Q4 2022 Arrival SA Earnings Call
Costumes.
Our Bicester micro factory team has been given the green light to continue building test bench for public road testing this year to accumulate 250000 kilometers the purpose of which is to further develop highly automated factory processes and integrate this with the company proprietary at <unk>.
<unk> mobile robotics. This activities will also help us to accelerate the development of the U S purpose built them and start production in Charlotte with as many proved efficiencies already in place Mike will tell you more about this in a minute.
And lastly, we are announcing the kickoff of our fundraising efforts to fund the U S production planned today.
We're interested in working with the investors, whose belief and financial support will be necessary to complete the U S product development that start of production in the shallower factory targeted for late 2024.
Before I hand, the call over to Mike to talk more about our vehicle development programs I want to emphasize that cash management is is.
At the forefront of our business plan this year and remind you of a few of our key targets.
Arrival heads.
Simply to $105 million of cash at the end of 2022 subsequent to year end, we received a capital commitment of another $50 million from Alterra in new equity through.
So the same agreements with Antara, our largest holder of convertible bonds, we were able to reduce our debt by 121 now.
$9 million.
Through adapt to equity transaction the remainder of our debt is due in January 2026.
In addition, today, we are announcing an equity financing glide line with Westwood capital, which will provide up to $300 million.
Of additional liquidity to the business with.
With cash on hand, and additional initiatives to reduce working capital we expect to have sufficient liquidity to fund the business into late 2023.
As I mentioned, we are launching initiatives to raise capital specific to U S vehicle program, John will tell you more about those capital needs later on.
And lastly today, we are also calling shareholders to extraordinary general meeting on April six for the purpose of voting to approve a reverse stock split of arrival shares as well as a proposed capital reduction if passed a reverse stock split is one important auction that will enable arrival.
Cure its trading price deficit with the NASDAQ and trade above $1 before our may 1st deadline.
With that I'll hand, it over to Mike for updates on our vehicle development programs.
Thanks Kurt.
Over the last few months <unk> spoken publicly about the need to significantly reduce our head count and cash burn while we focus the business on our U S product strategy.
The larger market size for commercial vehicles nuanced paired with higher average selling prices and margins and <unk> tax credits of up to $40000 per vehicle create an extremely compelling opportunity for electric commercial vehicles in the U S.
Last quarter, we announced that we decided not to ramp production that are Mr. U K facilities. So that we can focus our efforts on the U S market.
Our first U S product will be a purpose built delivery then we designated XL. Our current plan is that the <unk> will start production in the Charlotte factory in late 2024.
We haven't provided too many details about the XL band up until now so I'd like to take the opportunity to tell you a little bit more about this program, which started development back in 2021.
<unk> as a class or commercial vehicle designed specifically for last mile delivery vehicles. In this size category are typically too large to be manufactured by traditional automotive OEM.
As a result, the vast majority of vehicles in this class are built using an OEM chassis that has been finished as a complete vehicle through a second stage manufacturer.
The complexity of this two stage manufacturing process results and relatively high prices for the finished vehicle as we will be supplying vehicle directly from our factory the higher prices in this segment offer arrival the opportunity to make a correspondingly higher margin.
Because of the high carryover components in engineering solutions from the Mr. Al them to the <unk>, we had a sizable head start on <unk> engineering and design, although the vehicles are obviously different sizes almost all of the components for low voltage electrical and control system were carried over.
Similarly engineering solutions for body structure interior closures and some chassis systems were also carried over from the Mr. Alexander.
We've obviously made improvements in some of the concepts based on our learnings from Alabama, but the XL van design is well advanced and we anticipate starting to release long lead parts in Q2 of this year.
As we've said previously further capital specific to the <unk> program will be required in order to invest in the supplier production tooling and complete the procurement and installation of equipment in the Charlotte factory.
However, with the flexibility of our manufacturing approach, we will be able to stage the investment in the factory as we ramp up production volumes.
Our layouts for the Charlotte factory are well advanced and have incorporated lessons learned from the Mr Factory.
We continue to believe that our manufacturing method offers the most efficient way to match production capacity with demand, thereby maintaining competitive capex per unit costs, even if volumes significantly lower than a traditional assembly plant.
While we work on securing investment for the <unk> launch our production team in the Mr. Factory, we will be building 10 additional vans by August of this year.
The purpose of these builds is to further develop automated assembly processes and integrate these with the Companys proprietary Ams. These.
These vans will then be used to accumulate more than 250000 kilometers of public road mileage by the end of the year to further validate arrivals engineering designs and components gives.
Given the high commonality of componentry between the <unk> and the <unk> built investor. This additional validation mileage will provide an opportunity to identify any issues well before building XL a preproduction vehicles next year.
We're looking forward to sharing more updates on these damn builds and public road tests in the coming months.
And with that I'll hand, the call over to John for our financial results and outlook.
Thank you Mike.
Between the fourth quarter of 2022 and now the company has taken many steps to ensure that we have the liquidity we need to run the business into late 2023 and raise the capital to fund the U S vehicle program described by Mike.
I want to first recap a few of the initiatives we have put in place during this period.
First.
We launched additional cost control and cost reduction initiatives to further reduce the company's cash burn to no more than $35 million per quarter, which significantly reduces the size of investment required to fund the business. This year, we will achieve this target through a number of initiatives.
We are in the process of finalizing a further 50% reduction of our global workforce that will result in less than 800 employees by the end of March.
Through the restructuring process. The majority of our workforce is now in four locations and is primarily focused on bringing the exxon and into production in Charlotte in late 2024 at.
At the same time, we are simplifying our legal entity structure and reducing our real estate footprint, we have already exited a number of leased sites.
We have also implemented stringent cost control measures. In addition to the head count reductions, which include a hiring freeze and a spending freeze including restrictions on all new purchase commitments, which all requires my approval we expect.
To achieve this quarterly cash burn rate by the second half of 2023, once restructuring costs and some legacy commitments have been settled.
The company secured a $50 million capital commitment from an interrupt and.
<unk> has also agreed to exchange $121 $9 million of our convertible bonds due in 2026 for equity, reducing our debt load by almost 40%.
We'll continue to consider additional opportunities to raise liquidity and reduce debt as they arise.
And finally today, we are announcing an equity financing line with Westwood capital management, which provides up to $300 million of committed capital.
There are two additional announcements I want to discuss today.
First we announced the calling of an extraordinary general meeting of shareholders to vote on a post reverse stock split and a reduction in the par value of our shares a reverse stock split will allow the company to regain compliance with NASDAQ global markets and begin trading above $1.
The AGM will take place on April six and shareholders will be receiving a convening notice this week it.
It is expected given a satisfactory outcome of the AGM vote that arrival shares will begin trading well above $1 by mid April with a par value of no more than one.
Secondly, I want to provide more details on the capital raise process. We are announcing today in an effort to fund the <unk> startup production in Charlotte next year.
The company will be exploring a range of strategic options in the coming months. This will include reaching out to potential strategic and financial investors in an effort to raise up to $500 million of capital to fund the following activities for our U S launch investments and prototyping supplier production tooling.
The procurement and installation of equipment in the Charlotte factory working capital for the factory and general corporate purposes to fund the <unk> program. This year and meet our start of production target date in late 2024, we will need to raise approximately $100 million to $150 million of the 500 million.
Investment.
Turning to our outlook.
XL funding activities are specific to driving startup production in Charlotte next year. There is no planned capex related to this program until dedicated capital is raised.
We will achieve our $35 million burn rate by the second half of 2000 $23 million to $35 million quarterly cash spend is primarily comprised of personnel costs related to the vehicle program in micro factory processes and the cost of support functions and running our facilities.
With the available capital resources and additional initiatives to optimize working capital we expect to have sufficient liquidity to fund the business into late 2023 without investments required for <unk> production.
In summary, while we continue to improve our liquidity position, we require additional capital to complete the design and development of the <unk> product and start production in 2024, we believe the <unk> van.
<unk> is an attractive product for the following reasons there are significant industry tailwind in the U S. Due to the inflation reduction act, which provides a meaningful incentives to purchasers of commercial electric vehicles. The XL van has an ASP of over $100000 and as a result, hi, Mark.
<unk>.
And with this expected margin profile and the lessons we are applying from the development of the <unk>. We believe we will be able to achieve cash flow breakeven once production in Charlotte is fully ramped I will now turn the call back to Igor for closing comments in closing the fourth quarter was an active.
Quarter focused on proactively taken steps to increase liquidity to provide the foundation to run the business, while raising funding for the <unk> program. We know we have failed to deliver upon our milestones and promises in the past and the board and senior management team razor focused on driving efficiency in there.
Organization, including placing priority on the product, which has very attractive attributes from the market penetration and cash flow perspective, we.
100% committed to winning back confidence in their rival.
And believe that the significant demand that we have already achieved the new steps, we're taking and the streamlined organization, meaning that we are now set up for delivery.
Through the execution of our business plan.
<unk> built back this confidence.
We now have the liquidity on hand to run the business operations and demonstrate we can put another turn Vince on the road in the U K. We are optimistic that we are able to strengthen our investment case for the EXL them.
Efforts.
Appreciated the patients and continued support from the markets our suppliers shareholders and bondholders as we establish the foundation for the 2023 year and I am also personally appreciative of the trust and support I have received from the arrival board and many employees as I've taken.
On this great responsibility at a critical time in their history. Thank you and with that we will move to Q&A.
And 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 have the ability to on the audio.
And our first question comes from Jeff Osborne Cowen Josh.
The line is open.
Hey, Thanks for taking the questions guys. A couple on my end automotive pieces here to sift through.
I was wondering on the entire proceeds in the equity financing established with Westwood, that's up to about $350 million.
To run the business, which is great to see but you also stated that the liquidity should only get you into late 'twenty. Three so I was wondering if you could sort of walk through the.
The timing of those cash flows in particular, the Westwood component would be helpful.
Yes, so we previously disclosed the entire capital commitment that $50 million of anti <unk> is committed.
In the first half of this year, we already executed on $25 million of that upon signing of that transaction and we do expect.
The second 25 million to hit.
Before the end of the second or first half of this year. So before June 30.
On Westwood the way, we think about Westwood is it.
It's a very.
Good product for us to have because it does provide us access to the capital markets and it does provide liquidity to the to the business.
But Jeff you know that's the type of product, where the amount of capital that you can raise in any given month is going to be determined.
By the market volumes in the share price and so we've taken a rather what I would say is a very conservative view right now.
How much capital we can raise under that product what what our hope is is that it will become more meaningful over time, particularly as.
As we execute on some of the milestones that we've laid out this year.
Around building vans generally getting miles.
Product as.
As well and of course, as we start our more fulsome capital raising initiatives and we start to get our capital specific for the vehicle program. We expect honestly that the <unk> will become a more more meaningful.
Product for us. It's it's good to have that as a backstop, but we certainly don't want to rely on that that's why we provided the guidance that we have.
Got it thanks, Shaun just a couple of others on my end I was wondering if you maybe Mike can provide more details on why you selected the XL bad for the U S market and maybe why tenants the right number.
To produce of the L band in Bicester versus $5 20.
To help you accelerate that production timeline is there something unique about XL in the U S market, whereas the smaller man might not have been a great fit for the U S. But maybe it was more conducive to Europe .
Yes, absolutely, Jeff and you hit on one of the primary reasons EXL band is of a size.
Very common here in North America. It is not very common at all in Europe . So the sell down is similar in size to sort of the large.
UBS are fed expands you might see rolling around in your neighborhood and so.
The opportunity in the <unk> segment with the higher prices that we talked about with the IRR that we covered.
With.
Relatively little competition honestly, when we look at the segment and especially with the advantages we feel like we can bring.
Given all of the <unk>.
There for development, we did on the <unk> and the process development.
And that's where the 10 builds in the UK become important and is the rationale behind us continuing with those.
As you saw in the pictures and in the background that we have behind US. The bands are very similar to the smaller band <unk> band and the XL Van which is the one that will bring first in North America and Theres similar not just on the product side, but on the process side. So.
These builds investor.
We can use to further develop the processes that we'll be using in Charlotte at the end of next year when we start production there.
Including completing the integration with our <unk>, which are proprietary with arrival, but then once we have the build because of all the commonality between the two band types on the product side, we can use those vans to do a lot of validation and development work.
And I was especially interested in getting some high mileage durability.
Because that takes time.
It takes a fleet of vehicles, some number of months to accumulate that sort of mileage, but it's extremely valuable information and it's valuable getting at so far ahead of the startup production with EXL them. So.
These L band builds I think are going to be a huge benefit to us as we look forward to the XO started production next year.
And Jeff I'd, just make a couple of comments to follow onto that.
First of all part of the reason, we look at the <unk> product as well as the investment required to get it into startup production is actually a bit lower.
Then what we would have needed for the <unk> I talked today, a little bit on our on our prerecorded comments that we needed about $500 million to raise for the <unk> program, but if I really break that down.
Think of it as we need about $200 million to complete the prototyping for that product invest in the micro factory and invest in hard tool in for the program. So we're going to reuse.
Some of the Capex that we have in Bicester will be able to ship out over to the U S and install it in Charlotte so that minimizes some of the impact there.
Tooling investment is a bit lower for this product and what we had previously talked about for the al van and that's due to the fact.
But the volumes will be different so it is a lower volume product, but it has a very very high margin and so as we as we looked at the investment case for the <unk> product. It was a combination of factors it required less capital investment.
And it.
Carries a very attractive margin at much lower volumes and it gives us the opportunity we're not.
Giving up for example on a <unk>.
Next generation delivery van it's off of a smaller size, we just think.
Given the market dynamics in the U S. This is the most attractive product to bring to market first in the U S.
Got it and maybe one last one here for eagerly look forward to working with you in your new role here.
You mentioned hitting the sub 800 employees here by the end of March which is great to see.
As it relates to hitting that cash burn target I think at the peak you had like about 2500 employees I'm just curious with the 800 or so that are left how do you think about what they are focused on.
Are you migrating away from software.
That used to be the pitch year year, and a half ago was around the micro factory itself and so I'm just curious how if you were to sort of bucket size 800 employees.
That are remaining what their main day to day function is and I think John also mentioned that they are in four locations. If you could share where those are that'd be helpful.
Yes, Jeff. Thank you for this question so.
I mean.
Basically until now split this into five key buckets and the biggest one is our.
Co programs and here, we'll have about 31% of.
Of the talent the majority the vast majority is focusing right now on the <unk>.
Van.
And we also have a very small team that are thinking about a.
Future.
That's for arrival, but this is right now very very small team.
The second largest we have our technology components.
I mean that I mean, we referred to previously.
Elements.
That is the team core developing the hardware and also.
Software.
Allow us to integrate.
Those components together and provide actually.
Continuous.
Integration or kind of continuous.
Integration and continuous development fund.
Improving the components and.
Our.
Our new strategy assumes that this group provides.
<unk> provides software to integrate not only our in house components, but some of third party components that we may choose to optimize some of the cost of our vehicles.
And the third.
What we call robotics or Robo fracturing this is about 21%.
Of anti talent of this team.
To focus on the software development for our new method of Assembly and also integration of a software was the.
Was it technology or sell some of equivalents.
We have about 40%.
In the central function, because we continue to be a public company and we need appropriate support.
Okay.
Requirements have also.
The business from legal finance.
Talent and other perspectives, and finally would have about 11% and digital AG.
You will also get some additional optimization and so we made the decision to put several products on hold.
Not to.
Two <unk>.
Help them completely I would say from St.
<unk> perspective, but put them.
On hold for.
For a while to reflect on.
Our updated strategy and business plan, so basically I mean, how the current book.
Almost current 800 people are allocated and.
And Jeff.
The significant locations in the U K continues to be our largest location obviously the U S. We have a large.
Development team working on the <unk> product.
Our technology team is primarily <unk>.
Based in the UK in Georgia, So, Georgia as a location for us as well.
And we have very good robotics talent in Germany. So when we referenced four locations. Those are the four primary locations I want you to kind of focus on.
In addition to that I would say, we've not obviously given up I think you referenced our production method in fact the.
The flexible manufacturing method the low capex manufacturing method is.
Still the core of our advantage his arrival and we will be in production in Charlotte using that method and that is largely software driven and that's what's unique about our method.
Is that the factory itself is really a software defined factory as we've referenced.
References on many calls prior to this.
And.
I'd also like to add that.
Despite some pretty significant.
Dundon said that we went through last.
Two months I would say that we will like in with managed to keep the key talent.
All.
Areas.
Crucial for arrivals success.
<unk> managed to keep key talented vehicle programs in components in global fracturing came in digital and data.
Perfect I appreciate the thorough analysis there walk through that's helpful. I appreciate it.
Thank you for your questions. Thanks, Jeff.
Alright, and with that we want to thank everyone for attending on this is going to conclude today's conference call.
You may now disconnect.
Yeah.
Yeah.