Electric Last Mile Solutions, Inc. (ELMS) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon and welcome to the Electric Last Mile Solutions’ Second Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Erik Grossman, Director of Investor Relations. Please go ahead.
Erik Grossman: Good afternoon. And thank you for joining us for Electric Last Mile Solutions second quarter 2021 earnings call. Before we begin, we'd like to remind you that remarks made on today's call may include forward-looking statements. These are based on our predictions and expectations as of today. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. For more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter into our most recent SEC filings. Joining me on the call today are James Taylor, co-Founder and CEO of ELMS. Jason Luo, co-Founder and Executive Chairman. Albert Li, CFO and Rob Song, Deputy CFO and Treasurer. Management will make some prepared remarks and then we will open the line for your questions. Now I'll turn the call over to James.
James Taylor: Thank you, Erik. And thanks everyone for joining us today. We had a momentous second quarter, in which we made great strides in our mission to redefine productivity for our customers with intelligent, e-mobility workstations designed for the Last Mile. In short, we completed our business combination with four merger three corporation and became the first publicly listed EV Company focused exclusively on the class 1 to 3 commercial segment, which we call the Last Mile Segment. We acquired our EV manufacturing plant and our engineering program is on track. Demand continues to be strong and we are now actively working with customers to finalize their order commitments. And we are affirming our plan for SOP of the urban delivery by the end of the third quarter this year. This keeps us on track to be a first mover in the class one commercial EV space. And this is our first earnings call. I'll begin with some company background, then provide details on our business updates and outlook and lastly turn things over to Albert to discuss our second quarter financials and outlook. At ELMS, we saw the opportunity to serve the underserved, the businesses of this country from trades to Fortune 500 fleets, who have lacked the proper sustainable and intelligent productivity solutions, solutions that are profit drivers, not cost centers. And we identified a white space the class one commercial EV segment, and we expect to benefit from several major tailwinds. First is the enormous demand for commercial vehicle solutions, driven in large part by the exponential rise of e-commerce. Then there is the green tidal wave led by both companies seeking to meet aggressive ESG targets and the government which is pushing and in many cases mandating the adoption of sustainable solutions, such as commercial EVs, and working to expand available funding and tax credits. There are a few if any commercial EV options on the market to-date to meet that demand. Here lies our opportunity. There are many new entrants and existing players who have announced commercial EV products. But we believe those deliveries are in general some time away. ELMS is coming in the very near future and we plan to ramp to mass production levels. And we'll start in the class one segment where we expect to be a first mover and then expand into the class three segment as another early EV entrant. Our key differentiator and enabler is our unique business model. By leveraging existing and market proven components, we can quickly get to market with reliable products at an exceptional speed by industry standards. The use of an EV ready facility and market proven components dramatically reduces our costs and allows us to provide what we believe will be one of the lowest total costs of ownerships and as a solutions provider, we're not just delivering the hardware, but also customization and digital solutions that will enable our customers to do more. And our products, the urban delivery, and urban utility are segment defining. We expect both to offer at or near acquisition pricing, including federal incentives, versus competing ice vehicles, as well as more cargo volume, which our customers is far more important than wait. And we're excited to be making these EVs here in the U.S. and help make this country the center of EV design and manufacturing. With that intro, let me now give you an update on our business activities to-date, and our outlook for the rest of the year. In June, we completed our business combination with Forum, which resulted in a total capital raise of 294 million more than sufficient funds to execute our business plan. We also acquired our fully capable EV factory in Mishawaka, Indiana, and are rapidly progressing towards production readiness. We enhanced our global organizational capabilities by expanding the leadership team with key personnel across digital solutions, engineering, operations, finance and sales and marketing. Recent additions include Chief Strategy and digital officer Jonathan Ballon, VP of engineering, Praveen Cherian and Adam Du, Director of China operations, Deputy CFO and Treasurer Rob Song, Chief Revenue Officer Ron Feldeisen. To further advance our global engineering operations and access talent and global suppliers we have plans in place to expand our office locations to include Shanghai and San Francisco. On the customer front, we announced earlier this year that we've received more than 45,000 pre-orders for just the urban delivery. And we're very excited to announce that we are working with customers and our distributor partners to finalize order commitments with targeted end customers including FedEx, independent contractors, Amazon delivery service partners, on demand cargo can rental companies, universities, HVAC companies, and many others. Our customer engagement is simultaneously continuing at a rapid pace with more than 35 scheduled trials for potential customers across verticals again, spanning personal delivery, telecoms, home improvement, vehicle rental ports, and so on. We're also directly engaged in discussions with numerous fleet management companies. These are an important go-to market channel in the commercial vehicle industry. The top 10 U.S. FMCs as they're called, alone, oversee more than 1.9 million vehicles. One example of these engagements includes merchants’ fleet, the nation's fastest growing FMC and a leading driver of fleet electrification. As part of its electrify fleet initiative, fleet has announced a commitment of 50% of its mobility fleet electric by 2025 and 50% of its managed clients fleets electric by 2030. We also announced a partnership with Trane Technologies Thermo King unit, the global leader in transport refrigeration to build a first of its kind, all electric refrigerated delivery vehicle prototype to demo with customers. This highlights our capabilities to deliver upfitted solutions across a number of industry verticals. In this case, the delivery of perishables from food and beverage to vaccines, while providing customers with green products that will drive them towards their sustainability targets. This is really a great application for our product. If you think about the current gas and diesel refrigerated vehicles out there today, they're constantly idling, wasting energy and spewing pollutants. And this is the kind of product that shows how we can make the entire supply chain cleaner, more sustainable, and at a lower total cost of ownership. This is just one example of the end use cases and verticals we can touch and we'll provide more details as we finalize our arrangements with other targeted upfitting partners. Importantly, we'll certainly be initiating customer pilots for their second vehicle, the urban utility or all electric class three medium duty truck. As with our urban delivery, we believe the urban utility, we'll be very competitive across both price and cargo volume versus both existing ice competitors and new EV entrants in the segment. Customer demand for the Urban Utility has been incredibly strong, and companies are eager to have our demo vehicles in hand. At that point, we will begin to take reservations. On the back of the Urban Delivery, we believe the launch of the Urban Utility will provide ELMS a strong portfolio position across the class one to three Last Mile segment. We don't see any other OEMs getting the kind of EV foothold as quickly as we anticipate entering the market. We also announced a strategic distribution partnership with Randy Marion Automotive Group, one of the largest commercial automotive retailers in the country. We feel very good about this partnership which unlocks another important and high volume go-to market channel. We now have an order commitment from Randy Marion Automotive Group representing nearly $200 million over the next 12 months. And to support our customers and maximize uptime we're putting in place a service ecosystem to offer complete coverage and deliver service in the most efficient manner possible. We plan to use ELMS Air fleet monitoring system, which will include over the air update capabilities as well as incorporate all of the dealer service partners as well. In May, we also announced the service collaboration with Cox Automotive to give our customers access to Cox's end to end fleet service including 6,000 service locations, 3,000 partner locations and Dickinson Fleet Services network of more than 800 mobile technicians. Our partnerships with Randy Marion Automotive Group and Cox Automotive are specific examples of how our ecosystem approach enables speed to market and the risks are launched with both distribution and service covered from the onset. What I'm not doing is going dealer to dealer and trying to build my service network from scratch. When it comes to launch readiness, we've made great progress and are definitely accelerating efforts here where we can recover from the delay in the merger closing as well as all of the other challenges that the industry experiencing. Most visibly, we acquired our EV ready manufacturing plant in Mishawaka, Indiana. This is a phenomenal plant one I've had a long history with, it has proven itself flexible for quick ramp and launch of different vehicle platforms from the Hummer H2 to the Mercedes vehicles. There are a couple other major benefits from this specific plant. First, the previous owners made significant investments in the facility to retrofit it for EV production. This means that we have limited retooling required for launch, in fact, less than $10 million, a fraction of what it would typically cost OEMs to retool a plant. This plant also has an estimated annual production capacity of 100,000 units, which supports our business case, as a mass production, EV OEM and equips us with the ability to satisfy the enormous demand we're seeing on the commercial EV front. We benefit also from an experienced ready and highly motivated workforce many who have actually previously worked at this plant and went through extensive EV launch training. In addition, we have strong support from the Indiana Economic Development Council, which has offered us up to $3 million in conditional tax credits, and training grants. Our engineering activities have also advanced at a great rate, in part due to our business model that leverages many existing, validated and market proven components. While we are engaged in a number of standard OEM engineering activities from software development, to validation testing, we have a lot of focus on our vehicle integration and homologation efforts. We are on schedule to finalize our testing and meet U.S. regulatory requirements. Our IP portfolio continues to grow as well and we recently filed for instance a patent for a proprietary class one commercial EV frontal impact absorption design, as part of ELMS proprietary EV crash protection system. We have tested the technology in this patent application in crash testing, and the results were extremely positive. We're confident with our progress to date, and are now proceeding with final confirmation testing for the body structure. We expect that to occur this month. I feel very positive about our supplier ecosystem to support our launch. Last week we held our first summer with key strategic suppliers to align on their individual capabilities, and launch readiness. This was also an opportunity to ensure that all communication channels are open as we approach startup production. As you're all aware, battery supply is a high profile subject at a national level and in the total EV business. On that front, back in February, we announced that we secured a battery commitment from CATL, the largest global battery company. We also signed a binding supply agreement with Wuling Motors a leading automotive manufacturer of electric cargo vans, this broadens our supply base for market proven components and we'll be working with Wuling as our primary supplier of body and chassis components for the launch of the Urban Delivery. ELMS has been driving the overall vehicle design based on us customer requirements, and engineering specifications. Finally, I'd like to discuss now our outlook through the end of the year. First, we're affirming our plan for SOP by the end of the third quarter for the Urban Delivery. We've also set our production schedule for 2021 with a target of 1,000 vehicles. We set this we believe in spite of the delay in the close of the merger, COVID-19 disruptions, industry wide supply chain challenges and now what appears to be the biggest of all challenges, logistics. But we believe that this target was important to set for several reasons. First, we have such strong demand from customers that we need to get the market as quickly and as greatest scale as possible in the near term. By hitting production this year, we see an opportunity to establish long standing customer relationships that will separate ourselves from a crowded space full of new entrants, who will not enter the market for some time, many for several years. Second, we need to align all our suppliers and partners and get their commitments which we now have in place. Now, I want to remind everyone again that there are definitely challenges in front of us. I've just mentioned some of them the delay in the deal close, COVID-19, part shortages, supply chain complications, logistic challenges and rising freight costs, increases in prices of raw materials, and so on. We are not alone in experiencing a shortage in containers and a four to five times price increase in container costs. We're doing our best to offset these. But these challenges are real. All of this is on top of the normal challenges that come with launching a vehicle and ramping production. We're fortunate that the ELMS team has a tremendous amount of experience launching many vehicles. So we're pushing ahead to reach our target of 1000 units this year. To summarize, we believe we have all the pieces in place to launch this year and take advantage of a tremendous market opportunity. How often in life does a business come around that has whitespace, customer demand, business and government alignment, and solves an enormous environmental problem? I believe we are positioned to be a major contributor to the solution not in several years but starting this year and even if we were to capture only a fraction of the total addressable market, just 5% by our estimates, that is enough demand for us to produce 10s of 1000s of vehicles annually. Our goal of course is to capture far more than a fraction and we believe that our launch this year, and first mover advantage will provide us a solid footing to establish ELMS as the leading provider of Last Mile Solutions. We are at an inflection point in commercial EV adoption and ELMS is positioning itself to capture that demand. We'll have more developments to share over the coming months as we approach our store to production and I look forward to updating you on our progress. Now I'll turn it over to Albert to go through our financials.
Albert Li: Thank you, James. We completed our business combination on June 25. The transaction resulted in approximately $294 million of capital raise sufficient to execute the business plan and achieve positive cash flow. As part of our business combination we entered into an agreement to acquire our EV manufacturing plants in Mishawaka, Indiana, for a total of $145 million. At closing, we made an initial payment of $30 million and the remainder will be paid according to our brief schedule. Moving on to second quarter results. As of June 30, the company had a cash balance of $217 million. We also reported a net loss of $8.6 million or a loss of $0.10 per share. We did not report any revenues and we did not expect to have any revenues until our first urban delivery vehicles are produced and sold, which we expect to happen towards the end of third quarter this year. Operating expenses were $7.5 million consisting of $2.4 million of research and development expenses in development services, testing and prototype expenses, and $5.1 million of G&A expenses for personnel legal consulting and marketing expenses. For the full year 2021 total CapEx is expected to be in the range of $25 million to $30 million. Bulk of this is expected to incur in the second half of the year. Our reduced investment level as compared to other EV companies, is due to our efficient business model that leverages an EV ready production plant and market proven EV components. We also project our total operating expenses for 2021 to be in the range of $75 million to $80 million. This concludes our prepared remarks. We now open the lines for questions.
Operator: We will now begin the question and answer session. Our first question today comes from Michael Shlisky with DA Davidson.
MichaelShlisky: Good afternoon, guys. Can you hear me okay?
James Taylor: Yes, Mike.
Michael Shlisky: Great. I wanted to ask about your production outlook and compare that to your sales outlook. I'm curious, do you expect to sell all that you produce this year and can you give us a sense as to who the recipients of these production vehicles might be? Is it your larger distribution partners? Or will some of these vehicles go direct to some of the fleets and that won't be automated direct?
James Taylor: Let me take the first one first. The short answer is yes. As you know the amount of man we have everything that we produce will go straight through one of the distribution channels we've lined up and I'll come back to the second part of your question. And it's a instantly arrive at the customers. So there will be a straight through, we don't anticipate any inventory at our plant or any inventory at the distributors. To pick up on your second part, Mike, we will be selling those first vehicles through the various distribution channels. And as you highlighted, that would be, for instance, our distributor, Randy Marion, but also the FMCs because they're part of that initial allocation for us to go through to them. And as you know, ultimately to the end customers, that would be the final users of those vehicles. So they'd be going through both those channels.
Michael Shlisky: And then, for my follow up maybe I could ask about your readiness to produce this quarter. A little bit about some of the confidence behind that. Have you actually finished all the crash testing and all the EV testing on your time ready to go and now it's just not getting the right people on board? Or are we still waiting for the final results before you can officially turn on the switch?
James Taylor: Let me kind of walk it back up again as from my overall plant readiness standpoint, we have to have, of course, several simultaneous things in place. So first is the product readiness. I'll come back to that. As we mentioned in my remarks, the supply chain readiness, and we have the suppliers in place that we need for the initiation of our startup production at the end of September. Readiness, of course is key in that regard as you know by our business model, we started with already a very ready plant, EV ready plant and there was just a small amount of labor additions that were required at the plant to get us into a position to be able to manufacture the first we've got Dr. Brian this morning about three quarters of those people hired already since the closing. And then obviously at the other end customers waiting to receive those vehicles. So of all of those, the one that you mentioned is in the product readiness itself. And as you are aware we have different customer requirements and different channels that those vehicles will be heading to. So in the first launch, again, to control our risk and to make it a manageable launch, we have different customer expectations, let's say requirements specifications needed. So in that first group of those, the full vehicle crash testing, as you call it, is not necessary. So we're in a position already with the specifications of the vehicle as they stand today to ship to them. And then as we complete our final verification and compliance testing them, we'll open up the second channel, and also ship them and call it phase two later in the quarter.
Michael Shlisky: Outstanding. I'll pass it along. Thank you.
Operator: Our next question comes from with Jefferies.
Unidentified Analyst: Hi, good morning, guys. Maybe just sort of starting with that when James, do you expect to pass those hurdles relative to certification that gets that second channel open to you? Is that a 2021 event? Or does that happen in 22?
James Taylor: I'll pass it if you don't mind that, Steve, the obviously Jason is our safety experts. So let me go into some detail on that.
Jason Luo: Steve, one of the largest safety companies, I call myself for safety experts. So, for the federal requirement, total 41 test protocol. 24 for the front door, 14 for the sides. So far we've done numerous crash tests in this month. We're going to have these three, vehicle two in the U.S. one in China to get crushed, which we call the confirmation test for the structural integrity and also the sector measure we put into the place including the side protection, front protection, knee protection, and also battery protection. So with that, we finished with so far, all indication showing very positive. And with that we will be, I call it with the engineer term, we phrase engineering terms, and we're turning our finish our crush house with concrete on the controller, not every detail now. With that, we will we go over on our starting target by November for that.
James Taylor: So I think the short answer is Steve, yes 2021 not 2022.
Jason Luo: Sure. Does that answer your question.
Unidentified Analyst: I appreciate the long answer, actually, James, but for my follow up, how should we think about I guess I'm trying to figure out if you guys ship 1000 units this year what should we be thinking about from a revenue perspective? And what I'm really asking is, given the inflation that we've seen in various parts, and also logistics, I think you call that out, James, is there an opportunity for the unit pricing to be a little bit higher than it might have been absent all that inflation?
James Taylor: Yes, let me work our way backwards. You're absolutely right. First off, as you know, with being first mover, nobody in the space, and as we've originally marketed the price of our vehicles, to be honest, at 325 as you know, when we now are approaching the customers move that the 345 there has not been any pushback. And so we're also looking, as you said in even more opportunity for more upside. Of course, we got the opposite, call it headwinds that says on our cost side, that would address revenue. But on the cost side, of course these transportation costs and the overall logistics systems have gone the other way on us. And so we need to balance those two come out to our net profitability, but I agree with you, certainly there is an upside in our revenue.
Operator: Our next question comes from Daniel Ives with Wedbush.
Daniel Ives: Thanks. So Jason, could you just go to the timeline just to kind of on the last question. So safety seems like everything's tracking according to plan. So, assuming that happens, I guess, like November timeframe. Could you then talk about that happens and then what the next step would be in terms of the plant Indiana and yes James maybe you can hit on that kind of the on to how that would work.
Jason Luo: Okay, so I can as we are try to hit the market as quick as we can, it'll hit the market as quick as we can. So I just mentioned earlier about the next two or three vehicles we lined up, actually one test in China, two tests here which so far is a previous testing indicator pretty positive. So we finalized the eco-structure engineering phrase legitimates earlier with that. So, we started to in next 60 days, we are going to finalize, you call it the engineering to incorporate in the existing manufacture parts because needed something to change. So we're going to make some change for the parts to reflect the testing results. We got the component and of course, as we are installed the air bags, install the safety equipment going through that we're going to have the you call the certification test which is as you know, for the OEM automotives guys, you do yourself for the self certification which is a public, in November conference with old you go for that. And in the meantime I want to -- and we're ramping up the manufacture of people inside of the plants and given already experience we have, I always say, as early as possible. So this way you don't have to dealing with when your volume go up go much higher. So with that, we're ramping up probably 50 vehicles in the September and the gradually increase to training labor also supplier base, supply chain and the manufacture system including software, including the MEs, including training, including the deliver everything, we go through, I call it test in next, I call it lunch plus 90 days, if I use so to make sure we make all the necessary mistakes and get our because the lower speed of vehicle the changes are much-much smaller. So allow us to get our total system trained with that as November we finalize everything for the production going to this for the certified vehicle which that means we're going to be ramping up right to, I think, tell me if I’m correct 500 somewhere in that number. Because this way, after 90 days, our whole system supply chain is ready. So we can hit from 500 up to about 1,500 right into the Q1. That's kind of we're looking at. Does that answer your question?
Daniel Ives: No, that's great. That's great. And in June, maybe like just going on that to the plant in Indiana, like where in terms of like how many employees so far have are been hired? Can you just talk about like the hiring plans between now and kind of full ramp as we're going to this year and early 22?
James Taylor: Sure. But as you remember, Dan with that plant that we had the station's laid out there and again, to control our risk and to make this a manageable launch. When we initiate the first vehicles in September, we really just need the six stations on the assembly line there. So again, it's a very low let's say, labor requirement for us to be able to hire a team. So we'll be initiating the plant launch with about 35 people and that includes both courses, salaried as well as skilled trades, the support team and the operators themselves. So when I talked to Brian, earlier today, you just three or four short of hitting that number. Everybody else in the line, Brian Tim, our Plant Manager. And then as we went through again, the fall will grow that up that total number up 50 to 75 as we get into the higher rates of production that Jason was mentioning, and then also, we grow into as you saw in the plant about 17 stations that will receive 15 modules for the final assembly. So again on a relative basis compared to other launches and other assembly plants that might be getting in literally hundreds of modules and 1000s of part numbers this has been part of the plan from day one is part of our unique business plan to have a very-very call it simple on a relative basis manufacturing launch.
Operator: Our next question comes from Gregory Lewis with BTIG.
Gregory Lewis: Yes, thank you and good afternoon, good evening, everybody. James, or Jim I know I spent too much time kind of the detailing out the customer backlog. Any kind of color you can give all on maybe how that is evolving now that I guess the merge thing for a month and vehicles or imagine customer visits are starting?
James Taylor: Hi Greg, you cut out. Last year about halfway through that question. And I think I knew we were going but try it again.
Gregory Lewis: Yes, I was just more curious about I mean post these pack, I imagine customer visits or to the facility or picking up, more people are getting more access to the vehicle any kind of updated color, you can give us kind of around the backlog and maybe potential guide?
James Taylor: I think I got enough to answer your question but you cut out again, but I definitely can fill in all of that. But you're absolutely right. As we talked earlier in the year, was tough for us to schedule the test drives, a lot of the companies of course, had their own COVID restrictions as to accessibility to them and that world is, thankfully opened up, some we've had to date well over 30-30, to drive events at different locations for different customers. So that's picked up with that right now. Set my notes over 30, pending crowds of people that confirm please bring it to my location, let my driver’s test that some of them per day, some per week, some per two weeks. So we have those scheduled out in several of the verticals, also the telecom home improvement, of course, package delivery, and things across those different areas. And also, some of the other use cases, we talked about universities, airports, ports, and things like that. And so we'll be working through each of those as those pilots are able to occur, we're quite confident that then that's going to start falling through, let's say, the bottom half of the funnel very quickly. I think just build on that, we've been able to think now to start merging back in with what I call more of a standard industry practice as far as the way that we would interact with these potential customers, and that they're used to a certain set of paperwork, and commitments and trials, and of course, ultimately leading the purchase orders and releases. So we initiated this with the so called pre-orders, but now we're merging down into, let's say, a more standard normal process that the other large volume OEMs are using and also what the industry is used to, as well.
Gregory Lewis: And then on the Thermo King announcement, realizing that the ink is still wet on that press release, any kind of color you can give us in terms of maybe what the list price of that vehicle is going to be. And then just as we think about maybe what that addressable market looks like realizing you probably get a lot of diligence, as you thought about doing that partnership and moving that project forward.
James Taylor: Our first step is to take actually that unit itself that's been built up and we've got already afraid the name of it's up in the northeast, some really large ship food tradeshow that's an annual show to show the vehicle and gauge consumer interest their customer interests. So until we get some of that early feedback, obviously, Thermo King is very optimistic, or they wouldn't have in fact invested to get the unit built. But once we come into that, I think you'll have a much better read for the answer to your question.
Gregory Lewis: And then just one more for me. We're realizing that the initial 1,000 production for this year it's kind of we're going to get these units off the line into kind of a fleet managers hands and then users and any kind of color how we should start thinking about I know part of the long term plan is to start doing some of the offsetting, happy Indiana facility any kind of progress there and then when we should think about ELMS starting to actually do some of the outfitting to add its facility.
James Taylor: Yes. I will give you a little color on a couple of fronts. On the one hand, say sort of premeditatedly a little bit selfish talk to simplify or launch some of these early orders that we've taken in a very light up bidding extreme imagine with some of the package delivery, just some very basic shelving and not trying to complicate our manufacturing process to get these early units out, simplify our quality process and things like that. And then move into the more complicated the upfitting in the first quarter. As far as the upfitters themselves, as you know, we've been working with several of them, Adrian is our lead candidate, let's call it and we're in the process of finalizing that. But they specialize in certain areas of up bidding and we also talked to several others that were also in the stage of finalizing agreements with as well. So once we get those things done, and completed, we'll also be able to share, I think more on the outlook from both revenue as well as the ultimate cash that flows through our bottom line as well. So we'll be updating as soon on that.
Gregory Lewis: Thank you for answering all my questions.
Operator: Our next question comes from Jeffrey Osborne with Cowen & Co.
Jeffrey Osborne: Good afternoon. A couple questions on my end. Jim, on the shipping cost, the logistics that you referenced, great to hear that you might be able to raise the price. Can you just give us a sense of you in your spec merger deck had some helpful details as it relates to cost allocation between raw components, some of from China, some domestic etc. Shipping was in there. Should we simply just take what was in that spec merger deck and put a 3x, 4x multiplier on it? Or do you anticipate something below that? I'm just trying to get a sense of trajectory for gross margins for the initial units.
James Taylor: I think three to four or below for your model, but I'll pass it over to Albert to give you some more specific numbers. So we give you the right guidance. Go ahead, Albert.
Albert Li: Hi, Jeff, nice talking to you again. The world is facing an unprecedented logistic challenge. And Jim mentioned, container is this four to five times higher than normal. And the fact is that the container used to 3,000 to 4,000 now over 20,000. On top of that, the shipping time has increased significantly from 30 days to over 70 days. And they are very unpredictable. So as we disclosed earlier, in prior filings, our gross margin was over 20%. But because of the very strong headwind on logistics, we expecting the gross margin to be dropped to low single digit. Now we are pursuing many actions to mitigate the risks as well as recovering some of the margins. For example, we're pursuing contract rates. We’re optimizing the shipping efficiency. We are evaluating creative ways in shipping strategies as well as -- Jim mentioned that we are pursuing pricing opportunities. So we're all working on that. So hopefully, the results were better than what we have on the books right now.
James Taylor: Well, we've got Jeff short term is actually in our model, reflecting the costs that we're seeing as we're seeing them. But we're also, of course, not baking those in long term, we see that somehow this industry is going to balance out but I tell you, probably in the other people that you talk to in this industry, this, as Albert said, is beyond unprecedented. And all my years of being in this business, we've never seen anything as crazy or dynamic as this. We think we have a line of sight on some of these early units, for instance, that we just bring in this week a call on Friday. And then like Monday change your mind, the shipping time, the predictability of this entire system, even domestically here is just like, out of control. So as I said, we were crisis managers, that's what we do for a living in this business. So we're all seasoned guys that can do what we can do, but some of it is frankly a little bit over control right now. But over time, we've got a glide path back down to somewhat normal so that these short term logistics costs are part baked in permanently obviously.
Jeffrey Osborne: That makes sense. Appreciate the detailed response. And then my follow up question was on the market for the vehicles that you'll be producing in September and October before that November certification. I saw the press release on Notre Dame things like zoos, college campuses, people that are on private roads, slow speeds, can you just articulate what you think the size of that market is? Is it anything that's in your backlog or hand raisers and more importantly what percentage of that is the 1000 units that you expect for the year in the event that there's a delay in the November certification. I'm just trying to get a sense of what can be achieved without that certification?
James Taylor: I think we've been, to be honest, Jeff, very surprised how huge this market is, because it's not the mainstream markets. It's not well documented, or not much data that records this. But as we just get into a few examples, even just a few of these universities, and so how big is your fleet, and it turns out 1000s, it's quite remarkable, then you might multiply that by even just in the university vertical, the number of universities, it gets up extremely high in the six figures quickly, and you go to the ports, then you to the airports and the leisure facilities, let's call them and all of a sudden, this thing has been mushrooming on us. So what we thought it might be a limited market and might be a limited window of availability has turned out to be a completely parallel market stream for us to address. That's above the typical, I'd say quality and features of the LSV markets that are there now these sort of open off road vehicles into something that's of course more capable like ours. So yes, we're thinking this market is in the hundreds of 1000s.
Jeffrey Osborne: That's great to hear. That's all I have. Thank you.
Operator: This concludes our question and answer session. I'd like to turn the call back over to James Taylor for any closing remarks.
James Taylor: Alright, well, we appreciate everybody that attended the call today. And we look forward to the next opportunity, the next window for us to talk to you either individually or as a group in our next broadcast. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
