Q2 2023 Cyngn Inc Earnings Call
Greetings and welcome to the Finjan second quarter 'twenty 'twenty earnings Conference call. At this time, all participants are on 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 as a reminder, this conference is being recorded.
I'd now like to turn the conference here host band Mack head of Investor Relations. Thank you you may begin.
Thank you operator, and thank you to everyone on the call for joining us today.
The press release announcing <unk> results for the second quarter ended June 32023 is available in the investors section of the company's website at investors Finjan until call our.
A replay of this broadcast will also be made available on the website approximately one hour.
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Before we get started I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act, but nothing that you bought.
These forward looking statements can be identified by terms such as anticipate believe expect future.
Outlook and will that include among other things statements regarding the company's continued development of its commercial products expectations regarding sales anvil revenues gross strategy.
To deliver sustainable long term value ability to respond to the changing environment and operational focus.
Although the company believes that the expectations reflected in its forward looking statements are reasonable as of today. Those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected.
And it can be no assurance that those expectations will prove to be correct information about the risks associated with investing in Finjan has included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision.
The company does not assume any obligation to update any forward looking statements as a result of new information future events changes in market conditions or otherwise, except as required by law.
Today's call Finjan, Chairman and CEO Leo tall, who will discuss recent operating highlights Chief Financial Officer, Don Alvarez will follow with a review of the company's financials for the second quarter of 2023.
Neil will then return to make a few concluding remarks before opening the floor for questions.
I will turn the call over to Neil.
Thanks, Brent good afternoon, everyone.
During the second quarter, we made significant progress in all areas of the business.
Particularly on our plan to sign up new commercial customers and deployments in a moment I'll talk in more detail about the major announcements we've made over the past few weeks, but first for those new to our story I want to give a brief overview of finjan and a significant opportunity we're delivering them.
We're gonna start them as vehicle solution company that's focused.
On addressing industrial uses for autonomous vehicles or vehicle agnostic software enables industrial enterprises to harness autonomous driving to overcome labor shortages increase safety and reduce the costs associated with labor or enterprise autonomy suites or yeah. Yeah enables vehicles to use artificial intelligence to navigate the world.
Rhonda.
And it's one of the partnering AI development companies, we have been excited to see the increasing proliferation of AI into all aspects of life.
Do you know something I to improve safety productivity and efficiency in manufacturing logistics and other industrial sectors.
On the cusp of transforming the way work gets done in syndrome is in the vanguard of those that Africa.
Industrial firms today continue to experience significant labor shortages, which are destined to remain a bottleneck of demographic changes some workers sentiment impact the pool of available workers.
In fact in the July jobs reports from National Federation of independent business, 92% of business owners surveyed reported flu or not vacations for positions. They were trying to fill a two point increase from June .
Companies are also focused on improving the safety of the workplace environments, while improving efficiency to compete with peers, who are deploying the latest automation technology.
Given these needs and based on the number of industrial vehicles in operation in the world to date.
We conservatively estimate that the addressable market for self driving industrial vehicles is over $200 billion do they see.
Flexible vehicle agnostic solutions are perfectly designed to penetrate this market and process. We have already started with our initial commercial stock tracer deployment in the first quarter.
During the second quarter, we continued to meet milestones and make progress on a paid and a rig contract to adapt drive more proprietary localization technology to a major global heavy industry Oh, yeah.
In April we announced the Greer successfully completed phase two of this multi phase project, which implemented autonomy technology not currently used in the mining industry and would allow an increase in uptime for autonomous mining vehicles with the potential to drive significant operational improvement.
More recently, we also announced that we partnered with more tracks and manufacturer of electric industrial vehicles.
Quick finjan autonomy technology into more trucks empty 160 Taggart.
The N. P 160 is a robust vehicle offering 6000 pounds of swing capacity and with the addition of St. Jude technology will soon be capable of autonomous being safely holding goods to various industrial environments.
Walter if tiger's operating around the globe for notable customers such as G. M. Fedex Tesla and Walmart, we're very excited to extend our drive them autonomous system to another popular vehicle type and offer an even more compelling solution to potential customers, who own sizable fleets of multiple industrial vehicle types.
Turning now to our drive toward chaser product at the end of July we announced an agreement with a fortune 100 heavy equipment manufacturer to use our drive motor Naval struck tracer in one of their many facilities. These.
This customer uses hundreds of stock chasers in facilities across the globe and the initial deployment our second commercial structure so deployment.
Has the potential to grow significantly in the future as we prove out the flexibility and capability of our drive more stuff Josef solution.
This further confirmation of demand for autonomous talk tracer is testament to the market need for flexible and innovative approach to industrial vehicle autonomy offered by singer I look forward to updating you on additional deployment through the remainder of the year.
Our biggest recent news occurred just yesterday, when we shared the significant development from autonomous Forklift project.
And announced that we have secured a preorder of 100 drive more the naval autonomous forecasts from our uncle.
Always a $7 billion global wood supplier and leader in the furniture and construction industries and the sponsor of the autonomous Fortunately development project, we announced last year.
Brokers or the resulted from the successful development work will lead to a depth BYD forklifts to enable so driving capabilities.
Now show a short video that highlights the capabilities of the autonomous driving forklifts demonstrates why Iraq will place the order and why we're already securing firm orders for the product that we'd be available in 2024.
I'm really excited to tell you about the news that we have with our Rocco Morocco is a global wood and plywood manufacturer with large clients like Ikea, what we're announcing today is a pre order of 100 and AI powered autonomous forklifts, when we've historically, they're going to help them achieve a safer more sustainable work environment I'm, Nicholas Iota and I'm, the director of hardware engineering.
My name is John Stetson I'm, the VP of engineering here at Finjan, Morocco brought us in because they were looking for a company to help them automate the material movement through their facility. So imagine the facilities, where you have stacks of our wood products.
I would another composite materials that are eight feet wide and stacked as much as 30 feet halls. The first 80 or so percent is automated by a couple of people. The last part of their operation is extremely manual. So this is a high throughput facility with lots of different places where materials being moved in a lot of people do.
That movement across the facility every day the fourth of operators have to get on and off the forklift hundreds of times to unbundle and re bundle. These these pallets and by making that autonomous the operators can focus on the things in the human thing to do and the robots can do the jobs that are tedious and repeatable.
What are the things that we're very focused on that does all of this forklift is safety. We use AI enabled model based detection keep everybody within their Rocco facility safe RVO is equipped with a set of sensors that allows it to know when it is safe to drop safe to pick and really just cleared to perform the operations, though it's been directed to do another thing that I'm really excited.
Route is seeing the efficiency throughput so we're going to gain by having these forklifts deployed in the field when a new forklift operator has hired at at Iraq out. They go through a weeks a week's worth of training at the end of that week. If they have to perform a forklift has the fourth a task consists of a pallet stack that is stacked up six power tie and then that stacked means we unstack and restocked.
And another place on their facility in less than 15 minutes Finjan.
How does forklifts was easily able to pass this test now that we passed that test as soon as it is optimizing the algorithms of these harmless forklifts to make sure that Finjan Toyotas forklift is the most efficient and safe within the Iraqi fleet.
One of the benefits of autonomous forklift is that it drives in a more controlled way in terms of acceleration and deceleration and that ends up using less power and less electricity over time, which really helps with our customers' sustainability efforts. The manufacturing industry is facing a lot of challenges. The main ones are labor shortages and safety issues, which we're seeing.
And across the entire sector every year in the U S. There are 50000 forklift related injuries. There are millions of jobs that are currently unfilled. This can lead to a lot of downstream issues like not just limited productivity, but also operating this heavy equipment and doing these potentially dangerous operations can relate to lead the safety issues as well the robots don't take breaks they don't call. It <unk>.
And they're always available one of the things that makes senses approach unique is we're not tied to a single forklifts size operator manufacturer, we can scale our technology at our sensor kit to a wide range of applications all within the material handling space. The thing that makes me excited about what we're doing with the Morocco and the forklift that we're developing is that it's doing things.
But I haven't seen them before.
As you saw on that video by leveraging <unk> proprietary computer vision and AI algorithms, we have already successfully address the challenges of automating heavy loads with nonstandard telit pocket.
<unk>, which was previously unmet by other industrial economy providers.
In addition to improving efficiency. These autonomous forklift are expected to enhance safety wherever they're utilized a benefit that is front of mind for the majority of customers and potential customers.
The progress we've made on commercialization for all our products over the past few months has been transformative decision.
Since our last updated you we have also seen significant and growing interest in all our current and future commercial product.
Including request for pilots for major brands in the automotive and defense industries, and we anticipate being able to announce further commercial success in the second half of the year.
Does that show will meet the new requirements stemming from the success of this focus on commercialization. We brought on two new leaders during the second quarter, Shawn Staton, our VP of engineering and Felix thing our VP of engineering services each has.
Over 20 years of experience of commercializing emerging technology between them. They will be responsible for overseeing hover and social development continued commercialization of urea and the development of our customer success and support functions.
Since her appointment in the second quarter, both Phoenix and Sean have had significant impact on our development progress and customer offering.
We intend to continue funding finjan in a way that benefits our stakeholders, we keep a close eye on the macro financial situation and seek to balance growth opportunities with a conservative use of cash to ensure long term success of the company and its shareholders as part of that process. We filed an S. Three with the FCC, which includes an ATM with virtual.
We did not utilize the ATM during the second quarter.
We're often asked what our pathway to profitability and cash flow generation looks like.
Well, we're not giving any forecast at the moment I think it can be illuminating to lay out the broad strokes calculation.
And our current cash burn of approximately $2 million per month. It would require 500 E. S licenses at $4000 a month to approximately cash flow breakeven.
Obviously this calculation doesn't factor.
In addition cost of supporting these licenses, but for many of the customers and potential customers. We're working with today operate hundreds of industrial vehicles worldwide. We think the path to profitability is identifiable and achievable for Finjan.
Given the traction we're seeing with a drive much stocked Joseph solution the availability of the new more truck Tucker and considering the firm order for 112 month, Forklifting 'twenty 'twenty, four which represents only a fraction of the forklifts to Rocco sleep, our confidence in achieving profitability in a reasonable timeframe has only increased in recent weeks.
There's one more thing I would like to mention before I hand over to Don to go through the financial results, we value the views of our shareholders and we want to answer any questions. You may have your.
Youre welcome to reach out to investors at the Finjan Dot com at any time.
But you have also set up a page at acquired community Dot Com were verified shareholders will be able to post questions for management.
Anything that we can't covered during this call we will answer in the next few days, we look forward to engaging with you all.
And with that I'll turn it over to Don.
Yeah.
Thanks, Laura.
Turning to our financial results for the second quarter and first six months of 2023 we booked $551000 and $1 $4 million in revenue respectively.
Q2 revenue represents our third consecutive revenue generating quarter as a public company.
Substantially all of the revenue we recorded for the second quarter and the first six months of 2023 was related to the two nonrecurring engineering contracts that we signed with a Rocco and at global heavy industrial equipment OEM to bring new autonomous vehicles to the market.
Total costs and expenses in the second quarter were $7 million as compared to $4 $6 million.
In the corresponding quarter of 2022 the.
The increase was due in part to cost of revenue totaling $463000 in the second quarter compared to zero in the second quarter of 2022.
Costs and expenses were also higher as a result of one and a half million dollar increase in research and development expenses related to an increase in personnel added over the past 12 months to support the development of our technology, we anticipate that R&D expenses will continue to increase for the remainder of 2023.
Second quarter G&A expenses were also higher year over year as a result of an increase in personnel related costs additional marketing and advertising expenses higher legal and professional fees an increase in other G&A to support growth in the company.
Our second quarter net loss was $6 $4 million or <unk> 19 per basic and diluted share. This compares to a net loss of $4 $6 million or 15 cents per basic and diluted share for the second quarter 2022.
Finjan ended the first half of the year with unrestricted cash and short term investments totaling approximately $12 $1 million working capital at the end of the quarter was $11 $6 million with stockholders equity of $13 $9 million.
Additional detail on these numbers can be found in our earnings press release that we issued earlier today and the 10-Q, which we anticipate filing with the SEC later this week.
That concludes our financial commentary and now I'd like to turn it back to Lee are for his final remarks here.
The last few months has seen some very exciting developments horse engine on our last call. We said that we were focused on commercialization of our product and we have delivered.
Since we spoke to last we've announced a partnership with BYD on autonomous Forklift project launched a new vehicle type following our partnership with more correct.
Announced an order for autonomous structure says with a household name in the heavy equipment manufacturing industry to be delivered this summer and then Nelson order for autonomous broker with a rocket to be delivered next year.
It is the hard work of everyone at Finjan that is allowing us to meet our commitment to the market and I would like to thank everyone at the company for their efforts. So far this year, we intend to keep delivering on the opportunities we have created and I look forward to updating you on our future success.
Now I'd like to open the call up for analyst questions.
Yeah.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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My first question is from Theodore O'neill with Litchfield Hills Research. Please proceed with your question.
Thank you and congratulations on the good quarter.
I first have a sort of a general question just.
Just about one of the challenges of the autonomous EV business in general is that cost it number of sensors needed to operate safely and I was wondering if you could compare that versus the cost of number of sensors you require.
No run inside of a factory.
Thank you this is Ben Landon here thanks for the question.
The when you compare to the E V and I think largely this is driven by the automotive space and the costs associated with driving.
They see in dealing with everything that needs to dealt with out in the world.
By design, we chose the domains that we work in because they limit a lot of the the problem space.
Which does a few things one is it lets us.
Earlier horizon to having finished products for our customers, which we're seeing now are very different from a situation, where you need to be able to pick up anywhere and some city and drop off anywhere in some cities.
It goes that speaks to the product readiness and having a shorter horizon, there and the byproduct of that is since we're operating at lower speeds. Since we're operating around trained personnel about the general public that can do anything and surprise you out on the open road base that means we don't need to for example C to her.
Wondered meters out in front of us so that we can.
So that we can see an object when we're traveling at 65 70 miles per hour, we have let's call. It the luxury of being able to enter into a fail safe maneuvers, because we know the manufacturing facility that we're in we know that there's not high traffic scenarios. If there is a situation where the break needs to be slam, we can usually do.
What you can't do with a long haul trucks travelling 70 miles per hour for example, and what that means is.
Les sensors on the vehicle to cover all of the views that we need to operate safely and it means not as intensive of computing required because you're analyzing a smaller space in the <unk> world and so the bottom line ultimately comes back West If you look at the Uber and Lyft COO.
Costs too.
Oh, Yeah, Yeah cool.
Yes.
Okay.
The warehouse when you include the sensor can't when you include the subscription cost of our Eas licenses that still offers substantial savings to our customers compared to the old way of doing it which was the only way to get work done was to have people sitting on the vehicles and doing mundane work.
Okay.
About the.
And now sit with Morocco.
In the.
August eight press release, you say it could represent 20% of monthly cash burn, which by my math works out there for a $5 million annually.
And targeting to start June 2024, so the two questions are one is my math right and the second one is about the build plan is this sort of a.
100 units go out at once or does it go out over a longer time periods C for a year or more.
I'll start backwards, so with the second question and then work to the first we we don't we haven't shared guidance as to what the ramp up will look like for those hundred we as well as our customer in.
Signing that preorder half.
<unk> joined to mutual interest and getting those vehicles ramped up and delivering value. So we'll be working as closely as we can with our OEM partners with the supply chain and with everything that we need to get in place to to reach that that first order ramped.
As quickly as makes sense to do.
And that only captures portion of the fleet, there's quite a lot of room to grow beyond that which we expect to be a process that will take time to saturate as much of their fleet with automation as we can presents a very exciting opportunity there.
And then in.
In terms of the numbers in your calculation, yes, youre roughly on the right page, but that is where that 20% number derives from so it's based roughly around the current burn rate that that we have that's been that's been publicly shared and so where we see the the opportunity in.
We're excited at the opportunity to grow far beyond that but to even have the initial order be as meaningful of a chunk as it is into our operating expenses.
Yeah.
Okay. So if it ramps up it could be 100% of the cash with cash burn.
Yeah with without going as far as providing numbers that are not mine to provide.
The the initial order Ah represents a.
Let's say a very small portion of the of the total opportunity with Morocco.
And that's yes, I expect that that would that would be a potential future that we would reach where we far surpass.
20% and even the current burn rate.
With just that customer, which is true from a as you can see from some of the numbers that were provided and Lee ours statements as well.
On the order of 500 vehicles when you consider a 4000 dollar blended average license prices, which.
We're already taking a substantial chunk out of with our rocco's initial order alone and that there are precedents from other automation providers, who have already surpassed those kinds of volumes, we're quite positive on that momentum.
Thank you very much.
Yeah.
Our next question is from Rommel Dionisio with agents capital. Please proceed with your question.
Yes, thanks, good afternoon.
He doesn't get you guys have had really impressive flurry of press releases and contract signing slightly and I Wonder if you could just give us a little color on.
What what.
This kind of driving this huge flurry I mean are you seeing a technological leap is that are you know some new personnel and marketing fronts. It's really brought a lot of success here near term I Wonder if you could just give us a little more color in terms of you know how are you seeing such success in rapid amount of time and congratulations on that thanks.
Miramar good hearing from you again Hum the one is Oh, what you alluded to recruit a team we've brought in some very important.
Important key functions, including engineering leadership, both on development and customer support success.
We started building a very experienced sales team.
Years of experience in.
Selling robotic solutions industrial automation solution. So.
A lot of that momentum Youre seeing is based on the impact that that new team because.
There has been added in the last quarter. So I have made on our operation, but also a lot of it was just the recognition of the market.
The opportunity that industrial automation brings to their.
You know flexibility cost structure and ability to compete with the other company.
And a lot of it is coming because the inbound into the company and the more people see these announcements the more we're getting interest from your perspective customers.
Great and just a quick follow up I know in prior calls you've talked about the opportunity in the mining industry, specifically and I Wonder if you could just give us some of your updated thoughts there. Thanks.
Yes of course, so you know the main focus of the company remains a material handling or.
Predominantly logistics when you're factoring facilities. These are usually very large warehouses or industrial complexes.
He vehicles like our readily available cockchafer, the upcoming Tucker and next year forklift.
That still remains the main focus of the company. This is the one that is closest to scale commercial deployment.
Deployment.
Other applications, including heavy industry or the mining are more in R&D phase and these are the ones that contribute to the in our Rebased revenue, but clearly where the company focuses on generating license based recurring revenues and this is where the sales team is Israel.
Focused on lining up these additional preorders like our uncle for 'twenty 'twenty four and onward.
Great. Okay. Thanks very much.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Yeah.