AYRO, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Arrow Incorporated Year-End 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a telephone keypad, To withdraw your questions, you may press star and two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through June 23, 2023. At this time, I'd like to turn the floor over to Joey Delahousie of CoreIR, the company's investor relations firm. Sir, please go ahead.

Thank you, Jamie. Good morning, and thank you for participating in today's conference call. Joining me from ARO's leadership team are Tom Wittenschlager, Chief Executive Officer, and Dave Hollingsworth, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address ARO's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in ARO's most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC in ARO'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 ARO believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in ARO's earnings press release, which is available on its website at www.aro.com. under the investor tab. The content of this call contains time-sensitive information that is accurate only as of today, March 23rd, 2023. Except as required by law, payroll disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to CEO Tom Wittenschlager.

Hey, thank you, Joey, and good morning. to everyone on the call. The fourth quarter of 2022 capped off a year of what we feel is significant progress at Arrow. We generated sales of our legacy product, the Club Car Current, and made additional progress in the design and sourcing of the Arrow Vanish, along with the build-out and tooling of our manufacturing facility right here in Round Rock, Texas. As I've discussed before, the Vanish is our first low-speed electric vehicle to be designed and developed based on the new Common Core Chassis Strategic Roadmap. The VANISH is a utility LSEV, or low-speed electric vehicle, with a lightweight architecture and adaptable bed configurations to support both light duty and heavy duty applications. It was designed to leave minimal impact on the environment, has zero emissions, making it well-suited for both indoor and outdoor uses, such as in stadiums, arenas, campuses, resorts, and last mile delivery environments, as well as other situations where toxic fumes are a safety concern. It will be street legal and will be governed to a max speed of 25 miles per hour. The vanishing discrete components, and the very large majority of these are being sourced from North America. The MSRP of the Vantage chassis is anticipated to be about $34,000, while we intend to sell its interchangeable payloads for roughly $1,000 to $5,000 each. In terms of our performance through the end of 2022, revenue in the fourth quarter came from continued sales of the legacy Club Car Current units, and we've now sold off nearly all of the inventory of this product. While we anticipate that some sales of the current will trickle into the first and second quarters of 2023, these will likely be minimal. However, we expected and planned for this dip in revenue as we aim to complete the transition from the legacy current to the next generation vanish in the first half of 2023. While revenue may decline these next two quarters until the vanish is in production, we believe our quarterly cash burn will be in the same range as it has been over the last three or four quarters. Our team has done a great job of managing total operating expenses as evidenced by a nearly $11 million decline in total OPEX in 2022 over 2021. Cash and marketable securities at the end of 2022 were approximately $49 million, implying a cash runway that exceeds two years at current spending levels. The reduction in operating expenses and cash burn is not an insignificant feat, mind you, given that this has occurred even as we were running at breakneck speed to design a new platform, design the first vehicle on that platform, and begin the manufacturing build-out of our Round Rock, Texas facility. Another major change going into 2023 is that we no longer rely on Centro or any other suppliers from China to source any vehicle components. We no longer rely on Karma Automotive in California for vehicle assembly, nor on Club Car for exclusive distribution. Instead, we have an entirely new supply chain that largely eliminates shipments from Asia, and we're developing in-house manufacturing capabilities that we believe will allow us to control our own destiny, so as to speak, as well as enjoy higher margins per vehicle at scale. As I've always maintained, the long-term success of Arrow should be based on the success of the entire Common Core chassis family of vehicles, of which the Vantage is expected to be the first of three to be launched. This success will be driven by the hard work, experience, ingenuity, and creativity of our entire team. Customer acceptance and market penetration of our vehicles is paramount, and we believe this will ultimately be reflected on our anticipated future sales and profits, not in how we've performed in the rearview mirror or under a different strategic direction. Crucially, this is why there's considerable optimism and anticipation within our own ranks, despite the tenuous economic backdrop and a stock market malaise. Currently, the Vantage is preparing to enter the homologation phase, which is the certification and approval process that all vehicles must go through that involves crashing, Crushing and rolling a vehicle to ensure it's safe and that it complies with LSEV governed speed requirements Prior to it being allowed into the marketplace Furthermore homologation will also ensure that the vanish meets the California carb requirements for zero emission transportation Homologation is generally a 12-week process and we believe that we will successfully exit homologation sometime in June while homologation is underway we'll be simultaneously focused on efficiently ramping our supply chain, which is a pivotal step in being able to maximize the production and sell-through of the Vantage and placing additional Vantage units with dealers for demo purposes. Following homologation, we expect to enter LRIP, or low-rate initial production, by the end of June. Thus, any initial sales of the Vantage will likely be rather small until the second half of 2023. However, do not take that to mean we haven't yet begun our sales and marketing outreach for the Vantage. On the contrary, we've already announced our first authorized dealer. We're in various stages of negotiation with more than 50 additional dealers in the U.S. and Canada and have what appears to be a substantial expression of interest for the very first units off our assembly line. Thus, we believe our pipeline of potential dealers is strong, as is dealer interest in the Vantage products, which we believe offers numerous design, ergonomic, and technological enhancements, along with the total cost of ownership advantages over the status quo products currently found in the marketplace. Bringing a new vehicle to market takes time, but I firmly believe that the last 15 months of effort by the Euro team was necessary to lay a proper foundation for what we believe will be our sustainable growth phase. The real beauty of our strategic roadmap is that subsequent vehicle launches will use essentially the same critical components as the Vantage, meaning there should be very little design effort and retooling needed for future potential vehicles, which would substantially shorten the time to market for those vehicles that can address a completely different segment of the EV marketplace. Also important in our corporate strategy is the development of a strong IP portfolio. Intellectual property can act as barriers to entry by competitors and contribute greatly to stockholder value. Hopefully you've seen some of our recent press releases highlighting our IP progress. We continue to gain momentum in IP as some patents have already been issued, multiple matters are currently in examination, and we filed certain patent continuations and we'll be filing even more patent and trademark applications in the future to help strengthen our corporate moat. Creating a sustainable solution in the EV space motivates us, and our solutions are neither trivial nor obvious. We believe the world will increasingly trend towards successful sustainability, and having an IP around our assets should only make us a more valuable company. That concludes my opening remarks. Now I'd like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail. Dave?

Thanks, Tom, and good morning, everyone. Here's a summary of our fiscal year 2022 financial results. Revenue for the year ended December 31st, 2022 was $2,990,497, an increase of 11.4% year over year. The sales recorded in the fourth quarter of 2022 represent the runoff of our club car current inventory as we transition to the Arrow Vanish. Annual sales increased due to growth in sales of the outgoing Arrow products. Total operating expense for the year 2022 were approximately $20.2 million as compared to $31 million in 2021. The year-over-year decrease in total operating expenses was due primarily to reduced research and development expense resulting from the discontinuation of the previous 311X product development and reduced general administrative expenses due to reduced general spending implemented during the corporate and strategic review by the management team. Adjusted EBITDA, a non-GAAP measure, for 2022 was a loss of approximately 18.5 million versus a loss of approximately 25 million in 2021. Net loss in 2022 was approximately $22.9 million, which was an improvement from a net loss of approximately $33.1 million in 2021. The decrease was a result of the cost-cutting measures implemented by the management team but was impacted by a $2.35 million in adjustments, namely the NCM failure and certain write-offs. Cash and marketable securities at December 31, was approximately 49 million versus 69.1 million at the end of 2021. Total debt was zero at December 31, 2022, as it was December 31, 2021. As of December 31, 2022, the company had 37,352,203 common shares outstanding. That concludes my prepared remarks. I'd like to turn the call back over to Tom for any remaining comments. Thank you, Dave.

In summary, 2022 was a year of progress at Arrow on many fronts. Revenue grew 11% year over year. We now have very few remaining units left of our legacy vehicle, the Club Car Current, for sale. However, and I would contend more importantly, total operating expenses were down nearly $11 million in 2022 versus 2021. which we feel is a testament to our team's ability to prudently manage expenses, even while building a platform that we believe will provide sustainable growth. Lastly, and most importantly, we made significant progress in the design of the Common Core chassis platform and our first internally developed vehicle, the light-duty utility vehicle, the AeroVanish. We believe we are very close to entering production and achieving sales of this new generation of vehicles. It is my belief that this next phase of our corporate trajectory will be a much better barometer of our future than anything else in our corporate history. Furthermore, once the Vantage has successfully launched, we intend to turn our efforts to finishing the design of our next two vehicles, a people mover called the Aerovalet and a personal transport vehicle, or PTV, which should have similar functionality to a traditional golf cart that we call the AeroVapor. However, we believe the Vapor will be unlike any other golf cart on the market today. We'll have much more to say about those initiatives at a later time. As always, I'd like to thank all of our stockholders for their continued support, and I look forward to sharing additional corporate updates over time. And with that, I'd like to turn the call over to the operator, so we can begin the question and answer session. Operator?

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you wish to ask a question on today's call, you simply need to press the star key and then the number one on your telephones. If your question has been addressed and you would like to withdraw your request, you may do so by pressing star and two. If you are using a speakerphone, we do ask that you please pick up the handset before entering your numbers to ensure the best sound quality. Once again, that is star and then one to ask a question. Our first question today comes from Brian Lantier from Zax. Please go ahead with your question.

Good morning, gentlemen. I think it's really encouraging that you're still on pace to meet the initial deliveries of the Vanish and Q3. One question I guess I have is about the future models. Will they be subject to the same homologation process for both the valet and the vapor?

Brian, good morning. The answer to your question is yes. Homologation is a platform-specific activity. We expect the homologation process, which generally spans 12 weeks, to remain relatively constant along all platforms. Obviously, you know, as we proceed through homologation on a Common Core platform architecture, we expect very few surprises. So the timeframe remains the same, but we anticipate, you know, literally flying through homologation without many issues on a go-forward basis.

Great. That's good to hear. I guess, secondly, are there any particular industries or use cases that are coming up when you're talking to potential dealers or customers that are in line with your initial expectations or maybe even surprising you where some of the initial interest is being shown for the vanish?

Well, that's a very good question, Brian, and today the segments that we expected are showing brisk interest. So if I had to categorize them, I would start with a segment that we would call fleet refresh. So the refresh of commodity fleets, which generally are refreshed, whether you're in the resort business, in the golf business, in the marina business, in any of those businesses, they generally refresh every three or four years. And those refresh cycles are necessary because quality of their commodity products is such that that's their effective lifetime. We're seeing a lot of interest there, especially because the lifetime of our product is anticipated to be more than double that. So the economics of the refresh cycle changed dramatically. We're seeing fairly substantial interest from the expected places, from resorts, from golf, from those segments. In the bigger picture, there aren't any startling surprises. There's always a surprise from the distribution and where the initial expressions of interest are, but that's just part of launching a brand new product.

I saw in the 10-K that you're attempting to position on the GSA schedule. Do you think that is a possibility in 2023?

Well, it certainly is. And the way we're beginning that positioning is through partners that already have GSA presence that would add our offering to their existing GSA schedule position. So it's not the case, Brian, that we're going to ourselves try to get on the schedule, but rather we're going to focus on being an addition to the schedule with select partners that already have that presence.

Great. Thank you for clearing that up. I guess one quick question for Dave is in the 10K, it says the Centro inventory is about 244,000, so if I back out that number from the inventory, the bulk of the inventory is principally new vanish related inventory?

It is. That's correct. We have, like Tom said, a few holdovers of the legacy product that will roll into this first half of this next year. But no, the vast majority of our product is our buildup for inventory to complete the LRIP for the Vanish.

Okay, great. Fantastic. Thank you so much, guys.

You're welcome, Brian. Have a great week.

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. We'll pause momentarily to assemble the roster. And our next question comes from Mike Quinlan from CNC. Please go ahead with your question.

Hey, gentlemen. Thanks for the call today. Real positive stuff. Just one real quick question. I noticed in the 10K, you know, we're coming up on April 3rd, which I believe is the 180-day extension for the NASDAQ minimum bid rule. So I guess my question is, have you all applied for an extension? Has that extension been granted? And being that we're, you know, less than 10 trading days away from April 3rd, you know, getting to a dollar would obviously not be realistic. Is there any strategy to cure that or kind of what is your strategy in terms of the outstanding shares there?

There's two questions there, Mike, and I'll take the first one. We've been in constant contact with the NASDAQ and fulfilling all of their rules that are going to be applied to us as we still remain below $1 a share. So they are up to date with us, and we know that that will continue to move forward per their rules into the year. Now, the second question, more of how we want to combat that, will be for us a delivery of the sales of the AeroVanish. We believe that investors want to see this product verified by the marketplace. And by delivering those units and finding those dealers, we'll be able to see that stock price reflect that hard work of the last 15 months.

Okay, so you don't anticipate a delisting on the third, or would you grant the other 180-day extension beyond that? I guess that's my ultimate question.

Yeah, exactly. Yes, we're, again, like I said, we're updating with that. Okay, thank you.

You're welcome, Mike.

And ladies and gentlemen, with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

I'd 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 the next quarterly conference call when we report our first quarter 2023 results, likely in May 2023. Thanks to all. Have a great day.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.