Canoo Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Canoo Third Quarter 2023 Earnings Call. Answer session. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kunal Bala, Senior Vice President, answer Capital Markets, Corporate Development and Purchasing. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you, everyone, for joining us on our Q3 2023 earnings call. We're excited to be presenting this call from our Oklahoma City facility. During the call, Tony will update you on our business progress. Greg Ethridge, who joined as our CFO in August, having previously served on our Board, will provide an introduction and update on sales and financing. Answer session.

Speaker 1

And finally, Ramesh will go over the Q3 financial results.

Speaker 2

Answer session.

Speaker 1

Please be advised, we may make forward looking statements based on current expectations. These are subject to significant risks and uncertainties, and answer session may differ materially. For a discussion of factors that could affect our future financial results and answer session. Please refer to the disclosure in today's earnings release and on our most recent Form 10Q and 10 ks and answer session and other reports that we may file with the SEC, including Form 8ks. All of our statements are made as of answer session today and are based on information currently available to us.

Speaker 1

Except as required by law, we assume no obligation to update any such statements. During this call, we'll 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. Over to you, Tony.

Speaker 2

Answer session. Thanks, Tanal, and welcome, everyone. We live in the most interesting times with an imperative for global innovation, answer session. Certainly in certain industries and markets like ours. When our country has fallen behind, while this is answer session.

Speaker 2

It's daunting at times this can feel like forever, but it can and will pass. Based on your answer is and determination to find a way to get your vision and mission to market and then to scale. Answer session. What is inspiring to me is that it takes just a small group of innovators and hardworking believers answer session. We accept nothing other than to find a way to win.

Speaker 2

What is also inspiring to me answer session. As our country has always done its most impactful work when the world has decided to give us number 2 answer session for number 3 or even last place at times to only see us emerge back in the game and many times on top. Answer. To be amongst these great innovators, you must find your own inner resolve answer session. To lead and not to follow others, but rather hold the bar so high that at times you even doubt yourself, answer session.

Speaker 2

Because as we have all seen many people vote against the innovators versus support them. Answer session. I am blessed and honored to have a group of like minded people who volunteer every day, answer session. While times are tough, we are grateful that every day answer session. More and more of you are becoming believers in our strategy that we introduced 2 plus years ago when we took over the direction answer session.

Speaker 2

Our vision was bold, not the easiest to understand and was hyper focused answer session. And as we now know emerging markets that require unique products, sub products and answer session and approaches to first meet the needs of our customers in fleet, government and military answer session. And then on to consumer markets. Some have asked me why not focus on consumers first. Answer session.

Speaker 2

It's simple. If you design your products and service for the most discerning commercial customers who aim to test the bounds of the possible, answer session. They will help you find a way to build it into reality through rigorous testing and value based feedback answer session. Because their business and mission have a critical dependence on our platform to perform in volume and under stress. Answer.

Speaker 2

Not only are our fleet customers contracted multiyear volume buyers with bankable credit profiles and answer session. And are those who demand minimalism with maximum functionality and safety, these partners can help you fast answer session. Generations of continuous improvement, which will ultimately benefit our answer session. Consumer customers when we increase and expand our delivery to these additional markets. Answer session.

Speaker 2

The risk of manufacturing before rigorous testing has been borne out by the best. Answer session. You run the risk of costly recalls. Because of this, we have never just tested answer session. Our products to pass a regulatory standard, but rather to live or die by the answer session is validation of our hard working people of our country and our customers who rely on our product for critical processes.

Speaker 2

Answer session. The big bets we have made around the redesign and functionality of our platform are beginning to play out successfully at multiple levels, but we still have things to prove. We have worked nearly 3 years to get to this point. Answer session. We have derisked the business plan, derisked the technology and settled legacy matters, answer session.

Speaker 2

And we'll continue blocking and tackling with our characteristic of scrappiness, perseverance and tenacity and answer session. And the discipline and experience we will gain at a time like this is great for Canoo's future DNA. Answer session. Look, as I mentioned, there have been substantial headwinds for Canoo and the whole EV market over the last 12 months. Answer session.

Speaker 2

Headwinds will slow down any aircraft, but if engineered properly and if determined, it will complete its mission. Answer session. Now let me update you on our manufacturing progress in the quarter. We are proud to be a creative and adaptive team answer session. And continue to find innovative ways to acquire long lead time capital intensive and environmentally answer session.

Speaker 2

With the market in distress, the team has opportunistically and accretively answer session. We are continuing to grow our presence in Oklahoma answer session. And by the end of Q4 'twenty three target, 20% to 25% of our total workforce will be Oklahomans. Answer session. In our workforce development program with the Cherokee Nation, we began hiring and training employees At our Oklahoma facilities, yesterday, we reached a key milestone and announced that we would be delivering our first batch answer session.

Speaker 2

Answer session is under an agreement to sell up to 1,000 vehicles. Our manufacturing milestones achieved this quarter are: On July 27, we hit a 20,000 unit run rate for our battery module line installed in prior Oklahoma and the Cherokee Nation. Answer. July 31, 20,000 unit run rate for our robotics and assembly line for our ladder frame equipment answer session. August 17, EPA permit granted for our OKC facility.

Speaker 2

November 10, answer session. Commissioning of equipment completed on both the ladder frame system in Oklahoma City and the battery module system in Pryor. Answer. November 14, today, we update the general assembly system is on track to achieve answer The 20,000 unit run rate for Q1 2024. Listen, we believe it's essential for us and answer session.

Speaker 2

Now I'd like to have Greg cover sales and capital markets answer.

Speaker 3

Thank you, Tony. Just a quick intro. I've had the privilege of serving on the Canoo Board of Directors since December 2020 until recently when Tony asked me to join the management team full time and put my skills to use for this next phase of growth. Prior to that, I spent 14 years investing and managing direct private and public control investments, answer is Austin serving as an interim financial management role. And prior to that, I spent 10 years in investment banking, working in capital markets and restructuring.

Speaker 3

From my first days of meeting Canoo in mid-twenty 20 and understanding the unique benefits of the modular platform and the technology stack, I had a strong belief in the substantial business opportunity for the company. My conviction about the company's success became stronger after getting to know Tony answer And the team here and witnessing the business model pivot that he directed in early 2022. For those of you that don't remember, answer The pivot was the change from a consumer facing electric vehicle to the fleet focused electric delivery vehicles that have now generated 750,000,000 in answer Committed orders for 18,000 units for key commercial customers and also large additional opportunities with government customers. Answer session. The business model shift turned out to be prescient, given the difficulties of consumer exposure in a high interest rate environment.

Speaker 3

Answer session. The new focus towards well funded high credit quality commercial, government and military customers appears to be well timed. Now shifting to our revenue and sales pipeline and recent milestones. During the Q3, we entered the revenue generating phase for the company. Answer session.

Speaker 3

Sales during the quarter were generated from vehicle deliveries, but also from revenue from the DoD's Defense Innovation Unit contract and services. Answer. As you know, our multipurpose platform or NPP and many of the underlying technologies, answer. Electric drive unit, battery modules and the system itself offer revenue generating potential for more than just complete vehicle sales. Answer.

Speaker 3

We will continue delivering additional vehicles throughout the balance of the year to our highly discerning high grade credit government and commercial fleet customers. Answer session. The type of customers you want, especially during tough market cycles. On July 12, Canoo delivered the Crew Transportation Vehicles or CTV, a answer. A derivative of the lifestyle vehicle models to NASA.

Speaker 3

These specially configured CTVs will transport astronauts to the launch pad at Florida's Kennedy Space Center for future Artemis missions. It was an historic day for our company and a very proud day for our team. On October 20, answer. Kunu was pleased to attend when NASA officially revealed the CTVs at the Formula 1 Grand Prix in Austin, Texas. Answer session.

Speaker 3

On November 10, we revealed the American Bulldog, a derivative of the screening Eagle that was delivered to the U. S. Army and answer session. And been in constant testing since November of 2022. The Bulldog was developed as a further derivative and byproduct of this extensive testing.

Speaker 3

And again, as Tony mentioned, we announced yesterday, November 13, that we are delivering our first vehicles in an up to 1,000 unit agreement to the Oklahoma answer. We are very proud of our partnership with the State of Oklahoma and its workforce. Answer session. Our sales pipeline continues to build through 2025 with continuing answer continuing order book, growth and answer session and pricing stability across our target segments. The team recently concluded pre launch trials with key customers on our answer.

Speaker 3

LDV-one hundred and thirty, LDV-one hundred and ninety and other derivative products. Dollars 3,000,000,000 plus order book across Both Stage 2 and 3 orders, over 67,000 total reservation count, answer 3% sequential growth in the quarter on Stage 2 and 3 orders. Strong product acceptance on the commercial fleet answer allows us to be more discerning on customer choice and modulate order acceptance given our very strong backlog. Answer session. Through pilot and pre delivery customer testing, we found 97% to 100% of the use cases are satisfied when looking at the last answer session.

Speaker 3

2 years of driving evaluations and deliveries with key fleet customers. 6 unique duty cycles,

Speaker 2

answer session. Including high volume, high traffic

Speaker 3

metros, rural areas across both food deliveries and general merchandise. Answer. 150 plus days of reliable performance in extreme high temperature conditions in multiple weather environments answer and over 10,000 industrial and commercial use miles and many 1,000 deliveries made to unique locations. Answer session. As we move into production, we also expect to start receiving deposits from our commercial fleet customers.

Speaker 3

Answer. At Canoo, as Tony described, we have been hyper focused on delivering units to our customers and optimizing across our business. We have a strong track record of raising small amounts of capital and allocating it to different functional areas and using mile answer session based achievements. During the quarter, we raised $78,000,000 in equity linked securities, and in October, we raised another $45,000,000 Year to date, we have successfully raised approximately $250,000,000 in total capital to support the growth of Canoo. The most recent $45,000,000 convertible preferred investment that closed in October was from a foreign strategic partner that has ability to significantly upside its investment as we answer session.

Speaker 3

This long term investor is interested in a manufacturing partnership with Canoo and can support Canoo at very attractive price points for certain parts of the vehicle. We continue to be focused on a variety of other capital alternatives, answer session, including with additional overseas partners. Our primary focus this quarter and going forward will be to efficiently allocate capital and continue to achieve our business plan. We are generating savings answer that can be redeployed in the business at many levels. We continue to be focused On getting maximum efficiency from our capital and that is my mission.

Speaker 3

We will take advantage of market dislocations as the opportunities arrive, and Ramesh will describe those in more detail. In summary, despite a very challenging market backdrop this year, we have successfully raised capital to achieve our objectives and answer session. Our team is scrappy, innovative and persevere. We will continue to optimize our spend and take advantage of the opportunities in front of us to achieve our business plan objectives. I will now hand it over to Ramesh to review the financial results.

Speaker 4

Thank you, Greg. Answer session. Now let me walk you through the results of Q3 2023. It was an exciting and historic quarter for two reasons. Answer session.

Speaker 4

First, we are now a revenue generating company. As Tony mentioned earlier, our first revenues were generated in July When we delivered our first three NASA vehicles on time, followed by revenues generated from the completion of certain engineering milestones and delivery of certain battery modules to the Department of Defense's Defense Innovation Unit. We generated revenues of approximately $519,000 in Q3 of 2023. Answer session. Our revenues in the Q3 reflect the inflection point we are at, beginning the phased ramp manufacturing approach In delivering low volume vehicles starting Q4 of 2023, we expect to ramp volumes Over the rest of 2023 2024 at a measured pace to match with the delivery schedules answer that are being agreed to with our customers.

Speaker 4

We incurred $903,000 in cost of revenues answer during the 3 months ended September 30, 2023. Our cost of revenues primarily includes Vehicle components and parts, labor costs and amortized tooling and capitalized costs involved in producing and assembly of our parts components. Our negative gross margin of $384,000 during the 3 months ended September 30, 2023 was primarily due to the custom built initial vehicle deliveries to NASA and certain increased logistic and freight costs answer And includes a lower of cost of net realizable value or LCNRV adjustment of approximately 366,000. Answer session. We expect negative gross margin to improve on a per vehicle basis as we increase overall production levels and answer session and achieve commercial cost savings on material and labor cost.

Speaker 4

2nd, our continuous optimization of operating expenses answer session. A narrowed focus on our milestones has resulted in the lowest adjusted negative EBITDA answer session. Moving to the income statement. Our Q3 2023 results are as follows. Answer session.

Speaker 4

Research and development expenses totaled $22,000,000 for the quarter compared to $57,100,000 in the prior year period, answer is 61 percent reduction from Q3 of 2022. SG and A expense was $24,900,000 for the quarter answer is, compared to $48,800,000 in the prior year period, a 49% reduction from Q3 of 2022. GAAP net loss was $112,000,000 for the quarter compared to GAAP net loss of $117,700,000 in the prior year period. Answer. Adjusted EBITDA was negative $40,400,000 for the quarter compared to negative $80,800,000 in the prior year period.

Speaker 4

Adjusted EPS was negative $0.07 per share for the quarter compared to adjusted EPS of negative $0.31 per share in the prior year period. Turning to cash flow. We ended the quarter with $8,300,000 of cash and cash equivalents. Answer session. After giving effect to the issuance, sale and delivery of preferred shares and warrants for a total of $45,000,000 Our cash balance would have been $53,300,000 Cash used in operations for the 9 months ended September 30, 2023 was $191,400,000 compared to $329,900,000 in the prior year period.

Speaker 4

Our capital expenditures of $45,400,000 for the 9 months ended September 30, 2023 compared to 88,800,000 for the 9 months ended September 30, 2022. Net cash provided by financing activities for the 9 months ended September 30, 2023 was $208,900,000 compared to net cash provided by financing activities for the 9 months ended September 30, 2022 of answer is $181,300,000 Our monthly cash flows in Q3 of 2023 was approximately 40% lower Then our average cash flow per month in 2022. We continue to optimize cash as we move into Q4 of 2023. Moving to our guidance. We had previously provided our guidance for the second half of the year as follows: answer.

Speaker 4

Adjusted EBITDA of negative $120,000,000 to negative 140,000,000 and answer session. And CapEx of $70,000,000 to $100,000,000 Our relentless focus and discipline of expense management, answer session. Including the labor arbitrage as a result of change in labor mix from engineering to manufacturing and transition of our workforce to Oklahoma answer. And our deliberate strategy to minimize long term purchase commitments amongst other factors allow us to improve our Negative adjusted EBITDA guidance. This improvement has resulted in our revised negative adjusted EBITDA guidance to now be between $85,000,000 to $105,000,000 for the second half of twenty twenty three, which is a 30% improvement approach allows us to fully utilize our low volume tools prior to switching over to the high volume tools

Speaker 2

and answer session.

Speaker 4

And pace our asset expansion to align with production, thereby avoiding higher amortization over initial units produced. These reasons combined with the other reasons Greg mentioned above as it relates to partnering with others in the industry answer. To acquire minimally used equipment at optimized cost allows us to reduce our guidance. Answer session. Thereby, we share the following revised guidance for the second half of twenty twenty three of CapEx being $30,000,000 to $40,000,000 answer.

Speaker 4

Our 2023 second half adjusted EBITDA guidance of negative $85,000,000 to negative 105,000,000 answer will bring our full year adjusted EBITDA guidance to negative $210,000,000 to negative $235,000,000 which is approximately a 50% reduction from the prior year. Now let me turn it back to Tony for final remarks.

Speaker 2

Before we go to Q and A, I want to take this time to thank answer. All of our supporters and especially the Canute team and our partner suppliers for their incredible answer session. Operator, please take your questions.

Operator

Our first question comes from Stephen Gengaro with Stifel. Please state your question.

Speaker 5

Thanks. Good afternoon, everybody. Answer. I think two things for me. The first and this ties into your CapEx guidance and on the second quarter call you kind of reduced your CapEx answer session needs to get to that 20,000 unit annual run rate.

Speaker 5

I'm just curious on

Speaker 6

the progress

Speaker 5

answer. As far as the efficiency of getting to that 20,000 unit run rate and does the reduced CapEx that you announced today answer Change the time frame on

Speaker 2

that? No, actually, we've actually enhanced answer Some of the equipment from the unfortunate situation for others. In addition to that, we've developed manual processes answer So that we actually can scale above and beyond because you do have some bumps and alignments that you have to do answer session. So we'll do the best we've ever felt. And answer.

Speaker 2

If by chance you happen to be in Oklahoma City area, we'd be happy to give you a tour.

Speaker 5

Answer session. Thanks. I will definitely take you up on that. The other thing for me was when we think about and answer. And I know you probably don't want to give me precise numbers, but when we think about sort of the move toward gross margin answer.

Speaker 5

Can you give us sort of your updated thoughts on roughly the number of units you think you need to get there?

Speaker 2

Answer Yes. We start to really come to profitability kind of breakeven around answer 14,000 to 16,000 units depending on the manual processes and the automation we implemented. We democratized the scaling of the answer session. Manufacturing environment, so we can scale it with orders, so we don't have to front load the CapEx. That's what we fine tune answer We've developed repair and assembly methods through AI and others so we can train the workforce.

Speaker 2

And Of course, we have great incentive programs for the workforce between the Cherokee Nation and the State of Oklahoma. So we feel good about answer. The 14,000 units, there's more that we'll unveil as to why we concentrated On the 14,000 to 20,000 unit range, but we'll do that at a later date. Answer. Answer session.

Operator

Thank you. Our next question comes from H. C. Wainwright. Amit Dayal with H.

Operator

C. Wainwright. Please state your question.

Speaker 7

Answer session. Tony, just honing in on the delivery schedule for 2024, can Can you give us a sense of how this will ramp from a number of units perspective? Is it in the answer So 20s in say January, February and then ramping into the 50s and 100s later in the year. Any sort of directional sort of?

Speaker 2

Answer. Yes. So Amit, good to hear your voice. So first of all, everybody has produced the hockey stick logic system answer. And the way they're going to do manufacturing, which in reality, that's 2% like 2% of the time, if we study just about anybody.

Speaker 2

Answer And what you'll see is us stepping from and that's why we developed the dual method path while we're bringing on CapEx, So we're not front loading is we have manual methods as well as semi manual methods as well as full automated. The high-tech areas answer of the NPP-one are fully automated now and takes less than 22 people to run that entire line, which can answer We do scale to 50,000 units a year and that capacity is locked and that Process is refined and we've developed for training AI. But what you'll see as we do announce it in the coming quarter, answer Tier 1 seat, we're delivering vehicles and that is scaling, but it will not be a hockey stick event throughout the year answer Because it is imperative that when we exit 24 that we're exiting it leaning towards if you just look at our quarter book answer It's a 40,000 unit run rate and extend to you the same invitation answer session. Come visit us and I'll walk you through how we've done it. You've been to many factories.

Speaker 2

I think you answer. You'll find it pretty interesting what we've done and how we've democratized some of these things that generally have been heavy CapEx loads.

Speaker 7

Answer. Thank you, Tanya. I will definitely take you up on that. So when we are now thinking about answer. The delivery schedule for these customers, were there certain expectations, say from the likes of Walmart, answer.

Speaker 7

How many units they might have received since 2024 and how that has changed? Are they still working with you in terms of answer. Managing expectations around units to be delivered to them?

Speaker 2

Answer. Yes. First of all, when you have the privilege of working with a company like Walmart and its leadership team, they understand and answer session. And logistics and scaling better I believe better than anyone, especially in a very answer In a demanding manner in which it's customer delivery on location and as well as Bring It TO Me. Answer.

Speaker 2

So, Ed, Vinny, super awesome about how we've worked through this. And what we've done with our customers answer We talked to them about a level of accuracy of delivery in years 1, a different level in year 2 answer session. And a different level in year 3 because all our customers are multiyear orders. And so we have a minimum that we have answer 80% to 98% confidence at and higher end that we can reach if answer And we decide to choose to accelerate some of the CapEx needs. Of course, that gives us an opportunity for the customers to participate answer session in giving us advances in order to do that.

Speaker 2

So we're finally hitting that stage. Again, Rather than try to talk everybody through it, for those that it's appropriate for, we'd be willing to give you a tour because now answer. You can really see it.

Speaker 7

Okay. Thank you, Tony. Just one last one from me. Answer. In terms of the strategic investor you mentioned earlier on the call, any color on who this entity is?

Speaker 7

And answer. If they are looking to potentially partner with you on the manufacturing side, is that for outside of the U. S?

Speaker 2

It's a very strong American ally. Answer? And it's people I've done business with before. And and answer. And there's a lot of trust.

Speaker 2

They have an incredible amount of capabilities, but they have large funds for the workforce development, answer. Which should give us even more competitive advantage. Most of all, they have invested an incredible amount of money answer In rapid development message around 3 d printing of highly sophisticated parts answer. But at this time, for many reasons, based on the work we're doing, that name is being kept answer. All right.

Speaker 7

Thank you, Tony. That's all I have. Thank you.

Operator

Our next question comes from Jamie Perez with R. F. Lafferty. Please state your question.

Speaker 6

Hey, good day everybody. Hope Everybody is doing well. Congratulations on your start of manufacturing. Now are you going to be producing LDVs? And also, answer.

Speaker 6

I know you mentioned your new vehicle, the Pitbull, the PitDog site. Answer Are you going to be producing that? It's on the website. You just want to take reservations for it. Could you give a little bit color on the trajectory of that?

Speaker 2

Answer. So one, being a Georgia boy, you definitely have the right to come here and drive the heck out of it.

Speaker 7

All right, cool.

Speaker 2

Answer You can see what we put behind it. But yes, so it's the same NPP1 platform. It's answer You'll see when you come out and see the tour, you'll see how we built answer The NPP1, the latter frames and how their durability compares to others. It's designed for military and industrial use before consumer use. Answer.

Speaker 2

Everything down to the wells, to the coatings, we don't use e coat. We use much more answer. Advanced process that gives you much longer life. So We'll be able to produce because of the NPT-one is just top hat. And if you look at the top hat, the front of our vehicle is reusable.

Speaker 2

Answer. So we're using between 65% 80% of the parts spend. So we can build 130s, 190s, LV, Luxes. Answer We'll be building various units on the same line because it's a multi line capable answer system. So that's one of the reasons why we're debugging it the way we are is because one, we may build answer.

Speaker 2

The next one maybe 190. Since we have large volume customers, we're able to do adequate runs answer on the vehicle. But to answer your question, in 2024, answer session, which will optimize our cash flow from the highest grade credit customers, we'll be concentrating on the LDVs

Speaker 6

answer. Answer. My next question, are you still getting any issues with the supplies? Answer. I mean, I know the labor strike, the UAW labor strike, some of the suppliers said there's a little bit of a backlog.

Speaker 6

Are you seeing that or you anticipate that?

Speaker 2

Answer. Yes. I think our problems are probably a little different, answer Jamie, in the sense that a lot of our problems are kind of legacy negotiations where they were promising much more answer session. Accelerated the typical 100,000, 150,000 unit orders for pricing. We've actually taken, as Ramesh said, a very different approach answer And work into partnership with these people because we effectively are running on negative days of on deliveries because We don't build anything unless it's presold and it has a good credit rating.

Speaker 2

So we're able to kind of recut answer. And that's why I gave a special shout out because I mean, I think not only are the supplier partners happy to answer Find somebody who's not trying to ring them out for the next $0.10 but to actually get rewarded as we do volume. So our pricing continues to get better, but that we addressed our BOM cost at a much more moderate level answer. And at a more hybrid of automation and manual versus all fully automated. So as

Speaker 6

answer. All right. That's all the questions I have. Answer session.

Operator

Our next question comes from Poe Fratt with Alliance Global Partners. Please state your question.

Speaker 8

Answer. Good afternoon, Tony. Good afternoon, Greg. Can you just talk about capital raising Going forward, it looks like there won't be any more convert debt issued just because the options expired. Answer.

Speaker 8

And then can you just confirm that? And then will that be part of your it won't be part of your funding mix going forward? Answer. And then will you talk about the timing on the next $105,000,000 potential of answer. Convertible preferred that with the same strategic investor?

Speaker 2

Answer Yes. So that will come from some different sources. So we started generating revenue. I mean, we're real, right? And they're very answer Discerning customers that provided that revenue, and that revenue will grow quarter over quarter.

Speaker 2

We needed to prove answer. These are interesting times, right, as I talked about earlier. So we needed to prove that. So our funding mix now will start to come also from deposits answer As well as extended terms, and that's why, again, I'll come back to our supplier partners, what they have been willing to do with us. And I think answer.

Speaker 2

At the strike enhanced, the opportunity for them to take a breather and appreciate helping Young companies that have tremendous order books, that derisks for them. And From a capital perspective, we'll continue to do whether it's money from me or others, answer session. We'll fund the company in a just in time and milestone based progress because, I mean, look at it, we're trading below book value right now. Answer. So the pendulum always swings, as we all know, extremely.

Speaker 2

And we just want to prove ourselves. And answer session. For long term investors, those things will come around. So we're feeling good about as we step through 2024 answer Based on the visibility of the macro environment, we see and we see lots of room for us answer to improve on everything we're giving guidance to today.

Speaker 8

Can you just clarify on the last answer session. You were talking about the potential for non dilutive capital answer. And the term sheets were coming in that might look attractive. Answer. When should we expect some less dilutive answer.

Speaker 8

Financing to occur, meaning, are there still term fees out there with a certain amount of answer. Capital that you can tap into or just help me understand sort of the other levers that you can pull?

Speaker 2

Answer. Yes. So I gave you a glimpse into the fact that we're now in an allocation phase and allocation also is connected to deposits, answer? Right. So and these are sizable in nature approach with our customers.

Speaker 2

Answer. In addition to that, we believe the market is starting to realize our strategy that we announced answer It's a long time ago, as I mentioned, and that'll obviously help. I always tell the team answer In terrible markets that are trading below par, it's not about it's not just about price of your shares, It's about the volume and liquidity of it. And we have great liquidity and we have a strong base answer That is growing more towards the long term side, so we see access to that capital. In addition to that, there are other sources answer session of capital that we are working with that are much lower cost of capital for the various programs that are associated to.

Speaker 2

Answer session. And as you win more and more of the big contracts, you get advanced payments associated to those contracts. Answer In addition to that, there's the ability to put in long term capital pipes answer that aren't interested in selling and other capital areas. Answer. We have incentives now starting to flow into we'll get our 1st set of incentives in the 1st of the year.

Speaker 2

Answer. And when we've got great POs from grade A credit and BBB credit, our spread, answer. Very bankable to get advances on. However, we want to focus on this phase before we pay cost of capital answer? That we use the strength of the balance sheet of our customers and get them units so they can make money with our units.

Speaker 2

Answer That makes all that. That's a whole area of ways we would get the capital. But I think when the market is trading like this, answer You have to raise small amounts in frequency. And it also creates a behavior inside the company Where they become less wasteful. In the young companies, it's not a question of how much capital you have on the balance sheet.

Speaker 2

It's the big question I ask as an investor is what is the efficiency of the dollar invested on the balance sheet. And I can tell you, I've been doing it a long time answer session. In the early phases, as we're all now seeing, big amounts on the balance sheet often are connected to big burn rates.

Speaker 8

Answer. Great. And can you just so if you do the math, it looks like 4th quarter CapEx is coming in between $30,000,000 $40,000,000 answer. I'm sorry, dollars 18,000,000 and roughly $18,000,000 to $28,000,000 for the rest of the year. Answer session.

Speaker 8

Can you take a stab at well, 1, I think you've been asked if that's enough to get you to the 20,000 unit production answer. Capacity is that and then secondly, how much more capital is going to be required to get you to the 20 the 40,000 answer. Unit production capacity that it sounds like you're targeting for the end of 2024?

Speaker 2

Answer. Yes. So from a capital perspective, we'll invest about another 200,000,000 answer? That does not take effect for some of the $0.30 and less on the dollar of some of the stuff we're buying that answer Some front loaded CapEx before they add customers. So we're in a good phase, plus We really coordinated and again, happy to have a visit and Show you the creativity of the way we're using different painting techniques.

Speaker 2

I come out of a background of that. I sold the company to PPG years back. Answer. We understand that market. We don't use ECo.

Speaker 2

So our ability to exit at 40,000 unit run rate, answer Which obviously, we could accelerate if we put more capital. At this point in time, we don't see a need for that answer Because we've been able to work with our customers because we want to really perfect the process through automation. So obviously, our margins go up answer. And we use the least amount of capital. We see 2024 by the fact that we democratize the way answer session.

Speaker 2

The assembly line goes together, we'll be able to capitalize on a lot of those opportunities. Some of it's luck, some of it's timing. Answer And if you think back to the very beginning when the pivot occurred, it occurred for a very specific reason. You got to build your business for a down market, answer. Because they're not always up.

Speaker 2

And that's something we concentrated on. I don't think you'll find answer? Anyone that has been able to democratize it to make money in the 14,000, 16000 unit range. Answer And like I said, in a couple of quarters, we'll explain to you why we did that.

Speaker 8

Great. Thanks for your time.

Speaker 2

Answer session.

Operator

Our next question comes from Stephen Gengaro with Stifel. Please state your question.

Speaker 5

Answer. Thanks. Just a quick follow-up. When you look at the change in EBITDA answer. Guidance for the year and sort of the improvement, what are the biggest factors that are driving the delta between where you were and where you are now?

Speaker 2

Answer. So it's been our team has renegotiated a lot of deals with our suppliers. They've been huge contributors. Answer session? In addition to that, we've seen reduction in our CapEx.

Speaker 2

We've also been able to utilize answer. Better labor arbitrage between California, if you will, and Oklahoma. I answer. For all those that have businesses, I strongly encourage them to look at the state of Oklahoma. It's an amazing workforce, and it's got answer.

Speaker 2

A lot of upside in it. Cost of living is great. So we're picking it up from like think of it like when you're reading out a towel, answer. The water all funnels down to the center and but it's coming from all places.

Speaker 5

Answer Okay, great. That was all for me. Thank you.

Operator

Thank you. And there are no further questions at this time. I'll hand the floor back answer management for closing remarks.

Speaker 2

Again, we'd like to thank everybody. A big shout out to our believers answer. And investors, those that have supported us with instruments, those answer session. Continue to work with us on our equipment needs, the shocking system of answer. Introducing a democratized assembly line build out and a big shout out to some of our partners that helped us bring the answer material that is much more ecological to the industry for the first time.

Speaker 2

And for those of you that come and visit us, you'll see what that is. Answer session. Thank you.

Operator

Thank you. And that concludes today's call. All parties may disconnect. Have a good evening.

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Earnings Conference Call
Canoo Q3 2023
00:00 / 00:00