Lion Electric Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 14 speakers on the call.

Operator

Morning, ladies and gentlemen. Welcome to Lyne Electric's Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded.

Operator

I would now like to turn the call over to Isabelle Arch, Vice President, Investor Relations and Sustainable and Development. Please go ahead, Ms. Nagel.

Speaker 1

Good morning, everyone. Welcome to Liant's 3rd Quarter 2023 Results Conference Call. Today, I am here with Marc Bedard, our CEO, Founder Nicolas Brunet, our President and Richard Colombe, our Chief Financial Officer. Please note that our discussion may include estimates and other forward looking information and that our actual results could differ materially We invite you to review the cautionary language In this morning's press release and in our MD and A, which contains important information regarding various factors, assumptions and risks that could impact our actual results. With that, let me turn it over to Mark to begin.

Speaker 1

Mark?

Speaker 2

Thank you, Isabelle. Good morning, everyone. Today, we are pleased to report that in Q3, We achieved record deliveries, revenues and gross margins, clearly showing that our focus remains our goal to profitability. Compared to Q3 2022, we basically doubled our revenues with approximately the same SG and A expenses, And our gross margin went from negative 9% to a positive gross margin of over 6%, mostly driven by higher volume, Favorable average selling price and continued cost control. We had a significant EBITDA improvement as well, Increasing from negative €15,100,000 in Q3 2022 to negative €3,900,000 in Q3 of this year.

Speaker 2

Also, we now have more than 1600 vehicles on the road with more than 19,000,000 miles driven or 30,000,000 kilometers, A significant achievement demonstrating our leadership position in the EV space. It is also my pleasure to acknowledge recent leadership appointments. Nicolas, who got deeply acquainted with LION's products, customers and operations over the past 4 years, was named President And works with me on the elaboration and execution of all strategic aspects of the business, his main focus being our commercial operations And the acceleration of sales across the United States and Canada. Richard, who has been instrumental in driving our growth projects With a lot of success for the last 2 years, we've appointed Chief Financial Officer. Richard will leverage his 25 years in executed finance roles to support our objectives of profitability and positive free cash flow.

Speaker 2

I will now provide an update on several key decisions we have made To focus on our profitability objectives and optimize capital usage. On the bus side, We will postpone the commercial production of the Lion A school bus to prioritize the commercial production of our high demand products and the timely integration of our LION batteries on our existing platforms. On the truck side, the litigation with Nikola Motors and their decision not to supply us With the Romeo Power batteries, will result in us using our own Lion batteries on our Lion 8 tractor truck, Thus postponing its market entry to mid-twenty 24. And finally, we have great news with respect to both the Lion 5 truck And the line is Disko bus, as we started commercial production for both of these vehicles and will soon begin customer deliveries. Now turning to our manufacturing plants and operations.

Speaker 2

In Joliet, we now have the infrastructure in place To reach a production capacity of 2,500 school buses per year, during Q3, we continued to ramp up the production of Lion C buses. And as I just mentioned, we have also started the commercial production of Lion D units. At our battery plant, We continue to ramp up production of Lion battery packs during the quarter. The current production line allows us to reach Production capacity of 1.7 gigawatt hour per year, enough to power over 5,000 of our vehicles. The certification process for the Lion Pact is progressing well, and we expect final certification to occur before the end of the year.

Speaker 2

With respect to our innovation center, the building is currently being used as a testing and certification center for our vehicles and batteries, As a pre delivery inspection site and as a warehouse for inventory, this allows us to leverage space available and optimize operational efficiency. Additionally, we will soon start using the Innovation Center as a showroom and delivery center for customers to see and test our vehicles on our test track Intake delivery. In a nutshell, we have been able to expand our manufacturing capacity to our targeted levels, And the CapEx investments for our 2 growth projects will be completed by the end of this year. On that note, I will now ask Nicholas To dive into our commercial operations performance, before turning it to Richard, who will discuss the financial highlights of our Q3 results.

Speaker 3

Thank you, Brett. We delivered 2 45 vehicles in Q3, consisting of 2 20 school buses and 25 trucks. 132 vehicles were delivered in Canada and 113 in the U. S. This is a record number of overall quarterly deliveries, But also a record for deliveries in the U.

Speaker 3

S. Where we delivered purpose built EV school buses to several new customers. The vast majority of those U. S. Deliveries were part of the EPA's Clean School Bus Program.

Speaker 3

We are pleased to make prompt deliveries under the EPA program, demonstrating Viant's leadership in U. S. EV School Buses. Cumulatively, for the 1st 9 months of the year, we delivered a total of 664 vehicles, Almost twice the 345 vehicles delivered over the same time same last year. With respect to the order book, It currently stands at 2,232 vehicles, that's 268 trucks and 19 64 buses, Totaling $525,000,000 with the Lion Energy book at 129 charging stations, representing $4,000,000 Worth mentioning is a conditional order from Highland Electric for 50 line C School buses, which we announced this past Friday.

Speaker 3

This quarter's vehicle order book was affected by various factors, including the removal of 140 units from the deferral of the Lion A platform discussed earlier, As well as purchase order delays and cancellations related to subsidy programs, mostly stemming from clients awaiting funding decisions. We anticipate a positive momentum in all electric school buses as a result of attractive funding programs, including awards under the $400,000,000 2023 EPA grant program, which drove significant customer interest ahead of applications in August and for which Customer awards are expected in Q1, 2024. Potential orders under the 2023 EPA rebate program With a budget of $500,000,000 requiring applications by January 2024 with award announcements scheduled for April 2024. Several appealing programs in states such as Texas, Colorado, New York, Michigan and California, which could drive school bus demand beyond the scope of the EPA program and momentum in the Quebec school bus market, where the subsidy program was recently renewed and enhanced With an increase of available funding from $125,000 per bus to $175,000 per bus depending on battery capacity. This momentum in the school bus space is further supported by an increasing number of states passing laws to accelerate the electrification of the transportation sector.

Speaker 3

Separately, we are in ongoing dialogue with the Canadian Federal Government that has been satisfactory approval of sizable applications for school bus deployments placed under the Z ETF program. Successful completion of this process would enable timely vehicle deliveries And could generate further applications for potential new purchase orders. On the truck side, while this market is still at a very early stage with electrification just We remain very enthusiastic about our prospects in the Class 5 to 8 market. Leveraging our purpose built truck platform, Lion stands out as one of the few players of critical mass of vehicles on the road and we expect the upcoming deployments of Lion 5 units to generate significant customer interest. Like in the school bus sector, we are closely monitoring billions in existing and upcoming subsidy programs aimed at accelerating fleet electrification.

Speaker 3

To conclude, we continue to experience strong customer engagement on fleet electrification, underpinned by final desire to transition to EV as well as emerging regulation and attractive subsidy programs, and we believe Lion is very well positioned to address this upcoming demand. On that note, Richard will now discuss our financial performance. Richard?

Speaker 4

Thank you, Nicholas. I will start by commenting on Q3 results, including an update on CapEx. I will then discuss our liquidity position. In Q3, We delivered 2 45 vehicles resulting in record revenue of $80,000,000 This represents revenue growth of almost 100% compared to the same last year and close to 40% versus Q2 2023. This increase in sales volume coupled with favorable product mix and average selling prices As well as continued cost discipline led to gross margins of 6.7% compared to negative 9.3% in the previous year.

Speaker 4

For the quarter, SG and A before non cash share based compensation was $17,000,000 As a percentage of revenue, SG and A before non cash Share based compensation decreased from 36% to 21% over the last year due to disciplined cost containment efforts. This is a trend we are looking at maintaining as we continue to focus on reaching our profitability and positive free cash flow objectives. Adjusted EBITDA improved to negative €3,900,000 from negative €15,100,000 in Q3 20 22. Additions to net intangible assets, mostly related to R and D, amounted to CAD15 1,000,000, a decrease $3,000,000 when compared to $18,000,000 in Q3 2022. Capital expenditures amounted to $16,000,000 including $4,000,000 for Joliet And $8,000,000 for the Lyon Campus, a significant decrease as compared to $29,000,000 last year.

Speaker 4

We anticipate Combined CapEx spend of approximately €12,000,000 in Q4 for the Joliet plant and the Lion Campus, leading us To the conclusion of our main initial investment on these projects. We therefore continue to expect minimal capital expenditures in the foreseeable Future mostly maintenance CapEx as our growth projects have reached their targeted capacity level. Now turning to liquidity and capital resources. In Q3, we successfully closed financings resulting in $142,000,000 of gross proceeds $136,000,000 net, which provides us with additional flexibility to continue to execute our plan. As of September 30, 2023, Our immediate liquidity stood at $132,000,000 consisting of $36,000,000 in cash and $96,000,000 in immediate borrowing capacity on our revolver.

Speaker 4

At the end of the quarter, our debt balance stood at $176,000,000 Finally, as we move forward with our 2024 budgetary process, We continue to focus on decreasing product costs, optimizing working capital management and improving our internal cost structure. Back to you, Mark.

Speaker 2

Thank you, Richard. Before we open the line for questions, let me conclude by saying that we are pleased with our Q3 performance And thrilled about the opportunities unfolding in the EV market and our positioning. Our commitment is to achieve profitability and positive free cash flow, And we are confident that we have the right elements in place, the right focus and the right strategy to achieve our objectives. Thank you for your attention this morning. Let's now open the line for questions.

Speaker 1

Operator, we will now open the line for questions. I just want to ask you to limit to 2, the number of questions asked to allow other participants to ask their questions.

Speaker 2

And we have a question from George. George, please go ahead.

Speaker 5

Hey, good morning, everyone, and thank you for taking my questions. Excuse me, and congratulations On a great quarter. I wanted to ask about the sustainability of your the gross margin momentum that you showed. Now how should we think about the next couple of few quarters in terms of modeling the gross margins going forward? Thank you.

Speaker 6

I'll take that one. Thank you for the question, George. So we achieved a record 6.7% gross margin in Q3, so representing substantial increase Compared to 0.7% in Q2 of 2023 and negative 9.3% in Q3 2022. So sustaining positive gross margin and achieving positive EBITDA and free cash flow, clearly, is number one priority at Lion. It will obviously require continued focus on revenue growth and tight management cost management.

Speaker 6

We are definitely in the right direction, We could see some volatility as we continue to ramp up. New platform deliveries on the Lion D and Line 5 starting this quarter And the gradual integration of our Lion Battery into the currently commercial model could temporarily affect our gross margin. We continue to be very focused on driving productivity within the organization and working at reducing our product cost.

Speaker 5

Thank you for that. And then maybe just as my second question, again, it's a housekeeping. You mentioned that going forward, Your growth CapEx is more or less complete. Can you just remind us what the level of maintenance CapEx we should assume For the firm for the next couple of few years? Thank you.

Speaker 6

It should be pretty minimal. Right now, we're really aiming at Single digit CapEx for next year is going to be largely maintenance CapEx.

Speaker 5

Single digit millions is the number you mentioned?

Operator

We now have Mike Shlisky, D. A. Davidson. Your line is open.

Speaker 7

Yes. Hello. Good morning and thanks for taking my question. So right now you're up and running with a really nice looking plant in Illinois, Well established in Quebec. Do you have any view as to when your visibility is going to be good enough at this point to start giving us some guidance about what your deliveries might be at least 1 quarter out, how consistent is your production rate right now?

Speaker 3

Hey, Mike. Nick here. I'll take this one. Look, I mean, we're still in ramp up mode. The guidance decision is one that We're always assessing internally.

Speaker 3

We don't have an update to provide this morning. And when things change, we will, but There's no set timing for us to provide any guidance going forward.

Speaker 7

Okay. Okay. Maybe you can ask just talk a little bit about the Lion 8 Tractor. I guess I'm curious Well, if you could say a little bit behind the scenes as to how you developed the battery, guided to the truck and getting that whole project finalized. Is there a

Speaker 8

high cost there Over the last couple of quarters, do we

Speaker 7

should be thinking about? And do you expect to recover most of that from Nikola once that case is resolved?

Speaker 9

Well, with respect

Speaker 2

to Nikola Motors, Well, you know that the we terminated basically the what was going Through with them right now. So the proceeding against Romeo, but now when civil proceedings Against nickel now. But going back to your question on VAT, I mean, we have no choice than using our own batteries. And the HD batteries will be certified early next year And we will be able to use those battery on the Lion A tractor. This Lion A tractor, I need to Mike is amazing and obviously the whole market is expecting it.

Speaker 2

We will be able to put a lot of kilowatt hour On those trucks, so we will have a lot of range as well. So we're expecting a good, very good demand, I mean, For that product, but obviously, going back to the root of your question on Nikola Motors, respectfully, I mean, we will not be able to come in further because of

Operator

We now have Tarora Ribera from Desjardins Capital Bank. Your line is now open.

Speaker 10

Yes. Good morning, everyone. Just looking at your truck backlog, if you remove the 100 and 40 purchase order, sorry for the just looking on the bus side, there was 1 of these 40 Purchase orders removed from the line A, but it looks like there are some booking was lower on the bus side. Could you comment about your bidding pipeline and your ability to secure more momentum on the bus side in 2024?

Speaker 3

Certainly, Ben. Ben, I'll take this one. Look, there were a number of moving parts in the order books during the quarter. As you mentioned, the most important one was the removal of the 140 Line A units related to the postponement. But there's also some volatility Caused by the timing of the subsidy programs and that's expected as customers await to know what their allocations are, what the programs that are being put in place are renewed They're placing the order.

Speaker 3

I think it's important to reemphasize that we continue to see strong engagement from the customers towards fleet electrification We see some upcoming catalysts in the order flow. I mentioned earlier the EPA rounds 23 For which allocation to customers are expected allocations of awards are expected early next year. That's $900,000,000 Of school bus funding, right, that's coming in U. S. Federally in somewhere in between end of Q1 beginning of April.

Speaker 3

In the Quebec market here, which is obviously a big market for us, there was a positive role in the subsidy program It was being extended and renewed and the good news is that the subsidy that previously paid $125,000 per School bus was extended and it was increased. We're now the operators can obtain up to 175,000 Dollars per bus based on depending on battery capacity. There's this ZETF program that we talked about that could lead to Of course, near term deliveries for us when the approval when we hopefully get the approvals, but also that will drive more Purchase order flows we believe and then there's a number of various funding alternatives as well at the state and at the provincial level. So Overall, we continue to feel very good about the demand environment, but those subsidy programs can create some volatility in the order book on a quarter to quarter basis.

Speaker 10

Okay. And with respect to the city bus order from Ireland, which is conditional, what is the timing with regard to the Final approval for the Canadian ZPF subsidy?

Speaker 3

Yes. I mean, it's We have a number of orders that are in the queue for the ZECF. That's the The specific timing of each will be say on the larger orders we're progressing well in the dialogue. We hope that it's in the near term But obviously difficult to pinpoint this specific topic, but it's live right now and there we are.

Speaker 11

Thank you very

Speaker 10

much for the time.

Speaker 3

Thank you, Benoit.

Operator

Thank you. We now have Ben Levy of Barclays.

Speaker 9

Hi, Josh on for Dan's line today. I had a quick question on if we're getting any mix benefits from an increase in U. S. Sales. I saw that the U.

Speaker 9

S. Volumes picked up quite a bit this quarter and ASPs also went up accordingly. So I was wondering if there's any correlation of potential benefit from Increasing sales into the U. S. Versus

Speaker 3

Canada. Yes. Well, I'll take this one. The short of it Yes. Typically in the U.

Speaker 3

S. Market, we tend to sell units with more onboard energy, higher battery capacity, more The U. S. Market is a more intricate market relative to Canadian market where there's less differences in between Province in the States obviously there's the regulatory environment is different and so we do tend to sell vehicles with more options that are more in the U. S.

Speaker 3

And have a higher average selling price. Obviously, keep in mind the U. S. Market is about 10 times the Canadian market It's our goal to match that over time.

Speaker 9

Thank you. And as a follow-up, we're seeing somewhat slower EV uptake among the medium and heavy duty trucks. And I was wondering if you have any inclinations on whether maybe like some of the states like California or any of those other states on the advanced Clean fleet will potentially consider bumping up the potential regulatory credits to spur some more demand there.

Speaker 3

I mean, look, there's the let me start by saying that in the truck space, the truck EV market for the Class 5 to 8 is really still at its infancy, right. If you look at as of June 30 this year, Less than 1,000 vehicles registered. And based on this data, Align would be the 4th player in the So one of the we're one of the very few players with critical mass and importantly with a purpose built product out there. There we have seen some Positive legislation, you talked about California that's complete. That's certainly positive development.

Speaker 3

This is more on the regulation side. And typically, yes, we've seen that following regulation is The modification, if you will, of the subsidy programs, we don't have direct visibility into that, but we've seen it in other markets, And we're certainly hoping it will be the case as well. Altogether, as you know, again, the market is just at the beginning and we have the product and the manufacturing capacity to accommodate Clients as things ramp up and we're very hopeful for this market to increase significantly over time Exactly when remains to be, sir.

Operator

Thank you. We have our next question from Tammy Chen with BMO Capital Markets.

Speaker 12

Hi, good morning. Thanks for the question. Can you go back to the Canadian subsidy program, the ZETF. What's causing again some of the Delayed, is it the this is the application, there's additional nuances or revisions required and so there's just been a delay from an Administrative perspective, I'm just trying to understand what's going on there.

Speaker 3

Yes. Hi, Tammy. Look, the ZECF program is one that is very specific application by And so it's a every approval is different. The orders that we have in the queue are, we believe, the first big ones for the School bus, because recall that the program is both for transit and school buses. And those are the first big ones for the school bus.

Speaker 3

And so There's dialogue between the federal government, ourselves and our clients to find the appropriate to get the appropriate terms. I need to point out that the asks of our clients sit directly within the parameters of the program. So we're hopeful that we'll get a good resolution. And again, it's very bespoke application by application. And obviously, there's a Yes, there is an administrative burden to that.

Speaker 3

We believe that once the first large ones are hopefully approved that things can accelerate from that

Speaker 12

I see. Okay. And the Lion 8 Bus, the school bus. So I just want to make sure I understand. You'd post the 400 and sorry, the 140 units deferred in your order book, Is that on the Line 8 school bus?

Speaker 12

And so was that the customer deferred or you made the decision to prioritize Other higher demand products, I just want to make sure I understand that aspect correctly. Thank you.

Speaker 2

Yes. Good morning, Tammy. Yes, this is Related to the line A, school bus and it's a matter of focus. We're strong believers in focus As you know, when we decided to focus on the commercial production of the I demand products as you were saying, so it's the line C And it's almost it's also the line D coming to market, the line 5 and the line 80 A little bit later. So all a matter of focus and cost control.

Speaker 2

And if

Speaker 3

I just address the order book part, it was us removing Those units from the order book as we're undertaking dialogue with the customers to see if there's a desire to defer to the longer period the order or to convert it To a Line C or Line D order, but just in our review, we felt prudent to remove those from the order book.

Operator

We now have Chris Suttler of B. Riley Financial.

Speaker 11

I just wanted to touch a little bit on kind of the production mix between the two facilities. Could you give us any sense of what the Kind of output is starting to hit out of Juliet here. And then I have a follow-up.

Speaker 2

Yes. Good morning, Chris. Yes, the cadence is going well. You will probably remember we have a manufacturing capacity of 1,000 buses In Montreal, we have a manufacturing capacity of 2,500 buses in Joliet. And in Montreal, we also have capacity for 1500 trucks On an annual basis, so the cadence is doing very well and there was no question yet on the supply chain.

Speaker 2

But supply chain is getting a lot more stable and that was a discussion we had probably for the last 2 years. So it's getting a lot more stable and we've been working a lot of on the redundancy of suppliers as well. So it's going quite well. So our goal is really to increase the pace as needed. And the you know that the goal is also to manufacture in the country where the buses are Being delivered.

Speaker 2

And we're getting there. So obviously, we're doing less buses in the U. S. Right now than we're doing on the Canadian side. But as Nick was saying earlier, I mean, the U.

Speaker 2

S. Market is 10 times bigger than the Canadian market. And with the manufacturing capacity of 2,500 buses On the U. S. Side, we're very, very well equipped to increase the pace as we get more orders we'll be able to deliver.

Speaker 11

Yes. Just to clarify then. So like in the Q3, the deliveries by country kind of matched up with The geography of the manufacturing facility or are we not quite there yet on the U. S. School bus side?

Speaker 3

By and large, yes, close

Speaker 9

to that, Chris.

Speaker 11

Okay. Got it. Okay. And then if I'm kind of looking at the margin I think pricing had a big piece to do with that. As we kind of trend higher with can you just kind of talk through what that Premium in the U.

Speaker 11

S. Should be that we can kind of bake in as we have U. S. Kind of ramping up more. I just want to get a sense How much continued opportunity of price increase on the ASP side we have?

Speaker 11

And Is there any kind of delta on the production cost side between the two at this stage? And then I'll hop to Nick

Speaker 7

Chris, as

Speaker 3

I mentioned earlier, it really is about selling. It's about the onboard energy that we have in the vehicle. It's about the options that We have in there for an equal build, there's no price difference or at least no material price difference between Producing in Canada and producing in the U. S. So it really is about mix and options on the vehicle more than anything else.

Speaker 3

And I couldn't point a rule of thumb of U. S. Versus Canada.

Operator

We now have the next question from Rupert Merer of National Bank.

Speaker 8

Hi, good morning. On working capital, your working capital Increased a little bit in the quarter. Wondering if you can give some color on what drove that. I imagine combination of batteries and vehicles. And how do you see that evolving over the next few quarters?

Speaker 6

Well, thank you for the question. I'll take that one. So obviously there's a portion of The working capital increase that's directly connected with the growth in our production, but also the introduction of The Line D, the Line 5, we're also preparing for the integration of our own batteries into our platform. So this is Somewhat driving some of the increase. I can tell you we're very focused on working capital.

Speaker 6

One strategy we have in place was over Talking of inventory given the splicing prices that we went through in the last year or so. And today, as Mark pointed out, we don't We need this strategy anymore. So right now we're very focused on really reducing working capital and we expect to see can gather

Speaker 4

the printing around in the next few quarters.

Speaker 8

Is there much in inventory related Two vehicles that are awaiting said ETF funding and when you get funding, could you see some of that working capital coming out?

Speaker 6

Yes. Well, as Nick pointed out earlier, there's a couple that we're waiting approval that there's the one that's been lagging from last quarter There is 50 of them that are definitely just waiting to be delivered. So yes, there are some and we will see some uptick error As we get the approval.

Speaker 8

Great. Thanks. And then secondly, you talked about the fact that the supply chain is Easing, and earlier on in your prepared comments, you talked about focus on cost reduction. Wondering if you can Give us some color about where we are today in the costs and where are the opportunities To drive out cost in the future and also if you can give a comment on inflation and if you're seeing now a So a reduction in the inflation that we've seen over the last few years?

Speaker 2

Yes. Good morning, Rupert. This is Marc. Yes, we're focused On reducing the cost, as you know. So there's many places where there's going to be will be savings in the future.

Speaker 2

Obviously, the inflation didn't help, I mean, still hitting us the inflation rate now As we all know, but there are a lot of places where we see a lot of benefits. First of all, I need to tell you that our manufacturing Processes are a lot more stable. And this is good. We've been doing this for many, many years and we see the benefit of that. Obviously, with volume going up, Dan, you know the amortization of the fixed cost is getting better.

Speaker 2

One place where we will be reducing Significantly and this is starting now, it's also in R and D. I mean, we've invested a lot in R and D in the past. And In the future, the R and D investments will be going down. And speaking of You probably saw also that the SG and A has been very like stable And we are looking at reducing the percentage of SG and A over sales in the next quarters As well. So for example, we've been able to double the sales this year compared to last year with about the same amount Of SG and A expenses, so it's all about the focus on our products.

Speaker 2

It's about the focus on the margin, bringing down those costs. And you probably saw as well that in Q3 of last year, Rupert, we sold 156 vehicles And we had negative EBITDA of $15,000,000 This year, we had a negative EBITDA of $3,900,000 245 vehicles, so you can do the math. I believe that everyone can see that the business model is scaling very well. And we said that in the past, But I think this is the proof that you're seeing now. It's scaling very well.

Speaker 2

And the good thing is that we don't need very high volume to reach profitability.

Speaker 8

Great. Thanks for the color, Mark. Yes, and definitely solid margins this quarter. Congrats. I'll get back in the queue.

Speaker 2

Thank you, Rupert.

Operator

Thank you. We have the final question on the line registered from Avni Sinha of Northland Capital.

Speaker 13

Yes. Hi. Thanks for taking my question. Just wondering, In your gross margin, Sala, you have 2 consecutive quarters of positive gross margin. So I understand the margins could be lumpy even the nature of the business, but Can we assume that the margins will be positive from here on going forward given your ramp up in U.

Speaker 13

S. And higher ASPs and whatnot?

Speaker 2

Yes. As Abi, as it was mentioned earlier, we're going to see some movements In gross margin, so obviously with higher volume, I mean the margin is this is really helping the margin as I was Just saying earlier, but the launch of the new platforms now, and we're talking about the Lion A tractor in next year, we're talking about the Lion 5 That we are starting the deliveries, I mean, in Q4 of this year and also the LNG. Well, it's obvious that the gross margin at the beginning of those is not as good as the one it's going to be in the very near future. So we expect some volatility in the gross Margin for the next 2 or 3 quarters because of those items.

Speaker 13

Got it. Could you comment on the M and A landscape in the sector? I mean, we see some of the peers are under stress. Just wondering how you guys are evaluating any So, the opportunity are mostly just focused on organic growth from here?

Speaker 2

Yes, Andy, we're fully focused On managing our business, we're increasing our margin. I mean, we're commercial, the meetings with customers and Having a very efficient operation as well, I mean, this is our focus. So We're 100% focused on those items right now, so we're not looking at this.

Speaker 3

That's right. Thank you, Mr.

Speaker 2

Okay. Thank you.

Operator

Thank you. We have no further questions on the line. So I'd like to hand it back to Ms. Haji for any final remarks.

Speaker 1

Well, thanks everyone for joining the group today. We really look forward to continuing the discussion

Operator

Thank you for joining. I can confirm this does conclude today's conference call. Please have a lovely rest of your day and you may now disconnect your line.

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