Q3 2023 Canoo Inc Earnings Call
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Greetings and welcome to the Canoe third quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief 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 it.
It is now my pleasure to introduce your host Kunal Butler Senior Vice President capital markets corporate development and purchasing. Thank you. Please go ahead.
Thank you everyone for joining us on our Q3 2023 earnings call. We're excited to be presenting this call from our Oklahoma City facility.
Speaker 1: Thank you, everyone, for joining us on our Q3 2023 Earnings
Speaker 1: We're excited to be presenting this call from our Oklahoma City facility.
Speaker 1: During the call, Tony will update you on our business progress.
During the call Tony will update you on our business progress.
Speaker 1: Greg Etheridge, who joined as our CFO in August , having previously served on our board. We'll provide an introduction and update on sales and finance.
I guess rich who joined as our CFO in August having previously served on our board will provide an introduction and update on sales and financing.
Speaker 1: And finally, Ramesh will go over the Q3 financial results.
And finally, we're mashed well go over the Q3 financial results.
Please be advised we may make forward looking statements based on current expectations.
Speaker 1: Please be advised, we may make forward-looking statements based on current expectations.
Speaker 1: These are subject to significant risks and uncertainties, and our actual results may differ materially.
They are subject to significant risks and uncertainties and our actual results may differ materially.
Speaker 1: For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our most recent Form 10-Q and 10-K, and other reports that we may file with the SEC, including Form 8-K.
For a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release and our most recent Form 10-Q, and 10-K and other reports that we may file with the SEC, including form 8-K.
Speaker 1: All of our statements are made as of today and are based on information currently available to us.
All of our statements are made as of today and are based on information currently available to us except as required by law, we assume no obligation to update any such statements.
Speaker 1: except as required by law, we assume no obligation to update any.
During this call, we'll 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.
Speaker 1: During this call, we'll 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.
Over to you Tony.
Speaker 2: Thanks, Kunal, and welcome, everyone. We live in the most interesting times with an imperative for global innovation, but with macro and micro headwinds compounded by financial crosswinds, especially in certain industries and markets like ours.
Thanks, Tim and welcome everyone.
And the most interesting times with an imperative for global innovation.
Nashville.
Micro headwinds compounded by financial classrooms, especially in certain industries and markets like ours.
Speaker 2: When our country has fallen behind, while this is daunting at times, this can feel like forever. But it can and will pass.
When a country is falling behind.
This is Don King at times this can feel like forever.
But it can and will pass.
Speaker 2: based on your creativity, resolve, and determination to find a way to get your vision and mission to market and then to scale.
Just on your creativity resolve and determination to find a way to get your vision and mission to market and then to scale.
But it is inspiring to me is that it takes just a small group of innovators and hardworking believers.
Speaker 2: What is inspiring to me is that it takes just a small group of innovators and hard-working believers who accept nothing other than to find a way to win.
Nothing other than to find a way to me.
What is also inspiring to me as a country has always done is most impactful work when the world has decided to give that's number two.
Speaker 2: What is also inspiring to me, as our country has always done its most impactful work when the world has decided to give us number two, or number three, or even last place at times, to only see us emerge back in the game and many times on top.
<unk> three or even last place at times to only see us emerge back in the game and many times on top.
To be amongst these great innovators.
Speaker 2: You must find your own inner resolve to lead and not to follow others, but rather hold the bar so high that at times you even doubt yourself, because as we have all seen, many people vote against the innovators versus supporters.
You must find your own internal resolved to lead and not follow others.
Hold the bar so high that at times, you need and to help yourself because as we have all seen many people against the innovators versus supply.
And bless me no.
I have a group of like minded people, who volunteer every day.
Do their part in more so that we can accomplish our mission.
Speaker 2: While times are tough, we are grateful that every day more and more of you are becoming believers in our strategy that we introduced two-plus years ago when we took over the direction and leadership of Canoe.
While times are tough we are grateful.
Every day more and more of you are becoming believers in our strategy that we introduced two plus years ago. When we took over the direction and leadership.
Yeah.
Speaker 2: Our vision was bold, not the easiest to understand, and was hyper-focused on different and as we now know emerging markets that require unique products, sub-products, and approaches to first meet the needs of our customers in fleet, government, and military, and then on to consumer markets.
Our vision was bold.
The easiest to understand and we're hyper focused on different and as we now know emerging markets that require unique products <unk> products and approaches to first meet the needs of our customers and fleet Governor.
And military and then onto consumer markets.
Speaker 2: Some have asked me why not focus on consumers first. It's simple. If you design your products and service for the most discerning commercial customers who aim to test the bounds of the possible.
Some have asked me why.
Not focus on consumers first.
Simple if you design your products and services are the most discerning commercial customers, who aim to test the boundaries of the possible. They will help you find a way to build it into reality.
Speaker 2: They will help you find a way to build it into reality through rigorous testing and value-based feedback because their business and mission have a critical dependence on our platform to perform in volume and under stress.
There is testing and value based feedback because their business and mission.
Have a critical dependence on our platform.
One in volume and under stress.
Not only our fleet customers contracted multi year volume buyers.
Speaker 2: Not only are our fleet customers contracted multi-year volume buyers with bankable credit profiles and are those who demand minimalism with maximum functionality and safety, these partners can help you fast forward generations of continuous improvement which will ultimately benefit our
<unk> credit profiles.
Those who demand minimalism with maximum functionality and safety. These partners can help you fast forward generations of continuous improvement, which will ultimately benefit all right.
Speaker 2: consumer customers when we increase and expand our delivery to these additional markets.
Consumer customers, when we increase and expand our delivery to these additional markets the risk of manufacturing before a rigorous testing has been borne out by the best you under risk costly knee calls because of this we have never done.
Speaker 2: The risk of manufacturing before rigorous testing has been borne out by the best. You run the risk of costly recalls. Because of this, we have never just tested our products to pass a regulatory standard, but rather to live or die by the validation of our hardworking.
Just tested our products pass regulatory standard.
Brad or deliberate di either value validation of our hard working.
Speaker 2: people of our country and our customers who rely on our product for critical processes.
People of our country and our customers who rely on our product for critical processes.
Big bets, we have made around the redesign and functionality of our platform are beginning to play out successfully at multiple levels, but we still have things to prove we have nearly three years to get to this point.
We have derisked the business.
With the technology.
Set of legacy matters, and will continue blocking and tackling with our characteristics of scrapping is perseverance and tenacity and the discipline and experience. We were again at a time like this is it is great for <unk> future.
Speaker 2: and will continue blocking and tackling with our characteristic of scrappiness, perseverance, and tenacity. And the discipline and experience we will gain at a time like this is great for Canoe's future DNA.
Look.
Speaker 2: As I mentioned, there have been substantial headwinds for Canoe and the whole EV market over the last 12 months.
As I mentioned, there have been substantial headwinds for me and the whole EV market over the last 12 months.
Speaker 2: Headwinds will slow down any aircraft, but if engineered properly and if determined, it will complete its mission. Now let me update you on our manufacturing progress in the quarter.
Headwinds will slow down any aircraft, but it's engineered properly in it determined it will complete its mission.
Now, let me update you on our manufacturing progress in the quarter.
Speaker 2: We are proud to be a creative and adaptive team and continue to find innovative ways to acquire long lead time capital intensive and environmentally sensitive items. With the market in distress, the team has opportunistically and accretively added manufacturing assets at reduced prices.
We are proud to be a creative and adaptive team and continue to find innovative ways to acquire long lead time capital intensive and environmentally sensitive items with the market in distress. The team has opportunistic and accretive we added.
Manufacturing assets at reduced prices.
Speaker 2: We are continuing to grow our presence in Oklahoma, and by the end of Q4 23, target 20 to 25% of our total workforce will be Oklahomans.
We are continuing to grow our presence in Oklahoma and by the end of Q4, 'twenty three target, 20% to 25% of our total workforce will be Oklahoma.
Speaker 2: In our workforce development program with the Cherokee Nation, we began hiring and training employees at our Oklahoma facility.
In our workforce development program with the Cherokee Nation, we began hiring and training employees at our Oklahoma facilities.
Speaker 2: Yesterday we reached a key milestone and announced that we would be delivering our first batch of made in Oklahoma electric vehicles to the state of Oklahoma Office of Management and Enterprise Services under an agreement to sell up to 1,000 vehicles.
Yesterday, we reached a key milestone and announced that we would be delivering our first batch of made in Oklahoma electric vehicles to the state of Oklahoma.
Office of management and enterprise services under an agreement to sell up to 1000 vehicles.
Speaker 2: Our manufacturing milestones achieved this quarter are on July 27th, we hit a 20,000 unit run rate for our battery module line installed in prior Oklahoma and the Cherokee Nation.
Our manufacturing milestones achieved this quarter are on July 27, we had a 20000 unit run rate for our battery module line solved in Pryor, Oklahoma and the Cherokee nation.
Speaker 2: July 31st, 20,000 unit run rate for our robotics and assembly line for our ladder frame equipment installed at Oklahoma City.
July 31st 20000 unit run rate for our robotics in Assembly line for Atlanta frame equating installed at Oklahoma City.
Speaker 2: August 17th, EPA permit granted for our OKC facility. November 10th, commissioning of equipment completed on both the ladder frame system in Oklahoma City and the battery module system in prior.
I'll guess, 17th EPA permit granted our okc facility November 10.
Commissioning of equipment completed on both the ladder frame system in Oklahoma City, and the battery module system in Pryor.
Speaker 2: November 14th, today, we update the general assembly system is on track to achieve the 20,000 unit run rate for Q1 2024.
November 14th today, we update the General Assembly system is on track to achieve the 20000 unit run rate for Q1 2024.
Speaker 2: Listen, we believe it's essential for us to be disciplined when stepping our way into volume manufacturing with the right pace of investment and with our supply chain partners.
Listen we believe it's essential for us to be disciplined when stepping our way into volume manufacturing with the <unk>.
<unk> pace of investment and with our supply chain partners now I'd like to have Greg cover.
Speaker 2: Now I'd like to have Greg cover sales and capital markets activities, and then after that it will go to Ramesh. Thanks.
Wealth and capital markets activities and then after that they go to them.
Yes.
Thank you Tony.
Speaker 3: Just a quick intro. I've had the privilege of serving on the Canoe Board of Directors since December 2020 until recently when Tony asked me to join the management team full-time and put my skills to use for this next phase of growth. Prior to that, I spent 14 years investing and managing direct private and public control investments, often serving as an interim financial management role. And prior to that, I spent 10 years in investment banking, working in capital markets and restructuring.
Just a quick intro I've had the privilege of serving on the <unk> Board of directors since December 2020 until recently when Tony asked me to join the management team full time and put my skills to use for this next phase of growth.
To that I spent 14 years investing in managing direct private and public control investments Austin, serving as an interim financial management role and prior to that I spent 10 years in investment banking working in capital markets and restructuring.
For my first day as a medium can do in mid 2020 and understanding the unique benefits of the modular platform and the technology stack I had a strong belief in the substantial business opportunities for the company.
Speaker 3: My conviction about the company's success became stronger after getting to know Tony and the team here and witnessing the business model pivot that he directed in early 2022. For those of you that don't remember, the pivot was the change from a consumer-facing electric vehicle to the fleet-focused electric delivery vehicles that have now generated 750 million in committed orders or 18,000 units for key commercial customers and also large additional opportunities with government customers.
My conviction about the Companys success became stronger after getting to know Tony and the team here and witnessing the business model pivot that he directed in early 2022.
For those of you that don't remember the pivot was changed from a consumer facing electric vehicle fleet focused electric delivery vehicles that are now generated $750 million in committed orders or 18000 units for key commercial customers and also large additional opportunities with government customers, whose business model.
Speaker 3: This business model shift turned out to be prescient, given the difficulties of consumer exposure in a high interest rate environment. Canoes focus towards well-funded, high credit quality commercial, government, and military customers appears to be well-timed.
Sure it's turned out to be prescient, given the difficulties of consumer exposure and a high interest rate environment.
His focus towards well funded high credit quality commercial government and military customers appears to be well timed.
Speaker 3: now shifting to our revenue and sales pipeline and recent milestones.
Now shifting to our revenue and sales pipeline and recent milestones.
During the third quarter, we entered the revenue generating phase for the company.
Speaker 3: During the third quarter, we entered the revenue generating phase for the company. Sales during the quarter were generated from vehicle deliveries, but also from revenue from the DOD's Defense Innovation Unit contract and services. As you know, our multipurpose platform, or MPP, and many of the underlying technologies, electric drive unit, battery modules, and the system itself, offer revenue generating potential for more than just complete vehicle sales.
Sales during the quarter were generated from vehicle deliveries, but also from revenue from the Dod's Defense innovation unit contract and services as you know our multipurpose platform or M. P. P and many of the underlying technologies Electric drive unit battery modules and assistant.
I'll offer revenue generating potential for more than just complete vehicle sales.
We will continue delivering additional vehicles throughout the balance of the year through our highly discerning high grade credit government and commercial fleet customers.
Speaker 3: We will continue delivering additional vehicles throughout the balance of the year to our highly discerning, high-grade, credit, government, and commercial fleet customers. The type of customers you want, especially during tough market cycles.
Types of customers, you want, especially during tough market cycles.
Speaker 3: On July 12th, Canoe delivered the Crew Transportation Vehicles, or CTV, a derivative of the Lifestyle Vehicle Models, to NASA. These specially configured CTVs will transport astronauts to the launch pad at Florida's Kennedy Space Center for future Artemis missions.
On July 12, <unk> delivered the crude transportation vehicles or CTV, a derivative of the lifestyle vehicle models to NASA.
The especially configured Ctv's will transport astronauts to the launch pad at Florida is Kennedy space Center for future Artemis missions. It wasn't a historic day for our company and a very proud day for our team on October 20th Veneer was pleased to attend when NASA officially revealed the Cds at the Formula One Grand Prix in Austin, Texas.
Speaker 3: It was a historic day for our company and a very proud day for our team. On October 20th, CNU was pleased to attend when NASA officially revealed the CTVs at the Formula One Grand Prix in Austin, Texas. On November 10th, we
On November 10, we revealed the American Bulldog and.
Speaker 3: a derivative of the Screaming Eagle that was delivered to the U.S. Army and been in constant testing since November of 2022.
A derivative of the screaming Eagle that was delivered to the U S Army and then in constant testing since November of 2022.
Speaker 3: The bulldog was developed as a further derivative and byproduct of this extensive test.
The Bulldog was developed as a further derivative and byproduct of this is extensive testing.
Speaker 3: And again, as Tony mentioned, we announced yesterday, November 13, that we are delivering our first vehicles in an up to 1000 unit agreement to the Oklahoma Office of Management and Enterprise Services. We are very proud of our partnership with the state of Oklahoma and its workforce.
And again as Tony mentioned, we announced yesterday November 13 that we are delivering our first vehicles and in up to 1000 unit agreement to the Oklahoma Office of management and Enterprise services. We are very proud of our partnership with the state of Oklahoma and its workforce.
Speaker 3: On our sales pipeline, our sales pipeline continues to build through 2025 with continuing.
On our sales pipeline, our sales pipeline continues to build through 2025 with continuing.
Yes.
Okay.
Yeah.
Yeah.
Okay.
Yes.
Speaker 2: Sorry, we had a little technical glitch here.
So we had a little technical glitch.
Speaker 3: Continuing order book growth and pricing stability across our target segments. The team recently concluded pre-launch trials with key customers on our LDV-130, LDV-190, and other derivative products.
Continuing order book growth and pricing stability across our target segments.
<unk> recently concluded prelaunch trials with key customers on our.
<unk> hundred 30, <unk> hundred 90, and other derivative products.
Speaker 3: Three billion plus order book across both stage two and three orders. Over 67,000 total reservation count.
$3 billion, plus order book across both stage, two and three orders over 67000 total reservation count.
3% sequential growth in the quarter on stage, two and three orders.
Speaker 3: 3% sequential growth in the quarter on Stage 2 and 3 orders.
Speaker 3: Strong product acceptance on the commercial fleet side allows us to be more discerning on customer choice and modulate order acceptance given our very strong backlog.
<unk> product acceptance on the commercial fleet side allows us to be more discerning on customer choice and modulate order acceptance given our very strong backlog.
Speaker 3: Through pilot and pre-delivery customer testing, we found 97 to 100% of the use cases are satisfied when looking at the last two years of driving evaluations and deliveries with key fleet customers.
Through pilot and pre delivery customer testing, we found 97% to 100% of the use cases are satisfied when looking at the last two years of driving evaluations and deliveries with key fleet customers.
<unk> six unique duty cycles, including high volume high traffic metros rural areas across both food deliveries and general merchandise.
Speaker 3: Six unique duty cycles, including high volume, high traffic metros, rural areas across both food deliveries and general merchandise.
Speaker 3: 150-plus days of reliable performance in extreme high-temperature conditions in multiple weather environments.
150, plus days of reliable performance and extreme high temperature conditions and multiple weather environments.
Yeah.
Speaker 3: and over 10,000 industrial and commercial use miles and many thousand deliveries made to unique locations.
And over 10000, industrial and commercial use miles and many thousand deliveries made two unique locations.
Speaker 3: As we move into production, we also expect to start receiving deposits from our commercial fleet customers.
As we move into production, we also expect to start receiving deposits from our commercial fleet customers.
Speaker 3: At Canoe, as Tony described, we have been hyper-focused on delivering units to our customers and optimizing across our business.
I can hear you as Tony described we've been hyper focused on delivering units to our customers and optimizing across our business.
Speaker 3: We have a strong track record of raising small amounts of capital and allocating it to different functional areas and using milestone-based achievement.
We have a strong track record of raising small amounts of capital and allocating it to different functional areas and using milestone smile stock based achievements.
During the quarter, we raised $78 million of equity linked securities and in October we raised another $45 million year to date, we have successfully raised approximately $250 million in total capital to support the growth of <unk>.
Speaker 3: During the quarter, we raised $78 million in equity-linked securities, and in October , we raised another $45 million. Year-to-date, we have successfully raised approximately $250 million in total capital to support the growth of Canoe.
Speaker 3: The most recent 45 million convertible preferred investment that closed in October was from a foreign strategic partner that has the ability to significantly upside its investment as we continue to achieve our milestone.
The most recent 45 million convertible preferred investment that closed in October from a foreign strategic partner that has the ability to significantly upside its investment as we continue to achieve our milestones.
Speaker 3: This long-term investor is interested in a manufacturing partnership with Canoo and can support Canoo at very attractive price points for certain parts of the vehicle. We continue to be focused on a variety of other capital alternatives, including with additional overseas partners.
This long term investor is interested in a manufacturing partnership with <unk> and can support can do at very attractive price points for certain parts of the vehicle.
We continue to be focused on a variety of other capital alternatives.
Including with additional overseas partners.
Our primary focus this quarter and going forward.
Speaker 3: will be to efficiently allocate capital and continue to achieve our business plan.
We will be to efficiently allocate capital and continue to achieve our business plan.
Speaker 3: We are generating savings that can be redeployed into business at many levels.
We are generating savings that can be redeployed in the business at many levels.
We continue to be focused on getting maximum efficiency from our capital and that is my mission.
Yeah.
We will take advantage of market dislocations as the opportunities arrive and Ramesh will describe those in more detail.
In summary, despite a very challenging market backdrop. This year, we have successfully raised capital to achieve our objectives and we'll continue we'll continue to do so.
Yes.
Our team has scrappy innovative and persevere, we will continue to optimize our spend and take advantage of the opportunities in front of us to achieve our business plan objectives. I will now have now hand, it over to a mesh to review the financial results.
Thank you Greg.
Now let me walk you through the results of Q3 2023.
It was an exciting and historic quarter for two reasons.
First we are now a revenue generating company.
As Tony mentioned earlier, our first revenues were generated in July when we delivered our first three NASA vehicles. All time, followed by revenues generated from the completion of certain engineering milestones and delivery of certain battery modules.
Ahmed of defenses.
<unk> innovation unit.
We generated revenues of approximately $519000 in Q3 of 2023.
Our revenues in the third quarter reflect the inflection point, we are at the beginning the phased ramp manufacturing approach in delivering low volume vehicles, starting Q4 of 2023.
We expect to ramp volumes over the rest of 2023 and 2024 at a measured pace to match with the delivery schedules.
<unk> agreed to with our customers.
We incurred $903000 and cost of revenues during the three months ended September 32023.
Our cost of revenues, primarily includes vehicle components and parts labor costs, and amortize tooling and capitalized cost involved in producing and assembly of our parts and components.
Our negative gross margin of 384000 during the three months ended September 32023 was primarily due to the custom built initial vehicle deliveries to NASA.
Southern increased logistics and freight costs.
Includes in lower of cost or net realizable value or LC and RV adjustment of approximately 366000.
We expect negative gross margin to improve on a per vehicle basis, as we increased overall production levels and achieve commercial cost savings on material and labor cost.
Yeah.
Our continuous optimization of operating expenses and narrowed focus on our milestones as it resulted in the lowest adjusted negative EBITDA since we have been as a public company.
Moving to the income statement.
Third quarter 2020 results are as follows.
Search and development expenses totaled 22 million for the quarter compared to $57 1 million in the prior year period, a 61% reduction from Q3 of 2022.
SG&A expense was $24 9 million for the quarter compared to $48 8 million in the prior year period, a 49% reduction from Q3 of 2022.
GAAP net loss was $112 million for the quarter compared to GAAP net loss of $117 7 million in the prior year period.
Adjusted EBITDA was negative $40 4 million for the quarter compared to negative $88 million in the prior year period.
Adjusted EPS was negative 0.07 per share for the quarter compared to adjusted EPS of negative <unk> <unk> per share in the prior year period.
Turning to cash flow.
We ended the quarter with $8 3 million of cash and cash equivalents.
After giving effect to the issuance sale and delivery of preferred shares and warrants for a total of $45 million, our cash balance would have been $53 3 million.
Cash used in operations for the nine months ended September 30 of 2023 was $191 4 million compared to $329 9 million in the prior year period.
Our capital expenditures of $45 4 million for the nine months ended September 32023, compared to $88 8 million for the nine months ended September 32022.
Net cash provided by financing activities for the nine months ended September 32023 was $208 9 million compared to net cash provided by financing activities for the nine months ended September 32022 of $181 3 million.
Our monthly cash flows in Q3 of 2023 was approximately 40% lower than our average cash flow per month in 2022.
We continue to optimize cash as we move into Q4 of 2023.
Moving to our guidance.
We had previously provided our guidance for the second half of the year as follows.
Justice EBITDA of negative $120 million to negative $140 million and capex of 70 million to $100 million.
Our relentless focus and discipline of expense management, including the labor arbitrage as a result of change in labor mix from engineering to manufacturing.
And transition of our workforce to Oklahoma, and our deliberate strategy to minimize long term purchase commitments amongst other factors.
Now us to improve our negative adjusted EBITDA guidance.
This improvement has resulted in a revised negative adjusted EBITDA guidance to now be between 85 million to $105 million for the second half of 2023, which is a 30% improvement from the guidance we have shared in the prior quarter.
From a capex perspective, our faith Tramp manufacturing approach allows us to fully utilize our low volume tools prior to switching over to the high volume tools and base, our asset expansion to alignment production, thereby avoiding higher amortization over initial units produced.
These reasons combined with the other reasons Gregg mentioned above as it relates to partnering with others in the industry to acquire minimally used equipment at optimized cost allows us to reduce our guidance, thereby we shared the following revised guidance for the second half of 2023.
Capex being $30 million to $40 million.
Our 2023 second half adjusted EBITDA guidance of negative 85 million to negative one $5 million will bring our full year adjusted EBITDA guidance to negative $210 million.
Negative $235 million, which is approximately a 50% reduction from the prior year.
Now, let me turn it back to Tony for final remarks.
Before we go to Q&A I want to take this time to thank.
All of our supporters and especially the <unk> team.
And our partner suppliers for their incredible flexibility and support while we navigate our way through to the next phase operator for.
Two questions.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session.
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Our first question comes from Stephen <unk> with Stifel. Please state your question.
Thanks, Good afternoon everybody.
I think two things for me the first and this ties into your Capex guidance.
Second quarter call you you kind of reduced your capex needs to get to about 20000 unit annual run rate I'm just curious on the progress.
As far as the efficiency of getting to that 20000 unit run rate does the reduced capex that you announced today change.
Change the timeframe on that.
No actually.
We've actually enhanced our our processes such that we're taking advantage of that.
Opportunity to buy some of the equipment.
The unfortunate situation for others.
In addition to that we've developed manual processes. So that we actually can scale above and beyond because you do have some bumps and alignment that you have to do as you bring the line full automation.
So.
The best we've ever felt in <unk>.
By chance do you happen to be in Oklahoma City area, we'd be happy to give you a tour.
Thanks, I will definitely take you up on that.
Yeah.
The other thing for me was when we think about and I know you probably want it can be precise numbers, but we think about sort of the move toward gross margin positive.
Can you give us sort of your updated thoughts on you know roughly the number of units you think you need to get there.
Yeah, we start to really come to the profitability.
It kind of breakeven around 14% to 16000 units depending on the manual processes and the automation, we implemented we democratize the scaling of the manufacturing environment. So we can scale. It with orders. So we don't have to Frontload. The Capex that's why we.
Fine tuned and we've developed repair and assembly methods through AI and others. So we can train the workforce and of course, we have great incentive programs for the workforce between the Cherokee nation state of Oklahoma. So.
We feel good about <unk>.
14000 units.
There is more that we'll unveil as to why we concentrated on the 14% to 20000 unit range.
But we'll do that at a later date.
Alright, great. Thanks for the info I'll get back in line here.
Yes.
Okay.
Thank you. Our next question comes from H C Wainwright.
Amit Dayal with H C. Wainwright. Please state your question.
Good afternoon, everyone.
Just.
Honing in on the delivery schedule for 2024 can you give us a sense of you know how this will ramp from.
From a number of units perspective.
Is it in.
The 20th into January February and then ramping into the <unk> Hundred's later in the year I mean any sort of directional.
Yes.
Hear your voice.
So first of all you know everybody has produced the hockey stick logic system.
And the way, they're going to be a manufacturing, which in reality the second like 2% overtime.
That is just about anybody.
And what you'll see is us stepping.
And that's why we developed the dual method path, while we're bringing on Capex. So we're not frontloading is we have manual methods as well as semi manual methods as well as full automated the high tech areas at the MPC one are fully automated now.
And it takes less than 2000 people that run that entire line, which.
You scaled up 50000 units a year.
And that capacity locked in that process as we refine and we develop sustaining a islands.
But what youll see as we do announce it in the coming quarter <unk> see we're delivering vehicles and that has scale, but it wont be a hockey stick at that throughout the year.
Because it is imperative that when we exit 2000 and for that we're exiting it leaning towards if you just look at our order book towards a 40000 unit run rate and extend to you the same.
Invitation.
To come visit Us and I'll walk you through how we've done it you've been to many factories I think you.
You will find it very interesting what we've done and how we see market tie some of these things that generally had been heavy capex load.
Thank you.
Picking up on that.
Hum.
So let me ask Myles thinking about you know.
Delivery schedule for these customers.
Are there certain expectations from the likes of Walmart et cetera, how many units they might have received seem pretty pretty for them.
As of June <unk>.
Are they still working with you in terms of.
Managing you know.
Expectations around units to be delivered to them.
Yes first of all when we had the privilege of working with a company like Walmart and its leadership team they understand logistics and scaling better I believe better than anyone especially.
And it's just in a very.
Demanding manner in which the customer delivery on location.
And as well as bringing it to me so if any.
Super Awesome about how we've worked through this and what we've done with our customers as we talk to them about a level of accuracy of delivery in years, one a different level in year, two and a different level and year three because all our customers in multi year orders.
So we have a minimum that we have.
80% to 98% confidence at and.
Our higher end that we can reach.
And we decided to choose to accelerate some of the capex needs.
Of course that gives us an opportunity for the customers who participate in getting <unk> advances in order to do that so we're finally hitting that stage again.
Rather than try to top everybody through it.
Those are that it's appropriate for.
We'd be willing to give you a tour because now.
You can really see it.
Okay. Thank you just one last one from me.
In terms of you know the strategic Investor you mentioned.
Earlier on the call.
Any color on you know who this entity is.
They are looking to potentially partner with you on the manufacturing side is that for outside of the U S.
Yes.
That's a very strong American ally.
And.
And its people have done business with before.
And there is a lot of costs they have an incredible amount of capabilities they have large fundings.
Of course development.
Which should give us even more competitive advantage most of all they have invested an incredible amount of money and rapid development methods of them the <unk>.
<unk> highly sophisticated parts.
There are a set of use cases that at this time.
For many reasons based on the work we're doing that that name is being kept.
Yes.
Alright, Thank you Tony Thats on that thank you.
Our next question comes from Jamie Perez with R. F. Lafferty. Please state your question.
Hey, Good day, everybody I hope everybody is doing well congratulations on your thought of manufacturing now are.
Are you going to put us in the Ltvs are and also I know.
You mentioned the.
New vehicle to pit Bull.
Tom.
Are you going to be producing that.
It's on our website on a reservation sports do you give them a little bit color on that.
Trajectory of that.
So, yes, so one being in Georgia Boy, you're definitely right.
Drive the heck out of it.
Alright.
Let's see what we put behind it.
But yes, so it's the same <unk> one.
The platform is.
When you cannot see the door to see how we.
Yes.
The MPP won the latter frames and how their durability compares to others.
<unk> for the military and industrial use before consumer is everything down to the wells to the coatings.
Youth E coat will use it much more.
<unk> process that gives you a much longer life.
So we'll be able to produce the MPT. One is just half of that and if you look at the top at the front of our vehicle is reusable. So we're using between 65 and 80.
80% of the parts and so we can build one <unk> 190.
Lv lapses.
We'll be we'll be building various units on the same line because it's a multi line key for CIS.
System. So that's one of the reasons why we're debugging it the way we are is because one we may build a bulldog. The next one it may be a 190.
Since we have large volume customers were able to do adequate runs.
On the vehicles, but to answer your question in 2024, which will optimize our cash flow from the highest grade credit customers will be concentrating on the LDS.
With limited Lv.
High volume customers.
My next question.
Are you still getting any.
The supplier.
I mean, I know that the labor strike the UAW labor strike.
So clients that there's a little bit of a backlog are you seeing that or do you anticipate that.
Yeah, I think Richard.
Our problems are probably a little different.
Jamie in the sense that a lot.
All of our problems Theyre kind of legacy negotiations, where they were promising.
Much more accelerated the typical 100 150000 unit orders for pricing.
We've actually taken as Ramesh said, a very different approach.
And work into partnership with these people because we effectively are running a negative days.
On deliveries because we don't build anything unless it is pre sold and it has a good credit rating. So we're able to kind of re cut those deals and that's why I gave a special shout out because I mean, I think not only are the supplier partners happy to find somebody.
It is not trying to ring them out for the next 10 cents, but to actually get rewarded as we do volume. So our pricing continues to get better but that we had.
Our dress, our bom cost at a much more moderate level.
And at a more hybrid of automation and manual versus all.
A fully automated so as those lines come up our margins improve dramatically.
Alright, alright, thanks, that's all the questions I have thanks.
Okay.
Thanks, and just a reminder to ask a question press Star one on your phone press star two to remove your question from the queue.
Our next question comes from Paul Frat with Alliance Global Partners. Please state your question.
Hi, good afternoon.
Good afternoon, Tony Good afternoon, Greg.
Can you just talk about.
Capital raising going forward.
It looks like there won't be any more convert debt issued just because the options expired.
And then you.
Can you just confirm that and then will that.
It would be part of your it won't be part of your funding mix going forward and then will you.
Talk about the timing on the next 105 million potential convertible preferred.
That you know with the same strategic investor.
Yes, so that'll come from some different sources. So we started generating revenue I mean, where rail right and they are very.
Discerning customers that have provided that revenue and that revenue will grow quarter over quarter.
We needed to improve.
Interesting times right as I talked about earlier, so we needed to prove that so our funding mix now will start to come also from deposits.
As well as extended terms and Thats why again I'll come back to our supplier partners.
Have been willing to do with us and I think at the strike enhanced.
The opportunity for them to take a breather and appreciate.
Helping young companies that have.
Tremendous order books that.
That de risks for them.
And.
From a capital perspective.
We'll continue to do.
Whether it's money for me or others.
We will fund the company and adjust in time and milestone based progress because I mean look at it whether we're trading below book value right now.
So.
Pendulum always swings as we all know extremely.
We just want to prove ourselves.
We're long term investors.
Those things will come around so we're feeling good about as we step through 'twenty four.
Just on the visibility of the macro environment, we see.
And we see lots of room for us to improve on everything we're giving guidance to today.
Can you just clarify on the last call.
You were talking about.
The potential for non dilutive capital and the term sheets were coming in.
That might look attractive.
When should we expect some.
Yeah.
Less dilutive financing.
Kurt.
Are there still term sheets out there with a certain amount of capital.
Happen to or.
Just help me understand sort of the other levers that you can pull.
Yes, So I gave you a glimpse into the fact that we're now in an allocation phase and allocation also those connected to deposits right.
So and these are sizable in nature approach with our customers.
In addition to that.
We believe the market is starting to realize our strategy that we announced a long time ago as I mentioned.
And that will.
That will obviously help.
Always tell the team in terrible markets that are trading below par.
Not about its not just about price of your shares its about the volume and liquidity of it.
And we have great liquidity.
And we have a strong base that that is growing more towards the long term side that we see access to that capital. In addition to that there are other sources of capital that we are working with that are much lower cost of capital for the various programs that are associated to.
And as you win more and more of the big contracts you get advanced payments associated to those contracts.
In addition to that there's the ability to put in.
Long term capital pipes.
That arent interested in selling.
And.
Other capital areas.
We have incentives now starting to flow.
Into we'll get our first set of incentives in the first of the year.
And when you've got great <unk>.
From Great aid credit and Triple B credit our spread.
Very bankable to get advances on however, we want to focus on this phase before we pay cost to capital.
That we use the strength of the balance sheet.
Of our customers and get them units. So they can make money with our unit.
That makes if all that that's a whole various ways, we would get the capital, but I think when the market is trading like this you have to raise small amounts in frequency.
And it also creates a behavior inside the company, where they become less wasteful neon companies. It's not a question of how much capital you have on the balance sheet.
The Big question I ask as an investor is what is the efficiency of the dollar invested on the balance sheet and I can tell you I've been doing it a long time in the early phases as we're all now seeing big amounts on the balance sheet often are connected to based on rates.
Great and can you just sort of if you do the math it looks like you know fourth quarter Capex is coming in between 30 and $40 million you know.
Or I'm sorry.
18, and you know roughly $18 million to $28 million for the rest of the year.
Can you take a stab at that one.
One I think bid ask chip that's enough to get you that should the 20000 unit production capacity.
Is that and then secondly, how much more capital is going to be required to get you to the 20th.
The 40000.
Unit production capacity there.
You did it sounds like you're targeting for the end of 2024.
Yeah. So.
From a capital perspective.
We'll invest about another 200 million.
That does not take effect for some of that.
30, and less on the dollar some of this stuff were buying that some frontloaded capex before they add customers.
So we're in a good phase plus we we really coordinated.
And again.
Happy to have the visit.
And show you the creativity of the way, we're using different painting techniques I come out of the background of that as other companies.
Here's bag.
We understand that market, we don't use eco so our ability to exit at 440000 unit run rate, which obviously, we could we could accelerate if we put more capital at this point in time, we don't see a need for that because we've been able to work with our customers because we want to really prefer.
The process to automation. So obviously, our margins go up and we use the least amount of capital we see 2024 by the fact that we democratize the way the.
The Assembly line goes together, we'll be able to capitalize on a lot of those opportunities.
Some of it has lost some of its timing.
And if you think back to the very beginning when the pivot occurred it occurred for a very specific reason you got to build your business very down market.
They're not always.
And.
That's something we concentrated on I don't think Youll find.
Anyone.
That has been able to democratize it to make money in the 14 to 16000 unit range.
And like I said in a couple of quarters will explain to you why we did that.
Great. Thanks for your time.
Yeah.
Thanks for your question.
Our next question comes from Stephen <unk> with Stifel. Please state your question.
Thanks, just a quick follow up.
When you look at the change in EBITDA guidance for the year internally improvement one of the biggest factors that are driving the delta between where you were and where you are now.
So it's been our team has renegotiated a lot of deals with our suppliers they have been huge contributors.
In addition to that we've seen reduction in our Capex, we've also been able to utilize.
Better labor arbitrage between California, if you will in Oklahoma.
For all those that have businesses I strongly encourage them to look at the state of Oklahoma and amazing workforce and it's and it's got a lot of a lot of upside in it.
It's a living is great. So we're picking it up from like to think of it like when you're ringing out of the tower.
The water all funnels down to the center and but it's coming from all places.
Yeah.
Okay, Great and that was all for me. Thank you.
Thank you and that is our questions at this time I'll hand, the floor back to management for closing remarks.
Again, we'd like to thank everybody, a big shout out to our believers.
And investors.
So.
Courted us with instruments.
Does that continue to work with us.
On our equipment needs.
It's shocking system of introducing a democratized assembly line build out.
And a big shout out to some of our partners that helped us framing material that is much more ecological to the industry for the first time.
For those of you that come and visit us you'll see what that is.
Thank you.
Thank you and that concludes today's call. All parties may disconnect have a good evening.