Q3 2022 Arrival SA Earnings Call

Before I hand, the call over to the arrival team I'd like to go over just a few housekeeping notes for the program.

As a reminder, this webinar is being recorded.

After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time. Please use the raise hand function at the bottom of your screen.

Do you plan to ask a question. Please ensure that you've set your zoom named to display your full name and firm. Thank you for your attendance today and I will now turn the call over to arrival.

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Thank you all for joining us today to discuss arrivals third quarter 2022 financial results and business update.

Today, we have Dennis square, the arrival founder and CEO of enough reservoir, President John <unk>, CFO , and Mike Anderson CEO of North America.

Before we begin I'd like to remind everyone that certain statements made on this call. Today are forward looking statements. These statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and the information currently available to us.

Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.

Ascription of these factors and other risks that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC and our third quarter 2022 business update issued today on the eighth of November .

During the call. We also refer to certain non <unk> financial measures that should be considered in addition to and not as a substitute for or in isolation from our <unk> results.

For further information please refer to our Investor relations website at investors that arrival dot com.

With that in mind, I'll turn it over to Avinash.

Thanks, Eddie 2022 has been a difficult year for the entire sector and arrival is no exception.

Arrival is unique in how we respond to these challenges, we recently announced a modification in our current focus I don't want to explain this today and remind everyone. Why it is that arrival has such great potential.

Over the last eight years, we have developed a new method to design and produce any type of electric vehicles enabled by our vertically integrated stack of technologies.

We have IP that no one else before us is being able to develop in this industry, which consist of proprietary composite body parts high voltage and low voltage components software for vehicles autonomous mode, while robotics and software defined micro factories. The benefit of these technologies is that they are designed for micro factory Assembly and we can use the same.

Core technologies in all our vehicle programs.

We certified our Boston band products in Europe .

We were able to do this and rapid time due to our vertical integration.

These are learnings and capabilities, we will carry forward in all of our vehicle programs.

We recommenced road trials with customers.

Real World testing allows us to fine tune our technologies.

We also assembled our first production verification bans in Vista. This year using a unique method of assembly and this shows that the micro factory has moved from a concept to a reality.

And we've done all of this we have approximately $1 6 billion of investment, which highlights the relative capital efficiency of our business model.

At the end of Q3, we had approximately $330 million of cash and cash equivalents on hand, which is not enough capital to ramp up volume production of the L band and Vista in our Q2 financial results, we announced plans to use existing cash on hand of $513 million plus funds available through <unk>.

<unk> $300 million at the market ATM platform to deliver the first vehicles to UK customers. This year invest in hard tooling and launched a Charlotte micro factory next year due to the current market cap and average daily trading volumes. The ATM has not allowed us to raise the capital to do what we need to do in the timeframe we.

Want to do it.

And we were later than expected and delivering upon some of our key objectives.

At the same time, the introduction of the inflation reduction tax credits ranging from $75000 up to $40000 for commercial electric vehicles. The large market size plus the anticipated higher margins for commercial vehicles made the U S. Our most attractive market.

Our long term strategy and opportunity remains the same but the combined effects of these points means that we have had to adjust our short term strategy.

To survive in these market conditions requires this kind of agility.

For these reasons to ensure the ongoing success of arrival, we don't have any other choice than to move to the next stage of our strategy, which has always been to bring products to the U S market. Therefore, our focus over the next couple of quarters is to extend the runway of our cash on hand by restructuring the business to reduce costs.

To continue to advance our enabling technologies as every improvement here is shared by all our vehicles.

To produce a small number of events in Vista to optimize market factory Assembly processes.

Perform durability testing on our vehicles and continued customer trials and to secure new funds to bring our products to the U S.

Our U S based product engineering team will be led by Mike Abelson, who brings over 30 years of experience with GM, including leading vehicle programs.

We have learned a tremendous amount in designing the arrival bus van and car from the ground up using our own vertically integrated technologies.

And our U S products will reuse much of this Intel.

The talented team we have in place gives us renewed confidence in our ability to execute as well.

Finally, I want to add this does not mean, we are writing off the U K and European markets put simply we are prioritizing the U S market with our current available funds, but we'll keep an incredible team in place in the U K to redesign and optimize aspects of our <unk> for the new EU regulations.

And with that I'll hand, it over to John for our financial results and cash guidance.

Thanks, Avinash over the next few quarters, we will be focused on raising the capital needed to bring the products designed for the U S market into production.

Recently, we announced that we are further right sizing the organization cutting cash intensive activities, primarily related to third party spend and costs related to ramping up production of the Lv investor the.

The result of these proposals is expected to have a sizable impact on our workforce predominantly in the U K.

Due to the regulatory nature of these redundancies in the UK.

Cost savings related to salaries will not be fully recognized until Q1 of 2023.

I would like to further discuss the financial factors that led us to make this change now.

We cannot make money on the current L band product given the cost of parts associated with being on low volume or soft tooling with our suppliers.

Used vehicle, we produce on soft tooling reduces our cash balance normally we would hard tool with suppliers to achieve the planned cost per part.

But in order to hard tool the Lv.

We need approximately $150 million, which we assumed would be available to us under the ATM program without proceeds from the ATM, we do not have this option on.

On the other hand, the U S, which is already in development has.

As a higher ASP.

And margins than the current Lv and is supported by new incentives of up to $40000 per vehicle starting in 2023 from the recent inflation reduction Act.

We also see high demand in the U S market for electric last mile delivery vans for which we did not see enough supply from the industry.

In summary limited resources and the attractive opportunities in the U S market makes developing U S products that the best use of capital, but this means revenue and margins will come later not in 2023.

Turning now to our cash outlook, we expect to end the year with between $160 million and $200 million of cash are.

Our expectations for ending cash includes approximately $35 million in Q4 for severance and retention related costs and approximately $40 million for other restructuring costs.

And we expect cash on hand will be able to fund the business into Q3 of next year I will now turn the call back to <unk> for closing comments.

In closing in the near term, we are raising funds to develop and produce vehicles for the U S market.

Although we don't expect revenues in 2023, we are addressing a larger market with products that have higher margins meaningful incentives and industry, leading attributes based on our unique technologies and substantive experience from developing to Alvin.

Tapping into the U S market using arrivals core technologies will open up a much larger total addressable market opportunity as our core technologies, a suitable developed any type of vehicle and demand can be met with a modular scalable micro factory strategy, which enables us to rapidly respond to demand as capital becomes available.

Finally, I would like to express our sincere gratitude to our investors employees customers partners and suppliers, who have stuck by outside through a lot of ups and downs during the year.

We knew this road will not be easy. However, we believe we are making the right choices for the long term success of arrival and we appreciate the continued support.

And with that we'll move to Q&A.

As a reminder, if you want 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.

Alright. Your first question comes from Jeffrey Osborne Cowen Jeffrey Your line is open.

Hey, Thank you.

Several questions on my end I was wondering Avinash. If you can give us an update on the timeline for the development of the U S span.

How much of the commonality for the U K van is there with the U S. Clearly recognizing you indicated no revenue in 'twenty three.

Trying to get a sense of where we are for that product in particular.

Yeah, So Jeff I'll start and I'm sure Mike will want to add some more color <unk> has actually been in development in parallel with the <unk>. We have mentioned it before it's about 60% to 70% commonality with the L band, but there is still some specific work to do for the U S that will be working on over the next 12 months.

We expect that that's why we're saying we don't expect any revenues in 'twenty three.

We had been working on it we've got we've learned a lot from the <unk> I want to remind everybody that the core components move over to that than the composite materials. The factory processes, but there are some specific.

Engineering cost required for the XL than that Mike can cover.

Yes.

And as far as to the timing of the program. It's dependent on when we raised capital we estimate at 12 to 18 months from when we raised capital to.

We're actually in production with the XL Ram.

As <unk> said, there is a lot of carryover componentry and systems, especially some of the high value systems like.

Traction motors and battery modules carryover. So it is really shorten our drop in time for the restaurant.

It's helpful. Mike I appreciate it and then maybe for John on the restructuring side can you give us a sense of where head count was exiting the quarter, where you anticipate it to be and then as we look to 'twenty three.

Gave a guidance of runway to <unk>, but how should we think about the monthly cash burn in.

In the event that maybe you raised money in the Springer or whatnot I'm, just trying to get a sense of what the burn rate will be post all these changes.

Sure Jeff I think so first on the on the head count around the people question.

Went into the restructure Eden with around 2400 employees and I think when we're largely through this we'll be under 1700 employees largely the reductions took place.

In the U K.

Which is where we saw the bulk of it.

I want you to think about our quarterly cash burn next quarter.

As approximately.

A third of where we were at coming out of Q3. So we spent about $180 million in Q3, we think when we're done with the restructuring.

We can spend at about a third of that obviously on a monthly basis.

Would expect some lumpiness, we still could expect a few onetime items associated with the restructuring the hit in.

Early part of next year as well, but it's about 60 million per quarter.

That is very helpful and then.

Maybe the last question on my end is how do we think about the Charlotte facility today is there anything.

That was put in motion prior to this move or is it just physically empty building I'm just trying to get a sense of.

What's in place today.

So Jeff as you know we had been working towards a start of production in Charlotte.

At the end of this year originally so we had ordered long lead equipment.

Already ordered it hasnt been taking delivery of that equipment. So no. It's not an empty building we've already completed.

Quite a bit of the infrastructure work that would have to be done. So we've got a head start on Charlotte, we're not starting from ground zero with Mike factory there.

Maybe.

Apologize I said at the last one is the last one with the choppy the last one I promise maybe for Dennis.

You had some press reports yesterday.

Curious if you had any comments on those otherwise.

I'll, let you go.

Probably I won't comment.

Look obviously there are some people have said during the process.

We actually pay for the building.

The majority of the Columbus, we've been there.

Factually incorrect.

And actually.

Actually if you think about our organization today.

We have very strong fluctuated team and so everyone knows thats why theres. Some section of this company. They support this restructuring could we see as electrical the protocols because it was much easier this time than last time.

The people understand what is our objectives our strength in the <unk>.

Actually they exceed our future very positively so for that reason well, let's say we of course, we are.

On the somehow made to work with now but.

And then if rates.

Unnecessary.

The pressure I would say, but.

As a company, we feel very very strong.

Got it thank you I appreciate it.

Alright, Thanks, and your next question comes from Steven Fisher at UBS, Steven Your line should be open.

Thanks. Good afternoon wondering if you could just discuss order activity, particularly in the U S curious what youre hearing from your customers given the changes in strategy.

And liquidity, how much visibility do you have in that customer base.

Kind of taking shape in the U S. Given your switch to focus there.

Yes, so Stephen.

Even within the current backlog there are orders for the U S. As you can imagine, but we are with this change we are in conversations with all of our key partners in regards to what the portfolio will look like going into the future years.

Still as an industry.

Ed.

Supply constrained rather than demand, we still see a huge opportunity and if you think about the IRR and the van products that we're looking to launch there I mean, the incentive is range from seven 5000 to 40000 and particular products that we think become extremely compelling.

When you look at that so we believe that that transformation is only going to continue and the customers we have.

Understand why we are doing the changes in terms of all the capital reasons that we have mentioned today and of course, we are in constant conversation with them about what that what our next set of products will look like for them.

Mike I don't know you want to add anything.

No I think you summarized it well.

Okay, and then not sure if I missed it but given the the funding through Q3 what are the.

Capital raising options that youre considering for the moment for beyond Q3.

Whats the timing that you might start implementing that.

So we're actively engaged in capital raising as we speak it's being led by myself and oven ash we've.

We'd be targeting in both strategic and financial partners. In this process. We've had some preliminary discussions with the with a handful of parties that had been very productive at this point and we will continue to have.

Have those discussions, but I would expect just given the.

Tight funding environment that we're in right now we expect the process to take I would say up to six months for that for that to materialize.

Okay. Thank you.

Thanks, David.

Alright, as a reminder, if you want to ask a question. Please use the raise hand function located at the bottom of your screen once you've been called on Youll have the ability to on mute your audio.

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Okay.

Okay.

Thank you for your questions and I'll now pass the call back to have an Astra closing remarks.

Thanks, So in summary.

We're at a junction that we think when you look at the capital we have on hand, the progress that we've made to date, we have the vertically integration technologies, which as I mentioned has really moved now from concept to reality, but we're at a junction where we think the best course of action is to take advantage of the technology, we've got in the growth.

<unk> U S market, and particularly that tailwind with the I R. E. So once again I'd like to just remind everybody that in <unk>.

No one in this industry to date has the core components.

Composite materials, the micro factory the software platform, we have all the enabling technologies to put that together in the family of <unk> products that Mike will be leading and as John mentioned, we'll be looking at all of our options to raise capital. So that we can have a very successful future. So I want to thank everybody for joining the call today and we will.

To begin soon.

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This concludes today's conference call you may now disconnect. Thank you.