Q1 2021 Arrival Group SA Earnings Call
<unk> Upgradable.
Our corporate its a lighter and more durable than steel decreased maintenance costs and increasing the lifespan of the vehicle to sell on.
On macro factories hyperlocal theyre rapidly scalable with low Capex for example, our van factory is $150 million for turnkey vehicles per year.
Vertically integrated developing Tak and components in house with a very strong IP portfolio arrival is a low capex on high margin business enabled by hardware software and next Gen robotics, we have strong demand.
And $1.2 billion per quarters, they have unique culture.
And top team of more than 900 people capable to execute this business plan and we believe that the purpose of arrival is to make radical impact. So let's focus on results of Q1.
First of all we successfully completed our merger and listed our shares on NASDAQ in Q1 as planned net very important part of our business on micro factories. So we made good progress preparing our micro factories.
To date, we announced and started to equip Micah factories in Charlotte North Carolina parochial South Carolina.
Bitter in UK, and we announced they force of our factory in Madrid in Spain, Mike will talk about this a bit later today in terms of product we have for vehicle design expected in market by the end of 2023.
Total production of buses is scheduled for Q4 2021 plan.
The total production of balance both variance.
Small on peak is planned for second half of for instance, two and there are other car.
Scheduled for the end of 2023 and sales of our clients. We have orders to date of approximately $1 2 billion.
The largest already from our strategic partner EPS.
We have committed to purchase up to 10 thousands of them with an option to purchase another 10000 units you pay for a long term partner and has also invested in arrival alongside other key strategic partners. We know the commercial via potential is huge with the total addressable market for commercial vans and buses for $430 billion.
And we see the commercial segment will move to even much faster than retail loans.
Integration is supported by local state and National government policies around the World. For example, if infrastructure is a clear priority for the vitamin administration for just this past month now 174 billion plan to ignite the adoption of BBB with a particular emphasis on transit and school buses, we have advanced our work on vehicle production on digital platforms to begin cut.
Public Road trial later this year.
This concludes Bos trial on this autumn with for the bulk.
One of the Uk's largest tons per day freighter.
Who recently announced their commitment to purchase non diesel buses off for 2022 and to trade fully zero emission fleet by 2035, and I am pleased to announce our exciting partnership with Uber, where designing an arrival car for the ride hailing together, which we expect to take into production in the air France for 23 why is that important.
Market today, it's 30 million ride hailing vehicles worldwide Uber has already committed to all of its drivers, causing London being fully electric by 2025, and that's working with the British electric Vanmaker arrival to create an affordable call developed specifically for drivers who will provide suggestions for the design, we have a strong team in place, including our newly established.
This board of directors, which includes seven members with brewing technology financial marketing and ophthalmology with.
This was an overview, let me now turn the floor over to other Nash our president to give you an update of our sales pipeline and legal clients.
Thanks, Sam and.
In Q1, we continued to execute on our business plan and we are experiencing strong momentum.
We are encouraged by our sales pipeline with non binding letters of intent increasing in Q1, both year over year and sequentially for both our bus and manned platforms and we have trials starting with these key customers. Later this year. Once those trials will begin we expect those letters of intent to be converted to fully executed contracts before the startup for.
Gotcha.
Over the course of Q1, we've increased compensation for global governments cities and customers across territories regarding both vehicles and Mike for factories arrival localized micro factory and electric vehicle price point provides us a strategic advantage for enabling simultaneous conversations with multiple cities globally for all covered.
Both sales and production in Q1, we also signed multiple letters of intent with service network and made significant progress on our internal tools to some.
For our vehicles once they go into service with our customers.
Denis mentioned, we expect to have for vehicle programs in market by the end of 2023 and have made significant progress in the quarter towards that goal. We have found that we can increase commonality, even further between a man and large van and in order to drive. These efficiencies we have re targeted the large mass production for Q4 2022.
Arrival bus program is currently building prototypes that will go into validation and testing in advance of certification before production begins in Q4. It is also producing vehicles and readiness for public road trials in the U K with first bus before the other conversations have gained momentum and further discussions regarding trials iron progress with Carlo.
For us being a precursor for placing an order for this sector. The arrival band program is also on the process of building vehicles for testing and validation and also for trials beginning this summer including vehicles for EPS and other key customers, who have signed letters of intent EPS recently experienced the first beta vehicle user testing in the London debt.
And I look forward to deploying them into service at multiple locations. Later this year. This month, we were excited to announce our plans for the small vehicle platform that we've previously announced.
This is the arrival cup and is expected to go into production by the end of 2023 day.
The arrival, causing it will be a purpose built vehicle photo ride hailing and industry, which has over $30 million global drivers needing to transition to electric to EBITDA, increasing CD regulations. This is a crucial steps that a ride hailing industry to reduce its environmental impact and for drivers as it reduces debt total cost of ownership.
This is an example of how arrival strategies with the businesses people and the planet.
We have partnered with Uber and its drivers to ensure that it's designed to be the best possible vehicle for this specific use case the strategic partnership with Uber will also evaluate how we can work together to help its transition to electric to meet its goals of being fully electric in the UK and North America by 2030, we believe that we have.
Perfectly placed to create a vehicle for this sector as so many attributes on line with those of a commercial vehicle from affordability to durability comfort and maximizing functionality.
Because we have already developed that components or materials for a ban on robust we were able to develop the arrival in parallel without other vehicle platforms. We continue to attract help industry talents for arrival and in Q1 brought on agent <unk> as our SVP of brand, bringing strong experience from other opinions at Nike and <unk> Soni.
Our VP of Investor Relations, who joined US from J P. Morgan our head count increased by over 400 in the quarter and we now have over 900 employees as we scale up our vehicle programs and move towards production.
Important to note that COVID-19 has not had a significant impact on Q on operations and as we look forward, we don't anticipate it having a significant impact on our future operations and supply chain, but we are continuously monitoring the situation.
<unk> arrival automotive, Mike Olson will now give us an update on our micro factory and supply chain Mike.
Yeah.
Thanks, Tom on Us Ruggles micro factories, our unique approach to vehicle manufacturer and enable the production of best in class vehicles specific for the market prices competitive with fossil fuel vehicles micro factories are low footprint rapidly scalable and low capex.
Compared to traditional OEM automotive factories as we continue to order equipment for first two micro factory. We can confirm that we remain on track to spend less than $50 million in capex per factory, specifically for the Rockville Micro factory, we have over 70% of our production machinery delivered or on order and.
For our Bicester micro factory, we have over 60% delivered or on order, we have started to install equipment and our Mr factory that we're using for.
On the results of the production process analyses, we've already completed.
To this point our actual results are exactly in line with what we expected using the production equipment. We've already completed assembly of the van chassis structure and operation that requires getting multiple parts and joining them together with both adhesives and a variety of mechanical faster.
We've also begun producing composite panels of bicester using production equipment and raw materials from our production supplier. In addition to on our first bus micro factory Macho South Carolina. We've also recently announced are for U S band, Mike Protectory in Charlotte North Carolina.
The Charlotte Micro factory will build vehicles on both our ban in large van platforms.
Vehicles on both platforms are intended to be part of the EPS order.
Similar to our Bicester UK micro factory, the Charlotte like factory will be capable of producing 10000 plants per year when operating on two shifts finally, we're announcing today that we've acquired a location for our first European than micro factory in Madrid, Spain, we're still on the process of determining a starter production date for this facility on supply chains, we continue.
To work with our suppliers to ensure the supply of components raw materials as we approached or production that are for its micro factors. As one example, we've worked with LNG energy solution for a number of years to supply the battery sales we use to manufacture the arrival battery modules. We've recently signed a five year agreement with LNG energy solution to supply a quantity.
Sales more than sufficient for our initial micro factory ramp up we've also been working with our suppliers to avoid the microchip supply concerns for the hip surfaced in some parts of the industry.
We've committed supply agreements in place for all of the chips used in her arrival components through 2022.
And because these are arrival design components. We also have the ability to change the chips used in a component we see that supply of a specific microchip becomes a concern in summary, the first quarter saw us make good progress towards the start of production on our first micro factories, our CFO, Tim <unk> will now take you through the financials for Q1.
Thanks, Mike for financial information, we're providing today represents management's expectations at the underlying operating performance of the business. During Q1 2021, we expect to provide a full financial results for Q1. When they are available. These Q1 results will include.
The accounting impact on the merger with <unk> that was completed on March 25, 2021, the manager raises a number of one off accounting on Watson, we're well progressed with finalizing them. They remain subject to completion of the ongoing audit by our ex cat losses as such in this Q1 report we are presenting management's expectations in relation to certain financial highlights price with the income.
If these merger related items for clarity of the items excluded from today's results include but are not limited to the accounting for the merger.
Major itself and any resulting challenges from differences between the path on the of arrival sheds more institute on the net assets measures for the group the cash.
But other share exchanges homed in preparation for the merger.
<unk> for warrants issued by Rob on the completion on the accounting for one off transaction costs borne by arrival and one off executive transaction bonuses. Excluding <unk> merger related does management expect survival on the EBITDA loss for the first quarter of 2021 will be 28 million euros by comparison, the EBITDA loss in Q1 2020 was 14.
Taking into account the equity settled share option plan cost 1 million euros management expects the adjusted EBITDA loss products for inclusion of merger transaction costs will be 27 million euros. The increase in operating expenditure reflects the increased activity within arrival across its portfolio of research and development projects on the opportunity in our ultimate team in Netherlands provision.
So as we prepare to enter production. This increase can be seen in our average head count this quarter, which almost doubled year on year to 1714 at the end of Q1 2021 is.
<unk> just mentioned, we now have a 1900 employees administration expenses for Q1 2021, excluding cost directly attributable to the merger transaction are expected to be 20 million euros research and development expenses in the period are expected to be 7 million euros, although it's worth noting that cost directly attributable to product development will not be recorded in the profit and loss, but rather capitalized assets on the.
Construction in Q1, 2021, 27 million euros will be capitalized in this way cash.
Cash and cash equivalents at the end of Q1 2021 were 516 million euros, an increase of 449 million euros on the balance at September 31, 2020 of 67 million euros.
Net cash inflow from the merger transaction was 519 million.
Excluding this funding flow arrival net cash outflow for Q1 2021 was 68 million euros looking forward for the rest of 2021 as Michael said, we're making good progress in the delivery of our first month for factories in the UK and USA as we start equipping. These factories ahead of production and we've been able to further validate our business plan assumptions on capital and operating expenditure and on vehicle.
Volumes.
Indications on the all of these assumptions are tracking in line with the expectations. We set out on our initial business plan last year and now I'm going to hand back to Avinash, we will complete the presentation.
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Okay.
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Thanks Kipp.
In conclusion, our business plan remains unchanged and we made significant progress in Q1, we had a strong demand environment fueled by industry tailwind and.
And we have the team and resources in place to execute on our vision. Thank.
Thank you all for joining us today and now we go for Q&A.
At this time I would like to remind everyone to ask a question. Please use the raise hand function located at the bottom of your screen.
Yes.
Okay.
Your next question comes from Jeff Osborne with Cowen Jeff Your line is open.
Hey, good morning, guys. Thanks for all the detail on the call.
On a couple of questions on my end.
One Mike I think you alluded to it in the comments about the expectations for throughput for the facilities, but can you give us.
Some comments on the robust in your.
Your pre production facility in the UK and level of comfort with the throughput expectations that you originally laid out in the stack merger debt of 1000 vans for thousand buses in 10000 vans per site.
And we'll do that Jeff. Thanks for the question to your point, we've designed the facility such that our band micro factories will deliver 10000 bands when they're operating on two shifts and the bus micro factory will deliver 1000 buses on operating on two shifts.
I want to be clear that some of the video that you saw was production equipment that is now being installed in our actual micro factory investor in the U K. So we have production equipment operating in the production environment.
So it's not just being done in R&D facilities at this point.
To get specifically to your question on capacity and throughput we've done extensive modeling of all of the processes and the systems in the micro factories. So we have very high confidence in that and the work that we've done so far with the actual.
Robotic sales.
In Bicester confirm that analysis to this point.
That's great to hear and then maybe a question for Avinash in your segment you had talked about letters of intent being up sequentially. A common question. We get from investors is the bus market domestically in the U S. In particular, where prior to the spec merger you didn't have any sort of publicly announced.
Backlog.
Relative to the van market. So can you talk about what your level of comfort is of bus demand in North America for that South Carolina facility I assume a portion of the LOI for for that yes.
You are right so.
We have actually seen low.
<unk> come in for the bus as well so it is for both Boston bandwidth at a multiple increase on <unk> year to date as I mentioned.
And it's actually quite evenly split between the U S and EU, So we're actually seeing.
I would say a significant increase in demand on in the bus segment in particular.
Just to remind everybody that the sales cycle for us typically is going to be Charles first before long form waters and so we have announced the bus trial in the U K with us and Thats happening in the fall on the ship.
But yes to directly answer your question, we have seen otherwise come in for our bus in the U S. In particular, and we're quite comfortable with day demand and therefore, the forecast that we put out today.
Relative to other.
One on one on the Madrid side, great to hear is that going to be for bus or van or is that still TBD.
That will mean for van Jeff it'll be our first band micro factory on the comp.
Got it and then last one back to the the bus side and ban in South and North Carolina, where do we stand on sort of a timeframe for Altoona testing for buses and any other certifications that are needed on the van side. So that we can.
Start selling roadworthy vehicles that have all the safety certifications.
So the Altoona testing as you know is particular to sales to transit agencies in the U S debt used federal money to purchase for buses and we will be putting.
One of our very early builds from rock hill onto the Altoona test so that will run at the beginning very early next year.
Yeah.
On the van side, the key certifications remaining both F&B is us and EU certification, we're well along on meeting those.
And I don't see any difficulties there now since you asked about Altoona testing I also want to emphasize that our sales team in North America is.
Talking to people in Canada and Mexico.
Outside of the U S and obviously any sales there would not require the Altoona certification. So as I've said, we're feeling very comfortable on robust demand in North America.
Got it and then just very quickly said no no changes to the modeling in terms of cash burn or capex expectations. It sounds like everything is on track with what you previously disclosed but I just wanted to confirm that's right that's right.
Obviously, a recently announced.
On an answer it for as part of the merger with <unk>.
And we're not baking into your guidance.
Perfect. That's all I had thank you guys. Thanks, Jeff.
Thanks, Kevin.
Okay.
Your next question comes from Rob at Wolf.
Your line is open.
Hey, good morning.
And thanks for taking the question.
In light of your comments in light of I guess rising inflation, you talked about having.
Line of sight with supplier readiness for 2022 can you give us a sense of if theres been any changes in your overarching bomb expectations for kind of through 2022 as well as looking out beyond 2020 cash.
I would say, Rob we have not seen an impact on any of our negotiated pricing with suppliers at this point.
Well, obviously, we can't predict exactly what's going to happen with the inflation rate.
This point, we haven't seen an impact.
That's helpful. And then just as we're getting closer to the service centers.
Becoming.
Production ready can you give us a sense of the status of your suppliers.
With the components of your outsourcing in terms of their readiness for <unk>.
For the fourth quarter of this year and then looking at the <unk>.
Second half of 2022.
So I didn't mention it explicitly in the remarks, but at.
At the same time, obviously, we went out and looked at all of it the chip availability for our in house components.
We also surveyed our tier one suppliers as far as their readiness and there.
Availability and everything looks to be on scheduled out.
I want to mention Rob.
We're operating in much lower volume than traditional Oems. So the number of in the case of chips number of chips for trying to secure is relatively small which I have to admit is probably one of the reasons. We don't see the same difficulties that some of the larger Oems are saying.
No that's very fair and I guess.
<unk> <unk>.
Early.
Forecast that you had your bus, which obviously is going to be the first product that's coming to market.
Yeah pricing is kind of meaningfully below kind of what.
Industry averages are today for for the electric bus have.
Have you guys thought have you made any tweaks to to kind of what your go to market strategy is from a box perspective, just given underlying demand and an industry pricing dynamics in North America.
We haven't seen anything as far as pricing dynamics in North America that would modify our initial approach to our pricing here to your point we.
As far as we can tell we can still comfortably price below our competition, our EV competition here in North America.
I just wanted to add for important point is that obviously, it's not all on our ability to make.
On a pricing much better than other players on the markets.
Your question is why why is it like based on the reason for this is of course.
There are a few reasons one is that we were using for with many components from demand for it.
That they're taking.
On a high volume products and putting them in the.
On the bus there'll be good example, here is the biggest producer today like probably they're producing 15000 units a year like a Chinese company.
But still for the market when you buy 50000 motors, it's very small volume and that's why the price for those components for very high.
In our case, because we were using components on demand.
And so for example, we.
For motor it's exactly the same as one is using.
So this is one of the reason why on buses are so much cheaper.
And the other important part is that we were robotically assembling months as well so it means that.
There are not many companies in the World for Assembly buses using robotics on this.
And other reasons why.
We can price on Boston.
Other players and.
And I think we're also very comfortable with our product position and our conversations with operators.
Around the world, our we're not comparing apples to apples when you look at the arrival Boston.
Benefits the background, there and the technology thats going inside that bus on when you compare it to what's available for many players who are taking.
Century diesel bus and saying does electric.
It's just a very strong product proposition with a very attractive price point.
I appreciate the time.
Thanks, Rob.
Yeah.
Yes.
Your next question comes from Brian Johnson Barclays. Brian Your line is open.
Thank you.
A couple of things.
First when you talk about the build out of the first.
Client side, Mike you had mentioned that so far it's tracking.
Simulation models, so how much what percent of the Assembly line. It's actually finished and then when do you think not so much job, one but kind of the first.
And to and validation on the production process should be coming.
Yes, Thanks, Brian.
For months I, just I would like to go total to answer the question does the other.
On maintain important angles that we need to remind you that.
Africa for somebody's not convert line. So it's not operations in sequence. So it means that we don't need to build the old factory before we know all day patients. So we have for a few sell consult already on commission and those sales on a comparable to do or a majority of preparation for within the vehicle. So it means that especially on like a method that allows us to for sure.
No on earlier much earlier than men.
And then wait until like oil equivalent is going to be installed.
And Brian as to your question about and then builds we intend to be building some of our late stage prototypes of the band true the production process for Dennis talked about later this summer and.
And that'll be added Mr.
Okay and second question, while I recognize that the.
Subsidies for.
For <unk>.
For Us in school buses in the U S is still very much in draft legislation for them.
What's your thinking on the fix that theres going to be buy American provisions, there and then how the South Carolina, North Carolina, Colorado factories will fit into the potential into that into those <unk>.
Ever boundaries, while I'm acres may put on the subsidies.
Yes. So there are to be clear there are already buy America requirements in place for.
For transit buses that are purchased using federal money and the requirement is already 70% of the content cost for you.
Made and we will meet those requirements.
The Rockville Assembly plant or Mike factory with buses.
There is nothing established yet on the van side, but obviously, because we share so many components between the bus and Bam as we've established the U S.
But supply chain. It gives us the ability to go to a very high level of U S content on the van side as well for the vehicles, we're building in the Charlotte Micro factory.
Okay. Thank you.
Your next question comes from Joseph Spak with RBC capital markets. Joseph Your line is open.
Yeah.
Joseph Your line is open.
I'm sorry can you hear me now yes.
Yes, yes.
Thanks.
Just some questions on Uber announcement.
One I guess is it exclusive with Uber are you lots of work with other ride sharing companies.
As the vehicle.
Thank you on working with the borrower.
Also on exclusive tumor arcane.
Elements of that product for patients.
So on net partnership.
Access to both of those is no there's no exclusivity.
With us in Cuba, and we are working together on the vehicle designed for that vehicle design is for a ride sharing vehicle and also we are already in discussions with several other REIT handling operators on the arrival car platform. So there is no exclusive agreement between us.
Okay.
And just to add to this point as you all know.
On the comfort.
It's like Uber and Uber explicitly announced their plans, but excuse me there was a huge.
Push on those type of companies.
On to bring electric vehicles to the cities.
On the.
We know that they are.
Not many options actually available for sure.
For this market.
The original debt just taking the vehicle.
Uh huh.
Traditional.
Standard mechanical design, especially for cars.
It's not enough to create the right user experience for customers.
There were not designed to treat and blitz conditions as well.
It's.
On sometimes happens up industry, just the vehicle for that market.
That's the.
The reason, we're focusing on the hour.
Focus there because of the company we began commercial vehicles on this is day with example, where.
Our cash.
Knowledgeable multiple for <unk>, using micro factories, enabling visa for scenarios.
Okay.
On the micro factories on a part of ascribing to new areas to be able to set up to build locally no supply on.
And I know you've mentioned a number of times.
Can you chat around 10-K for passing on two shifts.
I guess, what I'm curious about it.
Okay.
The demand is eventually there what's the what do you think for like the functional or economically viable area.
Patrick Conservatives before he's on another one like closer.
Yes.
Well again.
Again to be clear on our strategy.
<unk> on Mike factories, as we're gonna be expanding the number of micro factory very quickly and so.
We'll move.
Firstly, I would say to add.
Additional micro factories.
To your question.
The sizing and the micro factory capacity, one way to think about it is we think it's share.
Roughly size, so that you can supply a city of a million inhabitants.
On the very rough basis, so ex that and give you some idea I guess.
Yes.
Yes.
Yeah.
Okay. Thank you and then final question is I know you mentioned band trials for summer.
How long are your customers, telling you that they need to really try on these vehicles in the fleet before they have confidence to place a marker for significantly more.
So the trials.
Encompass several different kinds of trials. There are obviously trials with drivers that you saw we've already started in the Camden depot outside of London, where we get driver feedback.
Then there are operational trials, where the.
For vehicles will be going out on actual routes later in the year.
And then typically the large commercial fleet operators also have some sort of durability testing that they require and that varies from company to company.
We're aware of those testing requirements with GAAP and built into our schedule.
I would also just add on the on the van what we see is that that's really just an early part of the process given where we are obviously once the vantage in production on all of the certification that's done we expect.
Very short if not no trials before the purchase on the vehicles on the bus.
As we approach new operators, there will consistently be a trial period.
On that it can be a month it can be a quarter. So that's what we're seeing so far.
And I think on Calvin actually makes it very important point as we think about moving to the small and medium enterprises, we think that the fact that we passed all this testing with a large commercial operators will give them the small and medium.
Fleets a lot of confidence for orders of vehicles.
Just one of several reasons, we've decided to start the large commercial fleet operators.
Yes, that's a fair point, thank you very much.
Thank you.
Okay.
Okay.
Okay. So I think that was the.
Loss.
On a question. So we just would like to before we leave just reiterate the key points I think there's a.
I'm not sure on the end before you opened base line for Frank 111 comp is important but we actually gave for two very important numbers on this call today, So which is our.
On costs, which are reported in Q1.
Like our cash.
You used.
And I think it's quite important guys too.
You mentioned that we are on 19000 people organization.
And if you just compare.
All numbers with the Macarthur players on the market's view Im sure that you will see about how efficient we are in the way how we use funds.
Oh actually preparing many factories in parallel but also not one vehicle program, but for vehicle programs for the same time.
Which is enabled by the mixture, which actually a day per secret sauce here is our new method actually it's technologists on the new method for making design and some of the vehicles. So this is the.
Thanks for the first fruits were getting out of this method, which we see we may per approved now.
Okay.
Thanks Dennis.
Well if you can just show this slide.
Thank you.
So just to reiterate on our business plan remains on track as debt.
As I mentioned, we have to for vehicles on the development in market by the end of 2023 about box coming later this year and the two van bearings for the large fan and the small but when.
Fourth on van in the second half of 2022, and the car and in Q3 of 'twenty three.
We have for Microfracture is being built to in the U S.
And one in the U K, we announced Spain today in Madrid, and we ask the strong demand with <unk> now we have obviously the government policies, but also we have private companies commitments to transition to being electric we announced our arrival.
Our partnership with Uber and that is a very large market that's 80 million units.
And we have secured our battery supply from LG energy solution as debt.
As also mentioned we have a 9800 employees who have the talent resources to execute and really this is enabled by our new method and it's why we believe arrival is unique with our micro factories, Alberta vertical integration on hardware software materials Nextgen robotics.
Unique assembly process.
And most importantly, our vehicle attributes on price.
Thanks, everyone for joining us.
So as the next quarter.
This concludes today's conference call you may now disconnect.
Okay.
Thank you for tomorrow.
Thank you.
Yeah.
Okay.