Q3 2023 Ayro Inc Earnings Call
Ladies and gentlemen, thank you for standing by good morning, and welcome to Arrow incorporated third quarter 2023 financial results and corporate update conference call.
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Now I'd like to turn the call over to Joey to Lucy of core IR, The company's Investor Relations firm. Please go ahead Sir.
Thank you Jason.
And thank you for participating in today's conference call. Joining me from Arrow's leadership team, our Com wouldn't slugger, Chief Executive Officer, and David <unk>, Chief Financial Officer.
During this call management will be making forward looking statements, including statements that address any real its expectations for future performance or operational results.
Forward looking statements involve risks and other factors that may cause actual results to differ materially from these statements.
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Subsequent periodic reports filed with the SEC in Arrow's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes adjusted EBITDA, a non-GAAP financial measure that Arab league can be useful in evaluating its performance.
You should not consider this additional information in isolation or as a substitute for results prepared.
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Please see the reconciliation table located in <unk> earnings press release, which is available on its website at www Dot <unk> dot com under the investors tab.
The content of this call contains time sensitive information that is accurate only as of today November 21 2023.
Except as required by law erode disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call.
It's now my pleasure to turn the call over to CEO, Tom Wiggans Lager.
Okay, Thanks, Joey and good morning.
To everyone on the call.
The third quarter its milestones have marked the beginning of manufacturing sales that'd be initial arrow vanish units.
At the time of our last earnings call in August.
We're waiting on final testing and homologate results well I'm happy to say that we successfully completed all elements of testing involving product safety and emissions.
Since then.
All requisite certifications that allowed us to transition into low rate initial production or L. Rip the arrow advantage with.
With full confidence in the third quarter.
We've already placed the first handful of units from our potential customers distributors outfitters.
Sexual strategic partners and we'll continue to do so for the remainder of 2023 with additional units produced in the algorithm.
Purpose of the strategic place, which is to leverage the initial vantage vantage units produced with potential customers that have what we deem to be the highest potential for purchased orders in early 2024 can be are we.
We firmly believe that the best way to see and appreciate the advantages of advantage over competing low speed electric vehicles.
Access to water them organic units.
To immerse it and are working environment for a sufficient length of time.
We believe the vantage drives that handles that a man in a manner unlike competing vehicles.
With technological and ergonomic advantages.
That has unparalleled payload flexibility in the class.
Prospective partners customers and regional business executives that participated in our test stripe event held here in October at our round rock headquarters, we're able to get a sense of the vanish this unique advantages.
And our team is following up.
And those interactions.
It is important to realize that Spanish units being produced yet al right, Paul under what's called prototype pricing.
This means that select machinery and equipment currently being used to produce a batch components are different.
And what will be its once we enter full scale production.
Generally speaking tooling and methods to Houston prototype production are less expensive notes Houston co production. That's the purpose is not necessarily to produce units in a cost effective manner. It is to produce a minimal quantity of the finished units with minimal upfront equipment or tooling costs.
This also means that the components being used at our El grip space generally cost more than what's expected for pulp production. This.
This two stage approach to manufacturing is quite typical in automotive in the automotive industry.
Order to defer the cost to tool up dies, and molds and so forth and preparation.
For full production.
In our case the transition from prototype equipment components of cost structures to full production equipment components cost structure is expected to happen near the end of 2023 and into the first quarter of 2020 for.
This means that the underlying cost of goods sold for each banner and it should decline substantially from.
From the current prototype cost structure to a more appropriate more profitable cross structure as.
As production ramps gain.
Gains from the use of production tooling, along with volume leverage and manufacturing learning curve improvements should allow us to purdue produce more profitable vehicles in each subsequent quarter as we progress.
With production.
This general roadmap and assuming no major disruptions in our supply chain. We believe we can reach breakeven during the second half of 2024.
In addition to completing Homologation entering L. Rip. We also reached another major corporate milestone in the third quarter with the recognition of first revenue from the Aero package cruising kitchen, it's one of our food and hospitality up carriers officially took delivery of a few of the very first Spanish units towards the end of the third quarter.
<unk>.
As I've discussed for quite some time, the ability to install hot or cold boxes as a payload option.
Opens up a very large market in the hospitality industry.
We believe we will receive more orders targeted for the hospitality industry to go along with the orders targeting the campus arena and last mile environments.
Whether it be with our standard flatbed configuration that is the base option of advantage of traditional encapsulated pickups bed or a powered or unempowered box configuration.
<unk> seen in the hospitality industry, the vantage addresses a very very wide range of applications.
Across many industries.
In addition to offering traditional purchase options for the vantage units. We're also receiving inquiries about lease options.
Notably these inquiries are coming from corporations. They may want a fleet advantage units on their campuses for a myriad of uses.
Thus, we're trying to accommodate such potential customers with acceptable lease structures for all parties.
Aero flexibility doesn't just apply to our payload ability as we are more than happy to help corporate clients find ways to buy a fleet advantage units.
We expect to have more to say about corporate interest down the road.
On the intellectual property front, we continue to be awarded design and utility patents, including four that were awarded in the last 90 days.
Our team's innovation and creative foresight continues to be exemplified through these patent awards and we believe our growing IP portfolio will ultimately create a sustainable advantage over our peers in the <unk> space as well as adding enterprise values the arrows CT business.
With respect to our product roadmap, we expect to resume the development of our next vehicle offering the people mover, we called the valet and the sleep personal transport vehicle or golf cart, if you want to call it called the vapor in 2024.
Turning to the financial results for the third quarter of 2020 core as I mentioned previously we recognized our first revenue from our new common core chassis platform.
And the vantage. Furthermore.
All revenue moving forward will be from the vantage, it's modular payloads and any subsequent vehicles to China based on that new platform is the company's club car current inventory has been depleted.
The cash burn in the third quarter was consistent with the prior couple of quarters and given the financing in August our cash balance at the end of the third quarter was $47 $9 million, we consider the current cash balance to be more than sufficient for us to reach.
Breakeven, which is anticipated in the second half of 2024.
This concludes my opening remarks, now I'd like to turn the call over to Dave Hollinsworth, who will review our financial results in more detail.
Thank you and good morning, everyone.
Here's a summary of our third quarter 2023 financial results.
Revenue for the quarter ended September 32023 was 88 $395 a decrease of 76% year over years sales recorded in the third quarter of 2023 represents the initial sale of the complete advantage units. The total operating expense for the third quarter of 2023 were.
<unk> $6 2 million as compared to approximately $5 8 million in the third quarter of 2020 to.
The year over year increase in total operating expense was due primarily to our transition from a largely engineering effort in 2022 full time manufacturing here in 2023 as well as expenses related to the August private placement.
Adjusted EBITDA, a non-GAAP measure for the third quarter of 2023 was a loss of approximately $5 2 million versus a loss of approximately $4 8 million in the third quarter of 2022.
Net loss attributable to common stockholders for the quarter ending September 32023, with approximately $14 million $14 2 million, including approximately $8 5 million in noncash expense related to our August private placement versus a net loss of approximately five.
7 million in the year ago quarter.
Cash and cash equivalents marketable securities and restricted cash as of September 30 of 2023 was approximately $47 9 million versus $48 9 million at the end of 2022.
Total debt was zero as of September 32023, as it was at December 31 2022.
As of September.
32023, the company had $4 million 890137 common shares outstanding.
That concludes my prepared remarks, I'd like to turn the call back over to Tom for any remaining comments.
Hey, Thank you Dave.
We look forward to completing L rip and beginning the transition to full production, which we expect to occur by the end of.
2023.
We further expect to begin announcing first orders into a plurality of application verticals within the next four weeks.
Now I'd like to turn the call over to the operator, so that we can begin the question and answer session operator.
Thank you.
Ladies and gentlemen, if you wish to ask a question on today's call you will need to press Star then the number one on your telephone.
Your question has been answered and you wish to withdraw your request you may do so by pressing star two.
If youre using a speakerphone please pick up your handset before entering your request and speaking on the call. One moment. Please for the first question.
The first question comes from Brian Lantz here from Zacks small cap research. Please go ahead.
Hey, good morning, guys.
Tom I was wondering if you could just provide a little bit more color around the test drive events were there any particular concentrations of customers verticals that were represented and any.
Particular interests that are where we're the vanish sort of stood out to those customers.
Oh, Hey, good morning, Brian.
And yeah, our test or a test drive it that everyone. We do it's always very very interesting because.
Customers come to understand that there is a.
Just a massive difference in.
And product quality component quality.
Vehicle performance vehicle payload all of those things. So the people who are here at our last test drive event, which was.
Several weeks back.
We're largely.
Largely fell into the distributor category.
Fell into the large corporate category, who want to have vehicles for their corporate campuses replacement vehicles for their corporate campuses.
And.
And then just.
You know.
Are folks who had general interest to see sort of the directionality of well what we're doing from a from a technical from a product point of view in terms of a large corporate folks.
Most of their interest we're having a vehicle that was.
You know it could it could handle real payloads.
Obviously, they really like the fact that yet.
It performs well it drives well it drives to all empty it drives well loaded.
It has good acceleration excellent braking.
All of those kind of things and for new corporate campuses those kind of things are life. The other nice thing for new corporate campuses, obviously, they like the way the vehicle presents itself the styling and the panache. The vehicle has which is very different.
Our converted golf cart.
So we saw interest in all of those dimensions, Brian and.
Interestingly enough. We're also you know.
We expect to see.
Our first orders from a bunch of those.
Large corporate entities.
Before the year is out at least that that is the interest they are.
Express to us during the ride and drive event.
Okay great.
And could you flush out a little bit more I I understand the.
The putting the product into distributors' hands I think that's a good strategy going forward.
Talk a little bit more about sales and marketing as we go into 2024 and what the plan looks like.
Sure.
We've said before that we kind of have a four pronged approach to the marketplace. So first of all we have one of our four.
Channels to market.
As dealers.
Our dealers, who have a need for a utility.
C P.
That can carry real payload and that has real quality. So they're not rolling the fleet every two or three years.
The dealer channel is.
One of four important channels. The next one is the upgrade or cattle.
So that's folks who take or pay car platform and.
And turn it into a food truck.
Turning it into a tool truck.
Turning it into a campus truck turn it into an inside distribution trucks. So.
These are folks who do conversions on a common platform and again, what they seek is they.
They speak electrification for the for the purpose of having a vehicle that did he mix nothing for purposes of having a vehicle that it's very very Turkey, Turkey is important for heavy heavy loads.
And of course, having a vehicle that's quiet.
So that's probably number two.
Prong number three.
The direct to consumer.
Channel so that represents.
Sales on our website.
Direct to consumer shipments from a dealer location in our case that would be from the state of Florida because of the state of Florida allows direct sales.
To consumers.
And.
And.
That's channel III channel four is something that you would call it the governmental large fleet.
Usage.
And and that's where again because these vehicles are very quiet and very powerful and strong.
They're kind of ideal.
In a great. Many government applications, whether we talk about military pesos or we talk about airports.
Or or we talk about overseas installations or domestic installation.
So those are are those are our forecasts. So we have a very very high quality channel partners and all of them.
And in.
The question you asked about it because we don't want to build too many.
Units on L rep, because we'd like to get our production process dialed in so we can go to production tools and bring the cost of goods on each vehicle down debt to boost profitability.
We want to take those first L rip units, which are more expensive than production.
And place them in a way.
That gives us the most leverage going into 2024 for production sales.
We ramped at full production I hope that makes sense to you Brian.
It does thank you very much I guess and this is sort of the nature of the business.
Just.
Right now with the vanish.
But unfortunately I have to ask.
What is the roadmap still the valet then the vapor or have you any thoughts on that and what does the timeline look for when we will first see one of those products in 2024.
So the roadmap is exactly that ordered the valet. So it's the people move her version of the vanish.
And then the valley will be later in 2024, which is excuse me. The vapor will be later in 2024, which is of course are you could consider our personal transport vehicle or P. T D.
You can even call it our high quality golf cart, although it most securely is not a golf cart.
So so long story short.
The valley will be next for the simple reason that the.
Sally is nothing more than a frame modification to the vantage. So we take the vanish. We insert what you would think of as the U S. A you frame section you could call it Brian Footwell section.
And on both sides of that Footwall section, we Mount States.
So it's a very very modest adaptation of the vantage, which which makes it easy.
It makes it relatively easy and relatively low cost.
Due to launch as our next platform. Its also interesting to note that we've seen tremendous interest in <unk>.
Bring a premium people mover.
From people that run premium properties people that shuttled VIP surround.
People have corporate campuses with corporate executives so.
The valet.
Next in the Valley will debut at the PGA show the third week.
Of January in Orlando.
So you will see you there not only the vantage, but you will see the valley there in a flash.
And.
And of course, we will show designed imagery of what the vapor will be later in the year.
Okay, great and if I could just follow up with one question for Dave.
The.
Conversion price on the preferred shares and the warrants is that $2 now.
It is.
It was a ratchet down to $2.
Alright, and you know when we talk about gross margin breakeven per unit in 2024.
Just a ballpark estimation of what that means in terms of capacity utilization would would that be when you're at 70%.
Capacity in the plan or is it at 35% I'm just trying to get an understanding of what level of sales we should be looking at before we see that breakeven.
Realization.
We're forecasting about four vehicles per day right now.
The capacity of what we believe to be nine vehicles.
With a fully staffed fully running production line so.
I think that's close to the answer I can get you right.
Right now of course, it will take some time to ramp up to that.
But that's what we're expecting in 2024.
Okay, Great Bryan.
Factory capacity approximately.
Great. Thanks.
The next question comes from David Party private Investor. Please go ahead.
Hi, Thanks for taking my call.
Good morning, guys.
Good morning, I had another question regarding that breakeven.
The calculation.
So you're saying four oriented today is that.
Is that based on limitations as far as your production or what you're seeing as far as demand in the marketplace.
Well it's.
So the demand we see in the marketplaces.
Substantially larger than that.
When you go from L ramping to full production that the the thing that you have to master every time, it's different every time you do it.
It is ramping the supply chain to have all of those parts arriving is near.
Simultaneously as possible and so when you are ramping our supply chain and while you're getting smarter and smarter and more.
More used to from a learning curve perspective.
The building process of these units.
You you ease into it.
Wei.
You don't end up with S. Four did a while back you don't end up with.
A ton of inventory sitting on your lot waiting for one one.
One piece.
Right.
So ramping up to that is really mastering.
Spring some synchronicity in the supply chain, which.
Just takes some.
Very very takes an amazing amount of attention to detail.
And is the reason that you'd like to ramp.
You'd like to ramp in a controlled fashion, rather than just jumping to a higher level.
Okay. So you <unk>.
<unk> got even greater demand that you are just being careful and.
Making sure that all the parts are available and you have all the processes.
While that dialed in.
So you can you can continue to ramp up.
It sounds good.
Well, the valet and vapor.
I have to go through the same homologation process.
Or do they kind of piggy back.
Because of the same platform.
What's already been done.
Well My my guess is that clearly the valley will be piggyback situation.
It is it is literally.
From a parts perspective, the parts on the ballet are identical to the parts on the vanish.
Literally.
The only modification to the valet is the insertion of a frame section and the shortening of somebody worked.
Got it.
So.
I believe that that will clearly be a piggyback.
On the paper.
We just have to see.
Again, the vapor will also be absolutely identical parts. So the same motors the same controller family at the same time same day same everything.
But.
Because I'm not certain what the answer to that is I'm simply going to say, we're going to find out.
So the vapor.
But for the valley, where.
I would expect I would expect it to be able to piggyback.
Okay.
And can I ask another question.
Sure I got it.
So there's a breakeven you're just talking about the vanish not not these other units in that.
Is that correct.
Yep.
Right.
So when when should we see substantial.
Income or revenue from the vanish and it sounds like maybe second quarter.
Well currently we don't give out any projections on revenue, but we do expect a consistent ramp throughout.
2024.
We build up our manufacturing abilities.
Dial in that supply chain My Tom was talking about.
Won't be completely linear, but we do expect to see that ramp continue through the end of 2024.
Okay alright. Thank you so much thank.
Thank you David you bet David.
Yeah.
Again, if you have a question. Please press Star then one.
Okay.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Tom Wittman Slugger for any closing remarks.
Well I would I would like to thank all of you for participating on today's call and for your interest in Arrow.
We look forward to sharing our progress on our next quarterly conference call. When we report for year end 2023 financial results likely in March of 2024.
Thanks to all.
Have a great day.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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