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spk03: Greetings and welcome to Faraday Future Intelligent Electric Incorporated Second Quarter 2023 Earnings Call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Morocco. with CFO. Thank you. You may begin.
spk04: Thank you and welcome everyone to Faraday Futures' second quarter 2023 earnings call. We issued a shareholder letter reporting our results and filed our quarterly report on Form 10-Q for the second quarter 2023 this afternoon, August 21st, 2023. Joining the call today from Faraday Futures is our Global Chief Executive Officer, XF Chen Global SVP of Product Execution, Matthias Eyt, and myself, Jonathan Marocco, Interim Chief Financial Officer. You can find a copy of the Q2 2023 Shareholder Letter now and a replay of this call later today on the Investor Relations section of our website at investors.ff.com. Please note that on this call, we will be making forward-looking statements based on current expectations and management assumptions. These statements reflect our views only as of August 21st, 2023, and should not be relied upon as representative of our views as of any subsequent date. Except as required by law, we undertake no obligation to revise, update, or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including the section titled Risk Factors in our latest annual report on our amended Form 10-K and our quarterly earnings report for the second quarter 2023 on Form 10-Q. In addition, During today's call, our management team will give our prepared remarks and answers to investors' questions in English. A translator will provide simultaneous Chinese translation, which can be accessed through ff.com. All translations are provided for convenience only. In the case of any discrepancy, management statements in English will prevail. With that, I will turn the call over to XF Chen, Global CEO of Faraday Futures.
spk06: Thank you, Jonathan. And good day, everyone. And thank you for joining our conference call. To start the call, let me give you a brief update about our progress with our production and delivery. Following this, Mattia will provide an overview of our technology, and Jonathan will provide a review of our financials, covering topics such as fundraising, and the measures we implemented to strengthen quality of nature. For those who have not had a chance to meet Jonathan, he recently joined the organization as an interim CFO and went forward to leveraging his talent and his valuable experience. I'd like to start today's call by saying that I couldn't be prouder of the FFT. Other combined efforts have propelled the company to accomplish significant milestones over the second quarter and beyond.
spk05: On April 14, 2023, our first FF912.0 Filtrate Alliance vehicle came off the line at our FF9 factory California. This moment reflected the culmination of years of unwavering research and development, underscored by the tenacity and the dedication of our entire team.
spk06: A few months later, on August 12th, we celebrated the delivery of the first FF91-2.0 Futures Alliance to our first industry expert developer corporate Along with the start of fiscal delivery of our vehicle, we kicked off our developer co-creation festival at Popo Beach this past week and launched our developer co-creation officer recruitment project. Here, I want to highlight two of our co-creation officer programs, SPO, Future Product Officer. is an open platform where FFs interact with user product expertise.
spk05: Through being invited to engage deeply in an entire process that features product design, development, and testing. FFs help identify user experience in FFs, offers improvement recommendations, provide valuable insights for better product experience and contributes to the product power upgrade. This in-depth product documentation process is aimed to jointly create products that best embody automated AI technology. An FTO Futures Technology Officer those who participate in the development of in-vehicle software, AI algorithms, applications, and services through the SDK technology open platform and application release platform released by iFast. FTO can also work with iFast engineers through the open source community to provide valuable R&D support to FX and jointly drive technology transformations in the automotive industry. For more details on our developer co-creation project, please visit our fx.com website. Since launching our co-creation campaign, collaborations with industry elites have delivered valuable insights in areas like brand marketing and user experience. By entertaining innovation with our partnership, we are propelling the company and our industry forward. As we forge ahead and move from a project-based company to an operationally-focused company, we are intensifying our efforts to strengthen our operational capabilities. In line with this vision, we are enriching our team by welcoming professionals from the industry. Rich Smith has stepped into the vice president of manufacturing roles. Edward Darwick has taken the helm as head of financial operations. And Jonathan Merkle, who you just heard, has been appointed as our veteran CFO. Their combined expertise and extensive experience underscore our dedication to achieving operational excellence and financial prudence. And lastly, on August 30th, we completed the business registration for FM Auto Hubei Company Limited, marking a significant step forward in the progress of our China effort. We believe that a successful collaboration will shift the next generation of shared intelligence transportation ecosystem and establish the most influential internet-based intelligent electric vehicle brand both nationally and globally. We further expect that such a collaboration will support the development of a leading high-end internet-based intelligent electric vehicle industry safety globally, becoming a representative base for new energy and intelligent vehicle industries. With that, I would like to turn the call over to Michael.
spk01: Thank you, Chef. With phase two of delivery, the manufacturing team at Hanford is diligently focusing on delivering the highest quality FF91 vehicles to our users. We have developed and implemented our customer craftsmanship audit procedure and standards, a strategic move that enhances our ability to evaluate the performance and quality of our vehicles effectively. I am pleased to report that the car is now in the hands of users and on the road. As we look to the future, our manufacturing team continues to optimize the facility, preparing for increased volumes throughout the rest of 2023. We are planning to triple our manufacturing team in the coming months with the addition of a second shift, a step that will support our anticipated increase in production volume. A commitment to excellence that has characterized our progress so far will remain a guiding principle as we move forward. I'd also like to take some time to highlight this revolutionary vehicle, the FF91 2.0 Futurist Alliance, our innovative flagship model, and further elaborate on our state-of-the-art automotive AI capabilities. More than just a vehicle, we believe the FF91 Futurist represents a new era in performance and user experience, charting the path for the automotive industry. This is the 2.0 phase of development at FF. We are heralding the future of the SPIRE mobility industry, a future marked by four distinct trends, all AI, all hyper, all ability, and most important, co-creation. We believe these trends are not abstract concepts. They are tangible realities in our offerings. The all ability AI hyper car, SF912.0 Futurist Alliance, stands out with superior configurations and performance. Equipped with the three motors generating 1,050 horsepower and 1,977 newton meters of torque, it leads the class with a 142 kilowatt-hour battery pack and an EPA-certified range of 381 miles. The vehicle showcases the pioneering mode body structure and mode pack structure, together forming the largest in-class side impact crumble zone around the battery design. This design enhances occupant and battery protection without compromising the spaciousness of the vehicle. Underpinning the FF91 2.0 is our FFAI Hyper 6x4 Architecture 2.0. Powered by FFAI, this architecture is designed to permit the car to understand user habits, continually learn and evolve to provide a user-centric experience. The third AI space augments the interior space, ensuring unparalleled comfort and pleasure. The integration of FF6 technology platforms with our four technology systems, symbolized by 6x4, lays the groundwork for our commitment to pioneering innovation and excellence in the automotive sphere. Since unveiling our generative AI product stack in early May, we have been diligent in enhancing its functionality. The development of a watch and chat product prototype exemplifies this. Catering to specific multimedia scenarios, it leverages a large language model supplying real-time information on an ultra-wide passenger screen for an engaging experience. The integration of different AI models ensure flexibility, intelligence, and adaptability to user diverse needs. Moreover, we introduced FFAI driving at our launch event. The system offers ultimate safety and a suite of features like automatic emergency braking, adaptive cruise control, and smart parking. We took the vehicle on the road recently driving down from Silicon Valley to downtown LA on a single charge. FF stands at the forefront of automotive AI integration, utilizing advanced models like JetGPT and GPT-4. Since launching the FF91 in 2017, We have continually refined our IAI capabilities, ensuring that our offerings remain at the pinnacle of the industry. The FF91-2.0 Futurist Alliance is a significant evolution, symbolizing a fresh perspective from the vehicle we introduced six years ago. We believe we are not merely following the industry's path, we are charting its course. Our vision continues to drive innovation, redefine the automotive experience, and set new standards that others aspire to meet. Now, I will turn the call back to Jonathan, who will go over the financials.
spk04: Thank you, Matthias. I would like to begin by providing a financial overview followed by a discussion of our funding effort and cost-cutting strategy. First, I would like to summarize our financial results for the second quarter of 2023. Faraday Future reported an operating loss of $56.0 million for the three months ended June 30, 2023, as compared to an operating loss of $137.5 million for the three months ended June 30, 2022. The reduction in the operating loss was primarily due to a decrease in engineering, design, and testing services as the company substantially completed R&D activities related to the FF91 vehicle in 2022 and was focused on capitalizable activities attributable to the start of production, which was achieved on March 29, 2023. This was coupled with decreases in personnel, compensation, and professional services as part of the company's cost-cutting efforts. Net loss was $124.9 million for the three months ended June 30th, 2023, as compared to a net loss of $141.7 million for the three months ended June 30th, 2022. The change in net loss was primarily due to lowered operating expenses partially offset by higher non-cash mark-to-market measurements and settlements secured convertible notes recorded in the second quarter of this year. Turning to our balance sheet, total assets on June 30, 2023 were $567.5 million compared to $529.3 million on December 31, 2022. Total liabilities were $289.8 million versus $328.3 million on December 31, 2022. Since inception, the company has incurred cumulative losses from operations and negative cash flows from operating activities and the company's accumulated deficit was approximately $3.8 billion as of June 30, 2023. Net cash used in operating activities for the six months ended June 30, 2023 was $160.7 million compared to $235.1 million for the six months ended June 30, 2022. Capital expenditures were $25.9 million for the six months ended June 30th, 2023 compared to $90.2 million for the six months ended June 30th, 2022. Net cash provided from financing activities for the six months ended June 30th, 2023 was $181.8 million compared to net cash used in financing activities of $85.8 million for the six months ended June 30, 2022. Cash balance at June 30, 2023 was $19.4 million, including restricted cash of $1.5 million. Now let me provide you with a funding update. During the second quarter, as previously highlighted, we secured a commitment of $100 million in gross financing through unsecured convertible notes contingent on specific terms. FF Global Partners, a consortium of approximately 20 present and past senior executives, pledged $80 million out of this committed amount through an independent investment fund. Our management team's dedication was further exemplified when they funded $22 million of gross commitments ahead of schedule, forgoing certain closing prerequisites to bolster Faraday Futures' growth. Moreover, on June 26th, we fast-tracked a sum of $15 million from secured notes, and secured $90 million of funding commitment from our existing investors, subject to certain closing conditions. As of today, we have $171.3 million of gross committed funding not yet funded, equity line of credit, or ELOC, of $350 million. Both the gross committed funding and access to the ELOC are subject to certain conditions. Concurrently, The company is also in financing discussions with potential long-term strategic investors and exploring asset-based debt financing. I'd like to take a step back and talk big picture about Faraday Future and our prospects. It's been a remarkable nine-year journey to reach where we are today with no shortage of obstacles, and we finally delivered a vehicle. I have immense gratitude for the hard work of both current and former members of the FF team. The delivery of our first vehicle is a huge step in the development of our company and certainly one of the key milestones in building a successful, profitable business. We appreciate our investors' understanding and support during this journey. Our focus this year is the rollout of our first vehicle and the continued improvement in the efficiency of our operations. In terms of profitability and operational efficiency, we believe there is substantial room to reduce our costs both under per vehicle cost and at a company-wide level. As I noted, our accumulated deficit is $3.8 billion. I think it's important to understand the perspective that this figure is also representative of the amount of capital that has gone into progressing the business to where it is today. It's capital that has gone into our product and our technology, and it has enabled us to deliver our flagship FF91 vehicle. It is a notable data point when thinking about the cost to recreate a leading edge business like ours. I'm sure there is and will be a lot of attention paid to our vehicle production and vehicle delivery numbers. We believe our Hanford facility has an expected production capacity of approximately 10,000 vehicles per year. As such, the number of vehicles we produce and deliver this year, while obviously important, does not meaningfully determine the long-term value of our business. What drives our long-term value is our ability to achieve product market fit, to make sure we have and can create the demand to meet our ability to supply the market. We believe our sales and marketing team is now able to realize their strengths and can focus on reaching potential customers. At the same time, we will continue to work on improving our per vehicle production costs and slowly ramp up production this year in conjunction with those cost cuts. In this stage of our business, we are being very strategic and selective in deciding who we deliver vehicles to. We continue to believe that we operate in a unique market segment, a hybrid of technology, luxury, and performance, in which we believe we outperform any other automaker. Given our dual home market strategy, our ability to access the China market the largest global automotive market, is unique among ultra-high-end vehicle manufacturers such as Rolls-Royce, Ferrari, Bentley, and Maybach. I'd encourage analysts and investors to look at the annual vehicle delivery figures for publicly traded ultra-high-end vehicle manufacturers. You'll see that huge production and delivery figures are not requirements to establishing meaningful market capitalizations, but what is required for us is improved margin, increased awareness of our vehicles and the creation of brand strength. We are focused on that. Lastly, I want to quickly touch on our status of implementing internal controls over financial reporting. Over the past year, the company has been working diligently to improve its business and system processes and implement internal controls over financial reporting. As we sit today, We believe we have a better system and processes in place than we did a year ago. Today, concurrent with this earnings release, we've issued restated financial statements for Q3 2022, full year 2022, and Q1 2023. The errors were first identified as a result of the company's implementation of actions to remediate material weaknesses in the company's internal control over financial reporting. The restatement was primarily due to non-cash and non-operating classified items relating to its accounting for the conversion of the notes payable and exercising of its liability classified warrants under its debt arrangements. The company has corrected the identified material and immaterial misstatements in those affected periods. The company remains committed to improving its internal controls and upholding the highest standards of financial reporting. Finally, we want to emphasize our goal create a profitable business with operating cash flow breakeven in 2025. With this goal in mind, I will now turn the floor back over to XF.
spk06: Thank you, Jonathan.
spk05: Once more, I'm immensely proud of the unwavering dedication and the relentless effort displayed by the FF team. to achieve this significant milestone in our general plan. As we move forward, we eagerly anticipate reaching phase three in our general plan. I extend my gratitude for your time and interest, and I am excited to keep you informed about our latest developments in the future.
spk04: Operator, we are ready to take questions.
spk03: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we post our first question. Our first question comes from Steven . Please proceed.
spk00: Thanks, and good evening, everybody. Thanks for taking my questions. The first for me is, you know, you talked about Hanford a little bit, but can you talk about what types of volumes you expect, you know, maybe in the back half of this year and kind of what a reasonable expectation might be for 2024?
spk04: Sure, Steven. This is Jonathan. I think it's a great question. I certainly understand the desire for guidance around production and delivery volumes. We've just launched a new vehicle. We're a new brand, and we want to be very thoughtful about how we enter this new market. We want to make sure the FF91 is well-received, so we're being prudent with our production ramp and the delivery of vehicles to market. We're an ultra-high-end vehicle manufacturer, so the key for us is not massive volume at this stage, but rather strong brand recognition driven by an exceptional product. We also want to partner with the right users, give these users an unparalleled luxury experience, and we'll do this while working with them to ensure the vehicle meets and exceeds their discerning standards. As we ramp up production, we'll continue to host curated events that introduce our vehicle and the experience of driving and riding in our vehicle to our target users. So the focus for the remainder of 23 is less so on huge volume and more so on brand building and creating a community of enthusiastic ambassadors to amplify our brand. We believe that this will set the stage for a ramp in volume in 2024.
spk00: Thanks for the call. Two more for me. Just one as a follow-up to that. Is there any guidance or any targets you have given what you're doing on the cost side? as far as what volumes you think you need to get to cash flow breakeven or EBITDA breakeven?
spk04: Sure. So we're working through that internally. We have a sense of it internally, but we're not yet ready to disclose that publicly. But I understand the question. I think it's a valid question.
spk00: Thanks. And just one more for me. You did mention getting the financials restated numbers filed for the last three quarters. Can you give us a little more color on kind of the internal controls and improvements that have been implemented?
spk04: Sure. Yeah, I'll reiterate a bit what I mentioned earlier. The team's been working very hard over the past year to improve and implement internal controls. The system we have in place now and processes we have in place now are certainly better than they were a year ago. We've improved internal controls in both the preventative and detective categories. As you saw today, we issued restated financials for three Q22, fiscal year 22, and one Q23. And in doing so, we corrected all material and immaterial misstatements in those periods that we identified. you know, bigger picture, medium term. Our goal is to remediate a portion or all of the material weaknesses when we release our annual report in early 2024. Great.
spk00: Thanks for the color.
spk06: Of course. Yeah, thanks for the question, Stephen.
spk03: Our next question comes from Mike Ward, the Benchmark Company. Please proceed.
spk02: Thanks very much. Good evening, everyone. Jonathan, maybe just to follow up on that, when we're looking at production unit deliveries for 23, when you say some, are we talking 50? Are we talking 100? Do you have any guidance at all you can provide us? You mentioned in the release that you expect to be generating some cash from vehicle sales.
spk04: Sure. Yeah, we're still hesitant to put a specific number on that at this point. I think maybe next quarter or certainly in the 4Q period, We'll probably give more detailed guidance around deliveries and production.
spk02: So then it's safe to assume in 3Q we're talking just a few, maybe 10. And then maybe we can step it up a little bit as you get to 4Q. And then 24 is another story. Is that the right way to think about it?
spk04: I think that's the right way to think about it. 2024 is really going to be when we see the ramp in production is what we believe internally. And again, like I mentioned, a lot still is on the brand building side. and making sure that the users who have purchased the vehicle enjoy the vehicle. And yeah, in this, there is going to be cash received from selling these vehicles.
spk02: Right. And along with that, I don't know if anyone there can talk about what you're doing on the side of customer sports service, how those programs are working. How do you intend to push that forward to enhance your user experience?
spk05: Before I answer your aftermarket questions, I think for the volume, I appreciate everybody has kept very close eyes on what our wrap-up plan and how much volume we plan to deliver this year, 2023 and 2024, and when we can break even. I think all of these questions are under review by the company. As John Lawson just mentioned, in this short stage for 2023, our major objective is to think about how to build our brand as an actual luxury brand. That's a very important position for a new brand. In parallel, we successfully passed the SOP and we successfully delivered the vehicle, which means we are compliant with the regulation requirement. And in parallel, on the operation side, we release the order to our supplier base continually. The more volume numbers already been placed, the order already been placed for the long-need parts. And in parallel, we are under discussion what's the approach and what kind of derivative vehicle will be produced. So later on, I think we will have some more accuracy numbers with a very strong philosophy behind. And then appreciate for that question. And then back to the service. Normally after OEM deliver the vehicle or the customer industry, we're thinking about what kind of service we can provide to the customer. to make sure their experience being protected and be better. So we have built a filter of after service for the vehicle. For example, with FF service, user will never have to bring their FF91 to a service location. With a preliminary vehicle pickup or FF mobile service, convenient. And the Huawei 3 support is momentary. Utilizing the FF91 intelligent vehicle remote diagnostic and over-the-air software updates, we ensure our users peace of mind through their FF journey. They can schedule their service through the FF app, which will include other functions, such as the service alert and directory, which FF service support team. Some of the key assumptions or key service, like one is roadside assistance. For five years after purchasing FF91, user will have peace of mind that they are covered by FF roadside assistance 24-7 and 365 days a year. A user can contact roadside assistance director through the FF APP or calling the FF roadside assistance number. The second one is the FF portable charger with dual voltage capability with both level 1 and level 2 AC charging capability. The FF portable charger achieves up to 9.6 kilovolt of the output. And also we talk about the FF home charger. For fully utilized FF91's charging capability, we will offer a branded FF home charger supported up to 19.2 kilowatts. An FF home charger is a smart Wi-Fi connected charger, comfortable with most EVs, can be installed indoor or outdoor. And also, we simplified the installation process by partnering with Comirage for charging installation service. The last one is for the public charging. Users can enjoy the convenience of charging on the go. FF is offering $1,000 FF charging credit with the purchasing of the FF9198 edition. With up to 180 kilowatts of peak DC power capability, our FS-91 is compatible with the RASC network of public charging stations throughout the U.S. and Canada. I wish I could have the question.
spk02: Thank you. Just one last one for me. You have a couple of charts on the slide deck talking about co-creation. Could you talk a little bit about that, because that seems to be unique out in the marketplace, the structure and maybe the strategy you guys are implying with that and what you hope to get out of it?
spk05: Yeah, this developer co-creation is FF innovative brand marketing and user operation methods, which is different from the traditional OEM marketing and product improvement methods. The corporation engaged high quality users earlier in the process and at the same time obtained these users' infusion and their expertise for the products, technologies, brands, services through their user feedback. This helps the company build a very positive image and improve products and technologies among others. The first group of the car owners have been invited to join FF Developer Cooperation Mission, and the third as the FF Developer Cooperation Officer. With their industry expertise, these users will create value while benefiting from FF innovative offerings and this alignment for the interest This kind of alignment for interest no doubt embodies FF's core philosophy and the business model of value, cooperation, and the benefits for the co-sharing. So although it takes some more time to pick up these partnerships, but we strongly believe it will be very well worth for the weight and the value
spk02: So these people will be customers slash partners is the way it's set up structurally.
spk05: Yeah. Yeah. You know, I, myself, I work for the, a lot of, sorry, myself, I work for other traditional OEM in the past 30 years. Normally once we launch a car, we hold a very big launch event and, spend a lot of money and just do a PR purpose and introduce the MSRP, the pricing, the service, the technologies of the product, and then just push to the market, right? And then go into the routine, go into the routine, production, and the sales service, that kind of loop, right? However, once we move to the eBay, you see some of the outstanding products outstanding strong products like FF91 alliance. We offered more than $1,050 cost per and with very strong AI integration systems. So there will be a lot of uniqueness of this kind of luxury product. So we do need to have this kind of co-creation process with our customer and our partners I cannot say train them. I just want to show to them how we drive this car, how we use this car, how we operate this car, and how we feel this car, right? There's a lot of oppression and a lot of feeling quite different to the normal traditional brand or traditional product. And a lot of, to be honest, a lot of expertise. They also have a very strong infuses them, want to jump into this kind of process. I mean, to drive the car, find the issues, provide their suggestions, and to see the OEM can take their valuable suggestion and do an upgrade. So this kind of integration between OEM with our partner users through using WebEco, design level code, development level code, upgrade level code. So I think that's the real value of this kind of co-creation.
spk06: Thank you. Thank you very much.
spk03: Thank you. There are no further questions at this time. This concludes today's teleconference. You may disconnect your line at this time. And thank you for your participation and have a great day.
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