Q3 2024 Canoo Inc Earnings Call
John Wolf, John Wolf, John Wolf, John Wolf, John Wolf,
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Speaker Change: Greetings. Welcome to the Canoe Q3 2024 earnings presentation. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation.
Speaker Change: Please note that this conference is being recorded. I will now turn the conference over to your host, Kunal Bhalla, Chief Financial Officer. Thank you. You may begin.
Speaker Change: Thank you everyone for joining us on our Q3 2024 earnings call. During the call Tony will update you on our business, I will provide an update on our capital raising efforts, Ramesh will go over the Q3 financial results.
Speaker Change: Please be advised that we may make forward-looking statements based on current expectations.
Speaker Change: These are subject to significant risks and uncertainties, and our actual results may differ materially.
Speaker Change: For a discussion of factors that could affect our future financial results in 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 Change: 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 Change: During the call, we'll discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures, the GAAP financial measures in today's earnings release, which can be found on the IR section of our website. With that, I'll hand it over to Tony.
Tony: Thanks Kunal. The automotive industry is facing challenges that are not only inflation, interest rates, supply chain disruptions, but also in the center of political debate as it relates to rarer materials and the transition to EVs.
which means there is volatility until America becomes fully independent.
Tony: With that backdrop, we have also struggled to navigate the capital markets to align with our step-level manufacturing plan.
Tony: While we sharpen our focus on our core customers and markets, we must continue to flatten the organization and take aggressive actions to be more cost-disciplined as we realign our North American operations.
which we should have done earlier in 2024.
Tony: This starts with a committed executive team which believes in the value of what we are building.
Tony: and are willing to do what it takes, including short-term pay cuts in exchange for long-term incentives, aligning us all with our shareholders and creating a leaner, flatter and more efficient and cross-functional operating structure.
Tony: With that, Kunal and I will be more focused on raising the needed capital to meet our customers' demand for our product and solutions and getting us back on track with our step-level manufacturing plan.
Our Footprint Consolidation. Consolidating our facilities from 6 to 3.
Tony: Justin, Texas, Oklahoma City, and Prior, Oklahoma. While we have been through some turbulence, we have brought a net increase of higher paying engineering and advanced manufacturing jobs to the states of Oklahoma and Texas.
Tony: Unfortunately, we've been on a rollercoaster which has impacted our workforce and most recently we made the difficult decision to furlough 23% of our workforce or 30 of our teammates in Oklahoma City which weighs heavy upon us.
Tony: This will continue to be difficult and a critical period as we consolidate but we will do everything we can to get the capital in place and bring those jobs back online.
Tony: On the positive, we have achieved 45 relocations to date from California to our Oklahoma facilities in Justin, Texas.
Tony: We have received FTC certifications, completed, established our Oklahoma as our base for exports and import building blocks for both left and right-hand drive markets.
Tony: Further, many of our suppliers will be happy to hear that we have established a share pool for our supplier partners, part of our supply chain partnership harmonization.
Focus on commercial, government, and fleet customers only.
Our prices are firming.
Tony: With growing customer demand, electrifying fleets is not just an environmentally friendly decision, it's also an economically beneficial business decision.
Tony: In this phase, we will be solely focused on our fleet order books. Therefore, we have made the difficult decision to refund customer deposits for consumer vehicles.
We appreciate all of our consumer orders.
We have received today.
but as many of you know, entering the consumer market.
Tony: is not profitable or viable for us until we have scale.
Tony: Thus, our focus on fewer high credit grade customers that are serviceable and profitable at lower volumes.
Tony: We are grateful for the support, as the company started originally with its focus on consumer vehicles. But as you all have seen over the coming, or the prior quarters, we have pivoted the business into a very strong and fleet market.
Tony: We have started also diversifying to pro-EV markets with approved mandates and government backed incentives like the UK.
Tony: After successful engagements with major fleets in the UK, we established a legal entity and selected BISTA in motion to launch commercial operations in the country.
Tony: We've completed IDA, which is Individual Vehicle Approval, for our two pilot vehicles within three months and with 2% bond change from our existing LDB 130 and 190 platforms.
Tony: Improved cycle time, developed and validated the product with a customer, the USPS.
which requires a right-hand drive.
The occult.
Tony: Our platform flexibility to economically expand into these right-hand drive markets reduces launch time.
Tony: for us to enter a new market with a validated and proven product that has been tested and used by heavy fleet users.
Tony: SMR support for our customers. We selected Automobile Association Service Maintenance and Repair and announced that agreement.
Tony: Looking forward, we are mapping our UK rollout in a three-phased approach. Phase one with customers who represent the infrastructure in the backbone of the country.
Tony: Phase 2 Diversifying to Various Industries. This is our framework. We will only sell vehicles to customers after they have road tested it and we have debugged our product for their specific uses and markets.
Tony: Rushing to build, deliver product and underwriting high warranty risk is not our business model. Are you, the UK government incentives
Tony: on Clean Energy Net Zero Goals of 70% of new vans sold in the UK to be zero emission by 2030 and 100% by 2035.
Over 2 billion.
Tony: Over five years to support the automotive sector, including zero emission vehicles, manufacturing sector, and supply chain, approved as part of the autumn 2024 budget.
Speaker Change: For those who have followed me know my track record. I have operated in over 90 countries and my past company opened a new office every 90 days. We understood currencies. We learned about them. Importance of localization.
Denominated Manufacturing, Labor Pools, and etc.
Speaker Change: Our modular, flexible architecture was designed to support activities in different regions. As kids, we call it the MPP, the Multipurpose Platform.
Speaker Change: Assemblies for full manufacturing, more on this topic as we roll out our UK strategy. As we established international opportunities, domestic demand for canoe LBBs also continue to build.
Speaker Change: Submitted application for California's Department of General Services, DGS, for our LDB 130.
Speaker Change: Enough electric vehicles available for state agencies with agencies unable to meet state electrification mandates. Its approved opens LDD-130 to a tan of a few thousand vehicles.
Speaker Change: With that, I'll turn it back over to Kunal. Thank you, Tony.
Kunal Bhalla: I am humbled by the confidence that Tony and the board have entrusted in me to take on the role as Chief Financial Officer at this very pivotal time in our company's evolution.
Kunal Bhalla: Many of you already know me from my previous roles across Chief of Staff, Capital Markets, Corporate Development, Investor Relations, and most recently, Purchasing, over the course of my three-plus year tenure at Canoe.
Kunal Bhalla: Those experiences have given me a unique perspective and understanding of the company's strategy, business operations, challenges, and areas of potential opportunities.
Kunal Bhalla: But most importantly, I've had an opportunity to learn from Tony and my fellow team members the power of teamwork and what we can achieve together.
Kunal Bhalla: And I will emphasize transparency and accountability as many who have worked with me already know.
Kunal Bhalla: I look forward to navigating this journey together and welcome your questions and insights along the way.
Kunal Bhalla: Now let me quickly update you on a few highlights from this quarter.
We reported our highest revenue quarter with $891,000 in revenue.
Kunal Bhalla: This includes higher margin engineering service revenues associated with onboarding our partner, and we set up alternative supply chain options to further reduce our reliance on China.
Kunal Bhalla: And earlier this month, we secured a $12 million credit facility approved by the Independent Board with AFB Management Advisors LLC, an entity affiliated with Tomanaqua.
Tony mentioned in his opening remarks, my mandate is clear.
Kunal Bhalla: Greater Focus on Capital Raising Activities, Cutting Costs and Reducing Waste.
Kunal Bhalla: Supply Chain Negotiation and Harmonization. I will update you on our progress in the coming quarters.
Finally, during my time at CUNY.
I work very closely with Ramesh Murthy on many initiatives.
Speaker Change: Ramesh has been a great leader, a pillar of stability, and helped navigate the company in many functions, including finance and kind.
Speaker Change: I look forward to continuing our partnership and congratulate Ramesh on his step into his additional role of Chief Administrative Officer.
Speaker Change: With that, I will now turn the call over to Ramesh to cover the financial uptake.
Thanks, Kunal.
Ramesh: Now, let me walk you through the results for the third quarter fiscal year 2024. We continue to focus on our financial discipline.
Ramesh: The record-breaking revenue of $891,000 in Q3 of 2024, with the life-to-date revenues of about $1.5 million.
Ramesh: 20% further reduction in research and development in Q3 of 2024 compared to Q3 of 2023 driven by substantial completion of our product.
The Consolidation of Arcturus, California Site.
Ramesh: Into Oklahoma and Justin, reflected in operating expenses follows our disciplined approach.
Ramesh: to drive savings and efficiency over the long term while expecting annualized savings of $12 to $14 million.
Ramesh: Moving to the income statement, our third quarter 2024 results are as follows.
Ramesh: A 6.5% or $2.6 million quarterly adjusted EBITDA improvement from negative $40.4 million in Q3 of 2023 to negative $37.7 million in Q4 of 2024.
Ramesh: Research and development expenses, excluding stock-based compensation, totaled $18.8 million for the quarter, primarily driven by our support for key large customers and pilot programs.
Ramesh: Final engineering improvements and testing compared to 21.3 million in the prior year period, a 12% reduction from Q3 of 2023.
Ramesh: SG&A expenses, excluding stock-based compensation, totaled $19.6 million for the quarter, compared to $18.6 million in the prior year period. We will continue to optimize cost and improve efficiency as a part of our footprint consolidation effort.
Ramesh: As it relates to our key non-GAAP metrics, here is our summary.
Ramesh: The 2.3% or 0.9 million quarterly adjusted EBITDA improvement from negative $38.6 million in Q2 of 2024 to negative $37.7 million in Q3 of 2024.
74.3% or negative 6.20% adjusted net loss per share improvement
Ramesh: from negative 8.34 per share for nine months ended September 30, 2023 to negative 2.14 for the same period in 2024.
Ramesh: 11.5% or negative 0.07 adjusted net loss per share improvement from negative 0.61 per share in Q2 of 24 to negative 0.54 per share in Q3 of 24.
Turning to the cash flow.
Ramesh: We ended the quarter with cash, cash equivalents, and restricted cash of $68.1 million.
Ramesh: Cash used in operations for the three months ended September 30, 2024, was $26.5 million compared to $35.9 million in the prior period. We will continue to optimize our working capital needs in the future quarters.
Ramesh: We anticipate our cash outflow to be between $30 to $40 million in the coming quarter, driven from our consolidation applications.
Let me turn it back to Tony for closing remarks.
Tony: Thanks Ramesh. I would like to say thank you to our customers, suppliers, associates, and stakeholders for your support and believing in the long-term vision.
Tony: Recent changes have been tough, but necessary. While the automotive space is experiencing a tightening cycle, we remain focused.
Tony: on our cross-discipline and continue to preserve the growing opportunities in the commercial EV space, domestically and in our targeted markets.
Speaker Change: With that, we'll turn it over to the operator for questions.
Speaker Change: Thank you. And at this time, we will conduct our question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. To remove yourself from the queue, please press star 2.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Speaker Change: And once again to ask a question press star 1 on your telephone keypad, press star 2 to remove yourself from the queue.
Our first question comes from
Amit Dayal with H.C. Wainwright, please state your question.
Speaker Change: meet your, you know, OPEX needs, working capital needs, or is there sort of a different view on how you want to?
Speaker Change: address this aspect of the business and that could allow you to maybe, you know,
Speaker Change: get to production, et cetera, in a faster timeframe. Just any color on what options you have in front of you would be very helpful, thank you.
Speaker Change: Yeah, so we, I think for the first time, we've received also a letter of encouragement.
Speaker Change: from some of the available programs from the U.S. government. But in addition to that, we've been working on a few transactions for capital raising efforts.
Speaker Change: And in addition to that, just looking at how we would use our ATM efficiently. We've been happy to see volume in our stock.
Speaker Change: So that gives us the options. Plus I put in place, you know, a revolving line of credit to help them until they can secure more financing that is debt related as well.
Speaker Change: In addition to that, we're in discussions with some Tier 1 banks on purchase order financing.
which generally, you know, five, six months.
Speaker Change: rope on it for manufacturing so we can harmonize our supply chain.
Speaker Change: And also, you know, we finally completed creating a pool for our suppliers so that they can, you know, participate in the shares of the company. So we'll focus on raising capital that is non-diluted while we can. We're entering markets that have incentives.
Speaker Change: that we can access as we bring our products for localization. We pick very strong allied nations to the United States.
as well as working with
Speaker Change: with Sovereign Type Investors for this next phase. You know, we've got over the part of getting the product right. Now we're getting how we service the customers and the geography expansion part right.
Speaker Change: Now we've got a supply chain that we've got to harmonize and we've got to catch up on. Some we've got to realign agreements, some we have to completely reshape the agreements.
Speaker Change: So, those things are kind of moving in conjunction with that, but that ability helps us to reduce our demand on cash for front-loading our supply chain.
Speaker Change: As we learned over these four years, the efficiency of a young company is not at the highest maturity obviously because it's young.
Speaker Change: I do believe we now enter a period of we understand where we should be spending money and on which customers, which segments, and I think, you know, I feel like our maturity level for that is good, which align well with our raising of capital.
Okay, understood. You know, so in this context...
Speaker Change: How should we think about production capabilities and production timelines? We had certain assumptions for 2024 and 2025.
Speaker Change: I'm guessing visibility around that is very limited at this point.
Speaker Change: But any guidance in terms of how you are thinking about meeting, you know, customer needs for the moment with the resources you have would be helpful. Thank you.
Speaker Change: Yeah, so I think right now, based on the fact that, you know, you probably saw some of the, you know, the vehicles that have been exposed, you know, we don't disclose, you know, what our customers, our pilot customers, or anyone's doing that's just...
Speaker Change: You know, we consider this part of their, you know, their business secrets, the way they operate.
Speaker Change: But we're focused on, and we are behind plan to your point, which is part of my comments in there. You know, we thought we'd be further along than we are by now, but by the Q4 of 2025.
As you know,
Speaker Change: We purchased the manufacturing facility and we did receive notification that a tenant within the area, within the complex, is leaving.
which gives us access to an entire paint shop.
Speaker Change: We had, you know, this has been something that was in our strategy, of course. You know, we bought the building from the tenant.
Speaker Change: And that will allow us to paint multiple jobs per hour.
Speaker Change: in an already established paint shop. I know there's been commentary about paint shop. We've been very deliberate on why we slowed down on that investment and the type of investment because we knew there was the ability for that tenant to leave.
Speaker Change: Hopefully we'll get ahead of schedule here and we'll even do better than this. But that site can do as it is configured today with the addition of some
Speaker Change: We now have the paint shop capability, we have to do some modifications to it, but we will get that site up to roughly 10 jobs per hour on the MTP1.
Speaker Change: And eight jobs per hour for the full build. And we're currently capable of doing five.
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Speaker Change: And we got to get, you know, the biggest thing for us now is getting our supply chain and the final pieces now that we know the exit and tenant for our facilities in Oklahoma City and then crank, you know, crank up production.
Speaker Change: and, you know, following all the proper regulations for labeling the vehicles built in Oklahoma.
So, um...
You know, that kind of gives you...
Speaker Change: and probably a bit more color on facilities, CapEx, as well as production.
Speaker Change: Thank you, Tony. That's all I have for now. I'll take my other questions offline.
Okay.
Thank you and a reminder to the audience.
Speaker Change: Press star 1 to ask a question now, and you can press star 2 on your phone to remove yourself from the queue. Once again, to ask a question now, press star 1 on your telephone's keypad.
Speaker Change: Our next question comes from Jawad Bhuiyan with Stifel. Please state your question.
Jawad Bhuiyan: Hi, thanks for the question. I wanted to touch on some of the speculation on right-hand drive units and the potential of vehicles coming into the UK Postal Service.
Jawad Bhuiyan: I was wondering if you mind talking a little bit about that in terms of timing or if there's, I guess if there's anything tangible to share and then just add another quick follow up. Thanks.
Speaker Change: Yeah George, so we never comment on on customer pilots or activities as you may or may not have experienced with us.
And like I said, we see ourselves as
Speaker Change: way of doing business, the way they use our configurable platform to optimize their business operations. So, I can confirm to you that we have built a right-hand drive vehicle. They have been, you know,
Speaker Change: There's well over probably 15,000-plus delivery miles, I would imagine by now, by the U.S. Mail, and the delivery mile is stopping every 50 feet.
Speaker Change: So, they're our right-hand drive vehicles. We have IBA certified, and that's all I can kind of tell you at this time.
No, that's fair. Thank you.
Speaker Change: I was wondering if you could also shed some color relating in terms of ramping production at your manufacturing facilities in Oklahoma, and I guess if there were any updates on, I guess, how we should...
Speaker Change: start to see meaningful volumes coming out of the factory. Thanks.
Speaker Change: Yeah, I think before we talk about meaningful volumes, we've got to get our capital in place and this reconfigured supply chain fully aligned. You know, as you know, many OEMs
Speaker Change: and you know any level of manufacturer at TEM or whatever will go through a period of where they where they land on their final products if you will kind of their fuel gen
Speaker Change: fourth generation commercializable product. You know we've hit we've hit that point.
Speaker Change: And we have also a couple derivatives in the queue that we still will have to engineer in order to kind of get to volume, but capital and supply chain.
Speaker Change: And that's where we got a little bit out of alignment. You know, we were anticipating...
a bit faster access to capital.
And so...
Speaker Change: You know, it's tough to ramp all of the divisions up in harmony. They're constantly tugging on each other. I think we're closer in alignment now than ever. Unfortunately, it caused for some dislocation, and that weighs on us for certain people in Oklahoma City. But...
we will
Speaker Change: We will be in a better position to talk about how we ramp as capital, as you see us announce capital, it's going to have a direct correlation to manufacturing the vehicles, with the exception of the lead time on the reconfigured supply chain that Kunal talked about as part of his mandate.
Speaker Change: That helps a ton. I appreciate the color. I'll pass it on.
Thank you.
Speaker Change: Thank you and our next question comes from Poe Fratt with Alliance Global Partners. Please state your question.
Speaker Change: Hi, I had two questions just to clarify earlier comments. One, can you just clarify on the working capital line that you've put in place? It's one now secured and it's also a 90-day facility?
Is that correct?
No, it's a 12-month facility, public.
Speaker Change: But I thought it rolls every, I thought it matures in 90 days or three months, Tony.
Speaker Change: I think those were the grid notes that then converted into the letter of credit, the line of credit, sorry.
Speaker Change: Okay, so it's a 12-month facility then? Yeah, the way to think about that, Poe, is that those were like bridge loans, if you will, until the independent board could approve the credit facility.
Speaker Change: Governmental Program Loans. Did I hear that correctly? And if so, can you expand a little bit on that?
Speaker Change: So we're in a red state as you know. We recently have received our first letter of encouragement accessing some of the non-diluted capital.
Speaker Change: Our estimation is that this administration will likely wrap up, like most administrations when they're on their way out, wrap up the programs that they've opened up.
And we're, you know, we're optimistic as.
Speaker Change: As the new administration kind of figures out its American manufacturing plan that, you know, people in the heartland will get a bigger share, or let's say an appropriate share.
Speaker Change: of that type of funding. And then of course, we're all excited to see
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Speaker Change: Can I just ask a little bit, so do you expect a letter of commitment before this administration turns over?
Speaker Change: And aren't we talking about, you know, the DOE program, the AFDMF or whatever the acronym is?
Speaker Change: Yeah, so, you know, I will never, you know, it would be more difficult to predict the government when it decides to make its distribution than the market itself. So
Speaker Change: I will tell you we got a letter of encouragement for the first time, and we've got mostly in the last year or so, letters of discouragement.
Speaker Change: and so that's a super positive sign when you think about it and and maybe they just got to the areas we're in but that will be coming out of the current administration's announced programs.
Speaker Change: And we've applied for multiple funds, by the way, but we've only received one letter.
Speaker Change: And is it for the big program, Tony? You know that like when you look at the sustainable aviation fuels programs that were just there were two huge commitments announced recently. Is it those type of programs?
Speaker Change: No, they're not that big, but for our size and for the phasing approach we're going, it's meaningful to us.
Thank you.
Thank you.
You bet, Poe.
Speaker Change: Thank you and there are no additional questions at this time. I'll hand the floor back to management for any closing comments.
Speaker Change: No, Operator, we just again would reiterate our thanks to the team and to all our supporters out there. Thanks everyone for joining us today.