Ayro, Inc. (AYRO) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the AYRO, Inc. First Quarter 2021 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through August 30, 2021. I would now like to turn the call over to Scott Gordon of CORE IR, the company’s Investor Relations firm. Please go ahead, sir.
Scott Gordon: Thank you, Matt. Good morning and thank you for participating in today’s conference call. Joining me from AYRO’s leadership team are Rod Keller, President and Chief Executive Officer; Curt Smith, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address AYRO’s expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in AYRO’s most recently filed periodic reports on Form 10-K filed with the SEC, Form 10-Q and AYRO’s press release that accompanies this call, particularly the cautionary statements in it. Today’s conference call includes adjusted EBITDA, a non-GAAP financial measure, that AYRO believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss its most directly comparable GAAP financial measure. Please see the reconciliation table located in AYRO’s earnings press release, which is available on its website at www.ayro.com under the Investors tab. The content of this call contains time sensitive information that is accurate only as of today, May 13, 2021, except as required by law AYRO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to our CEO, Rod Keller. Rod?
Rodney Keller: Thank you, Scott, and good morning to everybody on the call. The fiscal quarter of 2021 was a very good success on several fronts for us. We recorded record quarterly revenue of nearly $800,000. We reported our sixth consecutive quarter of quarter over quarter revenue growth. We established a strategic partnership with Element Fleet Management, the world's largest fleet management company. We launched the electric vaccine vehicle. We commonly refer to as the EVV, which is the first of its kind with our strategic partners. And we raised in January and February $61.8 million in gross proceeds via two equity offerings that will mature or have materially strengthened our balance sheet. We continue to see a steady increase in demand and applications for our 411 light-duty electric truck, especially with Gallery Carts using our standard 411 chassis, many different van boxes and hot and cold food storage solutions can be configured on the back half of these trucks to allow for specific food storage options and flexibility and creating the ultimate mobile hospitality function or solution rather
Curtis Smith: Thank you, Rod and good morning everybody. Here's a summary of our fiscal first quarter 2021 financial results. Revenue for the first quarter ended March 31st, 2021 grew 437% to $789,000 from $147,000 for the quarter ended March 31st, 2020. The increased revenue was primarily due to our sale more cars through Club Car as well as related powered food box sales to Gallery Carts and other vehicle options. Gross margin percentage for the quarter ended March 31st, 2021 was 18.3% as compared to 22.9% for the quarter ended March 31st, 2020. The decrease in gross margin percentage was primarily due to an increase in tariffs on raw materials imported from China, as well as an increase in shipping costs due to the global COVID-19 pandemic. Vehicle sales prices were increased privately -- increased beginning in January 2021 to partially offset these costs increases. Total operating expenses for the quarter ended March 31st, 2021 increased 236% to $5,787,000 from $1,723,000 for the quarter ended March 31st, 2020. The increased total operating expenses were primarily due to increases in research and development expenses, higher general and administrative expenses, and public company related expenses were not incurred in the first quarter of 2020. Since we went public via the reverse forage on May 28th of 2020, and subsequently raise additional funds and registered direct offerings. Research and development expense for the quarter ended March 31st, 2021 were $1,920,000. This represented an increase of $1,773,000 up from $155,000 for the quarter ended March 31st, 2020. The increase in R&D expenses were related to the expansion of our engineering design and research teams, as we not only expanded the suite of option packages for our existing vehicle, but initiated the design and development activities of our next-generation 311x vehicle. Sales and marketing expense for the quarter ended March 31st, 2021 was $558,000, an increase of $239,000 over $319,000 in expenses during the same period of 2020. The increase primarily consists of staff expansion and personnel, as we focus on bringing the mark-to-market our next-generation 311x vehicle.
Rodney Keller: Thank you, Curt. I'd like to say we're very excited for the future here at AYRO. With the recent rollout of the electric vaccination vehicle, the official launch of the 411x, I mentioned, is just around the corner and the highly anticipated unveiling of the next-generation 311x expected later this year and with the associated production anticipated to begin in the first half of next year, there were a number of milestones clearly visible for us that should collectively lead to a multi-year revenue ramp. Our employees continue to work hard to make this reality and our numerous strategic partnerships will be pivotable during our growth phase. I get a number of emails and phone calls asking us about whether we're raising more money right now. And I mentioned this in our last call on March 31st and I'll mention it again. We feel that we are very well capitalized right now. And in addition to that, we have basically no debt. And I want to be very clear when I say we have no plans right now to raise more money. We feel like we were well capitalized to execute on the plans that we've discussed here. And we're very bullish on it and excited. It's allowed us to focus more on executing the business than raising money, as we've successfully done over the last 10 months. With that, I'd like to thank all of you, all of our shareholders for your support. And I look forward to sharing some more accomplishments and developments as they unfold. And with that, I'd like to turn the call over to the operator so that we can begin the question-and-answer session. So operator?
Operator: Our first question will come from Barry Sine with Spartan Capital Securities. Please go ahead.
Barry Sine: Hey. Good morning, gentlemen. A couple of questions, if you don't mind. First of all, this is statement in the second paragraph of your press release about expecting a rapid revenue growth once you launch the next-gen vehicles. So, I wanted to zero in on that. So a couple of things. First of all, it looks like your call -- you have a new name for the 411x, 411x Current, I guess that's a play on the electrical term. Secondly, in the release, you talk about Element helping to sell the 411x. I thought Club Car was the exclusive distributor or will they work with Club Car?
Rodney Keller: Good. Barry, it’s Rod. Thanks for asking the question. It's a good question. You are right. Let me take each one of those specifically. The -- as you know, the 411x is marketed under -- branded under the Club Car name. Club Car is the one that came up with Current. So, it will be marketed still exclusively under the Club Car brand. They will call it Current. We have already received what I believe and -- I can't give you the exact number, but I will tell you it's a significant -- we've already received purchase orders from Club Car. We cannot reflect them yet until Club Car announces the 411x, which literally on the horizon. I expect it to be very, very soon. So, I would say that we are very bullish on it, because we've already got a blanket purchase order, take us through the balance of the calendar year. And the volumes are considerably more than what we've seen in the past two years of the relationship we've had with Club Car. That addresses part of your question. Again, what was the other question you had?
Barry Sine: The second part is Element. Are they going to be selling these …?
Rodney Keller: Yeah. Yeah. So -- yeah, let me explain that. So, Element has 5,500 relationships. They all have very large fleets of vehicles, 3.5 million vehicles under management worldwide. We know that they've got all the vans that we see driving around. They would first not to talk about it a lot, but the vehicles that make deliveries around the country every single day that many of us use and are members of the prime service that they have, that's also under their control and their responsibilities. They have a -- they have signed an agreement with Club Car to be an authorized, if you will, reseller of the vehicle that Club Car has. So, yes, they have exclusivity -- yes, Club Car still has exclusivity on the 411, and they will on the 411x, but much like all the dealers have the right to sell it because of an agreement that they have, a contract they have between Element and Club Car, Element has the right to sell it, but will procure it from Club Car.
Barry Sine: Okay. And then on the vaccine vehicle, in the press release, you talked about two federal agencies testing the vehicle, which would imply to me that they've actually received vehicles and they have them out in the wild somewhere, giving back vaccines. But in the script, you talked about evaluating ways to use them, which suggests that they may have some documents, but no real vehicles. So, which one is it? And if they are actually out in the wild that's public information, you could walk up and see one of the vehicles. So, could you tell us who they are and where they're testing them?
Rodney Keller: Well, the vehicles that they -- the vehicles that they saw were at one of the cities we did, -- we hit -- we went to Atlanta, Orlando, Dallas, San Jose, Boston, and I may be missing another city or two. They -- and Element has been able to have those meetings directly, sharing the EVV with some of those. I do not believe they've actually used it to demonstrate or giving vaccines yet. But our understanding from our conversations with Element who has relationships, as you would expect with some of these very large federal agencies, that's the feedback we're getting from them. The degree of which they've tested them, I can't really speak to. But as you -- as I think we've all -- anybody who's dealt with the federal government understands the sales cycles considerably longer. But the feedback we get directly from Element is very positive. Anyway. I don't know what I can share with you more than that.
Barry Sine: So, on the sales cycle, to quote , it's getting late or early, the U.S. expects full vaccination by July. So, are you looking at any international markets? Who are you going -- I mean, if the whole U.S. is vaccinated, are you looking at perhaps the next pandemic, but they don't come along, all that often. So, what are you actually targeting?
Rodney Keller: I had the same concern. Here's the feedback I got on that, and I hope this isn't the case, but it very well may be. Much like we get a flu shot every single year, every year there's a variant in the -- the makeup of the vaccine we get from a flu shot every year is different from the prior year. There's a possibility that same thing may happen relative to the COVID vaccinations that we're all getting now. So, yeah. We -- hopefully, we'll get as much of the population as we can this year, but there's no guarantee that there's not going to be a follow on vaccination needed. That's the feedback we're getting from organizations like FEMA and I'm hearing directly from Element as well. So the expectation is that, there will be applications or still providing vaccinations will be on this initial distribution of COVID-19 vaccinations.
Barry Sine: Okay. And if I turn to your financial statements, I'm looking for some clues in the published numbers in terms of what we might see revenue-wise going forward. So, you've given the backlog number out. How does -- I don't recall you giving a year-end backlog number, so how does that compare? And then the other clue I look at is inventory. And inventory is down significantly. So, if -- I don't know, are -- is Karma currently manufacturing the Current? And if so, with that, what I see that on your balance sheet or not until you take delivery, how do I read that inventory number in terms of forward-looking?
Rodney Keller: Yeah. Let me answer part of this and Curt is going to answer the other part. The initial inventory we've got for the Current has just arrived at Karma in the last few days. We've got our -- our team here in Round Rock is on its way to Karma at their factory in Moreno Valley, California to build the initial build there. So yes, Karma will begin -- the Karma built some of the 411s and they will be our primary source of assembly for the 411x. Relative to the inventory, I'll let Curt address that.
Curtis Smith: First off, you asked about backlog. As of December 31st, we had -- our backlog is pretty minimal because we would basically flush all of orders through December 31, but obviously the back -- the sales that we generated in Q1 plus the backlog we regenerated is reflective of sales activity during the first quarter of this year, Barry. So, we'll be -- again like fulfilling those backlog orders during Q2.
Rodney Keller: Yeah. One thing we might also mention is the -- we shift the balance of all of our 411 inventory at the end of Q1. We still have some orders of 411s that we're converting to 411xs. But good news is we exhausted all remaining inventory for 411s. And we're in the process right now ramping the 411x.
Barry Sine: So, you mentioned that the -- you just received inventory on the 411x. So, obviously, that would not be reflected in the balance sheet, which is dated March 31.
Rodney Keller: Correct. That's correct.
Barry Sine: Okay. My last question, Curt, you talked about option packages -- development of option packages is driving a higher R&D expenses. Maybe you could talk about a few -- what those options are? And then as an analyst, I'm mostly interested in what impact might that have on the average selling price for a vehicle? Just to give you some perspective, in my model, I use $20,000 as an average selling price, so I can translate the revenue number into -- my estimate for units. So, what are you introducing options-wise and how might that drive the average selling price higher?
Curtis Smith: Sure. Good. Definitely a good question, Barry. So, the option packages we look at are things like light -- strobe light bars, Tommy Gate lifts, brush guards, additional airflow, things like that. These are all what we call Tommy motor options that the Club Car -- the Club Car dealers and their end customers request at the time the deal is ordered. It's not dissimilar from the option packages you might get on a vehicle, you buy from Ford, GM, or Chrysler, where you have the base -- the base model, but then obviously every -- almost everyone orders the option packages on top of that. So, yeah, there are -- we are expanding those suite of products as critical demand shows itself. Obviously, we're not going do -- we're not going to invest in a one-off, but when there's multiple requests for a particular widget, if you will, we're going to add that and added as this large package and get a little -- drive a little -- a higher margin off of those products or up to those additional options. So, those are continuing to evolve as demand picks up on those.
Rodney Keller: One of the big ones, Barry, is a powered ven box, which drives considerably higher margin. I probably shouldn't communicate what it is, because we sell it. But the margins are quite significant in excess of 40 points just for the powered ven box. But that's critical, because every one of those van boxes we ship that goes into a mobile hospitality application is a powered ven box, which obviously supports the infrastructure within that van box. So -- and then the Tommy gave us a fairly new option we've got, which makes it easy to accommodate lifting up to 350 pounds, the load in the back of our light-duty electric trucks.
Barry Sine: And Rod, the impact on average selling price, would that be significant or?
Curtis Smith: The powered ven box would be considered significant. The others would be depending on the level of effort and level of materials is a portion of the increase in the ASP.
Rodney Keller: I think it's an important note. The feedback we've got from some of the companies using the mobile hospitality solution from us and Gallery is, a vehicle. In some cases they're paying for itself as fast as four months on a university campuses where they can strategically place these vehicles around the campus, knowing where students are going to come out at a certain time. And they should -- they've conducted as many as 60 transactions in 15 minutes, you might say, well, that's one every 15 seconds. The way they can do that is those ven boxes are pre-packaged with hot and cold coffee bagels, prepared sandwiches like that. Students can grab it as they're coming out of class on their way to their next class, run their student ID through it. That's how they can process, so many transactions in such a short amount of time. And that's how they're paying for themselves so quickly.
Barry Sine: Okay. That exhausts my questions. Thank you for taking them all.
Rodney Keller: Thanks, Barry.
Curtis Smith: Thanks, Barry.
Operator: Our next question will come from Matt Polishak , a private investor. Please go ahead.
Unidentified Analyst: Thank you, Rod. Just a couple of questions. Rod, how many units were produced in the first quarter? And is the semiconductors shortage having any impact on your production?
Curtis Smith: Okay. Yeah. I'll take that one -- this is Curt, I'll take that in reverse order. Semiconductor, so far that has not impacted us at all. So -- but we are keeping an eye on that to make sure that, that doesn't -- that's not a -- there's not a residual flow down from our internal BAM components. Second, on the number of vehicles, we don't disclose that because that would be -- we would be telegraphing selling price to our competitors. And so that is something we do keep close at hand. So, I appreciate the question, but we got -- we need -- we'd like to stick with revenue from a public company disclosure, that's our -- I'm sure you understand.
Unidentified Analyst: Yeah. Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rod Keller for any closing remarks.
Rodney Keller: Well, I want to thank all of you for participating on today's call and for your interest in AYRO. I'd like to say as a CEO, I've been doing this a long time, but I don't think I've ever been more bullish on an opportunity than I am here. I am a very, very excited. We're well capitalized. Our Board has helped us raise considered a lot of funds obviously, and it's allowed us to focus on the most important thing. And that's delivering a return to our shareholders, hiring the people we need, purchasing the assets we need and making customers happy with the solutions we bring to the market. I look forward to sharing our progress on our next quarterly conference call when we report our second quarter results in August. And again, thank you all for your interest in AYRO and your -- those of you that have invested in us, we appreciate it very much. Thanks again. Have a wonderful day.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
