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spk00: greetings welcome to the canoe q3 2024 earnings presentation at this time all participants are in a listen only mode a question and answer session will follow a formal presentation please note that this conference is being recorded i will now turn the conference over to your host kunal bala chief financial officer thank you you may begin thank you everyone for joining us on our q3 2024 earnings call during the call
spk05: Tony will update you on our business. I will provide an update on our capital raising efforts. Ramesh will go over the Q3 financial results. 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 a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release and our most recent Form 10Q and 10K and other reports that we may file with the SEC, including Form 8K. 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 the call, we'll discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures, the 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.
spk06: Thanks, Kunal. The automotive industry is facing challenges that are not only inflation, interest rates, supply chain disruptions, but also in the center of political debate as it relates to rarer materials and the transition to EVs, which means there is volatility until America becomes fully independent. With that backdrop, we have also struggled to navigate the capital markets to align with our step-level manufacturing plan. While we sharpen our focus on our core customers and markets, we must continue to flatten the organization and take aggressive actions to be more cost-disciplined as we realign our North American operations, which we should have done earlier in 2024. This starts with a committed executive team which believes in the value of what we are building and are willing to do what it takes, including short-term pay cuts in exchange for long-term incentives, aligning us all with our shareholders, and creating a leaner, flatter, and more efficient and cross-functional operating structure. With that, Kunal and I will be more focused on raising the needed capital to meet our customer's demand for our product and solutions and getting us back on track with our step-level manufacturing plan. Our footprint consolidation. Consolidating our facilities from six to three, just in Texas, Oklahoma City, and prior Oklahoma. While we have been through some turbulence, we have brought a net increase of higher-paying engineering and advanced manufacturing jobs to the states of Oklahoma and Texas. Unfortunately, we've been on a roller coaster which has impacted our workforce, and most recently we made the difficult decision to furlough 23% of our workforce or 30 of our teammates in Oklahoma City, which weighs heavy upon us. This will continue to be difficult and a critical period as we consolidate, but we will do everything we can to get the capital in place and bring those jobs back online. On the positive, we have achieved 45 relocations to date from California to our Oklahoma facilities and just in Texas. We have received FTC certifications, completed established our Oklahoma as our base for exports, and import building blocks for both left and right-hand drive markets. Further, many of our suppliers will be happy to hear that we have established a share pool for our supplier partners, part of our supply chain partnership harmonization. Focus on commercial, government, and fleet customers only. Our prices are firming With growing customer demand, electrifying fleets is not just an environmentally friendly decision. It's also an economically beneficial business decision. In this phase, we will be solely focused on our fleet order books. Therefore, we have made the difficult decision to refund customer deposits for consumer vehicles. We appreciate all of our consumer orders we have received to date, but as many of you know, entering the consumer market is not profitable or viable for us until we have scale. Thus, our focus on fewer high credit grade customers that are serviceable and profitable at lower volumes. We are grateful for the support as the company started originally with its focus on consumer vehicles but as you all have seen over the coming or the prior quarters we have pivoted the business into a very strong and fleet market we have started also diversifying to pro-ed markets with approved mandates and government-backed incentives like the uk after successful engagements with major fleets in the uk We established a legal entity and selected Vista Motion to launch commercial operations in the country. We completed IDA, which is individual vehicle approval, for our two pilot vehicles within three months and with 2% bond change from our existing LDB 130 and 190 platforms. improved cycle time, developed and validated the product with a customer, the USPS, which requires a right-hand drive vehicle. Our platform flexibility to economically expand into these right-hand drive markets reduces launch time for us to enter a new market with a validated and proven product that has been tested and used by heavy fleet users. SMR support for our customers. We selected Automobile Association Service Maintenance and Repair and announced that agreement. And we now have a pilot program with a prestigious UK fleet testing our vehicles during the busiest, coldest and wettest season. Looking forward, we are mapping our UK rollout in a three-phased approach. Phase one, with customers who represent the infrastructure in the backbone of the country. Phase two, diversifying to various industries. This is our framework. We will only sell vehicles to customers after they have road tested it, and we have debugged our product for their specific uses and markings. Rushing to build, deliver product, and underwriting high warranty risk is not our business model. The UK government incentives on clean energy net zero goals of 70% of new vans sold in the UK to be zero emission by 2030 and 100% by 2035. Recently, they re-approved the 5,000-pound maximum plug-in grant available for large fleets. The UK providing 120 million pounds in 2025 and 26. Over 2 billion over five years to support the automotive sector, including zero-emission vehicles, manufacturing sector, and supply chain. Approved as part of the autumn 2024 budget. For those who have followed me know my track record. I have operated in over 90 countries, and my past company opened a new office every 90 days. We understood currencies. We learned about them, importance of localization, denominated manufacturing, labor pools, and et cetera. Our modular, flexible architecture was designed to support activities in different regions. As kids, we call it the MPP, the multi-purpose platform. Assemblies for full manufacturing, more on this topic as we roll out our UK strategy. As we established international opportunities, domestic demand for canoe LBVs also continued to build. submitted application for California's Department of General Services, DGS, for our LDD-130. Current contract does not have enough electric vehicles available for state agencies. With agencies unable to meet state electrification mandates, if approved, opens LDD-130 to a TAM of a few thousand vehicles. With that, I'll turn it back over to Kanoan.
spk05: Thank you, Tony. I am humbled by the confidence that Tony and the board have entrusted in me to take on the role as Chief Financial Officer at this very pivotal time in our company's evolution. Many of you already know me from my previous roles across chief of staff, capital markets, corporate development, investor relations, and most recently purchasing over the course of my three-plus-year tenure at Kanoan. Those experiences have given me a unique perspective and understanding of the company's strategy, business operations, challenges, and areas of potential opportunities. But most importantly, I've had an opportunity to learn from Tony and my fellow team members the power of teamwork and what we can achieve together. And I will emphasize transparency and accountability, as many who have worked with me already know. I look forward navigating this journey together and welcome your questions and insights along the way. Now let me quickly update you on a few highlights from this quarter. We reported our highest revenue quarter with $891,000 in revenue. This includes higher margin engineering service revenues associated with onboarding our partner as we set up alternative supply chain options to further reduce our reliance in China. We raised $28 million in capital this fall. And earlier this month, we secured a $12 million credit facility approved by the independent board with AFB Management Advisors LLC, an entity affiliated with Tomahawk. Tony mentioned in his opening remarks, our mandate is clear. Greater focus on capital raising activities, cutting costs and reducing waste, supply chain negotiation, and harmonization. I will update you on our progress in the coming quarters. Finally, during my time at Canoe, I worked very closely with Ramesh Munithi on many initiatives. Ramesh has been a great leader, a pillar of stability, and helped navigate the company in many functions, including finance and finance. I look forward to continuing our partnership and congratulate Ramesh on his step into his additional role of Chief Administrative Officer. With that, I will now turn the call over to Ramesh to cover the financial update.
spk04: Thanks, Kunal. Now let me walk you through the results for the third quarter fiscal year 2024. We continue to focus on our financial discipline. Key accomplishments include a record-breaking revenue of $891,000 in Q3 of 2024 with the life-to-date revenues of about $1.5 million. 20% further reduction in research and development in Q3 of 2024 compared to Q3 of 2023, driven by substantial completion of our product. The consolidation of our Torrance, California site into Oklahoma and Justin reflected in operating expenses follows our disciplined approach to drive savings and efficiency over the long term while expecting annualized savings of $12 to $14 million. moving to the income statement. Our third quarter 2024 results are as follows. The 6.5% or 2.6 million quarterly adjusted EBITDA improvement from negative 40.4 million in Q3 of 2023 to negative 37.7 million in Q4 of 2024. Research and development expenses excluding stock-based compensation totaled 18.8 million for the quarter, primarily driven by are support for key large customers and pilot programs, final engineering improvements, and testing compared to 21.3 million in the prior year period, a 12% reduction from Q3 of 2023. SG&A expenses, excluding stock-based compensation, totaled 19.6 million for the quarter compared to 18.6 million in the prior year period. We will continue to optimize cost and improve efficiency as a part of our footprint consolidation effort. As it relates to our key non-GAAP metrics, here is our summary. The 2.3% or 0.9 million quarterly adjusted EBITDA improvement from negative 38.6 million in Q2 of 2024 to negative 37.7 million in Q3 of 2024. 74.3% or negative 6.20 adjusted net loss per share improvement from negative 8.34 per share for nine months ended September 30th, 2023 to negative 2.14 for the same period in 2024. 11.5% or negative 0.07 adjusted net loss per share improvement from negative 0.61 per share in Q2 of 34 to negative 0.54 per share in Q3 of 34. Turning to the cash flow. We ended the quarter with cash, cash equivalents, and restricted cash of $16.1 million. Net cash provided by financing activities for the three months ended September 30, 2024 was $26.3 million compared to $76.7 million in the prior year period, a 65.7% decrease from the prior year. Cash used in operations for the three months ended September 30, 2024 was $26.5 million compared to 35.9 million in the prior period. We will continue to optimize our working capital needs in the future quarters. Our cash outflows from investing activities was 2.8 million for the three months ended September 30th, 2024, compared to 11.5 million in the prior year period. We anticipate our cash outflow to be between 30 to $40 million in the coming quarter, driven from our consolidation of locations. Let me turn it back to Tony for closing remarks. Tony.
spk06: Thanks, Ramesh. I would like to say thank you to our customers, suppliers, associates, and stakeholders for your support and believing in the long-term vision. Recent changes have been tough but necessary. While the automotive space is experiencing a tightening cycle, we remain focused on our cost discipline and continue to pursue the growing opportunities in the commercial EV space, domestically and in our targeted markets. With that, we'll turn it over to the operator for questions.
spk00: Thank you. And at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To remove yourself from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And once again, to ask a question, press star 1 on your telephone keypad. Press star 2 to remove yourself from the queue. Our first question comes from Amit Dayal with HC Wainwright. Please state your question.
spk01: Thank you. Good afternoon, everyone. So, you know, just addressing sort of the elephant in the room, Tony, what are the financing options in front of you? You know, are you just going to slowly sort of, you know, raise capital to meet your, you know, OPEX needs, working capital needs, or is there sort of a different view on how you want to, you know, address this aspect of the business and that could allow you to maybe, you know, get to production, et cetera, in a faster timeframe. Just any color on what options you have in front of you would be very helpful. Thank you.
spk06: Yeah, so we, I think for the first time, we received also a letter of encouragement from some of the available programs from the U.S. government. But in addition to that, we've been working on a few transactions for capital raising efforts. And in addition to that, just looking at how we would use our ATM efficiently. We've been happy to see volume in our stock, so that gives us the option. Plus, I put in place, you know, a revolving line of credit to help them until they can secure more financing. that is debt related as well. In addition to that, we're in discussions with, um, some tier one banks on, uh, purchase order financing, um, which generally, you know, five to six months, uh, rope on it for, for manufacturing so we can harmonize our supply chain. And also, you know, we, we finally completed, uh, creating a pool for our suppliers, uh, so that, um, they can participate in the shares of the company. So we'll focus on raising capital that is non-diluted where we can. We're entering markets that have incentives that we can access as we bring our products to localization. We pick very strong allied nations to the United States, as well as working with sovereign-type investors for this next phase. got over the part of getting the product right now we're getting how we service the customers and the geography expansion part right now we got a supply chain that we got to harmonize and we got to catch up on some we got a realign agreement some we have to you know completely reshape the agreements and uh others we have to add into the system based on the final configuration that we learned from our customers. So those things are kind of moving in conjunction with that, but that ability helps us to reduce our demand on cash for front-loading our supply chain. So those are the multiple areas of capital we'll focus on, and we're very focused on doing it, though, in a step level approach. In other words, we don't want to raise too much capital at once. As we learned over these four years, the efficiency of a young company is not at the highest maturity, obviously, because it's young. I do believe we now enter a period of we understand where we should be spending money and which customers, which segments, And I think, you know, I feel like our maturity level for that is good, which will align well with our raising of capital.
spk01: Okay, understood. You know, so in this context, how should we think about, you know, production capabilities and, you know, production timelines? We had certain assumptions for 2024 and 2025 that, I'm guessing visibility around that is very limited at this point. But any guidance in terms of how you are thinking about meeting customer needs for the moment with the resources you have would be helpful. Thank you.
spk06: Yeah. So I think right now, based on the fact that you probably saw some of the vehicles that have been exposed, You know, we don't disclose, you know, what our customers are pilot customers or anyone's doing. That's just, you know, we consider this part of their, you know, their business secrets, um, the way they operate. Um, but we're focused on, and we are behind plan to your point, um, which is part of my comments in there. You know, we thought we'd be further along than we are by now, but by the Q4 of 2025, we should be at three jobs per day and moving up to multiple jobs per hour in 2026. We'll get more on that detail, but we did have some good breakthroughs in the quarter. As you know, AFP partners purchased the manufacturing facility And we did receive notification that a tenant within the area in the complex is leaving, which gives us access to an entire paint shop. This has been something that was in our strategy, of course. We bought the building from the tenant, and that will allow us to paint multiple jobs per hour. in an already established paint shop. I know there's been commentary about paint shop. We've been very deliberate on why we slowed down on that investment and the type of investment because, you know, we knew there was the ability for that tenant to leave. So hopefully we'll get ahead of schedule here and we'll even do better than this. But that site can do as it is configured today with the addition of some e-code equipment. We now have the paint shop capability and do some modifications to it. But we will get that site up to roughly 10 jobs per hour on the MPP1 and eight jobs per hour for the full build site. And we're currently capable of doing five battery modules for entire vehicles per hour. So, you know, we're still a little lumpy in there. We've still got to smooth out some pieces. And we've got to get, you know, the biggest thing for us now is getting our supply chain and the final pieces now that we know the exit and tenant Um, for our facilities in Oklahoma city and then crank, you know, crank up production. In the meantime, we'll slow build, uh, our vehicles. Um, and which means it's more manual process. We've been building the MPP ones out of Oklahoma city. Um, and, uh, and you know, following all the proper regulations for labeling the vehicles built in Oklahoma. So, you know, that kind of gives you probably a bit more color on facilities, CapEx, as well as production.
spk01: Thank you, Tony. That's all I have for now. I'll take my other questions offline.
spk00: Okay. Thank you. And a reminder to the audience, press star 1 to ask a question now. And you can press star two on your phone to remove yourself from the queue. Once again, to ask a question now, press star one on your telephone's keypad. Our next question comes from Jawad Buyan with Stifel. Please state your question.
spk02: Hi, thanks for the question. I wanted to touch on some of the speculation on right-hand drive units and potentially the vehicle was coming into the UK postal service. I was wondering if you mind talking a little bit about that in terms of timing or if there's, I guess if there's anything tangible to share and then just had another quick follow up. Thanks.
spk06: Yeah. So we never comment on, on customer pilots or activities as you may or may not have experienced with us. And like I said, we see ourselves as, you know, partners and to do the work we have done in this company and others that we built is to make sure we protect our customers' way of doing business, the way they use our configurable platform to optimize their business operations. So I can confirm to you that we have built a right-hand drive vehicle. They have been, you know, there's well over probably 15,000-plus delivery miles, I would imagine by now, by the U.S. Mail, and the delivery mile is stopping every 50 feet. So there are right-hand drive vehicles. We have IDA certified, and that's all I can kind of tell you at this time.
spk02: No, that's fair. Thank you. I was wondering if you could also shed some color relating in terms of – ramping production at your manufacturing facilities in Oklahoma. And I guess if there were any updates on, I guess, how we should start to see meaningful volumes coming out of the factory. Thanks.
spk06: Yeah, I think before we talk about meaningful volumes, we've got to get our capital in place and this reconfigured supply chain fully aligned. You know, as you know, many OEMs and, you know, any level of manufacturer at PM or whatever, will go through a period of where they land on their final products, if you will, kind of their, if you will, first generation of commercializable product. You know, we've hit that point. We have also a couple derivatives in the queue that we still will have to engineer in order to kind of get to volume. But capital and supply chain, And that's where we got a little bit out of alignment. Um, you know, we were anticipating a bit faster access to capital. And so, you know, it's, it's tough to ramp all of the divisions up in, in harmony. They they're constantly tugging on each other. Um, I think we're closer in alignment now than ever, unfortunately, a cost for some dislocation and, and, and that weighs on us for certain people in Oklahoma city. But we will be in a better position to talk about how we ramp as capital. As you see us announce capital, it's going to have a direct correlation to manufacturing of vehicles, with the exception of the lead time on the reconfigured supply chain that Kanaal talked about as part of his mandate.
spk02: That helps a ton. I appreciate the color. I'll pass it on.
spk04: Thank you.
spk00: Thank you. And our next question comes from Poe Fratt with Alliance Global Partners. Please state your question. Hi.
spk03: I had two questions just to clarify earlier comments. One, can you just clarify on the working capital line that you've put in place? It's one now secured. And it's also a 90-day facility. Is that correct?
spk06: No, it's a 12-month facility.
spk03: But I thought it matures in 90 days or three months, Tony.
spk06: I think those were the grid notes that then converted into the letter of credit, the line of credit, sorry.
spk03: Okay, so it's a 12-month facility then? Yes, it is.
spk06: Yeah, the way to think about that, Poe, just sorry, is that those were like bridge loans, if you will, until the independent board could approve the credit facility.
spk03: Yeah, I'm sorry. I thought I read it differently, but thanks for clarifying that. And then I think in response to the first question, you talked about non-dilutive capital and I thought I heard, I might have misheard, but I thought you heard, said that there was substantial progress or favorable progress on getting governmental program loans. Did I hear that correctly? And if so, could you expand a little bit on that?
spk06: So we're in a red state, as you know. We recently have received our first letter of encouragement. accessing some of the non-diluted capital. Our estimation is that this administration will likely wrap up, like most administrations when they're on their way out, wrap up the programs that they've opened up. And we're optimistic as the new administration kind of figures out its American manufacturing plan that you know, people in the heartland will get a bigger share or let's say an appropriate share of that type of funding. And then, of course, we're all excited to see, you know, Elon and Vivek getting positions, you know, to make our country and our manufacturing environment much more self-independent.
spk03: Can I just ask a little bit, so do you expect a letter of commitment before this administration turns over? And are we talking about, you know, the DOE program, the AFDMF or whatever the acronym is?
spk06: Yeah, so, you know, I will never, you know, it would be more difficult to predict the government's when it decides to make its distributions than the market itself. So I will tell you we got a letter of encouragement for the first time. We've got mostly in the last year or so letters of discouragement. And so that's a super positive sign when you think about it. And maybe they just got to the areas we're in, but That will be coming out of the current administration's announced programs. And we've applied for multiple ones, by the way. But we've only received one letter.
spk03: And is it for the big program, Tony? You know, like when you look at the sustainable aviation fuels programs that were just, there were two huge commitments announced recently. Is it those type of programs?
spk06: No, they're not that big. But for our size and for the phasing approach we're going, it's meaningful to us. Great. Thank you. You bet.
spk00: Thank you. And there are no additional questions at this time. I'll hand the floor back to management for any closing comments.
spk06: No, operator. We just, again, would reiterate our thanks to the team and to all our supporters out there. Thanks, everyone, for joining us today.
spk00: Thank you. And with that, we conclude today's conference. All parties may disconnect. Have a good day.
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