Q4 2023 Canoo Inc Earnings Call
Hello, and welcome to the <unk> fourth quarter and full year 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Question and answer session will follow the formal presentation.
He replaces the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to turn the call over to John Walsh head of Investor Relations. Please go ahead John.
John Walsh: Thank you Kevin and thank you everyone for joining us on our Q4 and full year 2023 earnings call. During the call Tony will update you on our business and strategy Guthridge will provide an update on our financing activities International go over the Q4 and full year 'twenty three financial results and also provide some perspective.
John Walsh: Our outlook for 2024.
John Walsh: Please be advised that we may be making forward looking statements based on current expectations. These are subject to significant risks and uncertainties and our actual results may differ materially for a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release and on our most.
John Walsh: Recent Form 10-Q, and 10-K and other reports that we may file with the SEC, including form eight Ks.
John Walsh: All of our statements are made as of today and are based on information currently available to us.
John Walsh: Stepped as required by law, we assume no obligation to update any such statements. 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.
John Walsh: With that I'll hand, it over to Tony.
Tony: Thanks, John.
Tony: Thanks, everyone for joining us today.
Tony: You've all seen the recent news from us and others, which has highlighted the big opportunities in the big problems. The perils hurrying to market before being ready we've heard for three plus years that asset light and racing to high volume, what's the path to success and profitability.
Tony: When in fact, it is quite the opposite and it's dangerous and expensive to hurry up to slow down even those with endless amounts of capital like Boeing have learned the hard way.
Tony: And it has impacted tens of billions of shareholder value.
Tony: We have always been realistic about our business shared what we knew when we knew it and made tough decisions and took you through it.
Tony: It's our job to tell our shareholders what is competitive what works and doesn't and what gives US an advantage as we've learned from our customers.
Tony: We do things differently from others, because it's the right thing to do for us and based on my experience and our team's experience.
Tony: With building successful businesses across different industries. This has not been an easy task.
Tony: Early on we decided to invest in.
Tony: Highly profitable large market.
Tony: And that was a pivot for us.
Tony: But it had over one trillion dollar Tam with high volume multi year delivery contracts with opportunities to expand and democratize our technology.
Tony: We needed to control, our IP and software.
Tony: So we brought it in house, we created a scalable global platform that addresses all service maintenance repair activities, including some customer workflows.
Tony: Built in economically resisting customer base.
Tony: We didn't go after consumers we went after customers with large orders high grade bankable credit discerning fleet industrial and government.
Tony: Government customers that could help us refine our product under stress and fatigue.
Tony: We developed a step level manufacturing process.
Tony: We talked to you about 20000 increment unit increments to be capital efficient. So that we can scale, our capex with our pre sold vehicle demand.
Tony: Then we moved to validate the product functionality.
Tony: Mix and multiyear delivery schedules with our customers. This process takes time to integrate to our customers' delivery roadmaps, which extends beyond the vehicle itself.
Tony: We have seen a very difficult market, we have adapted our disciplined capital deployment approach by raising only the amount of capital we need for each milestone and we will continue to do so.
Tony: Yeah.
Tony: As market conditions continue to evolve as you can see on the slide that we put in front of you. We remain in a position to take advantage of these dislocations to reduce capex and scale our operations.
Tony: 20 cents on the dollar to purchase new or near New assets. This was unthinkable just 12 months ago by many analysts and investors who were worried that securing these items would have long lead times, we didn't disagree with you we just focused on being the second.
Tony: New owner adult quit.
Tony: This resulted in a 35% to date.
Tony: Or 48 million dollar reduction in capital spending compared to our initial 2023 capex guidance.
Tony: Yeah.
Tony: So the $140 million, which is directly attributable to.
Tony: Unrealized shareholder value, we believe that our disciplined approach and in light of recent dislocations makes our stock an attractive investment opportunity and a very important unstoppable sector.
Tony: Achieving the foreign trade zone designation took a lot of work.
Tony: By many people on the team.
Tony: For our Oklahoma, our Oklahoma City facility.
It is an important building block in our strategy and the value of this will become more apparent to you in the coming quarters, but let me give you a few highlights it will generate additional working capital benefits, including moving these newly acquired assets into our facility.
[noise] enhances our geographic expansion opportunities, while reducing our cost of delivering our made in America vehicles at globally competitive prices.
Tony: Up to $70 million in permanent working capital reduction.
Tony: Incremental opportunities by vertically integrating more critical components with our key suppliers.
Tony: Recently, we announced the U S. P. S purchase of our right hand drive L. D. D 190 vehicles. The U S. P. S being one of the largest fleets is driving the transition to electrification tire powered by one of the largest veteran workforce.
Tony: As in the country.
We are proud to be working with them to provide our right hand drive steer by wire technology.
Tony: Look out for the first vehicle vehicles delivering your mail starting this may.
Tony: We will showcase our right hand drive vehicles at several U K commercial vehicle fleet events in the coming weeks.
Tony: Yeah.
Tony: Over the past year.
Tony: We have made significant progress in our business, we've completed our product advanced our manufacturing scale and delivered vehicles to customers 22 vehicles completed in 2023 of which 17.
Tony: Were completed in Q4.
Tony: Three delivered to NASA.
Tony: At the midyear and nine delivered to customers in Q4 10 has been allocated for demo and sale to international customers are.
Tony: Our Okc Assembly plant.
Tony: In less than one year is on schedule to achieve our targeted step level manufacturing of 20 K run rate readiness.
Tony: On this slide you'll see that there is a couple of important things isn't that we'll talk about in a minute, which is our strategy about how to roll out our product without high cost of service centers.
Tony: In addition to that fine tuning it to our customer base by having concentrated customers you don't charging network issues.
Tony: In addition to that the way we've done it we can have fast action teams available within four to eight hours for our customers' needs.
Tony: These are very important building blocks and building a sustainable business.
Tony: We will now shift our focus to harmonizing and optimizing our supply chain to support step level manufacturing.
Tony: What has been lost on many is that you have to have four key elements in place before you scale.
Tony: You gotta be disciplined not to hurry up to go slow.
Tony: You must have your product your platform and your economics right.
Our highly trained workforce that can produce the same quality as you move up some low volume to step level manufacturing run rates.
Tony: Our support organization that is harmonized and not optimized across the supply chain.
Tony: And that aligns with your quality and step level manufacturing and tracking process and to support workforce that is focused on the quality of the product delivery safety continuous training customer journey and after sales these cannot be after thoughts they come across.
None: Quickly and I know this because I come out of after sales.
None: I'd like to talk to you a little bit about this slide many people have asked us why.
None: Had we picked.
None: 3000 ish.
None: <unk> units to be in your first year, because you can as you study how.
None: The successful new entrants have done it going all the way back to Henry himself.
None: You can see that there is the step level functions are in manufacturing and that's because of the confluences that you have to bring together all of the relevant elements otherwise you breakout your weakest point in your production stops and your cost Skyrockets, we've been very focused on that and while it may seem that.
None: Very unpopular at the time, the 20000 unit run rate.
None: It is in recent history, a great example of how you step through manufacturing 3020 thousand as you can see on the slide.
None: We remain steadfast in our belief and have prepared a few slides to help you further understand and appreciate our production strategy.
None: We encourage you to look at it and ask questions when we get to the Q&A.
None: So that we can drill down a bit deeper into the what.
None: We are very cautious to make sure we do not get in the situation of others.
None: Next slide is it is a very telling slide as well.
In that you know a lot of the everybody thought.
None: That if you can produce more volume you're economics get better.
None: And that's really actually not the case it actually starts with your embedded logic in your run rate.
None: And the Capex, if you're to Capex heavy as you can see in this example, you're way ahead of your ability to produce you will ultimately slow down based on your weakest link and that will cause your costs to skyrocket as we can see here, but if you study the successful examples like Tesla and while it was chaos.
None: Arctic and difficult, thereby their phase was purely positive violence as you can see as they moved from 3000 units and stepped up to a 20000 unit run rate they had their economics right.
None: We're harmonizing their supply chain, which as they went through and as Elon has said manufacturing Hell.
None: We understand it it's hot down here.
None: But one thing we didn't do because we didn't we didn't deceive you with a big factory with 150000 unit annual capacity. We just didn't go to the luxury markets. We stayed lean we focused on areas where customer basis would be solid.
None: And where the economics would work and that you could work through all of the four key elements and grow your business and grow into a profitable one.
None: And learn how to scale it in those increments.
This slide is a slide we wish we could have showed you a year ago, but I don't think you would have believed us because everybody was focused on more volume as you can see it doesn't help.
None: You've got to first get it right.
None: Now that you have a better understanding of our strategy.
None: The first three quarters of this year will be about the things I mentioned above including and very focused on harmonizing the supply chain and fine tuning our product mix to our customers' workflows.
None: We're collecting data from our vehicles constantly in collaboration with our customers.
None: With over 20000 customer miles driven over the last few quarters.
Same day fast action teams across any point of our disciplined roll out Matt.
None: Across the seven states as we disclosed earlier.
None: We have had very few deployments we've.
None: We've had many opportunities to do upgrades over the air and test our system and that has prevailed well.
None: I'm going to now turn it over to Greg for some financial metrics.
Thanks, Tony.
Greg: Our team is focused everyday on executing what Tony has talked about it as materials and supporting him build the right Foundation for successful company.
Greg: I'm also focused on telling this story to the market we've been very quiet for a lot of reasons and the repositioning the rebounding of the company, but I'm perfectly positioned to tell the evolution of the story since 2020.
We needed the smoke to clear first and now that's happened the amount of hard work. That's gone into this refounding has not been properly explained we are in IP sensitive company. So we tend to under <unk>, particularly when we're in the process of the transitions, but now we're out and it's my job to make sure the market in <unk>.
Greg: Our investors understand the progress and understand Tony's vision.
Greg: We have been very active since the last earnings call and we've just scratched the surface, but let's be very clear we will only raise the capital that we need we have and will continue to raise capital based on milestones and progress.
Greg: There have been many mistakes made in our industry, but one of them is also raising too much capital you can only effectively deployed so much capital at one time.
Greg: Just to recap the financing activities in 2023, we were successful raising $285 million of equity or equity linked capital and of that 80 million was raised in Q4, including the 45 million that was funded from an international strategic partner all of this capital was very very well put to use.
Greg: And we will continue to make progress towards asking us accessing additional forms of debt and other non dilutive forms of capital as we move into 2024.
Greg: Some of you may be wondering about the D O E and other non dilutive forms of capital and as we recently announced we received our first funding from the state of Oklahoma and we very much appreciate the state's support but.
Greg: But we also expect to see progress on the federal side, we continue to monitor and apply for many forms of government support focused on our industry. The Doa programs have appropriately been focused on critical materials and battery technology, but we believe the next phase well will be for manufacturing and we think we are a very good candidates.
Greg: A quick reminder, some of the statistics the D O a T M. A T V. M has been funded with about $40 billion.
Greg: $19 billion has been conditionally approved across 11 different companies almost 95% of that has been focused on battery technology of materials, but only $2 5 billion was actually funded so we have not missed this opportunity it just hasnt come to us yet.
Greg: And we're very excited to continue to to follow the roadmap to be able to access that funding.
None: Now I'm going to pass this over to <unk> to cover the financials and our guidance. Thank you correct.
None: Now, let me walk you through the results for the fourth quarter and for the fiscal year 2023.
None: This was a year of calibration, we are very proud of our financial discipline. This past year, which was driven by our operational focus to achieve our desired milestones here.
None: Key accomplishments include a 53% reduction in our research and development expenses year over year.
None: 30% savings from workforce transition from California to Oklahoma as well as from engineering to other key areas of neat.
None: And a 50% reduction in legal expenses, primarily resulting from the SEC resolution and 60 plus introduction from other professional services.
None:
None: After having achieved our lowest quarterly operating expenses in Q3 of 2023 since we've been a public company. We have turned the corner and began a gradual and cautious phased stopped manufacturing.
None: Our revenues in the fourth quarter and fiscal year, 2023, whereas zero point $4 million and zero point $9 million respectively.
None: Revenues were generated from our deliveries to NASA as well as from a commercial deliveries in Q4 of 2023.
None: Revenues in fiscal year 2023 also include our moms generated from the completion of certain engineering milestones and the delivery of certain battery modules to the department of Defense's Defense innovation unit.
None: We are at the beginning of a phased ramp manufacturing approach in delivering commercial vehicles here.
None: We expect that volumes over the rest of 'twenty 'twenty four at a measured pace to match with the delivery schedules that have been agreed to with our customers.
None: We incurred $1 $5 million and cost of revenue during the three months ended December 31 2023.
None: Revenues, primarily include vehicle components, and parts and labor cost and amortize tooling and capitalized costs involved in producing and assembly of our parts and components.
None: Moving to the income statement.
None: Fourth quarter 2023 results are as follows research and development expenses totaled $31 5 million for the quarter compared to $44 2 million in the prior year period, a 29% reduction from Q4 of 'twenty two.
None: On an annual basis research and development expenses totaled $139 $2 million for 2023 compared to $292 $2 million for 'twenty to 'twenty two.
None: 53% reduction from prior year.
None: SG&A expense was $28 1 million for the quarter compared to $36 4 million in the prior year period, a 23% reduction from Q4 of 22.
None: On an annual basis, SG&A was $113 3 million in 2023 compared to $1 96 billion in 2022% to 42% reduction from prior years.
None: GAAP net loss was negative 29 million for the fourth quarter of 23 compared to a GAAP net loss of negative $80 2 million in the prior year period.
None: GAAP net loss was negative $2 6 billion for 2023 compared to negative $487 7 million in 2022, a reduction of 38% from 2022.
None: Adjusted EBITDA was negative $54 6 million for the quarter compared to negative $65 million in the prior year period adjusted.
None: Adjusted EBITDA was negative $224 7 million for the 20th 93 compared to negative four $8 6 million in 2022 is a reduction of 45% from 2022.
None: Adjusted EPS was negative 0.08, a share for the quarter pretty split compared to adjusted EPS of negative 0.19 per share for the prior year period.
None: Adjusted EPS was negative 1.7, threep per share post split for the quarter and negative $9 73 per share post split for the year.
None: Cash flow summary.
None: Turning to cash flow, we ended the quarter with $6 4 million of cash and cash equivalents after giving effect to the proceeds from our prepaid advances for a total of $50 million, our cash balance would have been $56 4 million.
None: Cash used in operations for the 12 months ended 31 December 2023 was $251 1 million compared to $400 5 million in the prior year period.
None: Capital expenditures were $67 1 million for the 12 months ended December 31, 2023, compared to 97.3 money for the 12 months ended December 31 2022.
None: Net cash provided by financing activities for the 12 months ended December 31, 2023 was $288 5 million compared to net cash provided for the prior year for a total amount of $2 $94 million.
None: Our monthly cash outflow in Q4 of 23 was approximately 35% lower than our average cash flow per month in 2022.
None: We continue to optimize cash as we move into 2024.
Moving to our guidance.
None: Our guidance for 'twenty 'twenty four is as follows.
None: Annual revenues between $50 million to a $100 million.
And a cash outflow of between 45 million to <unk> 5 million per quarter.
None: Our relentless focus and discipline on expense management, including labor arbitrage.
None: And transition of our workforce to Oklahoma amongst other factors allow us to improve our negative adjusted EBITDA guidance.
None: From a capex perspective, a facetime manufacturing approach allows us to fully utilize our low volume two's prior to switching over to high volume tools and base, our asset expansion to align with our production, thereby avoiding a high amortization over initial units produced.
None: These reasons combined with seeking opportunities to acquire distressed assets, which are new.
None: Now allow us to optimize investments and capex for this upcoming year.
None: As we continue to seek opportunities to acquire distressed assets.
None: We'll provide a capex guidance in the future quarters.
None: Turning it back to Tony for closing remarks.
Tony: Thanks very much.
Tony: Yeah.
Tony: As you guys can see it's a marathon not a sprint as some of you have been down this road a few times.
Tony: As well as we have.
Tony: We want to remind everyone that we've been very focused on highly profitable large markets controlling our IP not being dependent on China or others.
Tony: Developing economically resistant customer basis, who are committed to the EV rollout stepped manufacturing approach coordinating.
Tony: Our.
Manufacturing in alignment with our supply chains, and validating price our product with our customers and their workflows.
Tony: And we have to stay disciplined on raising capital, it's not as I've always said about how much capital you have its how effectively you can deploy it and.
Tony: And you can only deploy it in certain increments and in this particular case, we've been very effective at being able to take the market opportunities and reduce the spend that we would otherwise have done.
Tony: We spent hundreds of millions less than others.
And we couldn't have done this without the support of our customers.
Tony: Our supply chain partners and all our associates that have worked hard because this is a very lean phase in the company's life and everybody has to get more than 100%.
Tony: And I can tell you that I'm very proud of this team and what they've done and what they continue to do in the coming quarters, our story will become even more clear.
Tony: And we have an earnings call coming up in May and so we look forward to closing the gap again I want to thank everyone, who believes in us and always know that we've put our own money and we stand in front of you and we will continue to do so we believe in what we're doing and we know it takes time to prove it.
Tony: And that's what we have to do.
That's what we will do.
None: Operator, Kevin. Thanks can you open the lineup for questions certainly will now be conducting a question answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad. We ask you. Please ask one question and one follow up then return to the queue, if you'd like to remove your question from the queue.
None: Please press star two once again, that's far wanted to be placed in the question queue. One moment. Please poll for questions. Our first question today is coming from Craig Irwin from Brooklyn, Kim Your line is now live.
Craig Irwin: Hi, good evening and thanks for taking my questions.
Craig Irwin: So Tony.
Craig Irwin: Investors are probably going to be most excited or really excited about the post office results. After after testing starts later on this year, but a Walmart I think it's had a had some vehicles from you guys over a year now right and they've been using those for deliveries in the Dallas area can.
Craig Irwin: Can you maybe just you know give us a little color on what you guys are learning what the experiences you know how this vehicle and the format of the vehicle is a fit for the.
Craig Irwin: The San Francis Walmart is using them to provide and how this has maybe informing your customer and production strategy.
Yeah.
Craig Irwin: Yeah.
Craig Irwin: Hey, Craig.
None: So it's been a workflow partner with your customers you know, we we don't just sell vehicles.
Craig Irwin: We integrate to workflows and.
Craig Irwin: Walmart has been and.
None: We respect that completely.
None: It's very proprietary about about how they are doing things and how they're addressing their last mile delivery and what they mean configuration and so on but to your to your point. It hasnt been just a year of testing it's been over a year of testing and it's and it's been tested in an extreme weather conditions.
None: And we've learned a tremendous amount and that's really helped us fine tune how their rollout schedule work.
None: As well as others. So we really try to take that step. So we don't get surprised and then they slow down on receiving vehicles and so on and so.
None: We learned a lot from them, but we also learned a lot from the U S Army NASA taught us a lot as well.
None: We tried to go after customers that which I think is the point that you're making is customers that will teach us exactly what we need to do so we have as little of backtracking as possible as we start to rollout schedule and then we can start rolling out in rollout consistently and effectively.
Understood understood then probably the biggest change in story in the last couple of months is your your new strategy of acquiring equipment that other people spend a lot of money to buy.
None: To bring down the necessary capex that canoe.
None: Can you maybe frame out for us the breadth of opportunities that youre looking at them and you know if you could.
None: I don't know give us a little color on what's possible as far as the a potential reduction in capex needs, if you're able to actually acquire some of these things that you're also looking at out there hopefully to acquire over the next months and quarters.
None: Yeah. So Greg we have we this has been a key part of our strategy and you know it was a risk in the beginning when we when we realized contract manufacturing economics don't work and you don't have enough control and you end up with very little unique IP.
None: As you remember, we pivoted and we went into say, we got to do it ourselves and brought it to things in house, we increased our amount of you know I think our patent went from 17 to.
200 close to 250 now.
None: And we and we focused on bullet proofing the platform.
None: And and getting those kinds of items right, but at that time, we knew that the product was fine tuning itself, so locking and getting pouring the foundation down for large volume was not smart.
So we knew we weren't ready we didn't want to risk our investors' capital you know maybe in an investor as well it seemed to me like it's mathematics is living through the old one bubble you know the OE you know that not everybody can make it in these new technology curves and so this time around with a few.
None: More laps around the track we chose to focus on the.
None: Perceived competitors that would likely not make it that actually did make those sleep poorly retract on them with.
None: Study that as we studied the volume the step level volumes in manufacturing and all the pieces you got to get right.
None: And and we continue to do that we see more opportunities out there.
None: Unfortunate that that that D.
None: These things happen to them, but its fortunate for our shareholders because we've had the disciplined away and we also had secondary strategies.
None: In the event that that didn't come to fruition, but fortunately it has.
None: Understood well congratulations on the progress, although and hop back in the queue.
None: Thanks, Craig. Thank you next question is coming from Stephen drink Aro from Stifel. Your line is not a lot.
Hi, Thanks, good afternoon everybody.
Stephen David Gengaro: I guess just sort of following up on that line of questioning and just maybe help me understand a little bit so the way I thought about it was I think 20000.
Units of readiness.
Stephen David Gengaro: In Oklahoma City, and these assets, you're buying are incremental to that capacity.
Stephen David Gengaro: I just want to make sure I understood that before I ask my question that goes along with that.
Stephen David Gengaro: So yeah. So so some of it was you know like if you remember back in you know how Tesla came up online they had some manual in some automated.
Stephen David Gengaro: Processes that were you know call it hybrid automation.
Stephen David Gengaro:
Stephen David Gengaro: And you want some of that because you want to be able to keep an eye on certain things that you you're still trying to lock down to go into mass production.
This is really kind of in in certain areas that we were fixed we have capacity above that 20000, but in other areas. We had it at Emmanuel right.
Stephen David Gengaro: So this helped us kind of close those gaps and now we actually have additional robotics to.
Stephen David Gengaro: To help us as we kind of look at some of the steps that we're gonna be preparing to move towards automation versus having a hybrid a workforce activity like for example today. We are now using AI that where it took 16 and a half man hours to inspect the world on the Fray.
Stephen David Gengaro: Which holds.
Stephen David Gengaro: The M P P one which holds.
Stephen David Gengaro: The modular battery packs and as you know these things have haunted. Many manufacturers are we now using AI have increased our sigma and that operation can be performed in in less than an hour with a higher accuracy rate. So you know there there's.
Stephen David Gengaro: We're really focused on if you will this is starts to get to our our bom costs and our economics getting back right. You go too fast you have to lay down things that are fixed and then it becomes tough to to move around them. So the things we kept manual where things that we knew that there were technology advance.
Stephen David Gengaro: <unk> for purchase advantages that we could do it if we could we're successful at purchasing that equipment from others.
Hopefully that makes sense that gives you a more detailed response, but that was what the way our strategy was put together.
Oh good.
None: That does help I mean, you're basically creating more efficiency around the 20000 units not necessarily cause I was just sort of thinking about in terms of why not get 20000 was funny before you start spending more money, but you clearly you clearly made me understand how it increases the efficiency of the of the units being built so that was very helpful.
None: Yeah, you you can't imagine how much you actually.
None: Caught that would otherwise be fixed cost if you look at that slide that we gave an example of the other companies. It is very tough to make it up on volume when you get the foundation wrong and that's why we minimize the number of parts increase the amount of technology in our own IP. So yeah. You you you're right. This is Don.
None: <unk> way to do it to get to the right economics and to be able to deliver a high quality product.
None: Great. Thank you and then the other question just kind of centered around around some of the guidance parameters, but what when when we think about that cash outflow per quarter number that you provided and sort of a funding gap to sort of to meet those needs I mean.
How should we think about that I mean, clearly you're going to need more capital as the year evolves.
None: How should we think about the.
None: Types of capital the U S.
None: And sort of the timing on kind of when your grandma when youre going to try to pull the trigger on these financings.
None: Yeah. So look I think you know the market has been more difficult for sure then we had.
None: Hadn't had hoped for but our strategy will have the ability to ratchet. It down if you think about a lot of people punished us because we didn't put a lot of cash on the balance sheet.
None: Good stewards of People's money, and and you know as you can see some of these companies that went out with high high volume facilities, they're burning cash and they're going to burn cash and theres still going to be refining their product because it takes maturation and customer feedback.
None: So I think you know from.
None: From our perspective, we have we've reduced ourselves down by I think 50% already.
None: To kind of align to the areas, but we're very focused on the workforce being aligned to the customer base. The sequence of the customer base, how do we expand where to expand where to automate we're not and the good news is we're picking up savings as we start to migrate to manufacturing in Oklahoma, because the cost of living is so significantly.
None: Less there than in California. For example, we're able to pick up a very positive arbitrage. So you know we got we got some good tailwind, but but most of all you know in young companies. The more capital you have likely the more you'll wait the bigger the facility you build and if you don't figure out how it.
None: Your line Capex to grow U.
None: You you will burn your shareholders' money it will take you a while to get it right. It will take you a while to get it right no matter, what because we're only as strong as our weakest link in the supply chain. We continue to work on that that's a big big focus for the next few quarters as we start to ramp ourselves up but one thing I wanted to.
None: Let you guys know that 3000 unit threshold goes back in history.
None: Get the to the entrepreneurs that figured out how to bring it all together whether it be in Henry's time.
None: Now Ilan timed. These people are an inspiration to us and we studied what they did the pain. They felt through the journey as as I said earlier, either ilan called at manufacturing health and what we've tried to do is learn from them see what they did see how they did the staff level manufacturing and at the same time pay attention to those.
That had endless amounts of capital like Boeing you can't push the quality curve you can't move things faster than your workforce conferred formed the duties you could have good quality at this level to poor quality yet another level, we saw a Japanese manufacturer when they globally expand do that we've done a lot of studying so that we.
None: Can be really at the end of the day, we will be a company that can produce margin at low volume and that gives us the ability to geographically replicate our model as well.
Great No. That's that's great color I'll get back in queue. Thank you.
None: You bet.
None: Thank you next question is coming from Dan Ives from Wedbush Securities. Your line is now live.
Dan Ives: Yeah. Thanks.
When you give that revenue guidance.
Dan Ives: Pretty big range in the 50 to 100 million can you just talk about the high end and the low end and towards just the variable for the year.
Dan Ives: Year.
Yeah. So so.
Dan Ives:
Dan Ives: The the reason why does the thing is variable. This why because you got to harmonize your supply chain you got to bring up your workforce you you've got a lot of things. We don't wanted to see anyway right. We the reality of it is the goalposts are wide right now because they have to be.
Dan Ives: Now granted we could push if we had if we chose to deploy more capital we could accelerate it but our error rate would go up and our cost per unit would go up with it because you lose the advantage in your supply chain discipline.
And you have to harmonize it that's why we studied the step level manufacturing function.
Dan Ives: Who were successful as well as those who are burning massive amounts of cash per unit and will continue into the tens of thousands of units produced that's not what we planned to do we plan to build up.
Dan Ives: Business that has high margin has extensibility into our customers' workflow and can grow in 20000 unit increments that are pre sold.
Dan Ives: And with customers that have given us multi year orders. They actually are very much aligned with us they don't want a product that has problems.
Dan Ives: That's why we tested it for multiple years with these customers that's why we do it for.
Dan Ives: For the last 20 plus months the U S. Army has been beating on it that feedback is unbelievably valuable to us and it's proven testing, it's not theoretical or just standards testing.
Dan Ives: Great.
Dan Ives: And then just.
On the capital side.
Dan Ives: From a timing perspective, because your point is you're not you're going to need not just sneak in one stop right. I mean, that's for the the point here is that like I could really fun in the operation.
Dan Ives: Yeah, I mean look right now we gotta get we got to get all our suppliers harmonized and we got to get our workforce completely trained so we'll continue our our you know our schedule of of building aligned with our customers and they are in support of us doing it the way we're doing it they they've been on the <unk>.
Other end of the curve when it doesn't work and they don't want to be on that and that's that's the power of having a large fleet customers. They actually understand this and and so you know, we'll we'll build will study will deploy.
And and we will sprinkle or our technologies into a few international markets that can help capitalize us but that we have the ability to control our burn rate down as low as 15 million of months are up to probably 35 million a month, but after that you just don't.
Dan Ives: Have the efficiency at this space, so we're not going to deploy capital in a wildly even as we arrange for capital to be available to us.
Dan Ives: In its various forms so you know it's it's it's the right thing to do.
None: Got it thanks.
None: Thank you next question is coming from Donovan Schafer from Northland Capital markets. Your line is now live.
Donovan Schafer: Hey, guys. Thanks for taking the questions. So I first wanted to ask about so the user experience in the vehicle.
Donovan Schafer: When we were talking about NASA and the post office, they're both very high profile.
Donovan Schafer: In the case of NASA, you wouldn't you wouldn't enter.
Donovan Schafer: It's got to be a larger volume or that that would lead to a large volume, but from a user experience and the use case standpoint.
Donovan Schafer: It allows you to sort of highlight certain things like you know the U S.
Donovan Schafer: The ingress and egress from the back where you've got you know two astronauts and I don't know a million dollars million million plus dollar space suits, and so forth and with the post office, just the frequency with which a delivery person post the post office workers coming in and out of the vehicle over and over.
None: Very good.
So I'm curious.
None: I guess the question is how do you take the maybe it's better to focus on the case of NASA, where it's not a lot of volume, but the question is how do you leverage that experience to convince others.
None: And beyond just the initial launch space launch or whatever.
None: Yeah, I think you know for customers to see.
None: For government and large fleets to see that a young company can be selected by NASA to be to be a key provider. We literally control. The first eight miles of every Artemis lunch and $2 4 billion people watch for the longest stint.
Stint of time.
None: That launch.
None: And to be able to have our brand there that's just one benefit the.
None: The other benefit is what they taught us about ingress egress fully kitted individuals' in in suits that are tens of millions of dollars.
And nothing can go wrong, you know the the the stumble and snag elements that we learned those are all very important workflows as we bring our platform up in size as well and we learned a great deal from that from the existing platform to even as we continue to expand because you know.
None: Our platform can continue to go we went from 130 to $1 90, and our platform has the ability to extend again so that that information from Nassau was was was was really in.
None: Invaluable we we we would have had many many engineers on ingress egress, which would actually ended up probably giving us something similar to what every other vehicle if you've driven our vehicles you see the ingress egress is very different.
None: And the way you can work around the vehicles is very different the way you can enter the vehicle from the work element is different so.
None: These are things that we learned from them you know from from the Army we learned some similar things, but in a rugged you know.
So to speak.
None: Exponentially faster egress and ingress.
None: What has to be in place what what do they need what protection you know those kinds of things those are all very similar behaviors and then you get the walmarts of the world that gives you just incredible start and stop data opening closed data the ability to have you know liquid our goods inside.
None: Vehicle that require a certain you know behaviors to protect their goods is an extension of their business. So you know we.
None: We pick things that would actually help us develop this product with using less money.
None: Because we were solving a big problem for all of them.
None: And we tried to align with people and it's not easy to be as a young company to convince these guys to take a shot but when they saw how committed we are and what what our mission is and how we can return capital to them.
And then of course, you know those things lined up so we are very proud about it and I. Appreciate you acknowledging it and the other thing that the post office. They ran tests for quite a while on our vehicles. They took the vehicle they tested it and they came back and they made their first order I would say the U S. P. S team is a world class team when it comes to <unk>.
Making this decision.
None: You know what.
None: But what the postmaster general was done in assembling his team is impressive but it gave us the shot to prove right hand drive without us going to the right hand drive markets. So we already got that lean in element to it and of course.
None: That happened the minute, we announced that we had people from the U K, which has our market is underserved right end markets are always underserved.
And my other company, we built a massive business in automotive in the U K is a very a great workforce our product fits perfectly in that marketplace. So you know those kind of things we're trying to always figure out how to do things, where we can get it proven before we take the leap of faith.
None: Okay that makes a lot of sense and then I wanted to actually follow up on EV charging infrastructure.
None: So yeah I I appreciate it I think in the prepared remarks, you talked about focusing on fleets.
None: Large food come you know companies with very large fleets that puts them in a better position to get the infrastructure in place, but you know that that certainly has been a challenge even in some cases large with large fleets.
None: And so my question is you know how do you or are you.
None: Trying to are you engaging with the customers in a way where you're you were trying to get them youre pushing them to think far enough out of time for procurement and getting things in place.
None: And maybe how it's written and contracts you know do they have to take delivery.
None: If if if for their own reasons, they don't get the charging structure of infrastructure in place or is that a condition, where if it's infrastructure is not there.
None: They don't have to take delivery.
None: Yeah actually you know when you when you have a model where you.
You sell to build you you actually have the luxury of doing a better service to your customers because you're not forcing it upon them. Your turns are actually more aligned to their interests, which creates greater partnerships.
We don't sell to anyone that can't charge.
None: And we help them figure it out.
None: We see business opportunities there, they're not in our priority immediate priority list, but this is why we have to concentrate on certain state rollouts and certain customer configurations, because they have to charge. These vehicles ranging varieties of real thing for those of you who have been out there. It was a real thing when Henry Ford came around and started bringing us.
None: As you know mobility, you know on wheels, instead of you know by hook.
None: And so so we've been very realistic about it and we focused on how our technologies universal adaptable to all the different types. We've never had an issue with that but we don't try to oversell people on the charging infrastructure, we do make sure we know their routes what their delivery schedule one of the benefit.
None: <unk> of our business is these are known act.
None: Activity routes.
None: So it's it's a lot easier to figure it out versus unknown and unrestrained systems.
None: In addition to that our systems are developed such that the the fleet customer can control the settings in the vehicle. So they keep a certain set of things, which extends range and because range can be different based on drivers and we use technology.
None: Knowledge to minimize that that's workflow that's workflow efficiency, that's increased return on capital and less greenhouse gas emissions activities. So you know, it's it's things like that that we've really concentrated on to take away the risk of that but at the same time you know.
None: As Greg mentioned with the D O E. They're rolling out giving money to help get the raw materials. We're big supporters of that you know, we we need the time on our side before those loans would even be entered you know entertainer pool for us just as us.
None: And and so we want to see that infrastructure because that will help us step up to the next 20000 in the next 20000, we know the market is there we know the market is there, particularly with our customer base.
None: It's not economically sensitive because these vehicles yield a return on capital and so getting that charging infrastructure right is it precursor before we'd qualify the customers.
None: Okay that makes a lot of sense I'll take the rest of my questions offline. Thanks, guys.
None: You bet.
None: The next question is coming from Sameer Joshi from H C. Wainwright Your line is how long.
Sameer S. Joshi: Thanks for taking my questions.
So there's some a little bit more light on the Manhattan methods that were purchased.
And modification customization or upgrades.
Sameer S. Joshi: Implemented and then once they are.
Sameer S. Joshi: But of course wouldn't assign blame for that all of the costs associated with that.
Sameer S. Joshi: And Oh, when should we start seeing the benefits from them are you already using or will it be six months on all fronts.
Sameer S. Joshi: Who wouldn't claim.
None: Yes. Some of the equipment is is deployed some of it is being deployed and some of it needs modification. So your your question really spans across all of the elements is the answer them. If you look at the slide that we have up here you can see some of this is Scott U K power.
None: Our systems and we got to change the controllers, we know the cost we've worked with the manufacturers in many cases, we we've gotten actual brand new warranties extended to them and Ah you know that the costs are relatively small as far as that some of that that the integration elements, which I think.
None: It's a question you may be alluding to but we brought most of that programming in house as part of this strategy. So we wouldn't be.
None: Caught at risk.
Our team has done a great job at developing those skill sets along with AI to help us accelerate our ability to bring our product to manufacture.
None: Understood.
None: And then just another one on the 'twenty 'twenty four sort of Oh.
None: Oh look and humans.
None: One of the items is that someone's due to note also the center is that we didn't put any 24 or even grew loved to begin.
We're not gonna sentence on one or two states with the other.
Service centers.
None: Yeah. So we we have.
A T a special team, they're much like elite soldiers they they they'll parachute in if necessary.
None: And we've kind of mapped out our rollout centered around where we where we have facilities. So we can deploy teams. We explained to our customers why that's important to them. In addition to that when you have a lot of vehicles that are running off in one to two shifts you.
None: Can have your fast action team show up in at night and have and do the service activities on location. So the good news is 80, plus you know I think we're getting close to 86% of all our activities or over the air we have been successfully deploying that.
None: There's some areas, we're improving with our releases, but are over the air upgrades have been going better and better.
None: You know as many of you know with electric vehicles, it can be touch and go.
None: And I think we're just way farther along because of the help we've gotten from the customer base that has been actually driving these vehicles for two years I mean, it's not like we're rolling the dice.
None: And.
None: And software is key is the experience I mean, even in your ice vehicles. How many of you have problems with your weight with plugging your devices into the vehicles. So you know, we're very sensitive to keeping it simple keeping it democratized and upgradable. So as the hardware changes you can upgrade that piece of hardware you don't have to buy a new car to us that is.
None: A very important way of aligning to our customers' interests and it's also a very profitable business for us as well they win we win.
None: Thanks for taking the questions good luck with when you're going for.
None: Okay. Thank you.
Thank you next question today is coming from Jamie Pres from R. F. Lafferty your line is alive.
Alright, Thanks for taking my questions Hey, everybody.
Jaime Perez: Thank you.
Jaime Perez: They also did you guys purchase is everything in place I mean, do you need any capital to get that up and running has there been a sort of optimize what's the sort of status of the equipment.
Jaime Perez: Yeah. The good news is it's it's it's as if we bought new equipment I mean, it's new later in the end because you know unfortunately the markets in some cases of those that didn't make it wanted to see big facilities with all this stuff rather than drive a product and see it.
Jaime Perez: She had.
Jaime Perez: Hard at work so you know.
Jaime Perez: We've been able to pick those up and in some cases. It just power translation others is just normal software programming for the robotics.
Jaime Perez: And you know we brought that in house, but yeah, Theres always some expense I'd, probably say you know.
Jaime Perez: No.
Jaime Perez: <unk> somewhere in the five to seven cents on the dollar.
Net cost.
Jaime Perez: For us, but its fixed because we brought it in house most of it. So maybe we got a few points of variable.
But now we sized all of that up our team went on site before we you know we made the move often we were the first ones to actually ignite the process because we were like Hey, we got and we got the money, we'll give you the money or buy the equipment and we'll buy it all and here's what we'll buy.
Jaime Perez: And well you know, we even we will try to help them sell what we don't want so but this is direct shareholder value as you know Jamie right. So.
Jaime Perez: Yeah.
None: Alright, one more question I know, we've talked about EV infrastructure, what about an assault on fleet management, because I know Tony you come from the software side any development on that.
Tony: Yeah, well look I I am excited to you know similar to you know the fact that we've always kept things a bit quiet until we got them pretty far in motion as you can tell.
Tony: I'm really excited about where we are as a T M as an OEM versus an OEM, how we look at things you know and the benefit we bring to our customers.
Tony: I will tell you. This is a very very important area to me.
Tony: And it's a very very meaningful thing to our customers. So.
Tony: The answer to that is you know in a lot of this will be proprietary configurations for our customer base.
And of course that.
Tony: That makes a greater relationship on a long term basis and a residual.
Tony: Return on capital for Us over time, obviously, you you're entering the software margins by the way. The example, we posted up about learning from you know, what what what amazing things Henry and Ilan did it but when you look at ours ours is not including software revenue at this time, because we're not.
Closing the market to that right.
None: Alright, Thanks for taking my question.
None: You bet.
None: Alright.
None: Thank you next question is coming from Paolo might come off from Raymond James Your line is now live.
Paolo: Hey, Thanks for taking the question can.
Can I just clarify as you guys look for kind of interesting distress stuff to buy are you looking for only.
Paolo: Physical equipment or would you be open to buying and entire FAP.
Paolo: At a particular site.
None: Yeah, So look with respect to where we have sovereign partners as you as you know we have aligned with the sovereign partner that partner is helping us refine our.
None: Our supply chain, they have the ability to invest capital.
None: And and tooling and help us pay down a piece price may move really working on some things that will continue to evolve out there, but what I will tell you is were not diving deep into the water you know were being very very cautious as to how we move from a physical site location where.
None: Center of the United States right now we have a free trade zone, which means we can export we can import we can do everything we need to do and do a dead center mass in the U S. On I 40, so our cost to deliver is his last our costa received it is less so.
None: I would say it would have to be a deal where we got paid and it relying with a strategic move and it was aligned with somebody like a sovereign who is helping us expand.
None: That makes sense.
None: Yeah, absolutely and in fact in that context, given that you know your recent acquisition was from a European based company are you open to.
None: Establishing our production footprint across the Atlantic.
None: Okay.
None: I mean next week a late this week I'll be leaving for a.
None: A couple of continents of meetings that we've been engaged in with people for in some cases, the last year and a half.
None: As we lay this out if you're studying me from my history in My last company. You know we grew our business in 96 countries very profitably we figured out the model, we were we moved linguistically socially and and and and the alignment with our product scalability.
None: You now said that that was kind of my earlier point, where you got to get the four pillars right. Before you you you hit the the volume curve.
None: It's it's not impressive to have to pull all these things back.
None: And so.
None: The answer is Ah.
None: There is a plan we're focused on that plan and when those pieces are lined up and well under way.
None: Is when you'll likely hear about it.
None: Got it thanks very much.
None: With that.
None: Thank you. Your next question today is coming from Poe <unk> from Alliance Global Partners. Your line is now live.
Poe: Yeah, Hi, Tony Hi, Greg can.
I'll make it quick since the comp going on so one can you just help us understand the cash outflow number does that include capex or capex over and above that.
Poe: No. It includes as one of the earlier questions asked about whether what the incremental purchases do for us. It helps us automate more are we you know we have developed a hybrid process just like you know Henry in an email on that I mean, we were following.
Poe: The great ones.
And so our number is inclusive.
Poe: And then on the annual revenue if you just break out you know even.
Poe: Put it evenly through the year.
First quarter would be 12, and a half to $25 million is that are you within that range in the first quarter or are we looking at more a second half ramp in an annual revenue.
None: I mean at this phase you know, it's really it's really about the run rate them rather than the quarterly revenue I would say you know once we're in once where we're in a different phase, we'd probably say you know given it to you the information that way.
None: What's really important is by the time, we get to 3000 units we have to have the economics right. We've got to have the supply chain align the workforce trained otherwise we can't go to 20000 units without breaking its proven history.
None: So you know that's what we're focused on we're focused on being able to execute that and then move to the next increments as far as what we release every quarter. It depends on the workflow we're working on with the customer and getting these economics right are critical as you as you can see those that have been.
None: You know whatever 25050 thousand units and they said that negative 100 plus percent margin units. It just.
None: What we're very focused on is getting those things right and we will step out the rollouts and we will do them in conjunction with our clients because that's the way they expect it to be done as well and by the way when we do our agreements with customers, we give them in in year, one we only give them a certain level of accuracy because we wanted to allow.
None: Our supply chain to mature and they accept that because they know that's the truth.
None: A thing, but we have a minimum level and we focus on that and that aligns with the rollouts with the infrastructure make sure our customers have the ability to charge their vehicles store their vehicles that we can visit them enough hours in and do any service work I mean, theres a lot of things that are coming into play that a lot of people just hurried up and.
None: <unk> over and then tried to put it into place later.
None: Built the largest service maintenance repair networks in my other business. This is no joke stuff.
None: And you will lose a customer if you don't do this right.
And what we're doing here is we're doing it right because we know it we understand the value of it and uptime is everything. So you know that's the way we're doing it we're not giving guidance any other way than telling you. The most important thing is that we crossed the threshold and we know our economics our product quality.
None: In our supply chain consistency and our workforce capability.
None: Thank you. Our final question today is a follow up from Stephen <unk> from Stifel. Your line is now live.
Stephen David Gengaro: Thanks, Thanks for thanks for taking our question just just quickly when we think about the kind of the revenue cadence in 2024 should we should think about it kind of a growing and developing throughout the year.
Stephen David Gengaro: More more back half weighted.
Stephen David Gengaro: I mean, we will definitely be if you if you if you're a believer in us and you look at everything we've said and what we've done and how we're doing it and how we're laying it out for you now that it's the time to be much more displaying of our approach. It would tell you that we are going to consistently be stepping up.
Stephen David Gengaro: And if we slowed down there is a very good reason because otherwise we'd lose money building vehicles, which we don't want to do so.
Stephen David Gengaro: No. It's it gets back to you now.
I mean, it is just you can analyze the reality of things versus the projections of things in this industry and the aviation industry and see what will stop you from scaling.
None: Thank you we've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
None: Just like to thank everybody for your questions. Your time today and your commitment to help us build a great company and we're going to do it here in America and we hope all of you join us. Thank you.
None: Thank you that does conclude today's teleconference and webcast you may disconnect providing at this time and have a wonderful day. We thank you for your participation today.