Q2 2022 Arrival SA Earnings Call
The challenge now is to approach and stop of production.
And have made the strategic decision to focus on operating the business and the downscale manner through at least <unk> 23, without the need to raise additional capital other than through the ATM, we announced today.
While preparing the company for growth when capital market stable.
Our proposed plans include a realignment of the organization that we believe would allow us to deliver business priorities to at least since 2003 with realizing almost $530 million cash on hand.
As of the end of the second quarter was the expected proceeds from the ATM.
This proposal includes a targeted 30% reduction in spend across the company.
The decisions have been taken to focus our resources initially on demand platform, which makes up the majority of our Mou in order volumes.
<unk> our contracts with your peers and this plan with.
With this in mind, we are deferring further investments in the bus program, while we secure additional capital.
We have also made the decision to move the start of production is shown up in the U S for 2023.
Our beta micro factory in the UK is the first ever micro factory and we will use production donuts, we can apply for shuttle.
In addition, we will defer cash pound, but keep in mind part on soft tooling and choose to strategically step the investment in production to link with our suppliers. Today. We're also establishing a $300 million at the market equity offering platform, which together with cash on hand, and the cost reductions we have outlined.
It will allow us to extend our cash runway with that I will pass it over to others.
Yeah.
Yeah.
Thanks Dennis.
Hey, I wanted to focus on our demand pipeline customer trials and started production services Dennis his comments regarding our bus program I would like to emphasize that our mission to bring a certified bus and then the public roads. This year is still being accomplished the arrival buses already operating on public roads as a shuttle between arrival sites.
<unk> continues to be an important product for us as a business and our relationship with first Pos remains strong with their management impressed by the product and our achievements to date as.
As a result, they have committed to restarting the trial once we have a new roadmap for the platform.
We remain excited this call first bus and becoming a leader in the transition to a low carbon future and their commitment to operating a zero emission bus fleet by 2035. The whole organization is currently focused on van and since achieving European certification arrive events continue to accumulate mileage on public roads in the U K.
This quarter, we plan to start trials in Central London.
<unk> will be fully integrated in the customer fleet operations supporting last mile shipments through Q4, and we expect the first deliveries of bands to UBS to take place before the end of the year.
Right now we are focusing on one micro factory and one product running on one shift which will be a critical enabler to our initial ramp cost and quality of production commissioning has begun and the best the micro factory to ensure quality salable vehicle has produced while continuing to make any optimizations required.
For up to 200 bed sets are being delivered now and we expect to start production in the Bicester micro factory in a matter of weeks.
In order to reduce our near term capital spend we're starting on low volume tooling and we'll strategically transition specific parts of the high volume tooling this year to increase production capacity as.
As we begin to ramp up production the focus will be on controlling costs and achieving our internal quality targets moved.
Moving startup production in Charlotte not only reduces our near term cash spend it also allows us to take better advantage of the lessons learned at Vista to further reduce both capital and operational spending and the Charlotte Micro factory, where we expect to produce both our <unk> and our platforms.
Strong demand for both platforms in the North American market and with both policies emerging in the U S. Through the inflation reduction Act. We are on the brink of witnessing historic investments into vehicle electrification, including a new commercial EV tax credits this credit worth up to $40000 per vehicle for medium and heavy duty vehicles like the delivery.
That arrival producers will help reduce the upfront cost of these vehicles.
Although provisions of the inflation reduction that will address other barriers to adoption such as EV charging for commercial vehicles.
Our non binding Mou and orders have continued to grow to 149000 units, which if all completed is over $6 billion in potential revenue, we have moved away from referring throughout demand pipeline as otherwise since in actuality. The demand is captured in the Mou as we have in place to customers that are <unk>.
<unk> discussed negotiated and signed by both companies matter, we have achieved certification and begin production imminently. The sales team is focused on conversion. In addition to growth and we have strong customer engagement as evidenced by our large backlog. We are excited about this next evolution of our preorder sales into revenue we see ourselves.
Being capacity constrained rather than demand constrained and with that I'll hand over to John .
Yes.
Yes.
Yes.
Okay.
Thanks, Avinash first I'd like to remind you that effective as of the beginning of this year, we changed our reporting currency from euros to U S. Dollars Tomorrow, we will be filing a document with the SEC to recast our 2021 full year financial state.
Thats in footnotes into our new reporting currency and in addition, we will be filing U S. Dollar financial statements and footnotes for that first half of 2022 looking at our Q2 2022 financial results the loss for the quarter was $90 million compared to a loss of $56 million in the second quarter of 2021.
The adjusted EBITDA loss for the quarter was $76 million compared to a loss of $41 million in the second quarter of 2021.
Administrative expenses were $82 million and non capitalized R&D expenses were $33 million in the current quarter compared to administrative expenses of $36 million and non capitalized R&D expenses of $12 million in the year ago quarter capital expenditures in the quarter were 95 million.
As compared to $79 million in the second quarter of 2021.
Capex in this quarter included approximately $60 million of capitalized R&D and $35 million of micro factory, Capex and tooling and we ended the quarter with cash and cash equivalents of $513 million turning to our outlook. We ended Q2 with.
<unk> $513 million of cash and cash equivalents have begun a restructuring of the business to reduce costs, including a targeted 30% reduction in our global workforce and today are establishing a $300 million ATM platform to sell equity into the market from time to time. These actions will allow us to start production.
<unk> Investor day.
Liver our first vehicles this.
This year and start production in Charlotte and 2023 due to the restructuring and a slower ramp in Bicester, we expect lower production volumes in 2022 than previous estimates. These changes will allow us to operate the business through at least 2023 without needing to raise additional capital other than through.
The ATM and prepare the company for growth. In addition, we will continue to Opportunistically consider additional sources of capital to accelerate the business.
We are expecting to start production in Bicester this quarter and although we have parts to build up to 200 vehicles. Some of these assets will be used to build vehicles for internal quality and additional customer trials. We currently expect to deliver a target of approximately 20 vehicles to customers. This year due to transit times and entering our customers' busy.
The holiday period, we do not expect revenue in 2022 for the second half we expect adjusted EBITDA in the range of $175 million to $195 million.
And capex between $40 million and $60 million Capex will primarily be for some initial high volume tooling and finalizing the commissioning of Bicester, we expect to end the year with approximately $300 million to $350 million of cash and cash equivalents inclusive of expected proceeds from the ATM.
Of approximately $90 million this year and $210 million in 2023.
Finally, I would like to remind you of the unit economics, we expect from our micro factories over the longer term. We continue to expect total capex to be approximately $50 million per micro factory with a contribution of over $100 million of annualized margin when producing 10000 vans per year on two shifts.
We believe this annualized contribution margin target is achievable by the end of 2024, our contribution margin target assumes we will continue to optimize the vehicle bill of materials, including arrival components and improve the operational efficiency and subsequent micro factories I will now turn the call over to Dennis for closing.
<unk> comments.
Yes.
Thank you John .
I'd like to remind everyone that is what we are doing is very complex and no. One has done it before.
The conference develop incredible enabling technologies, one core component and device software that announced 31 proprietary composite materials.
<unk> expenses paint shops, and metal stamping and is designed for production with a quality finished autonomous mobile robots to move parts and vehicles in the micro factory replacement right about.
Software defined metro factories, which reduces capex and time to market.
We kept up with all of the key operations required to assemble an equal we managed to just that if you buy two vehicle platforms that are currently undergoing trials. All of these technologies are coming together, which is something truly unique in the industry you method to design and produce vehicles. It means our gives us can scale very rapidly response time for Raymond.
Our ambition is to purchase multiple in equal part grows in hundreds of micro factors each producing over 100 million of margin per annum equating to million vehicles and target's been bidding margins per year.
While enabling technologies proprietary hardware and software materials and using robotics sets us apart from the rest of the industry.
As part of our first much effect, which is a big step towards achieving our mission it.
It is the move from vehicle one.
With that let's start our Q&A.
As a reminder, if you'd like to ask a question. Please use the raise hand function located at the bottom of your screen once you've been called on you will have the ability to on mute your audio.
Our first question will come from Steven Fisher at UBS.
UBS Steven your line is open.
Thanks, Good afternoon.
Wonder if you could just talk a little bit about what happened over the course of the quarter that caused you to take the delivery expectations from 400 600 down to 20 I'm sure. They have a variety of factors there, but maybe you can just talk about that a little bit that'd be helpful. Thank you.
Yeah.
Yeah.
Excellent many thanks.
First of all.
With the dual <unk>.
Two factories into one and we do this the safe cash. So this number one so our capacities.
Produce.
The second one is.
Actually the supply chain and the Halloween receiving the boards.
<unk>.
What.
All market has impacted so it's nothing particular.
Complex there so it's not about that we're not receiving something it just sometimes it.
It's delayed they just answer later than it should be.
And the.
The third one is.
Actually taken very conservative view, because originally we wanted to make what many shifts.
To push the volumes.
For the end of the year, but we are switching our more do more preserving the casualty of course like any anything you don't extreme level. So it just costs more and we understand that it will have like more shifts, but not Julio which lies immediately because of ramp up. It just we just have always the cash. So we decided strategically is better for us.
So.
Spend cash.
Uh huh.
Much more careful.
And.
Our focus on delivering first vehicles in the perfect position to our customers and then scale from the point Chris.
Materially for us as a company and there is no big difference between I would say like 400 vehicles or like 'twenty because numbers.
Small anyway. So we wanted to like our factories are designed to produce 10000 vehicles a year.
So we will we'll produce them mortgages, but later in the effect by Stephanie Bruce If you blend 400 to 600 vehicles from beginning of the year you still have a lot of.
Our buffers look inside so if something didn't happen within a couple of weeks in the beginning so you still have time until the end of the year to address that in our case everything thats happening with the last four months of the year well actually yes.
Four months of the year, so any delay with the supplier a couple of weeks, it's a big impact on the overall time, we have within the year. So.
Actually if.
We are extremely happy about on the Q2 I mean, so we achieved the amazing things and it's the first one is.
Sydney to define our vehicles like.
We did at a much much bigger than the industry base. So even the other organization, which work to partners that have been very impressed with the efficiency. In this half is how fast can we manage the buildings.
Like important one because it's never been done before like an industry and we do it first time from first time, we do this right and we already got a very strong competitive advantage from this stage. So we know how to do this certification and we have all the necessary tools and skills to do that so this is a big big event for us.
The second one is that actually a factory works so we installed equipment.
Our parts are ordered.
All the parts of it which are <unk>. So we go through the <unk>.
Stages of Assembly and it works.
The way we plan again, we do it like first time, it's never been done before.
Something which we were planning a prediction, but we are so pleased that this happens actually the way we plan even like world around us.
Very destructive liquids everything, but we managed to keep keep us on track so when.
In general we believe that like our results are remarkable in the maintenance. So we are extremely pleased with that.
That's helpful and I guess when in 2023 at this point do you expect to start production in Charlotte and just latest thoughts on how quickly you think you could ramp up to that 10000 unit production at both locations.
Look.
But I want to speculate on that particular questions, but of course, we have our internal plans and we believe that our method because it's not a complex factory. It's very small packs of 10000 square meters. That's assembly line only central line of 10000 square meters. So therefore, it's not so many people who we need to train and organize kind of things and methodical appointment as related as much straightforward. So our internal plans as normally it should take us.
Six months from the moment, we start to put the equipment at the moment factories ready and of course, we have taken the learnings from the basic factory. So we don't need to go through the same cycle. So we are expecting that.
Charlotte will be much bigger in terms of ramping up the person who will take all the learnings for the girl spectrum I don't want to give you a particular number.
To make it a promise, but we are.
We believe that the.
So the factory is going to be a jewel in our.
Like.
Like in our business in the way that.
We will like we are.
If I sound like extremely pleased with what's happening in Easter, but let's start with no major things, we want to optimize and Charlotte will boundless.
The progression of that so we cannot waiver.
One little stub.
Just want to remind everyone that.
<unk> factories, essentially they are built to scale rapidly with faster time to revenue So I think thats.
Getting the first one right, we will be able to scale micro factories rapidly of course.
Spending on access to capital.
So again stand at this point, we're not discussing 23, but we do have.
Very unique production facility in the micro factory that lets us.
Scale in parallel at 20.
<unk> thousand square meters regular warehouse like we've talked about before off the shelf equipment and allow our own internal processes.
Other color, which I want to give us that right now we are switching from the north where we have two products.
Two shifts.
Two micro factories.
So the mud weights, one factory launching one product.
And I want to say as the CEO of the company I would say that we should do it before but we've been so much focus on the growth.
So look we saw a little more so now.
Were they again like the changes on the market so that the cash.
Spot is much more important than anything so.
We believe that this opportunity to speak.
With more than one product one factory one sheet gives us a better chance to be successful.
<unk>.
I think its subsequent Schmidt.
We should do anyway.
Okay.
And I think that level of flexibility that the rest of the industry doesn't have.
And John maybe just lastly for me.
What's your expected ending cash at the end of Q3, and I know you intend to draw the $210 million next year, but whats the when does that draw expected and what do you expect your end of 'twenty three cash balance to be.
So I expect us to end 'twenty three with cash in the bank currently I think I referenced that we win in Q4 with between 303 hundred $50 million.
Cash I would expect just given the fact that we're in the middle of execute Eaton right now out of the cost reduction initiatives that we've announced.
The cash burn in Q4, or I'm, sorry, Q3 will be more than I would expect in Q4, I don't want to guide and in Q3 cast I'd say, we're on track to hit our Q4 cash guidance and expect to end 2003 with cash in the bank.
I think looking sort of without beyond 2022.
We're targeting it's going to be lumpy as we go throughout the year, but somewhere between 101 hundred $50 million of cash at quarter, depending on which quarter that we were at and sort of how we're looking at the cash burn next year.
I think in terms of.
The coming year that we were saying that we are savings we are planning to save up to 30% of the spend but the multi person we've been not efficient and cash spend before so we are extremely efficient I mean, so if you just see how much.
Cash we spent so far in the history of organization with the.
Like with the what we achieve them and so while there are no more efficient organization than we are in this industry and what's happened right now is that we have.
Using this Paul so the gross scope is becoming smaller and we need to have less people to do that in our family is going to be less as well so thats our exercise of the year.
Thank you very much.
Your last question comes from Jeffrey Osborne with Cowen <unk> Jaffray. Your line is open.
For the question.
Just one clarification on the cash and then I had a couple questions for Avenova.
John do you expect any cash restructuring cost.
Q3 years before.
This space. It is included in our expectations of yearend in cash our current view on restructuring and as it will be approximately $25 million most of that will occur in Q3.
Got it that's helpful and then either provenance there Dennis.
It.
And business today are all the cells I forget the 12 or 14 product himself remind me there but are those set up that you produce any preproduction vehicles.
In periods with all of those or give us an update on if I walked in the factory what I would be would.
Would be helpful.
Look we did everything we could in terms of tests with the partner we have of course again look we're trying to limit number of subs.
Using of the factory for the commissioning so we used all of them like everything what was available on the round like dry around Sundance, what physical at full ramp.
On the factory.
So now if you will go to the fact that what you will see you will see the parts.
Like a cabin our structure, which are actually strategically assembling right now it's happening now today tomorrow like everyday.
Ams fully working and install our belief in our produce.
Batteries.
Battery modules up for you from the factory from the production process itself.
We are way in very.
Very good shape now.
That's great to hear and then as this period many of your peers in the Edp <unk> been raising prices to feed a battery in place and I think your prior positioning.
The vehicle was.
More expensive than the <unk>.
And Morgan Olson, ETF vehicle, but less expensive than competitive solutions in the period as your pricing philosophy.
Due to the lumpy hasn't changed.
Jeff The philosophy Hasnt changed will remain in line as you can imagine with rising inflation and supply chain issues. This is.
Challenging market, but all industry, where generally prices.
Going upwards, but our philosophy to be competitively placed between ice vehicles and competitive electric vehicles remains the same.
And just to be clear, we expect that our ASP is.
To increase with the industry.
Got it that's all I had thank you.
Thank you Jeff.
Thank you for your questions I will now pass the call back to <unk> for closing remarks.
I'd like to thank everyone for joining as mentioned by Dennis This is a.
Very big moment, where the industry sees the micro factory.
For the first time producing vehicles coming this quarter.
As Denis mentioned this is a zero to one moment. This is we believe fully transform it is and how the industry will operate.
Going forward, thanks, everybody for joining yes, I would like to.
Also give looking with a comment here is that like I founded this company in January 2015, with envision that there is a better way of making electric vehicles and actually ultimately obviously that it's helpful. In electric vehicles. I mean is there anything I mean, it would be like the other industries, as well or furniture or electronics and many other things, but what we will see that we.
We just decided in the beginning to do it with electric vehicles on this our focus to the commercial vehicles.
And now that it was planning for like what should come together I mean, so all of those technologies, which wherever it exists on the market before its not something you can comment by the market. So we needed to develop a lot of components right.
<unk>, which is capital to create a simplified grade the software for them actually building full design. If you just take our van actually in the shape. It is now a better quality.
Better versus second desertion geos.
Just gauge of this product was radio only February .
February 2000.
2020, so it took us level.
A bit more than two years from the moment of the use case. So the moment vehicle was certified it's never been done before I mean, so it's like normally takes like at least five years to do that but we managed to do it within tool with much smaller resources what to do that.
And then.
All these kind of things throughout what factories that were envisioned that the robust went to be flexible.
One factory can produce many type of models from the same factory, it's something again.
New interfaces, which are instead of revolving data like new materials, which is not a stand up.
Nobody.
Like can you type of focus is I mean, so we.
All the planning and then it comes to the point, where in Q3 2022.
It all comes together.
So for me at the moment, the almost like if they assume youre in the.
Dark room.
Sure.
Yeah.
Hitting the <unk>.
Darts.
And then like.
The light goes on and the dark isn't the tab. So that was the mission impossible we're doing.
I'm, so happy that the tablet and so that's where like in Q3 the year wheel regional it works exactly the way. It was planned for 2016. So what's this space. Many thinks is going to happen here.
Thank you Dennis This concludes today's conference call you may now disconnect.