, you would consider adjusting prices if necessary.

Are industry truck prices trending consistently with your expectations? I believe some assemblers are publicly discussing pricing for Class 8s in the low 300 range, recognizing there is a lot of factors that go into the selling price?.

Yes. I would say, Jonathan, the pricing is dependent on a lot of things, including onboard energy. What we found is that our pricing in the market is competitive. And of course, like it’s not a – I wouldn’t point to one single price unit or unit point.

But yes, we feel in general, pricing is quite competitive, and that’s an important part of the dialog with the customers..

Yes. And let me add, Jonathan, that we feel that the strategy we have been putting forward is working very well, like vertical integration for some components, including the batteries we will be manufacturing later this year, this is key. And this is working very well.

So, while you see some of those OEMs, the only way that they can make up for the price increase they are seeing is increasing the selling price. Well, we see that our cost-out program is working very, very well. So, right now, we have been able to do that, maintaining our margins without any price increase.

So, we were saying this last year, that our strategy, I mean this is the way it’s working, and right now, with the cost pressure, we see that this is working very well..

Okay. And last question, on the production capacity, I know you are at about two-thirds of run rate now.

Do you have any guidance for us on the two new facilities when those come online in the second half, what portion of capacity will come online in the second half or just guidance on the fixed expenses we should be thinking about as we compare cash outflow to your liquidity?.

Yes. We are – the way we are ramping up basically the manufacturing equipment will be in place, like if I am talking about the battery factory, it will be 5 gigawatt-hour manufacturing capacity.

Obviously, it’s not day one, like it’s a ramp-up of this manufacturing capacity, but most of the equipment will be installed on a very short-term basis to get to that capacity, but not all of it, and we will need to ramp up the labor as well. So, we will be smart about the way we will be ramping up because we are cost-conscious as well.

And we are doing exactly the same thing in Joliet. We will start with the buses, because most of the order book right now is with buses.

So, the first vehicles we will be manufacturing in the second half of this year, we will start with the buses and then we will start receiving by the end of this year, the equipment for the trucks as well and then we will ramp up our manufacturing capacity according to the orders that are coming in..

Yes. Let me just add on the – on just the fixed expense. What – you probably saw a big increase in the lease liabilities and the right-of-use assets on our balance sheet that’s related to Joliet. The lease there is slightly over $4 million for the first year.

Obviously, there is some OpEx that comes with that, and Marc mentioned will be gradual in terms of bringing the bulk of the workforce at that time or close to the time of production..

Okay.

And so no comments at this point on the fixed portion of cost of sales and OpEx and how that would – the rest of the OpEx and how we should think about the ramp curve for that?.

No additional comments on that. No..

That’s fine. Thank you..

Thank you..

Your final question comes from Michael Glen with Raymond James..

Hey. Good morning. I just want to go back to an earlier comment.

You – I think you indicated that you have 3,000 batteries on hand, is that what was indicated?.

That’s correct. Yes..

So is that – you have 3 years of supply then of batteries? I am just trying to understand holding that much inventory on batteries..

No. It’s really the number of batteries in general, I think a school bus needs sort of three to four batteries and the truck can be as many as eight batteries, right. So, it’s really – yes. So, it’s not 3,000 vehicles. It’s really the number of batteries.

That said, we are going to continue to receive more shipments in batteries, and it’s something that is really critical component that we can’t be short of..

Okay.

And when you were entering – when you are having the negotiations with the cell manufacturers or what are their requirements? Are they asking for take-or-pay commitments, like how – what are you seeing in terms of pricing? Do you still see yourself an attractive position to purchase cells or is capacity getting constrained there?.

No, we do – we do, Michael, I think we feel the strategy we have taken so far is the right one. When you are buying packs or you are buying modules, you are fully captive to your supplier. When you are buying at the cell level, you are almost agnostic to the cell supplier. So yes, active negotiations with many, many cell suppliers.

The good thing is that we can have several cell suppliers. So, the – it’s a 21,700 as you know. And yes, well, depending on who is the supplier, different requests and those are exactly the items we are negotiating right now..

Okay.

And the $215 million number you gave earlier for the capital spend on the projects, what would be the working capital estimate for the coming year?.

I am not sure. There is no working capital as part of $215 million. If anything, some of it may….

No, I understand that.

Just like the – your working capital forecast, like your working capital investment that will be required for the year?.

Yes, that’s not a figure we will be providing there, Michael. We are going to continue to increase for sort of got to invest in working capital. At some point, that investment is going to go down and certainly relative to the sales, that’s the intention, but it’s – I won’t be providing a specific figure on that..

Okay. That’s all of my questions. Thanks..

And your final question is from Mark Neville with Scotiabank..

Hey. Good morning Marc and Nic..

Good morning Mike..

Good morning. So for 2022, the capital budget, $215 million for the projects.

Have you given the number for investment in intangibles and R&D, it’s pretty significant I think?.

Yes, no, that is not a number we are providing guidance on. Recall it, in 2021, we invested about $45 million there, but won’t be providing guidance on that for you..

Okay.

It was $45 million in 2021, that was a number that you disclosed, sorry?.

Yes..

Okay. And I guess just on understanding correctly the deliveries, there is 1,000 units in the backlog that sort of are set to be delivered this year. In Q1, you are – it sounds like you are expecting to produce to deliver roughly, I think 60 or 70 whatever you did in Q4.

If assuming you couldn’t deliver those units in 2022, is there any penalty that you are sort of required to pay?.

Yes. Mark, in most of the cases, I mean no, I mean we will be good. Some of them are being funded by – well, one example will be the HVIP. And there are some dates of delivering at some point, but it’s – I will say it’s kind of a minor in the order book that we have. So, the answer to your question is, yes, for some units, but not very significant..

Sure. And just on the – your pricing strategy, just given the inflationary environment, I m just curious sort of why not sort of put some price increases through. I am sure, again, in most companies I think you are doing it. It feels like an easy environment to do so.

So, just I guess I am just curious why not?.

Because I mean we are maintaining our margins without doing it, Mark, I mean no reason to do that. And I think that’s basically the payback for everything we have been doing in the past with the whole strategy of procurement, vertical integration as well, purpose-built. Also everything we have been saying for years that is the right way to do things.

We see that the proof is in the pudding and this is exactly what is happening right now. So, while the other we have that no choice than increasing their selling price. Well, I mean, so far I mean, we have been able to cope with this increase. So, now we feel it’s only proving that we are been doing the right thing for many, many years..

Okay. Just on the Lion Financing Solutions, you talked about just using a third-party to help with the upfront cost.

I mean do you have a vendor in place?.

Do we have a what, sorry, a vendor, yes.

So, I think of third-parties and not just a third-party, the idea is that we are going to look to have some partnerships on sort of the sort of upstream, if you will, to get to develop the solutions in a programmatic way and then downstream use it as part of selling tool, right, as opposed to today, where it’s more of a – on a referral basis, it will be packaged in the selling tool and the toolkit that the sales force has.

So, we are speaking to various parties in this regard and expect more to come throughout the year..

Okay.

And can you remind me the STC order, is that in the current backlog?.

Which one you said, Mark, the STC?.

Yes..

The Student Transportation of Canada?.

Yes..

Well, that’s in the order book for 1,000 units. Yes..

Yes. Okay. I think I will leave it there. Thanks a lot..

Thanks Mark..

At this time, there are no questions. I would like to turn the call over for closing remarks..

Thank you, operator, and thanks, everyone for joining the call. We look forward to continuing the discussion with you, and feel free to contact me if you have any further questions. Have a nice day..

This concludes today’s conference. You may now disconnect..