Q1 2022 Lordstown Motors Corp Earnings Call

May 9, 2022

Okay.

Good day and logo to reward general Motors first quarter 2022.

Paul.

All participants will be in listen only mode.

Just give me a assistance please signal a conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on any touchtone phone.

So enjoy your question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over the quarters or school, Vice President corporate development capital markets and Investor Relations. Please go ahead Sir.

Thank you.

Later, good morning, and thank you to all for joining Lordstown Motors first quarter 2022 earnings conference call to supplement todays.

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.

As posted on our website and as part of our quarterly update.

The safe Harbor provision identifies risks factors and uncertainties that may cause actual results to differ materially from the content of our forward looking statements for the reasons that we cite in our.

Our Form 10-Q, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

Joining us today will be lordstown motor CEO , Dan <unk>, President Edward High power and CFO CFO , Adam cool with that I'd like to turn the call over to Dan.

Thank you Carter and welcome everyone.

To begin I'd like to thank the entire <unk> team for their extraordinary efforts in Q1.

I am pleased with the progress we've made towards watching the endurance, particularly in light of the unprecedented supply chain challenges the industry has faced.

Our number one priority of course remains the successful launch of the endurance full size pickup truck.

While we've experienced some delays in building, our preproduction vehicles or ppvs.

I'm pleased to report the final engineering design validation and testing are underway and we continue to target start up commercial production beginning in the third quarter of 2022.

Edward will provide more detail on where we are and what remains to be done to achieve full homologation and commercial deliveries.

In terms of customer demand, we continue to see strong interest in the commercial fleet market for electric vehicles of all types, including pickup trucks.

We believe the market will be underserved for the foreseeable future and that demand will be particularly strong among commercial fleet customers given their focus on total cost of ownership and specific work requirements.

The North American Bev full size pickup truck and van segment are expected to grow at 30% CAGR over the next 10 years.

Lawrence will be one of the few full size pickup trucks in the market over the next few years with.

With this in wheel hub motor design. The endurance is truly unique and we believe will offer a superior combination of handling traction control pork and turning radius with fewer moving parts. The more conventional propulsion systems. We also believe the endurance will have advantages and overall maintenance costs.

Our commercial sales plan will be driven primarily by our expected production volumes as Edward and Adam will discuss later in the presentation are bill of material costs at launch will be significantly higher than our anticipated selling price.

We have a plan to reduce our bom cost over time through investments and hard tooling moving from prototype to production suppliers VIP initiatives.

And realizing the benefits of the Fox Con transactions. However, at least for the time being we plan to hold off on the larger hard tooling and other investments in order to manage our balance sheet and limit the amount of new capital needed to achieve our initial production targets as.

As a result over the next 12 months or so we will be focused on selling vehicles to a relatively small number of strategic fleet partners, who offer the best opportunities for long term relationships.

On our last call we forecasted an initial production run of approximately 500 units in the back half of 2022.

We continue to expect to produce the 500 units, although some deliveries are likely to occur in the early part of 2023.

Following the closing of our transaction, we expect to jointly evaluate with Fox Con the ramp up plan for the endurance, the scope and timing of our Bom cost reduction actions potential supply chain initiatives and other opportunities to scale production, including through strategic OEM partnerships.

Adam will discuss in more detail ramping production will be capital dependent, but we will be prepared.

Now turning to our long term strategy as I mentioned on our last call. The conversion to electrified powertrains presents Oems startups like LLC with a very unusual opportunity to penetrate the automotive market and gained meaningful share, particularly in certain.

The search segments.

But success requires that we deliver scale.

<unk> commercial plan and innovative product a competitive cost structure and a vehicle development platform that brings products quickly and efficiently to market.

I believe our partnership with Fox Con can help us achieve each of these objectives.

<unk> has ambitions to capture a significant share of the global EV market not just in contract manufacturing, but in key components as well in.

In addition to other strategic benefits the Fox Com partnership would unlock the full potential of the lordstown plant by getting it to scale faster.

At $6 2 million square feet, and 640 acres. The lordstown complex is one of the largest internal combustion automotive plants in North America that is being converted to a state of the art manufacturing facility.

<unk> has an excellent opportunity to fill the plant.

<unk> and all Oems as vehicles are built at the plant will benefit from the increased capacity utilization use of common components and lower overhead costs.

Scale in automotive manufacturing matters use of shared space together with the mobility in harmony or NIH open source platform that Foxconn has developed.

To provide smaller more specialized Oems the opportunity to achieve the benefits of scale without being a large fully integrated automaker.

Our partnership with Fox Con also should significantly reduce our raw material component and other input costs over time.

It's the largest contract manufacturer in the World Foxconn has significantly better purchasing power than we would on our own as well as our global integrated supply chain network and the logistics capabilities necessary to help us reduced vehicle production cost and minimize our supply chain risks.

We also stand to benefit from Fox <unk> expertise in hardware and software integration critical to Evs given their expertise is a multinational electronics manufacturer.

As we grow together these benefits should only improve over time.

Finally, our partnership with Fox Com would likely extend beyond a contract manufacturing agreement.

When we announced the transaction, we stated that Foxconn, an LLC would explore joint venture arrangement for the development of new electric vehicles, utilizing Fox <unk> common platform.

This was an important part of the deal because in our view <unk> requires a scalable vehicle development platform for future vehicles that will allow us to compete with much larger vertically integrated Oems.

Use a common architecture systems and components off NIH would provide us that opportunity.

Since our last earnings call. We have made progress on the terms of our contract manufacturing agreement and an agreement under which we would develop new vehicles in collaboration with Fox Con off of the NIH platform, while definitive agreements have not been reached and may not be reached I believe were close and our relationship with Foxconn remains very solid.

This past weekend Fox Con agreed to extend the downpayment repayment deadline under the PPA for May 14 until May 18, the day before our annual shareholders meeting to provide a little more time to conclude our transaction.

In closing I am pleased with the progress we've made on moving the endurance towards launch readiness and building our relationship with Fox Con.

A very unique vehicle and notwithstanding tremendous challenges, we're very close to achieving very important milestones with that I'll turn the call over to our president Eduard Hightower.

Thank you Dan as.

As we discussed in February our two immediate objectives at Lordstown Motors are to launch the endurance in Q3 and to build our product development relationship with box.

I will start by giving you an update on the endurance launch.

Over the last quarter, we have continued to make progress with our endurance preproduction vehicles or ppb built on the Lordstown production line. We have also made progress with vehicle testing and manufacturing facility preparations at the plant.

Under our lordstown production system, and launched governance structure engineering readiness quality and part availability are governing the speed of the endurance launch.

We experienced some supply chain disruptions over the quarter that impacted the rate and completion timing of our PPV builds the commodities, having the greatest impact, including steel and aluminum for our frames body in battery and battery enclosure.

And chips with the various computing module and the endurance.

Despite these disruptions as planned we have completed sufficient vehicles to begin our engineering and validation testing.

The performance of the endurance in these tests to date has correlated well with the performance predicted by our computer aided engineering or CAE analyses.

For example, our <unk> rental side and rear crash test results have been positive and we are still predicting five star and cap crash performance for the vehicle.

We are currently in the process of building endurance Ppv's for Homologation and certification, including tests for the EPA and carb and F&B assess.

Our experienced team of purchasing professionals are working tirelessly to mitigate the impact of supply chain disruptions on our build rate and timing.

Finding and resolving issues is normal business for any vehicle launch any issues uncovered during the builds or testing are being addressed by our highly capable and motivated engineering and launch teams.

We are pleased to reaffirm our plans to start commercial release production CRP in Q3 of this year.

Given our expected timeline for certification completion, we anticipate that commercial fleet customer deliveries will start in Q4.

Endurance Ppv's have been displayed recently at MTA MTA workshop week in Indianapolis.

And Napa in Columbus, Ohio, we.

We look forward to participating in the Atlanta advanced clean Transportation Expo This week in long Beach, California.

The Lordstown engineering and leadership teams can be regularly found conducting evaluation drives of the latest endurance <unk> and software updates near our Farmington Hills R&D Center.

Might also encounter and endurance at one of the many public level, two charging and DC fast charging stations in the area.

With its low center of gravity and in wheel hub Motors. The endurance continues to show itself to be agile responsive and maneuverable all without compromising capability.

We cannot wait to get the endurance of the hands of our customers as we expect that they will love it.

<unk> launch our future plans for the endurance will focus on reducing our bill of materials Bom cost as Dan previously explained.

Is significantly higher than anticipated selling price.

Following raising the necessary capital, we have a series of hartzell investments and value analysis value engineering projects planned with the intent to significantly reduce our bom cost.

Our timing decision around scaling the production of the endurance will be tied to the implementation of these projects and realization of the expected savings.

Switching to our product development relationship with Fox Con as Dan mentioned earlier, we have been working on an agreement with Fox Con to jointly design engineer develop industrialize and launched battery electric vehicle programs using box tons.

<unk> mobility in harmony open platform.

Co developing EV programs is aligned with the EV market ambitions of both companies.

We have an experienced and motivated team with the capability to develop new vehicles from concept through launch.

If reached this agreement would create an innovative business model, where we would develop new vehicles for ourselves and potentially other OEM customers globally.

These new vehicles will be built for North America at the Lordstown, Ohio plant and at other Fox Con contract manufacturing locations around the world.

The objective is for OEM users of this flexible maa's platform manufacturing footprint footprint and supply chain to achieve production scale at lower volumes with a shorter time to market.

<unk> in particular this agreement with <unk> will provide a scalable vehicle development platform reduce our product development costs and increase the breadth of our product portfolio.

As Dan stated, while our discussions with Boston have been constructive at this stage of the definitive agreement has not been reached.

Thank you and I will now turn the call over to Adam.

Thank you Edward good morning to everyone and thank you for joining us I'll share, both Dan and Edwards enthusiasm for our progress in the first quarter and the real potential of lordstown.

I'm also quite focused on our challenges as Dan and Ed discussed our progress was in the midst of strong macro and supply chain headwinds our number one priority is launching commercial production of the endurance.

As we believe that getting the vehicle into customers' hands will serve as the key catalyst to driving sales and the success of the program.

I am hyper focused on managing our cash position and evaluating the tradeoffs required to get there on our last call I guided that our business plan required in the area of $250 million of new capital this year.

Of which a large share was needed in advance of starting commercial production in Q3.

As you all well know the capital markets have not been opened for the sector. Notwithstanding we continue to work with our advisers on available financing alternatives.

However, with our options limited at the moment, we are taking a balanced and disciplined approach to allocating our current capital.

For now we are pursuing a business plan that will give us the best opportunity to launch the endurance and hit our initial production target.

As a result, we believe that the new capital required this year is around $150 million, including our minimum year end cash target. This is in addition to the remaining proceeds from the sale of the plant to Fox Com.

We will primarily hold off on the hard tooling investments originally planned for this year, along with other investments and operating costs that we will defer until we raised sufficient capital to.

The principal tradeoff as a delay in the bill of materials cost reductions, resulting from the move to hard tools.

Last year and in Q1, we kicked off some of the tooling, but as we discussed on the last call hard tooling generally has long lead times.

So other than relatively modest inflation, our bom cost for 2022 was not meaningfully impacted by the deferral to be clear we are not stopping the work we're doing on hard tooling or <unk>. We will have a detailed plan in place to execute if and when we raised sufficient capital.

Now I'll turn to our first quarter results.

Starting with cash we ended the quarter with $203 6 million in cash representing a decrease of $40 5 million from $12 31.

High level cash walk is approximately $81 million loss from operations, excluding noncash items of $6 8 million and almost $22 million in capex offset by the $50 million down payment from Fox gone under the HPA and slightly more than $12 million and working capital benefits.

With respect to operating costs, we incurred a total of $87 9 million in the first quarter, a modest $3 2 million increase from Q4 and down from each of the first three quarters in 2021, however, the mix of our spend has changed.

Headline total R&D generated the increases SG&A was essentially flat to Q4.

To address many of your prior questions for the first time, we are breaking out cost in R&D associated with manufacturing and the lordstown facility from engineering expenditures.

Our plant costs, which includes about two thirds of our total head count along with facility freight and manufacturing costs were $21 9 million in the quarter just under half of that is personnel and about a quarter represents freight largely associated with obtaining parts.

This compares to our Q4 plant cost of $18 6 million when our employee costs were about 26% higher due to some Q4 year end accruals and higher stock comp offset by significantly lower freight and utilities.

Directionally, if we continue to own the plan the operating cost would it would be increasing as we get into production for more personnel and the indirect costs rising with activity levels.

The engineering testing and other related activities within R&D totaled $20 2 million.

As I suggested last time. These costs are expected to increase through launch as we ramp up testing activities, particularly specialty outside engineering services, along with other variable costs and decrease thereafter.

A comparison these costs were approximately 36 million $29 million and $21 million in quarters, two three and four respectively last year.

The last major category of R&D spend are the vehicle component costs totaling $19 7 million in the first quarter compared to $22 million in Q2, 2021, $12 3 million in Q3, and $19 6 million in Q4.

Over the course of the last 12 months there have been there has been a shift in how these components are used for example in early 2021. The vast majority of the spend was for design and early testing of those designs. The amount then shifted toward components for the beta and then prototype vehicles, whereas in 2022, the vast majority of the spend.

<unk> went into preproduction vehicles, as we focus on certification and Homologation.

After launch these costs should dramatically decrease to a normalized level for ongoing basic engineering and new vehicle options et cetera.

With respect to cash flow, we invested $21 9 million in the business during the quarter, consisting primarily of $10 7 million in the plant to get ready for production and $10 $2 million in tooling for the endurance.

The last thing I wanted to touch on other cash flows associated with the EPA with Fox Com to.

To date since executing the initial agreement in principle last September we have received a total of $250 million from Fox Con consisting of the initial $50 million in common stock and purchase price down payments of $100 million in November $50 million in January .

Load by $50 million in April this year.

The $30 million purchase price remaining is to be paid at closing along with an estimated $27 million reimbursement of certain operating expenses and capex.

So if the transaction closes our pro forma cash balance as of $3 31 would have been over $300 million with.

With the endurance on the verge of commercial production, we are all very excited.

We have almost 700 lordstown colleagues working tirelessly facing macro headwinds and the daily challenges that come with designing and delivering an entirely new purpose built vehicles I believe in our team and I'm eager for all our outside stakeholders to see the results of our passion and commitment to achieve our mission.

With that I'll ask the operator to open it up for questions.

Thank you we will now begin the question and answer session.

Youre asking a question you May press Star then one on your Touchtone phone.

Is there really isn't a speaker phone please.

Please pickup your handset before pressing the keys.

Your question please.

Press Star then two.

So the first question is from John .

John Murphy of Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

If I could start with the.

The Fox Con.

Relationship here and you guys alluded to a payment that it was going to be made on 514 that got delayed to 518 prior to the shareholder meeting.

What is the <unk>.

Out of that payments, what's the nature of that payment.

What gets triggered if that doesn't if that if that doesn't get me and I'm trying to understand that.

Yes, John it's Adam.

514 date would be is the date that required us to repay the down payments to Fox Con for the transaction. So that was the date again, if we didn't close by that but as Dan said in his remarks.

That date.

Is now been extended to the 18th so it's just that was the data which.

Again, the payments had to be repaid, but we've extended it.

Makes sense.

Okay. So that means the.

$250 million has been paid by them. So so far we need to be repaid if you didn't get close the deal.

Yes.

Not all not all $2 50.

200, 200, yes, so when I said $2 50 to $2 50 was 50, a common that they bought last October .

So down payments on the deal or have been 200, okay. So im confused so why why would it be delayed.

Four days and what happens if for some reason it's not consummated.

Well the delay.

As a complex deal we've been working on it hard with that so when we originally signed the deal in November that was the date that we had set to try to get everything done and we just haven't gotten everything done.

Gotcha Okay.

If you had to make that as yet.

Basically chicken right if you make the payment the deal goes.

We'll go through and you make the payments then you have the $300 million. If it doesn't you have got the cash the cash on hand and our.

Walking through the rest of this year and raising the increments of 150 million. I think you mentioned is that is that viable.

No no no no. So John we have said in our public filings right. If the loan comes due or the down payments come due.

We haven't closed the deal we wouldnt have the cash to fund it. So we do have to close the deal.

In order to avoid that and we expect like I said, we've had constructive discussions with Fox Con. It's complicated deal. It's not just a simple contract manufacturing agreement with joint product development agreement is fairly complicated. So it's taken a little bit longer than we expected, but again I would I would say.

We're a good constructive dialogue and I think the fact that Fox Con agreed to extend the repayment deadline.

As a good sign.

Okay.

And then if we think about the cost greater than.

The price of the Bom cost greater than the price at the initial point of sale I mean, I guess, that's given everything is going on with cost inflation and the cost of ramping up it's probably not too surprising.

As you think about one to three years out when do we kind of reach that crossover point or when do you sort of projected reset crossover point you actually on a per unit basis.

You will start to turn to.

Breakeven or profitability.

Hi, John This is Edward.

Thanks for the question.

Really capital dependent.

As we said we have a plan to bring down the bom cost through the hard tooling investments.

<unk> projects will continue to work on those but we have a plan to get there as we raise the capital to.

Invest towards those are tools and both projects.

And with the heart tools the lead time varies.

So we'd come in.

Graduated kind of basis, but in general its what 12 months 12 months 12 to 18 months.

<unk> is when we expect all of the projects that we have in our plan to be implemented.

Got it and is that considering at that time.

Is that constrained by.

Obviously, it's constrained by capital at the moment, if you were completely unconstrained and handcuffed in hand, all the liquidity you could possibly want at the moment could that be sped up or is that just a function of the way things work on hard tooling.

Some of the longer lead items.

As Dan was just saying.

Have a timeline of about 12 months, but.

12, 12 to 18 months, but there are some of the projects that we could could speed up again its capital dependent.

Okay and other than Fox John are you, having any discussions directly with any other automakers on contract manufacturing, obviously, it's been rumored that fisker I'm not much more than rumor that <unk> would.

Potentially be contract manufacturing with Fox Con at Lordstown facility or are there. Other can you confirm that and are there other automakers that you've had discussions with them have interest.

Yes, we wouldn't comment on that now I mean, the focus is getting the endurance since our launch in getting the deal done with Fox Con after that I think then we'll pursue some of those other opportunities as I alluded to in my comments, Okay. Great. Thank you very much guys.

Thanks, John .

Ladies and gentlemen, as a reminder, if you would like to ask a question Star then one at this time, we will pause momentarily to assemble our roster.

And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team.

For any final remarks.

Thanks to all those who participated in the call I'd like to close by.

In particular, our shareholders for their support and I'd also like to thank again, the <unk> and Fox Con teams for all the hard work that has us to where we are today I'm very proud of the fact that our core team manufacturing engineering and corporate is nevertheless, the challenges and distractions overwhelm us in fact, our program management business processes have never been better.

And continue to improve every day with that thank you and look forward to speaking with you next quarter if not sooner.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect. Your lines, we have a wonderful day.

Thanks.

[music].

Good day, and woke up to the war General Motors first quarter 2000, Twenty's self install.

All participants will be in listen only mode.

So if you need assistance. Please ignore conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you started with one only touchtone phone.

The majority of your question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over the quarters or school, Vice President Corporate development capital mortgage Investor Relations. Please go ahead Sir.

Thank you operator, good morning, and thank you to all for joining Lordstown Motors first quarter 2022 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 as posted on our website and as part of our quarterly update.

The safe Harbor provision identifies risk factors and uncertainties 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 motor CEO , Dan <unk>, President Edward High Tower, and CFO CFO , Adam cool with that I'd like to turn the call over to Dan.

Thank you Carter and welcome everyone.

To begin I'd like to thank the entire <unk> team for their extraordinary efforts in Q1.

I am pleased with the progress we've made towards watching the endurance, particularly in light of the unprecedented supply chain challenges the industry has faced.

Our number one priority of course remains the successful launch of the endurance full size pickup truck.

While we've experienced some delays in building, our preproduction vehicles or ppvs.

I'm pleased to report the final engineering design validation and testing are underway and we continue to target start up commercial production beginning in the third quarter of 2022.

Edward will provide more detail on where we are and what remains to be done to achieve full term obligation and commercial deliveries.

In terms of customer demand, we continue to see strong interest in the commercial fleet market for electric vehicles of all types, including pickup trucks.

The North American Bev full size pickup truck and van segment are expected to grow 30% CAGR over the next 10 years.

Lawrence will be one of the few full size pickup trucks in the market over the next few years.

And wheel hub motor design, the endurance is truly unique.

We will offer a superior combination of handling traction control pork and turning radius.

With fewer moving parts the more conventional propulsion systems. We also believe the endurance will have advantages and overall maintenance costs.

Our commercial sales plan will be driven primarily by our expected production volumes as Edward and Adam will discuss later in the presentation, our build material costs at launch will be significantly higher than our anticipated selling price.

We have a plan to reduce our bom cost over time through investments and hard tooling moving from prototype to production suppliers VIP initiatives.

On our last call we forecasted an initial production rate of approximately 500 units in the back half of 2022.

We continue to expect to produce the 500 units, although some deliveries are likely to occur in the early part of 2023.

Adam will discuss in more detail ramping production will be capital dependent, but we will be prepared.

Now turning to our long term strategy as I mentioned on our last call. The conversion to electrified powertrains presents OEM startups like LLC with a very unusual opportunity to penetrate the automotive market and gained meaningful share, particularly in certain.

Serve segments.

But success requires that we deliver scale of <unk>.

<unk> commercial plan and innovative product a competitive cost structure and a vehicle development platform that brings products quickly and efficiently to market.

I believe our partnership with Fox Con can help us achieve each of these objectives.

<unk> has ambitions to capture a significant share of the global EV market not just in contract manufacturing, but in key components as well and.

In addition to other strategic benefits the Foxconn partnership would unlock the full potential of the lordstown plant by getting it to scale faster.

<unk> has an excellent opportunity to fill the plant.

LLC and all Oems as vehicles are built at the plant will benefit from the increased capacity utilization use of common components and lower overhead costs.

Scale in automotive manufacturing matters use of shared space together with the mobility in harmony or NIH open source platform that Foxconn has developed.

To provide smaller more specialized Oems the opportunity to achieve the benefits of scale without being a large fully integrated automaker.

Our partnership with Fox gone also should significantly reduce our raw material component and other input costs over time.

It's the largest contract manufacturer in the World Foxconn has significantly better purchasing power than we would on our own as well as the global integrated supply chain network and the logistics capabilities necessary to help us reduced vehicle production cost and minimize our supply chain risks.

We also stand to benefit from Fox <unk> expertise in hardware and software integration critical to evs given their expertise as a multinational electronics manufacturer.

As we grow together these benefits should only improve over time.

Sure.

Finally, our partnership with Fox Com would likely extend beyond a contract manufacturing agreement.

When we announced the transaction, we stated that Fox Con and LLC would explore joint venture arrangement for the development of new electric vehicles utilizing box guns NIH common platform.

This was an important part of the deal because in our view LLC requires a scalable vehicle development platform for future vehicles that will allow us to compete with much larger vertically integrated Oems.

Use a common architecture systems and components off NIH will provide us that opportunity.

Since our last earnings call. We have made progress on the terms of a contract manufacturing agreement and an agreement under which we would develop new vehicles in collaboration with Fox Con off of the NIH platform, while definitive agreements have not been reached and may not be reached I believe we're close and our relationship with Foxconn remains very solid.

This past weekend Fox Con agreed to extend the down payment repayment deadline under the HPA from May 2014 until May 18, the day before our annual shareholders meeting to provide a little more time to conclude our transaction.

In closing I am pleased with the progress we've made on moving the endurance towards launch readiness and building our relationship with Fox Con we.

Have a very unique vehicle and notwithstanding tremendous challenges, we're very close to achieving very important milestones with that I'll turn the call over to our president Edward Hightower.

Thank you Dan as.

As we discussed in February our two immediate objectives at Lordstown Motors are to launch the endurance in Q3 and to build our product development relationship with box.

I'll start by giving you an update on the endurance launch.

Over the last quarter, we have continued to make progress with our endurance preproduction vehicle or PPV built on the Lordstown production line. We have also made progress with vehicle testing and manufacturing facility preparations at the plant.

Under our lordstown production system, and launched governance structure engineering readiness quality and part availability are governing the speed of the endurance launch.

And chips, where the various computing module and the endurance.

Despite these disruptions as planned we have completed sufficient vehicles to begin our engineering and validation testing.

The performance of the endurance in these tests to date has correlated well with the performance predicted by our computer aided engineering or CAE analyses.

For example, our F&B assets rental side and rear crash test results have been positive and we are still predicting five star and cap crash performance or the vehicle.

We are currently in the process of building endurance Ppv's for Homologation and certification, including tests for the EPA and carb and F&B assess.

Our experienced team of purchasing professionals are working tirelessly to mitigate the impact of supply chain disruptions on our build rate and timing.

We are pleased to reaffirm our plans to start commercial release production CRP in Q3 of this year.

Given our expected timeline for certification completion, we anticipate that commercial fleet customer deliveries will start in Q4.

Endurance Ppv's have been displayed recently at MTA MTA workshop week in Indianapolis.

And Napa in Columbus, Ohio.

We look forward to participating in the advanced Clean Transportation Act Expo This week in long Beach, California.

Look the Lordstown engineering and leadership teams can be regularly found conducting evaluation drives of the latest endurance Ppv's and software updates near our Farmington Hills R&D centers.

Might also encounter and endurance at one of the many public level, two charging and DC fast charging stations in the area.

With its low center of gravity and in wheel hub Motors. The endurance continues to show itself to be agile responsive and maneuverable all without compromising capability.

We cannot wait to get the endurance of the hands of our customers as we expect that they will love it.

<unk> launch our future plans for the endurance will focus on reducing our bill of materials Bom cost as Dan previously explained.

Is significantly higher than our anticipated selling price.

Following raising the necessary capital, we have a series of hartzell investments and value analysis value engineering projects planned with the intent to significantly reduce our <unk> costs.

Our timing decision around scaling the production of the endurance will be tied to the implementation of these projects and realization of the expected savings.

<unk> mobility in harmony open platform.

Co developing EV program is aligned with the EV market ambitions of both companies.

We have an experienced and motivated team with the capability to develop new vehicles from concept to launch.

If reached this agreement would create an innovative business model, where we would develop new vehicles for ourselves and potentially other OEM customers globally.

These new vehicles will be built for North America at the Lordstown, Ohio plant and at other Fox Con contract manufacturing locations around the world.

The objective is for OEM uses of this flexible maa's platform manufacturing footprint footprint and supply chain to achieve production scale at lower volumes with a shorter time to market.

For <unk> in particular this agreement with <unk> will provide a scalable vehicle development platform reduce our product development costs and increase the breadth of our product portfolio.

As Dan stated, while our discussions with Boston have been constructive at this stage. It's a definitive agreement has not been reached.

Thank you and I'll now turn the call over to Adam.

Thank you Edward and good morning to everyone and thank you for joining us I'll share both Dan and Edwards enthusiasm for our progress in the first quarter and the real potential of Lordstown I'm also quite focused on our challenges as Dan and Ed discussed our progress was in the midst of strong macro and supply chain headwinds our number one priority is launching.

Commercial production of the endurance.

As we believe that getting the vehicle into customers' hands will serve as the key catalyst to driving sales and the success of the program.

As you all well know the capital markets have not been opened for the sector. Notwithstanding we continue to work with our advisers on available financing alternatives.

However, with our options limited at the moment, we are taking a balanced and disciplined approach to allocating our current capital.

For now we are pursuing a business plan that will give us the best opportunity to launch the endurance and hit our initial production target.

We will primarily hold off on the hard tooling investments originally planned for this year, along with other investments and operating costs that we will defer until we raised sufficient capital the.

The principal tradeoff as a delay in the bill of materials cost reductions, resulting from the move to hard tools late.

Late last year and in Q1, we kicked off some of the tooling, but as we discussed on the last call hard tooling generally has long lead times.

So other than relatively modest inflation, our bom cost for 2022 was not meaningfully impacted by the deferral to be clear we are not stopping the work we're doing on hard tooling or VA. We will have a detailed plan in place to execute if and when we raised sufficient capital now.

Now I'll turn to our first quarter results.

Starting with cash we ended the quarter with $203 6 million in cash representing a decrease of $40 5 million from $12 31.

The high level cash walk is approximately $81 million loss from operations, excluding noncash items of $6 8 million and almost $22 million in capex offset by the $50 million down payment from Fox gone under the PPA and slightly more than $12 million in working capital benefit.

Headline total R&D generated the increase as SG&A was essentially flat to Q4.

To address many of your prior questions for the first time, we are breaking out cost in R&D associated with manufacturing and the lordstown facility from engineering expenditures.

Directionally, if we continue to own the plan the operating cost would it would be increasing as we get into production for more personnel and the indirect costs rising with activity levels.

The engineering testing and other related activities within R&D totaled $20 2 million.

For comparison these costs were approximately 36 million $29 million and $21 million in quarters, two three and four respectively last year.

The last major category of R&D spend are the vehicle component costs totaling $19 7 million in the first quarter compared to $22 million in Q2 2021.

$12 3 million in Q3, and $19 6 million in Q4.

Over the course of the last 12 months there have been there has been a shift in how these components are used for example in early 2021. The vast majority of the spend was for design and early testing of those designs. The amount then shifted towards components for the beta and then prototype vehicles, whereas in 2022, the vast majority of the spin.

And went into preproduction vehicles, as we focus on certification and Homologation.

After launch these costs should dramatically decrease to a normalized level for ongoing basic engineering and new vehicle options et cetera.

The last thing I wanted to touch on the cash flows associated with the EPA with Fox Com <unk>.

Claude by $50 million in April this year.

The $30 million purchase price remaining is to be paid at closing along with an estimated $27 million reimbursement of certain operating expenses and capex.

So if the transaction closes our pro forma cash balance as of $3 31 would have been over $300 million with.

With the endurance on the verge of commercial production, we are all very excited.

We have almost 700 lordstown colleagues working tirelessly.

Macro headwinds and the daily challenges that come with designing and delivering an entirely new purpose built vehicles I.

I believe in our team and I'm eager for all our outside stakeholders to see the results of our passion and commitment to achieve our mission.

With that I'll ask the operator to open it up for questions.

Thank you we will now begin the question and answer session.

Asking the question you May Press Star then one on your Touchtone phone.

So there really isn't a speaker phone please pickup your handset before pressing the keys.

Majority of the question.

Press Star then two.

So the first question is from John Murphy of Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

If I could start with the.

The Fox Con.

Either relationship here I mean, you guys alluded to a payment that it was going to be made on 514 that got delayed to 518 prior to the shareholder meeting.

What is the the amount of that payment, what's the nature of that payment.

What gets triggered if that doesn't.

If that doesn't get me I'm trying to understand that.

Yes, John it's Adam.

514 date would be is the date that required us to repay the down payments to Fox Con for the transaction. So that was the date again, if we didn't close by that but as Dan said in his remarks.

That data.

It has now been extended to the 18th so it's just that was the data which.

Again, the payments had to be repaid, but we've extended it.

That makes sense.

Okay. So that means the.

250 million Thats been paid by them. So so far we need to be repaid if you didn't get close the deal.

Yes.

Not all not all $2 50.

200, 200, yes, so when I said $2 50 to $2 50 was 50, a common that they bought last October .

So down payments on the deal or have been 200, okay. So I'm confused why why would it be delayed for four days and what happens if for some reason it's not consummated.

Well.

It's a complex deal we've been working on it hard with that so when we originally signed the deal in November that was the date that we had set to try to get everything done and we just haven't gotten everything done.

Gotcha Okay.

If you had to make that as yet.

I mean, basically chicken or the egg right. If you make the payment the deal goes Jamie if the deal goes through and you make the payments then you have the $300 million. If it doesn't you have got the cash the cash on hand and are walking through the rest of this year and raising the incremental 150 million. I think you mentioned is that is that viable.

No no no no. So John we have said in our public filings right. If the loan comes due or the down payments come due because we haven't closed the deal we wouldnt have the cash to fund. It. So we do have to close the deal.

We're a good constructive dialogue and I think the fact that Fox Con agreed to extend the repayment deadline.

It's a good sign.

Okay, and then if we think about the cost greater than the.

The price of the Bom cost greater than the price at the initial point of sale I mean, I guess thats given everything is going on with cost inflation and the cost of ramping up it's probably not too surprising, but as you think about 123 years out when do we kind of reached that crossover point or when do you sort of projected reset crossover point you actually on a per unit basis.

You will start to turn to <unk>.

Breakeven or profitability.

Hi, John This is Edward.

Thanks for the question, it's really capital dependent.

As we said we have a plan to bring down the bom cost through the hartzell being investments.

<unk> projects, we will continue to work on those but we have a plan to get there as we raise the capital to.

Invest towards those are tools and both projects.

And with the hard tools the lead time varies so.

So we'd come in.

Graduated kind of basis, but in general it's swapped 12 months 12 months 12 to 18 months.

Is when we expect all of the projects that we have in our plan to be implemented.

Got it and is that right.

Is that constrained by.

Some of the longer lead items.

As Dan was just saying.

Have a timeline of about 12 months, but.

<unk> 12 to 18 months, but there are some of the projects that we could could speed up again its capital dependent.

Okay and other than Fox John are you, having any discussions directly with any other automakers on contract manufacturing and obviously, it's been rumored that fisker I'm not more much more than rumors that fisker wood.

It tends to be contract manufacturing with Fox Con at Lordstown facility or are there. Other can you confirm that and are there other automakers, but <unk> had discussions with and have an interest.

Yes, we wouldn't comment on that now I mean, the focus is getting the enduring since the launch and getting a deal done with Fox Con. After that I think then we will pursue some of those other opportunities as I alluded to in my comments, okay. Great. Thank you very much guys.

Thanks, John .

And ladies and gentlemen, as a reminder, if you would like to ask a question. Please press Star then one at this time, we will pause momentarily to assemble our roster.

And ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference Brian over to the management team for any final remarks.

Thanks to all those who participated in the call I would like to close by.

In particular, our shareholders for their support and I'd also like to thank again, the LNC and Fox Con teams for all the hard work that has us to where we are today I'm very proud of the fact that our core team manufacturing engineering and corporate is nevertheless, the challenges and distractions overwhelm us in fact, our program management business processes have never been better.

And continue to improve every day with that thank you and look forward to speaking with you next quarter if not sooner.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Q1 2022 Lordstown Motors Corp Earnings Call

Request a DemoDemo

RIDE

Lordstown Motors

Earnings