Ayro Q2 2023 Earnings Call Transcript

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August 15, 2023

There are 4 speakers on the call.

Operator

Morning, and welcome to the ARO Inc. 2nd Quarter 2023 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen only mode. After today's presentation, there will be an opportunity to ask questions. A webcast replay of the call will be available approximately 1 hour after the end of the call through November 15, 2023.

Operator

I would now like to turn the call over to Joey Delahoussay of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Speaker 1

Thank you, Anthony. Good morning and thank you for participating in today's conference call. Joining me from ARO's leadership team are Tom Wittenschlager, Chief Executive Officer and Dave Hollingsworth, Chief Financial Officer. During this call, management will be making forward looking statements, including statements that address ARO's expectations for future performance or operational results. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements.

Speaker 1

For more information about these risks, please refer to the risk factors ARO's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes adjusted EBITDA, a non GAAP financial measure that ARO believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non GAAP financial measure we will begin ARO's earnings press release, which is available on its website at www.arow.com under the Investors tab. Content of this call contains time sensitive information that is accurate only as of today, August 15, 2023.

Speaker 1

Except as required by law, ARO disclaims any obligation to publicly update or revise any information to reflect events it is now my pleasure to turn the call over to CEO, Tom Wittenslager.

Speaker 2

Thank you, Joey, and good morning to everyone on the call. We've continued to make progress in the Q2 and beyond Towards our goal of commercializing our new LSCV, the AeroVanish. While our entire and singular focus today is the successful launch of TheVanish and its many payload options, we've made all preparations to efficiently advance our valet and vapor models as line extensions of The Vanish into their next phases of development following the successful launch of The Vanish. We strengthened our balance sheet, ramped up inventory build and are awaiting the receipt of final certifications of our homologation, safety and testing requirements, which we anticipate will be completed shortly. These certifications will enable Arrow to commence sales with confidence in our product's performance, safety and quality in earnest, and we're thrilled to have passed all of the requisites to obtain these.

Speaker 2

In addition to homologation, we've been very busy drive testing and track tuning, the drive performance, suspension settings, regenerative motor braking and even climate control performance in closed and open environments of The Vanish, so that it will represent what we believe our highest engineering standards in the LSEB space. We're in the final stages of calibrating our braking and motor control tuning. After completing our ride dynamics optimization of the suspension, tires, steering and handling features. In addition to the 2 prominent design awards that Vantage has received from Red Dot and from Prost and Sullivan, we want to ensure that the manufacturing of the vehicle and the customer experience match the award winning design elements. With a combination of numerous payload options available for TheVantage, along with all of the quality control measures I've just described, we believe that Vantage will find strong customer acceptance in the market for a host of end market uses, whether it be campus or arena setting or even in a last mile or a last mile extension application.

Speaker 2

With homologation largely behind us, our attention is now focused on completing the transition to low rate initial production or LRIP. We're working to make Arrow synonymous with quality, innovation, safety and performance. And we believe our production ramp is now more streamlined as we addressed a number of supply chain and sourcing constraints in the quarter. Our focus has now turned to building out inventory, and I'm delighted to report that we're close to finishing the build of our 12th Vanish first article unit. Numerous models have been used in our homologation testing, While others have gone to our marketing efforts for demonstration to distributors, strategic partners, upfitters and potential customers, we expect we will continue into full fledged LRIP in the coming quarter with the intention of beginning the ramp to production quantities of The Vanish.

Speaker 2

We plan to build approximately 60 Vanish units during LRIP with the intention of selling and placing these early units with vehicle outfitters, distributors, strategic partners and key end customers that we believe will offer the greatest sales leverage entering 2024. Of course, there will be a learning curve for our manufacturing team during LRIP as we scale the manufacturing floor gained further assembly and product flow experience. Following LRIP and the Vantage launch, we will target moving to full production, which we currently expect to commence in early 2024. For context, we currently anticipate producing 9 vehicles Under the guidelines mentioned above, assuming a ramp in demand, we're in a position to add a second shift here in Round Rock in our Round Rock factory as well as utilizing an established automotive OEM partner to manage surge demand. We believe our infrastructure and preparation for fulfilling demand is developed, sound and on target.

Speaker 2

Once we move to full production, we anticipate cost savings per vehicle resulting from the use of production tooling, volume leverage And learning curve improvements, all of which are customary in vehicle production programs. We believe that these advances in 2024 will allow us to improve as we continue to make progress on our goals to produce our award winning Vanish, we're also keenly focused we are confident that we are confident that we will continue to focus on sales and marketing and have made strides in building a growing network of dealers, potential fleet customers And a growing cadre of potential large multi vehicle customers in the stadium, resort, campus, corporate and hospitality fields, among others. Our relationship with Masters Golf and Utility Vehicles in Ontario Canada is ongoing, and we're excited to move forward into full production And commence sales and marketing activities that we envision will bear strong results. We've signed a growing number of dealers under our dealer program, we look forward to expanding this impressive list. We further formed relationships with vehicle upfitters that will see the Vantage as an enabler to improve functionality in their respective spaces.

Speaker 2

We're making steady progress on our efforts in establishing our direct to consumer or DTC sales channel, we're finalizing our e commerce site and our first on-site location in Florida from Arrow's e Commerce website. Establishing our presence in Florida will serve two goals for Arrow. Florida happens to be one of several states where direct to consumer vehicle sales are permitted. It is also an expansive potential market for The Vantage and our follow on products, the People Mover, we call the Valet and what we believe is the world's most stylized golf cart, the Vapor. We believe we're on track with establishing our DTC capability And expect to launch within a week.

Speaker 2

On the intellectual property front, we're strengthening our IP portfolio consisting of both we continue to believe the combination of our anticipated future sales And sales growth, together with our growing IP portfolio, has the potential to create sustainable shareholder value And provide numerous differentiators in this segment that otherwise hasn't evolved with prevailing technologies nor market opportunities in several decades. Moving on to our financials. Sales in the 2nd quarter were in line with our expectations of the sunsetting our legacy Club Car current vehicle is slightly higher than sales in the Q1. As I've mentioned before, our principal focus has been on the development of the Vantage, and our inventory of remaining club car current vehicles is now quite minimal. We've begun increasing inventory during the Q2 to prepare for LRIP and beyond.

Speaker 2

As an EV company building a disruptive product and markets with very strong demand, we aim to sell large distributors, strategic partners and customers with large appetites. Our need to ramp inventory according to our forecast is significant. We believe our efforts to create a the plurality of vehicles on our new platform are exciting and significant and will offer flexibility and leverage for additional vehicles beyond the Vantage. To this end, we recently raised $22,000,000 in cash from existing stockholders. This additional capital allows us to continue building our business and execute our strategic plan without a market pause for capital It offers additional runway and strategic options to ramp inventory to grow the platform count along our path to profitability.

Speaker 2

Quite simply, we're now better positioned financially. That concludes my opening remarks. Now I'd like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail. Dave?

Speaker 3

Thanks, Tom, and good morning, everyone. Here is a summary of our Q2 2023 financial results. Revenue for the quarter ended June 30, 2023 was 139,544, a decrease of 86% year over year. The sales recorded in the Q2 of 2023 represent the runoff of the Club Car current inventory as we transition to the AeroVanish. Total operating expenses for the Q2 of 2023 were approximately $6,100,000 as compared to approximately 4 $1,000,000 in the Q2 of 2022.

Speaker 3

The year over year increase in total operating expenses was due primarily to the completion of the Vantage product and a ramp to LRIP and full production. Adjusted EBITDA, a non GAAP measure for the Q2 of 2023 with a loss of approximately $5,500,000 versus a loss of approximately $3,600,000 in the Q2 of 2022. Net loss for the quarter ending June 30, 2024 was approximately $6,000,000 versus a net loss of approximately $6,000,000 the year ago quarter. Cash and marketable securities at June 30, 2023 was approximately 33,000,000 versus $48,900,000 at the end of 2023. Total debt was 0 at June 30, 2020 as it was on December 31, 2022.

Speaker 3

As of June 30, 2023, the company had 37,000,000 136,101 common shares outstanding. That concludes my prepared remarks. I'd like to turn the call back over to Tom for the remaining comments.

Speaker 2

Thank you, Dave. We look forward to continuing to execute on our business model and to accomplishing our goals to become a leading force in the very exciting LSEB space. And with that, I'd like to turn the call over to the operator, so we can begin the question and answer session. Operator?

Operator

Before entering your request and speaking on the call, one moment please for the first question. It it appears we have no questions. I would like to turn the conference back over to Tom Wittenschlager for any closing remarks.

Speaker 2

Thank you, Anthony. I'd like to thank all of you for participating on today's call and for your interest in Arrow. We look forward to sharing our progress on our next quarterly conference call when we report our Q3 2023 results, likely in November of 2023. Thank you, and have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Ayro Q2 2023
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