Q2 2021 Electric Last Mile Solutions Inc Earnings Call
While solutions second quarter 2021 earnings conference call.
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I would now like to turn the conference over to Eric Grossman Director of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us for electric last mile solutions second quarter 2021 earnings call.
Before we begin we'd like to remind you that remarks made on today's call may include forward looking statements. These.
These are based on our predictions and expectations as of today.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
For a more detailed discussion of the factors that may affect the Companys results. Please refer to our earnings release for this quarter and to our most recent SEC filings.
Joining me on the call today are James Taylor co founder and CEO of films, Jason Law Co founder and Executive Chairman, Albert Lee CFO, and Rob song Deputy CFO and Treasurer.
Management will make some prepared remarks, and then we will open the line for your questions.
Now I will turn the call over to James.
Thank you, Eric and thanks, everyone for joining us today.
We had a momentous second quarter in which we made great strides in our mission to redefine productivity for our customers with intelligent <unk>.
E mobility workstations designed for the last mile.
In short we completed our business combination with foreign merger three Corporation and became the first publicly listed EV company focused exclusively on the class one to three commercial segment.
Which we call the last mile segment.
We acquired our EV manufacturing plant and.
And our engineering program is on track.
Demand continues to be strong.
And we are now actively working with customers to finalize their order commitments.
And we are affirming our plan for S. O P of the urban delivery by the end of the third quarter. This year.
This keeps us on track to be a first mover in the class one commercial EV space.
And this is our first earnings call.
I'll begin with some company background, then provide details on our business updates and outlook.
And lastly, turn things over to Albert to discuss our second quarter financials and outlook.
At Helms, we saw the opportunity to serve the underserved the businesses of this country from trades to Fortune 500 fleets.
Who have lacked the proper sustainable and intelligent productivity solutions.
Solutions that our profit drivers not cost centers.
And we identified a white space the class one commercial EV segment.
And we expect to benefit from several major tailwind first is the enormous demand for commercial vehicle solutions driven in large part by the exponential rise of E Commerce.
Then there is the green title wave led by both companies seeking to meet aggressive ESG targets.
And the government.
Which is pushing and in many cases mandating the adoption of sustainable solutions, such as commercial Evs and working to expand available funding and tax credits.
There are few if any commercial evs options.
On the market today to meet that demand.
Here lies our opportunity.
There are many new entrants and existing players who have announced commercial EV products, but.
But we believe those deliveries are in general some time away.
Helms is coming in the very near future and we plan to ramp to mass production levels and.
And we will start in the class one segment, where we expect to be a first mover and then expand into the class III segment as another early EV entrant.
Our key differentiator and enabler is our unique business model.
By leveraging existing and market proven components.
We can quickly get to market with reliable products at an exceptional speed by industry standards.
The use of an EV ready facility.
And market proven components dramatically reduces our costs and allows us to provide what we believe will be one of the lowest total cost of ownership.
And as a solutions provider.
We're not just delivering the hardware.
But also customization and digital solutions that will enable our customers to do more.
And our products, the urban delivery and urban utility our segment defining.
We expect both to offer at or near acquisition pricing, including federal incentives versus competing ice vehicles.
As well as more cargo volume, which of our customers is far more important than weight.
And we're excited to be making these evs here in the U S.
And help make this country the center of EV design and manufacturing.
With that intro, let me now give you an update on our business activities to date.
And our outlook for the rest of the year.
In June we completed our business combination with forum, which resulted in a total capital raise of $294 million more than sufficient funds to execute our business plan.
We also acquired our fully capable EV factory in Mishawaka, Indiana.
In a rapidly progressing towards production readiness.
We enhanced our global organizational capabilities by expanding our leadership team with key personnel across digital solutions engineering operations finance and sales and marketing.
Recent additions include Chief strategy, and digital officer, Jonathan violin.
VP of engineering Praveen Sharon.
And Adam do director of China operations.
Deputy CFO and Treasurer, Rob song.
Chief revenue Officer, Ron fell Dyson.
To further advance our global engineering operations Endo access talent and global suppliers, we have plans in place to expand our office locations.
To include Shanghai, and San Francisco.
On the customer front, we announced earlier this year that we have received more than 45000 preorders for just the urban delivery.
And we're very excited to announce that we are working with customers and our distributor partners to finalize order commitments with targeted and customers, including Fedex independent contractors Amazon delivery service partners.
On demand cargo van rental companies universities, HVAC companies and many others.
Our customer engagement is simultaneously continuing at a rapid pace with more than 35 scheduled trials for potential customers across verticals again spanning parcel delivery telecoms home improvement vehicle rental ports and so on.
We are also directly engaged in discussions with numerous fleet management companies.
These are an important go to market channel and the commercial vehicle industry.
The top 10 U S. F M sees as they're called alone overseeing more than 1.9 million vehicles.
One example of these engagements includes merchants fleet.
The nations fastest growing FMC and a leading driver of fleet electrification.
As part of its electrify fleet initiative merchants fleet has announced a commitment to have 50% of its mobility fleet electric by 2025.
And 50% of its managed clients fleets electric by 2030.
They also announced a partnership with Trane technologies Thermo King unit, the global leader in transport refrigeration to build a first of its kind all electric refrigerated delivery vehicle prototype to demo with customers.
This highlights our capabilities to deliver up fitted solutions across a number of industry verticals.
In this case, the delivery of perishables from food and beverage to vaccines.
Providing customers with green products.
That will drive them towards their sustainability targets.
This is really a great application for our product.
If you think about the current gas and diesel refrigerated vehicles out there today.
Constantly idling wasting energy and spewing pollutants.
And this is the kind of product that shows how we can make the entire supply chain cleaner more.
Our sustainable.
And at a lower total cost of ownership.
This is just one example of the end use cases and verticals, we can touch and.
And we will provide more details as we finalize our arrangements with other targeted up fitting partners.
Importantly, we will shortly be initiating customer pilots with our second vehicle. The urban utility are all electric class III medium duty truck.
As with our urban delivery, we believe the urban utility will be very competitive across both price and cargo volume versus both existing ice competitors and new V. Entrants E V entrance in the segment.
Customer demand for the urban utility has been incredibly strong and companies are eager to have our demo vehicles in hand.
At that point, we will begin to take reservations.
On the back of the urban delivery, we believe the launch of the urban utility will provide elms are strong portfolio position across the class one to three last mile segment.
We don't see any other Oems getting the kind of easy foothold as quickly as we anticipate entering the market.
We've also announced a strategic distribution partnership with Randy Marion Automotive group, one of the largest commercial automotive retailers in the country.
We feel very good about this partnership which unlocks another important and high volume go to market channel.
We now have an order commitment from Randy Marian automotive group, representing nearly $200 million over the next 12 months.
And to support our customers and maximize uptime.
We're putting in place a service ecosystem to offer complete coverage and deliver service in the most efficient manner possible.
We plan to use elms are.
Sleep monitoring system, which will include over the air update capabilities as well as incorporate all of the dealer service partners as well.
In May we also announced a service collaboration.
With Cox automotive to give our customers access to Cox's end to end fleet service, including 6000 service locations 3000 partner locations.
And Dickinson fleet services network of more than 800 mobile technicians.
Our partnerships with Randy Maryann, automotive group and Cox automotive or specific examples of how our ecosystem approach enables speed the market.
And de risks our lunch with both distribution and service covered from the onset.
What I am not doing is going dealer to dealer and trying to build my service network up from scratch.
When it comes to launch readiness, we've made great progress and are definitely accelerating efforts here, where we can recover from the delay in the merger closing as well as all of the other challenges that the industry experiencing.
Most visibly we acquired our EV ready manufacturing plant in Mishawaka, Indiana.
This is a phenomenal plant one I've had a long history with that has proven itself flexible for a quick ramp and launch of different vehicle platforms.
The hummer H two to the Mercedes vehicles.
There are a couple other major benefits from this specific plant.
First the previous owners made significant investments in the facility to retrofit it for EV production.
This means that we have limited retooling required for lunch in fact less than $10 million a fraction of what it would typically cost Oems to retool the plant.
This plant also has an estimated annual production capacity of 100000 units, which supports our business case as a mass production E V O M.
And equips us with the ability to satisfy the enormous demand we're seeing on the commercial EV front.
We benefit also from an experienced ready and highly motivated workforce. Many of actually previously worked at this plant.
And went through extensive EV launch training.
Additionally, we have strong support from the Indiana Economic development Council, which.
Which has offered us up to $3 million in conditional tax credits and training grants.
Our engineering activities have also advanced at a great rate in part due to our business model that leverages, many existing validated and market proven components.
While we are engaged in a number of standard OEM engineering activities from software development to validation testing.
We have a lot of focus on our vehicle integration and Homologation efforts.
We are on schedule to finalize our testing and meet U S regulatory requirements are.
Our IP portfolio continues to grow as well and we recently filed for instance, a patent for.
For our proprietary class one commercial EV frontal impact absorption design.
As part of <unk> proprietary E V crash protection system.
We've tested the technology in this patent application in crash testing and the results were extremely extremely positive.
We're confident with our progress to date and are now proceeding with final confirmation testing for the body structure.
We expect that to occur this month.
I feel very positive about our supplier ecosystem to support our launch.
Last week, we held our first summit with key strategic suppliers to align on their individual capabilities and launch readiness.
This was also an opportunity to ensure that all communication channels are open as we approach startup production.
As you're all aware battery supply is a high profile subject at a national level and in the total EV business.
On that front back in February we announced that we secured a battery commitment from C. A T L. The largest global battery company.
We also signed a binding supply agreement with Wuling Motors, a leading automotive manufacturer of electric cargo vans.
This broadens our supply base for market proven components.
And we will be working with willing as a primary supplier a body and chassis components for the launch of the urban delivery.
I'll Miss has been driving the overall vehicle design based on U S customer requirements and engineering specifications.
Finally, I'd like to discuss now our outlook through the end of the year.
First we're affirming our plan for S. O P by the end of the third quarter for the urban delivery.
We've also set a production schedule for 2021 with a target of 1000 vehicles.
We set this we believe in spite of the delay in the close of the merger.
COVID-19 disruptions industry wide supply chain challenges.
And now what appears to be the biggest of all challenges logistics.
But we believe that this target was important to set for several reasons first.
We have such strong demand from customers that we need to get to market as quickly and as greatest scale as possible in the near term.
But hitting production this year, we see an opportunity to establish longstanding customer relationships that will separate ourselves.
From a crowded space full of new entrants.
Who will not entered the market for some time many for several years.
Second.
We need to to align all of our suppliers and partners and get their commitments, which we now have in place.
Now I want to remind everyone again that there are definitely challenges in front of us.
I've just mentioned some of them the delay in the deal close COVID-19, part shortages supply chain complications logistic challenges and rising freight costs increases in prices of raw materials and so on.
We are not alone in experiencing a shortage in containers and a four to five times price increase in container costs.
We're doing our best to offset these but these challenges are real.
All of this is on top of the normal challenges that come with launching a vehicle and ramping production.
We're fortunate that the EMS team is a tremendous amount of experience launching many vehicles.
So we're pushing ahead to reach our target of a 1000 units this year.
To summarize.
We believe we have all the pieces in place to launch this year and take advantage of a tremendous market opportunity.
How often in life as a business come around that has white space.
Customer demand business and government alignment.
And solves an enormous environmental problem.
I believe we are positioned to be a major contributor to this solution not in several years, but starting this year.
And even if we were to capture only a fraction of the total addressable market.
Just 5% buyer estimates that has enough demand for us to produce tens of thousands of vehicles annually.
Our goal of course is to capture far more than a fraction and.
And we believe that our launch this year and first mover advantage will provide us a solid footing.
To establish <unk> as the leading provider of last mile solutions.
We are at an inflection point in commercial EV adoption.
And elms is positioning itself to capture that demand.
We'll have more developments to share over the coming months as we approach our start of production.
And I look forward to updating you on our progress.
Now I'll turn it over to Albert to go through our financials.
Thank you Joe we completed our business combination on June 25th Transat.
Transaction resulted in approximately $294 million of capital raise sufficient to execute the business plan and achieve positive cash flow as part of our business combination.
Into an agreement to acquire <unk> manufacturing plants in Mishawaka, Indiana for a total of $145 million at closing we made an initial payment of $30 million and the remainder will be paid in accordance to reschedule.
Moving onto second quarter results.
As of June 30th the company had a cash balance of $217 million. We also reported a net loss of $8.6 million.
Loss of 10 cents per share.
Did not report any revenues and we do not expect to have any revenues until our first urban delivery vehicles are produced and so what should we expect to happen towards the end of third quarter. This year.
Operating expenses were $7.5 million, consisting of $2.4 million.
Search and development expenses in development services testing and prototype expenses.
And $5.1 million of G&A expenses for personnel legal consulting and marketing expenses.
For the full year 2021, total capex is expected to be in the range of $25 million to $30 million.
All of this is expected to incur in the second half of the year.
Our reduced investment level as compared to other EV companies is due to efficient business model that leverages, an EV ready production plant and market proven EV components.
We also project our total operating expenses for 2021 to be in the range of $75 million to $80 million.
This concludes our prepared remarks, we'll now open the lines for questions.
We will now begin question and answer session.
To ask a question you May press star one on your Touchtone phone.
If you are using speaker phone please pickup your handset before pressing the.
To withdraw your question. Please press star two.
We also ask that you please limit yourself to one question and one follow up.
Our first question today comes from Mike <unk> with D. A Davidson.
Hey, Good afternoon, guys can you hear me okay.
Yes, Mike.
Alright, great.
Wanted to ask about your production outlook and then.
And compare that to your sales outlook.
I'm curious do you expect to sell all of that you produced this year.
And can you give us a sense as to who the recipients of these production vehicles might be is it your larger distribution partners are with some of these vehicles go direct to some of the lumpy order get direct.
Let me take the first one first.
So the short answer is yes, as you know with the amount of <unk> band, we have everything that we produce will go.
Go straight to one of the distribution channels, we've lined up and I'll come back to the second part of your question and.
Instantly Oh right that the customers so there'll be a straight through we don't anticipate any inventory at our plant or any inventory at.
Distributors.
To pick up on your second part, Mike we will be selling our first vehicles through the various distribution channels and as you highlighted that would be for instance, our distributor Randy Marion, but also the <unk> because they are part of that initial allocation for us to go through to them.
As you know ultimately to the end customers that would be the.
The final users of those vehicles, so they'd be going through both of those channels.
Okay got it and then.
For my follow up maybe I could ask about your.
Rightness to produce this quarter.
A little bit about some of the confidence behind that how have you actually finished all the cross dressing and I'll just maybe cresting on your card.
Larry to go analysis kind of getting the right people on board or are we still waiting for the final final result, before you can officially Fernanda I'll switch.
Let me kind of walk it back up again from an overall plant readiness standpoint.
We have to have of course, several simultaneous things in place. So first is the product readiness will come back to that as we mentioned in my remarks, the supply chain readiness and we have the suppliers in place that we need or the initiation of our started production at the end of September.
Readiness of course is key in that regard as you know by our business model, we started with already a very ready plant EV ready plant and there was.
Just a small amount of lag.
Labor additions that were required at the plant to get us into a position to be able to manufacture the first was that Dr.
Dr. Brian This morning about three quarters of those people hired already since the closing.
Then obviously at the other end customers waiting to receive those vehicles. So.
Of all of those the one that you mentioned is in the product readiness itself.
And as you're aware, we have a different customer requirements in different channels that those vehicles will be heading to so in the first launch again the control our risks and to make it a manageable at lunch.
Customer.
Expectations, that's a requirement specifications are needed so in that first group of those.
The full vehicle crash testing as you call it.
It's not necessary. So we're in a position already with the specifications of the vehicle as they stand today to ship to them and then as we complete our final verification and compliance testing then we will open up the second channel and also ship them and call. It phase two later in the quarter.
I'll start and I'll pass it along thank you.
Our next question comes from Stephen Volkmann with Jefferies.
Hi, Good morning, guys, maybe just sort of starting with that when James do you expect to pass those hurdles relative to certification that gets that second channel open to you is that a 2021 event or does that happen in 'twenty two.
I'll pass it if you don't mind that Steve the obviously adjacent there safety expert so I'll, let him to go into some detail on that.
Have you experienced.
Steve wrong, one of the largest companies by call myself.
Experts are totally for the federal requirements.
To put it.
41 pits.
Political for the fall of 2014 for the sites so far with numerous crush tests.
This month's we're gonna hybrid vehicles.
Vehicle two in the U S. One is China.
Two.
Good of crushed.
Which we called a confirmation test.
Org structure integrity.
So the effect of major we put into the place including the.
Slide the protection from protection need protection and also battery protection.
So with that we finished.
Which so far indications showing very positive.
And that will be I call today.
With the engineering firms on the withholding.
Finish our crush pulse with commentary on the controller.
Let me detail now with that we'll be go over on the.
Our starting targeted by the labor for that.
So I think the short answer Steven Yes, 2021 not 'twenty 'twenty two for sure.
So a question.
Yes.
Utah as you can.
So I appreciate the long answer actually.
James but.
For my follow up how should we think about I guess I'm trying to figure out if you guys ship a thousand units this year.
What should we be thinking about from a revenue perspective, and what I'm really asking is given the inflation that we've seen in various parts and also logistics I think you called that out James is there an opportunity.
For the unit pricing could be a little bit higher than it might have been absent all that inflation.
Yes.
Work, our way backwards, you're absolutely right first off as you know with being first mover nobody in this space and as we've originally marketed the price of our vehicles to be honest.
At 32, five as you know and we now are approaching our customers moved that to 34 five there has not been.
And any any pushback and and so we're also looking.
As you said and even more opportunity for more upside of course, we got the opposite call. It headwinds that says on a cost side.
That would address revenue, but on the cost side of course.
These transportation costs and the overall logistics systems have gone the other way on us and so we need to balance those two come outdoor net profitability, but I agree with you, but certainly there is upside in our revenue.
Great. Thank you.
Our next question comes from Daniel Ives with Wedbush.
Okay.
Thanks.
Jason could you can we just go through the time on just kind of on the last question. So safety. It seems like it seems like everything is tracking according to plan.
Assuming that happens I guess like the November timeframe.
Could you then talk about that happens and then what the next step would be in terms of the plant in Indiana.
I'm James maybe you can hit on that kind of the one two how that would work.
Okay. So I can.
As we are trying to hit the market as quick as we can right. So I just mentioned earlier about the mix of three vehicles, we're lined up.
Actually a one to one test in China, one two testing here, which so far with previous testing indicate a pretty positive. So we finalized already you can structure engineered increase as Jim mentioned earlier with that so we started to mix. The 60 days, we are going to.
To.
Finalize you called US the other engineering to incorporate into the U S to manufacture the parts because.
Did something change.
Change so we're going to make some change for the parts to reflect.
The results.
And of course, we are installed the airbags installed with safety Kleen.
Cleveland going through that.
We go into.
You quoted the certification test which is.
As you know for the OEM automotive guys you do it yourself.
So certification which is.
Public more like a November timeframe with old P. Pipe departs you go for that.
In the meantime.
Hi, Walter for Jim.
Wrapping up my departure.
People inside of the clubs on the give already experience we have.
So make no mistake as early as possible. So this way you don't have to dealing with when Youre volume go up go much higher so with that we're ramping up probably sub 50 vehicles in the.
September on the gradually increase to training labor also.
<unk> base.
Our supply chain on the call is my departure system, including software, including the mes, including cleaning, including the day labor everything we go through the I call. It a multiple tests in mixed I called a lunch plus 90 day, if I use a Detroit Detroit Award to make sure we make Gordon that's upstream.
Good.
Because of.
The lower speed of vehicle.
The changes are much much smaller so allow us to get our total system Choi with that a little.
Remember we've.
All we finalize everything for the Euro.
Oh two production go into this 40 certified vehicle, which means we're going to be ramping up rights to I think of.
500 someone somewhere in that number because.
This way after 90 days.
<unk> system supply chain is ready so we can create two from 500 up to run rate to about a 1500 right into the Q1, that's kind of we're looking at so a question.
No that's great that's great.
And Jim maybe just going on that too to the plan.
In Indiana, it's like where in terms of like how much how many.
How many employees so far been higher can you just talk about like the hiring plans between now and kind of full ramp as we go into <unk>.
This your early 'twenty two.
Sure.
As you remember Dan the plant that we had stations laid out there and again to control our risk and to make this a manageable lunch when we initiate the first vehicles in September we really just need the six stations on the Assembly line. There. So again, it's a very.
Low, let's say labor requirement for us to be able to hire a team. So we'll be initiating the plant launch with.
About 35 people and that includes both the course the salaried is lot of skilled trades, a support team and the operators themselves. So when.
When I talked about and Brian earlier today, you just three or four short of hitting that number.
Sorry, Amit, Brian yet for everybody else on the line, Brian Tim or plant manager.
And then as we went through again in the fall will grow that.
That total number up 50 to 75 as we get into the higher rates of production that.
Jason was mentioning and then also we grow into as you saw in the plant about 17 stations that will receive 15 modules for the final assembly. So again on a relative basis compared to other launches in other assembly plants that might be getting literally hundreds of modules and thousands of part numbers.
This has been part of the plan from day, one as a part of our unique business plan to have a very very.
Call it simple on a relative basis manufacturing lunch.
That's awesome.
Our next question comes from Greg Lewis with B T I D.
Okay.
Yes, Thank you and good afternoon, everybody I'm you know James.
Jim.
And then spent too much time kind of.
I laid out the business.
Customer backlog.
Any kind of color you can give us on maybe handle that.
Is evolving now that it's you know now that I guess the merger.
For a month in.
Vehicles or <unk>.
Imagine customer visits are starting.
Hum.
Learn more.
Hum.
Yeah.
Yeah.
Right right.
Okay.
Hey, Greg you cut out.
Last year about halfway through that question.
I knew you were going but try it again.
Yeah, I was just more curious about I mean a poster.
Back in <unk>.
I imagine customer visits are put to the facility you're picking up more people are getting more access to the vehicle.
Any kind of update or color you can give us a kind of around the backlog and maybe potential god.
Okay.
Got it yet.
Okay.
I got enough answer your question it cut out again, but I definitely can fill in all of that but you're absolutely right as we talked earlier in the year.
It was tough for us to schedule that test drives a lot of the companies of course had their own.
Covid restrictions as to accessibility to them and that.
That world is thankfully opened up somewhat we've had to date a little over 30.32 drive events at different locations for different customers. So that's picked up we've got right now as I said in my notes over 30 pending trials of people that are confirmed please bring it to my location, let my driver's test that.
Some of them per day, some for a week or two weeks. So we have those.
Scheduled out.
In.
Several of the verticals also the telecom home improvement of course package delivery and things across those different areas and then also some of the other use cases, we talked about universities airports ports and things like that and so we'll be working through each of those.
As those pilots are able to occur.
We're quite confident that then that's going to start falling through let's say the bottom half of the funnel very quickly.
Just build on that we've been able to I think now to start emerging back in with what I'd call more of a standard industry practice as far as the way that we would interact with these.
Potential customers in that they're used to a certain set of.
Paperwork and commitments and trials and of course, ultimately leading to purchase orders and releases. So we initiated this with so called preorders, but now we're marching down into I'd say, a more standard normal process that the other.
Large volume Oems are using and also what the industry is used to as well.
Okay, and then on the Thermo King announcement, realizing that the ink is still wet on that press.
Press release.
Any kind of color you can give us in terms of maybe what the list price. So that vehicles are going to be and then just as we think about.
Maybe what that addressable market looks like.
Realizing you probably got a lot of diligence as you thought about doing that partnership and moving that project forward.
Our first step.
As to take actually that that unit itself. That's been built up and we've got already a I forget the name of its up in the northeast some really large food trade show, that's an annual show to show the vehicle and gauge a consumer interest there customer interests.
Till we get some of that early feedback obviously thermo king.
Very very optimistic or they wouldn't have affected invested to get the unit built.
But once we come out of that I think they'll have a much better read for the answer to your question.
Okay, Great and then just one more from me we're realizing that.
The initial thousand production for this year.
It's kind of we're gonna get these these units off the line and into kind of the sweet managers' hands and end users and any kind of color, how we should start thinking about.
I know I know part of the long term plan is to start doing some of the offsetting.
Indiana facility.
Any kind of any kind of progress there and when we should think about.
Alan starting to actually do some of the offsetting that at its facility.
Yeah.
I'll give you a little color on a couple of French some on the one I'd say sort of premeditated bit selfish talk to simplify or launch. Some of these early orders that we've taken and have very call. It light up bidding extra imagine with some of the package delivery just some some very basic shelving and not trying to complicate our manufacturing process to get these early.
And it's out simplify our quality process and things like that and then move into the more complicated the up fitting.
In the first quarter as far as the up Fitters themselves as you know we've been working with several of them.
Adrian is our lead candidate, let's call it and we're in the process of finalizing that but yeah. They specialize in certain areas.
Bidding and we also talked to several others that we're also in a stage of finalizing agreements with as well. So once we get those inc. And complete it will also be able to share I think more on the outlook from a both revenue as well as they are.
Ultimate.
Cash that flows to our bottom line as well so we'll be updating you soon on that.
Okay perfect Hey, Thank you for answering all my questions have a great Mike.
Yeah.
Our next question comes from Jeff Osborne with Cowen and co.
Yes. Good afternoon, a couple of questions on my end Jim on the.
The shipping cost the logistics that you referenced great to hear that you might be able to raise the price can you just give us a sense of.
You you and your stock merger deck had some helpful details as it relates to cost allocation between raw components. Some of from China. Some domestic et cetera shipping was in there should we simply just take what was in that stack merger deck and put a three four X multiplier on it or do you anticipate.
Something below that I'm, just trying to get a sense of trajectory for gross margins for the initial units.
Yes, I think three or four it will be low for your model, but I'll pass it over to Albert didn't give you some more specific numbers. So we can give you the right.
Guidance go ahead, Albert Hi, Jeff Nice talking to you again.
The world is facing an unprecedented.
Logistics challenge and Jim mentioned.
Container cost.
Four to five times higher than normal and the fact is that the container cost three to 4000 is now over 20000.
On top of that.
The shipping time has increased significantly from 30 days to seven over 70 days.
Very unpredictable.
As we disclosed earlier in prior filings gross margin was over 20%, but because of the very strong headwind on logistics.
We are expecting the gross margin to be dropped to low single digit.
Now we are pursuing many actions to mitigate the risks as well as well.
Recovering some of the.
Margin for example.
We are pursuing contract rates.
Optimizing the shipping efficiency.
You download the creative ways and shipping strategies as well as you eat Jim mentioned that we are pursuing pricing opportunities.
So we're all working on that so hopefully the result will be better than.
What we have on the books right now.
Got.
Jeff short term is actually in our model, reflecting that cost that we're seeing as we're seeing them, but we're also of course not baking those in long term, we see that somehow this industry is going to balance out, but I'll tell you.
And the other people.
People that you've talked to in this industry. This is Albert said is beyond unprecedented in all my years of being in this business. We see it's never seen anything as crazy or dynamic is this we think we have a line of sight on some of these early units for instance, so were just bringing in this week, we call on Friday, and then like Monday changed your mind.
The shipping time.
The predictability of this entire system, even domestically here is just like our out of control. So.
February or crisis managers Thats, what we do for a living in this business. So we're we're.
We're all season guidance that can do what we can do but some of it is frankly little bit out of our control right now, but over time, we've got a call. It a glide path back down to somewhat normal so that these.
Short term logistics costs.
Baked and permanently obviously.
That makes it makes sense.
Appreciate the detailed response and then my follow up question was on the the the market for the vehicles that you'll be producing in September and October before that November certification.
I saw the press release on Notre Dame.
Things like Zeus College campuses people that are on private road slow speeds can you just articulate what you think the size of that market is a is it anything that's in your backlog or hand raisers.
And more importantly, what percentage of that is the <unk>.
Some units that you expect for the year in the event that there is a delay in the November.
Certification I'm, just trying to get a sense of what can be achieved with.
Without that certification.
Yeah, I think we've been to be honest Jeffrey.
Hello.
Surprised how huge this market is because it's.
Not the mainstream markets, its not well documented or not much data that recorded this but as we just get into a few examples even in just a few of these universities. So how big is your fleet and it turns out thousands it's quite remarkable then you multiply that by even just in the university of vertical the number of our.
Universities sketch up extremely high in the six figures quickly then you go to the ports then you go to the airports and.
Leisure facilities, let's call them and all of a sudden this thing has been mushroom and honest, but we thought it might be a limited market. It might be a limited window of availability has turned out to be a completely parallel market stream for us to address that's above the typical let's say quality and features of the L. S. D markets that are there now with this.
Sort of you know open off road vehicles into something that's a core smart capable like ours. So yes, we're thinking this market is in the hundreds of thousands.
Yeah.
Yeah.
That's great to hear that's all I had thank you.
Yeah.
This concludes our question and answer session I'd like to turn the call back over to James Taylor for any closing remarks.
Yeah.
Alright, well, we appreciate everybody that attended the call today.
And we look forward to the next opportunity the next window for us to talk to you either individually or as a group in our Nextel broadcast. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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