Canoo Inc. (GOEV) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello and welcome to the Canoo, Inc. First Quarter 2021 Earnings Call and Webcast. At this time all participants are in a listen-only mode. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Kamal Hamid, Vice President, Investor Relations. Please go ahead.
Kamal Hamid: Welcome to Canoo’s first quarter 2021 earnings conference call. My name is Kamal Hamid, VP of Investor Relations at Canoo. As part of our presentation today, we will direct you to a short video that you can access from the landing page for this webcast. If you haven’t joined via webcast, we invite you to log on using the link in our earnings release, so that you can view the video.
Tony Aquila: Thanks, Kamal. At Canoo our mission is to bring EVs to everyone. And this video shows how we have progressed the product portfolio to address a wide range of use cases and expand our total addressable market. It has only been seven weeks since we last reported earnings due to the timing of our stock transaction. Now we are moving into a normal quarterly cadence with this report. In 2021, we will report on the following business areas, product and technology, our progress towards production, manufacturing, our order and sales pipeline, human capital and operations, and any other material updates. Reporting on these areas will keep you up to date on how we are progressing on key aspects of our business.
Renato Giger: Thank you, Tony. Our first quarter of 2021 results are as follows: research and development expense was $39.3 million for the quarter compared to $19.3 million in the prior year period, excluding $7.1 million of stock-based compensation, research and development expense was $32.2 million. SG&A expense was $55.6 million for the quarter compared to $4.1 million in the prior year period, excluding $38 million of stock-based compensation, SG&A expense was $17.6 million. GAAP net loss was $15.2 million for the quarter compared to a GAAP net loss of $30.9 million in the prior year period. GAAP net loss in the first quarter of 2021 included a $83.6 million non-cash gain on the fair value change of earnout shares liability related to the periodic remeasurement of the fair value of our contingent earnout shares liability and a $1.6 million loss on the fair value change in private placement warrants liability. Adjusted EBITDA was minus $49.8 million for the quarter compared to minus $23 million in the prior year period. Ramesh?
Ramesh Murthy: Thank you, Renato. Turning to the balance sheet and cash flow, we ended the quarter with $641.9 million of cash and cash equivalents. Cash used in operations for the three months ended March 31, 2021 was $53.9 million compared to $23.7 million in the prior year period. Capital expenditures with $12.1 million for the three months ended March 31, 2021, compared with $0.7 million in the prior period. Turning to our guidance for the second quarter of 2021, we anticipate the following expenditures, approximately $65 million to $75 million for operating expenses, excluding stock-based compensation and depreciation and approximately $45 million to $55 million for capital expenditures. Before we open the call up for Q&A, I'll turn the call over to Tony for closing remarks.
Tony Aquila: Thank you, Ramesh. As we look ahead to the balance of 2021, we expect to execute against several of our key initiatives, including announcing a contract manufacturing partner, a location for our future own manufacturing facilities and identifying supply chain partners. I'd like to close by thanking the whole Canoo team and all our advisors and consultants for their hard work and for their many accomplishments in such a short time. We would now like to open the call for Q&A. Operator?
Operator: Thank you. Our first question today is coming from John Murphy from Bank of America. Your line is now live.
John Murphy: Good afternoon, Tony. And thanks for all the info. I got to agree with you. I mean, some of your comments about, market segmentations and other things in the industry are very on point. So, so clearly, you're understanding a lot here. But one thing about the SPAC side of things that I think is debatable in what you're saying is, these early stage companies like yourselves forming in a public forum, one of things that we had thought initially, and this might be wrong when I wanted to get your perspective on it. Is that – is the SPAC funding allows you to accelerate and maybe shoot the gap more nimbly and faster, and get out there and take market share ahead of the incumbents doing so, and based on some of the timelines that you're talking about, in the volumes that you're talking about, it seems like you're going to have a lot of incumbent competition online at similar times as you. So maybe you could just comment on that and maybe if you could move faster or you think they're going to move slower or how you think the competitive environment is going to shape up over time.
Tony Aquila: Yes. So John I think that's a good point to kind of further discuss, so my view on – I'm pro for the democratization of venture capital, private equity and public equity to participate in innovation. We see our competitive countries doing similar things. So from my perspective, it absolutely accelerates the innovation curve. And I think it's super positive impact. What it does do though, is there's kind of having taken another company public and been involved in public offerings before a traditional IPO is different than a SPAC as you know, they're called emerging growth companies and they have a little bit different standards. So the public has to get used to some of the fact that some of this stuff is being evolving in front of the public view. And that's why it's called in UGC, right? So that was the point that I was making there. However, from our side being that we have public company experience, what we done is, we moved dramatically much more to our style, which is to be conservative. One, it's better to outperform than underperform. It's a long-term investing game, and we want to build a great long, strong company that can globally expand and can really return capital over all of its owners of the vehicle. In fact, the return on capital goes up as the vehicle changes hands. So we're very grateful for the fact that we've been able to participate in this fact. But my only point is that the world is learning how to use them and I'm convinced they will continue to get better, but we are big supporters. And I think some styles will be too maybe optimistic for some people like us. And some may think of us as too conservative. But it's a long-term game. And the big triggers in this industry is really in the 2024, 2025 frame, if you think about it, right? That's when the rubber really meets the electric road. And so we believe that if somebody really looks at the real investments we've made in platform, our own IP, our security capability layers, the fact that we use less chips than anyone, if anybody really looks how we invested our money to this point, how much headcounts, human capital we've assembled. It would say that we are a contender. And the more we focus now on go-to-market, and we're pretty excited about some of the things that we will be rolling out, but we will always take a conservative stance going forward.
John Murphy: And it's not just head counts. It's the right folks, it's right human capital talent that you need, when can you reach critical mass on that? And how do you think about that as a key milestone? As you could talk about the number of vehicles you're making miles driven on testimonials and all that stuff. But I mean, headcount and sort of that critical mass on the human capital side is really going to be critical measure. How do you think about that and where do you think you turn the corner on that. Is that that 1,000, 2,000, 5,000, because you're up against companies as that have hundreds of thousands of employees, to some extent and not a lot of your engineers. So it's not necessarily apples-to-apples, but I mean, how do you think about that human capital level at which you turn the corner and things really start changing.
Tony Aquila: Yes. So look, I think in an entrepreneurial environment, totally focused own product line. We can today with the use of technology and keep in mind when you engineer a platform that is technologically capable of adaptations and is able to take multiple derivatives and to do it from a technology-focused primary you get exponential output out of your personnel. In addition to that, what you get is amidst design, you've got 20% less plus parts to 30% less parts as well. And so you pick up a lot of speed. Why, because you have no steering column, you have none of those things that, again, I refer back to the point that I made earlier, where somebody really looks at what we've done. And that will all come out in time. And that's why we're excited about having an IR day next month. So people can see the real product and the real depth. But critical mass, in my opinion, for us, based on what we've announced today is in the 750 range to a 1,000. And that's kind of where we're targeting now for what we've announced. And that's really on the shorter end of that curve, which is, call it through 2022. Now we'll be updating that. We opened our org pipeline today. And it got huge reaction that's just ours. We have additional capacity in our projection. We’re focused on world-class global producers that can give us geographic reach on the third-party manufacturing partnership side and we’re focused, which aligns very well with the administration initiative of bringing this advanced manufacturing of EV to the U.S. Will our head count rise over time? Yes. But right now, everything we’re focused on is to get into that 750, 1,000 range of FTEs based on a product roadmap.
John Murphy: Okay. And then just lastly, it seems like the roadmap that you’re laying out, that incremental capital over time, maybe something that you need. I mean, is that something that you think is going to continue to be relatively available and open and hopefully, stay low costs to get this machine really running? And how do you think about sort of the cadence of potential capital raises over time?
Tony Aquila: Yes. So look, one of the good things, obviously that’s happened is our government is now acting like the Chinese government and others where they’re stimulating clean energy technology. So that allows us to access non-dilutive capital. We’ve seen and we have really deeply dived into how that capital can help us accelerate things. Of course, we haven’t factored that into any of our projections, so again, conservative approach. But for those of you that know me, I’ve raised billions and billions of dollars of various instruments. As you go back and look at the kind of ebb and flow of cash in Tesla’s journey and our journey, we will manage cash very appropriately and we will pace it to our product roadmap. For the event we see more positive trend, Tesla running now, a more conservative model would then be raising capital ahead. And so – and this is industry and the evolution where capital will be important. And of course, we got to punch out milestones. So it’s non-diluted as possible. But we’re building everything from now and our relationship with the Street now that the market’s opening up again, we’ll be out on the road telling our message and at the appropriate times we’ll be raising capital.
John Murphy: Great. Thank you very much. Looking forward to the 17th – June 17th.
Tony Aquila: Thanks, John.
Operator: Our next question is coming from Jaime Perez from RF Lafferty & Company. Your line is now live.
Jaime Perez: How are you doing everybody? Good day. Thanks for the update on the manufacturing. Sort of focusing on Phase 2, where the manufacture comes in house. Have you started ordering long lead time equipment? Because it looks like over the next couple of years, the field of manufacturing is going to be pretty crotch. So could you give us any update on that?
Tony Aquila: Yes, so we are – so because we’re entering into gamma in the LV, the tooling and equipment we’re ordering, and many of it has already been ordered. So we’ve got a very good grip on the large items on stamping and all those other items. So, yes. Second of all, because we get high utility derivatives that we can put on the NPP, we obviously get a lot of scale. So we’re very focused on that for those of us coming out of this industry and understanding it deeply. And of course, we can set up assembly lines in a ladder fashion to meet our demand. So we are feeling good about it. Of course, we haven’t ordered the second batch of stuff. It could be impacted by demand and/or pandemic effects, but that’s why we took a two-pronged approach which one, gets us off the ground. It’s quick, it’s leveraging somebody else’s site facilities and expertise, while we get ours up and get it perfected so we can move to high volume and then flip to the other relationship and make it much more focused on geographic expansion. And as we discussed in the earnings part is we’ve already sourced 75% approximately at the parts, and that’s going up every day. So, look again, I come back to this isn’t an outside in design, this is an inside out design with an outside in focus. And so I think that as we roll out the customer journey piece, we’re focusing on multiple owners, those things will also become an area of focus and appreciation compared to the competitive landscape. And so, my comments on that would be some will – in fact, just based on your comment we’ll report more in detail by segregation of the Phase 1 manufacturing in the Phase 2 when we get towards the equipment and stamping piece for the wholly-owned facility.
Jaime Perez: All right, thank you. And then the next one is more of a comment. I mean, you’ve taken a pretty bold step in transparency and I come in to be more transparent compared to other companies because the issue of pre-orders reserves is also a question. But it’s just glad to hear that just more transparency on the pre-orders. Yeah, that’s all I have. Thanks for my questions.
Tony Aquila: Jamie, I appreciate that. And we definitely are very focused on transparency and clarity because obviously, we want to make sure that people understand the difference between someone’s reservation and someone’s order.
Operator: Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to Kamal at this point.
Kamal Hamid: Thank you everybody for joining us. Look forward to seeing a lot of you on our IR Day on June 17th. Those of you who can’t attend in-person we’d love to have you attend virtual way, so it will be a hybrid event. So please reach out if any questions you have, and we’ll be sure to get back with you. Thank you.
Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
