Q3 2021 Lordstown Motors Corp Earnings Call
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Good day, and thank you for standing by and welcome to the Lordstown Motors Q3, 2021 earnings Conference call.
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Not like to hand, the conference over to your Speaker today Carter Driscoll. Please go ahead.
Thank you operator, good afternoon, and thank you to all for joining Lordstown Motors third quarter 2021 earnings conference call to supplement today's discussion. Please go to our IR website to view, our press release and Investor deck.
Before we begin I want to call your attention to our safe Harbor provision.
Looking statements that is posted on our website and as part of our quarterly update.
Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward looking statements for the reasons that we cite in our Form 10-Q, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.
Joining us today will be Lordstown motors CEO, Dan in Nevada, <unk>, New CFO, Adam CRO, outgoing interim CFO, Becky roof, and Shay Burns, our new senior VP of operations, Dan will provide an update on the endurance program an overview on our partnership with Fox Con.
All by Adam who will cover our financial results and outlook, followed by Dan will provide closing remarks.
With that I'd like to turn the call over to Dan.
Thank you Carter and welcome everyone.
I was named CEO of Lordstown Motors, just under three months ago.
Since then a lot has happened at lordstown and in the E&P industry generally the country in the world were ready headed towards the day when most new vehicles would have electric powertrains, but EV growth has accelerated at an even faster pace.
And all of that was before the U S infrastructure Bill passed six days ago, putting more than $7 billion into a half a million or more electric vehicle charging stations.
Part of the automotive industry, including and perhaps especially the large commercial fleet sector. The lordstown is targeting is headed to an electric future.
The conversion to electric powertrains provides a once in a lifetime opportunity for startup Oems to penetrate the automotive market.
It's why we've seen so many EV startups over the past couple of years.
But the cold hard reality of the automotive industry is that scale really matters.
While I personally believe that the endurance pickup truck is different from and will be better than many competitive offerings a great truck alone does not make a great business to.
To succeed Lordstown motors needs innovation, a competitive cost structure. The vehicle development platform that brings products to market quickly and efficiently and a differentiated commercial plan, we need a strategy that wins meaningful market share in our target markets against much larger competitors.
I joined Lordstown Motors, because I believe that the company has a strategic path to becoming a competitive EV manufacturer by focusing on partnerships.
And targeting the commercial vehicle segment.
The strategic partnership with Foxconn is an important first step that supports the critical success factors I, just mentioned, particularly competitive and much more flexible cost structure and a vehicle development platform or.
Our partnership with Fox Con by no means guarantees our success, but it does address some significant preconditions I'll talk more about our <unk> relationship in a few minutes.
But first let me start with an update on our top operational priority, bringing the endurance to market as soon as possible.
In the third quarter, we continued to build and test prototype vehicles, we began building preproduction vehicles earlier this quarter. Please.
These vehicles are production design intent based on learnings from our prior CAE and prototype vehicle testing work.
We expect to build approximately 100 preproduction vehicles over the next three months.
To pursue a variety of validation activities aimed at achieving full homologation.
This reflects a modest delay in our preproduction build schedule from earlier expectations and is largely the result of part shortages raw material availability delayed semiconductor shipments and other supply chain disruptions, which as you all know are impacting the entire automotive industry.
The delay in the preproduction vehicle bill as well as revised testing schedules mean that we expect commercial production and customer deliveries to begin in the third quarter of 2022.
From there we would expect to gradually ramp production through the back half of the year.
Next I want to update you on our progress tackling the commercial fleet segment.
While all major Oems are accelerating their electric pickup truck programs, we believe demand will outstrip supply for the foreseeable future and continue to grow.
We also believe that demand will be especially strong among commercial fleet customers were particularly focused on total cost of ownership and performance that's.
That's why we believe the endurance will deliver.
The hub motor design offers unique benefits and its combination of horsepower torque handling and turning radius.
Today, we have some updates on our go to market progress.
As you know our primary sales channel is fleet management companies and commercial fleet operators.
Our team spent a lot of time at trade shows and other industry events and we're seeing the results from this outreach.
We received strong positive feedback from potential customers, who have recently evaluated or experienced a ride in the endurance. We continue to execute on our commercial fleet first strategy and have received additional indications of interest from a number of commercial customers.
Including fleet management companies.
These indications of interest, while non binding and subject to certain conditions or show of confidence in the endurance and demand for electric pickup trucks generally and are important steps in building our order book.
In addition to our focus on the private sector fleet market. We're also excited about the opportunity with the public sector with growing demand emerging from federal state and local government entities for zero emission vehicles.
As a fleet first OEM lordstown is well positioned.
To help meet the myriad of federal state and local initiatives targeted at transitioning public fleets to zero emission with endurance.
Since our last earnings call. We've also made progress towards securing the resources fleet operators will need after they purchased the endurance.
You've heard us say before the trucks with fewer moving parts will need less maintenance, but our fleet customers will expect timely and easy access to options when they do need service.
So to support our fleet management partners, we've signed a memorandum of understanding with Cox automotive with the mutual goal to provide service and support to all the words town Motors EV fleet customers.
Cox automotive service marketplace is more than 6000 service centers 3000 partner locations and 800 mobile technicians nationwide.
The <unk> team will deliver a full suite of service solutions, including preventative scheduled maintenance vehicle pickup and delivery.
Battery servicing vehicle in collision repairs and roadside assistance.
Coupled with our advanced connected vehicle technology and over the year update capabilities, we're confident that we'll be able to meet our customers' needs. Once we have executed a commercial agreement and they begin to take delivery of our vehicles.
We've also expanded our team here at Lordstown.
As we shared earlier this week Edward Hightower of veteran automotive executive has been appointed President of fluids town effective November 29.
Ed has 30 years of experience serving in product development engineering manufacturing commercial and senior executive roles between Ford BMW and GM.
He led Gms $15 billion global crossovers business as the executive Chief engineer and vehicle line executive at BMW. He helped drive five series sales market share and profitability in the U S to record levels.
We also announced this week that we're bringing onboard shape Burns senior Vice president of operations.
Jay has been working with us for a couple of months in an advisory capacity and will primarily focus on endurance launch readiness as well as the implementation of the Fox Con transaction.
He has over 25 years of experience in the automotive industry, including having previously served as vehicle launch leader at Ford Motor Company, and senior director of quality and director of engineering operations at Meritor.
At <unk> together with the recent appointment of our new CFO, Adam Croll significantly strengthen our engineering product development operations and financial teams.
This brings me to our partnership with Fox Con, which we believe will be transformative for our company and mutually beneficial for both organizations.
As previously disclosed on September 30, we entered into an agreement in principle or AIP with an affiliate of Han high precision industries also known as Fox Con to work jointly on Lordstown Motors electric vehicle programs.
And our production and assembly plant in Lordstown, Ohio shortly.
Shortly after the AIP and as a sign of confidence in our partnership Fox Con purchased $50 million of common stock directly from lordstown at a price of approximately $6 90 per share.
Im happy to report that a definitive asset purchase agreement with Fox Con was entered into yesterday.
The final agreement is substantially similar similar to what we provided in the agreement in principle, we have agreed to sell the lordstown facility, excluding certain assets such as our hub Motor Assembly line and battery module and pack lines for $230 million. In addition to the reimbursement of certain operating and facility costs incurred from Sept.
Timber one 2021 through the closing date.
The parties have also agreed to pursue a contract manufacturing agreement for the endurance pickup truck, which must be entered into before closing which is currently targeted for April 30.
In addition, the parties will pursue a joint venture agreement to co design engineer and develop vehicle programs for the commercial market in North America and internationally using box <unk> open platform.
Lordstown would have the right to commercialize these new EV programs in North America, and Fox Com would have the right to commercialize the programs outside of North America subject to mutual licensing agreements.
Han high precision industries, the parent of Fox Con is the largest electronics manufacturer in the world.
As well as the leading technology solution provider for manufacturers.
The company is well known for making Apple iphones and other consumer electronics, but not everyone may know that the company.
Under its chairman Yeung Lou is pursuing an aggressive expansion plan in three areas robotics digital health and EV manufacturer.
Our recent tech de Haan, Hi, unveiled three new prototype vehicles, each of which utilizes the companys open source vehicle development platform called <unk>, which stands for mobility in harmony.
<unk> has been referred to as the Android of EV manufacturing.
It is designed to promote collaboration in the industry to lower barriers to entry and cut development time and costs through the use of common standardized components and systems and a flexible modular platform. We look forward to becoming an OEM development partner on the <unk> platform and through our joint venture with Fox Con using the NIH Platt.
Form to jointly design engineer and develop commercial vehicles that can be marketed globally.
In addition to other strategic benefits.
The Foxconn partnership will unlock the tremendous potential of the lordstown plant by getting it to scale faster.
At $6 2 million square feet, and 640 acres. The lordstown complex was one of the largest internal combustion automotive plants in North America.
It is now being converted to a state of the art manufacturing facility.
<unk> has an excellent opportunity to fill the plant having already announced that the FISC repair program is intended to be manufactured in lordstown.
<unk> and all Oems, whose vehicles are built at the plant will benefit from the increased capacity utilization hospital use of common components and lower overhead costs.
As I said earlier scale in automotive manufacturing matters a lot.
Use of shared space together with the NIH open platform provides smaller more specialized Oems the opportunity to achieve the benefits of scale without being a large fully integrated automaker.
Finally, the partnership with Fox Con should significantly reduce our raw material component and other input costs.
As the largest contract manufacturer in the world.
Foxconn has the purchasing power supply chain network and logistics capabilities to help us significantly reduced vehicle production costs and minimize our supply chain risk.
We also stand to benefit from <unk> expertise in hardware and software integration critical.
Critical to Evs given their expertise is a multinational electronics manufacturer as we grow together these benefits will only improve.
Before I turn it over to Adam I wanted to share my overall thoughts about lordstown future.
Our goal is to become a capital light engineering design and development company focused on producing multiple all electric vehicle programs, primarily for the North American commercial vehicle market.
And Fox Con, we gain a great partner that has a vision of an all EV future and the resources to build a global vehicle engineering and manufacturing footprint.
The transaction will significantly de risk our balance sheet lower our production costs and allow us to focus on bringing innovative electric vehicles to market quicker and more cost effectively.
I'd like to thank the entire lordstown and Fox Con teams for working so hard to get to this stage, but I do realize.
But this is only the beginning and Fox Con is only part of the solution, we must execute and execute better and deliver the endurance truck our team gets it and we will do everything possible to deliver.
With that I'll now turn it over to Adam.
Thank you Dan Good afternoon, and thank you all for joining today's call I'm, Adam accrual, our new Chief Financial Officer, and I will review, our third quarter 2021 results first let me say that while I've only been here for three weeks I'm excited by what I've seen impressed by the talent, we have and look forward to realizing lordstown significant.
Potential.
I'll begin by reiterating the benefits, we see of our new business model and elaborating on the Fox Con transaction.
As Dan said with the Fox Con deal, we are pivoting to a less capital intensive business model box.
<unk> is one of the preeminent manufacturers in the world. They are a significantly larger more established and skilled operator of scaled manufacturing facilities. Our lordstown, Ohio facility was originally designed for substantially higher volumes at the Companys current forecasted volumes without the Fox Con transaction, there would be <unk>.
<unk> higher overhead costs, resulting in greater financial losses over the next several years.
Under the arrangement Fox Con is expected to use the excess capacity to produce vehicles for other Oems, including <unk>, which has already been announced as a result, the plant should be operated more effectively and efficiently, reducing our operational risk and future overhead burden.
We are well underway working with foxconn to identify ways to capitalize on their buying power. For example, we believe our steel consumption represents a small fraction of Fox <unk> global spend.
I am equally excited about the potential joint venture agreement.
I H consortium will enable us to be a manufacturer with virtual scale with more than 9500 suppliers in the consortium development costs can be essentially spread across substantially greater global volumes, along with accelerating time to market for new vehicles, using a flexible modular platform with common standardized <unk>.
<unk> and systems.
Now to the funding from the transaction.
The total proceeds to <unk> from the asset sale will be $230 million.
We will receive an initial down payment of the purchase price of $100 million on or about November 18.
And additional down payment of $50 million on February one 2022, and a third down payment of $50 million No later than April 15th 2022.
The remaining $30 million of purchase price together with reimbursement of certain operating and facility costs incurred from September one 2021 through closing will be paid at closing.
In exchange for the down payments, we will be granting Fox Con a first priority security interest on substantially all of our assets along with committing to maintain minimum cash balances of $100 million through January 150 million through March one and $30 million thereafter.
And as Dan mentioned, we already received a $50 million equity investment in October.
Turning to our financials in the third quarter, we recorded a net loss of $95 8 million versus $108 2 million in Q2.
Our expenses consisted of $31 $3 million in SG&A roughly in line with the prior quarter.
Albeit $1 9 million lower than Q2, our legal expenses remain elevated representing approximately 40% of total SG&A due to the ongoing litigation matters.
Personnel costs in SG&A and head count have remained flat quarter over quarter.
R&D expenses were $56 9 million compared to $76 $5 million in Q2, a decrease of $19 $7 million driven almost entirely by timing of prototype component design and testing expenses as with SG&A personnel costs and head count remained flat quarter over quarter.
Noncash expenses for the quarter totaled $21 million and include stock comp amortization and the mark to market for the warrants.
We ended the third quarter with total cash of $234 million.
From a cash flow perspective, we used $81 $6 million in cash for operations offset by a $6 7 million dollar working capital.
It'll benefit from accounts payable and accrued expenses.
We incurred $80 million for Capex as we continue to invest in the facility and supplier tooling in preparation for commercial launch the substantial majority of the Capex was categorized as construction in progress as we continue to make the plant production ready.
Finally, we raised $20 million from our equity purchase agreement in exchange for $3 9 million shares.
With the funding of the Fox Con deal, we materially improve our liquidity as we disclosed on our September 30 business update we continue to evaluate additional financing alternatives, including private or public equity transactions that financing or a combination of both.
With the asset purchase agreement, we believe we are well positioned to secure this next tranche of financing before the endurance goes into commercial production we.
We are also continuing our discussions with the Doe regarding obtaining an ATM loan.
Now turning to guidance, we are updating our full year outlook, we anticipate ending the year with between 150 and $180 million of cash on hand inclusive of the initial downpayment provided by Fox.
This would be a total cash burn of approximately $70 million in Q4.
Ending cash represents an improvement of approximately $45 million at the midpoint.
Due to lower capital expenditures, we are now forecasting $330 million to $350 million.
In capital expenditures versus prior guidance of 375 million to 400 and the.
The investments are being delayed rather than eliminated due to supply chain challenges and tactical decisions based on lead times and ROI.
Our guidance for SG&A and R&D are unchanged SG&A is expected to be $105 million to $120 million in R&D $3 $20 million to $340 million for the full year.
The previously mentioned reimbursement by Fox Con for a portion of our operating expenses and Capex at closing is not reflected in our guidance.
We will not be providing 2022 guidance at this time as we have indicated we are transitioning our business model to be more flexible and less capital intensive.
Business, we anticipate providing 2022 guidance once we execute the contract manufacturing agreement with Fox Con targeted for April 2022.
Thank you and I'll now turn the call back over to Dan for closing remarks.
Thanks, Adam.
I wanted to thank our entire lordstown team for their continued dedication hard work and support.
We look forward to continuing our close working relationship with Fox Con over the next few months as we focus on bringing the endurance to market finalizing the contract manufacturing agreement closing the asset purchase agreement and working on the development of future vehicles together. Thank.
Thank you for your time today, and I look forward to taking your questions Carter.
Thank you Dan operator, please open the lines for Q&A.
As a reminder to ask a question will need to press star one on your telephone.
Enjoy your question Crystal ball game, please standby, while we compile the Q&A long stern.
Our first question comes from the line of Joseph Spak from RBC capital markets. Your line is now open.
Thanks, Good afternoon, everyone.
Two questions I guess the first one is I appreciate you're not giving 'twenty two guidance now but is it possible to give us some guide points has too.
How you are now thinking about stuff like margin and Capex as you shift to this more variable model with Fox Com.
Thanks for your question Joe.
Yes, so so with the the contract.
Fact manufacturing with Fox Con the endurance specific capex will roughly be the same maybe somewhat lower based on just buying power and our ability to do it better through Fox Con.
Facility Capex will come down general equipment, Capex will come down some things will be built into piece price.
So generally it will be lower.
Our R&D costs I don't know Joe if you asked about R&D costs I forgot the question now but yes.
Yes.
R&D costs are really going to be dependent on timing of.
Testing and the final build an sop. So we saw as I mentioned, we had lower R&D costs. In Q3, we expect that they will ramp up a bit more normalized in Q4, and then if if all goes well we get through testing the PPP build and testing then they should significantly.
<unk> next year.
Okay.
And then the second question I had is just.
Related to the opportunity with the PMI platform.
So.
My understanding is that <unk>.
Most of the initial vehicles off that and managed platform or from a consumer vehicles. It seems like a large sudden wants to stay more focused on the commercial market. So I'm. Just curious if you could let us know what you've sort of seen from that platform that makes it applicable for for our commercial and then.
Whats the plan for.
Hub motors with major and take back because even if I look at your picture on slide 11, it looks like Youre using more traditional.
E Motors and I know, that's sort of the idea of NIH right you get scale across.
Any different vehicles.
And then lastly, I guess relate to matches like what sort of what's a reasonable timeframe for those first vehicles off NIH, yes.
Yes, I'm glad you asked so we've spent a fair amount of time studying NIH and in fact I brought at high tower in about a month ago month, and a half ago to do a deep dive analysis of opportunities on NIH. It is relatively new and the reference designs and standards will increase over time the vehicles they.
Revealed a couple of weeks ago with their Tech day was a model the model E, which essentially sedans crossovers and then there was a transit bus. So we've already started doing design concepts off of those vehicles, one of which I don't want to reveal right now, but it is a commercial van.
It's an extension of one of those.
One of those models.
We think would have a lot of residents in the market not only here, but internationally Fox Con I think it's fair to say, it's very excited about it.
And we had to do some.
Adjustments, but like I said, it's a modular platform that have six points, but it also is flexible points. So that the platform itself can be extended so it actually adapted to a commercial vehicle pretty well.
Now again, I expect there'll be different vehicle architectures on that platform over time.
And we will be able to produce even more types of commercial vehicles, but off that one design, we were able to come up with what we think would be a really interesting commercial vehicle in two variance off of that vehicle.
So I think it has great potential.
And the future of hub motors on that platform or hub.
Motors.
HUD motors.
I think are really important for the pickup truck and they are definitely be part of our product portfolio going forward, but not every vehicle needs hub motors and we'll weigh the tradeoffs.
The use cases, the cost targets et cetera, and I.
Didn't say that all of our vehicles will have hub motors, but.
It'll be part of our product strategy going forward.
Okay. Thank you very much.
Thanks, Joe.
Thank you. Our next question comes from the line of Greg Lewis from <unk>. Your line is now open.
Thank you and good afternoon everybody.
I just wanted to talk a little bit about.
Post the sale of the Lordstown factory the company still does on the.
The battery module and pack.
Line as well as the hub motor line.
In realizing that youre, giving full year comp that capex, but not necessarily you're not really giving guidance into 2022 is there any way to kind of think about where we are in the process of having those.
Both the hub motor line and the battery line, where are we in the process of having those up.
In terms of completion.
Yes, so the battery line I think we said on the last call. We've been substantially Commission and it's operating motor line is in place, it's not fully commissioned yet, but we think it will be before the end of the quarter.
We're producing motor soft that off that line and so we think it will be sufficient for the PPP Bill.
Okay, Great. That's all for me. Thank you.
Alright, thank you.
Thank you. Our next question comes from the line of John Lopez from vertical group. Your line is now open.
Okay.
Hey, thanks, so much.
I had a couple of quick ones, if I could hopefully quick ones. So first of all I guess I just want to make sure I understand the moving pieces here. So you have $234 million in cash as of September if.
If we just plug in what Youre, giving us for the year Opex and Capex in Q4 is like something close to $2 15.
So that gets it sounded like 'twenty, if we add the 100 from Fox content or <unk> from the ATM still seems like Atlanta below the $1 50 to 180. So can you just correct me wherever I'm wrong there.
Yeah.
Well.
One piece of it is going to be the SG&A and.
And in R&D are both have some noncash expenses in them right. So you can't just take those numbers and subtract them from the total.
And you've seen like are and Thats one of the things we reported the stock comp expense.
One of the numbers that would be in the expense items.
Okay got it but that's like that's like low single digit millions right.
Well and then of course, the other thing is working capital working capital.
Okay got you, meaning meaning payables.
Yes.
Okay.
I gotcha.
Yes.
The second thing.
Alright.
I guess im a little lost in the narrative so.
As you think about I know youre not going to give guidance for 2022, but.
Yeah, I guess youre going to put some preproduction units out between sort of now in March and you're talking about.
Commercial ramp in Q3 like just help us understand what that looks like like pay what happens in Q2 and also just what does that what does that look like.
Is that a broad nationwide thing is that targeted to a select number of flu.
Customers just help us understand what's next.
Right. So the latter part of Q1 and Q2 are really taken up with testing and the long pole in the tent is the active and passive safety testing that we need to do with preproduction vehicles do you can't do that testing as well as some of the other testing without ppvs. So.
The objective is to get the Ppv's built by call. It mid Q1, and then undergo all the testing we need to do to get homologate, it and have scalable vehicles by Q3.
Got it Alright, then once that starts.
When you say saleable Q3, like what does that what does that look like.
Well, we sell them largely to fleet customers are fleet management companies, maybe some fleet operators.
So we have a list of customers, who want vehicles and we go through that list.
We'd start ramping the current plan as Q3 and then gradually.
Ramp up during the course of the back half of the year.
Okay got you that helps.
And then the last thing I was hoping you could talk a bit about I guess I hear the words large commercial markets more in the last I don't know.
Month or sooner than I had prior.
That seems to be something youre trying to focus us on.
What is that like what are you what are you trying to message there and what what is that.
When do we start to learn more about that.
Yes, well so.
The commercial market.
Obviously with fixed based operations charging charging infrastructure is a little bit less relative relevant for many of those commercial customers. There is more demand. There are totally they are focused on total cost of ownership.
They are sensitive to ESG issues. So we're seeing just a lot of demand there.
If you take let's say the pickup market.
As a whole right.
Roughly 3 billion unit 3 million unit market.
Go back to a normal year like 2019.
And.
Commercial is a meaningful 25% of that market roughly and then you have good penetration rate. If you believe the forecasters of let's say, 30% penetration by 2025, you get into a substantial market and Thats just pickup trucks. Then you look at vans and you'll see the growth in delivery as a service and last mile delivery.
We see huge demand for vans.
So.
That's the that's the market, we're going after and if you look at the capacity announcements for other Oems obviously, everybody is pulled forward the EV plans.
Have announced increases in capacity, but if you actually add up all the capacity across the industry, it's still likely to be short of demand.
And that's where we see the opportunity and I think that's going to be the case for the next several years.
Got you, Okay really helpful. Thanks for the thoughts.
Thanks, Ken.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
John Your question press the pound key.
At this time I am showing no further questions I would like to turn the call back over to CEO, Dan <unk> for closing remarks.
Thank you very much operator, so in closing again, we realize that our company is not just an appendage to foxconn, it's not all about Fox gone we're focused on the endurance. We know we have to get that truck out it's been a challenging quarter with raw material shortages part shortages supply chain disruptions, particularly from international sourcing but.
We're doing everything we can to mitigate it and you have our commitment that we're going to do everything possible to get the truck out.
On a revised schedule I will say on the Fox Con relationship people have.
Analogize cars in the future as being cell phones on wheels, and who better to partner with and the largest cell phone manufacturer in the world I think the partnership is tremendous opportunity.
I'll take it one step at a time.
The joint venture agreement I think is probably one of the most attractive aspects of the agreement to jointly develop and design vehicles. Our teams are already working together, our engineering teams and I am very excited about the change in the business model and the opportunity. It brings I appreciate all the shareholders who have hung in there with us it's not easy we see the pace.
Or in the news every day with a $100 billion market cap for Vivien.
And we know we have a long way to go but we feel like we have a path and a strong partner and we look forward to talking to you again in.
Q1, Thank you very much for joining the call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Good day, and thank you for standing by and welcome to the Lordstown Motors Q3, 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need.
Thats Star one on your telephone please.
Be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I'd now like to hand, the conference over to your Speaker today Carter Driscoll. Please go ahead.
Thank you operator, good afternoon, and thank you to all for joining Lordstown Motors third quarter 2021 earnings conference call to supplement today's discussion. Please go to our IR website to view, our press release and Investor deck.
Before we begin I want to call your attention to our safe Harbor provision for forward looking statements that is posted on our website and as part of our quarterly update.
The safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward looking statements for the reasons that we cite in our Form 10-Q, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.
Joining us today will be lordstown motors, CEO, Dan <unk>, New CFO, Adam crawl, outgoing interim CFO, Becky roof, and Shay Burns, our new senior VP of operations, Dan will provide an update on the endurance program an overview on our partnership with Fox Con all by Adam who will cover our financial results.
Outlook all.
Dan will provide closing remarks.
With that I'd like to turn the call over to Dan.
Thank you Carter and welcome everyone.
I was named CEO of Lordstown Motors, just under three months ago.
Since then a lot has happened at Lordstown and then the EV industry generally the country in the world. We're already headed towards the day when most new vehicles would have electric powertrains, but EV growth has accelerated at an even faster pace.
And all of that was before the U S infrastructure Bill passed six days ago, putting more than $7 billion into a half a million or more electric vehicle charging stations.
Every part of the automotive industry, including and perhaps especially the large commercial fleet sector. The lordstown is targeting is headed to an electric future.
The conversion to electric powertrains provides a once in a lifetime opportunity for startup Oems to penetrate the automotive market, which is why we've seen so many EV startups over the past couple of years.
But the cold hard reality of the automotive industry is that scale really matters.
While I personally believe that the endurance pickup truck is different from and will be better than many competitive offerings a great truck alone does not make a great business to.
To succeed Lordstown motors needs innovation, a competitive cost structure, but vehicle development platform that brings products to market quickly and efficiently and a differentiated commercial plan, we need a strategy that wins meaningful market share in our target markets against much larger competitors.
I joined Lordstown Motors, because I believe that the company has a strategic path to becoming a competitive EV manufacturer by focusing on partnerships.
And targeting the commercial vehicle segment.
The strategic partnership with Foxconn is an important first step that supports the critical success factors I, just mentioned, particularly competitive and much more flexible cost structure and a vehicle development platform or.
Our partnership with Fox Con by no means guarantees our success, but it does address some significant preconditions I'll talk more about our Fox con relationship in a few minutes.
But first let me start with an update on our top operational priority, bringing the endurance to market as soon as possible.
In the third quarter, we continued to build and test prototype vehicles, we began building preproduction vehicles earlier this quarter. These.
These vehicles are production design intent based on learnings from our prior CAE and prototype vehicle testing work.
We expect to build approximately 100 preproduction vehicles over the next three months.
To pursue a variety of validation activities aimed at achieving full homologation.
This reflects a modest delay in our preproduction build schedule from earlier expectations and is largely the result of part shortages raw material availability delays semiconductor shipments and other supply chain disruptions, which as you all know are impacting the entire automotive industry.
The delay in the preproduction vehicle bill as well as revised testing schedules mean that we expect commercial production and customer deliveries to begin in the third quarter of 2022.
From there we would expect to gradually ramp production through the back half of the year.
Next I want to update you on our progress tackling the commercial fleet segment.
While all major Oems are accelerating their electric pickup truck programs, we believe demand will outstrip supply for the foreseeable future and continue to grow.
We also believe that demand will be especially strong among commercial fleet customers were particularly focused on total cost of ownership and performance, that's where we believe the endurance will deliver the hub motor design offers unique benefits and its combination of horsepower torque handling and turning radius.
Today, we have some updates on our go to market progress.
As you know our primary sales channel is fleet management companies and commercial fleet operators.
Our team spent a lot of time at trade shows and other industry events and we're seeing the results from this outreach.
We received strong positive feedback from potential customers, who have recently evaluated or experienced a ride in the endurance. We continue to execute on our commercial fleet first strategy and have received additional indications of interest from a number of commercial customers.
Including fleet management companies.
These indications of interest, while non binding and subject to certain conditions or show of confidence in the endurance and demand for electric pickup trucks generally and are important steps in building our order book.
In addition to our focus on the private sector fleet market. We're also excited about the opportunity with the public sector with growing demand emerging from federal state and local government entities for zero emission vehicles.
As a fleet first OEM lordstown is well positioned.
To help meet the myriad of federal state and local initiatives targeted at transitioning public fleets to zero emission with endurance.
Since our last earnings call. We've also made progress towards securing the resources fleet operators will need after they purchased the endurance.
You've heard us say before their trucks with fewer moving parts will need less maintenance, but our fleet customers will expect timely and easy access to options when they do need service.
So to support our fleet management partners, we've signed a memorandum of understanding with Cox automotive with the mutual goal to provide service and support to all Lordstown Motors EV fleet customers.
Cox automotive service marketplace is more than 6000 service centers 3000 partner locations and 800 mobile technicians nationwide.
The <unk> team will deliver a full suite of service solutions, including preventative scheduled maintenance vehicle pickup and delivery.
Battery servicing vehicle in collision repairs and roadside assistance.
Coupled with our advanced connected vehicle technology and over the year update capabilities, we're confident that we'll be able to meet our customers' needs. Once we have executed a commercial agreement and they begin to take delivery of our vehicles.
We've also expanded our team here at Lordstown.
As we shared earlier this week Edward Hightower of veteran automotive executive has been appointed President of fluids town effective November 29.
Ed has 30 years of experience serving in product development engineering manufacturing commercial and senior executive roles between Ford BMW and GM.
He led Gms $15 billion global crossover business as the executive Chief engineer and vehicle line executive at BMW. He helped drive five series sales market share and profitability in the U S to record levels.
We also announced this week that we're bringing onboard shape Burns senior Vice president of operations.
Jay has been working with us for a couple of months in an advisory capacity and will primarily focus on endurance launch readiness as well as the implementation of the Fox Con transaction.
He has over 25 years of experience in the automotive industry, including having previously served as vehicle launch leader at Ford Motor Company, and senior director of quality and director of engineering operations at Meritor.
At <unk> together with the recent appointment of our new CFO, Adam Croll significantly strengthen our engineering product development operations and financial teams.
This brings me to our partnership with Fox Con, which we believe will be transformative for our company and mutually beneficial for both organizations.
As previously disclosed on September 30, we entered into an agreement in principle or AIP with an affiliate of Han high precision industries also known as Fox Con to work jointly on Lordstown Motors electric vehicle programs.
And our production and assembly plant in Lordstown, Ohio shortly.
Shortly after the AIP and as a sign of confidence in our partnership Fox Con purchased $50 million of common stock directly from large town at a price of approximately $6 90 per share.
Im happy to report that a definitive asset purchase agreement with Fox Con was entered into yesterday.
The final agreement is substantially similar similar to what we provided in the agreement in principle, we have agreed to sell the lordstown facility, excluding certain assets such as our hub Motor Assembly line and battery module and pack lines for $230 million. In addition to the reimbursement of certain operating and facility costs incurred from Sept.
Timber one 2021 through the closing date.
The parties have also agreed to pursue a contract manufacturing agreement for the endurance pickup truck, which must be entered into before closing which is currently targeted for April 30.
In addition, the parties will pursue a joint venture agreement to co design engineer and develop vehicle programs for the commercial market in North America and internationally using box guns NIH open platform.
Lordstown would have the right to commercialize these new EV programs in North America, and Fox Com would have the right to commercialize the programs outside of North America subject to mutual licensing agreements.
Han high precision industries, the parent of Fox Con is the largest electronics manufacturer in the world.
As well as the leading technology solution provider for manufacturers.
The company is well known for making Apple iphones and other consumer electronics, but not everyone may know that the company.
Under its chairman Yeung Lou is pursuing an aggressive expansion plan in three areas robotics digital health and EV manufacturing.
And their recent Tec de Haan, Hi, unveiled three new prototype vehicles, each of which utilizes the companys open source vehicle development platform called <unk>, which stands for mobility in harmony.
<unk> has been referred to as the Android of EV manufacturing it.
It is designed to promote collaboration in the industry to lower barriers to entry and cut development time and costs through the use of common standardized components and systems and a flexible modular platform. We look forward to becoming an OEM development partner on the <unk> platform and through our joint venture with Fox Con using the NIH.
To jointly design engineer and develop commercial vehicles that can be marketed globally.
In addition to other strategic benefits.
The Foxconn partnership will unlock the tremendous potential of the lordstown plant by getting it to scale faster.
At $6 2 million square feet, and 640 acres. The lordstown complex was one of the largest internal combustion automotive plants in North America.
It is now being converted to a state of the art EV manufacturing facility.
<unk> has an excellent opportunity to fill the plant having already announced that the FISC repair program is intended to be manufactured in lordstown.
LNC and all Oems, whose vehicles are built at the plant will benefit from the increased capacity utilization hospital use of common components and lower overhead costs.
As I said earlier scale in automotive manufacturing matters a lot.
<unk> shared space together with the NIH open platform provides smaller more specialized Oems the opportunity to achieve the benefits of scale without being a large fully integrated automaker.
Finally, the partnership with Fox Con should significantly reduce our raw material component and other input costs.
As the largest contract manufacturer in the world.
Foxconn has the purchasing power supply chain network and logistics capabilities to help us significantly reduced vehicle production costs and minimize our supply chain risk.
We also stand to benefit from <unk> expertise in hardware and software integration critical.
Critical to Evs given their expertise is a multinational electronics manufacturer as we grow together these benefits will only improve.
Before I turn it over to Adam I wanted to share my overall thoughts about lordstown future.
Our goal is to become a capital light engineering design and development company focused on producing multiple all electric vehicle programs, primarily for the North American commercial vehicle market.
And Fox Con, we gain a great partner that has a vision of an all EV future and the resources to build a global vehicle engineering and manufacturing footprint.
The transaction will significantly de risk our balance sheet lower our production costs and allow us to focus on bringing innovative electric vehicles to market quicker and more cost effectively.
I'd like to thank the entire lordstown and Fox Con teams for working so hard to get to this stage, but I do realize.
But this is only the beginning and Fox Con is only part of the solution, we must execute and execute better and deliver the endurance truck our team gets it and we will do everything possible to deliver.
With that I'll now turn it over to Adam.
Thank you Dan Good afternoon, and thank you all for joining today's call I'm, Adam <unk>, our new Chief Financial Officer, and I will review, our third quarter 2021 results first let me say that while I've only been here for three weeks I'm excited by what I've seen impressed by the talent, we have and look forward to realizing lordstown significant.
Potential.
I'll begin by reiterating the benefits, we see of our new business model and elaborating on the Fox Con transaction.
As Dan said with the Fox Con deal, we are pivoting to a less capital intensive business model boxcar.
<unk> is one of the preeminent manufacturers in the world. They are a significantly larger more established and skilled operator of scaled manufacturing facility. Our lordstown, Ohio facility was originally designed for substantially higher volumes at the Companys current forecasted volumes without the Fox Con transaction, there would be <unk>.
<unk> higher overhead costs, resulting in greater financial losses over the next several years under.
Under the arrangement Fox Con is expected to use the excess capacity to produce vehicles for other Oems, including <unk>, which has already been announced as a result, the plant should be operated more effectively and efficiently, reducing our operational risk and future overhead burden.
We are well underway working with Fox con to identify ways to capitalize on their buying power. For example, we believe our steel consumption represents a small fraction of Fox <unk> global spend.
I am equally excited about the potential joint venture agreement.
Consortium will enable us to be a manufacturer with virtual scale with more than 9500 suppliers in the consortium development costs can be essentially spread across substantially greater global volumes, along with accelerating time to market for new vehicles, using a flexible modular platform with common standardized <unk>.
<unk> and systems.
Now the funding from the transaction.
The total proceeds to <unk> from the asset sale will be $230 million.
We will receive an initial down payment of the purchase price of $100 million on or about November 18.
And additional down payment of $50 million on February one 2022, and a third down payment of $50 million No later than April 15th 2022.
The remaining $30 million of purchase price together with reimbursement of certain operating and facility costs incurred from September one 2021 through closing will be paid at closing.
In exchange for the down payments, we will be granting Fox Con a first priority security interest on substantially all of our assets along with committing to maintain minimum cash balances of $100 million through January 150 million through March one and $30 million thereafter.
And as Dan mentioned, we already received a $50 million equity investment in October.
Turning to our financials in the third quarter, we recorded a net loss of $95 8 million versus $108 $2 million in Q2.
Our expenses consisted of $31 $3 million in SG&A roughly in line with the prior quarter.
Albeit $1 9 million lower than Q2, our legal expenses remain elevated representing approximately 40% of total SG&A due to the ongoing litigation matters.
Personnel costs in SG&A and head count have remained flat quarter over quarter.
Our R&D expenses were $56 9 million compared to $76 $5 million in Q2, a decrease of $19 $7 million driven almost entirely by timing of prototype component design and testing expenses as with SG&A personnel costs and head count remained flat quarter over quarter.
Noncash expenses for the quarter totaled $21 million and include stock comp amortization and the mark to market for the warrants.
We ended the third quarter with total cash of $234 million.
From a cash flow perspective, we used $81 $6 million in cash for operations offset by a $6 $7 million working capital benefit from accounts payable and accrued expenses.
We incurred $80 million for Capex as we continue to invest in the facility and supplier tooling in preparation for commercial launch the substantial majority of the Capex was categorized as construction in progress as we continue to make the plant production ready.
Finally, we raised $20 million from our equity purchase agreement in exchange for $3 9 million shares.
With the funding of the Fox Con deal we.
Materially improve our liquidity as we disclosed on our September 30 business update we continue to evaluate additional financing alternatives, including private or public equity transactions that financing or a combination of both.
With the asset purchase agreement, we believe we are well positioned to secure this next tranche of financing before the endurance goes into commercial production we.
We are also continuing our discussions with the Doe regarding obtaining an ATM loan.
Now turning to guidance, we are updating our full year outlook, we anticipate ending the year with between 150 and $180 million of cash on hand inclusive of the initial downpayment provided by Fox.
This would be a total cash burn of approximately $70 million in Q4.
Ending cash represents an improvement of approximately $45 million at the midpoint.
Due to lower capital expenditures, we are now forecasting $330 million to $350 million.
In capital expenditures versus prior guidance of 375 million to 400 million the.
The investments are being delayed rather than eliminated due to supply chain challenges and tactical decisions based on lead times and ROI.
Our guidance for SG&A and R&D are unchanged SG&A is expected to be $105 million to $120 million in R&D $3 $20 million to $340 million for the full year.
The previously mentioned reimbursement by Fox Con for a portion of our operating expenses and Capex at closing is not reflected in our guidance.
We will not be providing 2022 guidance at this time as we have indicated we are transitioning our business model to be more flexible and less capital intensive.
Business, we anticipate providing 2022 guidance once we execute the contract manufacturing agreement with Fox Con targeted for April 2022.
Thank you and I'll now turn the call back over to Dan for closing remarks.
Thanks, Adam.
I want to thank our entire lordstown team for their continued dedication hard work and support.
We look forward to continuing our close working relationship with Fox Con over the next few months as we focus on bringing the endurance to market finalizing the contract manufacturing agreement closing the asset purchase agreement and working on the development of future vehicles together. Thank.
Thank you for your time today, and I look forward to taking your questions Carter.
Thank you Dan operator, please open the lines for Q&A.
As a reminder to ask a question will need to press star one on your telephone.
Enjoy your question press the pound key please standby, while we compile the Q&A as long stern.
Our first question comes from the line of Joseph Spak from RBC capital markets. Your line is now open.
Thanks, Good afternoon, everyone.
Two questions I guess the first one is I appreciate you're not giving 'twenty two guidance now but is it possible to give us some guide points has too.
How you are now thinking about stuff like margin and Capex as you shift to this more variable model with Fox Com.
Thanks for your question Joe.
Yes, so so with the the contract.
Fact manufacturing with Fox Con the endurance specific capex will roughly be the same maybe somewhat lower based on just buying power and our ability to do it better through Fox Con.
That facility Capex will come down general equipment, Capex will come down some things will be built into piece price.
So generally it will be lower.
Our R&D cost I don't know Joe if you asked about R&D costs I forgot the question now, but yes orange.
Yes.
R&D costs are really going to be dependent on timing of.
Testing and the final build in SLP.
So we saw as I mentioned, we had lower R&D costs in Q3, we expect that they will ramp up a bit more normalized in Q4, and then if if all goes well we get through testing the PPP build and testing then they should significantly decrease next year.
Okay.
And then the second question I had is just.
Related to the opportunity with the <unk> platform.
So.
My understanding is that most of the initial vehicles off that I managed platform are from our consumer vehicles. It seems like large sand wants to stay more focused on the commercial market. So I'm. Just curious if you could let us know what you've sort of seen from that platform that makes it applicable for for our commercial and then.
What's the plan for.
Motors with major and take back because even if I look at your picture on slide 11, it looks like Youre using more traditional.
E Motors and I know, that's sort of the idea of MAA try you've got to scale across.
Any different vehicles.
And then lastly, I guess relate that matches like what's the what's a reasonable timeframe for those first vehicles off at my age.
So I'm glad you asked I'm glad you asked so we've spent a fair amount of time studying NIH and in fact I brought at high tower in about a month ago month, and a half ago to do a deep dive analysis of opportunities on NIH. It.
Is relatively new and the reference designs and standards will increase over time the vehicles. They revealed a couple of weeks ago with their Tech day was a model the model E, which essentially sedans crossovers and then there was a transit bus.
So we've already started doing design concepts off of those vehicles, one of which I don't want to.
Right now, but it is a commercial van.
It's an extension of one of those.
One of those models.
We think would have a lot of residents in the market not only here, but internationally Fox Con I think it's fair to say, it's very excited about it.
And we had to do some.
Adjustments, but like I said, it's a modular platform that have six points, but it also is flexible points. So that the platform itself can be extended so it actually adapted to a commercial vehicle pretty well.
Now again, I expect there'll be different vehicle architectures on that platform over time.
And we will be able to produce even more types of commercial vehicles, but off that one design, we were able to come up with what we think would be a really interesting commercial vehicle in two variance off of that vehicle.
So I think it has great potential.
And the future of hub motors on that platform.
Motors.
HUD motors.
I think are really important for the pickup truck and they are definitely be part of our product portfolio going forward, but not every vehicle needs hub motors and we'll weigh the tradeoffs.
The use cases, the cost targets et cetera, and I.
Didn't say that all of our vehicles will have hub motors, but.
It'll be part of our product strategy going forward.
Okay. Thank you very much.
Thanks, Joe.
Thank you. Our next question comes from the line of Greg Lewis from <unk>. Your line is now open.
Thank you and good afternoon everybody.
I just wanted to talk a little bit about.
Post the sale of the Lordstown factory the company still does on the.
The battery module and pack line as well as the hub motor line.
Realizing that youre, giving full year comp that capex, but not necessarily you're not really giving guidance into 2022 is there any way to kind of think about where we are in the process of having those.
Both the hub motor line and the battery lines, where are we in the process of having those up.
In terms of completion.
Yes, so the battery line I think we said on the last call. We've been substantially Commission and it's operating motor line is in place, it's not fully commissioned yet, but we think it will be before the end of the quarter.
And we're producing motor soft that off that line and so we think it will be sufficient for the PPP Bill.
Okay, Great. That's all for me. Thank you.
Alright, thank you.
Thank you. Our next question comes from the line of John Lopez from vertical group. Your line is now open.
Hey, thanks, so much.
I had a couple of quick ones, if I could what hopefully quick ones. So first of all I guess I just want to make sure I understand the moving pieces here. So you have $234 million in cash as of September <unk>.
If we just plug in what Youre, giving us for the year Opex and Capex in Q4 is like something close to $2 15.
So that gets it sounded like 'twenty, if we add the 100 from Fox content or <unk> from the ATM still seems like Atlanta below the $1 50 to 180. So can you just correct me wherever I'm wrong there.
Yeah.
Well the.
One piece of it is going to be the SG&A and.
And.
R&D or both have some noncash expenses in them right. So you can't just take those numbers and.
Subtract them from the total.
And you've seen like are and Thats one of the things we reported that the stock comp expense, that's kind of one of the numbers that would be in the expense items.
Okay got it but that's like that's like low single digit millions right.
Well and then of course, the other thing is working capital working capital.
Okay got you.
Meaning meaning payables.
Yes.
Okay.
Okay Gotcha.
Sure.
The second thing sorry, I guess, unlike a little lost in the narrative.
As you think about I know youre not going to give guidance for 2022, but.
Yeah, I guess youre going to put some preproduction units out between sort of now in March and you're talking about a commercial ramp in Q3 like just help us understand what that looks like like pay what happens in Q2 and also just what does that what does that look like.
A broad nationwide thing is that targeted to a select number of fleet customers just help us understand what's next.
Right.
The latter part of Q1, and Q2 are really taken up with testing and the long pole in the tent is the active and passive safety testing that we need to do with preproduction vehicles.
Can't do that testing as well as some of the other testing without ppvs.
So.
The objective is to get the PPD is built by call. It mid Q1, and then undergo all the testing we need to do to get homologate, it and have scalable vehicles by Q3.
Got it Alright, then once that starts.
When you say saleable Q3, like what does that what does that look like.
Well, we sell them largely to fleet customers are fleet management companies, maybe some fleet operators.
So we have a list of customers, who want vehicles and we go through that list.
We start ramping the current plan as Q3 and then gradually.
Ramp up during the course of the back half of the year.
Okay got you that helps.
And then the last thing I was hoping you could talk a bit about I guess I hear the words large commercial markets more in the last.
A month or so then I had prior.
That seems to be something youre trying to focus us on what is that like what are you. What are you trying to message there and what what is that.
When do we start to learn more about that.
Yeah.
Yes, well so that the commercial market.
Obviously with fixed based operations charging charging infrastructure is a little bit less relative relevant for many of those commercial customers. There is more demand there are totally focused on total cost of ownership.
They are sensitive to ESG issues. So we're seeing just a lot of demand there.
If you take let's say the pickup market as a whole right.
Roughly 3 billion unit 3 million unit market.
Go back to a normal year like 2019.
Sure.
Commercial is a meaningful 25% of that market roughly and then you have good penetration rate. If you believe the forecasters of let's say, 30% penetration by 2025, you get into a substantial market and Thats just pickup trucks. Then you look at vans and you'll see the growth in delivery as a service.
Last mile delivery.
We see huge demand for vans.
So.
That's the that's the market, we're going after and if you look at the capacity announcements for other Oems obviously, everybody is pulled forward the EV plans.
As announced increases in capacity, but if you actually add up all the capacity across the industry, it's still likely to be short of demand.
And Thats, where we see the opportunity and I think that's going to be the case for the next several years.
Got you, Okay really helpful. Thanks for the thoughts.
Thanks, John.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
John Your question press the pound key.
At this time I am showing no further questions I would like to turn the call back over to CEO, Dan <unk> for closing remarks.
Thank you very much operator, so in closing again, we realize that our company is not just an appendage to foxconn, it's not all about Fox gone we're focused on the endurance. We know we have to get that truck out it's been a challenging quarter with raw material shortages part shortages supply chain disruptions, particularly from international sourcing but.
We're doing everything we can to mitigate it and you have our commitment that we're going to do everything possible to get the truck out.
On a revised schedule I will say on the Fox Con relationship people have.
Analogize cars in the future as being cell phones on wheels and.
Who better to partner with and the largest cell phone manufacturer in the world I think the partnership is tremendous opportunity.
We'll take it one step at a time.
The joint venture agreement I think is probably one of the most attractive aspects of the agreement to jointly develop and design vehicles. Our teams are already working together, our engineering teams and I am very excited about the change in the business model and the opportunity. It brings I appreciate all the shareholders who have hung in there with us it's not easy we see the pay.
Or in the news every day with a $100 billion market cap for <unk>.
And we know we have a long way to go but we feel like we have a path and a strong partner and we look forward to talking to you again in.
Q1, Thank you very much for joining the call.
This concludes today's conference call. Thank you for participating you may now disconnect.