Grande West Transportation Group Inc. (GWTNF) CEO William Trainer on Q4 2019 Results - Earnings Call Transcript

Grande West Transportation Group Inc. (GWTNF) Q4 2019 Earnings Conference Call April 29, 2020 11:00 AM ET

Company Participants

John LaGourgue - VP of Corporate Development & Director

William Trainer - CEO

Dan Buckle - CFO

Conference Call Participants

Operator

Greetings, and welcome to the 2019 Fourth Quarter and Year-End Financial Results Conference. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, John LaGourgue. Thank you, Mr. LaGourgue. You may begin.

John LaGourgue

Thank you. Good morning. I would like to welcome everyone to our 2019 year-end results. Today we've got our CEO, William Trainer; and our CFO, Dan Buckle; and myself here for the call.

Before we get started, I need to notify our listeners of forward-looking statements. This call will contain forward-looking statements, which reflect the expectations of management regarding Grande West's future growth, results of operations, performance and business prospects and opportunities. The words believes, anticipates, plans, expects, intends, projects and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect management's current expectations regarding future events and operating performance, and speak only as of the date of this presentation. Such forward-looking statements are based on a number of material factors and assumptions. This call does not form part of any offer of securities or constitute a solicitation of any offer to purchase or subscribe for securities. The sole purpose of this call is strictly for information.

I will turn it over to Dan to review the financial results.

Dan Buckle

Thanks, John. Good morning to everyone. I will spend some time going through some specific highlights for our fourth quarter and 2019 yearly financial results before William provides us with an update on the overall business, how we are dealing with the current COVID-19 pandemic and where things are headed for 2020.

For the sake of this call, I will round figures to the nearest 1,000. I will also make reference to adjusted EBITDA and other non-GAAP measures. For the calculation of adjusted EBITDA and other non-GAAP measures, please refer to the Q4 MD&A, which is available on SEDAR.

We had deliveries of 10 Vicinity buses during the fourth quarter of 2019 compared to 19 buses in Q4 of 2018. Bus, aftermarket parts and other revenue for the fourth quarter of 2019 was $5,431,000 compared to $8,511,000 in the fourth quarter of 2018. Our gross margin for these sales was $697,000 or 13% of revenue for the current quarter compared to a gross margin of $2,116,000 or 25% of revenue for Q4 of 2018.

Adjusted EBITDA loss for the quarter was $828,000 compared to adjusted EBITDA of $26,000 in Q4 of 2018. We had a net loss of $1,759,000 for the 3 months ended December 31, 2019, compared to net loss of $1,154,000 in the comparative period of 2018.

For the yearly results, in 2019, we delivered 45 Vicinity buses for an adjusted EBITDA loss of $2,400,000 and a net loss of $4,958,000. In 2018, we had a record year and delivered 180 buses, for an adjusted EBITDA of $5,224,000 and net income of $948,000. The yearly reduction in EBITDA and net income for 2019 is a direct result of a lower amount of buses delivered.

If you remove overhead allocations, our average margins realized for buses delivered in 2019 was higher than the previous year and was the highest in our company history.

While our results represent a temporary softening in the market being realized in our industry in Canada for 2019, they’re clearly below our expectations. Although we are disappointed with our sales for the quarter and year, we are happy with the overall fundamentals for our operations.

Our margins, especially for buses, have been increasing since 2017 through product mix and cost control and are currently very healthy. We are positioned well for future growth and profitability.

And now I will pass it along to Will to elaborate on this a bit more and to provide a corporate update and business overview.

William Trainer

Thank you, Dan, and thank you, everyone for joining us today. 2019 was not a great year. There were very few Canadian orders, but we are moving forward positively despite the challenges in the current market, and we have an optimistic outlook for 2020.

In response to the COVID-19 pandemic and global market volatility, our top priority is the health and safety of our staff, customers and the communities in which we operate. We have adjusted or we’ve activated robust business plans to minimize disruption and carry on business while adapting to these challenging times.

Management is monitoring the situation very closely, and is evaluating the impact the virus may have on the company's delivery schedule or supply chains. But, at this time, Grande West is still on track to deliver a minimum of 150 buses in 2020.

Some expected 2020 sales to private operators have been delayed as a result of the pandemic. The company's manufacturing partner overseas is operating at full capacity and currently producing to meet our needs. Our USA manufacturing partner has currently temporarily idled its operations. This will slow down Buy America production deliveries until the facility is back online.

Although deliveries out of the U.S. may be delayed, the purchase orders are firm and are still expected to be delivered. Grande West has built and delivered 5 Buy America Vicinity buses to USA customers, and we have another 13 Vicinity buses currently scheduled for deliveries.

Our supply chain is currently able to provide us with the necessary components for production and aftermarket part sales. Our aftermarket parts division will continue operating and servicing all of our customers. Grande West remains well positioned to serve its customers. As conditions evolve, management will adjust plans to align with current business conditions. Credit lines remain active, allowing the company access to capital.

However, Grande West recognizes that the effects of the COVID-19 pandemic, and government or customers' reactions, could ultimately be materially disruptive. We are taking significant steps to control where we can, particularly surrounding costs and capital investments.

The company is starting with reductions with senior management, where salaries have been reduced, effective April 1, 2020. The company has also implemented strict proactive cost containment measures throughout the organization to actively control working capital and retain cash throughout the COVID crisis.

Management continues to monitor COVID-19 situation closely, and we are responding swiftly and effectively to protect the interest of our stakeholders. I'm confident that our skilled and loyal workforce, the diversification and strength of our business model and the strong partner relationships will position us well to navigate the current environment and come out of 2020 as a stronger, healthier corporation.

Sales. There are a lot of questions as to when the market will return to normal. To date, Grande West has delivered over 450 buses in Canada and the U.S. markets. We have a large order that is just starting to be processed through our Aldergrove location, 34 buses for delivery to BC Transit.

We also have many other orders that are ongoing for Canadian customers, and we expect a delivery of 150 buses in 2020. So far, we are on track. We are clearly disappointed with the 2019 results, but we are starting to see an improved sales pipeline and increased order book developing in 2020. This is a result of a change in management and renewed focus on sales efforts.

Transit is an essential service, and it will continue to be funded by government. Given social distancing and grouping guidelines, we see our midsized Vicinity community shuttle as a winner. It makes more sense now than ever. If ridership numbers stay down, transit will want to save money by operating a more cost-effective shuttle.

We see the Canadian market with a lot of opportunity. Just prior to the COVID-19 outbreak, we are awaiting a surge of tenders for our products. These RFPs have not been canceled, only delayed and we expect them to proceed. Given our 90% Canadian market share in this segment, we are confident that we will secure our share once tendered.

We’ve also been working with many private operators across North America, and they expect business to carry forward once we get back to a normal state of business. The USA market has been a slow start and is a little cloudy right now, but we have been working very closely with the Alliance Bus Group. This showcases our recent 92 bus order to a large private operator in the USA.

We are just starting to see a lot of momentum in the USA RFP activity is at an all-time high, and then the COVID. We expect this momentum to continue. Once the U.S. reopens for business, the building foundations laid and the relationships are strong.

Looking at the overall market, we feel Grande West is positioned extremely well. Transit funding is an essential service. But if funding was to be reduced, it would be with the heavy-duty fleets. The heavy-duty fleets are budgeted to be replaced on an average of 12 years, but they are built for a 20-year life span, and with higher maintenance costs could operate for another 8 years.

So government could increase maintenance budget to extend the life and cut operating budgets for new heavy-duty buses. But the smaller -- but with the smaller community buses, cutaways as they referred to, they cannot extend past their 5-year average lifespan. This is where the new Vicinity Light will greatly shine. It was designed to dominate this market. It is priced at the same cost of a transit cutaway bus, but with greater -- but is greatly superior and will be a market -- and will disrupt the market in the segment.

The heavy-duty bus market averages 6,000 sales per year, the cutaway market is at 22,000, and the segment we are targeting is 7,000 per year. We are pleased to announce that our Vicinity Light is in production, and the first demos arrive in July. It has already steered the market, and customers are awaiting for its arrival.

I will now turn it back to John to open-up for discussions. Thank you, all.

John LaGourgue

Thanks, Will. Victor, could we open-up for Q&A now?

Question-and-Answer Session

Operator

Q -

A -

John LaGourgue

Great. Thank you. Well, we appreciate everybody joining us this morning. Will, thanks for the update and Dan. And you know where to reach us if you have anything further. Thank you so much.

William Trainer

Thank you, guys.

Dan Buckle

Thanks.

Operator

Ladies and gentlemen, this has concluded today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.