Canoo Inc. Q1 2023 Earnings Call
Greetings and welcome to the Canoe first quarter 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.
On your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our host Quinol Bala Senior Vice President corporate development and capital markets. Thank you you may begin.
Thank you and welcome everyone to <unk> quarterly earnings Conference call.
With me today are investor Chairman and CEO Tony envelope.
So Ken Mangan.
C E O rematch Murphy.
Tony will provide an update on the business.
Ken will then run through our capital raise strategy and roadmap will share the financial results for the quarter.
We will then open the call up for questions.
Please be advised we may make forward looking statements based on current expectations.
These are subject to significant risks and uncertainties.
Actual results may differ materially.
For a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release.
Our most recent Form 10-Q, and 10-K and other reports that we may file with the SEC, including form 8-K.
All of our statements are made as of today and are based on information currently available to us.
As required by law, we assume no obligation to update any such statements.
During this call well discuss non-GAAP financial measures.
You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website.
Now please navigate to the webcast landing page and access video link towards the bottom left of the page.
We will pause briefly while you watch the video.
Yeah.
Over to you Tony.
Thank you all and thank you everyone for joining us for our Q1 2023 vehicles.
Last journey, which was less than six weeks ago, we provided a comprehensive update which included important legacy issues related to the company's past management as disclosed in our Q4 2022 filings we reached a settlement with the staff at the SEC and we continue to wait for the final approval.
The settlement by the Commission, which.
Which we hope to see in the coming quarter.
We understand the staff's investigation, a former senior executive remains ongoing.
The management team continues to focus on resolving the remaining legacy issues some of which we will cover in this earnings release.
Okay.
I encourage you to watch Warren Buffett, and Charlie Munger his comments about the traditional automotive industry at Berkshire recent shareholder meetings.
The traditional auto manufacturing business itself.
Which we completely agree.
And that's why we are not trying to be a traditional OEM, but at Ges, which.
Which we introduced with the rebounding and we will cover more starting now and in the coming quarters as we go to market.
Rapid rise in interest rates.
Uncertainty of future fed policy unstable regional.
Thanks, and unresolved debt limit discussions are continuing to create headwinds for U S and European economy, which directly affect that traditional automotive industry.
This will be a challenging period for the traditional automotive industry. We have all seen the numbers coming in from others with weakening demand for consumer vehicles due to the rising cost of capital.
<unk> fears of inflation and the inbound zero emission technology.
Medium to long term demand for zero emission technology, driven vehicles will continue to grow rapidly as we can see the average age vehicle has reached an all time high between 12 and 14 years, depending on the segment.
These numbers prove that the stage is set for zero emission technology, driven vehicles, especially in the can and geographies. We are focused on where there is current demand and high volume buyers.
We also believe that we are focused on the geographies and segments, where there is available capital and favorable regulatory conditions our.
Our strategy to deliver a high return on capital platform, starting with our commercial customers.
<unk> in volume and a cross multi year cycle.
For the overall industry weakening consumer demand and higher negative margins on early production units for many of the newcomers that chose to put in place large production facilities ahead of confirmed orders has been a challenge.
Our strategy is different and therefore has different challenges that we are focused on are mediating as we raised very targeted milestone driven capital.
We are starting to see improving pricing conditions for our platform.
We had a multi year organically growing order book.
200, plus mile E T. A confirmed range with our highly efficient configuration for last mile delivery use cases, which are which is often 30% to 50% higher than the competition.
We remain focused on range and performance optimization by customer and by customer use case.
Other words, you need to know exactly what range and the operating environment conditions that exist for that specific customer.
Fewer parts drive lower complexity to manufacturer that result in lower cost and we will start to share our clear path to cash flow positive.
We have gained strong support from our commercial customers on our rollout and go to market strategy. We.
We don't care what it is designed to do we care about what it can do and must do for our customers to get a high return on capital.
We are continuously focused on our extensive testing and customer validation programs, which is reflected in our order book because many of these customers have already run or are currently running advanced in depth tests with our platform and we will have some additional announcements shortly.
Previously we explained our early decision to onshore manufacturing and jobs to the U S. While it may not have seemed like the right move at the time this has positioned us well to benefit from the current environment.
Our L. D. D is eligible for the E. The commercial tax credit under the inflation reduction Act.
Currently this is not available to many others as discussed due to pricing and off shoring.
As we said above the Oems have always focused on establishing large capacity upfront.
But this has often been an anchor during tough economic conditions and radical changes in technology.
Our decision to stage, how we bring capacity online with the ability to expand at an incremental basis, we believe will prove to be more prudent capital allocation and geographic expansion strategy, we invested our capital on Democratising, our IP and assets.
To address some voids and white spaces, we anticipated in the existing and emerging Tam for our technology.
We will share more in the coming quarters, another benefit to our strategy as we focused on launching a commercial product without the high cost and manufacturing risk and complexity based on consumer expectations of interior trim in infotainment systems.
This will require less capital, while we scale and reach breakeven margins faster and achieve positive cash flow at lower volumes. We are focused on achieving this.
And we continue to do more work to refine our confidence in achieving the above.
As we transition to manufacturing and go to market the workforce transition to support manufacturing in Oklahoma will enable us to ramp head count more efficiently from a total cost perspective, we.
We are seeing a material labor arbitrage as we shift our mix and head count ratios between our Oklahoma and California Workforces.
As we start to mature, we must gain better ability to coordinate and optimize our cost structure.
Moving to manufacturing, we secured a long term lease for the Okc manufacturing facility, we were able to help reduce the capital burden and dilution for the company by structuring a sale leaseback V at my family Office.
As a committed long term believer in shareholder we structured the initial payment to include shares. So the company could redeploy the cash for other more time sensitive priorities. Another way to think about this on a diluted and non diluted basis, we raised and deployed the most capital in any.
Quarter since the dispatch.
Early manufacturing as hard we recognize that we are embracing it and we know we do not have all the answers what we have focused on in the last few quarters is to put a great team together that has the experience and passion to continuously innovate focused on doing it right better.
And different while de risking complexity in the advanced manufacturing process.
We continue to learn from the struggles of those currently ramping production with too many off the shelf third party D harmonized and sometimes complex parts and assemblies, while dealing with diverse supply chains and high barriers of software integration issues across the.
The parties.
That said, we are still fighting some legacy matters, primarily in the areas of harmonizing our supply chain for production, which is also being exacerbate exacerbated by our just in time milestone driven capital discipline.
This has put some fatigue friction in capital leakage.
Well, we get harmonized and getting better efficiency for production. Our team is currently installing and has started working on setup and functional validation of the General Assembly line at our Oklahoma City manufacturing facility. This also includes our body in white mainline.
Which we recently shipped from Detroit to Okc.
We remain focused on exiting 2023 added 20, K run rate, which opens the ability for us to move to 40 K run rate by 2020 for this approach is based on our current order book and our focus on targeted just in time capital expenditures and <unk>.
Reaching our target gross margins.
Many criticized us on a small NASA order.
Now we will share a little of the reason why.
<unk> is an important partner and customer for us.
We are deeply engaged with NASA his team of science and scientists and engineers on the vehicles performance and functionality, especially around interior behaviors comfort safety and security.
Is uniquely configurable because the first eight miles of an astronaut's journey starts in a generic.
Their investment has been invaluable and is helping us learn and innovate as we prepare to deliver unique interior configurations for our customers based on our highly functional futuristic design in.
In fact as you have recently seen on social media posted by NASA. Our team hosted Nasa's Artemis team led by Charlie Blackwell as part of an important milestone review if you haven't seen it please feel free to look it up.
On top of the above it is an honor to be able to work with some of the most impressive American innovators at NASA.
And we remain on track to deliver the vehicles in the coming quarter.
As we said earlier, we have a strong resilient multi year order book with improving pricing condition.
Our order book is now valued at 2.8 billion.
It grew 5% quarter over quarter.
In stage, two and stage three orders and we will announce shortly the finished the finalization of two important sales agreements one with a fortune 100, and another with a fortune 500.
This is further validation that our work ready platform needs and exceed the needs of our targeted customers.
In closing we have to continue to do more with less this is an important and complex phase with many moving pieces.
We know we have to prove ourselves and we are focused on doing just that.
Now turning it over to Ken in your mesh who will provide an update on our capital raise strategy and give you a deeper view of art.
Financial performance and our projections Ken.
Thank you Tony.
Discussed in last call, we finalized our 2020 through 2024 capital requirement.
And are executing on roofing from a just in time capital raise strategy Tony.
Tony described before which is a more milestone driven strategy.
Our demand is multiyear.
<unk> and more certain.
Manufacturing processes argues you're execute unlike others are production matches, our demand versus being nearly potential sales.
This means less capital expenditures required to achieve volume thresholds for positive gross margins.
Our focus is to continue to achieve alignment of our capital formation and allocation.
With the ramp up of manufacturing.
Among the most notable recent dilutive and non dilutive capital initiatives.
$52 5 million registered direct offering in February 2023.
48 million convertible debenture, which was issued in April 2023, 1% coupon maturing on June 20, <unk> 2024.
A 43 million sale leaseback for the Oklahoma City facility with tenant improvements.
$15 million from the exercise of warrants.
Ill Yorkville. In addition, we have circa 300 billion total access to liquidity.
Each of the $149 million ATM.
49 million PPA facilities.
We're focused on managing our cash and improving our synchronization of capital allocation.
We've moved to production.
<unk> will now walk through the results.
Thank you Ken.
Turning to cash flow, we ended the quarter, but $6 7 million of cash and cash equivalents after giving effect to the issuance and sale of the convertible debentures of $48 million Andy.
And the exercise of $15 million in warrants.
Cash balance would have been $69 7 million on March 31, 2023.
Cash used in operations for the quarter ended March 31, 2023 was $67 2 million compared to $120 3 million in the prior year period.
Our capital expenditures of $18 4 million for the quarter ended March 31, 2023, compared to $28 4 million for the three months ended March 31, 2022 is impacted by the migration to Oklahoma City.
Net cash provided by financing activities for the three months ended March 31, 2023 was $56 1 million compared to net cash provided in financing activities for the three months ended March 31 2022.
$9 5 million.
Our cash outflow in Q1, 2023 was approximately 30% lower than our average cash outflow full month in 2022.
We continue to optimize cash as we move into Q2 of 2023.
Moving to the income statement.
Our first quarter 2023 results are as follows.
Research and development expenses, which include investing in manufacturing activities totaled $47 1 million for the quarter.
Compared to $82 5 million in the prior year period, a 43% reduction from Q1 of 2022.
SG&A expense was $29 8 million for the quarter compared to $55 6 million in the prior year period, a 46% reduction from Q1 of 2022.
As we progress in 2023 and beyond we expect the following.
A 25% to 30% reduction in our annual operating expenses compared to 2022.
<unk>, resulting from increased focus on our objectives.
Some of these reductions include.
A 40% to 50% reduction in professional fees.
10% to 15% reduction in <unk> infrastructure, and a 20% to 30% reduction in human capital cost from workforce transition to support manufacturing in Oklahoma.
Labor arbitrage benefits and change in labor mix that Tony has mentioned.
Our focus on confirmed multiyear commercial orders with less manufacturing complexity.
Allows us to achieve positive margin sooner and.
It requires lower capital expenditures and working capital needs compared to others in the industry.
We have a dual batch manufacturing investment strategy, which adjusts for the amount of capital we axis into short though.
Our total investment to date has been approximately 1.4 billion, which excludes the recently closed sale leaseback Tony's family office.
Our entrepreneurial approach will leverage our total investment to date.
A combination of in house outsourced along with a phased ramp approach, which is comprised of 329 million of total invested capital expenditures to date.
And acquiring 140 million to 200 million in additional capital expenditures to reach the 20 K at run rate in manufacturing readiness.
We continue to refine across our partners and long term shareholders.
Based on our current models, we believe a 40 case run rate in manufacturing readiness is achievable by 2024.
And incremental capital expenditure of only 90 million to $120 million, thereby allowing us to target gross margin positive in 2025 based on our current pricing.
GAAP net loss was $90 7 million for the quarter compared to GAAP net loss of $125 4 million in the prior year period.
Adjusted EBITDA was negative $67 1 million for the quarter compared to negative $117 4 million in the prior year period.
Moving to our guidance.
<unk> for Q2 2023 is as follows.
Opex.
<unk> 40 million to $60 million, excluding stock compensation and depreciation.
Capex of $10 million to $20 million.
We are targeting next quarter to release, the full year guidance.
Turning it back to the operator for questions.
Thank you and ladies and gentlemen at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. Thank.
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Our first question comes from Amit Dayal with H C. Wainwright. Please state your question.
Thank you good afternoon, everyone.
Tony just to begin with maybe on these FCC related comments you made.
Is there any impact from you know what is happening on that side with respect to.
The operational side of things and their ability to deliver.
Or start shipments by the end of this year.
No.
As we stated.
The company's at.
Activity has been concluded while they continue to.
Do more.
Around former employees, but we're just waiting for the commission.
Sign off in and give us their approval.
Okay understood.
And then with respect to be activity going on to set up production lines et cetera, right now.
Are you thinking Oh are you look at the visibility you have I mean do you see some initial production getting underway.
By the end of second quarter or early third quarter, and then you ramp from there could you just give us a little bit of a time line on how this will play out.
Yeah. So so as we said you know we've done some limited production right. We got NASA, we did 15 ltvs.
And we're using them for extensive testing activities with customers.
As well as we'll be delivering the NASA vehicles in the quarter.
So that'd be the beginning of us in the coming quarter starting to generate some revenue.
So it'll be limited.
We're being a little wider on things just because we don't want to disappoint people.
To exceed expectations and you can see in this in this quarter release, we gave a lot more detailed information.
Alright, so you can double check it to your models and you can see.
Okay.
We will be delivering vehicles and and the focus is very heavily on exiting at 20 K run rate.
Okay. Thank you and just maybe last one.
The 40 to 60 million opex guidance with booking.
Linda.
Would you be in a similar range or <unk> or should we expect some ramp to take place as production increases.
Yeah, I mean, it's it it's going to change a bit you know it'll it'll go up and down I think what youre seeing with us.
And in the approach we have taken which is to figure out how to be you know.
As I said, you know I think Warren Buffett, and Charlie Munger said, it well the traditional models very very tough.
And every 15 to 20 years it has a terrible cycle three car generation.
And and we focused on something that was more technology, driven which allowed us to have an expandable format as well as the geographical expansion strategy, and then where appropriate when appropriate to have mass production, which we secured.
In the prior site.
For the long term so we will step into that will raise capital accordingly, and we will give guidance more and more in depth.
As.
We talked about earlier.
Our plan is to give full year guidance in the next quarter.
Okay. Thank you doing it that's all I have.
Thank you Amit.
Our next question comes from Jamie Perez with RF Lafferty. Please state your question.
Hey, good afternoon, everybody. Thanks for taking my question as far as capital equipment. It's Farquhar Murray do you have everything you need and the cap Capex and cash that you generated and be raised is that just you for working capital and what we need what is it what else do we need to get to what do you 20000 run rate and then maybe two.
40000 run rate as far as yeah, so equipment.
Yeah. So there's a dual path we had to do right Jamie otherwise, we have to raise a lot more capital and in the current valuations, which we believe are below par.
We're going to be very conservative about the way we do it. So that's why we really dug deep and developed a dual path that dual path has an in source outsource model right as we shifted more to in source over time that will be as we have more.
Our visibility more of the things we do in house.
At our standards and as we scale. So then the answer is no. We don't have everything if you think of the in source model. If you think of the in source outsource model, we have pretty much everything there is still some stuff I don't think you can really say you'll ever.
Half.
Everything you, possibly need.
But this is really the key areas that matter is really your body in white you paint your G E.
And your tooling.
Yeah.
Now, we'll hear it from other EV that.
The supply chain issues for these Oems.
That's been solved but they've been having problems with the suppliers I mean do you foresee a problem with.
Our third party suppliers are not delivering through supply constraints all logistics problem.
So look I think that the.
The uniqueness of our.
Design and the redemption of parts and increase of assemblies.
And.
Taking a more technology driven approach.
Our issues have been with suppliers is.
From the legacy matters, where they were more focused on a traditional large volume outsourced model.
And we've been.
In the Refounding, obviously, we re we fatigue quite a few of our our suppliers because we had to get them to change to the model that we want to go which is a ramping model.
And and so you know the the friction we have in the supply chain I would say, which is more self inflicted with the exception of at any given day. They're 20 parts that are just on a general industry concern.
Alright, and my final question do you have any updates on the Walmart order Ross.
Well.
We will yes, so I think if you if you.
See some of the comments in the in the script, you'll see we'll have some announcements in the in.
In the coming quarter.
But you know things continue.
Sure.
Alright, that's all I have for.
Thanks.
Thank you great questions, we have today I'll turn it back to Tony Acaleph for closing remarks.
Thank you operator.
Look I just wanted to give a big shout out to all the people who have been helping us while we have done the refounding to our suppliers to our partners to our customers to our investors.
And the hard working associates that have had to.
To innovate in a very different way and where we're seeing a very good future. We got a lot to prove we intend to prove it.
And we have experience in building companies from scratch.
And we know that every deal has a new deal and these are tough times and we've got to execute.
And optimize the way, we use cash and build shareholder value I wanted to give a big shout out to everybody who's supporting us. Thank you.
Thank you and this concludes today's conference all parties may disconnect have a good evening.