Canoo Inc.

Greetings and welcome to the Canoe First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A 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. Please note that this conference is being recorded. I will now turn the conference over to our host, Kunal Bala, Senior Vice President, Corporate Development and Capital Markets. Thank you. You may begin.

Thank you, and welcome everyone to Canoe's quarterly earnings conference call. With me today are investor, chairman, and CEO, Tony Acala, CFO, Ken Mangat, and CAO, Romesh Murthy. Tony will provide an update on the business. Ken will then run through our capital raise strategy, and Romesh will share the financial results for the quarter. We will then open the call up for questions. Please be advised we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. 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 on our most recent form 10Q and 10K and other reports that we may file with the SEC, including form 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. During this call, we'll discuss non-GAAP financial measures. You can find the 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 please navigate to the webcast landing page and access the video link towards the bottom left of the page. We will pause briefly while you watch the video. Over to you, Tony.

Thank you, Kunal, and thank you, everyone, for joining us for our Q1 2023 results. Last earnings, which was less than six weeks ago, we provided a comprehensive update which included important legacy issues related to the company's past management. As disclosed in our Q4 2022 filing, we reached a settlement with the staff of the SEC, and we continue to wait for the final approval of the settlement by the Commission, which we hope to see in the coming quarter. We understand that the staff's investigation of former senior executives remains ongoing. The management team continues to focus on resolving the remaining legacy issues, some of which we will cover in this earnings release. I encourage you to watch Warren Buffett and Charlie Munger's comments about the traditional automotive industry at Berkshire's recent shareholder meeting. The traditional auto manufacturing business is tough, which we completely agree. And that's why we are not trying to be a traditional OEM, but a TEM, which we introduced with the refounding and we will cover more starting now and in the coming quarters as we go to market. Rapid rise in interest rates, uncertainty of future Fed policy, unstable regional banks, and unresolved debt limit discussions are continuing to create headwinds for US and European economies, which directly affect the traditional automotive industry. This will be a challenging period for the traditional automotive industry. We have all seen the numbers coming in from others with weakening demand for consumer vehicles due to the rising cost of capital, continuing fears of inflation, and the inbound zero-emission technologies. Medium to long-term demand for zero-emission technology-driven vehicles will continue to grow rapidly. As we can see, the average age vehicle has reached an all-time high between 12 and 14 years, depending on the segment. These numbers prove that the stage is set for zero emission technology driven vehicles, especially in the TAMs and geographies we are focused on, where there is current demand and high volume buyers. We also believe that we are focused on the geographies and segments where there is available capital and favorable regulatory conditions. Our strategy to deliver a high return on capital platform, starting with our commercial customers who order in volume and across multi-year cycle. For the overall industry, weakening consumer demand and higher negative margins on early production units for many of the newcomers that chose to put in place large production facilities ahead of confirmed orders has been a challenge. Our strategy is different and therefore has different challenges. that we are focused on remediating as we raise very targeted milestone driven capital. We are starting to see improving pricing conditions for our platform. We have a multi-year organically growing order book. 200 plus mile EPA confirmed range with our highly efficient configuration for last mile delivery use cases, which is often 30 to 50% higher than the competition. We remain focused on range and performance optimization by customer and by customer use case. In other words, you need to know exactly what range and the operating environment conditions that exist for that specific customer. Fewer parts drive lower complexity to manufacture that result in lower cost and we will start to share our clear path to cash flow positive. We have gained strong support from our commercial customers on our rollout and go-to-market strategy. We don't care what it is designed to do. We care about what it can do and must do for our customers to get a high return on capital. We are continuously focused on our extensive testing and customer validation programs, which is reflected in our order book because many of these customers have already run or are currently running advanced in-depth tests with our platform and we will have some additional announcements shortly. Previously, we explained our early decision to onshore manufacturing and jobs to the US. While it may not have seemed like the right move at the time, this has positioned us well to benefit from the current environment. is eligible for the ev commercial tax credit under the inflation reduction act currently this is not available to many others as discussed due to pricing and offshoring as we said above the oems have always focused on establishing large capacity up front but this has often been an anchor during tough economic conditions and radical changes in technology our decision to stage how we bring capacity online with the ability to expand at an incremental basis we believe will prove to be more prudent capital allocation and geographic expansion strategy. We invested our capital on democratizing our IP and assets to address some voids and white spaces we anticipated in the existing and emerging TAMs for our technology. We will share more in the coming quarters. Another benefit to our strategy is we focused on launching a commercial product without the high cost and manufacturing risk and complexity based on consumer expectations of interior trim and infotainment systems. This will require less capital. While we scale and reach break-even margins faster and achieve positive cash flow at lower volumes, we are focused on achieving this. And we continue to do more work to refine our competence in achieving the above. As we transition to manufacturing and go to market, the workforce transition to support manufacturing in Oklahoma will enable us to ramp headcount more efficiently from a total cost perspective. We are seeing a material labor arbitrage as we shift our mix and headcount ratios between our Oklahoma and California workforces. As we start to mature, we must gain better ability to coordinate and optimize our cost structure. Moving to manufacturing, we secured a long-term lease for the OKC manufacturing facility. We were able to help reduce the capital burden and dilution for the company by structuring a sale lease back via my family office. As a committed long-term believer and shareholder, we structured the initial payment to include shares so the company could redeploy the cash for other more time-sensitive priorities. Another way to think about this, on a diluted and non-diluted basis, we raised and deployed the most capital in any quarter since the de-SPACing. Early manufacturing is hard. We recognize it. We are embracing it and we know we do not have all the answers. What we have focused on in the last few quarters is to put a great team together that has the experience and passion to continuously innovate, focused on doing it right, better, and different, while de-risking complexity in the advanced manufacturing process. We continue to learn from the struggles of those currently ramping production with too many off-the-shelf, third-party, deharmonized, and sometimes complex parts and assemblies, while dealing with diverse supply chains and high barriers of software integration issues across these independent parties. That said, we are still fighting some legacy matters, primarily in the areas of harmonizing our supply chain for production, which is also being exacerbated by our just-in-time milestone-driven capital discipline. This has put some fatigue, friction, and capital leakage while we get harmonized in getting better efficiency for production. Our team is currently installing and has started working on setup and functional validation of the general assembly line at our Oklahoma City manufacturing facility. This also includes our body and white main line which we recently shipped from Detroit to OKC. We remain focused on exiting 2023 at a 20K run rate, which opens the ability for us to move to 40K run rate by 2024. This approach is based on our current order book and our focus on targeted just-in-time capital expenditures and reaching our target gross margins. Many criticized us on a small NASA order. Now we will share a little of the reason why. NASA is an important partner and customer for us. We are deeply engaged with NASA's team of scientists and engineers on the vehicle's performance and functionality, especially around interior behaviors, comfort, safety, and security that is uniquely configurable because the first 80 miles of an astronaut's journey starts in a canoe. Their investment has been invaluable and is helping us learn and innovate as we prepare to deliver unique interior configurations for our customers based on our highly functional futuristic design. In fact, as you have recently seen on social media posted by NASA, our team hosted NASA's Artemis team led by Charlie Blackwell, as part of an important milestone review. If you haven't seen it, please feel free to look it up. On top of the above, it is an honor to be able to work with some of the most impressive American innovators at NASA, and we remain on track to deliver the vehicles in the coming quarter. As we said earlier, we have a strong, resilient, multi-year order book with improving pricing conditions. Our order book is now valued at $2.8 billion. It grew 5% quarter over quarter in Stage 2 and Stage 3 orders, and we will announce shortly the finalization of two important sales agreements, one with a Fortune 100 and another with a Fortune 500. This is further validation that our work-ready platform meets and exceeds the needs of our targeted customers. In closing, we have to continue to do more with less. This is an important and complex phase with many moving pieces. We know we have to prove ourselves, and we are focused on doing just that. Now turning it over to Ken and Ramesh, who will provide an update on our capital raise strategy and give you a deeper view of our financial performance and our projections.