Q3 2020 AYRO Inc Earnings Call
Ladies and gentlemen, thank you for standing by good morning, and welcome to the <unk> Inc. third quarter 2020 financial results and corporate update conference call.
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I would now like to turn the call over to Jules Abraham Korea.
The company's Investor relations for.
Please go ahead Sir.
Good morning, and thank you for participating in today's conference call.
Joining me from Arrows leadership team are Ron Kessler, President and Chief Executive Officer, and Curtis Chief Financial Officer.
During this call management will be making forward looking statements, including statements that address our expectations for future performance or operational results.
Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements.
For more information about these risks please refer to the risk factors described Aerosmith recently filed periodic reports on form 10-Q filed with FCC in the next few days and Arrow's press release that accompanies this call.
Secondly, the cautionary statements.
Today's conference call includes adjusted EBITDA, a non-GAAP financial measure Arab believes can be useful in evaluating its performance.
You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP.
For a reconciliation of this non-GAAP financial measure and that loss its most directly comparable GAAP financial measure please.
Please see the reconciliation table located in aerospace earnings press release.
The content of this call contains time sensitive information that is accurate only as of today November six 2020.
Except as required by law.
I mean any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call.
It is now my pleasure to turn call over to CEO, Rob Kelley.
Huh.
Thank you Julie and good morning to everyone on the call.
As a reminder, this is our second quarterly call as a public company.
And we're excited about the trajectory of our business.
The third quarter, a 2020 marked another period of accomplishments by Arrow that we believe will lay the foundation for our future growth.
Additionally, we were able to show sequential revenue growth in each of the three quarters, thus far in 2020 most.
No small feat given the global disruption from cope with my team and the general economic uncertainty.
As we have stated before our target market is not the traditional consumer that maybe deciding between a tesla or any other electric vehicles or hybrid and a gas powered vehicle.
Rather our focus is on the fleet market with our purpose built street legal low speed electric vehicles that excel in last mile delivery and campus applications, along with the burgeoning food delivery market that has accelerated due to cope in 19 and is expected to reach 470 billion globally by 2025 of course.
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Restaurants are being squeezed by third party delivery services, like Grubhub, and who breach it can charge them up to 30% of the bill to make deliveries.
This dynamic bretons many restaurants, so a major strategic goal of ours is to offer an easy solution whereby restaurants can own the delivery process by using an affordable clean a purpose built vehicles that are specifically built for last mile and food delivery.
In fact, we like to say, we don't develop and sell vehicles that deliver food, we develop and sell food delivery vehicles.
Our babies offer tremendous operating cost savings for fleet management and are simply better for the environment the gas powered vehicles.
The total cost savings and benefits are real as there's the practicality of being able to charge our vehicles on any standard or commercial 110, or 220 volt outlets, thus eliminating the need for special charging stations.
We feel our two primary vehicle models. The 411 into 311 are unsurpassed in price performance and cost of maintenance for fleet operators.
Partnership a club car division of Ingersoll Rand and the market leader in the low speed the local market with their personal utility and golf cart vehicle categories. We believe demonstrate your confidence in our technology platform, our fast product development cycle, our competitive cost in our supply chain management capabilities.
The club car for 11, it's branded four wheel vehicle in sold exclusively through their 167 commercial dealerships and corporate account teams in North America.
In August we reported an initial order from Clubcorp are nine club car for 11 babies to serve a military metal <unk> a medical campus in the northeast U.S.
This was the first club car for 11 deployment that will serve a major medical center, but theres opportunity for additional follow on orders.
Plus there are more than 6000 hospitals in the U.S. that could benefit from a purpose built BBB debt is flexible enough to handle campus maintenance services and installations promotes a synergistic quieter healthier and emissions free image to the public and still offers tremendous operating cost savings over gas powered vehicles.
As an extension of our club car relationship in the third quarter. We also partner Gallery cards, which has decades of experience delivering custom food kiosk solutions. The jointly launched a mobile hospitality easy for on the go delivery of food beverage and merchandise directly to consumers at venues.
Across the U.S.
These mobile food carts allow for hot and cold beverage and food equipment to be integrated directly into the club car for 11.
Galleries customers in the mobile food and beverage distribution markets could have applications for such a purpose built PV on universities corporate and government campuses as well as that arenas resorts and event centers, especially since gold 19 has greatly reduced the desire for large crowds and gatherings.
This mobile hospitality D.V. can alleviate solutions are situations, rather large numbers of people would otherwise be in risky proximity to one another.
Shortly after announcing announcing the gallery cards partnership we announced an initial order were $584000 for this hospitality E b.
This order approximately 82000 was recognized in the third quarter with the remainder in our backlog rolling into Q4.
This partnership a gallery Carter is a testament to the entire arrow team addressing the needs of new customers and end markets and adapting the business conditions.
And we will continue to innovate designed with plans to bring next generation models to market that should better address the needs of our customers. For example, our next generation 311. DB is designed to include an expanded range and increased speed to meet the foodservice and last mile delivery markets that the COVID-19 pandemic has helped bring.
The forefront of the restaurant industry.
The expansion of our offshore manufacturing facility was completed in July and we now have the capacity to produce 600 babies per month versus 200 babies per month previously.
The city of Austin, Texas, our home is quite busy with E. B activity in our plant expansion shows our commitment to the industry in the region. There was playing for the long term trend from gasoline to electric powered vehicles.
During the third quarter, we also announced a strategic manufacturing engineering and design partnership with Karma automotive innovation and customization Center.
Thermal will provide contract manufacturing and component Assembly services for our next generation of babies and Hell provide strategic input into the design of each for the fast growing delivery and micro distribution markets.
We believe that the combination of arrows end user market and engineering expertise and Karmas manufacturing development and global supply chain capabilities could allow the partnership to be able to produce over 20000 babies through 2023, which would have a combined value of over $300 million.
The initial targeted market will be customers in North America, but there's no reason why we can leverage our combined expertise to eventually meet more global demand.
Finally, it is worth mentioning that we successfully raised 24.25 million in gross proceeds from two registered direct offerings during the third quarter. These.
These raises helped bring our cash balance to approximately 28 million at the end of the third quarter. Thus, we believe that we are in a strong financial position to execute on our corporate goals.
And with that I'll now turn the call over to purchase Smith, our CFO, who will review our financial results for the third quarter Kurt.
Thank you Rod and Hello, everybody.
As Roger mentioned during the third quarter, we conducted two equity raises on July eight we closed a registered direct offering with certain institutional and accredited investors for an aggregate of 3 million 157895 shares of common stock. The price. The offering has 475 per share portal is 75 cents per share when.
The gross proceeds of approximately $15 million before the deduction of fees and offering expenses.
On July 20, Threerd, we closed a registered direct offering with certain institutional and accredited investors for an aggregate of 1.850 million shares of common stock with the right to purchase up to an additional 1000 1 million 387500 shares of common stock on or before October 19th 2020 in the same price.
The board that agreed to an extension of its right to purchase until October 18th 2021.
Thanks.
The initial sales of 1.85 million searches close while only the additional right to purchase remains outstanding.
The price was $5 per share with the gross proceeds of the units were closed the reprocessing of $9.25 million before the deduction of fees operating expenses.
In addition to the operators offering during the third quarter, we received approximately $2.470 million to benefit.
From the exercise of warrants and conversion of previously issued preferred stock, which all converted approximately one to 2.8 million common shares.
As of September 32020, the company at 24 million 298333 common shares outstanding.
As of today insiders accounted for hundreds of approximately 6.3% of our outstanding common shares.
Now onto my review of the second quarter third quarter financial results.
Results revenue from the third quarter, ending September 32020 was $308654, which is a 46% increase year over year for the third quarter of 2019.
This offers a quarter over quarter over quarter growth in 2020, as Rod mentioned earlier.
The increased revenue is primarily due to the volume increase the vehicle sales and sales of time Tidewater options for our vehicles.
Gross margins in the third quarter of 2020 decreased to 15.9% versus 23.9% in the third quarter of 2014, primarily due to the onetime costs absorbed into first production runs of some moral titleholder off.
Sales and marketing expenses in the third quarter of 2020 decreased by 29.5% on a year over year basis to 300 for just over $304000.
Primarily due to reduction in contracting of extra marketing firms and a reduction in discretionary marketing programs as we focus on more targeted marketing initiatives.
Research and development expenses increased to 123% in the third quarter of 2020 to $664000 as compared to the third quarter of 2019 due to the increased professional services designed contracting.
And increased salaries Didnt staff additions and related expenses as we've increased significantly the engineering base investment in our product portfolio.
General and administrative expenses increased by 5% to $1.420 million in the third quarter of 2020 versus the same period in 2019.
Increase in contracted professional services to support the public reporting requirements for compensation expenses and administrative salaries.
Were offset by a reduction of $783000 in 2019 stock based compensation related director equity awards not repeated in 2020.
Net loss attributable to common shareholders for the third quarter of 2020 was $3.11 billion on a GAAP basis versus the loss of $2.14 million in the comparable period of 2019.
Yeah permits an increase in R&D expense loss on extinguishment of debt and a GAAP deemed dividend on Kevin's deemed dividend awards largely drove the increase in loss for the third quarter 2020 versus out of 2019.
Our GAAP basis net loss per share was negative 13 cents per share in the third quarter of 2020 persistent negative 77 cents per share in the third quarter of 2019.
The weighted average number of shares outstanding that we use sort of approximately 23.6 million shares in third quarter 2020, as compared to 2.8 million shares in the third quarter of 2019.
Adjusted EBITDA, a non-GAAP measure totaled negative $2.9 million in the third quarter 2020 person that versus a negative.
$1.19 million in the comparable period in 2019.
Adjusted EBITDA for the third quarter of 2020 includes $150000 and depreciation and amortization expenses.
$168000 and stock based compensation.
67000 amortization of a discount on debt twice 29000 in interest expense and $240000 and loss on extinguishment of debt discount.
Turning to the balance sheet.
Arrows financial condition is strong with cash as of September Thirtyth of this year of approximately $27.9 million, that's a $27.3 million increase as compared to 641000 as of December 30, Onest 2019.
The difference is based primarily on the funding received in connection with the merger was closed on May 28, 2020, and the registered direct offerings of June 19th Junaid in July 23 to 2020 as well as the warrants exercise as we discussed earlier.
We currently have approximately $241000 in debt outstanding consistent with PPP.
PPP alone as well as the vehicle note.
Our capital expenditures totaled $337000 in the third quarter, which comprised mostly of investments in R&D equipment and prototypes.
Receivables were $414000 at September Thirtyth 2020 up from $313000 as of June 30 to 20 point.
Accounts payable were $1.13 billion as of September 32000 claims that's up from $830000 at June 32012.
Working capital at the end of the third quarter was $29.9 million as compared to $7.9 million at June 32020.
$612000 as of December 31, 2019.
Our backlog of firm orders as of September Thirtyth of 2020 with $624000.
That concludes my prepared remarks please.
Please refer to our form 10-Q filed this morning for our full quarterly results and with that I'll turn the call back over to the operator to open the call for questions.
Operator.
Speakers your lines are now open and now we're going to record we're going to record the remainder of rod colors closing remark.
I want to thank all of you for participating on today's call.
Well, Josh ladies and gentlemen, if you wish to ask a question on today's call you will need to press Star then the number one on your telephone.
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You are using a speakerphone please pick up your handset or enter your request and speaking on the call. One moment. Please for the first question.
Okay.
Hi, Dennis you'd like to ask a question that is Star then one star then one to ask a question.
First question today will come from Barry Sine Spartan capital Securities.
Thanks, Scott and good.
Good morning, gentlemen.
Morning, Barry.
Couple of questions. If you don't mind on the carbon announcement.
We see a very very.
Big announcement could you give us the expected timeline when youll begin production at that facility and then on a related note. So yes, the existing vehicles. The 411 on a related note I'm wondering about the impact to margins.
Typically I know now that you bring over.
Good.
China and payer runoff terrified that will that continue working you make the kits at that facility and will that impact the gross margin.
Yes, Barry this rod.
We are working on a next generation vehicle growth.
Correct.
Light duty electric truck low speed vehicle.
That will.
Launch roughly in Q1 of this coming year and the agreement that we have with Karma as they will begin assembly there.
The primary differences rather than shipping it from the port to Shanghai across specific through the Panama Canal into Houston, and then through Houston to US, which takes 33 days in the freight cost is it will ship in 17 or it will be received in 17 days from the Puerto Shanghai in long Beach, and then be assembled in the garbage factory in renal valley.
California, So we'll see a reduction in freight cost we'll see.
An increase in transit time, or I should say from an improvement in transit time.
And we don't expect at least initially we don't expect to see much difference in our in our margin from from what we see today here to what we see.
There we may see an improvement in freight cost as I mentioned, but beyond that we don't expect to see a big difference in margin.
And what you had another question after that.
No you look address both parts of the timeline and the and the margin, but I do have another I do have a couple more questions. If you don't mind on.
Similarly on the 311, if you did that you've gone through what your processes for articulating a mission in a design for that vehicle where are we today and what is the timeline what investors are going to look to see is revenue hitting the income statement for shipments of those new three lab.
I know thats, a little ways out, but could you give us some visibility on that process, where we are and then the timeline to get the revenue on that new vehicle.
Yes.
Let me answer it the best I can because I don't want to telegraph too much to our competition, but.
But the only silver lining we've seen from cobot is acceleration of delivery as a as a percentage of mix in restaurants open and as we've mentioned before you and I discussed.
The cost of delivery.
Was wasn't as it wasn't as significant before cobot as it is now and we're well on our way and development of a next generation vehicle I think in the end.
In the comments, we had here working to increase the speed as well as increased the range.
I will tell you that when you think about the delivery of a vehicle that used in delivery like like like the 311 is it's not simply a vehicle if you think about it.
You need a complete ecosystem that addresses how do you store it how do you charge. It how do you finance it how do you get it repaired in the field and how do you ensure it the vehicle is one small piece of it so as we develop the 311 or a next generation 311, we're also working to bring together.
All those other aspects I mentioned that are important to create a complete ecosystem.
I will tell you, it's a high priority for us our board's intimately aware of what we're doing and in support of that.
We are working to bring revenue on from this as quickly as we can I just hesitate to talk about it right now for fear that some of our competitors would really like to know where we stand on that.
But it sounds like you talked about Q1 for the new vehicle out of other pharma facility. It sounds like that will be to the right of Q1, a little bit further out the further out than you had done that before.
11 process.
Yes, you can expect that the.
Revenue generated from our next generation three wheeled auto cycle.
We'll come well after after the what were going to call for Luminex. Our next generation light duty low speed vehicle truck.
Okay.
One more question. If you don't mind My last question if I take a look at your income statement and I compare that to what you reported for the third quarter.
And zero in on the three operating expense lines you breakout.
Key difference I think between the second quarter and the third quarter is in the third quarter you had access to capital you had raised capital and obviously you started to spend it on forward looking items such as R&D.
How representative is that third quarter in terms of those three expense items you spending what you need to was there some onetime.
Onetime spending that may not recur going forward or are those good run rate.
Levels of spending for those three expense categories.
Hey, Barry Curt Smith here.
I appreciate the question no definite very good question obviously.
Obviously third quarter did we did increase our spend and especially in the R&D the R&D portion of.
The mix as we did get the funding as we talked about earlier, the three registered direct offerings, which really allowed us to.
To have moved forward with the development of next generation through vehicle like Rod said, it's obviously as we progress through got development cycle.
R&D going up.
Little bit quarter over quarter, obviously not not.
Not triple went down by any stretch of the imagination, but but that that.
That number will continue to increase somewhat as we.
Get closer to the launch of the next generation vehicles, So I would expect slightly off.
Thanks.
Hey, Barry I want to just Ron let me make a comment on that because I think it's important to note.
And Kurt mentioned, but let me put a little more color around it.
And that is.
In the August timeframe, we kicked off the 90 day project to really good a detailed understanding of what does.
What is our next generation vehicle for for delivery needs to look like and when I look at some of the companies out there that are trying to compete in this space feels like they built a vehicle through with warm see what application stick, where we like to say, we don't develop and sell vehicles to deliver food, we develop and sell food delivery vehicles. So we're we're we are working from the ground up.
Ensure that we build a vehicle that solve a specific problem and not trying to build a general purpose vehicle and I think as a result of that you'll see from us.
Take a vehicle that will likely be accepted very well by by restaurants and other.
Other delivery applications. So.
Okay that helps.
Yes, that's helpful on R&D.
Kurt if you could give us kind of a similar answer on the other two line items sales and marketing and Gionee.
Sure sales.
Sales and marketing I think I think thats going to be pretty consistent thats pretty representative going until the until we get close to bring our through vehicle market.
I think thats pretty representative as well.
We we will we have the we have the team in place really to do we need to do on going on a go forward basis, So I feel pretty good about.
Both of those numbers.
I would say is yes as volume increases.
Those kind of things will get will increase as as wood and use in any business, but obviously the not not ratable to revenue guidance for its imagination.
Okay. Thank you very much for taking all my questions. Thanks.
Thanks, Barry to having to.
And then if you have a question that is star then one.
There being no further questions at this time I would like to turn the call back to our speakers for closing remarks.
Very good I want to thank all of you for participating on today's call and for your interest in our company Arrow and we very much look forward to sharing our progress on our next quarterly conference call. When we report our fourth quarter results in early 2021. Thank you again and I Hope you have a wonderful day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.