ADOMANI, Inc. (ADOM) Q3 2019 Results Conference Call October 23, 2019 4:30 PM ET
Jim Reynolds - President and Chief Executive Officer
Mike Menerey - Chief Financial Officer
Conference Call Participants
Amit Dayal - H.C. Wainwright
Ed Woo - Ascendiant Capital
Good day, ladies and gentlemen. And welcome to ADOMANI's Third Quarter 2019 Earnings Call. All lines have been placed 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 Ms. Asia Lockheed Morris [ph] from ADOMANI. Ms. Morris, the floor is yours.
Unidentified Company Representative
Thank you, operator. And once again, good day and welcome to ADOMANI's third 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. Mr. Reynolds, please proceed.
Thanks [Asia], and welcome everybody. I would like to begin by providing an overview of our sales and operations for the third quarter of 2019, and our outlook for the remainder of 2019. And then I'll pass it over to our CFO, Mike Manerey, for additional context and greater detail on our financials. After that, we'd like to open it up for questions.
So to begin. While we are pleased with the third quarter sales results, we still have work to do. But rest assured that we're up to the task and look forward to showing the marketplace what ADOMANI can do. Our third quarter revenues exceeded our first six month deliveries. Our deliveries increased over the first six months by 119%. In addition, our revenues for the nine month period ended September 30, 2019 more than doubled the sales we posted for all of 2018.
Our expectations for the balance of 2019 is to be able to deliver the majority of the existing backlog to customers, which would position us to meet analysts' consensus revenue estimates for the full year 2019. In addition, we also expect to see new orders for our Class 4 trucks and vans, some of which will be able to be delivered to customers in the fourth quarter. We feel this pull can be met because we currently have a small number of vehicles inventory, and expect receive additional vehicles in time for 2019 deliveries. As always, deliveries will depend on current suppliers meeting their commitments and delivery schedules.
Sales revenue for the third quarter of 2018 was 2.6 million. In the third quarter, deliveries for 2019 more than double that figure coming in at 5.7 million. Sales revenue for nine months ending September 30, 2019 was approximately $10.6 million compared to $3.8 million in 2018. Our backlog at September 30, 2019 was $4.1 million, including orders for Class 4 all-electric trucks and our all-electric vans.
Now, I'd like to bring to your attention some of the highlights for the third quarter. We continue to market our all-electric trucks and vans and we receive necessary vehicle certification on Monday. We currently have outstanding quotes to customers for several hundred vehicles, including our Class 4 vans and trucks, and the newly introduced Neighborhood Electric Vehicle, the NEV.
Our experienced sales staff should be able to convert the many enthusiastic responses we've received. And we're showcasing these vehicles at recent demos at ride-and-drives and to purchase orders. We received a number of intends to purchase. And now that we have HVIP listing and the 80,000 per vehicle buy down that comes with it, we expect many will turn into purchase orders. These indications of interest are in the form of one to three vehicles per customer. And we believe that these will be test vehicles for the customers. And that once put into operation and they see successful performance will turn into order for many more vehicles.
We continue to showcase our all-electric commercial trucks and vans in California Ride-and-Drive events, including the annual California Higher Education Sustainability Conference in July, and met with and demonstrated the vehicles to multiple school districts, cities, utility districts and other municipalities, agencies throughout California, as well as to the university system of California, at Davis. We also introduced a number of private fleet operators in the delivery and truck business to the vehicles.
In addition, we showcased our all-electric trucks, NEVs and vans in Washington, Oregon, Arizona, Nevada, Florida and Minnesota, conducting demonstrations in multiple cities, counties, school districts, utility districts, including some of the -- among others, the cities of Seattle, Spokane and Tacoma, Washington, Salem, Oregano, Phoenix and Tempe, Arizona. The vehicles were also shown and presented through Washington State University and Arizona State University.
And we're displayed in June at the Student Transportation News Magazine Conference in Reno Nevada. We also have been to the Arizona Utility Salt River Project, the Valley of the Sun Clean Cities Coalition, Florida Utility EV [Roundup] in Orlando, Florida and at the Twin Cities Clean Air Kick the Tires event at Minnesota. We have half of dozen vehicles being used for demos and you can see they're very busy.
As you can see from the third quarter results, we believe most of our delivery issues have been resolved. However, we continue to see delivery delays that extend past the third quarter 2019, primarily related to the 2017 legacy school bus project, which are not yet resolved. Nevertheless, we continue to be excited about the potential growth from our diversified product line and offerings of trucks, vans, chassis, NEVs and e-trikes.
Our e-trikes business in the Philippines has begun to bear fruit. We expect the first 10 vehicles will be in customers' hands soon and additional 50 vehicles are going to production in the fourth quarter. As we announced earlier this year, the initial order for 250 vehicles was received with release quantities that we feel best fit the marketplace.
On a side note, the order will only turn into backlog as we release vehicles to production. So the portion of the first order included in our backlog will only total $396,000, which includes the first 10 being delivered in the fourth quarter and the next 50 going in production, and not the 1.6 million total for the entire order.
We are encouraged by the feedback we've received from various school districts, cities, counties, fleet owners and private companies for whom we have had the opportunity to demonstrate our vehicles as they realize how their communities and environment will benefit from our ADOMANI zero emission all-electric vehicles. We continue to believe that if we were able to effectively execute our business plan and capitalize on opportunities that we are presented with, our business model will turn profitable in 2020. We also feel we have adequate cash to fund us to profitability.
The zero mission all electric commercial trucks, vans, NEVs are part of ADOMANI's all-electric product lineup, and helps reduce greenhouse gas emissions, provides lower total cost of ownership for customers. We are committed to work with California school districts and fleet owners, because the trucks and vans we offer meet the required range and we believe are a very good operational fit for the various departments from food services, warehousing, ground keeping, maintenance, operations and last mile delivery for fleets. Additionally, our white fleet of all electric trucks and vans are designed to help these customers utilize our existing or soon to be installed infrastructure to charge the vehicles.
The California Air Resources Board, hybrid vehicle incentive program is in the process of authorizing additional $142 million for the use of California School Districts and commercial businesses, which are currently entitled to receive up to $80,000 for the purchase of the new Class 4 truck and vans at the $90,000 for the purchase of a new Class 5 vehicle, and additional $10,000 per vehicles available to all -- in all communities that are considered by the state to be disadvantaged.
In addition, in July, the Bay Area Air Quality Management District released its Carl Moyer program of $50 million, which will pay 60% of the cost of zero emission all of your vehicles from Class 4 through Class 8. California continues to lead the nation in funding for projects that are designed to reduce greenhouse gases like climate change, reduce the use of fossil fuel based cars, trucks, and other vehicles operating in California.
These available subsidies along with the funding available through the Volkswagen Mitigation Fund and other various state and federal programs and keep to provide funding to reduce the cost of acquiring these vehicles to a level that's on par with vehicles that operate on diesel, gas or even propane, all the while reducing greenhouse gases and other harmful emissions. In addition, the operational cost for fueling and maintenance of electric vehicles are lower than that of fossil fuel alternatives.
And we have mentioned in past calls the 2018 unit sales for Class 3 through Class 7 vehicles totaled over 500,000 in the U.S. We believe this represents a great opportunity for us to supply high quality, zero emission vehicles that meet the market needs. We also estimate it represents a higher profit margin opportunity for us.
Key members of the ADOMANI management team visited China in July and September as a follow up to the February visit to Philippines and the February and June visit to China. These meetings were intended to strengthen the supply chain for all electric vehicles, and to meet with several manufacturers in order to explore prospective alliances, as well as develop relationships with progressive electronic vehicle suppliers. We feel we made very good progress and that these and future meetings will result in ADOMANI having access to new and desirable vehicles to the marketplace.
ADOMANI presented at investor orientated meetings arranged by Renmark Financial in Boston, Philadelphia and New York City in September. We have begun to set up a dealer network to provide sales and service on our NEV and separate network of service centers for our all electric trucks and vans. We received our first NEV vehicles and began showing them to our soon to be established dealer network, retirement communities, resorts, cities, counties and purchasing departments. They have been well received on a dealer and direct sales basis.
The 43,000 square foot facility in Downey we mentioned in the second quarter is being outfitted with tooling, we're adding staff and we received a number of vehicles for pre-delivery inspection at the location in preparation for delivery to customers. In addition, the facility is being used as a staging site for demos and customer visits for ride-and-drives.
Turing to our outlook for the full year 2019. I would like to reemphasize that we remain confident we are positioned to meet full year 2019 analyst revenue estimates. Our confidence comes not only from current backlog of 4.1 million, which we expect majority, if not all of it will be delivered to customers by the end of the year, but also for any new sales that can be processed and delivered by the end of the fourth quarter.
Turning to key balance sheet data points and profit insights. Based on our current projections, we believe that if we were able to effectively execute our business plan and capitalize on opportunities that are available to us, we will achieve profitability in late 2020. With cash and cash equivalents of $7.9 million at September 30, 2019, we believe we have cash to fund this profitability.
At this point, I would like to turn this over to our CFO, Mike Menerey, to walk through the financials. Michael.
Thank you, Jim. Good afternoon, everyone. You've probably seen the earnings release, which we went out just shortly after 1 o'clock Pacific Time. So I'll be brief. As Jim mentioned, sales were approximately $5.7 million and $10.6 million for the three and nine months ended September 30, 2019, respectively. That compares to $2.6 million and $3.8 million for the three and nine months ended September 30, 2018.
The third quarter sales of $5.7 million equaled 115% of the full year 2018 revenue, and the year-to-date amount of $10.6 million is over 200% of the 2018 total. Costs of sales were approximately $5.3 million and $9.8 million for the three and nine months ended September 30th, respectively, compared to $2.5 million and $3.7 million for the three and nine months ended September 30, 2018.
General and administrative expenses for the three months ended September 30th were approximately $1.6 million, almost flat compared to the approximately $1.5 million for the corresponding three month period in 2018. The increase was primarily related to an increase in legal and professional fees of $233,000, increases in payroll and insurance expenses. Those increases offset by $200,000 decrease in bad debt expense. The third quarter 2019 general and administrative expenses included approximately $215,000 in non-cash charges, including $203,000 in stock-based compensation expense.
For the nine months ended September 30, 2019, general and administrative expenses were approximately $4.4 million compared to approximately $9.3 million for the corresponding nine month period of 2018, a decrease of $4.9 million, which is primarily related to $5.3 million decrease in non-cash stock based compensation expense during 2018 that we've previously disclosed and discussed. We also had that same $200,000 decrease in bad debt expense that was in the quarter, and we did have increases in legal, professional payroll and insurance expenses offsetting some of the decreases.
The nine month 2019 general and administrative expenses included approximately $766,000 in non-cash charges, including some $730,000 in stock based compensation. Consulting expenses were $66,000 and $220,000 for the three and nine months ended September 30, 2019, respectively, as compared to $38,000 and $133,000 in the corresponding periods in 2018. The increase was primarily a result of increased activity in sales and marketing, consulting and to supply chain consulting activity in the current year periods. Consulting expenses include non-cash charges of approximately $15,000 and $40,000 for the three and nine months ended September 30, 2019. There were no non-cash charges charged to consulting expense in 2018.
Research and Development expenses were $10,000 and $158,000 for the three and nine months ended September 30, 2019, respectively, as compared to $45,000 and $641,000 respectively for the corresponding periods in 2018. The decreases were primarily attributable to the timing of certain expenditures made for research and development activities.
Total net operating expenses were approximately $1.6 million and $4.8 million for the three and nine months ended September 30, 2019, respectively. That compared to approximately $1.6 million and $10.1 million respectively for the corresponding periods in 2018. The decrease of $5.3 million for the full nine months of 2018 is the same $5.3 million I discussed a moment ago.
The net loss for the three months ended September 30, 2019, was approximately $1.2 million as compared to a net loss of approximately $1.5 million in the three months ended September 30, 2018. The $300,000 decrease relates to the items I mentioned above -- previously. The total non-cash expenses that are included in the net loss for the three months ended September 30, 2019 and 2018 were approximately $230,000 and $528,000 respectively.
Our net loss for the nine months ended September 30, 2019, was approximately $4 million as compared to a net loss of approximately $9.7 million for the nine months ended September 30, 2018, a decrease of approximately $5.7 million for the same reasons discussed previously. The total non-cash expenses included in the net loss for the nine months ended September 30, 2019 and '18 were approximately $806,000 and $6.7 million respectively.
At September 30th, we had cash, cash equivalents and short term investments of $7.8 million, debt of $4.9 million as compared to [$7.8] million of cash and cash equivalents a year ago, and debt of $1.4 million a year ago. Working capital at September 30, 2019 was $4 million compared to working capital of $8.1 million at September 30, 2018.
That concludes my remarks for the moment. [Asia], we can open it up for questions.
Unidentified Company Representative
Operator, please open the floor for analyst questions.
Thank you. The floor is now open for questions [Operator Instructions]. And our first question comes from Amit Dayal with H.C. Wainwright. Please go ahead with your question.
I just want to start with the backlog. Can you walk us through what has changed in the backlog relative to the last quarter? We had $10 million number at the end of the previous quarter. It looks like you've added these 10 electric vehicles or electric trucks to the mix, but backlog has dropped to around $4.1 million, I believe it is. So if you could just walk us through what has changed over here?
It's really related to the third quarter shipments, Amit.
And it would be slightly higher with the 10 trucks added to the mix?
Yes, it very well could be. We had some parts orders just almost at a breakeven profit margin where we just had cancellations, because we turned those into other sales but I think the numbers are fairly close.
Okay. And I can follow-up on this offline. These 10 Class 4 trucks, could you give us some color on who ordered these or who the customer is?
Yes, there's a variety of customers. One single customer, Zeem Solutions, which we mentioned earlier before we had set a pack with an agreement, has ordered the vehicles for distribution to several different freight companies. We have been mercilessly beat on from the breadth the companies to get deliveries to them. They've seen the trucks. They've driven and they want them as quick as they can. We've got to go through the process with the state, with the DMV and a few other things. But now that we have all the approvals we think we need, we're moving forward with that. But its various short haul last mile delivery freight companies.
And these are all still primarily in California, most of these orders?
Relative to China, how should we expect products from that market, or the strategy around that market to play out? Are we basically looking to import vehicles from China, or are we looking to import certain key parts and batteries, et cetera? What kind of discussions and partnerships are you looking to set up over there?
Well, as we've discussed in the past, our initial thought on any new product is to bring it into the country in a complete form. That way we get to learn about it and understand how it's put together, and take care of any kind of maintenance issues that may come up. Once we do that for a few months, the next step will be a semi knock down kit where we'll have the electrical components and the cabin chassis separate. And then we'll assemble those here in California and then add stake bed, a box, whatever -- what are the customer needs on that vehicle. And the third stage of this will be to get it in a almost completely knocked down stage and begin supplanting Chinese components that we can source locally with U.S. made products that will give us better control over the manufacturing and distribution of the product.
Can you talk a little about this HVIP clearance you have received? How will that or how are you expecting that to support sort of the backlog build up over the next few months?
Well, we have I guess ton load of customers that have seen the vehicle and interested in it from school districts, to freight haulers, to whoever it might be. Their interest is in buying the units and owning them. Some of them would like to lease them. But all of them look at it and see that with the HVIP buy down money available that it will be at or below the cost that normally would spend for a gasoline or diesel version.
And because of that and the savings and maintenance, and the operational costs of it on day-to-day from fueling versus electric over gasoline or diesel, they see this as a win-win for them. But they do need the funding to bring it down, because they really -- I think we've talked about this in the past. They really see the value of a product that over a seven or 10 year period of time will pay back more than what the differential cost is, but if they can get differential costs paid for upfront by the state then their saving start immediately.
So they're looking for the immediate savings. And until they're forced to move, we have to give them incentives with the state to make the cost of the product comparable to what they can buy other non-electric vehicles for. So it's very important to us in whatever state that we're going to be in that there's some kind of offset funding.
And just one last question around your listing on the OTCQB. Are we planning to potentially go to a senior exchange anytime soon, or what should we expect from a listing perspective?
I wouldn't expect any change in the near-term on it, because there are requirements that we have to meet that we currently do not. The first step is most likely to go up to OTCQX. And then hopefully back to NASDAQ. But I can't predict the timeframe, because it partially relates to the price of the stock, which relates to the market value of the company, et cetera, et cetera. So it's definitely in our plans. I just -- I can't give you or anybody else any kind of a time frame.
And our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.
My question is I know it's a little early to talk about 2020 in terms of your sales outlook. But what is your overall environment in terms of funding by the governments to be able to get these electrical vehicles out there? And also by these customers, either government, school districts, or freight companies that are willing to buy these electric vehicles?
Well, that's always the key question is, is what funding is available and what's out there. The school districts, first. They are eager to move forward with electric vehicles. They've had a taste of some electric vehicles. They've had the taste of school buses, in particular. They like them. They operate well. The maintenance is next to nothing. The fueling and savings is, it's very impressive. They want to move forward with that.
So they're looking for -- and today we have tremendous funding available throughout the country. But even though there's funding in New York and Florida other places, California has the most and is most aggressive with releasing that funding. So that's a key component to getting the product out there. As I mentioned, the HVIP program, which we just received the listing on Monday, is funding in January $142 million.
There are various other programs. I mentioned the Bay Area Air Quality Management District has $50 million for Carl Moyer. By July 1st of next year, South Coast Air District will probably have $75 million to $80 million, Bay Area another $50 million, San Joaquin another $50 million or $60 million. All of that is going towards reducing greenhouse gases, which is the business we're in. So that's only going to help us moving forward.
HVIP was struggling for a while to even give away the money. So they gave, they expanded the reach. They -- on the low NOx, they did stalking program, they did anything they could, because the money was just languishing in their account and they couldn't get it out fast enough. This past -- this year, we're in now 2019, that all changed. Now the money is going up quickly. So in the next $140 million they're putting into they're taking out some of those people that really are helping the environment, the low NOx people and things like that, but they're not going to fund low NOx they are going to fund electric vehicles, because that's where the real benefit is to the state and to the communities. So we see this changing. We see it change in our benefit. So we're very happy with that.
But yes, today, we still need subsidies. But every day that we work towards reducing the cost of the motors, the BMS systems, the batteries, whatever it might be, we're getting closer to be on parity with the vehicles without subsidies. That's not going to happen in 2020, but it is going to happen. And when that happens, the tide turns. So that electric vehicles are close to the same price as diesel and gas. They're much less expensive to operate. And the fueling cost is substantially lower and greater savings. So we'll see that tide change in the years to come.
And don't forget that, the Volkswagen money that's out there, in large part still hasn't been distributed. So California's got $432 million of that on top of all those other programs Jim just mentioned. And it's -- many other states have the Volkswagen money too. So at some point, the incentives will either get decreased or go away, but we don't see that happening in the near-term.
And then one last question. Have you noticed any change in the competitive environment?
I think we see -- we have spreadsheets that we do and look at who competitors are, what they're offering, at what price they're offering at, what the delivery times are. I think we still feel like we did last time we talked that we have a lot of competitors talking about delivering product. And they will deliver product eventually. A lot of them are raising funds to do that. But if you take the universe of competitors and divide into two groups, one is the group like ourselves that build product from the ground up to be electric the first day it's born till the last day, others who take existing vehicles and convert those. We think the people doing the conversions will have the most issues going forward, because if you look at what it cost to build a converted vehicle versus a new vehicle, why would you buy a converted vehicle. So that's where we think we're going to go with that kind of a program.
And that does conclude the telephonic Q&A session for today. I'll turn it back over to our host for any closing remarks.
I think I only want to say that we thank everybody for being on the call. We hope that we gave you a good overview of where ADOMANI is and where we're going. And we look forward to reporting again next quarter.
And this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. And have a great day.