Taiga Motors Corporation

Welcome to the Tega Motors Corporation third quarter 2022 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. Following the presentation, we'll conduct a question and answer session for analysts, followed by an additional cautionary statement before we conclude the call. To ask a question, please press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Sheroz Hussain, Director of Investor Relations for Tega Motors. Please go ahead.

Thank you, Gaylene. Good morning, everyone, and thank you for joining us. I'm here today with our Chief Executive Officer and Co-Founder, Sam Brunel, and our Chief Financial Officer, Eric Lussier. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's Earnings Report, MD&A, and in our 2021 Annual Information Forum regarding the various factors, assumptions, and risks that could cause our actual results to differ. With that, let me turn it over to Stan to begin.

Good morning, everyone, and thank you for joining us today for our third quarter 2022 results call. The third quarter was a milestone quarter for us at Tyga. Not only did we deliver our second electric vehicle category, the Orca, our personal watercraft, after delivering our electric Nomad snowmobiles earlier this year, but we also recorded our first quarter where we exceeded revenues of $1 million. We are proud of what we have accomplished, especially as a young company that's revolutionizing the power sports industry with its first-ever mass-manufactured off-road and marine electric vehicles. We're electrifying one of the toughest vehicle segments and redefining outdoor exploration with our technologically advanced vehicles, and our efforts are being recognized by esteemed organizations. Last week, both the Orca and the Nomad were included in Time's Best Inventions of 2022. We're proud to have not one, but both of our products included on Time's globally renowned list. We're also the only Quebec-based company on that list, and that's a great honor for us. Time's Inclusion and the Fast Company Award earlier this year are both testaments to Tigris' revolutionizing power sports industry with our cutting-edge technology, advanced electric vehicles. We are changing how people connect with the natural world, and we intend on continuing to build our leadership in power sports innovation. During the quarter, we delivered 40 Orca personal watercrafts to customers in Canada. We continued to experience supply chain issues for our critical components which impacted our production level during the quarter and held us back from producing at the planned capacity. However, we spared no effort in advancing our capabilities to scale and pushed through the initial agonies of production. There is nothing easy about building industry-first products. Tyga's vertically integrated approach to design, engineering, and manufacturing is technologically complex and requires a virtually an effort from all sides of the business today to scale. Though the initial climb is steep, it is setting us up with a large advantage against the competition in the future. We are already seeing benefits of the agility of our integrated platform approach provides in both production efficiency and product performance. With the experience we've gained throughout the year on building Nomad and the Orca, we've developed a sound understanding of what the Montreal facility is capable of. As such, we've revised our production plan to enable the Montreal facility to soon produce both of our vehicles, the snowmobile and the personal watercraft, simultaneously for added flexibility in the future. This is yet another benefit of our modular approach to manufacturing our vehicles. Given the production update, we now expect to continue manufacturing the Orca Carbon into the first half of 2023, with deliveries in the warmer southern US starting in the fourth quarter. The next NOMAD snowmobile deliveries will be ramping up throughout the first quarter of 2023. The NOMAD production schedule is driven by key supplier updates unblocking previous bottlenecks and enabling a foundation for mass production of the snowmobile platform. Not only have we made great strides in production efficiency, but we have improved snowmobile platform performance by optimizing around connected fleet data and delivered units on both previous snowmobile and watercraft platforms. During summer, we conducted close to 500 demo rides on the Orca in Canada and the United States. The demos were proving ground for our current reservation holders and prospective customers and also to further help us fine-tune our products for the data and feedback collected. The Orca continually draws people from various walks of life. We saw power sports enthusiasts put the Orca through its paces and leave impressed. We saw first-time riders quickly get comfortable after a few minutes. The Orca is phenomenally impactful, and electrification is making PowerSports more accessible to new audiences. We're incredibly proud of the positive reviews and the accolades both of our products have earned within just the first year of their launch.

But we're not resting on our laurels.

Through the Tiger spirit of relentless innovation and advanced design, we're building further upon our achievements. Our engineers have utilized real-world data from our connected snowmobile fleet and have worked to improve the Nomad even further. based on the data and customer feedback. Notably, we have already been able to remotely update the cross-platform power trip management system without the vehicles leaving our customers' residences. We've also taken our time to increase the snowmobile's manufacturing efficiency through greater use of integrated parts. In short, we've not only improved our snowmobile platform, but we are now able to manufacture it more efficiently. Improvements to the snowmobile get translated over to the Orca and vice versa. This is the benefit and advantage we have from our vertically integrated and modular approach that enables agile updates across the line to continuously improve our products and processes. We've built a strong foundation in the first nine months of 2022, and we expect to carry the positive momentum into the final quarter leading into 2023. We continue to be focused on our three parts, wrapping up production and deliveries globally, building a culture of high performance innovation, and increasing our brand awareness. I'll touch on each of these priorities briefly. On production deliveries, as I mentioned earlier, supply chain constraints regarding a critical component continued into the third quarter. However, we expect production to continue to ramp up materially in the fourth quarter and into 2023. Our teams continue to work relentlessly around challenges and have strategically invested in our supply chain and inventory to de-risk certain key components. We've also worked to improve the efficiency and the flexibility of the Montreal facility, as earlier mentioned. In light of this, we're also examining the strategic role of the plan shown in the production facility and are balancing timelines for optimal production efficiency, capital deployments, and capacity planning to be aligned with the company's planned ramp-up. The team is continuously focused on operationalizing the foundation of the Taiga production system, which includes but is not limited to progressing vertically integrated manufacturing, modular platform architectures, focused automation, and intelligent connectivity driving continuous improvements. Deliveries are also a large component of our success. Our initial snow deal and PWC deliveries had largely been direct deliveries to customers and police. We've worked extremely hard to ensure we can scale with our production plan successfully. We've made significant progress in our hybrid to direct consumer model. To refresh, Tyga is taking a hybrid approach to direct-to-consumer sales where consumers purchase their vehicles directly via Tyga's website and select delivery at nearby existing power sports businesses. These existing power sports businesses would act as a Tyga service provider, or TSP in short, and provide vehicle servicing and delivery handoffs to their customers. During the third quarter, we initiated the TSP program and signed on eight TSPs across 12 locations in Canada and the United States. These service providers are the first of many and will be instrumental as we scale PwC and snowmobile deliveries in upcoming months. We continue to work diligently to ensure we select the optimal locations to service our customers and provide them with the experience that's tailored to their needs. Everything we're doing today is to support an accelerated and agile ramp-up of our weekly production in the fourth quarter of 2022. With the expectation of delivering 2,500 to 3,500 units for 2023. To get our products to market, we will continue to employ our four-pillar approach. The first two pillars are the core of our business. They are first, direct sales of snowmobiles and PWCs to recreational customers. Second, sales of our vehicles to fleet operators, such as ski resorts, tour operators, and commercial fleets in multiple industries. The third pillar revolves around supplying our modular power train assemblies to OEMs and adjacent industries. Our multi-generation power chain is a modular hardware and software platform that is designed to simplify production and decrease development time for both Tyga and our OEM partners. And lastly, our fourth pillar involves aftermarket sales of parts, upgrades, apparel, and accessories. Tyga's apparel store, The Gear Shop, can be accessed through Tyga's website. Our teams are crucial to Tyga's success. We focus on building a great team and prioritize developing a high-performance and innovative culture. We've grown from a team of 54 at the end of 2020 to over 230 full-time employees by the end of Q3. And each one of our two members is vital to our mission. As we develop bench strength, we've been conscious of the culture we're establishing at Tyka. In short, we're staying true to our roots and fostering a culture that rewards innovation and nurtures creativity. We've also been attracting Talad has vested in electrifying off-road vehicles, and as such, we believe we have built one of the largest and deepest teams of engineers working on EVs in the off-road segment. This is a key advantage for Tiger moving forward. Being a pure electric company has its benefits for Tiger's brand awareness. Our electric-only brand matters when our customers select our products and it shows in the pre-orders we've achieved. During this third quarter, our pre-orders grew to 3,267 vehicles as of September 30th, 2022. This represents a strong 39% growth in our pre-orders in the past nine months. I would like to take a moment to highlight the magnitude of our achievements this year so far. Launching not one, but two historic revolutionary off-road electric vehicles in the span of six months is no small task. We've put over six years of work to get to where we are today. We've had to develop novel solutions to electrify two of the toughest vehicles in the segment. We have been successful. We've received awards validating our mission, and we are just getting started in pushing the boundaries of what our technology can do. We are laser focused on ramping up snowmobile and personal watercraft deliveries for the masses. All of this would certainly not be possible without our esteemed team who embody our mission. Launching a NOVAD and the ORCA, The momentous push to deliver the initial vehicle to customers, the much-drafted facilities production plan revamp, the successful demos, the time and fast company recognition, planning on and onboarding KFPs, and many, many other achievements were the result of multiple tie-ins pushing limits on what was previously unimaginable. I am extremely proud and thankful to our team for their dedication in getting our products to our customers. Again, we look forward to revolutionizing the power sport industry, and thank you for joining us today on this journey. With that, I'd like to turn over the call to our CFO, Eric Bichard, to go over the financials for the quarter.

Thank you, Sam, and thank you, everyone, for joining us today. During the third quarter, Taiga initiated deliveries of the Orca, our fully electric personal watercraft. We completed the sale of 40 Orcas during the quarter, and as a result, reported revenue of $1.3 million dollars. making our first ever quarter with million-dollar sales. Let me take you through our expense line items for the third quarter of 2022. R&D expense were $4.4 million in the third quarter of 2022 compared to $1.1 million in the prior year third quarter. The $3.3 million increase is attributable primarily to the decrease in capitalization of R&D expenses as our products have achieved a certain level of maturity and will focus on continuous iterative evolution as opposed to the early stage development were previously engaged in. Furthermore, some parts and mold used to produce the first units have been expensed during the quarter as they are replaced with more efficient design for mass production. G&A expense increased to $5.5 million during the third quarter of 2022 compared to $2.7 million in the prior year quarter. The $2.8 million increase is due to the significant increase in the number of employees for administrative purposes required to be able to run a publicly traded company and support key initiatives G&A also included increase in insurance costs, as well as listing and professional fees due to the company becoming a listed company. Sales and marketing expense were $1.3 million for the third quarter of 2022, compared to $1.1 million in the prior year quarter. The 17% increase is due to the increase in the number of employees required for our direct sales strategy. We're continuing to increase our digital marketing initiative and have upgraded our corporate website to streamline our e-commerce capability. During the third quarter, our workforce grew by 3% sequentially to 237 full-time employees. For the moment, we are now through the majority of the planned hiring for Tyga, and at this stage, we focus on selective hiring for key functions. Our loss before other expenses was $15.6 million in the third quarter of 2022, compared to $5.1 million in the prior year quarter. The increase in the loss before other expenses was primarily related to the increase in expenses I just mentioned. As of September 30, 2022, the company had approximately $31.2 million in cash and cash equivalents. As you heard from Sam mentioned earlier, supply chain constraints on a key component restricted use for manufacturing at a capacity during the third quarter. As such, we had to accumulate $2.9 million in inventory for the Orca component in line with our initial production plan along with inventory for the upcoming snowmobile production run. Our inventory totaled $26 million as of September 3, 2022. In the third quarter, we invested $4.6 million in capital expenditure, which includes the purchase of tooling and manufacturing equipment for the 2023 Snowmobile and Orca performance and R&D equipment. For 2022, production continued to remain limited by various factors, including supply chain issues. We expect our weekly production to continue ramping up for the remainder of the year as critical components become available. For the Orca specifically, due to a delay in the critical components, we now expect the Orca run to extend in the first half of 2023. The snowmobile production will begin in the first quarter of 2023. While production this year was held back by multiple factors, including supply chain, product development, and product optimization, We are working to ramp up our weekly production and continue to expect delivering 2,500 to 3,500 vehicles in 2023. I'd like to mirror Sam's earlier comment and reflect on the achievement of the launch of two revolutionary off-road vehicles this year, the Nomad Snowmobile and the Orca Personal Watercraft, and winning awards for our products. Both products have been an absolute hit with the first-time riders as well as seasoned professionals. The award speaks for themselves and are a testament to the progress Tyga has made over the past six years. We're now moving towards ramping up our production volume. And for us to pursue our growth opportunity and various other initiatives, we will require funding. As one of the steps we've taken, on November 1, 2022, we signed a loan agreement in the form of a repayable contribution with the Economic Development Agency of Canada for the region of Quebec for $10 million. This agreement is part of the 50 million support previously announced in July last year, and its purpose is to finance equipment and support high-gap production ramp-ups. The funds will be dispersed on a milestone basis, bear no interest, and will be repayable over seven years after a moratorium of three years from the project completion date. We expect to access up to 4 million over the next eight months. We are taking the necessary steps to secure additional funds in order for us to continue delivering on our business plan. But I will conclude in stating that we remain prudent with our capital and will continue to invest diligently and strategically for the next generation of off-road vehicles through the TIGA mission. Thank you. I will now ask the operator to open the call for any questions.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up the handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Eric DeLay with Canaccord Genuity. Please go ahead.

Hi, guys. Just on that last part on the loan that you guys will be accessing, the $4 million that comes in different steps. What are the milestones based on to receive additional proceeds? Is it production? Is it revenue? Can you just help us understand the mechanics of that a little bit?

Well, sure. Look, the first $4 million will be accessible as we present the invoices of the different equipment that we've ordered. And the following $6 million is tied to the show and get initiatives.

Okay. Just in terms of, you know, I get it that you plan on ramping production, you know, given the availability of some key components over the back half or the remainder of this quarter into next year. But do you have a target exit rate perhaps for Q4, Q1 in terms of production units per day?

No, look, it's so dependent on the ability of the key component that it's really hard. But what we're doing is We have a goal of ramping up from one week to the other and maintain a credence of that. But it's a plan that is really subject to the delivery of that key component. And we have to be very agile to adapt to that.

And then is the plan to be producing PWC and snowmobile concurrently in Q1, is that on two separate lines or is that like modular on the same line?

No, but it's two separate lines in terms of assembly for the snowmobile and a separate line for the assembly of the ORCAP. Having said that, they use the same benefit from the battery-packed production line, so it's a common line that supports the two assembly, right, for the battery and the motor. Okay, got it. Or in a way, you could think about three lines, right, one fulfilling the needs of the snowmobile in York through the powertrain, and then obviously each line assembling the vehicles accordingly.

Okay. And then just switching gears, just for one more question, if I kind of just run the math and I get you had about $10,000 worth of parts and accessory sales, but it looks like you're getting about just over $32,000 per unit. Was there a price increase that you guys implemented on the Orca side? And should we expect something similar on the snowmobile, just given input cost increase and inflation across the board?

So we're honoring the prices under which the customer had ordered. So there's no price increase from the price list. The customer is not subject to those price increases for the ones that are already ordered with the prior pricing. We did increase price early January 2022 of this year. So any new orders that would come under that is under the new price. And do you think there's a need for another price increase going forward or are you good? It's still something that we're contemplating and looking at, but it's too early to say that we wouldn't push a price increase in 2023. It's something that we'll revisit in the quarter to come.

Okay, sorry, and then just one more if I could. Just on the R&D this quarter, I get you, you were capitalizing some previously, but there's a big sort of sequential jump there. Is the new sort of $4 million level, is that a more appropriate run rate going forward?

Yeah, because if you look at the math of the part quarters and look at what was capitalized on an R&D basis and add to what was expensed, and you look at what was spent that way in Q2 and what was done in Q3, which is essentially no more capitalization of those expenses, the number is not drastically different, right? So it's fairly consistent.

Okay, got it. Thank you. Thank you. The next.

Okay. The next question is from Cameron Dirksen with National Bank Financial. Please go ahead.

Thanks very much. Good morning. I guess I want to get a sense of what your cash requirements are going to be here over the next few quarters as you ramp up. Can you give us any kind of indication as to what you think you're going to be spending here the next few quarters?

Well, look, I think the spend rate of Q2, Q3 on an average basis gives you a bit of an indication of what is the expected burn rate. I will tell you that what we're trying really to achieve is to start consuming some of our inventory while we're ramping up production on New York and eventually a snowmobile. And it's, you know, to be honest, it's not necessarily where we want it to be from a production standpoint in Q3. uh but no we're trying to catch up some of that volume to burn some of the inventory of that would have been burned only in q3 that we'll try to burn in q4 and the first part of q1 allowing us and freeing up some cash so that we can continue the the purchase of key components and parts for the snowmobile and the summer upcoming summer production right okay okay that makes sense um

And what about financial resources here? I mean, obviously, you've got $31 million in cash. You've just accessed this additional $10 million. I mean, I guess what is available to you over the next 12 months sort of beyond what you've announced here?

Yeah, so we're working on various schemes to secure additional source of funds, and we'll provide further clarification and guidance once those are secured and confirmed. But we are obviously looking at a number of potential alternatives.

Okay. And then I, maybe I misread this, but it sort of sounded to me that, you know, maybe the, I guess, the start of construction on the Schwinnigan facility might be, you know, pushed to the right. Can you just talk about what's changed, if anything, on that front, on the mass production facility? Okay.

Well, look, I think we're just being prudent with our capital allocation, and we have the capacity in Montreal to ramp up to up to 8,000 units. And I think that at this point, the priority is to make sure that we ramp up properly in Montreal so that we can actually export the best practice from Montreal to the Chez Winigan plant thereafter. In a way, I think it was the prudent thing to do, not launch Chez Winigan back in 2021 after the announcements, because we have to ramp up, right? So I think we're quite happy with what we've done so far and we'll adjust the plan accordingly as needed.

Okay. So I think if I recall, the original plan was kind of construction started in, you know, sort of mid-2023. But what you're saying is that, you know, it's kind of you'll take a wait-and-see approach.

Originally, it was meant to be third quarter of 2022. We would have been in the ramp-up phase of building the Shawnee Yard building. So we've delayed that by about a year. And we'll adjust this based on the few next months and our production ramp up and the type of supports we're getting.

Okay. Okay. That makes sense. And maybe the final question just for me, just can you talk a bit about, I guess, pre-order activity? I mean, the pre-orders grew, you know, somewhat in the third quarter here. I guess, what are you seeing out there as far as pre-order activities, anything new? Has anything kind of changed in recent months? Maybe getting some recognition here with the Time Magazine stuff, maybe that helps create some additional consumer interest. Anything you can talk about on the pre-order activity?

Yeah, I think we've seen a pretty steady increase in recruiter activity, just really a linear growth at the moment. We're artificially following some of that with the bigger fleet customers that have very, very strong demand. So we're recognizing that we have a big backlog of customers that are patiently waiting for their units that we want to get to as fast as possible before meaningfully growing necessarily our order book And that being said, we've seen that as we started deliveries on the ORCA carbon units this summer, we're seeing some very strong organic growth numbers around those first deliveries. So we'd expect a strong pickup as we roll into 2023.

Okay, that's good. All right, that was all I had. Thanks very much. Thank you.

This concludes the question and answer session. I'd like to turn the conference back over to Samuel Bruno for any closing remarks.

Thank you all once again for joining us for our Q3 results call this morning. We're excited for what's ahead for TIGA and look forward to seeing you out on the water and the winter trail. Thank you.

Before we conclude today's call, I'd like to provide TIGA's safe harbor statements that includes important cautions regarding forward looking statements made during this call. This call may contain forward looking information within the meaning of applicable securities laws. Although the corporation believes that the expectations and assumptions on which this forward looking information is based are reasonable under the current circumstances, listeners are cautioned not to rely unduly on this forward looking information as no assurance can be given that it will prove to be correct. Forward-looking information contained herein is made as at the date of this call, and the corporation does not undertake any obligation to update or revise any forward-looking information, whether as a result of events or circumstances occurring after the date hereof, unless so required by law. Please refer to the forward-looking statements section of our latest MD&A for more information and the risk factors section of our 2021 annual information form. Thank you for joining us today for TIGER's third quarter 2022 results conference call. You may disconnect.