Q1 2021 Canoo Inc Earnings Call
Hello, and welcome to the New Inc. First quarter 2021 earnings call and webcast at this time all participants are in a listen only mode.
One should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation.
As a reminder, this conference is being reported.
My pleasure to turn the call over took Muhammad Vice President of Investor Relations. Please go ahead Sir.
Welcome to the news first quarter 2021 earnings conference call. My name is small hammett VP of Investor Relations.
As part of our presentation today, we will direct you to a short video that you can access from the landing page to this webcast. If you haven't joined by webcast. We embark people log on using the link in our earnings release. So that you can view the video.
Today I have with me, Tony Aqua law, our chairman and CEO.
Auto Gieger interim CFO, Andrew or Matt Murphy, Chief Accounting Officer.
Tony will provide an update on the progress we have made since our last call and described the metrics. We will report on from a balance of 2021.
I'll turn it over to our NAV Ronaldo interim Nash, who will go over our first quarter financial results Tony.
Tony will then provide closing remarks, and we'll open it up for questions.
During this call we may make forward looking statements based on current expectations.
These are subject to a number of significant risks and uncertainties and our actual results may differ materially from.
For a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release, our most recent form 10-Q, and 10-K and the reports that we may file on form 8-K, with the Securities and Exchange Commission all our statements are made as of today.
May 17, 2021 based on information currently available to us except as required by law, we assume no obligation to update any such statements.
During this call we will discuss non-GAAP financial measures you can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website.
Now before I turn it over to Tony we would like to share a new piece of marketing creative.
This video embodies our mission to bring Evs to everyone. It shows our expanded product line.
Lifestyle vehicle multipurpose delivery vehicles and the pickup.
It also highlights the family's fleets and working professionals.
New product portfolio will soon serve all day long.
Bring an extraordinary customer experience.
Now please navigate to the webcast landing page and access the video link towards the bottom left of the page.
I'll pause briefly while you watch the video.
If those of you who are not able to view. The video you can access it on our Youtube channel or the IR portion of our website with that I'll turn the call over to Tony.
Thanks, Camilo, but can you our mission is to bring evs to everyone. In this video shows how we have progressed the product portfolio to address a wide range of use cases and expand our total addressable market.
It has only been seven weeks since we last reported earnings due to the timing of our stock transaction.
Now we are moving into a normal quarterly cadence with this report.
In 2021, we will report on the following business areas.
Product and technology, our progress towards production.
Manufacturing, our order and sales pipeline human capital and operations and any other material updates.
Reporting on these areas will keep you up to date on how we are progressing on key aspects of our business.
Before going into the business update.
Wanted to share our view of the EV and spec market today.
There are many things happening in the market, including an evolving regulatory environment.
<unk> have democratized access to capital for emerging growth companies that would normally have been backed by early stage private capital.
By nature. These early stage companies will remain dynamic as they mature and the public view.
We have transitioned our strategy to better position us for success as a public company.
Our new leadership conducted deep due diligence and course corrected our strategy.
And we have performed in line with the EV stacks over the past number of months.
The EV sector has seen significant investor interest with billions of dollars being invested.
But EV specs are now facing some near term headwinds, including the SEC interest and determination on how warrants are treated.
Supply chain constraints impacting both DB and frankly ice Oems.
And company specific issues are.
Our experienced leadership at <unk> has navigated many market cycles.
We are focused on building a business today that will be positioned for long term success.
Now, let me walk you through some of our business updates.
We have a large fast growing and profitable addressable market or.
Our business model takes into account total addressable markets.
As we called cans per boat sales of new vehicles and sales in the aftermarket.
Today, the new vehicle addressable market for our products is projected to be $4 4 million vehicles in the U S. In Europe by 'twenty 'twenty six.
The new vehicle market is projected to grow by 16% annually from 2023 through 2026.
In addition to new vehicle sales, we intend to capitalize on after sales Tam in three ways.
280 billion in service maintenance and repair.
With an approximate 40% to 50% gross margin.
And $400 million and over the air services with a 70% to 80%.
Gross margin and $24 billion in accessories, and customization with an estimated 50% margin.
And finally by focusing on the full multiple owner lifecycle.
<unk> will have the opportunity to capture over 70 monetize the whole transactions across owners 1234 and beyond.
As we announced today preorders are now open on our website for all our vehicles.
Lifestyle vehicle, the multipurpose delivery vehicle.
Or as we call empty DB.
And our pickup truck.
All of these vehicles can be preordered with a refundable 100 dollar deposits.
Please feel free to reserve your vehicle on our website today.
The lifestyle vehicle will be our first product to market and will come in for trends.
One delivery.
<unk> base, three premium and for adventure.
We're targeting a starting price range of 34750 to 49950 before upgrades.
The delivery.
The base and premium trends of the lifestyle vehicle pricing for the adventure trim will be announced in the coming quarters.
These prices are before incentive programs, which we hope for customers to apply to update.
Further we will provide you more details on our digital service offering and customer journey platform in the near future.
<unk> is building and refining our go to market strategy and team and we are continuing to fine tune our analysis to determine the proper revenue mix.
The optimal mix will include a subscription program that represents approximately less than 20% of our volume.
This will allow our customers to take advantage of the tax credits and rebates associated with vehicle purchases and leasing and is in line with the current administration's emphasis on expanding clean energy and EV penetration and infrastructure.
We will provide more information on mix margin and geography in the coming quarters.
Our retained top tier accounting and management consultants are helping validate our analysis on these topics as well as our re forecast of the financial model.
We will take a disciplined sales pipeline approach to managing opportunities, which will provide more certainty about projected orders and will be closely tied to how we develop our production system.
We will report our sales order pipeline in three stages.
The first will include potential customers that have qualified.
Two.
We'll include orders with a commitment volume and date.
Third in the final stage will include orders accompanied by a binding contract with a nonrefundable deposits.
Disclosing our pipeline in this way will reduce any misperceptions of the difference between a refundable reservation and a binding order.
At <unk>, we continuously innovate on three vectors.
Engineering software and hardware.
Given a few examples.
We have developed our own electric motor with approximately 40% higher power density, 24% higher peak power and 18% fewer parts than comparable EBIT motors.
We designed the first harmonized drive by wire system, and a unique trans versus lease screen technology, which allow us to eliminate struck towers, creating a flatter platform and more than 50 cubic feet of additional interior space.
We have implemented bi directional charging capability.
Which enables our vehicles to function as mobile power plants and meet what we believe will be an increasing demand from private and commercial customers.
We use leading battery sales, which are cleverly inefficiently packaged into an MPP using proprietary <unk> technology, resulting in superior specific energy and energy density and other EV.
The above further clarifies our focus on engineering and protecting our IP.
We believe this focus generates a higher return on capital and contract engineering, which features operating margins in the mid single digits and as an innovative company reduces our competitive advantage by enabling others.
As part of our continuous innovation, we would like to announce a multi state University program.
And we will start with the University of Wisconsin.
This partnership will.
Focus on advancing key electric powertrain technology.
Further enhanced U S competitiveness that we believe benefits the entire <unk> industry over time.
To accelerate and expand our ability to innovate and create more IP for commodity.
And broaden access to a critical talent pipeline of Phds undergraduates and in turns before entering the workforce, which is a huge mutual benefit.
We have targeted to launch our partnership with the opening of the University post COVID-19.
Now I want to give special thanks to our great American visionary and innovator former Governor Tommy Thompson President of the University of Wisconsin system.
I'd also like to thank chancellor ramp backup blank for her insight and leadership and encouraging the University faculty to further partner with companies like commute.
But to be clear. This partnership is separate and does not influence our phase III manufacturing <unk>.
Selection process.
Through our beta phase, we have invested more than $250 million in R&D validation and testing, which has allowed us to log and analyze a huge amount of data.
With our beta phase complete we are now accelerating phase one of gamma.
And gamma we will produce vehicles with design and parts using production tools and processes.
This is an important phase that validates the cars final design and our manufacturing method.
In this phase we will produce 120 to 150 vehicles and logs hundreds of thousands of additional miles.
To ensure that the highest production quality standards validate the production vehicles in the real world testing across multiple climates and environments.
Iterate on the software ecosystem, better defined service maintenance and repair processes.
And improved customer satisfaction and reduce total cost of ownership.
We believe deeply in providing our customers with the highest safety standards, which is why we are investing in our gamma phase before startup production.
Or as we say.
By investing in this important step we can reduce the likelihood of recalls and customer dissatisfaction which can cost hundreds of millions of dollars.
We remain on track to complete gamma and meet SLP by late 2022.
We will provide an update on gamma phase on a quarterly basis.
We do not currently expect delays due to COVID-19 at this time, however, if certain conditions that exist today continue to affect the market.
<unk> timing may be impacted.
Our current production plan is to produce 500 to 1000 units in 2022 and 15000 units in 2023.
In 2023, there is some additional capacity beyond our plan. However, we are taking a conservative approach to our projections.
We will continue to update this in the coming quarters.
Now an update on our two phases of manufacturing.
Phase one third party contract manufacturing.
We will deliver the four trends of our lifestyle vehicle to market.
This enhances our ability for geographic expansion and speed to market.
To meet our timeline of <unk> by late 2022, we have accelerated our down selection to two high quality established globally positioned contract manufacturers.
Our teams work to carefully evaluate potential partners is expected to result in savings of approximately $200 million.
We will now move to final selection, which we plan to announce in the next quarter.
In addition, as to the end of Q1 2021, we have sourced 74% of our supply chain for phase one.
Phase II.
Our wholly owned manufacturing.
This will be for high volume North American delivery.
And for America and beyond.
Aligns with the current administration's vision for investing in American clean energy and provides us an opportunity to access non dilutive capital in the form of state and federal subsidies, creating more American advanced manufacturing jobs, it reduces our Bom and transportation costs.
And strengthens our global competitiveness, while reducing local taxes and import costs.
To date, we have evaluated more than 100 potential sites across the U S for our phase III manufacturing facility.
Our team and World class advisers have met with multiple governors and other state and local leaders.
I have personally been inspired by the reception of these forward thinking governors and senators who are focused on securing a leading position in new sustainable clean energy technology and advanced manufacturing.
Recently states, such as New York, and Michigan have announced incentive packages for EV adoption and infrastructure.
We see this trend continuing as part of the U S is focused on enhancing clean energy and infrastructure.
At our recent board meeting, we officially narrowed our search from eight states to four.
One site in each of the four states, we plan to down select to two sites by the end of the quarter and update you on the next call.
As of the end of Q1, our workforce has grown by 28%.
Versus Q4, 2020 to 544, driven by hiring of engineers.
Our workforce consists of 452, Ftes and 92 contractors.
We work with contractors on short duration projects that require flexible staffing and we're competitively sensitive information is not involved.
Given our focus on innovation about 80% of our workforce is dedicated to R&D.
Which is made up almost entirely of engineers and we continue to attract top talent to drive this innovation.
In addition, we have substantially built out our executive management team and have recently filled key roles in the go to market fleet sales and software development, which we will be profiling in the coming quarters.
In addition to our design and engineering hub in California.
We are diversifying our footprint of our employee base, we have added or will be adding offices.
In Texas.
Focused on corporate functions rapid prototyping and go to market, Michigan focused on purchasing and costing and as I mentioned earlier, Wisconsin, which will focus on electric powertrain research and innovation.
We're also exploring international hub for further expansion.
Geographic diversification of our workforce will optimize our human capital costs and enable us to attract talent specific to certain regions. The result is a workforce that is stronger more diverse and drives higher return on capital that is able to work.
In multiple time zones.
As I mentioned earlier, there has been a lot of attention on stacks.
We recently received a notice from the SEC that they are conducting an investigation of commute.
They characterize the process is the fact finding inquiry.
Unfortunately for obvious reasons, we are unable to take any questions regarding this but we are committed to providing timely updates as appropriate.
We are also pleased to announce that we have been able to repay the essential PPP loan of $6 9 million that was granted in July of 2020 prior to the merger with Tennessee Capital acquisition Corp for and our public capital rates.
We would like you to save the date for canoes first IR day.
Before I turn the call over to Renato and rematch.
I would really like.
To share that we are hosting our first IR day on June 17.
In Dallas, Texas.
This event will be webcast and in person attendance will be limited.
You will hear from several members of our senior management, and we will provide updates on projected volumes timing and other important milestones.
Registration is now open at noon.
A new IR day Dot com.
With that let me turn the call over to remodel and refresh.
Thank you Tony.
Our first quarter of 2021 results are as follows.
Search and development expense was $39 2 million for the quarter compared to $19 3 million from the prior year period.
Excluding $7 1 million of stock based compensation research and development expense was $32 2 million.
SG&A expense was $55 6 million for the quarter compared to $4 1 million in the prior year period.
<unk> $38 million of stock based compensation SG&A expense was $17 6 million.
GAAP net loss was $15 2 million for the quarter compared to a GAAP net loss of $30 9 million from the prior year period GAAP.
Net loss in the first quarter of 2021 included $83 6 million non cash gain on the fair value change of earn out liabilities related to the periodic re measurement of deferred.
The value of a contingent earn out liabilities.
And the $1 6 million loss on the fair value change in private placement warrants liabilities.
Adjusted EBITDA was minus $49 8 million for the quarter compared to minus $23 million in the prior year period.
Yes.
Thank you Bernardo.
Turning to the balance sheet and cash flow.
We ended the quarter with $641 9 million of cash and cash equivalents cash used in operations for the three months ended March 31, 2021 was $53 9 million.
Back to $23 $7 million in the prior to DLP cash.
Capital expenditures were $12 1 million for the three months ended March 31, 2021.
But zero point $7 million in the prior year period.
Turning to our guidance for the second quarter of 2021, we anticipate the following expenditures.
Approximately $65 million to $75 million for operating expenses, excluding stock based compensation and depreciation and.
And approximately $45 million to $55 million per capital expenditures.
Before we open the call up for Q&A I'll turn the call over to Tony for closing remarks.
Thank you and us.
As we look ahead to the balance of 2021, we expect to execute against several of our key initiatives.
Including announcing our contract manufacturing partner a location for our future owned manufacturing facilities and identifying supply chain partners.
I would like to close by thanking the whole <unk> team and all our advisers and consultants for their hard work and for their many accomplishments in such a short time.
We would now like to open the call for Q&A.
Operator.
Yeah.
Got you will now be conducting a question and answer session if you'd like to replace from the question queue. Please press star one on your telephone keypad.
Permission tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question from the queue.
So from a speaker phone.
<unk> to pick up per handset before pressing star one one moment. Please what would you poll for questions.
Our first question today is coming from John Murphy from Bank of America. Your line is now live.
Great Good afternoon Tony.
And thanks for all the info.
I got to agree with you I mean, some of your comments about market segmentation and end.
Other things in the industry are very.
On point, so clearly youre understanding a lot here.
But one thing about the spec side of things that I think is debatable and what youre, saying.
These early stage companies like yourselves, forming in the public Forum.
One of the things that we had thought initially and this might be wrong I don't want to get your perspective on it is that the stack funding allows you to accelerate and maybe shoot the GAAP more nimbly.
Faster and get out there and take market share ahead of the incumbents doing so.
And based on some of the timelines that you're talking about and the volumes that you're talking about it seems like youre going to have a lot of incumbent competition.
Online, it's similar times as you say so.
You can just comment on that and maybe if you could move faster or you think they're going to move slower or how do you think the competitive environment is going to shape up over time.
Yeah.
Yeah, So John.
I think that's a good point to kind of.
Further discuss so my view on them.
I am pro or the democratization of venture capital private equity and public equity to participate in innovation, we see our competitive countries.
Doing similar things so so from my perspective, it absolutely accelerates the innovation curve and I think it's super positive.
The impact what it does do though is there's kind of having taken another company public.
And been involved in public offerings before a traditional IPO is different than a stack as you know they are called emerging growth companies and they have a little bit different standard. So the public has to get used to.
The fact that some of this stuff is is being evolving in front of the public yet.
And that's why it's called <unk> right. So.
That was the point that I was making there however from our side being that we have public company experience. What we have done is we.
Move dramatically much more to our style, which is to be conservative one it's better to outperform and underperform its a long term investing game and.
And we want to build a great long strong company that can globally expand and can really return on capital over all of its owners of the vehicle in fact, the return on capital goes up as the vehicle changed and so we're.
Very grateful for the fact that we've been able to participate in this back.
My only point is that the world is learning how to use them and and I am convinced they will continue to get better, but we are big supporters and I think some styles will be two maybe optimistic for some people like us and some may think of us as too conservative.
But it's a long term gain and the big triggers in this industry is really in the 2020 for 2025 time frame. If you think about it right. That's when the rubber really meets the electric route.
And so you know we believe that if somebody really looks at the real investments we've made in platform.
Our own IP, our security capability layers. The fact that we use less chips than anyone if anybody really looks how we invested our money to this point how much head count human capital. We've assembled it would say that we are we are a contender.
And the more we focus now on go to market and we're pretty excited about some of the things that we will be rolling out, but we will always take a conservative stance going forward.
Yes.
So it's not just head count what's the right what's the right folks.
It's the right human capital talent that you need.
Where do you think you reach critical mass on that how do you think about that as a key milestone.
So you could talk about the number of vehicles, we're making miles driven on on your test meals and all that stuff, but I mean head count is where that critical mass on the human capital side is really going to be.
A critical measure.
How do you think about that and where you think you turned the corner on that is that 1000 2005 thousand because you are up against companies as you know that have.
Hundreds of thousands of employees to some extent a model out and our engineers. So it's not it's not necessarily apples to apples, but I mean, how do you. How do you think about that human capital level at which you turned the corner and things really start changing.
Yeah. So look I think in an entrepreneurial environment totally focused one product line.
We can today with the use.
And keep in mind, when you engineer a platform.
That is technologically capable of adaptations and is able to take multiple derivatives and to do it from a technology focus primary you get exponential output out of your personnel. In addition to that what you get is it in this design you've got.
20% less plus parts to 30% less.
Parts as well and so you pick up a lot of C Y because you have no steering column you have none of those things that again I refer back to the point that I made earlier, where somebody really looks at what we've done.
And that will all come out in time and that's why we're excited about having it in IR day next month, so people can see the real product in that and the real depth.
But critical mass in my opinion for US based on what we've announced to date is in the 750 range.
2000, and that's that's kind of where we're targeting right now for what we've announced and that's really on the shorter end of that curve, which is call. It through 2022.
Now updating that.
They opened our pipeline today and it got huge reaction to all that.
Towers.
It's just from the flowers.
You know we have additional capacity in our projection.
We focused on World class global producers that can give us geographic reach.
On the third party manufacturing partnership side, and we're focused which aligns very well with the administration.
Initiatives of bringing this advanced manufacturing of EV to the U S. So.
Our head count rise over time, yes, but right now everything we're focused on is to get into that 751000 range of FTE based on our product roadmap.
Okay, and then just just lastly, I mean, it seems like.
The roadmap that youre laying out that incremental capital over time, maybe something that you need I mean is that something that you think is going to continue to be.
Relatively available and open and hopefully.
Day low cost to get this machine really running.
And how do you think about sort of the cadence of potential capital raises.
Overtime.
Yeah. So look I mean, one of the good things. Obviously that's happened is our government is now acting like the Chinese government and others, where they are stimulating Ah.
Clean energy technology, so that allows us access non dilutive capital.
We've seen and we have really deeply dive into how that capital can help us accelerate things.
Of course, we haven't factored that into any of our projections. So again conservative approach.
For those of you, who know me I've raised billions and billions of dollars of various instruments.
As you go back and look at the ebb and flow of cash and Tesla journey our journey.
You know we will.
And it's cash very appropriately.
And we will pace it to our product roadmap at the event, we see more positive trends as we're running now a more conservative model.
We would then be raising capital ahead of.
And so you know.
And this.
This is industry.
<unk> evolution, where capital will be important.
And of course, we got to punch out milestones. So it says you know non dilutive as possible.
But we're building everything from now.
And our relationship with the Street now that the market is opening up again will be out on the road, telling our message and at the appropriate times, we'll be raising capital.
Great. Thank you very much looking forward to the 17th of June 17th.
Thanks, John.
Thank you as a reminder, that star one to be placed in the question queue.
Our next question is coming from Jamie Perez from R. F Lafferty and company. Your line is now live.
Hey, How're you doing everybody good day, thanks for the update on DRAM manufacturing.
I'm sort of focusing on phase two where the manufacturer comes in house.
Have you started to order long lead.
Time equipment, because it looks like over the next couple of years do you feel of manufacturers can be pretty crops. So could you give us any update on that.
Yes. So we are so because we're entering into gamma in the Lv that the tooling and equipment were ordering and many of it has already been ordered.
So we've got a very good grip on lar the large items on lead times.
Stamping and all of those other items so yes.
First of all because we get high utility.
Derivatives that we can put on the N P P.
We obviously get a lot of scale. So we're very focused on that for those of us coming out of this industry and understanding it.
You know.
Deeply and of course, we can set up assembly lines in a ladder of fashion to meet our demand.
No.
We are feeling good about it of course, we haven't ordered the second batch of stuff.
It could be impacted by demand <unk> pandemic effects.
That's why we took a two pronged approach.
Which one.
Get us off the ground. It's quick it's leveraging somebody else's site facilities and expertise, while we get ours up and get it perfect. It. So we can move to high volume and then flip to the other relationship and make it much more focused on geographic expansion.
And as we discussed in the in the earnings part is we've already sourced 75% approximately at the parts and that's going up every day.
So look again I come back to.
This isn't an outside in design. This is an inside out design with an outside in focus.
And so I think that as we rollout the customer journey piece, our focusing on multiple owners. Those things will also become an area of focus and appreciation compared to.
The competitive landscape and so Mike.
My comments on that would be some will in fact, just based on your comment will report more.
In detail by segregation of.
The phase one manufacturing in the phase II, when we get towards the equipment and standard for the wholly owned facility.
Alright, Thanks, and then the rest was more of a comment I mean, you've taken a pretty bold step in transparency and you know I come into being more transparent.
Current compared to other companies because.
The issue of Preorders from Zone Reserve is also a question, but I'm just glad to hear that there's more transparency on.
The preorders.
Yes, that's all I have thanks for my questions.
Jamie I appreciate that and we definitely are very focused on transparency and clarity because obviously, we want to make sure that people understand the difference between someone's reservation and someone's already.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to quality. This point.
Thank you everybody for joining us look forward to seeing a lot of you on the IR day on June <unk> those of you who cannot attend in person.
Would love to have you attend virtually so it'll be a hybrid of apps. So please reach out with any questions you have and we'll be sure to get back with you. Thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day.
Thank you for your participation today.
Okay.