ADOMANI, Inc. (NASDAQ:ADOM) Q1 2019 Earnings Conference Call May 2, 2019 4:30 PM ET
James Carbonara - Investor Relations
James Reynolds - President and Chief Executive Officer
Michael Menerey - Chief Financial Officer
Conference Call Participants
Amit Dayal - H.C. Wainwright
Edward Woo - Ascendiant Capital
Good day, ladies and gentlemen, and welcome to ADOMANI’s First Quarter 2019 Earnings Call. All lines have been place in a listen-only mode and the floor will be open for your questions and comments following the presentation.
At this time, it is my pleasure to turn the floor over to Mr. James Carbonara, Investor Relations. Sir, the floor is yours.
Thank you, Operator. And once again, good day and welcome to ADOMANI’s first quarter 2019 earnings call. With me on the call are Jim Reynolds, President and Chief Executive Officer; and Mike Menerey, 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 ADOMANI believes that the expectations reflected in such forward-looking statements are reasonable on the basis of current expectations, ADOMANI 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 ADOMANI’s current expectations due to changes in operating performance, technical and economic factors, and other risks and uncertainties disclosed in ADOMANI’s annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by ADOMANI from time-to-time with the Securities and Exchange Commission.
Any forward-looking statements included in this earnings call are made only as of the date of this call. ADOMANI does not undertake any obligation to update or supplement any forward-looking statements to reflect new information, subsequent events or circumstances, except as required by law. ADOMANI cannot assure you that projected results or events will be achieved.
Now, I will turn the call over to Jim Reynolds, President and Chief Executive Officer of ADOMANI. Jim, please proceed.
Thanks James, and welcome everybody. I would like to begin by providing overview of our Q1 2019 sales and operations and our outlook for the remainder of 2019, and then pass it over to Mike for a some additional information in greater detail on our financials. After that, we will open it up for questions and answers and go from there.
As we discussed in our last earnings call we missed our internal projection because deliveries of both drag trains and completed school buses were not completed and failed to ship in 2018 as projected by our sub contractors. I'm disappointed to announce that both major subcontractors weren’t able to meet the revised schedules.
As you have seen based on our ever increasing backlog, we have seen a very welcome increase in order rates which are larger than previous orders. So with longer lead times, manufacturing relocation and employee training these delays do have happen. We have informed our customers on the delays and while they are not any happier than we are on them they understand what is happening and they are eager to get you the products as ordered.
I would like to state that our operation people continue to be involved and we believe we have a better understanding of past production issues and a path to move forward with on time deliveries. So let's jump in.
Sales for the first quarter of 2018 were $420,320, as compared to $463,721 in the same period last year. We announced that our backlog was 8.6 million as of December 31st, and in April we receive new orders which brought our backlog to 12.9 million. On April 30, 2019, as a result we receive an additional new orders in excess of 7.2 million and accounting for recent shipments, we could now report a backlog currently of 18.9 million.
As mentioned in our earnings release, delivery, time increase, variability and our quarterly results in terms of revenue recognition. Nevertheless we are confident that we will be able to convert the majority of our existing backlog and any new orders received to sales revenue in 2019 and if successful we will be well positioned to meet our exceed analyst consensus revenue estimates for the full-year of 2019.
We continued to believe, that if we are able to effectively execute our business plan and capitalize on the opportunities that are presented to us, we will be profitable by 2020. We also feel we have adequate cash to fund us to profitability.
We recently began marketing our new product line of zero emission all electric trucks, cargo vans and chassis and while our existing backlog is mainly made up of drive train sales coupled with six previously discussed standalone school bus orders, we have really begun to diversify our business and feel that new product line combined with additional vehicles we plan on introducing this year has potential to generate significant new sales and opportunities for us in the future.
We have been showcasing the new all electric zero mission Class III truck and cargo vans to cities, counties, fleet owners and operators including several Ride-and-Drive events. We continue to see these as excellent methods to demonstrate our offerings.
Based on these successes ADOMANI has been focused on scheduling more Ride-and-Drive events in both Southern and Northern California, as well with that in Arizona. This week we have held three and we have scheduled more Ride-and-Drives for next week.
The zero emission all electric commercial trucks and vans are part of ADOMANI’s all electric product line-up that helps reduce greenhouse gas emissions and provide for a lower total cost of ownership for customers.
We continue to work with California School Districts, because the trucks and vans we offer had a required range and we believe they are good operational fits for the various departments such as food services, warehousing, grounds keeping, maintenance and operations.
Additional, our white fleet of all electric trucks and vans are designed to allow these districts to utilize their existing or soon to be installed school bus charge in infrastructure to charge our vehicles. We are particularly encouraged about these products for a variety of reasons. Including the accessibility of funding and market magnitude.
In terms of subsidies for the existence of the California Air Resources Board's, hybrid vehicle incentive program, California School Districts and commercial businesses are entitled to receive up to $80,000 for the purchase of a new Class IV truck or van, and up to $90,000 for the purchase of new Class V vehicle. With an additional $10,000 per vehicle available in all communities that are considered by the states to be disadvantaged.
These available subsidies reduce the cost of acquiring these vehicles to a level that is on par with vehicles operate on diesel, gas, or even vehicles that are propane powered. All the while reducing Greenhouse gases and other harmful emissions. In addition the operating cost for fueling and maintenance for electrical vehicles are typically lower than our fossil fuel alternatives.
I would like to remind everybody that the 2018 unit sales number for Class III to Class VII vehicles total over 500,000 of U.S. in Canada. We believe this represents a great opportunity for us to supply high quality zero emissions vehicles that meet the market needs. We also estimate it represents a higher profit margin opportunity for us.
In February of this year, in support of this vertical, we retained the services of Roger Houseman. Roger is a 40 year veteran of various trucking and manufacturing industries, and a long time supporter of greenhouse gas reduction.
As an expert consultant, he will help us in markets with our sales and marketing efforts and new zero emission all eclectic commercial trucks, vans and chassis. Roger is a veteran of companies such as Cummins , Allison Transmissions, Fleetwood, Peterbilt and Bluebird Corporation. During his time of Bluebird, he played an important role in increasing gross sales margins and is also working in the private equity industry in various management positions.
During this time, he gained significant global experience in acquisition, integration and in growth management. Is it a pleasure to leverage Roger's expertise and helping ADOMANI for a significant path in the commercial EV truck market. Working closely with me and with the ADOMANI team as we start to roll out the zero emission all electric products in California and other states.
We also announced in March a mutual sales and marketing agreement with [Xen] (Ph) Solutions, a commercial electric vehicle or CEV service provider. Xen will serve as an important sales representative and partner for ADOMANI’s electric trucks and cargo vans.
Xen works with fleet owners to form and integrate comprehensive CEV strategies that focus on total cost of ownership and ROI for its clients. We are excited to partner with Xen, which increases our sales force across the U.S.
Xen brings value added support and service for our products. They also understand state and clean energy voucher programs for electric vehicles, which will help them support us in working with new customers. Xen works with small to medium and very large fleet owners across the country helps them find the right Electric Vehicle solution that fits their business needs.
Shifting gears to a vehicle that just has three wheels. In early April, we announced an initial order from GerWeiss EV USA is for zero-emission all-electric e-trikes The three wheeled vehicle widely used in the Philippines.
This purchase order represents a revenue opportunity for ADOMANI of approximately 1.7 million, but more importantly will give ADOMANI access to a market where approximately 3.53 wheel trikes are currently in service according to the Asian Development Bank study. ADOMANI currently expects to deliver the first 10 e-trikes in Q3 2019 and more to follow in Q4.
GerWeiss is a manufacturer that to-date has concentrated on manufacturing of all electric vehicles with a focus on the three wheel trikes in the Philippines. This purchase order represents the initial outcome of GerWeiss and ADOMANI exploring ways to collaborate, note to respond to the Philippines Government desire to reduce emissions and improve the health of its citizens.
Both parties needs discussions about targeting additional markets, including electrified chassis or bus builders in the Philippines. It's grateful to see this initial order from GerWeiss after months of groundwork by both parties and our recent visit to Philippines.
When in the Philippines we met with the Department of Transportation, Development Bank of Philippines and the Board of investors among others, which all seemed excited about the prospect of replacing polluting three wheel vehicles with all equity e-trikes.
GerWeiss has been a pioneer in the country for the promotion of electric vehicles and we are proud to be partnered with them to help realize their dual mission of helping the Philippines economy and helping the citizens reap the benefits of additional zero-emission all electric e-trickes powered by ADOMANI to its current vehicles in operations.
We are very excited about this international opportunity and we intend to build on it. As a side note, GerWeiss provided us recently with 40 plus sign appeals from drivers within the first 10 units that are in production now.
Turning to our outlook for the full 2019. I would like to reemphasize that we remain confident, we are positioned to meet or exceed full-year 2019 analysts review and revenue estimates. The basis for our conviction in 2019 deliveries is our current backlog of 18.9 million. These orders are booked and in production. Once these products are delivered to our customers, we will recognize a revenue.
Next, we have new product in the form of trucks, cargo vans and chassis. We are actively offering these vehicles for sale and expect to take orders for these vehicles before the end of the second quarter. And we anticipate this revenue segment may contribute to our overall 2019 deliveries along revenues from the sale of e-trikes, which will be record this year as well.
Quickly turning to key balance sheet data points and profit insights. Based on our current projections, we believe that if we are able to effectively execute our business plan and capitalize on opportunities that we are being presented with, we will achieve profitability in 2020 or possibly as soon as the fourth quarter 2019. With cash and cash equivalents of 7.7 million as of March 31. We believe, we had cash to fund us to profitability.
At this point, I would like to turn over to our CFO, Mike Menerey, who will walk us through the financials. Michael.
Thanks, Jim. Good day, ladies and gentlemen. Thanks for joining us. I don't know whether you had a chance to see the earnings release or not, they went out shortly after one o'clock but I will cover some points that are in that.
As Jim already mentioned, sales for the quarter were 420,000 and compared to 464,000 in the first quarter a year ago. He also mentioned the supplier delays and the fact that we are seeing some progress in that regard.
Cost of sales in the first quarter of this year were 391,000, as compared to 479,000 in the first three months of 2018. General administrative expenses in the first quarter of 2019 were approximately 1.4 million, which compares to approximately 3.9 million in the first quarter of 2018, a decrease of 2.5 million.
That was primarily related to a $2.7 million decrease in non-cash stock-based compensation expense in 2019. That relates to some items that were previously discussed and disclosed, primarily the forfeiture of some options. This decrease is partially offset by increases in legal, professional and insurance expenses in this quarter.
The first quarter of the year included approximately 275,000 in non-cash charges that included 253,000 stock-based compensation. Consulting expenses increased by 34,000 for the three months ended March 31, 2019, as compared to last year, because of increased activity in the sales and marketing that Jim alluded to a few moments ago.
Research and development expenses decreased by 111,000 to 45,000 for the first quarter of 2019, compared to first quarter of last year, and that is due to the timing of certain expenditures that we made for research and development activity.
Total net operating expenses for the first quarter of 2019 decreased by $2.6 million compared to the first quarter of 2018, which is primarily a decrease in stock based compensation expense. Net loss for the first quarter of 2019 as I said, was approximately $1.4 million, a decrease of approximately $2.6 million as compared to the loss of $4.1 million in the first quarter of 2018 and once again primarily related to the decreased stock based compensation expense.
The total non-cash expenses included in the net loss for the first quarter of 2018, were approximately $3 million. As of March 31, the Company had cash, cash equivalents and short-term investments of $7.7 million and debt of $2.5 million, that compared to 8.2 million of cash, cash equivalents and short-term investments and no debt at March 31, 2018 which as you will recall was only a couple of months after the follow on offering that we completed in January of 2018 for a net amount of approximately $10 million. Working capital at December 31, 2019 were six million as compared to $10.5 million at March 31, 2018.
That concludes my remarks for today. James, if you want to, we can open it up for questions.
Thank you. [Operator Instructions] We will take our first question from Amit Dayal with H.C. Wainwright.
Thank you. Good afternoon Jim and Mike. So it looks like from your comments you were indicating that the supply chain issues seem to be resolved. Can you give us any color on what these issues were and how you hope to now sort of stock filling this backlog out over the next few quarters.
Let's start with they are resolving. So we are not the 100% out of the woods yet, but we are getting closer. We pumped it at lengths in the past about the our primary subcontractor EDI, if you will recall they were purchase by Cummins. EDI was primarily an R&D facility and struggled to do some manufacturing especially when the orders started to increase.
Cummins stepped in with the - that is why I mentioned the training and relocation, so they are moving the manufacturing facility to Indiana where they will be having a lot larger facility and more involved in the manufacturing side of this along with the other EB activities they are doing.
So that has helped, the stop and go orders we received five orders and then two or three months later we will see 10 orders than five orders back and forth. We could not generate a sufficient orders to our vendors at a level where they could manufacture and be confident that they have some additional business in one month, two months and three months down the road.
Now that they are seeing a larger implex of orders and more steady implex of orders, they are more willing to step up to the play and buy some of the components they need to be able to supply the finished product to either Cummins or EDI, and then get that bill to ship to the end user customer Bluebird.
Understood. So how should we think about, how this is going to get filled out down in terms of the backlog? Do you have around 18 million mix there, you can potentially do most of this. How does quarter sort of look, starting in the second quarter?
You know, we don't give the guidance for the quarter. But Nice try. But internally, we believe that we will get them all out before the end of the year, we are fairly confident in that. But we were also confident in the fourth of quarter last year that we see additional $200 million or $300 million out and we didn't.
So we are reluctant to guarantee anything, but we feel confident that everyone from the wire supplier, up till the bus, assembler, Bluebird level and the dealer and the customers want this to get to market as quickly as possible and everybody's working towards that.
So we firmly believe that we will be able to get the majority of everything out this year and hopefully, additional orders will out as well.
Is there a timeline within which the artist needs to be filled? It seems our customers are being supportive in this sort of - with these issues, but do you have any timetable related deadlines within which you need to deliver these or you might lose these orders?
No , the reason that we don't is these really are, in most cases, additional orders to the pleats, they are not replacements, summer replacement, a lot of them are additions of a fleet. And since most of them are paid for by either local area district, rules schools, Energy Commission or [indiscernible] or financing, almost 100% of the purchases.
Because of that, the school district is a lot more lenient on when they need vehicles, because they are buying vehicles now that are basically going to be free to them. So the pressure is not there for that.
There are some cases in the past for the first seven or eight months that we delivered, - drive changes deliver, which Bluebird delivered the buses, that was on the south coast grant, they had to be delivered by September of last year, while there were penalties.
And we met every delivering on that and got those two Bluebird in time to build and to get delivery to the customer. So when there are penalties, we refocus those specific drive trains for specific buses, and get those in the front line.
Got it. Just one last one for me, given all of your other efforts internationally as well. How is the story positioned from sort of initially being a little bit reliant on the Volkswagens settlement funds to moving beyond that, if you could just walk us through ho that will play out a little bit?
Now, Volkswagens funds are very important from not only the - take California for example, they have $432 million in Volkswagen funds. A good portion of that will go towards electric vehicles, whether they will be school buses, trucks or vans. Other states have the same initiatives out there, so there will be a lot of money spent in the states for those vehicles. And those vehicles are the ones that were concentrating on.
Outside the country, we are working creatively with the bank with Philippines and others that will help us provide products to the end user and a method so that they can afford to buy a new product with a reduction of emissions.
And the vehicles that we are building for them also have a higher capacity, so they will be able to, even though their peddle a bit more money for the vehicles, they will be able to realize the return on investment, because they will be able to transport more people at a time, over a period of time.
So the Volkswagen Fund is important, different state money is important. It's all important to us today, and will be important to us over the next two or three years as the money comes out. But we also are looking at other opportunities outside the states where they don't have anything to do with Volkswagen.
So it's not an issue. But they have the desire and the goal to help reduce emissions and help their services - citizen. So I think that is a good benefit for us outside the country, in the country, Volkswagen other funding will be certainly important.
Understood. That is all I have. Thank you so much, I will follow-up offline. Thank you.
Thank you for the questions.
We will take our next question from Ed Woo with Ascendiant Capital.
Thank you for taking my question. My questions is on the relationship with Bluebird. How have that changed affected your business?
Well, it has made us wake up in the morning and think of what other products can we sell, besides the drivetrain. So trucks, vans, other vehicles, you may have seen them on our website or our soon to be on our website, new products that will be introducing as time goes on.
As you know, when we discussed this early on, our margins on drivetrain were pretty skinny. We had been able to increase those in 2019. But they are still below where we would feel comfortable going forward. And our goal has been as we have discussed in the past to have our product on the street, not our product and somebody else's product on the street.
So a drivetrain that we build that goes with the Bluebird bus and goes out there, it's a Bluebird bus with a drivetrain, it's like a Cummins engines or Alison Transmission, it's just a product in their bus.
We deliver trucks and vans and chassis is an ADOMANI product and it's our product that is from front bumper to rear bumper. So that helps us with margins, helps us with production, gets us more in tune with that.
So the drivetrains were extremely important when we first started out, they became less so as we saw other opportunities, and eventually they will phase out and we will be in the electric vehicle business with our name on the front.
Sounds good. So it looks like there is kind of shifting focus away from school buses, is that correct now?
We are focusing away from school buses. Right now, not school districts, because school districts we may have had this conversation before, may not. But if they have 100 yellow buses, they probably have 200 or 300 of the white fleet, because they have to maintain those schools across their territory.
So we are still dealing with school districts and we will be looking at what we can do in the school bus market, whether it's builds, additional drivetrains again, whether it's building chassis. We are not a 100% sure, but we know we have limited resources for talent internally. We don't want to spend our money for just projects. We get projects brought to us all the time.
We had one I think yesterday or today that said I want a classified truck, I want it to go 300 miles, well we can build that but it's a one off, we don’t want to build that, we want to build the classified truck that goes 140 miles, but build 100 of them and not just one that goes 300 mile.
So we are not giving up on school buses, there is a good chance we will be back in that market by the end of the year with the product, but if we are not, we have enough to do - enough on our plate to keep us busy for a long time.
That sounds good. And my last question is just on a competition we are getting a lot of different companies out there working on electric trucks. How do yourself position against I guess those other companies?
Well, I think there is a couple of things to consider. The first one is there has been a lot of companies over the last five or 10 years that I'm sure you know have been in the truck, van, step van business for a period of time. It could be for a year, it could be for two years, but they haven't been as successful as they had hoped and a lot of them are out of business or shadowed themselves.
Our goal has always been to look at the market and build the product that the market wants at a price the market is willing to pay and put to together a program with our sales staff and our knowledge and our abilities that accomplish that. Having a great product, nobody knows doesn’t really do any good. Having the product that the market doesn’t want doesn’t do any good.
So we try to focus on what they want at a price point that is acceptable for them and keep our basis of knowledge or experienced people out there, [indiscernible] and the accomplishing that goal.
So we competition two ways. One is that is something company have to overcome in some marketplace, but the market is huge as we mentioned earlier 500,000 Class III to Class VII vehicles sold in 2018 and that is a huge market, that is a market that a small percentage of that for electric is huge and we see that having competition in that so that is the downside.
The upside is the more people with product whether it's you look at GM where they would be happy to have the only car in the town, they probably they would, but heavy competition makes them stronger and makes them more aggressive and helps them develop and keep that product out there and keep innovating.
And I think, having the competition will help us with the same thing, it will helps us to be more innovative, look for way to be successful and look for a way where the product of choice.
Great. Well thank you for answering my question and good luck.
And ladies and gentlemen, this does conclude today's conference call. We appreciate your participation. You may disconnect your lines at this time and have a great day.