Q2 2022 Lordstown Motors Corp Earnings Call
This demand in death Valley, which has been experiencing especially high temperatures this summer.
You might ask what is still to be done and what are the risks consistent with our management team's emphasis on transparency I will say that we have made significant progress, but we are not 100% done.
The impact of the supply chain issues on the timing of our PPV builds as discussed on previous earnings call.
Set a downstream impact on the completion of our vehicle testing the.
The more miles we accumulate on our vehicles the more we're the more we learn to be able to deliver the highest quality vehicles to our customers.
We intend to complete more test miles and resolve open issues before starting to deliver customers delivering vehicles to our customers in Q4.
In addition to vehicle testing, we also continue to test our software to ensure robustness.
As you May know advanced electric vehicles likely endurance have dozens of computing modules controlling the various sub system.
Like powertrain chassis, <unk> safety, HVAC infotainment et cetera.
These modules must communicate with each other and work together for the proper functioning of the vehicle.
While we may be able to accept software glitches and bugs in our smartphones the standard for vehicles is much higher.
We continue to test all software at the component subsystem and at the fully integrated vehicle level.
Testing is aligned with the top software protocols, including the motor industry software reliability Association or Misra and ACI.
As we have previously disclosed the <unk>.
<unk> cost of the endurance is materially higher than our anticipated selling price.
We are therefore limiting production of our first batch of endurance as to approximately 500 vehicles.
We have a plan to reduce our bom cost over time through investments and hartzell named building scale with production suppliers and <unk> initiatives.
However, we have held off on the larger hartzell ing and other investments in order to manage our balance sheet and limit the amount of new capital needed to achieve our initial production targets.
Our timeline for scaling endurance reduction will be tied to our strategic partnership and capital raising actions that Adam will discuss later.
Our experienced and capable purchasing team continues to address part availability heart quantity and park category issues that have impacted our supply chain.
With approximately 500 parts in an endurance it is important to complete each build with the proper pedigree of parts.
<unk> the build of a vehicle and then having to retrofit it with it or add a missing or replace an incorrect part can have a negative impact on quality.
Our supply chain team must manage the weakest links.
Our manufacturing partners that the box plant in Ohio are ready for launch.
While we are starting commercial release production of the first batch of endurance is in Q3, we are ramping up slowly to mitigate these issues.
We expect production to accelerate in Q4 with the majority of the initial 500 vehicles Bill in the first part of 2023.
Our sales strategy remains focused on the commercial fleet market.
The endurance will be one of the few full size pickup truck in the market. This fall and we expect over the next several years.
We cannot wait to get the endurance into the hands of our customers with.
With its in wheel hub motor design impressive connectivity agile responsive handling and lower total cost of ownership, we think theyre going to love it.
We have interest from several fleet management companies and commercial fleets and plan to concentrate sales of this initial batch of vehicles in strategic markets, where we have centers of expertise, including California, Michigan and Ohio.
Our service strategy for the initial batch will align with this customer geography focused sales strategy.
I'd now like to discuss our growing relationship with Fox Con and our product development joint venture.
Our $55 45 joint venture announced in mid May and which <unk> committed an additional $100 million in capital is another action in support of the ambitions of both companies.
This $100 million commitment in the first $30 million was funded at the end of Q2.
As <unk> primary commercial vehicle development partner in North America.
The JV will collaborate with box <unk> growing global ecosystem, including the NIH consortium to co develop new EV programs, where lordstown commercial fleet customers and potentially for other Oems.
These new vehicles would be built for North America at Fox guns, Lordstown, Ohio facility and at other Fox Com contract manufacturing locations around the world.
Under this innovative business model utilizing a more flexible development platform and manufacturing footprint smaller Oems have the opportunity to achieve the benefits of scale with lower volumes and reduced costs and experienced a faster time to market.
As I also served as CEO of the Fox <unk> joint venture I recently spent two weeks in Taiwan with box gun, Chairman Yeung Yo and his team.
While in country, we had several meetings on how to best operationalize, the JCB and leverage our concept through launch vehicle development capabilities in concert with the Fox <unk> ecosystem.
We also had several discussions about the first vehicle program of the JV.
Which we hope to announce in the coming months.
I am also very excited about the latest senior management appointments as we continue to strengthen our leadership team.
Dr. Donna Bill Executive Executive Vice President for product creation engineering and supply chain joins us with nearly 30 years' experience in product development and technology innovation leadership, primarily at Ford Motor Company.
<unk> leadership and expertise will be especially valuable is electric vehicle attributes and features become increasingly defined by software.
Andrew Wrenches senior Vice President for sales service and marketing is a 30 year veteran of the automotive commercial fleet business from both the OEM and up fitter side.
Andrew's leadership will help our team put the customer at the center of our business decision, making.
Jill Coniglio, Kurt Vice President for people and culture joins us with over 20 years of experience in human resources roles and creating high performance work cultures, where leading automotive suppliers.
These new leaders will play key roles in our team's drive to become a world class commercial fleet focused EV OEM.
I would also like to thank Jean Ritson Parsons for her many contributions to the company across functions.
And I look forward to her continued support as an adviser to the company.
I will now turn the floor over to our CFO , Adam crawl to present, our Q2 performance and financial outlook.
Adam Thank you Edward and good morning, everyone and thank you for joining us I'm enthusiastic about Edwards expanded role he's been the driving force behind the engineering results, we have seen over the last three quarters.
While the closing of the Fox Con transactions were key strategic and financial events. This quarter, we have not taken our eye off the ball as our number one priority remains launching commercial production of the endurance.
And I remain intensely focused on managing our cash position with disciplined spending to preserve as much liquidity as possible, while we seek to raise additional capital.
Before I get into our results I'd like to review the sale of awards held facility, which took place as planned and resulted in the cash proceeds we discussed in May.
Recall, the headline price was $230 million plus reimbursement for certain operating and capital.
The result was total transaction proceeds of 257 5 million inclusive of the reimbursement.
The timing of our receipt of the proceeds was $100 million as a down payment in November .
2021, and $250 million down payments in 2022, taking place in January and April .
At closing in May of 2022, we received 57 5 million, representing the remaining $30 million purchase price $17 5 million for operating expense reimbursements and $10 million for capital expenditure reimbursement.
In summary, our total cash proceeds in the second quarter were 107 five.
The accounting for the transaction was a bit complex, so I'd like to break that down for you as well.
The 257 5 million of total proceeds are reported as follows.
In the P&L, we reflect income of $121 million, consisting of a gain on sale of $101 7 million and a reduction in R&D for the associated reimbursement of $17 5 million plus a small additional amount we anticipate receiving as part of the final settlement in the third quarter.
In the cash flow statement, which represents a year to date period and operating activities you will see the add back of the gain on sale.
In investing activities, we report $37 $5 million in asset sale proceeds and in financing activities. We report the $100 million from the January and April down payments.
Now turning to our results for the quarter and starting with cash.
I'm pleased with our disciplined expense controls and rigorous program management that meaningfully contributed to our liquidity position exceeding our internal forecast at the end of the quarter, we had cash on hand of $236 million approximately $32 million higher than the first quarter of 'twenty.
The change in cash reflects $52 4 million in cash used by operations, which includes $21 6 million for working capital $18 1 million in capital expenditures roughly half of which was for tooling for the endurance.
$87 5 million in proceeds from the plant sale and $15 $1 million from equity issuances.
Now shifting to Ernie.
For the second quarter, we reported income from operations of $61 3 million, including $121 million in income from the plant sale.
Excluding the effects of the sale of our core operating expense totaled approximately $58 8 million for the quarter.
From $88 million in the first quarter of 2022.
Total our total reported R&D expenses were $10 5 million, which you should think of as $28 9 million and gross expenses less $18 4 million in expense reimbursement from Fox Com as part of the sale of the plant.
The reimbursement represented total estimated recovery of operating expenses covered by Fox on under the API, which will be finalized following box post closing review period.
Recall that last quarter, we broke out plant and vehicle component costs from engineering testing and other related active.
Cost to operate the plant along with other manufacturing related costs were $10 7 million in the second quarter down 51% sequentially due to the elimination of a majority of the plant operating costs beginning on May 11, the sale closed.
The $10 7 million consisted primarily of $4 1 million in personnel costs $2 $1 million freight and $4 million of other facility and manufacturing cost.
We expect a similar decrease in the third quarter as we realize the full benefit of our new cost structure.
As we guided prototype components spend decreased due to less activity.
As we approach commercial production, our spend was down 93% or $18 2 million from the first quarter to $1 5 million.
All other costs in R&D in the second quarter totaled $16 7 million a.
A decrease of 17, 7% were $3 6 million versus the first quarter of 2022 and down 19% versus the fourth quarter of 2020.
Outside testing expenses represented the largest decrease lowered by $4 million versus the first quarter of 2022 due to cost control the supply chain headwinds and other factors Edward mentioned, causing some of the testing ramp to shift into the third quarter.
Personnel miscellaneous small offsets as we add permanent down to reduce reliance on third party contract.
SG&A was up 15, 1% in Q2 compared to Q1, due primarily to a noncash charge to reflect the net realizable value inventory, partly offset by lower legal and professional fees.
Ladder was down as we reduce outsourcing with new hires.
Turning to our outlook for the rest of the year.
I will begin by saying that we continue our intense focus on prudent cash management as we execute our plan with limited capital, resulting in day to day capital allocation decisions based upon our outlook and liquidity are.
<unk> investments for the endurance remain largely on hold.
We expect our second half of 2022 total operating loss and.
And capital expenditures combined to be between 140 and $150 million excluding contingent liability.
Our operating expense for the plan other than freight reduces to essentially nothing as I described prototype component costs are likely to be minimal. We anticipate all other R&D will increase as we execute the final testing and certification of the endurance in the third quarter and into early Q4 before the decrease.
Okay.
We expect SG&A to be up slightly in the third and fourth quarters versus the second quarter, excluding the timing impact of any charges to adjust the carrying value of inventory.
Furthermore, we anticipate capital expenditures in the second half of the year to be down just under 50% versus the first half as we no longer own the plant and we make some make some smaller investments in tooling and other general corporate needs.
In the fourth quarter, we would anticipate the remaining manufacturing costs will move up to cost of goods sold and incorporate direct material costs the contract manufacturing fee of warranty and other sales related costs.
Finally, as we are modulating our production schedule and exercising disciplined cost management, our capital needs. This year will lessen significantly from the $150 million. We had stated previously.
I anticipate our cash needs for the remainder of 2022 will be closer to $50 million to $75 million.
However, this amount will depend on our production schedule and excludes contingent liability.
The guidance also reflects our targeted ending cash level of $50 to $75 million.
However for us to execute our plan to deliver 500 units of the endurance, we will need to raise substantially more capital to cover operating costs on the remaining working capital in 2023.
In summary, the strong program management mentioned by Dan and Edward combined with disciplined spending activity have enabled us to finish the quarter with significantly more cash than our internal forecasts.
Our strengthened leadership and incredibly dedicated teams are committed to achieving a successful launch of the endurance and the announcement of the first vehicle program out of our joint venture with box Com. We are committed to our mission to accelerate <unk> adoption, replacing internal combustion engines with clean EBIT. We are all in this together and I am excited for what's to come.
Thank you.
Operator, we will now take questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question.
And we will pause briefly to assemble the queue.
Again, if you do ask a question or comment at this time, please signal by pressing star one and will pass again briefly.
At this time, we have no signals, we turned to Edward <unk> for closing remarks.
Thank you operator in summary, I would like to thank the team for their tireless work and significant progress towards the upcoming enduring launch I would also like to thank our shareholders for their continued support.
I believe we have great potential opportunities ahead of us with our growing relationship with Fox Con and I look forward to our team executing and realizing that thank you.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time have a great day.
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