Canoo Inc. (GOEV) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to your Canoo Third Quarter 2021 earnings call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Kamal Hamid, Vice President of Investor Relations. The floor is yours.
Kamal Hamid: Welcome to Canoo's quarterly earnings conference call. My name is Kamal Hamid, and I'm the VP of Investor Relations at Canoo. Today, I have with me Investor Chairman and CEO Tony Aquila, Senior Vice President and Interim CFO, Renato Giger and Senior Vice President of Finance and Chief Accounting Officer, Ramesh Murthy. Tony will provide an update on the progress we have made since our last call. Renato and Ramesh will then review our financial results for the quarter and turn it back to Tony, who will provide closing remarks. We will then open up the call for questions. Please be advised that we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties and our actual results may differ materially. For a discussion of those factors that could affect our future financial results and business. Please refer to the disclosure in today's earnings release, and on our most recent Form 10-Q and 10-K, and reports that we may file on Form 8-K, the SEC. All of our statements are made as of today, and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. With that, I will turn the call over to Tony.
Tony Aquila: Thank you, Kamal. Thank you, everyone for joining us today. Before discussing the third quarter, I want to take a quick look back at what we've accomplished so far. We first took ownership of the past and then we focused on the present and the future. We assembled a qualified season board with public Company experience and continue to strengthen the management team. We refined our strategy and go-to-market and we're the first ED SPAC to rationalize our plan. No good deed goes unpunished. And as we discussed in our Q4 2020 earnings call, we are now seeing some of our peers adjust their guidance. As part of our resounding, we instituted public Company discipline and refined our strategy to focus on maximizing return on capital and creating long-term shareholder value. These included expanding our TAM to an estimated 4.4 million vehicles by developing 3 new derivatives on our multi-purpose platform design. Targeting monetization touch points to reach multiple owners across the vehicle life cycle via up-fitting, customization and over the air services and more. Designing our Proprietary Asset Management Software platform, which will enable coming customers to manage all vehicles in their household with easy access to our ecosystem of service providers. And exiting low to no return on capital businesses and prioritizing investments in our own IP. We have grown our IP portfolio by a 144% to over 127 pending or registered patents since the beginning of the year. Increased focused on design, ADAS and chassis We will continue to prioritize IP that drive shareholder value. Our team has grown by 87% since the beginning of the year. We now have approximately 700 employees and 100 contractors, and have strengthened core areas, including engineering, powertrain, ADAS, business functions, SP&A customer journey, and IP. We diversified our footprint beyond California by adding locations in Texas and Michigan, opening up additional labor pool at a lower cost. You've heard me say it before, our discipline is big news or no news. We completed more than 500 thousand miles of data testing validation. And our next big milestone will be getting gamma vehicles into the hands of our potential customers. The selected prior Oklahoma has the site of our owned facility and secured up to 300 million in non - dilutive incentives. And just recently announced that we selected Panasonic, a pioneer and world-class battery manufacturer as our battery supply partner. I would like to personally thank Allan Swan, the President of PENA, for his leadership and the entire Panasonic team for their support. We assess numerous suppliers in selected Panasonic because they are the best. They have an unquestionable track record with billions of cells on the road today for Tesla. In our view, Panasonic operates one of the fastest, safest lines, and they are serious about their commitment to being environmentally-friendly. Selecting Panasonic enabled us to deliver enhanced safety and lower cost of ownership to our customers. Earlier this year, we selected Oklahoma as the location for our own manufacturing facility. Today, we are excited to announce that we have expanded this partnership to include Arkansas and additional locations in Oklahoma. Our corporate headquarters will be relocated to Bentonville, along with an advanced manufacturing industrialized facility. Technology hubs in Tulsa and Fayetteville to support R&D in electronics powertrains, battery, vehicle engineering, and testing. Our software development center in Tulsa and a customer support in Komen center in Oklahoma city, California will maintain its current focus on engineering in vehicle design. Combined, these facilities are expected to employ as many as 1200 people, providing high education and jobs in the region. Now with these final pieces in place, we will now focus on completing definitive agreements with each state, which will include approximately $100 million in additional non - dilutive financial incentives, making the total approximately $400 million. With these agreements, we are targeting approximately 100 million in vehicle orders with the states and universities where we are locating these facilities. I'd like to thank Governor Spit and Governor Hutchinson and their teams for their support and commitment in championing advanced manufacturing jobs and high-tech innovation opportunities in their states. Their forward thinking will create high-tech jobs In there states for the new ED economy. I am also honored to announce that we will be partnering with the George Kaiser and the George Kaiser Family Foundation to help in their transformation of total set into a vibrant and inclusive economy while helping us with recruiting, education, and diversity of our workforce. Our thanks also extends to other great families, organizations, tribal nations, and local governments in the region who share and support our vision. In light of our expanded partnership with Arkansas and Oklahoma, we are now able to accelerate our advanced manufacturing industrialization facility in the U.S. ahead of BDL Mid-Con. Addressing growing demand for the LD -Delivery and the LV, which will avoid a 25% tariff on cargo bands imported into the U.S., putting us ahead of schedule, create a direct link between our prior factory and our industrialization facility, and produce the LDD and other L.B. Variance on the same production line. We will accelerate our advanced manufacturing production in the U.S. to begin before Q4, 2022. Given these advancements, by the end of November, we will reprioritize our relationship with BDL Nedcar. We have been focused on reducing execution risk as Europe and the Netherlands are still struggling with pandemic inflation, shipping, and taxation. As for our progress towards production, we have engineering design is complete and sourced for our LV gamma builds. And here is a sneak peek at what we're doing in the U.S. with one of our partners. Please navigate to the webcast landing page and access the video link toward the bottom left of the page. We will pause briefly while you watch the video. As you can see, the progress on gamma which is our last step prior to production and we're excited to get vehicles into the hands of our customers. And now for our financial results, Renato.
Renato Giger: Thank you, Tony. Our third quarter of 2021 results are as follows; research and development expenses of 59.4 million for the quarter compared to 18.9 million in the prior-year period, excluding 5.8 million of stock-based compensation. Research and development expense was 53.6 million. SG&A expense was 45.5 million for the quarter compared to 8.4 million in the prior-year period. Excluding 13.3 million of stock-based compensation, SG&A expenses were 32.2 million. GAAP net loss was $80.9 million for the quarter compared to a GAAP net loss of $23.4 million in the prior-year period. GAAP net loss in the third quarter of 2021 included a $25.8 million non-cash gain on the fair value change of earn-out shares liability related to the periodic remeasurement of the fair value of our contingent earn out shares liability. Adjusted EBITDA was negative $85.8 million for the quarter compared to negative $20.1 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 $414.9 million of cash and cash equivalents. Cash used in operations for the 9 months ended September 30th, 2021 was $180.6 million compared to 65.1 million in the prior year period. Capital expenditures were $74 million for the 9 months ended September 30th, compared to $1.2 million in the prior-year period. Turning to our guidance. For the fourth quarter of 2021, we anticipate the following expenditures. approximately $95 million to $115 million for operating expenses, excluding stock-based compensation and depreciation, and approximately $60 million to $80 million for capital expenditures. Before we open the call up for Q&A, I'll turn it over to Tony for closing remarks.
Tony Aquila: Thank you, Ramesh. It's been a year of milestones and growth. I want to thank the Board, the entire Canoo team, and all our partners for their hard work and dedication. We would now like to open the call for questions. Operator?
Operator: Thank you. The floor is now open for questions. . If you're using a speakerphone, we ask that you pick up your handset to provide the best sound quality. . Please hold a moment while we poll for questions. We'll take our first question from Craig Irwin with Roth Capital Partners. Please go ahead.
Craig Irwin: Good evening, and thanks for taking my questions. Hey, that's really exciting progress with the Gamma vehicles. I love the video. As always, cool videos. Can you maybe remind us the size of the Gamma fleet you're going to fuel, and the technical capabilities of these fleets. Do you expect to use these vehicles in some of your partnerships as early test beds for some of the ADAS stuff that you've been looking at. Can you help us shape out what the real technology development will be on these platforms?
Tony Aquila: So we'll be focused on about a 120 to 150 of those vehicles and some of them will be in hands of potential partners..
Craig Irwin: Understood. And then there's been a scarcity of marketing vehicles. You do get vehicles to some of these major trade shows, but I think there's quite a lot more demand across the country because when people see the current person, it's a very different response and sometimes seeing in a 2 dimensional video or even picture. What's the potential of some of these vehicles maybe being made available for ride and drive or as marketing vehicles over the next couple of years?
Tony Aquila: Yeah. We'll be doing selective events in early to mid next year to bring people through the vehicles. We'll do some roadshows. We've already started a few very selective in quiet ones. And we'll continue to do those.
Craig Irwin: Understood. Yeah. And I attended one, its fine. So, complete --completely understand the re-prioritization of video net car, right?
Craig Irwin: Given you guys are moving faster and bringing online production and executing ahead of the original game plan. I noticed that was a $26 million payment to Nedcar in the quarter. Can you maybe discuss, what do you see the relationship possibly looking like? I know there's number weeks for you to still finalize this, but what's your vision for how Nedcar fits into the future, of Canoo.
Tony Aquila: So Craig, we took a bit of a punch in the face, obviously in the beginning when we said, "Hey, we were going to have VDL Nedcar as phase 1 and industrialization and manufacturing in phase 2 and 3. And we did that because that was the right thing for us to do and to relate to the market while we were working out and mitigating risks and finding our state partners. We've since been able to do that, and including the continuing pandemic issues, plus the demand for more of the LDD rising fast. We obviously we're working on the track to get it closer to where our ground-zero manufacturing is going to be. All those things, w just got lucky they came together. And we have a -- I personally have a very good relationship with the Bentley family. And if you remember, way back when I said this, I said we're using it as a backfill till we get things figured out here in the US. But that, it was really for geographic expansion into Europe. And so now that becomes more clear. We'll continue our discussions with them through the month to figure out what that looks like. We're not worried about the $26 million. We have a very good relationship with them and very little leakage of that. We will have some if we choose to re-prioritize the timing but we didn't ship any of the equipment that we're shipping into the industrialization center. So everything worked out. Actually costs kind of come in better, right? And we are bigger fans of owning our own facilities than we our contract manufacturing with the inherent risks with that. Having it out of your control and so I think we're just -- we just keep punching out these things and tightening it up and bringing it to center and executing on what we say we are and to the extent we can pulling it forward.
Craig Irwin: Excellent, now last question for me. Can you maybe update us on the CapEx for Company-owned manufacturing, what your expectations are over the next number of quarters, and it's incredibly impressive to pull forward capacity in this environment where everybody is complaining that they can't get delivery of equipment because of this global supply chain and ship to be, if you could talk a little bit about how you work with your partners to pull us off and what gives you the confidence that this is materializing.
Tony Aquila: Well, I think they're still every Company has kind of going through some kind of impact with inflation and scarcity of materials. I think the fact that we had the foresight to bring down our numbers to reasonable numbers, that we could raise, allowed us to secure realistic supply lines and we've obviously covered the point. I remember you are one of the ones kind upset with me in the beginning.
Craig Irwin: We give you a hard time a little bit.
Tony Aquila: But as you can see now, we've been in this space along time. My former Company didn't miss guidance consensus for 34 quarters. I mean, we intend to be very realistic and move up, not move down. And we've got to keep it still conservative and we're going to continue to do that, but we continue to mitigate all those steps and feel really good about the supply line, Panasonic doesn't just select anyone as you probably know. And I think bringing our partners deeply along with what we're doing, why we're doing it, and what the size and impact is that we can bring not only as a TAM, but into the communities, into the product purposes. I think we continue to gain supporters, but look, we got to keep making first downs here and when we gain.
Craig Irwin: Excellent. Well, congrats. You meet my numbers, I think free quarters in a row now. So that's a good place to be and I'll hop back in the queue.
Operator: I will take our next question from Jaime Perez with RF Lafferty, please go ahead.
Jaime Perez: Good day everybody. Thanks for taking my question. So you open up the U.S. facility in the fourth quarter of 2020, which is next year. How much of the leader equipment have you ordered? What's the scheduled for 2 lane and P production so you could give us a little bit of color on the progression of getting to the manufacturing stage.
Tony Aquila: We obviously feel good enough that will be ahead of Q4. With our suppliers, we're currently mitigating a couple items right now, but we are -- all of them will come in before the Q4 timeline. We're in positive territory right now. We have most of the stuff being built and re-built, and we are continuing to monitor the situation, make sure nobody slips, and where we see anything we have mitigation strategies in place and we're a 100% sourced. Our engineering is locked. I mean, we've made a lot of progress and deep complements to Sahel and his team for what they've pulled off, they've been working nonstop.
Jaime Perez: Now the Company has made great progress since last year's, especially when you took over. Now, the Arkansas advance realization facility, I mean, how different is that from the facility in Oklahoma?
Tony Aquila: Oh, it's very different. This is an advanced manufacturing facility that will allow us to produce vehicles for unique use cases, as well as accelerate our testing into gamma. We're looking for ways to take down the traditional go-to-market way. And this will produce vehicles that we will sell as well. It gives you a valve, plus that valve is free or advanced innovation, which is connected. If you noticed, we've basically laid out for you guys an entire corridor strategy of how you get the labor shed and how you get the best arbitrage, And how you get an amazing workforce and community involvement. So that facility will be an area of innovation for us and rapid prototyping. And so we can push through gamma faster. on the other derivatives and get product to market from there while we're tooling up in the factory in prior. It makes sense?
Jaime Perez: Thank you for the response off that's all the questions I have. Thanks a lot.
Tony Aquila: You bet.
Operator: Again, if you do have a question or comments, (operator instructions), we will take our next question from Amit Dayal with H.C Wainwright. Please go ahead.
Amit Dayal: Good afternoon, everyone. Tony, just to begin with respect to the Panasonic relationship. Have you committed to any minimums on the benefit earnings from them?
Tony Aquila: Yes, we have.
Amit Dayal: Okay.
Tony Aquila: We have share -- and we have minimum in excess of what we have projected to the market, if that's your question.
Amit Dayal: Okay. Thank you and then as you get closer to commercializing the offerings, I mean, have you turned of narrowed down the policing reinsure the vehicles, should we expect it to be similar to what we've guided for or any change in that fund.
Tony Aquila: There is a little bit of creep going on. We're mitigating it in some advantaged areas. We've reduced our cost significantly by accelerating the site by about $68,000 a unit that we would've been carrying if we were supplying into the U.S. from Europe. That is positive for us obviously. But we, I would say we will see some creep like everybody else, but I think we will be my projection is will be below others.
Amit Dayal: Thank you. And then just the $100 million in orders from Arkansas and Oklahoma University and the state. Are these definitive agreements or just more level type agreements?
Tony Aquila: These are discussions that we're having and we'll finalize those in the definitive agreements. But you will see the press releases from the States. I mean, these 2 -- these are 2 amazing governors that businessman, they get it. They know how to help. They want to create high-tech jobs. They want to create this as a new industry in the corridor. And so they've been extremely helpful. And obviously we are always conservative. But we will be focused on having those in the definitive agreements.
Amit Dayal: That's all right. Thank you.
Operator: This concludes our question-and-answer session. I would now like to turn the call back over for closing remarks..
A - Kamal Hamid: Thank you all for joining us today. Feel free to reach out with any questions or if you want more information. And we look forward to updating you in about 4 months. Thanks, everybody.
A - Tony Aquila: Thank you, everyone.
Operator: This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time and. Have a great day.
