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spk01: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the ARO Inc. First Quarter 2023 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 then one on your telephone keypad. To withdraw from the question queue, please press star then 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 August 9th, 2023. I would now like to turn the call over to Joey Delahousie of CoreIR, the company's investor relations firm. Please go ahead, sir.
spk03: Thank you, Kate. 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, this 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 Investors tab. The content of this call contains time-sensitive information that is accurate only as of today, May 9th, 2023. Except as required by law, NRO 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 Wittenspotter.
spk05: Thank you, Joey, and good morning to everyone on the call. We believe we've made important strides in the first quarter of 2023 that bring us ever closer to launching the AeroVanish, a lightweight, low-speed electric vehicle, or LSEV, with adaptable and reconfigurable payloads that will serve the stadium, arena, campus, resort, and last-mile delivery environments, both indoors and out. In the last few earnings calls, we have gone to considerable lengths to lay out the business case for our product roadmap, and to provide some context to our corporate strategy. From the outset, we recognize that while an 18-month design and manufacturing scale-up process is actually remarkably short in the automotive world, to many investors, it may as well be four years. Our team is enthusiastic about what we've already accomplished, and even more so at the significant opportunities that we believe lie just ahead of us. We've made real progress on the dealer front, and we've had encouraging discussions with potential fleet dealers. We believe our participation in a recent large trade show where many potential customers were able to see the Vantage firsthand for the first time has been very productive for us, and we hope to be in a position to share some developments arising from those marketing efforts. We believe we can establish new fleet relationships that could provide meaningful sales opportunities. The benefit of fleet partnerships is the high unit order volumes they can potentially provide us from the recurring fleet refresh cycle within their respective customer bases. A strong fleet partner can potentially equal dozens of standalone dealers without regard to territory exclusivity. That said, we're certainly focusing on signing up dealers under our dealership program. Earlier in 2023, we announced our first dealer indication of interest with Masters Golf and Utility Vehicles in Ontario, Canada. Since that announcement, we have signed many more dealers under our dealer program. And while we won't provide specific dealer counts, I will provide some context for this topic. Under our former relationship with Club Car for the Club Car current vehicle, Club Car had the potential to generate sales of the current from all of its approximately 450 dealerships. However, the reality was that only 42 dealerships out of this 450 ever generated a sale of the current throughout our multi-year relationship. For comparison, the number of locations operated by dealers with whom we are in discussions already exceeds 42, and we're in various stages of negotiation with many more potential future dealers. I hope that is helpful in terms of outlook on the dealer and fleet channels. On the direct-to-consumer, or DTC, channel, we're working to finish our e-commerce site and an on-site location in Florida to support our DTC efforts for customers to be able to customize and order the Vanish directly from Arrow in those states that allow DTC vehicle sales. Florida happens to be one of those states, and we believe it is a large potential market for the Vanish and our follow-on products, the PeopleMover we call the Valet, and what we believe is the world's most attractive golf cart called the Vapor. We expect our DTC capability to be ready to launch in the third quarter of 2023. Now I would like to talk about the status of the VANISH vehicle and just where we are in the process of bringing it to market. The VANISH will enter the homologation phase this week as we are just recently successfully completed a series of internal tests at a test track in Houston, Texas. The homologation process is a series of safety assessment tests on the vehicle can take up to 12 weeks depending on the queue of other vehicles also waiting on homologation. However, while homologation is occurring with the VANISH and in parallel with that certification process, we plan to enter low rate initial production or LRIP by early June to begin building the first 50 VANISH units. These units are largely earmarked for dealer floors as demo vehicles. The LRIP phase is used to ensure the supply chain is flowing smoothly and allows our manufacturing team to scale that learning curve of assembling the components and subsystems. Following LRIP, which we anticipate may take a month, we'd expect to begin full-scale production where we are targeting nine vehicles per day, five days per week under a single shift scenario. This would equate to over 2,000 vehicles per year of capacity under the guidelines mentioned above. Until homologation is complete, we anticipate holding back any finished inventory of VANISH units. We believe any delays or deferrals in customer shipments of the VANISH should homologation take longer than we would prefer are rather trivial in the big picture and would be unlikely to lead to order cancellations. As is always the case in first model year production, we expect and plan for supply chain uncertainties until all component suppliers are flowing in their product smoothly. Once in full production, we do have the ability and likely the intent, given some early signs of demand, to move to a second shift that can help us produce more output advantage units from our own manufacturing floor. Based on our current forecast, we anticipate moving to that production cadence as fast as possible post-LRIP. Even more significant than adding a second shift is our potential ability to source additional production of the entire VANISH vehicle from an OEM automotive component supplier that currently serves the big three automakers. That supplier also happens to be our chassis component supplier for the VANISH. Fortunately, they have production capacity at their facility to be able to handle the assembly of the entire VANISH vehicle should we choose to route any excess surge demand to them down the road. While this decision would likely come with initial startup issues, and a learning period from all parties that we would just need to accept, it does offer the potential for us to ramp our total production of units in a much faster fashion than a greenfield construction of a new manufacturing facility, at least at this point in time. So, we anticipate addressing any excess demand initially with a second shift, and then likely by resorting to our relationship with this OEM component supplier for any true surge in demand that would otherwise overwhelm our manufacturing facility. Needless to say, these would be very nice problems to encounter and address this early in the commercial launch of the Vantage. These so-called problems, and I use that term tongue-in-cheek, that we are now facing are simply the result of what we feel are the perceived quality and value proposition of the Vantage and advancements in a category that we feel has been quite stagnant for much too long. But you don't have to take my word for it, and certainly the market isn't appreciating this aspect either, apparently. Thus far in 2023, we've won two prominent awards for design from two separate market research companies. The first was in January of 2023 when Frost and Sullivan awarded us the 2023 North American New Product Innovation Award in the low-speed vehicle industry for the Vanish's design. And as if that were not enough, in April, we were named as a 2023 Red Dot Award recipient for product design for The Vantage based on its principles of good design and its sociocultural character, technical focus area, and design expertise. Many engineers and designers can go their entire career without winning either a Frost and Sullivan or a Red Dot Award. We won it on our first design after pivoting the company 18 months ago. That is a remarkable achievement, and I'm very proud of all our employees here at Arrow. One would expect that these validations of the design and value-add merits of the Vanish to translate into appreciable unit sales, and that is definitely what we're viewing this opportunity that is finally right in front of us. On the intellectual property or IP front, we continue to grow our portfolio, both in the rate of patent and trademark filings, as well as in the rate of grants by the USPTO. We believe the combination of our anticipated future sales and sales growth together with our growing IP portfolio should add sustainable shareholder stockholder value and provide numerous opportunities in this segment that otherwise hasn't evolved with prevailing technologies nor with market opportunities. In our 2022 year-end earnings discussion, I provided explicit guidance that revenue of the legacy Club Car current vehicle would be minimal in the first half of 2023, given the runoff of current inventory and the sunset phase of that vehicle. That was certainly the case in the first quarter, given our revenue of approximately $100,000. Quite simply, that phase of Arrow is in the past. and I've maintained all along that I believe future sustainable stockholder value will come from the future adoption of our new LSCV products, not from revenue of our legacy products. Hopefully, my comments this morning have painted a picture for Arrow that is as bright as ever. We continue to manage costs as effectively as possible, all while ramping our internal activities for the benefit of the Vantage and subsequently the valet in the vapor. Our net loss in the quarter, even with considerably lower sales of the current, was roughly the same as it has been over the last year. We believe our cash and equivalents balance of nearly $42 million will be sufficient for us to reach breakeven, according to our current forecast. 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. David?
spk06: Thanks, Tom, and good morning, everyone. Here is a summary of our first quarter 2023 financial results. Revenue for the first quarter ended March 31, 2023, was $113,084, a decrease of 89% year over year. The sales recorded in the first quarter of 2023 represent the runoff of our club car current inventory as we transition to the aero vanish. Total operating expenses for the first quarter of 2023 were approximately $5.7 million, as compared to approximately $4.4 million in the first quarter of 2022. The year-over-year increase in total operating expenses was due primarily to the completion of the vanished product and a ramp to LRIP and full production. Adjusted EBITDA, a non-GAAP measure, for the first quarter of 2023 was a loss of approximately $5.1 million versus a loss of approximately $4.2 million in the first quarter of 2022. Net loss for the quarter ending March 31st, 2023 was approximately $5.5 million versus a net loss of approximately $4.6 million in the year-ago quarter. This decrease was, again, a result of the completion of the Vantage product and ramp to LRIP and full production. Cash and marketable securities at March 31st, 2023 was approximately $41.7 million versus $48.9 million at the end of 2022. Total debt was zero in March 31st, 2023, as it was at December 31st, 2022. As of March 31st, 2023, the company had 37,352,000 common shares outstanding. That concludes my prepared remarks, and I'd like to turn the call back over to Tom for any comments. Tom?
spk05: Hey, thank you, Dave. As you can probably tell from my earlier comments, I am optimistic and enthusiastic about about our competitive positioning as we get close to the commercial launch of the Vanish. We believe we have the right design elements and solutions for the LSEV market, as the Frost and Sullivan and Red Dot Awards can attest to. We believe we have the right team, given all that we've accomplished with the new Common Core chassis platform, the initial Vanish design, and the impending Valet and Vapor designs in such a relatively short period of time. We believe we have the right distribution strategies, given what we believe is a consistent interest from dealers and fleet customers looking to offer our products to their customers. And we have a growing IP portfolio that can help us build moats around our technologies and products and methods of creating sustainably engineered vehicles. To date, the market doesn't appear to have caught on to our better mousetrap, perhaps for a variety of reasons. However, as we continue to innovate and execute and share important corporate developments, we believe this will all change. And with that, I'd like to turn the call over to the operator so we can begin the question and answer session. Operator?
spk01: Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star and the number 1 on your telephone. If your question has been answered and you wish to withdraw your request, you may do so by pressing star 2. If you are using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment, please, for the first question. The first question comes from Brian Lantier of Zax. Please go ahead.
spk04: Good morning, Tom, Dave. Good morning, Brian. Good morning. I was wondering if you could just give me a little... feedback that you may have received from some of the potential dealers or fleet managers from the trade shows that you've attended? Principally, what sort of attributes in the Vanish are standing out to them? Is it the quality of the build, the auto-like features, or maybe the configurability of the platform?
spk05: Well, Brian, that's a great question, and You know, as you know, when you go to a trade show, everybody looks at things in their own unique way. So, you know, there is no uniformity of perspective when people are looking at product. What we saw that was fascinating kind of went into the following fundamental categories. The first thing is as people actually put their hands on the Vanish, and compared it to apparently similar products at the show, it was a lights-on epiphany in terms of the difference between a product built to automotive OE standards versus a product built, let's just call it, to commodity golf cart standards. The difference of every detail, the difference of the quality, the difference of the finish, the difference of the styling and the look. They all were night and day differences, or as we would say, jets and propellers, compared to what currently exists in the golf cart world. And a lot of people commented, first of all, on the quality of the materials we use, which are unusual and unique in this space. A lot of people commented on how roomy the interior was and how significant the enhanced payload capacity was. And so from the point of view that we have a dual display head that can be used for a variety of purposes to the fact that our cargo subsystem is completely reconfigurable every morning by resort and golf operators. to the fact that this is just a fundamentally higher quality vehicle with the bonus points that this thing is designed in the United States, sourced in the United States, built in the United States, and supported in the United States as compared to the commodity products coming across the Pacific. You know, all those things seem to add up to make a pretty powerful impression on both dealers and fleet managers.
spk04: Great. Thank you. That's really good feedback. And I'd just like to reiterate, I'm incredibly encouraged by the news on some of the early outlook for the rest of the year. That's certainly a better outlook than I have built into my models currently. Regarding the motor order with Sciata, are those motors going strictly into the
spk05: Vanish or will that be for the entire product line? Well, Brian, that's a good question. And the entire design philosophy of our product line is that every component in every vehicle is identical. So they're not similar. They're identical. So a motor in a Vanish is the same as a motor in a Valet is the same as a motor in a Vapor. And the reason we did that, the motors are the same, the wheels and tires are the same, the seats are the same, the displays are the same, the controllers are the same, the batteries are the same. That whole philosophy means that a customer who puts a logistics plan or a supply chain for spares and provisions in place for any of our vehicles has a supply chain for all our vehicles. So the initial order you saw placed is an order that will provide axial flux motors for every single product in the product line this year and every single product anticipated on a go-forward basis.
spk04: Great. I think that's an important point, too, that investors will eventually pick up on as well. Maybe just a quick question for Dave. The growth in inventory is associated with all of the new products. There's no longer any club car-related inventory in it principally. And then lastly for Dave, if I sort of look out through the, you know, forecasts over the next 12 weeks to get past the homologation process, Dave, we could possibly be taking the first orders and booking sales in Q3, or should I look at that maybe being a Q4 item?
spk06: Thanks, Brian. I appreciate you. First off, with the inventory purchases, inventory is vastly consumed by the AeroVanish. Now, we will, of course, be needing a few small parts to support our legacy product, that central product. but it'll be minimal, completely immaterial to our books. Buys now are to set up for LRIP and then of course to set up for full production as we move forward and to increase those prepaids and actual inventory buys as we prepare for that. As for your second question, we've been talking through this presentation about getting our vehicles built as we complete homologation and of course that will dictate when we recognize sales in certain areas. So that will be something we'll be following very closely. We have everything aligned with those home obligation teams so they can move as quickly as they are able to move so that we won't hold them up at all because our priority is to get the vehicles out as quickly as they can, especially the demo vehicles to our fleet and channel partners, and, of course, recognize the corresponding sales along with those units being moved.
spk04: Great. Thank you so much. Thanks, Brian.
spk01: Again, if you have a question, please press star, then one. The next question is from Matthew Poloshek, a private investor. Please go ahead.
spk02: Good morning, Tom and everyone. For clarification, I think you mentioned that your remaining cash was in about $41 million. But if I'm looking at the earnings sheet here, it looks like the cash at the end of the period is $31.9 million plus a few assets around $137 million. Can you explain what I'm missing here?
spk06: Yes. So the term we talked about with that $42 million is cash and marketable securities. So we still hold, if you look at that next line, a significant amount of mainly T-bills in our product portfolio to just get the best use of our cash that we're not actively using. So we do hold some in marketable securities that we include in that $42 million because we have easy access to that cash.
spk02: I'm looking at – yeah, I just don't see it in the – you said the next line.
spk06: It depends on what chart you're looking at. So we have – if you're looking at my balance sheet, we have cash and marketable securities. And so those are the two pieces that we include together because they're very liquid.
spk02: Okay, thank you.
spk01: Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Tom Wittenschlager for closing remarks.
spk05: I want to thank all of you for participating in today's call and for your interest in Arrow. We look forward to sharing our progress on our next quarterly conference call when we report our second quarter 2023 results, likely in August of 2023. Thanks again. Have a good day.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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