Grande West 2016 Earnings Call Transcript

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2016 Earnings Call Transcript

December 21, 2016 11:00 AM ET

Executives:

Aaron Triplet – CFO

William Trainer – President, CEO, Director

Operator (John LaGourgue):

Alright so this call will contain forward-looking statements which reflect the expectations of management regarding Grande West Transportation Group’s future growth, results of operations, performance and business prospects, and opportunities. Forward-looking statements involve a significant risk and uncertainty, and should not be read as guarantees of future performance or results and will not necessarily be accurate indication of whether or not the time or at which such performance or results will be achieved. There can be no assurance that forward-looking statements will prove to accurate as actual results and future events could differ materially from those currently anticipated.  Accordingly, readers should not place undue reliance on forward-looking statements. This call does not form part of any offer of securities or constitute the solicitation of any offer to purchase or subscribe to securities. The sole purpose of this call is strictly for information. That being said, we’ll start this off with our CFO, Aaron Triplett, who can go through the financial results here. After that, I will introduce the CEO William Trainer to give an update, then we’ll get into some Q and A after that. Aaron?

Aaron Triplett:

Thank you, John. So, what I’ll do is I’ll just go through the selected yearly information that was in the news release this morning. So, revenue was $8.2 million versus $6 million in 2015. That accounts for 16 buses sold in 2016 versus 18 in 2015. Now, [the revenue] they don’t include the 18 buses sold after year end. These are going to show up in our sub-audit, December 31, 2016. The increase in revenue is due to the following; you’re selling buses at higher prices, you’re selling the buses at introductory prices. We’ve doubled our parts revenue. As we sell more buses the parts revenue is going to increase year-over-year especially as buses come off warranty. We’re also starting to hedge our contracts as we deem necessary. This also ties into the gross margin increase. We’re starting to tighten up our supply chain. Year-over-year our warranty, etc., going forward…. 

So, just going over the balance sheet here. We’ve got cash of $316,000. That excludes restricted cash of $1.1 million. Now, restricted cash we have is used for bonding. Some of that $1.1 million is going to be available as the bonding period ends. In our subsequent year end we’ve had about $1 million come in with exercise of option and warrants. So, this has increased the cash to about $1.6 million as of today’s date. Now, we recognize sales of 18 buses. 

Now on the working capital. The working capital is $2.4 million and it was $1.7 million at this period last year. That’s defined as current assets less current liabilities. So, the AR, that’s increased due to 2 buses that were included in the AR but were paid for after year end.

Inventory includes 18 buses. So, that’s $6.3 million versus $2 million last year. That’s the 18 buses and those were all delivered after year’s end. So, inventory should be back to normal levels. It will just be parts. Then, we’ve got deposits of a million dollars and that includes 5% that was paid to the contract manufacturer of 70 buses. 

With that being said, the company is in the final stages of negotiating an expert letter of credit so no initial deposit will be required on future orders. Hopefully we’ll see that go away. 

Now, the liability section will go down. It’s $3.8 million versus $400,000 last year. That 3.8 is due to our contract manufacturer and all that was paid after year end as we delivered the buses. Then we have short-term loans of 3 million. The debt -we call them “short-term loans” or “shareholder loans”–that debt will be retired as the company has necessary funds available. Send it back to you John. 

Operator:

Great. Thanks, Aaron. Just introducing William Trainer, our CEO here who has the update.

William Trainer:

Yeah, thank you. William Trainer here. As Aaron stated here, we see ourselves in a very good position going forward here. We have sufficient cash on hand. We have sufficient working capital to see ourselves through our current order book. Our current order book is sitting at about 175 buses for delivery in 2017. We’ll start to see those buses being delivered. We’re actually shipping in January here. So, we’ll start to see some of our deliveries start [inaudible 04:56]. We currently have for Q1–which will be as we go into 2017, we’ll [stub] off the end of this year. So, all the statements I’ll be making will really be concurrent to calendar year 2017. So for Q1 2017, we currently have 175 buses that will be delivered. That actually brings us into a very profitable cash flow situation, a very profitable Q1. We will see profit in Q1 and from Q2 it just increases from there as we deliver our current 175 units. 

We also see here that 2017…2016 we feel has been a banner year for us, transportation year. Our past years of strong work has really started to come together, and that’s actually come together with our Canadian orders. We’ve seen orders right across Canada, pretty much in every province. We see our Canadian order book exactly where we want to be. We see our Canadian orders coming in exactly where we want to be. The Canadian market as we see it is well developed for us. As we go forward here we anticipate further orders in 2017. If you look on our website and we’ve got our current investor relations presentation up there, we put some scenarios in there. Scenario one was actually 150. We really surpassed that. Scenario two was 200 units. We really feel comfortable that we’ll deliver over 200 units in 2017 as our Canadian orders…we still have a considerable amount of Canadian orders still outstanding that will come in. As we’re closing out the end of this year, we don’t see putting out any new orders for 2016 order book, but first quarter of 2017 we still have a considerable amount of Canadian orders that will close and will push us well over the 200 units that we anticipate in 2017. 

As stated the Canadian marketplace is in really good shape for us. We’ve also seen a considerable amount of our contracts that we have picked up in Canada, they’re three to five year contracts. These three to five year contracts will push us out into 2018, 2019. We’re starting to see a backlog of options coming forward for those further years. Also, here in Canada we’ve had the federal stimulus programs coming in. We’ve actually been picking up a considerable amount of those and we see ourselves picking up even more as we go forward. The contracts that we do have in place will allow the customers to actually place these orders as they pick up some of this stimulus money without having to re-tender. 

So, we’re in a very good position. In fact, we think we’re in a better position than a lot of our competitors because of our short lead time. We see a lot of our competitors running out to 18 to 24 months for deliveries. When we’re tendering a lot of ours we tender them out for 12 months with the anticipation that we’ll probably deliver within an 8 to 9-month period.

2016 we have seen [inaudible 09:00] our manufacturing on our supply team, our quality control. We’ve added a few people to actually take some of that load off of us. I’d like to say that we have a very strong team in place that is well positioned to take more orders.

With that said, the Canadian order book is very strong for us but really our focus going forward here is really on that US market space. The US market, we see ourselves well-positioned in that, as well. We have a strong distribution agreement in place with the Alliance Bus Group. We had finished up our Altoona testing, which as everybody knows we come in best in class in almost every category tested for. The Altoona test, for those who are just added in here… is the Federal Transportation Administration puts on a test down in Altoona, Pennsylvania where they actually put…in our instance they actually put a 12 year New York City duty cycle test on it and then give you a report card. We scored extremely high on that report card. That’s what we see–the Alliance Bus Group now using [inaudible 10:28] their sales in the US. 

The US is a little different than the Canadian market. Here in the Canadian market we’ve been focused primarily on the transit authorities. But in the US, it’s segmented into two groups. You have the private side, which is really airport shuttles, universities, colleges, theme parks. We see ourselves positioned really, really well in trying to gather up some of that order book. Then you have, on the second segment, you have the public side which is public transit. Public transit in the US does require a ‘buy America’. We’re pleased to announced that we just…those following our news releases, we have achieved capability to meet the ‘Buy America’ qualifications. ‘Buy America’ qualifications, I break it down into three parts. One, you need your Altoona test completed, which we scored very high on. Second, you need to have a minimum 60%, which will be increased [to] 65% US content. We checked that box, as well. The third is you need to do some final assembly of your product in the United States. We are well entrenched and engaged into the process of how we’re going to do some final assembly in the United States. We’ve picked out a region where there’s a lot of buses assembled. We’re just waiting for our order book to fill up in the United States and then we’ll announce what our long-term plans are for that. The company is very comfortable that we have a solid plan to assemble in the United States and meet all our requirements. 

Really the focus in 2017, we see, is going to be primarily on the US market and trying to see the sales gather up there. Our distributor, the Alliance Bus Group, is very strong. They have 8 very large mega-locations throughout the United States. So, they’re positioned extremely well to gather some of these orders. I’m pleased to announce that they’re currently working on upwards to 150 buses within some tenders, and some very strong tenders that will be coming out here in Q1 with our discussions with the Alliance Bus Group. 

We see 2017 really shaping up to be a spectacular year for us. Anticipations are, as I stated, we’ll deliver over 200 units which is really equating to over $70 million in revenue. With our tightening of our supply chain and the management that we have on-hand here, we see our gross margins really improving considerably in 2017 and our target is really to achieve about a 20% gross profit margin on all vehicles sold for 2017. I feel we’re well on track for that. 

The other part that our CFO covered on a little bit is really our parts revenue. We see our parts revenue really starting to increase, as well. Industry standards for parts…sales revenue runs at about 25%. So, if we were doing $100 million in sales, we should achieve about $25 million of that in parts revenue. The parts revenue takes a little while to actually build up because your bus has to get out there and actually get into a position where it is off warranty and getting a lot of wear items come through. A lot of the items that we sell are our own items. We are the OEM, so we do carry our own part numbers. So, we do see our parts revenue increasing considerably in 2017, as well, as we roll out our order book.
So, we’re very pleased. With that said, I think I’ll open up for some questions from the participants out there.