Q1 2022 Arrival SA Earnings Call
Again, and I will be your operator today.
Before I hand, the call over to the arrival team I'd like to go over just a few housekeeping notes for the program.
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Thank you for your attendance today I will now turn the call over to <unk> Soni Investor Relations for arrival.
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Thank you for joining us today to discuss the rivals first quarter 2022 financial results. My name is may be ask Tony VP of Investor Relations and with me today is Dennis arrivals CEO of ADESA.
President, Mike <unk>, CEO of automotive and John <unk> CFO .
Before we begin I'd like to remind everyone that certain statements made on this call. Today are forward looking statements. These statements are subject to various risks and uncertainties and affect our current expectations based on our beliefs assumptions and information currently available to us. Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that.
And of course, it was cool.
<unk> of these factors and other risks that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC and our first quarter of 2022 earnings release issued today on the 10th of me.
During the call. We also refer to certain non <unk> financial measures that should be considered in addition to and not as a substitute for or in isolation from our <unk> results for further information. Please refer to our Investor Relations website at investors don't arrive with dot com with that in mind I'll turn it over to have enough.
Yes.
Okay.
Thanks, <unk> and thanks, everyone for joining us the key messages you will hear today that we have completed bus certification pass over 70% of certification tests on van and made significant progress on our micro factories without skateboard, Kevin and group structure being assembled.
We believe the micro factory unit economics remain amongst the most compelling in the industry and we continue to expect startup production in Q3 I want to emphasize the bus certification is a key achievement for arrival and one that the whole team is extremely proud of this as a critical milestones with Airbus being able to carry passengers on public roads in the EU.
In UK.
We commenced the first phase of our trial program with first bus.
And are currently bringing their drivers and service technicians up to speed without innovative new vehicle before we begin taking passengers on public route change.
The location of this is likely to be announced this quarter and overall, we expect trial to last three to six months. Then certification is also progressing rapidly and we have over 70% of tests already past our target is to complete bench testing in Q2, 2022, and Mike will go into more detail on the path to certification for eventually just a significant we have used the <unk>.
Same art factory technologies previously shown put together the chassis skateboard to assemble the cabin and group structure. We continue to highlight this as it represents the unique design of our vehicles and our micro factory technologies coming together the progress this quarter gives us further confidence the micro factory method will work at significantly lower capex than traditional methods.
And we've increased flexibility we're excited to lead the changing of the rules of the industry. This year.
Engagement continues to grow with non binding otherwise in orders up to 143000, we're currently showcasing our band customers in the U S. In a number of different cities in March we held a van media showcase in New York to members of the press, we've got a chance to sit in and interact with our vehicles and we also attended south by southwest there is no substitute.
For potential customers seeing our vehicles in person and as continues to be a core part of our marketing strategy. Combining these showcases with certification and micro factory progress.
Team has turned attention to conversion to binding orders as we start up production ramp later this year last quarter I did a deep dive on the arrival software ecosystem, which is just one of the amazing enabling technologies that we have developed in house to bring to life. Our unique method of production today I want to introduce a number of our core enabling technologies our in house developed components.
Arrivals vehicles, the developed using arrivals device framework a method in which we are able to create smart devices on wheels in a short period of time utilizing our extensive library of automotive hardware and software elements designed and delivered using a plug and play approach.
The method is based on several core principles, one physical compatibility all components have been designed using a grid architecture, which ensure simple Q based geometry, specifically created for robotic Assembly. This unique hardware and software plug and play approach allows us to both upgrade components over the year and replace hardware when needed.
Driving longer life cycles, and higher residual values.
<unk> software compatibility.
Pieces of software assembled into ready made somewhere in just a few short clicks on the engineer's computer saving thousands of hours of work what would ordinarily be the responsibility of multiple team members and three electronic architecture. In this case, it's the framework that combines elements of software and hardware into a functional vehicle.
It is so adaptable that we're able to use the same architecture with only minor changes, but totally different vehicles, such as the band and bus when.
When we populate our library with new components and systems every new function can be reused across multiple vehicle platforms, reducing the time to market for future vehicle generations to achieve such a high level of vertical integration, we have developed and certified the core components line in house at arrival and we have filed over 100 patent assets.
Specific strategic advantages to this approach we save on supplier cost normally found in a traditional tier one automotive supply chain. We can control modifications from end to end speeding up improvements and we can collect deep telemetry data to optimize vehicle operations and ultimately lowering <unk> overall, we estimate approximately 70% of our.
Core systems that event, including the drive unit <unk> high voltage and low voltage elements developed by arrival at many of these can be used across multiple vehicle platforms and with that I'll pass over to Michael.
Sure.
Sure.
Okay.
Yes.
Yes.
Thanks, <unk> today I want to focus on our achievements for vehicle certification of our progress towards start of production and so on.
As mentioned, we've now achieved bus certification European requirements. This is a significant accomplishment as its our first vehicle program. That's gone through the whole process. Many of the Rodman components are shared between Dan and Bill So achieving bus certification.
Also gives us a head start on the band process.
Our band certification is progressing well with over 70% of test required for European certification already passed including all crash testing we.
We anticipate completing the final handful of tests in the coming weeks after which we will submit our results final documentation for certification.
We expect this process to be complete during Q2 of 2022.
As the video shows our vans dominant program already includes driving on public roads, and we will shortly be ramping up our productivity with UBS. These trials will include testing on behalf of UBS in the EU the U S and the U K on both proving grounds and public roads.
And our first band Micro factory, Mr. We've completed installation of all of our production technology cells. Using these cells. We have now completed assembly of the cabinet cargo structure, which has some steeper as we expand the range of parts and processes being used and the technology sells were progressing through the validation of our micro factory method commissioning.
Texturing facility is never easy, but we're continuing to make progress towards our anticipated Q3 started production for.
For our Charlotte band Micro factory, all required long lead equipment has been ordered and we expect equipment installation to start in late summer.
The equipment in our Charlotte, Mike Factory is essentially a copy of the equipment and the Mr. Michael factory. So we won't have to develop new processes with new equipment in Charlotte taking.
Taking advantage of this commonality will have an accelerated commissioning process in Charlotte during the latter half of this year, leading to our anticipated start of production in Q4.
We've also started production of our in house developed mobile robots and continue to add new capabilities in order to optimize our overall Mike factory processes.
Most recently this has included adding a lift to the mobile robot. So we don't have to duplicate lifting hardware across each individual technology itself.
It's another Great example of arrival developed technology, enabling a more efficient manufacturing processes with.
With that I'll hand, it over to John .
Yes.
Yes.
Thanks, Mike first I would like to note that effective with the first quarter of 2022, we are changing our reporting currency from euros to U S dollars, which we believe will provide better comparability of our financial results with our compare.
<unk>.
With that in mind I would like to cover our Q1 2022 financial results the loss for the quarter was $10 4 million compared to a loss of $1 $2 billion in the year ago quarter. The Q1 2021 loss included a $1 2 billion noncash charge associated with.
The merger of arrival and C I E. The.
The adjusted EBITDA loss for the quarter was $66 9 million.
Compared to a loss of $31 1 million in the first quarter of 2021 administrative.
<unk> expenses were $54 2 million and non capitalized R&D expenses were $27 $7 million in the current quarter compared to administrative expenses of $43 4 million and non capitalized R&D expenses of $11 5 million in the first quarter of 2021.
Capital expenditures in the quarter were $99 1 million.
Compared to $49 8 million in the first quarter of 2021 Capex in the quarter included approximately $70 million of capitalized R&D $25 million of micro factory, Capex and $5 million of tool.
And we ended the quarter with cash and cash equivalents of $735 million turning to our outlook.
Despite the continued industry wide challenges from inflation and supply chain constraints. We continue to expect to start production in <unk> in Q3 and in Charlotte in Q4 and to produce between 400 600 vans across these two micro factories for the full year, we continue to expect adjusted EBITDA loss of beats.
$185 million and $225 million and capex of between $380 million and $420 million, our full year Capex guidance assumes approximately $225 million of capitalized R&D $100 million of micro factory Capex.
And $75 million of tooling at the midpoint, we have sufficient capital on hand to achieve our 2022 production volumes and expect to end the year with between $150 million and $250 million of cash. However, we continue to see increases in costs across the business due to inflation.
Finally, I would like to remind you of the long term unit economics, we expect from our micro factories.
We expect total capex to be approximately $50 million for micro factory, we already see that Charlotte Capex will be lower than Mr. As we make progress towards this target. In addition, we expect a van micro factory to contribute $100 million of margin when producing 10000 vans per year on two shifts.
Our contribution margin target assumes we will continue to optimize the vehicle bill of materials, including arrival components and improve operational efficiency and new micro factories I will now turn the call over to Dennis for closing.
Okay.
Okay.
Thank you John rival isn't emission booming correctly, but.
So the old vehicles with equitable electric solutions local micro factories to address a meaningful market share our products must be great business might be hyper scalable and the most radical change how vehicles are designed and produced.
This quarter was a very successful for us we have achieved a look first of all we have robust European certification.
It is a testimony to our innovative technologies and our unique new methods of design of electric vehicles are very we have completed nearly all of the tests required including questions.
Overall, our progress on simplification has been the real highlight for us this year.
It shows the current vehicle development is made simpler by our software platforms and Smartertravel develop components, which are shared across all vehicles. It means.
So if we can design new vehicles much faster than traditional industry.
We have achieved significant progress with our own unique production methods using micro factories.
The core technology information and they've been tested micro factory.
We're confident in our plan to start production in <unk> in Q3 and struggled in Q4 and just four to 600 vehicles. This year with that let's start our Q&A.
Okay.
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Our first question comes from Brian Johnson Barclays Brian Your.
Your line is open yes. Thank you.
Thanks for the progress update a.
Couple of questions first.
What is what's the remaining 30% we're up in terms of categories.
Components or certification tests that are needed over on the bond side.
Why.
What led to the bus getting certified faster on these 30% chose to call. It a punch list or is it just trying to figure out is a punch list of things that need to be worked are just tests that havent been wrung out.
Mike If you take this question.
So thanks, Brian a couple of things first your second question why was bus certified first it was always on an earlier timeline. So both programs have been executing a reschedule that was driven by the fact that the bus is a much longer sales cycle.
In order to get vehicles out on trials, we wanted to get that from them first.
To your question of them trials.
To be specific as of today, we have completed 32 of the 41 certification tests required.
For European type approval.
Very importantly, we have completed all the crash testing, which is typically.
The higher risk testing so the remaining tests, we feel very confident about.
As we said, we expect to complete type approval for the band in Q2.
And second question.
I'd Love to ask you Brian .
Okay.
So I just wanted to be very clear here is that.
We are actually.
Should you find event so everything goes exactly like there was no. Okay. So consistent.
And you cannot reward, which just okay exactly.
Yes.
Timelines that you achieve what they plan to achievement.
All the time with our certification in Q2 for that.
Yes, that's the plan.
Yes.
I'd love to dive into the kind of CAD Cam and it looks like kind of an interesting Dev ops environment Youre using.
But we can do that offline my bigger question is as you look at some of the struggles it's not lost on the world, but there was a major lock up expiring at a competitor Vanmaker yesterday.
Have you re looked at your economics versus the economics of both that startup and then since we met you in the public markets.
Of the major LCD makers have announced plans for not just electric vans, but bans on platforms.
Such as Mike's former firm with bright drop and so can you just maybe recap strategically where you think your cost is I don't know if its a level is cost at scale versus either.
Startup go are a new entrant going at it the traditional way of bending metal or a scale LCB player who can share a lot of componentry and factory footprint with their ice van lines.
Okay.
I'm not sure.
Yes, Brian So yes to your point, we've seen a lot of new entrants.
Both from the incumbents and new start ups with the vertical integration.
We have done and you've seen some of the benefits of that already now as we start to certify our vehicles.
We.
Still maintain a strategy that our price point is going to essentially be placed between ice and other EV competitors. When everybody is following the same method in the industry. It's really hard to have major breakthroughs. In however, it is the bomb structural or your manufacturing cost per vehicle and Thats, where we believe.
<unk> that our innovations provide us with a competitive advantage, so I would say that our pricing.
Remains exactly how we plan that's going to be in between what Ics and what majority of the competition are doing we also had the additional benefit of providing our customers all the T cell benefits through the data that we covered in al.
Last earnings call and of course the.
Expected lower cost to produce the vehicles with the capex of the micro factory so.
We maintain that.
Both on the product attributes and price point and the ongoing benefits, we can provide customers even with the new entrants.
I haven't seen.
Many folks do things differently. So everybody is all going to sort of cluster in and amongst the same type of vehicles in the same price point. So we still maintain a strategic advantage there.
Okay. Thanks.
Okay.
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Our next question comes from Steven Fisher at UBS, Steven you can on mute your line and begin to ask a question.
Great. Thanks.
Just with all the inflationary pressures and John you made reference to this can.
Can you just give us a sense of your path to.
Positive gross profits that you mentioned that kind of at full capacity, there and how that's changing and I guess I'm wondering are there prices associated with the LOI is in non binding orders are able to raise the prices on those before they'd come become binding how do we think about that.
Those changing inflationary dynamics in your path to gross profits.
Sure.
Let me make a couple of comments on an inflation number one it's an industry wide, obviously phenomenon and so we don't think that inflation is impacting arrival.
Much differently than the overall industry clearly we are seeing increases in costs.
But in terms of our relative pricing strategy, we believe that remains intact, even in the current environment earlier Avinash reference that we still expect to price our vehicles.
Between where at the equivalent of ice vehicles sits today and where the competitive set will be and we expect that.
Across the industry prices of vehicles will increase with inflation and it is important to note that in a number of our LOI, we have yet to set pricing and we think that that gives us an advantage as we go into discussions.
Because other than with a handful of customers pricing is still an area that we have the ability to negotiate and so we think we're in a good spot with respect to inflation at least relative.
Relative to the industry as a whole.
Okay. That's helpful.
And then.
Maybe you could just give us a sense of your cadence of cash burn going from $735 million at the end of the first quarter down to that 150 to $2 50.
Kind of what do you expect in Q4, and how should we think about.
The first half of 2023, if youre kind of burning on average $150 million to $200 million per per quarter for the rest of this year.
The cash burn definitely will be lumpy just given the dynamics of the business. We we have capex that comes in sort of in chunks as we deploy the micro factor is.
We'll be building working capital as we get it get ahead to startup production.
I would expect that Q2 would be sort of our peak.
In terms of cash burn and then we would see it sort of level off as we get in the production and towards the end of the year, but it's really because we're going to be building working capital in Q2 getting ready for start of production investor in Q3.
Great. Thank you very much.
Thank you for your questions I'll now pass the call back to Avinash for closing remarks.
Yeah.
Thanks, everybody for joining us at as mentioned, we want to reiterate the.
Bus certification, which is a critical step for the organization van testing continues to progress as planned and the major crash tests being completed.
At least the Nintendo critical milestone for us and strong progress in our micro factories, where we're using the same technologies and now we're adding more and more processes that youll see it started production which remains on track.
For Q3 of this year, so with that I'd like to say, thanks to everyone for joining us today.
I also would like to add just one comment.
We didn't want to use this opportunity to remind how different.
Our company is in terms of Allomap score.
But just vehicles and actually Q2 was absolutely amazing process.
Of course, we achieved major milestones we've proved that our components, though.
Working with right so thats over.
Over the bottom kind of confirms our.
Assumptions in terms of how vehicles to be produced in the micro factory.
<unk> operations are showing very good results as well so.
I really would like to read the point again is that we see the full industry goes through a lot of challenges, but our advantages as a company.
Straightforward here, so less capex than industry would also be quicker time to market.
Better product in terms of digital.
Digital functionality all the components of that vertical integration. So all of those things gives us very very strong competitive advantage. So we will start to see that actually the time issue right now so.
The deflation every other topics, which we discussed.
I believe that fundamentally like organization is much more ready for the current.
Additionally, on the market than any other company in this industry just of course nickel forward.
Method of designing components vehicles.
Production method so.
I'm enjoying perceived like.
Like our benefits compared to like our advantages compared to other companies.
I'm sure it will unfold as the next quarter. Thank.
Thank you very much.
We do have one remaining question from Darrin Berg at Michael Your line is open.
Oh, Hey, Thanks, guys right I'm glad I snuck in here so.
I'll keep.
Keep it brief.
Yes, I was just wondering you talked about the quarter to 600 bands for the full year. Obviously, that's not your typical run rate on a quarterly basis right. If youre looking at 10000 per year. So im guessing I just wanted to get your take on what we should expect in terms of a production cadence for.
Mr Factory, and then as well with Charlotte factory as we maybe move into 2023, right, where we'd be at that 10000 per year run rate or should we expect sort of a slower ramp up throughout the course of next year.
Yes.
Oh go ahead, Dennis Yeah, Yeah, Michael I don't think Thats like you can make any judgments on this number for San Francisco.
We make the judgment.
Be like next year, so actually what is important here is that.
A big part of our so we have.
It will keep like long term plan for the company.
Including like most public everyone's on the same <unk>.
<unk> and 50% of about motivation is.
Based on the performance.
And we have two performance metrics profitably performance is linked to production rates started production rate targets of <unk> vehicles are shifting from one factory.
And another half is linked to the margins, we're getting from one micro factory. So it's those two key metrics for like our business model are.
Building within our relationships. So we are pushing hard.
Management routine.
With team, which is the strength of your vehicles per shift and.
We expect to ship.
Okay.
I don't want to kind of afraid.
Promised expectations, but believe me this number one focus for all of us within the company to make it happen. So after that one.
Reached its first time 20 vehicles per shift.
For factory.
With.
Yes.
That's already a flight you.
Can you just multiply it by 150 days and two ships you get 10000.
Could you give just a year so.
We are confirming those numbers I'm actually August simulation, which we've done like within our software chose the best numbers are.
Like I said not only achievable. So this is the way how the how.
The factory was built especially.
Especially for.
But those numbers so for that reason.
We really see the 2022 for US is the year when we approve all of them.
Our development and engineering and.
Thanks.
We see 2023 already businesses.
Like when do we start off.
But the user in volumes.
Getting the right margins themselves.
And I would guess.
Yes.
Yes, I would just remind you that.
On the Q4 call. We we said we would ramp up production in those two factories through the first half of next year.
I don't think the limitation on our ability to ramp as the production method itself will have to keep a very close eye on supply chain, just given a lot of the constraints that we see out there I think if if anything is going to limit our ability to ramp up in those factories, it'll be supply chain and not the production method itself.
Yes fair enough just one one quick follow up as well I noticed Youre L O I's and orders increased to 143000, which I think is.
Lightly up from from the last quarter. When it was 134000 still a very robust number.
And in aggregate, but I noticed last quarter, it jumped up quite meaningfully from the quarter before so I'm just curious as to why maybe there's just such a step step down in terms of the cadence of order growth NOI growth relative to the last quarter yet.
Yes.
Okay I'm not sure like very quick one on <unk>. So first of all you need to remember that we are focused on pizza.
The biggest customers so for us it's both like opening the reservation website customers or conflict with your own build that park.
Retail sites, which are mostly focused on the particular companies and actually if you see the number is so big that we need to build more factories than we planned and what can produce a lot of vehicles to supply that the original license demand.
Which we received from our customers.
I'm not sure if you want that.
And then disappoint you saw a large jump in the last earnings and essentially that was driven as we started to get the vans out in front of customers. What youre seeing this quarter is as we are approaching certification and youll see this throughout the year. The attention is going to turn into conversion of those otherwise into binding audits and.
Certification really becomes sort of that critical milestone for that to occur <unk> already started shifting focus so.
Going through different driver training for example of potential customers going through different product attributes the software stack et cetera is becoming the focus of the sales team rather than <unk>.
Going out increasing LOI right now.
As we've said before I think everyone is very impressed by the product and we are.
Capacity limited not demand limited and I think it's very important.
For us to get the first few micro factories going in and start scaling from there because the demand is already there.
Absolutely understood. Thanks, a lot guys.
Thank you.
Thank you.
Have a good day.
Right.
Thank you for your questions. This concludes today's call you may now disconnect.
Thanks, everyone.