Envirotech Vehicles, Inc. (NASDAQ:EVTV) Q3 2022 Earnings Conference Call November 15, 2022 8:30 AM ET
Company Participants
Eduardo Royes – Managing Director, ICR
Phillip Oldridge – Chief Executive Officer
Christian Rodich – Chief Financial Officer
Susan Emry – Executive Vice President
Conference Call Participants
Operator
Good day, ladies and gentlemen, and welcome to Envirotech Vehicle Incorporated Third Quarter 2022 Earnings Call. All lines have been placed in a listen-only mode and the floor will be open for questions and comments following the presentation.
At this time, it is my pleasure to turn the floor over to Mr. Eduardo Royes, Managing Director, ICR. Eduardo, the floor is yours.
Eduardo Royes
Thank you, Jenny. Welcome to Envirotech Vehicles’ third quarter 2022 earnings call. With me on the call are Phillip Oldridge, Chief Executive Officer; Susan Emry, Executive Vice President; and Christian Rodich, Chief Financial Officer.
I would like to begin the call by reading the Safe Harbor statement. All statements made on this call with the exception of historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Envirotech believes that the expectations reflected in such forward-looking statements are reasonable on the basis of current expectations, Envirotech can make no assurances that such expectations will prove to be correct.
Also, these forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ considerably from Envirotech’s current expectations due to changes in operating performance, technical and economic factors, and other risks and uncertainties disclosed in Envirotech’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed by Envirotech from time-to-time with the Securities and Exchange Commission.
Any forward-looking statements including in this earnings call, are made only as of the date of this call. Envirotech does not take any obligation to update or supplement any forward-looking statements to reflect new information, subsequent events or circumstances except as required by law. Envirotech cannot assure you that the projected results or events will be achieved.
So with that, I’ll turn the call over to Phillip Oldridge, Chief Executive Officer of Envirotech. Mr. Oldridge, please proceed.
Phillip Oldridge
Thank you, Eduardo, and welcome everybody. As we look to build great awareness in the public markets following our July uplisting to the NASDAQ capital market, I will begin with a few words about Envirotech Vehicles and what makes us special before I view the highlights from the quarter.
At EVT, we provide zero-emissions, purpose-built vehicles for light and heavy duty commercial fleets. Our vehicles are competitive in the marketplace. We are building vehicles for the everyday worker, and the company that simply wants to get the job done. These folks don’t want a bunch of bells and whistles, they want a safe, durable vehicle for a seamless transition from internal combustion engines into the — into vehicles, EV vehicles.
Our fleet today is comprised of Class 3 through 5 urban trucks, a logistics van available in both traditional left hand drive and right hand drive configuration and a cutaway van. As we look ahead, our portfolio continues to expand our Class 6 truck should be coming to the market in the next few months. And we have an electric school bus that is also on track to be in the market in the first half of 2023.
Our first five school bus chassis are complete and in the final stages of testing at this time. We have soft orders for these vehicles, including from school bus — including from school districts in Arkansas, that we are awarded funds as part of the EPA’s $1 billion Clean Bus grant round announced just last month, which Sue — pardon me, which Sue will talk about more.
We are also seeing interest from school districts and numerous other states as well. Our vehicles are 100% homologated to the National Highway Transportation Safety Administration, or NHTSA. Our business model from day-to-day has revolved around targeting small business and fleet owners and selling through a dealer network. We currently have several factory authorized reps across the United States with Arkansas own DaVinci Innovations or DVI as our in-state dealer. DVI has ordered 100 vehicles this past summer and is seeing strong customer interest. Other states to note include: California, New Jersey and Florida as we leverage in-state voucher programs.
Turning to an overview of our operations in February, we entered into a lease with a purchase option for our 580,000 square foot manufacturing facility in Osceola, Arkansas, which is where we are based. The facility is being refurbished and outfitted for a full EV manufacturing production assembly. Today the facility is set up for final assembly with our first vehicles to complete final assembly in the facility rolling out in the second quarter — at the end of the second or third quarter of 2023.
We expect to begin manufacturing vehicles at our facility by mid 2024 with potential — with the potential to eventually produce at least 10,000 EVs per year. Once we begin to manufacture vehicles at facility in 2024, Envirotech will begin greater — will begin generating EPA carbon offset credits in 2025 and beyond.
We believe our Arkansas land location and facility is strategically advantageous for several reasons, including: one, significantly better than average access to an experienced manufacturing workforce; two, proximity to critical suppliers for example, we have the largest steel mill less than 5 miles away from us; and three, ease of access, while Osceola might not be the household name, we are on the banks of the Mississippi with port access a couple of miles away and proximity to key rail and interstate highway infrastructure.
In summary, we are confident that we have the right products, assets and business model to become the leader in the commercial fleet market as enterprise — as enterprises big and small ramp up their electrification plans to meet the increased societal and governmental pressures in the battle against climate change.
Now turning to highlights from the third — now turning to the highlights from the third quarter. In support of our bullish view of our business, we saw a monumental continue — we saw momentum and continue to build during the third quarter after delivering 21 vehicles during Q2, we delivered 37 vehicles during Q3, falling modestly short of our expectations due to only shipping delays. This compares to only 8 deliveries in the third quarter of 2021 and brings our total to year — brings our total year-to-date deliveries to 70.
As of the end of the third quarter, we had 108 units in backlog comprised of 57 vans and 51 trucks and with an estimated total value of $9.7 million. We are proud to have generated a profit in the quarter, the first in our company’s history. In our view, this is an impressive feat [ph] for our size and given the various operating headwinds we are seeing across the industry, our ability to generate the profit not only reflects the increase in volumes, but it’s also a testament to the strength of our supplier and partner relationships. And to the fact that we run a lean cost focused operation, which starts at the top with myself and the leadership team.
Further, since our last quarter earnings call on August 15, we have some exciting wins. This includes: a, or one, a purchase of — a purchase order from San Diego based Coastal Marine Services for three zero emissions high roof logistics fans for use in the shipyard and port operations of which we delivered two vehicles in October. And two, the deployment of what we understand to be the first electric prisoner transport van in the United States via our partnership in the Greater Atlanta, Georgia metropolitan area. This use cases our vehicles is seemingly limitless.
We continue to see wins such as these generate more and more inquiries, for example, we’ve seen and have had several other sheriff’s departments and offices expressing interest in our prisoner transport van. There is nothing like having vehicles on the road to demonstrate our value proposition. It creates a snowball effect that we believe can only be led to ratcheting up interest in demand for our vehicles.
I am truly excited about what we are doing at this company and there is no better place — and there is nobody better placed to provide more color on our secular tailwinds and strategic initiatives than Susan Emry, our Executive Vice President. So with that said, the floor is yours, Sue.
Susan Emry
Thank you, Phil, and hello to everyone on the call. As Phil suggested, I will elaborate on what we’re seeing in the market, some of our initiatives and provide some color on the fourth quarter. We remain particularly excited about legislative tailwinds that are critical in driving EV adoption. We’re still only in the very early innings of what will be a generational shift to electrification.
To this point, we’ve recently hired several federal and state consultants with regard to infrastructure bills and grant programs to ensure we continue to punch above our weight. We are particularly excited about our electric school bus or ESB offering that Phil mentioned. As many of you likely know just last month, EPA issued more than $900 million in funding as part of Round 1 of a $5 billion Clean School Bus program. This has [indiscernible] orders for nearly 2,500 clean zero-emission school buses for nearly 400 school districts across the United States.
We recently hired a full-time grant writing group and look forward to participating in future rounds of this program, which we would expect to kick off in 2023 with another round similar to the one recently concluded. In 2023, we understand that the EPA will be soliciting grants for $1 billion instead of rebates. As a result, we believe school districts will find applying for the funds a little more challenging.
EVT will evaluate the school district, help to identify how many buses they should request, and will provide a grant writer at no cost to them to help them apply for a federal EPA funding. But we don’t think we’ll necessarily have to wait until then to sell our school buses because as with our other vehicles, we believe we will have more, one of the more economically attractive ESG options with the market.
Fast forwarding, by the latter portion of this decades, we will see the school bus market as a leading driver of our business as the nation’s fleet of approximately 500,000 school buses electrified. Initially with the help of subsidy programs and events we are [indiscernible] some supply chain normalization and scale benefit.
Outside of the bus market, we also believe we are well-positioned to win our fair share of government fleet to electrify. Perhaps the Holy Grail is the United States Postal Service’s plan to electrify its fleet of coastal vehicles, which we believe we can serve particularly well with our right hand drive van. Recall that the Inflation Reduction Act includes $3 billion in funding to set USPS in the decarbonizing with mail delivery fleet.
In July, the United States Postal Service stated that it would buy at least 25,000 EVs and we are eagerly await further details in hopes of anticipating and participating in this robust opportunity. More broadly, we will also remind you that the Inflation Reduction Act or IRA comes with several requirements for consumer EV purchases to qualify for tax breaks. The terms for commercial vehicles are much more friendly, but simply as part of the bill, owners can claim a $40,000 tax credit for all zero-emission vehicles that are Class 4 and above.
Lastly, our story just isn’t about the U.S market. Yes, the U.S is our home and focus market, but we have seen much interest from abroad to including our right hand drive vehicle. We believe potential customers abroad see a real advantage and a vehicle that meets U.S safety standards and we are in talks with potential partners as we speak.
Turning now to update on our Osceola, Arkansas plant renovation. As a reminder, that [indiscernible] unused for more than two decades after its prior owner shut it down. During the third quarter, we made tremendous progress on basic maintenance and upkeep inside and outside the facility. Looking ahead, we’re ready to begin building the foundation for the facilities next chapter as an EV manufacturing facility.
Specifically, in the fourth quarter, we expect to begin construction on select areas inside the facility. We’ve already identified our engineering, design and architect teams and we look forward to seeing progress inside the plant begin and sharing design renderings with our customers and investors in very short coming months. We remain on course to be involved [ph] for manufacturing production and assembly at this facility by the middle of 2024.
On our capital and strategy front, we remain focused on strategic fundraising opportunities, including in conjunction with tuck-in acquisitions. We believe there are significant assets of quality in the market that can help bolster our offering and improve our already strong cost structure even further. However, the uncertainty in the market is not lost on us and we would hate to make bold predictions around certainty, size and timing of any potential transactions.
Lastly, as we look at financial plan upgrades, we’ve been hard at work solidifying banking relationships. We believe we have several financial tools in our tool chest and are in discussions on finalizing construction loans.
Turning to our near-term outlook. Although interest level remains high, we’ve been able to navigate [indiscernible] and ramp up final assembly operations at our Arkansas facility relatively smoothly. We do expect some slowdown in the fourth quarter with respect to vehicle deliveries. This was a result of a couple of factors. First, there will be a natural seasonal slowdown due to the holidays. Further, one of the programs we have benefited from is the New Jersey Zero Emission Incentive Program or NJ ZIP, which provides vouchers to medium and heavy duty vehicles. The program remains a tailwind for our business as we go into 2023, but we will experience a small pause in this quarter in NJ ZIP award.
In July, the State of New Jersey approved a doubling in the program size to $90 million in funding for business and institutions across the state to buy zero-emission to heavy duty vehicles. As of last September, Phase 1 of the program had concluded with the state approving $42 million in voucher application. And it is wanting to purchase vehicles through this program as of October 1. If they have not already previously applied, we’ll have to wait until early 2023 for Phase 2 to open up. As such, we do not expect to see significant business from the State of New Jersey in the fourth quarter.
Given these factors, we would expect deliveries and therefore revenues to soften sequentially. But we will not be providing more color or magnitude as the crystal ball is still somewhat murky. That concludes my remarks. So let me now turn the mic over to our CFO, Christian Rodich, to briefly walk through the third quarter financial results. Christian?
Christian Rodich
Thank you, Sue, and good morning, everyone. We appreciate you taking your time to join us today. Sales were $3.88 million for the 3 months ended September 30, 2022 compared to approximately $709,000 for the 3 months ended September 30, 2021. The sales increase was primarily related to the significant increase in our vehicles delivered. For the 9 months ended September 30, 2022, sales were $7.808 [ph] million, and compared to $1.37 million in the same prior year period.
Total net operating expenses for the third quarter of 2022 increased by approximately $357,000 compared to the third quarter of 2021. This took the total to $1.74 million for the quarter. Non-cash charges in the third quarter were approximately $69,000. The increase in expenses during the quarter is primarily related to increase in sales, as well as our sales and marketing efforts. The first 9 months of 2022, total net operating expenses were approximately $6.52 million compared to $2.91 million in the first 9 months of 2021. Non-cash charges during the period were approximately $1.72 million.
As Phil mentioned, we turned to profit in the third quarter. Net income was approximately $127,000, or $0.01 per basic and diluted share, compared to the net loss of approximately $850,000 or $0.06 per basic and diluted share in the third quarter of 2021. For the 9 months ended September 30, 2022, net loss was approximately $3.41 million or $0.23 for basic and diluted share, which compared to a net loss of approximately $2.4 million or $0.23 per basic and diluted share in the prior year period.
As of September 30, 2022, the company had cash, cash equivalents restricted cash and marketable securities of approximately $4.66 million, total liabilities of approximately $1.36 million and working capital is coming at $20.2 million. That concludes my remarks for today. So let me turn the call back over to Phil, so he can wrap up and go into the Q&A. Phil?
Phillip Oldridge
Okay. So to summarize, we delivered a strong third quarter results, growing deliveries by more than 75% and only falling short of doubling — short of doubling due to shipment delays. All of us in Envirotech Vehicles remain excited about the continued growth and interest and demand for our vehicles and we eagerly await adding our Class 6 truck and school buses to our product lineups in 2023. We continue to make progress on refurbishing and renovating our Osceola facility and look forward to kicking off renovation work on the interior this — on the interior of this quarter ahead of planned in 2024 startup production.
Local and federal support remains huge — a huge tailwind for EVs as we — as have recently focused resources and time to ensure that we have the necessary partnerships and people in place to ensure we’re welcome ahead. As more and more of our vehicles hit the road in the month and the quarters ahead, we expect rapidly growing brand awareness to drive increasing demand.
With that said, I would like to thank everybody for joining us on this call and we look forward to speaking to you in the next quarter. And at that point, I’ll open it up for Q&A.
Question-and-Answer Session
Operator
Q –
A –
Phillip Oldridge
Ladies and gentlemen, thank you very much for joining us. And with that said, I would like to thank everyone and we look forward to speaking with you next year when we report the fourth quarter and full 2022 year results. Have a great day everyone. Thank you so much.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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