Q3 2022 AYRO Inc Earnings Call
And product distribution.
Our next generation electric vehicle is planned to be on our <unk> platform, which we expect will feature numerous technological and ergonomic upgrades representing a premium.
All electric purpose built utility vehicle.
We expect to vehicles produced from the <unk> platform to be built right here in round rock, Texas in.
In our manufacturing facility here using components that are primarily sourced from North America, and Europe and distributed both directly and through various third party distributors.
I'm happy to report that our supply chain for the <unk> is now 92% defined with 85% of that.
<unk> supply chain being sourced from North America.
We expect the cost savings from reduced shipping alone to be significant for the new platform and we also expect to be able to build a platform a fundamentally higher quality that should lead to sustain a substantially lower warranty.
And substantially lower support costs.
We plan to unveil the <unk> prototype into opened pre orders for the new era Oc.
By year end.
Moreover, we also expect to be approved for sale from the 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 there.
Also brings a sustainability elements that we expect the <unk> 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 inoperable, we rejected shipment from 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 $1 $32 million due to these defective 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 as 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 too.
To this end we have moved our remarkable speed to have accomplished so much in such a relatively short period of time with the <unk> platform.
We expect to unveil our new vehicle prototype by 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 believe the advanced <unk> electric vehicles will be an excellent solution for food delivery in many urban environment.
And address general utility needs in campus and arena environments.
Our balance sheet remains quite strong and 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 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 a 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.
Cancel increase in.
Tom for any remaining.
Thank you Dave.
In summary, we remain steadfast and aggressive with our design of the new Aerosmith platform, we intend to unveil the first protostar heresy by year end and we intend to maximize the monetization of the remaining inventory of.
Of the legacy current vehicles in parallel with our <unk> development.
We believe that the market launched and penetration of the RLC platform with its various anticipated reconfigurable payloads.
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 Arrow investors.
I'd like to thank all of our shareholders for their support and I look forward to hearing additional accomplishments and developments as.
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'll need to <unk>. The number one on your telephone.
Each question has been answered and you wish to restore your request you may do so by pressing the pound key.
If you're using a speaker phone please pick up your handset before pressing.
Before entering your request and speaking on the call.
One moment please for the first question.
The first question comes from Bernie sign a sprite and capital Securities. Please go ahead.
Hey, Yeah, good morning folks.
On the Z you talked about three orders by year end, maybe if you don't mind, we can get a little more visibility.
Is there a prototypes.
Actually running around in the wild somewhere so how many of those are there and then if we start orders by year and what does that mean for actual revenue shipments, presumably that's some time into 2023, maybe not <unk>.
Very good morning.
So let me answer you asking a number of questions. So let me.
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.
<unk> for the Z.
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 arrow sees accordingly, there are no production level arrow disease running.
Running around his moment, because we're in a 92% supply chain accomplishment level.
All that said.
The development and the the first verticals.
We will build 17 first articles of the <unk>.
A number of those will go through the obligatory homologation testing. So we'll take a handful of them will will crash and will crush them will enroll him over will do all those exciting things that demonstrate the vehicle is suitable.
For sale.
And then the remaining units will be will be further.
Further sub.
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 are.
Our intention is to do the unveil at year end.
Our intention is to build commence.
<unk>.
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 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.
And I'm going to I'm.
Im 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 we're offering with that vehicle. So I hope that.
Answers at least half of your questions.
That answers that question thoroughly I have a couple more if you don't mind.
Sure his being.
Largely built.
With a strong ecosystem of partners some of those partners and some of those relationships, presumably are gonna have to be renegotiated re modified.
And if I took down the list.
First one galaxy that seems to be fine you put their payload on the Z Club car I think they have an exclusive so I'm not sure. If you can if you will still be exclusively club car or if you're allowed to go parallel selling the Z outside of them Carmen makes assembles the vehicles now and you're gonna replace.
Them, so assume that has to be renegotiated element, presumably they can support Z as well as a 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 all week. So my question is if we can go through each of those and what are the landline potentially investors might see as you do that.
Or very the way I would answer your questions is there are a great number of matters under negotiation right now.
And what I've disclosed in previous disclosures.
Is that our strategy is to shift from a strategy of offshoring.
To a strategy of onshoring.
And a strategy of outsourcing certain things too in sourcing certain things like final assembly production quality and support.
And clearly you've you've captured.
What that fundamentally means is there will be some.
Some repositioning of their various relationships there'll be fundamental changes to some of those relationships.
And the way you have postulated it is in fact.
Quite accurate, although because because we're a missed 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 are making at this point in time.
Or what I will say is that we intend.
To sunset the legacy for 11 X production.
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 411 see here in round rock, Texas.
And.
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 now that's very helpful.
Visibility for the rest of this year, so presumably given the long long manufacturing and then shipping lead times you.
<unk> got some visibility presumably the unit sorority.
Either menu being manufactured around the ocean, giving that given the lead times.
You've also just mentioned that you're gonna start sunsetting.
The X in the third quarter. This year. So what does the rest of this year look like presumably we start to see revenue decline sequentially until we start to see some revenue next year ramping on the Z models is that a fair way to think about things.
Well I would I would think about it it's in a different way.
And.
The way I would think about Barry is we have an inventory.
Of 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 platform as we complete homologation and as we transition from first articles for low rate initial production.
So so there will be a transition.
And the transition will be fundamentally a.
Disposition of existing inventory.
With an introduction.
Of new inventory.
In that transition will occur four Q this year <unk> next year.
And how that ends up playing out in terms of of the revenue profile.
Something that remains to be seen but I don't anticipate a circumstance where the revenue false two zero.
Okay.
My 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 of $4.2 million I, just annualize that at 16.8 and you also just reported 59.
$9 million in cash if 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 next year Z shipments and really starting to generate revenue and I'm also expect.
That'll be a positive gross margin vehicle versus the current unit that's negative gross margin. So it seems to me as if the balance sheet looks adequate to support what you were 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 as <unk>.
Very very thoughtful.
And just can you.
Confirm that you would expect to have a positive the gross margin on the Z units.
Well Barry.
So.
So let me answer it this way.
We're not working tirelessly to build a platform to lose money.
You know.
That that would be a definition of.
Of insanity.
B, what we expect to see as we expect to Z to be a.
A quality leader performance leader kind of Reconfigurability leader and a sustainability leader in its segment.
We expect to make money on every vehicle from the jump and we expect.
As you know Barry we expect the.
The margins on those vehicles to rise as we progress.
Up the production curve and as we continued to gain supply chain leverage the margins will only improve over time as production rates ramp.
So.
So yes I can.
That's that's the direction we're headed.
And and you might further remember that.
We separate the platform from the payload.
And.
Revenue and earnings are generated not only on the platform, but also on the payload.
And now there will also be generated on the platform the payload add the enabling infrastructure or the applications that accompany the platform. So I hope that insight is a little bit helpful. Berry.
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 Tennessee 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.
E V company any kind of take advantage of the tax credit.
That is included in the Bill.
Thank you.
You bet well we've.
We've 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.
Her platform is going to be priced at a level, where the utility it provides.
<unk> the cost that it and genders is and Ah.
A fairly good balance.
A lot of these incentives as you well know or 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.
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 concludes our question and answer session I would like to turn the conference back over to Tom went and saw there was like a 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 Wheeler.
We look forward to sharing our progress on our next quarterly conference call. When we report our third quarter results in November thank.
Thank you all have a pleasant day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.