Q2 2022 AYRO Inc Earnings Call
Federal government's general services administration, or GSA schedule by year end 2022, we believe the ability to sell a clean green solution at the federal lever level under buy American provisions with minimal purchasing friction that also brings a sustainability elements that we expected.
Rosie platform to inherently offer is a large selling point for many purchasers at the federal level.
Now, let's take a closer look at our second quarter financial results, we recognized $980000 in revenue in the second quarter of 2022, an increase of 88% over the same period in the prior year, we experienced an increase in cost of goods sold expenses related to defective battery.
Parts that are Chinese supplier central shipped to us for the lithium battery powered version of the current vehicle.
Due to a 100% defect rate in some critical components for the lithium battery vehicles.
As well as a 100% defect rate on the motor controllers that render their vehicles and operable we rejected shipment from the from central for all of these components and requested a credit from central for the full purchase amount.
This required a write off to cost of goods sold of $132 million due to these effective components, while any sales of the lithium version of the current during the quarter were entirely absent.
We're in discussions with central regarding this particular issue.
This increased cost of goods expense was primarily responsible for the sequential increase in our net loss that rose from four $5 million to $8 million in the first quarter of 2022 to a net loss of $5 $97 million in the second quarter of 2022, our focus on fiscal discipline and expense rationalization.
Remains has resolute as ever despite the speed bump in the second quarter arising from a critical component issue itself.
This example highlights the sensibility of our decision to bring manufacturing in house and to source components from reliable and proven suppliers located primarily in North America.
While this charges certainly unfortunate in no way do we believe it changes our outlook for the new <unk> platform and our product design and manufacturing strategies importantly, and I cannot stress. This enough. We firmly believe that a successful rollout of the new <unk> product cycle will help Maxim.
<unk> shareholder value and is what investors should ultimately focus on to.
To this end we have moved our remarkable speed to accomplish so much in such a relatively short period of time with the <unk> platform.
We expect to unveil our new vehicle prototypes of year end.
And our manufacturing build out and round rock, Texas is on track with respect to both budget and timeline.
With its numerous food box architectures configuration solutions and enabling technology features we intend to offer such as telematics logistics support and route optimization we've.
We believe the advanced <unk> electric vehicles will be an excellent solution for food delivery in many urban environments and address general utility needs in campus and arena environments.
Our balance sheet remains quite strong it affords us the opportunity to progress with our strategic direction without an immediate need to raise capital or cash and marketable securities at the end of the second quarter were $57 9 million and we have no debt.
That concludes my opening remarks.
Now I'd like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail Dave.
Thanks, Tom and good morning to everyone. Here's a summary of our fiscal second quarter 2022 financial results.
Revenue for the first quarter ended June 32022 was $981560, an increase of 88% year over year and a decline of 4% sequentially. This despite the <unk> of the entire MCM product line the.
The increase year over year revenues attributable to the increased unit sales and deliveries of the club car current light duty EV as well as a higher average selling price.
The total operating expenses in the second quarter of 2022 were approximately $4 1 million as compared to $7 8 million in the second quarter of 2021, and $4 4 million in the first quarter of 2022.
The year over year decrease in total operating expenses was due primarily to the reduced research and development expense, resulting from the discontinuation of the 311 <unk> product development and reduced general spending implemented during the corporate and strategic review by the management team.
Adjusted EBITDA, a non-GAAP measure in the second quarter of 2022 was a loss of approximately $4 2 million versus a loss of approximately $5 9 million in the second quarter of 2021 and.
And the loss of approximately $4 2 million in the first quarter of 2022.
The net loss in the second quarter of 2022 was approximately $6 million, which was an improvement over the net loss was approximately $7 7 million in the second quarter of 2021, but lower than the net loss of $4 6 million in the first quarter of 2022.
This is quint this is <unk>.
Cancel increase in.
And net loss from the first to second quarter of 2022 was largely a result of the $1 3 million and write off charges in the second quarter of 2022 relating to the defective central components and impairments of central prepaid expenses that led to a write down expense through cost of goods sold and the amount of $621000.
Cash and marketable securities at June 32022, with approximately $57 9 million versus $63 5 million at March 31, 2022, and $69 2 million at the end of 2021.
Total debt was zero at June 32022, as it was on March 31, 2022, and December 31 2021.
As a result of the June 32020 to the.
The company had $37 million 2500, 18 common shares outstanding.
That concludes my prepared remarks, I would like to turn the call back over to Tom for any remaining.
Yes.
Thank you Dave.
In summary, we remained steadfast and aggressive with our design of the new <unk> platform, we intend to unveil the first prototype heresy by year end and we intend to maximize the monetization of the remaining inventory.
The legacy current vehicles in parallel with our <unk> development.
We believe that the market launch and penetration of the <unk> platform with its various anticipated reconfigurable payloads can.
It can address a wide wide range of applications has the potential to generate a sustainable competitive advantage.
And result in sustainable shareholder value for our family of <unk> investors.
I'd like to thank all of our shareholders for their support and I look forward to sharing additional accomplishments and developments.
As they unfold.
And with that I'd like to turn the call over to the operator. So we can begin the question and answer session.
Operator, ladies and gentlemen, if you wish to ask a question on today's call you will need to press Star then the number one on your telephone.
If your question has been answered and you wish to withdraw your question you may do so by pressing the pound key.
Thank you speakers.
Please proceed with your handset before pressing.
For answering your question speaking on the call.
One moment please for the first question.
The first question comes from Barry Sine with Spartan Capital Securities. Please go ahead.
Hey, good morning folks.
On the Z you talk about preorders by year end, maybe if you don't.
We can get a little more visibility.
Is there a prototype.
Actually running around in the wild somewhere so how many of those are there and then if we start orders by year end, what does that mean for actual revenue shipments presumably that sometime into 2023, maybe not won't you.
Very good morning.
So let me answer you asked a number of questions. So let me let.
Let me kind of unbundle those in and go one by one.
So first of all.
You might note from my prepared remarks that.
Today, we have fundamentally north of 90% of our supply chain identified for the XE.
So what that really means is we are 8% away from from having a supply chain fully in place where we can build production level <unk>. Accordingly, there are no production level aero disease running around at the moment, because we're at 92% supply chain.
Level.
All that said.
The development and the the first verticals.
We will build 17 first articles of the <unk>.
And a number of those will go through the obligatory homologation testing. So we will take a handful of them will will crash of <unk> crusher and we'll roll them over we will do all those exciting things that demonstrate the vehicle is suitable.
For sale.
And then the remaining units will be will be further.
<unk>.
Further.
Objected to sustaining engineering to make sure that when we launch we're launching a very reliable very high performance and most importantly, a very high quality.
Platform.
So to answer your question we.
Our intention is to do the unveil at year end.
Our intention is to build commence.
Low rate initial production as soon as we have completed homologation testing to ensure ourselves that what we're building is at the quality and performance level that we have.
Aspired to.
And at that point in time, we will do.
A transition plan from low rate initial production.
To full production I expect those transitions.
To occur.
In the first quarter of next year.
I'm going to I'm going to not forecast volumes at this point in time.
Until we get early some early feedback from potential customers on not just the vehicle, but on the payload configurations that were offering with that vehicle.
I hope that.
Cancers at least half of your questions.
That answers that question thoroughly I have a couple more if you don't mind.
Sure Euro has been largely built.
With a strong ecosystem.
Partners some of those partners and some of those relationships, presumably youre going to have to be renegotiated re modified.
And if I ticked down the list.
One galaxy that seems to be fine you put their payload on the XE.
<unk> car I think they have an exclusive so I don't not sure. If you can if youll still be exclusively club car well if youre allowed to go parallel selling the Z outside of them common mix assembles of vehicles, now and youre going to replace them. So assume that has to be.
Renegotiated element, presumably they can support disease as well as the current unit and then central it sounds like you're on your way to phasing them out and you're starting to have quality issues.
With them I'm not sure what your contracts are on those are we so my question on if we can go through each of those and what other land mine potentially investors might see as you do that.
Well Barry the way I would answer your question is there are a great number of matters under negotiation right now.
And what <unk> disclosed in previous disclosures.
Is that our strategy is to shift from our strategy of offshoring.
To our strategy of onshoring.
And our strategy of outsourcing certain things to in sourcing certain things like final assembly production quality and support.
And clearly you've.
<unk> captured what that fundamentally means is there'll be some.
Some repositioning of the various relationships there will be fundamental changes to some of those relationships.
And the way you have postulated it is in fact.
Quite accurate, although because because we are amidst a number of discussions and negotiations.
I would I will pass on answering that question explicitly.
Although I would not debate any of the points, you're making at this point in time.
<unk>.
What I will say is that we intend.
To Sunset the legacy 411 X production.
Uh huh.
In the third quarter of this year.
So as we sunset that production. It means we will simultaneously be standing up the production of the <unk> hundred 11, and see here in round rock, Texas.
Sure.
Sorry, I can't tell you more but I'll be happy to tell you more as soon as a number of our negotiations conclude.
Okay, No that's very helpful.
Visibility for the rest of this year.
So presumably given the long long manufacturing and then shipping lead times.
<unk> got some visibility presumably the units are already.
Either being manufactured around the ocean, giving given the lead times.
You've also just mentioned that youre going to start sunsetting.
The X in the third quarter of this year. So what is the rest of this year looked like presumably we start to see revenue decline sequentially until we start to see some revenue next year ramping on the XE models is that a fair way to think about things.
Well I always think about it in a different way.
And the way I would think about it Barry as we have in inventory.
The current vehicle product.
And that inventory is in our hands it's built.
And it will it will serve as our source of continued revenue through the end of this year.
As we deplete that inventory, we're standing up our inventory of the new 411 Z platform as we complete homologation and as we transition from first articles to low rate initial production.
So there will be a transition.
And the transition will be fundamentally a.
Disposition of existing inventory.
With an introduction.
New inventory and.
And that transition will occur.
<unk> this year <unk> next year.
And how that ends up playing out in terms of of the revenue profile.
It's something that remains to be seen but I don't anticipate a circumstance, where the revenue falls to zero.
Okay.
Last question is around the balance sheet and the sufficiency of cash to make this transition and if I do the math you just reported an EBITDA loss.
$4 2 million, if I, just annualize that that 16, eight and you also have just reported $59 million in cash.
That ratio would at current levels get you three and a half years before you run out of cash and over the next three and a half years I would expect that you'd be really ramping, especially in the second half of next year Z shipments and really starting to generate revenue and I'm also expecting that'll be a positive gross margin vehicle.
<unk> versus the current unit Thats negative gross margin. So it seems to me as if the balance sheet looks adequate to support what we're doing but I'd love to hear that out of the words out of the amount of the management.
I believe your way of looking at it is.
Very very thoughtful.
And just can you.
Confirm that you would expect to have a positive.
Gross margin on the XE units.
Well Barry.
So.
So let me answer it this way.
We're not working tirelessly to build a platform to lose money.
<unk>.
That's that would be a definition of.
Of insanity.
The what we expect to see as we expect to Z to be a.
A quality leader a performance leader and a reconfigurability leader and a sustainability leader in its segment.
We expect to make money on every vehicles from the jump and we expect.
As you know Barry we expect.
Okay.
Yes.
Merchants on those vehicles to rise as we progress.
Up the production curve and as we continue to gain supply chain leverage the margins will only improve over time as production rates ramp.
So yes I can.
That's the direction we're headed.
And.
And you might further.
Remember that we.
We separate the platform from the payload.
And and.
Revenue and earnings are generated not only on the platform, but also on the payload.
And now they will also be generated on the platform the payload and the enabling infrastructure or the applications that accompany the platform. So I hope that insight is a little bit helpful. Barry.
Yes, that's very helpful. Thank you and those are my questions. Thank you very much.
Our pleasure as a reminder, if you have a question. Please press star one. The next question comes from Steve <unk> of Amazon. Please go ahead.
Hi, Thank you for taking my question I just had one simple question really with the new Bill that's been introduced tomorrow.
And being voted on in the House do you guys expect any sort of incentive.
In our EV company any kind of take advantage of the tax credit that is included in the bill. Thank.
Thank you.
You bet.
<unk>.
We've gathered wherever we can find on that bill.
And it's very difficult to determine.
Really the full throw of that incentive what I would tell you is I don't think we're going to need it.
Our platform is going to be priced at a level, where the utility it provides.
First is the cost that it and genders is in.
Fairly good balance.
A lot of these incentives as you well know are on vehicles that are extraordinarily expensive.
And.
And our vehicle does not fall into that category, So long and the short of it is.
We don't know right now.
And while we understand there will be incentives.
It's just hard to tell right now.
The extent to which those incentives will be applied some I'm, sorry, I can't give you an accurate answer for that.
I appreciate your time.
This.
A question and answer session I would like to turn the conference back over to Tom Leighton Saga for closing remark.
Well thank you.
I'd like to thank all of you for participating on today's call.
And for your interest in Arrow, we look forward to sharing our progress on our next quarterly conference call. When we report our third quarter results in November .
You all have a pleasant day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.