Canoo Inc.

Hello, and welcome to the Canoe Inc. first quarter 2021 earnings call and webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kamal Hamid, Vice President, Investor Relations. Please go ahead, sir.

Welcome to CNU's first quarter 2021 earnings conference call. My name is Kamal Hamid, VP of Investor Relations at CNU. As part of our presentation today, we will direct you to a short video that you can access from the landing page for this webcast. If you haven't joined via webcast, we invite you to log on using the link in our earnings release so that you can view the video. Today, I have with me Tony Aquila, our Chairman and CEO Renato Giger, Interim CFO, and Ramesh Murthy, Chief Accounting Officer. Tony will provide an update on the progress we have made since our last call and describe the metrics we will report on for the balance of 2021. Then he'll turn it over to Renato and Ramesh, who will go over our first quarter financial results. Tony will then provide closing remarks and we'll open it up for questions. During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent Form 10-Q and 10-K, and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, May 17, 2021, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release which can be found on the IR section of our website. Now, before I turn it over to Tony, we would like to share a new piece of marketing creative. This video embodies our mission to bring EVs to everyone. It shows our expanded product line, including the lifestyle vehicle, multipurpose delivery vehicle, and the pickup. It also highlights the families, fleets, and working professionals that the new product portfolio will soon serve. while delivering an extraordinary customer experience. Now, please navigate to the webcast landing page and access the video link towards the bottom left of the page. We'll pause briefly while you watch the video. For those of you who are not able to view the video, you can access it on our YouTube channel or the IR portion of our website. With that, I'll turn the call over to Tony.

Thanks, Kamal. At CANoe, our mission is to bring EVs to everyone, and this video shows how we have progressed the product portfolio to address a wide range of use cases and expand our total addressable market. It has only been seven weeks since we last reported earnings due to the timing of our SPAC transaction. Now, we are moving into a normal quarterly cadence with this report. In 2021, we will report on the following business areas. Product and technology, our progress towards production, manufacturing, our order and sales pipeline, human capital and operations, and any other material updates. Reporting on these areas will keep you up to date on how we are progressing on key aspects of our business. Before going into the business update, I wanted to share our view of the EV and SPAC market today. There are many things happening in the market, including an evolving regulatory environment. SPACs have democratized access to capital for emerging growth companies that would normally have been backed by early-stage private capital. By nature, these early-stage companies will remain dynamic as they mature in the public view. We have transitioned our strategy to better position us for success as a public company. Our new leadership conducted deep due diligence and course corrected our strategy. And we have performed in line with the EV SPACs over the past number of months. The EV sector has seen significant investor interest with billions of dollars being invested. But EV SPACs are now facing some near-term headwinds, including the SEC's interest in determination on how warrants are treated, supply chain constraints impacting both EV and, frankly, ICE OEMs, and company-specific issues. Our experienced leadership at Canoe has navigated many market cycles. We are focused on building a business today that will be positioned for long-term success. Now, Let me walk you through some of our business updates. We have a large, fast-growing, and profitable addressable market. Our business model takes into account total addressable markets, as we call TAMs, for both sales of new vehicles and sales in the aftermarket. Today, the new vehicle addressable market for our products is projected to be 4.4 million vehicles. in the U.S. and Europe by 2026. The new vehicle market is projected to grow by 16% annually from 2023 through 2026. In addition to new vehicle sales, we intend to capitalize on after sales TAM in three ways. $280 billion in service, maintenance, and repair with an approximate 40% to 50% gross margin, and $400 million in over-the-air services with a 70% to 80% gross margin, and $24 billion in accessories and customization with an estimated 50% margin. And finally, by focusing on the full multiple owner lifecycle, Canoe will have the opportunity to capture over 70 monetizable transactions across owners 1, 2, 3, 4, and beyond. As we announced today, pre-orders are now open on our website for all our vehicles. A lifestyle vehicle, a multi-purpose delivery vehicle, or as we call MPDV, and our pickup truck. All of these vehicles can be pre-ordered with a refundable $100 deposit. Please feel free to reserve your vehicle on our website today. The Lifestyle Vehicle will be our first product to market and will come in four trims. One, delivery. Two, base. Three, premium. And four, adventures. We're targeting a starting price range of $34,750 to $49,950 before upgrades for the delivery, the base, and premium trims of the lifestyle vehicle. Pricing for the adventure trim will be announced in the coming quarters. These prices are before incentive programs, which we hope for customers to apply to upfitting. Further, we will provide you more details on our digital service offering and customer journey platform in the near future. Canoe is building and refining our go-to-market strategy and team, and we are continuing to fine-tune our analysis to determine a proper revenue mix. The optimal mix will include a subscription program that represents approximately less than 20% of our volume. This will allow our customers to take advantage of the tax credits and rebates associated with vehicle purchases and leasing and is in line with the current administration's emphasis on expanding clean energy and EV penetration and infrastructure. We will provide more information on mix, margin, and geography in the coming quarters. Our retained top-tier accounting and management consultants are helping validate our analysis on these topics, as well as our re-forecast of the financial model. We will take a disciplined sales pipeline approach to managing opportunities, which will provide more certainty about projected orders and will be closely tied to how we develop our production systems. We will report our sales order pipeline in three stages. The first will include potential customers that have qualified. Two will include orders with a commitment volume and date. Third and the final stage will include orders accompanied by a binding contract with a non-refundable deposit. Disclosing our pipeline in this way will reduce any misperceptions of the difference between a refundable reservation and a binding order. At CANoe, we continuously innovate on three vectors, engineering, software, and hardware. To give a few examples, we have developed our own electric motor with approximately 40% higher power density, 24% higher peak power, and 18% fewer parts than comparable EV motors. We designed the first harmonized drive-by-wire system and a unique transverse leaf spring technology, which allow us to eliminate strut towers, creating a flatter platform and more than 50 cubic feet of additional interior space. We have implemented bidirectional charging capability, which enables our vehicles to function as mobile power plants and meet what we believe will be an increasing demand from private and commercial customers. We use leading battery cells, which are cleverly and efficiently packaged into an MPP using proprietary canoe technology resulting in superior specific energy and energy density than other EVs. The above further clarifies our focus on engineering and protecting our IP. We believe this focus generates a higher return on capital than contract engineering, which features operating margins in the mid-single digits. and as an innovative company, reduces our competitive advantage by enabling others. As part of our continuous innovation, we would like to announce a multi-state university program. And we will start with the University of Wisconsin. This partnership will focus on advancing key electric powertrain technology further enhance U.S. competitiveness that we believe benefits the entire EV industry over time, accelerate and expand our ability to innovate and create more IP for Canoe, and broaden access to a critical talent pipeline of PhDs, undergraduates, and interns before entering the workforce, which is a huge mutual benefit. we have targeted to launch our partnership with the opening of the university post-COVID. Now, I want to give special thanks to a great American visionary and innovator, former Governor Tommy Thompson, President of the University of Wisconsin System. I would also like to thank Chancellor Rebecca Blank for her insight and leadership in encouraging the university faculty to further partner with companies like Knud. But to be clear, this partnership is separate and does not influence our phase two manufacturing selection process. Through our beta phase, we have invested more than 250 million in R&D, validation, and testing, which has allowed us to log and analyze a huge amount of data. With our beta phase complete, we are now accelerating phase one of gamma. In gamma, we will produce vehicles with design and parts using production tools and processes. This is an important phase that validates the car's final design and our manufacturing method. In this phase, we will produce 120 to 150 vehicles and log hundreds of thousands of additional miles. Two, ensure that the highest production quality standards validate the production vehicle in the real-world testing across multiple climates and environments, iterate on the software ecosystem, better define service maintenance and repair processes, and improve customer satisfaction and reduce total cost of ownership. We believe deeply in providing our customers with the highest safety standards, which is why we are investing in our gamma phase before start of production, or as we say, SOP. By investing in this important step, we can reduce the likelihood of recalls and customer dissatisfaction, which can cost hundreds of millions of dollars. We remain on track to complete gamma and meet SOP by late 2022. We will provide an update on gamma phase on a quarterly basis. We do not currently expect delays due to COVID-19 at this time. However, if certain conditions that exist today continue to affect the market, then our expected timing may be impacted. Our current production plan is to produce 500 to 1,000 units in 2022 and 15,000 units in 2023. In 2023, there is some additional capacity beyond our plan. However, we are taking a conservative approach to our projections. We will continue to update this in the coming quarters. Now, an update on our two phases of manufacturing. Phase one, third-party contract manufacturing. We'll deliver the four trends of our lifestyle vehicle to market. This enhances our ability for geographic expansion and speed to market. To meet our timeline of SOP by late 2022, we have accelerated our down selection to two high-quality established globally positioned contract manufacturers. Our team's work to carefully evaluate potential partners is expected to result in savings of approximately $200 million. We will now move to final selection, which we plan to announce in the next quarter. In addition, as to the end of Q1 2021, we have sourced 74% of our supply chain for Phase 1 Phase two, our wholly owned manufacturing. This will be for high-volume North American delivery built in and for America and beyond. It aligns with the current administration's vision for investing in American clean energy and provides us an opportunity to access non-diluted capital in the form of state and federal subsidies, creating more American advanced manufacturing jobs. It reduces our bomb and transportation costs and strengthens our global competitiveness while reducing local taxes and import costs. To date, we have evaluated more than 100 potential sites across the US for our phase two manufacturing facility. Our team and world-class advisors have met with multiple governors and other state and local leaders. I have personally been inspired by the reception of these forward-thinking governors and senators who are focused on securing a leading position in new, sustainable, clean energy technology and advanced manufacturing. Recently, states such as New York and Michigan have announced incentive packages for EV adoption and infrastructure. We see this trend continuing as part of the U.S.' 's focus on enhancing clean energy and infrastructure. At our recent board meeting, we officially narrowed our search from eight states to four, one site in each of the four states. We plan to down select to two sites by the end of the quarter and update you on the next call. As of the end of Q1, Our workforce has grown by 28% versus Q4 2020 to 544, driven by hiring of engineers. Our workforce consists of 452 FTEs and 92 contractors. We work with contractors on short-duration projects that require flexible staffing and where competitively sensitive information is not involved. Given our focus on innovation, about 80% of our workforce is dedicated to R&D, which is made up almost entirely of engineers, and we continue to attract top talent to drive this innovation. In addition, we have substantially built out our executive management team and have recently filled key roles in the go-to-market, fleet sales, and software development, which we will be profiling in the coming quarters. In addition to our design and engineering hub in California, we are diversifying our footprint of our employee base. We have added or will be adding offices in Texas focused on corporate functions, rapid prototyping, and go to market, Michigan, focused on purchasing and costing and, as I mentioned earlier, Wisconsin, which will focus on electric powertrain research and innovation. We're also exploring international hubs for further expansion. Geographic diversification of our workforce will optimize our human capital costs and enable us to attract talent specific to certain regions. The result is a workforce that is stronger, more diverse, and drives higher return on capital that is able to work in multiple time zones. As I mentioned earlier, there has been a lot of attention on SPACs. We recently received a notice from the SEC that they are conducting an investigation of CANoe. They characterized the process as a fact-finding inquiry Unfortunately, for obvious reasons, we are unable to take any questions regarding this, but we are committed to providing timely updates as appropriate. We are also pleased to announce that we have been able to repay the essential PPP loan of $6.9 million that was granted in July of 2020, prior to the merger with Hennessy Capital Acquisition Corp. 4 and our public capital raise. We would like you to save the date for CANOE's first IR Day. Before I turn the call over to Renato and Ramesh, I would really like to share that we are hosting our first IR Day on June 17th in Dallas, Texas. This event will be webcast and in-person attendance will be limited. You will hear from several members of our senior management, and we will provide updates on projected volumes, timing, and other important milestones. Registration is now open at canoeirday.com. With that, let me turn the call over to Renato and Ramesh.