Canoo Inc.

Q2 2024 Earnings Conference Call

8/14/2024

speaker
Operator
Ladies and gentlemen, we thank you for your patience. Please stand by. The canoe event will begin shortly. Again, we thank you for your patience. Please continue to stand by. The canoe event will begin shortly. Once again, ladies and gentlemen, we thank you for your patience. Please continue to standby. The canoe event will start shortly.
speaker
Paul
Greetings and welcome to the CANOE second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to John Wolfe, Vice President, Capital Markets and Investor Relations. Thank you, John. You may begin.
speaker
John
Thank you, Paul. Thanks, everyone, for joining us. Welcome to our Q2 2024 earnings call. During the call today, Tony will update you on our business and strategy. Greg will provide an update on our financing activities. And Ramesh will go over the Q2 financial results and discuss the optics and capital efficiencies we continue to generate. Please be advised that 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 discussion of factors that could affect our future financial results and 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 8Ks. 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 a reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found in the IR section of our website. With that, I'll hand it over to Tony. Thanks, John.
speaker
John
And thanks everyone for joining us today. We will review our recent achievements and give some insights into announcements we expect to conclude in the coming quarter. As we advance into manufacturing, we are finalizing build specs and configurations with our most significant fleet customers. Once complete, we will align our supply chain and announce our projected delivery and allocation schedules for 2025 and into 2026. Turning to the quarter, Q2 24 was our largest revenue quarter, $605,000. Our lowest cash outflow was approximately 50% lower than Q2 23. On May 24th, we delivered our first right-hand drive configured LBV 190s to the USPS, approximately 75 days of mail delivery in Atlanta, Georgia, in some of its seasonally wet, hot, and humid weather conditions. We recognized revenue from phase three of our DoD DIU battery testing program awarded to us earlier this year. Our customers have logged over 34,000 miles of real-world industrial use cases, the platform's stability is attributed to our extensive partnership testing with our customers over the past few years. Our SM model took its first step, service maintenance and repair. This team is called QRF, a quick reaction force, which functions similarly to military and aviation, and has resonated well with our fleet government and military customers. We also successfully deployed our first OTA updates to customers to enhance functionality and benefits to client workflows, often within 48 hours from request to update. On June 24th, we received advanced manufacturing assets of a rival UK In Oklahoma, 44 containers announced in the last quarter, with an additional six arriving this quarter, for a total of 50 containers. We are in the process of commissioning these assets, which advances our focus on vertical integrations. On July 29th, our OKC facilities Foreign Trade Zone designation was approved for full activation after inspection and approvals from U.S. Customs and Border Personnel. On the international front, we announced a 20-vehicle purchase agreement with Jazeera Paints with the option to expand to 200 initial deliveries expected in late 2020. second quarter of 24 and first quarter of 25. with the quarter we had multiple debuts in the uk of our 130 and 190 lbvs of our right-hand drive commercial platform and and we hosted and attended numerous fleet shows and customer rides and drives on test tracks on july 3rd red sea global concluded intense on-location testing in multiple environments. The pilot lasted 45 days in peak temperatures and conditions. We received numerous design awards in the quarter, including the prestigious Red Dot Award, the Green Good Award, and the One to Watch at the Great British Fleet Show in the UK. Now, let me give you a preview of what to expect from us in the coming quarters. Finalizing customer configurations. We have been focused on locking down specifications with our large fleet customers, which will inform our production and allocations in 25 and visibility into 26. We continue refining our customer acquisition, partnership fulfillment, and post-delivery services model, which includes customer deployment and testing of vehicles, configurated for specific use cases and commercial terms and conditions expected by our clients. Walmart is an example. It was July of 2022 when we announced Walmart's order. We partnered with the Walmart team and completed two years of extensive testing and refining of specifications and use cases for our customer's workflow. And there are other examples of large customers in varying phases of how we work hand in hand to finalize specs and schedule. With USPS, our modular platform, we believe is a good match with their need for a commercially available right hand drive vehicle built for purpose. We are focused on the upcoming USPS RFP. for electric vehicles expected later this year or in early Q1 of 2025 for an estimated 10,000 to 12,000 units in that RFP. More on international expansion targeting large fleet customers in our targeted geographies, the UK. debuted at three commercial fleet shows in the quarter, engaged with eight of the 15 largest fleets. Mandated EV adoption creates substantial tailwinds, positive initial feedback on our LDV-130 and LDV-190 vehicles as a unique fit for the UK LCV market. configurations, specifications, discussions for expected pilots to start in Q4. Red Sea Global. Pilot concluded successfully. It was 45 days, over 3,000 miles in rigorous desert conditions, sand, rock for 80% of the miles, heat 50% of the days were over 100 degrees, with max of 120 degrees Fahrenheit and average ambient temperature of 99 degrees. We are focused on next steps as we outlined above about our customer engagement model. We continue to make targeted progress in our supply chain harmonization. During the week of August 5th, we held our inaugural supplier engagement event at our OKC facility. We hosted representatives from approximately half of our BOM suppliers, the suppliers were able to connect with our long-term vision through vehicle drives and factory tours. It was the first time we've been able to open up the factory for their visits. We aligned on a path forward and continue to refine this as we ramp production together in the manufacturing phase. We continue to work on harmonizing our supply chain and finalizing our capital and debt instruments, including PO financing, especially since we only build sold units for grade A, triple B, credit worthy clients for 2025 and 2026. We expect this to reduce the cost of capital and maximize our flexibility to access other sources of capital including incentives and non-diluted sources. We are in discussions with multiple Tier 1 financing partners, more to follow at the appropriate time. Ramping up Oklahoma's workforce. As we accelerate the manufacturing phase, we are continuing the migration of our workforce to our Oklahoma and Texas facilities. With that, I will now turn it over to Greg and look forward to answering questions after Ramesh's session.
speaker
Greg
Thank you, Tony. I spend a lot of time with our team on the road with investors, customers, and suppliers. It's been gratifying to see our model play out despite a difficult macro environment, and I'm proud to see the progress being made every day and week with our team at Canoe. It's not always evident from the outside, but it's a lot of work to build a dynamic company that is positioned to win in the long term. And it's important to be in the trenches with a dedicated team you trust that produces results. We have a lot of great things happening at Canoe, and as you can tell, we're excited to share them. Remember, our team is not focused on the short-term month-to-month or quarter-to-quarter, but are instead focused on the long game, putting the building blocks together for long-term success and value appreciation. And it's been volatile. We appreciate our supporters, customers, suppliers, investors, and other partners. Shifting to capital and resources. Not every team has a chance to work with a visionary CEO like Tony that has built global businesses in the past and is also a large funding partner. We're fortunate to have him leading our team. Growth doesn't take place in a straight line, and we need to be nimble and make tough choices at each phase. As you've heard from us before, our capital raising efforts are designed to carefully match the needs of our business while minimizing dilution. During the quarter, we raised $40 million of capital, which purposely matched our cash outflows. The funding allowed us to progress our manufacturing to pursue significant testing and to engage new customer deployments. The capital markets remain choppy, but the company has been creative and scrappy. Our funding success reflects the consistent access to capital from a wide variety of sources, but it is a careful balance as we navigate the landscape. During Q2, we were able to secure financing, which was 35% prepaid advance, 40% from our partners at AFVP Partners, preferred convert, and 25% creatively structured as an advance on a tax refund. This quarter represents the first time we've raised a material amount of capital from non-dilutive sources, and we are pursuing others. Thus far in Q3, we have accessed funding from the PPA to bring total year-to-date capital raised of $104 million. We are continually evaluating financing opportunities that best limit shareholder dilution. but, and we have been actively marketing canoe with funds and family offices with a range of financial flexibility to continually diversify our shareholder base. We have been pleased with a significant number of financing opportunities we have been able to evaluate. Additionally, the substantial daily dollar volume of our shares of around six to seven million a day enhances options in accessing equity capital markets. But we do need to take a balanced approach, and as Ramesh will share, We have been very focused on managing our capital and outflows. Further, we recently were added to the Russell indexes, and we believe this makes us an attractive option for institutional investors as we move forward. We will continue to manage the finances with our broader team in a disciplined way and raise incremental capital that meets the needs of the business advancing into manufacturing. Now I will hand it over to Ramesh to cover the financial section.
speaker
Russell
Thank you, Greg. Now, let me walk you through the results for the second quarter of fiscal year 2024. We continue to focus on our financial discipline. Key accomplishments include the following. As Tony mentioned, we had a record revenue of $605,000 in this quarter derived from our USPS delivery and the Defense Innovation Unit's contract. Moving to the income statement. Our second quarter 2024 results are as follows. Research and development expenses totaled $16.8 million for the quarter, primarily compared to $38.6 million in the prior year period, a 56% reduction from Q2 of 2023. Our expenses were primarily driven by final engineering improvements support for our pilot programs and testing as well. SG&A expenses, excluding stock-based compensation, total $20 million for the quarter, compared to $23.9 million in the prior year period, a 16% reduction from Q2 of 2024. The Q2 of 2024 also reflects a 11% sequential reduction when compared to the prior quarter of Q1 of 2024. As it relates to our key non-GAAP metrics, here is a summary. 38% or a 23.7 million negative quarterly adjusted EBITDA improvement from negative 62.3 million in Q2 of 2023 to negative 38.6 million in Q2 of 2024. 20.1% or $9.7 million quarterly adjusted EBITDA improvement from negative 48.3 million in Q1 of 24 to negative 38.6 million in Q2 of 2024. 80.6% or negative 2.53 adjusted net loss per share improvement from negative 3.14 per share in Q2 of 23 to negative 0.61 per share in Q2 of 2024. Now, turning to the cash flow statement. We ended the quarter with cash, cash equivalents, and restricted cash of 19.1 million. Net cash provided by financing activities for the three months ended June 30, 2024 was 38.7 million compared to 76.2 million in the prior year period. Cash used in operations for the three months ended June 30, 2024 was 35.9 million compared to 62.3 million in the prior year period. 35.9 million cash outflow for the quarter is towards the lower end of the previous guidance provided in April of 2024. We will continue to optimize our working capital needs now and in future quarters. Our cash outflows from investing activities was 2 million for the three months ended June 30, 2024, compared to 15.5 million in the prior period. We reaffirm our cash guidance as we have come in the lower range of the spend as we continue to focus on manufacturing as well as move into our Oklahoma facilities. Additionally, based on our current projections, due to the pacing of capital and supply chain harmonization, we expect our adjusted EBITDA to be between negative 120 million to negative 140 million for the second half of 2024. Let me turn it back to Tony for closing remarks. Tony?
speaker
John
Thank you, everyone, for joining us today, and we look forward to answering some questions. I would like to do a special thanks out to the team that worked incredibly hard during our tests in the United Kingdom. Saudi Arabia, these were extensive long deployments and often put in use cases in weather conditions that were extreme. We love testing our vehicle in the worst conditions possible. This is the best way to build the character of the vehicle. And it's a tribute to the perseverance, innovation, and creativity coupled with the scrappiness of a hungry team. And therefore, on behalf of the executive team, we thank all of you. And in addition to that, we'd like to give our thanks to the supporters. They've been great and across multiple continents. We look forward to advancing in the quarter and bringing some more progressive and meaningful and value-creating news ahead.
speaker
John
With that, turn it back to John for questions. Paul, we'd like to poll for questions now. Thank you.
speaker
Paul
We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 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 keys. One moment, please, while we poll for questions. Thank you. Our first question is from Dan Ives with Web Push Securities. Please proceed with your question.
speaker
Dan Ives
Yeah, thanks. And good job on the progress this quarter. So could you just like in terms of the capital rate, do you expect it's going to be the same every quarter given the needs, whatever the capital you'll be able to raise and sort of that philosophy? We'll continue for the next at least few quarters.
speaker
John
Yeah, I think that's a great question, Dan. So, you know, to kind of dig deeper into that. So as you know, Dan, I've been criticized for raising, you know, incremental capital. You know, I do believe, as you know, we've discussed that, you know, the more money a company has that we've seen from some of the others that have fallen, is the burn rate gets too high. You know, we focused on being scrappy, funding the company based on milestones and key events. And I think that is really actually started to turn to the favor of how the business has learned to operate. And we'll continue to do that because, you know, right now, from my personal perspective and perspective of our executive team, you know, we're way under par. And so therefore, you know, it makes no sense to do anything other than to do exactly as we're doing during these volatile capital markets.
speaker
Dan Ives
Right. And in terms of just when you think about order flow and demand and, you know, just potential customers that are coming through Oklahoma, does it feel like the conversations are changing relative to what's like six months ago to where they are today?
speaker
John
I think when you sign up for a test with a customer, like we won't even write an order unless we've actually had our wheels on the ground with the customer and their workflow. So I think that has change the conversation. Our conversations have steadily progressed. And, and I think also, you know, going back to being criticized in the beginning, uh, heavily about shifting to just fleets and government and military focus. These are the mandated markets. Uh, they are resistant, um, to the economic because they're policy driven activities as well as deep institutional. coupled with the fact that we built a platform that gives a return on capital for our clients. So the conversations have been advancing right down to the specifications, because our platform allows for some built-for-purpose modifications on the assembly line. So that has done really well. People like things like our quick reaction force, 86% of of all the activities over the quarter was over the air, with, you know, only having to deploy advanced teams. And I think focusing in on customers that we can domino into markets, like the U.S. Post Office helping us launch into the U.K. and other right-hand drive markets so that we can get in, you know, with getting our FTZ approval actives now and the ability to build a couple of millions more square feet on our site. You know, we have the ability to entice partners to bring into the area as they become partners to our growth or expansion and delivery of our platform. And obviously it reduces our bond costs, which makes it more cost efficient for our customers. We're very focused on having the most affordable and the most durable And when you sign up for the worst tests, we love it. Because we learn something, and we often modify something, and it makes our product better. Most people don't like signing up for those things. In this industry, you've probably heard few that have. But this is where we like to start.
speaker
Dan Ives
Great, thanks.
speaker
Paul
Thanks, Dan. Thank you. Our next question is from Michael Legg with The Benchmark Company. Please proceed with your question.
speaker
Michael Legg
Thanks. Impressive print, guys. It's nice to see all the progress being made. I wanted to dig down a little bit into the supplier event you had and understand the supply chain, where it's positioned today. How are we with suppliers moving forward? It obviously appears that A lot of the fleet orders seem to be on the horizon. So just kind of give us a walkthrough of where we are supply chain wise, please.
speaker
John
Yeah. So look, I think, you know, we, we have a debt to pay to our suppliers for their patients, you know, cause when I took over the business, I changed the direction of the company, which, which, which had an implication to, you know, many of our supporting suppliers. Um, you know, we went to a military grade product. uh, industrial grade, uh, repairability redesign, you know, so we, we threw a lot of shock into the system, completely different customer base. Um, and you know, we, we have to kind of re harmonize all of that. You know, we are at a place now and that's why we had the event, uh, which, which about 52% of, of the, of the bomb was represented at the event. They got to see the factory. how it's coming together, how we're doing it in phases, how we're scaling according to volume and capex so we don't get ahead of ourselves like others. And then we put the people behind the wheel and put them in aggressive driving conditions, which they had a blast. And that really created a connection for them with what the pieces they've been supplying or the pieces we've been changing on them, they got to see the why. Cause we put them in an aggressive, you know, test track environment, uh, similar to the way we tested with our customers and they walked away proud. And that, that means a lot. We now need to harmonize our capital into our supply chain, but we won't do that until we lock, uh, our high volume customers specs down. So we can actually, cause remember our model is we only build sold units. I want to get out of the business of building to sell. And I want to be very tightly integrated on multiple levels with our clients on a multi-year basis. And that is what we're focused on every single day. With our supply chain now, we had put them on a bit of a hold cycle until we could get to this phase. You know, we got lucky in being able to buy you know, a lot of equipment at all-time lows when we entered this industry where it was at all-time highs. So, you know, look, it's going to take us a while to continue to prove ourselves, but hopefully, you know, the things that are being seen will be eventually recognized in the value of the company.
speaker
Michael Legg
And just on the customer side, you know, Red Sea Global, you had the favorable test there. the Jazeera paints obviously for what it looks like it's coming through work with Walmart for two years you mentioned about you know putting together a delivery schedule at some point in communicating that with us yes what do you think the timing of that may be yeah it's a good question so so we we are we work like a tech company with our customers we don't say a lot
speaker
John
You notice we're not out bragging about any of the things we've done with Walmart in the last two years or what we've been doing for, frankly, over a year with the Red Sea. We let our clients decide what they communicate. We see ourselves as a part of their competitive advantage, and so eventually this will become super surprising information But it'll be because we respect our customers. We function like a TEM, not an OEM. And these things are deeply integrated into their strategy. So, you know, in the quarter, we anticipate a few of those to fully bake through. And, of course, we have indications that they would like to make them public. And we will follow through accordingly. I hope that answers your question as well as our discipline.
speaker
Michael Legg
Yep, it does. It's great. I look forward to hearing them as they come through. And then just the last question, the R&D and the SG&A were very well controlled this quarter, much better than I had modeled, and the EBITDA guidance is much better than I had modeled. So I assume the SG&A and R&D levels going forward should remain somewhat similar here, or can you just comment on that, please?
speaker
John
Yeah, we're pacing ourselves right now. I think we're entering a phase, and that's why we talked about that we made it known that we're talking to the capital partners for this next phase. We're going to be very disciplined about how we deploy capital. I think it's going to be key to the survival of those as the industry emerges here. And in addition to that, you know, depending on how that capital terms and conditions flow, obviously we're focused on as much managing dilution as much as we can, which is difficult at this time. But over the long run, you know, we're building a big company here, so, you know, we understand. And that may vary a little bit based on capital inflows, but not a lot. Because one thing I talk to the team about all the time is it's not how much money you have, it's how effectively you can deploy it. And in this phase of a company's life, you do not get 100 cents on the dollar of efficiency. You have to humbly look at what your leakage is and continuously be tightening your belt in your system. And I think the team is finally maturing in this area. and understanding. Every $100,000, $150,000 is a software engineer. Every $70,000 is advanced manufacturing personnel. It's starting to resonate as a culture. It's a re-founding in this company. I think I'm pretty proud of how they were very disciplined in the quarter. although we still had leakage, that I'm constantly on their case about.
speaker
Michael Legg
Thank you. Congrats on the progress and look forward to continued progress over the year. Thanks.
speaker
Paul
Thanks.
speaker
Michael Legg
Thank you.
speaker
Paul
Thank you. Our next question is from Craig Irwin with Roth MKF. Please proceed with your question.
speaker
Craig Irwin
Good evening. Thanks for taking my questions. Tony, I wanted to ask a little bit about the characteristics of the customer's that you'd look to support with your early deliveries in 2025. Are there any specific things that you're highlighting or you're prioritizing as you look to allocate production in 2025? And would you be looking to primarily serve a small handful of strong, well-established, long-term adopters or to seed the market with... many opportunities where some can end up being larger than others over the next few years.
speaker
John
Yeah, so, Dan, that's a good question. Sorry, Craig. It's a good question. What we've done is we've focused on a few customers that have high volume, multi-year requirements and an implementation schedule. in their internal system, often because of infrastructure charging, that aligns with our ability to scale. We're really trying to pair off all these things so we're in harmony. In addition to that, it takes time. When you work with sophisticated customers like Walmart, the Post Office, the Red Sea, these people are very focused on what these vehicles do and the return on capital on every mile. you know, from our perspective, we will always, as long as we can, focus on the few that allow us to sell the many. It's much more of a judo model than a boxing model. And that's one of the ways we keep our costs under control. You know, we look at the United States like 50 countries under a flag and a currency. We are rolling out methodically through the U.S. in alignment with our customers. And so we're not scattered. We're not weakened. We're not burning capital you know, we're really focused on being profitable, you know, starting to break through a 24,000 units production. So, you know, and that excludes software revenue and accessories. So I hope that answers your question on, you know, we're just focused on the grade A, triple B credit spread, high volume, multi-year buyers that align with us. And we can deliver it for a purpose.
speaker
Craig Irwin
That makes a lot of sense. So as we look towards this production, can you maybe help us unpack what some of these announceable milestones could be that we could see from Canoe, you know, as sort of external observers of your progress? You know, will there be announceable order commitments that we should expect you know, exiting the year? Are there other commitments to the factory that we'll learn about publicly? What else should we be possibly looking for?
speaker
John
Yeah. So, you know, again, I'll come back to being a tech company. So just like the tech companies you cover, Craig, you know, they're much more IP guarded, you know, rollout guarded, you know, You know, like I said, we see ourselves as a competitive extension with our partners of their business. And so, you know, I think we'll enter an era where you'll start to see those customers that want to announce what they're going to do, you know, be in announcing it. And, you know, we do anticipate some of that coming through.
speaker
Craig Irwin
Great. Well, congratulations on the progress here. I'll go ahead and jump back in the queue.
speaker
Michael Legg
Thanks, Craig. Thanks again.
speaker
Paul
Thank you. Our next question is from Stephen Gingaro with Stifel. Please proceed with your question.
speaker
Stephen Gingaro
Thanks. Good afternoon, everybody. Can you talk a little bit about just from an update perspective, the relationship with Walmart and kind of where things stand and kind of how we should think about deliveries over time? I know this is longer term, but just Any changes to relationship, and how should we be thinking about that?