Canoo Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 9 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce Kuneel Bhalla, Senior Vice President of Corporate Development and Capital Markets. Thank you. You may begin.

Speaker 1

Thank you, everyone, for joining us on our Q2 2023 earnings call. During the call, Tony will update you on our business, Ken will provide an update on our capital raise plans, And Ramesh will go over the Q2 financial results. We will then open up the call for questions. Please be advised we may make forward looking statements based on current expectations. These are subject to significant risks And our actual results may differ materially.

Speaker 1

For a discussion of 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 ks and other reports that we may file with the SEC, including Form 8 ks. 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'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.

Speaker 1

Now please navigate to the webcast landing page and access the video link towards the bottom left of the page.

Speaker 2

Over to you, Tony. Thanks, Kunal, and welcome, everyone. Let's start with legacy matters. On August 4, 2023, the company has finally settled the SEC matter regarding the acts of former executives. This has been a significant burden on the company's time, resource and the process has taken us 20 8 months and 1,000,000 of dollars, which reduced our ability to access the capital markets Into higher cost channels during this period because of perceived uncertainty.

Speaker 2

We now look forward In moving past this matter, putting it to an end is a welcomed and liberating event for us. As we now move to change in our reporting, let me give you some highlights from Q2 and the recent quarter. What you guys are going to see is we'll start to report very similar to all other Public companies will be giving you guidance, and I think you'll like what you see And here in today's call, we are focused on continuously iterating and refining our product. We are with our customers and internally. Look, everyone is fighting through a lot of recall problems, Because testing and durability are 2 different things.

Speaker 2

And I'm talking about long term durability. What the customers' durability requirements are coming out of my past and after sales, we always saw the aftermath of these issues, Which is why we have been testing these vehicles with our customers for over a year in real world conditions and extreme weather conditions under customer use cases. It's not theoretical what we have done. On May 15, 2023, we completed our LVV-one hundred and thirty with customized cargo use cases for customer valuations. On July 20 this year, completed annual summer testing in record 120 degree heat.

Speaker 2

We all know the impacts of this summer have been extreme and we've taken advantage of that doing real customer testing. On July 31, we completed all compliance activities for FMVSS and CARB certification Our sales strategy has been one fleet sale equals 100 or 1000 of vehicles sold on a multi year delivery With high grade credit and long term partnerships. To build these businesses from scratch is not easy. You can't just appear as a consumer brand. You can't appear as just a brand even within fleets, you must prove yourself.

Speaker 2

We have a $3,000,000,000 order book and 70% of that is commercial customers. 1.6% growth in the quarter on Stage 2 and 3 orders. We are slowing down the amount of orders with the $3,000,000,000 order book. We're being very methodical about our allocation with customers, their credit And so on as we look to use different kinds of non dilutive financing, we're binding orders. We have $500,000,000 in binding contracts, Which aligns our order book ramp with our production.

Speaker 2

I think this is a big thing a lot of people struggle with, was to build the big 150,000 unit box, and we thought very differently. I know it's been a subject of many discussions, but those that get it understand why we're doing and I think in these times it's proving Why it's best to align to your book. We have $750,000,000 plus in those committed orders And that gives us the ability to not be building units and then trying to sell them. We have a very different strategy. That gives us about 18,000 units committed orders.

Speaker 2

We can start to focus on now 24 late 24, 25 Customer Allocations. On August 11, closed another Fortune 100 customer agreement To purchase vehicles for their national fleet, we'll do the same as we've done with the existing customers like Walmart, where we've tested the vehicle extremely. And then we are going to build it. We are very focused on having a low recall rate, a low Warranty impact and we're very focused on battery performance. Moving to manufacturing progress All the equipment is now at our facility in Oklahoma City.

Speaker 2

We have implemented a combination of in house hybrid and outsourced strategy to support our 20 ks run rate. Our initial focus has been on process repeatability and enhancements, Harmonizing our supply chain and our product readiness. As we have Unlike other EV companies who are bearing the cash burn of this low capacity utilization, our manufacturing capacity is harmonized With contracted demand for our vehicles and key components and we will only build what we have sold. Now we have to stay long ahead of that curve so that we're similar to what we've done in our other companies is to be able to project revenues longer than 12 months with committed customer orders. We feel strongly about our phased ramp approach.

Speaker 2

I do believe it to be the lowest cost capital approach. While it does create some friction And the timing and delivery and the phasing in of additional equipment to increase your capacity, we just believe in these capital markets, it's prudent as well. On April 10, the OKC facility was acquired. On May 17, general assembly line was all started Installation on June 15, the low volume GA line validation completed. On July 27, 20 ks run rate for our battery module line at Pryor Oklahoma.

Speaker 2

This allows us for other revenues With people like the Department of Defense and other people which need our modular battery technology. On July 31st, 20 ks run rate for robotics and assembly line for our ladder frame equipment at Oklahoma City. And so that makes substantially for this phase at this run rate, Our machinery and equipment in Oklahoma City and prior. Next, our government relations team has worked systematically to leverage all relevant federal, state and local tax credits, grants and other incentives to Support electric vehicle and battery modular manufacturing in Oklahoma and to deploy these technologies nationwide. Like any company, as it becomes to market, it zigzags a little bit and we Had the great support as we tried to figure out the best way for us to move forward in Oklahoma to get the support of The Oklahoma legislature and the government, the governor himself.

Speaker 2

On August 9, 2023, we signed agreements with the Cherokee Nation to invest 1,000 of dollars in each worker development To help us hire trained skilled workers within their reservation for battery module manufacturing at our Pryor Oklahoma facility. This is very helpful to us and we create jobs, advanced manufacturing jobs in an area where it's needed Badly and with the Cherokee Nation support, it helps us align with executing their vision and ours. On August 13, we contracted up to 100 and $15,000,000 of our state of Oklahoma incentives to create 13 60 advanced manufacturing jobs in Oklahoma, which spans across Oklahoma City and prior Oklahoma. In the quarter, we moved to revenue generation, which is a big milestone. Ramesh will cover our enhanced approach to reporting as A revenue generating company.

Speaker 2

Additionally, our investment in democratizing our IP will allow us to generate other revenue With high margin to various customers including but not limited to the government, which have a serviceable obtainable market What we see in the current purview of about $650,000,000 follows. On July 10, 2023, we Signed with the Department of Defense Innovation Unit, we moved to Phase 2 of the high power battery pack development agreement. July 12, we delivered to NASA the first three crude transport vehicles. This has been a very discerning customer. They've been extremely helpful with us in design areas, particularly in Interior efficiency and ergonomics within the cabin and this will help us as we move forward Tremendously, so we're very, very grateful for the partnership and the purchase of NAST.

Speaker 2

Early today, we introduced a second derivative of the LDD line, the LDD-one hundred and ninety. This specifically aligns to our customer needs As we learned in all the testing and performance data we saw with our customers and we designed the NPP-one to be able to have derivatives. So it's pretty low cost, gives much more customer optionality. And this particular derivative picks up 30 plus percent more cargo utilization and 95% of all the space in this vehicle is usable, while maintaining high worker ergonomics and productivity for ingress, egress And load and unload. May 11, we completed the LDV 190 preproduction build.

Speaker 2

On August 14, unveiled the LDV 190, the derivative of the original LDV. Again, Having these platforms that you can deliver derivatives and democratize technology, so you can get an Opportunity to use that for other use cases like the Department of Defense and others. We have found this to be similar to what we've seen in companies like Tesla and others. With that, I'll cover some more in Q and A. Ken, why don't you give us some information on the capital markets?

Speaker 3

Sure. Thanks, Tony. So on the capital side, total capital raised since Q1 was approximately $132,000,000 through a combination of $100,000,000 from convertible debentures, $21,000,000 of warrants and cumulatively $11,000,000 from pipes placed with AFP Partners. Ramesh will shortly give guidance on our capital needs for the rest of the year to achieve our manufacturing readiness targets. The capital required will come from a combination of new and proven sources.

Speaker 3

Over the past several months, We engage with new potential capital sources and have received LOIs, term sheets, including asset backed proposals, Which collectively represent a coverage ratio over 1.5 times of the required capital. We will provide additional details in the coming weeks as we execute on our capital plan. Ramesh will now walk through the results and updated guidance. Over to you, Ramesh.

Speaker 4

Thank you, Ken. Before I move into Q2 'twenty three results, I wanted to share a reflection regarding the SEC matter. One of the more positive aspects that came out of our work internally to address it was to examine how best to improve our accounting systems. Our new accounting function is more mature and we are confident that we have the right processes, Policies, expertise and controls in place as the business grows. Now, Let me walk you through the results of Q2 'twenty three.

Speaker 4

Turning to cash flow. We ended the quarter with $5,000,000 Cash and cash equivalents. After giving effect to the issuance and sale of the 2nd and third Yorkville convertible debentures For a total of $53,200,000 and proceeds from the August pipe of $3,000,000 our cash balance would have been $61,200,000 on June 30, 2023. Cash used in operations for 6 months ended June 30, 2023 was $129,500,000 compared to $237,600,000 in the prior year period. Our capital expenditures of $33,900,000 for the 6 months ended June 30, 2023, compared to $65,400,000 for the 6 months ended June 30, 2022.

Speaker 4

Net cash provided by financing activities for the 6 months ended June 30, 2023 was $132,200,000 Compared to the net cash provided in financing activities for the 6 months ended June 30, 2022 of 92,600,000 Our monthly cash flow in Q2 of 2023 was approximately 38% lower Then our average cash flow per month in 2022. We continue to optimize cash as we move into Q3 of 2023. Moving to the income statement, our Q2 2023 results are as as follows. Research and development expenses, which include investing in manufacturing activities, totaled to $38,600,000 for the quarter, Compared to $115,500,000 in the prior year period, a 67% reduction from Q2 of 2022. SG and A expense was $30,400,000 for the quarter compared to $55,200,000 in the prior year period, a 45% reduction from Q2 of 2022.

Speaker 4

GAAP net loss was $70,900,000 for the quarter Compared to GAAP net loss of $164,400,000 in the prior year period. Adjusted EBITDA was negative $62,300,000 for the quarter compared to negative $149,800,000 in the prior year period. Moving to our guidance. Our guidance for the second half of the year is as follows: Adjusted EBITDA of negative $120,000,000 to negative 140,000,000 CapEx, dollars 70,000,000 to $100,000,000 Our 2023 second half adjusted EBITDA guidance Of negative $120,000,000 to negative $140,000,000 will bring our full year adjusted EBITDA guidance to Negative $235,000,000 to negative $260,000,000 which is a 40% to 45% reduction from the prior year, Demonstrating our relentless focus and discipline of expense management as we prioritize manufacturing. This focus will ensure that we have the necessary capital to deploy as we execute our plan to achieve a 20,000 unit run rate per year manufacturing readiness.

Speaker 4

The result of this alignment continues to be reflected in our second half guidance as follows: A 20% to 30% reduction in second half operating expenses excluding depreciation and stock based compensation compared to second half of twenty twenty two, primarily resulting from increased focus on our objectives. Some of these reductions include a 15% to 20% reduction in professional fees, a 35% to 40% reduction in travel related expenses, And a 20% to 25% reduction in human capital costs for workforce transition to support manufacturing in Oklahoma, Labor arbitrage benefits and change in labor mix. Our focus on confirmed multi year commercial fleet orders With less manufacturing complexity allows us to achieve positive margins sooner than and requires lower capital expenditure And working capital needs compared to others in the industry. The approach that Tony took coming in and re founding the company is becoming clear and clear. Our investment of $1,500,000,000 to date is attributable to the results.

Speaker 4

To quote him, he reminds us that we are like Henry and Ferdinand and not like Ford and Porsche. In summary, let me explain to you our strategy with the sole focus on a double digit return on capital and shareholder return. We build to deliver and we do not build to sell. With our focus on fleet and commercial orders and over 18,000 units Or $750,000,000 of binding commitments from our fleet customers, we have de risked our revenue model. Every vehicle that is built is earmarked for a specific customer.

Speaker 4

On a comparative basis, Some companies in this industry are faced with declining demand as they have prioritized consumer reservations, which have a higher risk. These companies also have inventory on hand ranging from approximately 40 to 300 days And are exposed to large declines in value of inventory resulting from the lower of cost or net realizable value adjustments, Whereas, our finished goods on hand will be significantly lower in days to weeks depending on customer acceptance of delivery. In the upcoming quarters, we will be reporting our revenue streams split into vehicle revenue derived from fleet solutions and other revenue. Our sources of other revenue include upfitting, software, battery modules to potential customers that may or may not be publicly announced. Phase manufacturing ramp approach reduces risk of idle capacity.

Speaker 4

As mentioned before, we plan to use a combination of in house, hybrid and outsource manufacturing strategy Along with the phased ramp approach and keeping the core IP operations in house. On a comparative basis, Other companies in this industry have large manufacturing facilities with idle capacity ranging between 60% to 70% in 2023 with front loaded CapEx investment. Additionally, the total CapEx investment by these companies from inception to breakeven is expected to range between $3,000,000,000 to $6,000,000,000 However, under our phased ramp approach, we could operate in a near full capacity utilization of our manufacturing facilities With only 25% to 35% of the CapEx investment, even companies that Work on an asset light model are still expected to spend approximately 55% to 65% of Our expected CapEx investment to get to breakeven. In the previous quarter, we shared our guidance for additional capital expenditures To reach to a 20 ks run rate and a 40 ks run rate in house manufacturing readiness. We plan to reduce the previously anticipated $140,000,000 to $200,000,000 in additional capital expenditures To reach the 20 ks run rate in manufacturing readiness to a range of $80,000,000 to $110,000,000 By leveraging a combination of in house, hybrid and outsourced manufacturing strategy as we continue to refine our anticipated spend across our vendors and long term partners.

Speaker 4

Further, we maintain the projections to achieve a 40 ks run rate By 2024, with an incremental capital expenditure of $90,000,000 to $120,000,000 thereby allowing us to target gross margin positive in 2025 based on our current pricing. Paths to profitability and cash invested to gross margin breakeven. Our investment of approximately $1,500,000,000 to date On developing our product, which includes our multipurpose platform, allows us to develop several derivatives But little incremental investment combined with a phased manufacturing approach allows us to exit 2024 with a 40 ks run rate On manufacturing readiness. Other companies have invested approximately $8,000,000,000 to $23,000,000,000 of cash to date, With some expecting breakeven in 2024, while others not seeing breakeven in sight. Let me turn it back to Tony for closing remarks.

Speaker 2

Thanks Ramesh. In closing, we are very proud of our first deliveries to NASA. Our manufacturing is progressing. Our vehicles are proving themselves in customer hands. Demand is strong and growing and we are fortunate to have Dedicated partners championing our success.

Speaker 2

I want to thank our suppliers, our partners, our customers And the Canute team in getting us to this stage. A refounding is not easy. We have put A difficult chapter behind us in this quarter from the past and we are now looking forward and focused on delivering what we have laid out in today's call. We appreciate everyone's continued support. With that, I'll turn it over to the operator for Q and A.

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. You may need to pick up your handset before pressing the star key. Our first question comes from the line of Amit Dayal with H. C.

Operator

Wainwright. Please proceed with your question.

Speaker 5

Thank you. Good afternoon, everyone. Tony, to begin with, Could you maybe give us some additional color on this hybrid manufacturing approach? What will be done in house and what will be outsourced?

Speaker 2

Yes. So, hi, Amit. How are you doing? So, What we concentrated on was getting alignment with some partners for the stamping And the cabin activity as well as E Coat, those are big lead time items, and find alternative Technologies with our partners to be able to kind of reduce the amount of CapEx we need. So We focused on primarily outsourcing some of the cabin work.

Speaker 2

And in addition to that, the e coat and Great, final finish elements. Those are the biggest areas that we worked. Everything critical we kept in house Like the NPP1, the capacity of that line could go up to 75,000 already. And of course that helps with our geographic expansion, but that's how we're doing it. And then as our order book And our ability to deliver on that order book Align will bring more of those pieces in house.

Speaker 2

Otherwise, we have to split too much CapEx up.

Speaker 5

Yes, understood. But eventually, this could be brought in house or will you sort of play it by ear to see You are ramping and look at capital accordingly.

Speaker 2

Look, I think as everybody is out there trying to figure out the model, but it's tough to be wake up You know, as I just quoted my comment, it's tough to wake up and be Porsche Ford. And we're not. We're just waking up being Henry and Ferdinand And being creative, being entrepreneurs, finding ways to use the least amount of money with the maximum result for manufacturing. That's how all these companies are built. So that's really what we've been very focused on Is to be able to find that creative way and then figure out with our partners which ones we're going to keep on the outside versus what we're going to bring in.

Speaker 2

Obviously studying the economics As well and getting harmonized product and supply is one of the big tricks in this industry.

Speaker 5

Understood. Thank you for that. The new Fortune 100 customer, Tony, Can you help us or give us any color on which vertical is this like a logistics player or a retail player? Any color on what type of industry this fleet customer is part of?

Speaker 2

Yes, it's an industrial customer. They want to keep these customers like elements of surprise. So Similar to what we did with our other large customers is we want to prove it before they actually Commit to large orders. And so we'll go into a series of testing in the community. Eventually those pictures will get out into the communities that we test them in.

Speaker 2

And then that particular customer is targeting 10,000 units, Which is not reflected in our order book.

Speaker 5

Understood. Thank you. Any updates on sort of Firming up pricing, you are close to sort of making deliveries now. Any range on the pricing front that You might have an update for us.

Speaker 2

Yes. So we saw so I think if you look at Everybody kind of had to like really push their price up and then now they're pushing it down. And we didn't take that approach As you noticed, we stayed firm where we were. We focused on a fleet customer use case And because interiors are very painful in this industry and so we Seeing in on that, that helped us as well as the demand for this segment especially with the 190 derivative coming out with 95 We're coming in, in the 60s range on mix Pricing when a customer orders both. And the return on capital per square footage Is extremely competitive.

Speaker 1

Got it. Thank you.

Speaker 5

Yes, I'll stop here and take my other questions offline. Thank you, guys.

Speaker 1

Okay. All right, Amit. Thank you.

Operator

Our next question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.

Speaker 6

Thanks and good afternoon everybody. I think first, you talked about the second half EBITDA guidance. Can you give any color around volumes or the top line as we think about the second half heading into 2024?

Speaker 2

Yes. So this is a low volume scenario. I mean, I think what we've done here is we didn't try to Yes, we want everybody calibrated to the ramp. That's why we focused on run rate. But it will be a low volume number of units That we are delivering in that time, call it, I don't know, if everything goes as planned on the inside, Well above another 20 or 30 vehicles as we finish out this year.

Speaker 6

Okay, great. Thanks. And any updates on either, especially with the conclusion of the SEC stuff, Anything on grant subsidies and or anything around the potential for a DOE loan?

Speaker 2

Look, obviously the SEC was a significant overhang for us to go after Great incentives like the DOE loan and others. Obviously, we now enter a new era, not making any Comments on that, but for sure we're looking at all avenues. I can rest you assured that that gives us access to non dilutive capital and being The kind of business they want to put their money behind in helping communities, in delivering vehicles Make a difference to the admissions and so we're targeting what is important to them And we believe we've achieved a significant part of that. And of course, we'll be seeking all funding opportunities we can Now that, if you will, the gloves are off for us.

Speaker 6

Thanks. And then 2 more for me. One is around gross margins. You mentioned Gross margin positive as a potential for 2025. And I think as you cross the 20,000 unit mark, it starts to get At least positive from a contribution margin perspective.

Speaker 6

Any thought process on Kind of when we what the volume needs are to get to gross margin positive?

Speaker 2

Yes. So look, we as you can tell You know what we focused on is we focused on being able to have these this platform, these Fleet centric and government centric vehicles. These facilities can breakeven at $40,000 or slightly below, and have free cash flow. So, Obviously, the configuration of the vehicle helps because we have much higher margin as they as we do the updating for their use cases. But it's a different model, right?

Speaker 2

I mean, you have to think of us more like we're a lot Like an aviation defense contractor as well as like Oshkosh more than we are like a Ford because we're building Sold units. We're building on contracted units. And so, obviously that gives you a Better insight. In addition to that, we don't we're not projecting our software revenues or any of those items. And as we saw With our recent deliveries, those customers wanted software services.

Speaker 2

We built a complete Workflow back end on these on our platform. So we'll be talking about that more in the future. But yes, we're very focused on 2025 because at that point, we've crossed over into the 40,000 plus range in capacity.

Speaker 6

Great. Thanks for all the color. And just one final one. Given the topic of the month here, Tesla's network and the NACS connectors, any comments around that?

Speaker 2

So obviously, you saw we're doing some work with the Department of Defense, their innovation unit For battery technologies, we've already successfully, obviously, we know how to To democratize charging. And in addition to that, we took the approach that we will our vehicle will adapt to any kind Our platform, so but we're not rushing out there to go sign up some network thing. We're very focused on very specific customers, Very specific territories and the grid available and the predictability in those Arris, again, we've unfortunately been lumped in with some of the different kind of a customer set than we're going after. But to your point, we're focused on our customer need networks, not a consumer network.

Operator

Our next question comes from the line of Jamie Perez with RF Lafferty. Please proceed with your question.

Speaker 7

Hey, everybody. How are you doing? Thanks for taking my question. So Tony, could you tell me, I mean, I know you announced a settlement the SEC settlement, but over the last couple of months, what were the Impacts and now that the overhang on the stock has gone away, I know you briefly mentioned some customers and Financing, what about vendors and maybe give some color on what's the company's plan going forward after the SEC and I have a couple of follow ups also.

Speaker 2

Yes. So now it's really the official re founding of the company. I mean, we're now we got that thing behind us, which was painful obviously And distracting and obviously impacted shareholder value and Just to capital, but we also took the time to get our product right, to get it tested by customers. And so we made the most out of the situation. I believe that this is kind of now when the world starts To see us a bit differently as we move to manufacturing and especially being one to step forward and say, we will only build sold units.

Speaker 2

We're going to be much more like I said like aerospace defense contractor And a tech company than we are typical OEM just pumping out volume for purchase price. We actually get more economies of scale By actually making sure that the customer, the minute they get the vehicle, it can go to work. It doesn't have downtime for Upfitting or configuration all that stuff, this is a very long term integrated model with the customer's business. And that has that is difficult to do. And so having those things completed, we're out Testing the 190 already in 120 plus degree weather, doing 45 to 50 stops a day.

Speaker 2

So, we're trying to do this very, very differently and do it very predictable because otherwise you theorize, you engineer, You test, you build and then the market tells you what you built. We're trying to circumvent that risk coming out of the aftermarket as you know Jamie. So I think the significant things are to come forward now, I believe now that the overhang has. But I think the whole sector has a bit of proving to do. And so we're just now really trying to break out and be identified for who we are.

Speaker 7

All right. So on that note, so basically when you build for customers, you don't and instead of building just a building, you don't have the Inventory overhang and just parking lots of cars waiting to be sold, it's more like, so you're going to have luck. Is that the best The way to characterize it?

Speaker 2

Yes. The best way to think about it is these will be pre sold units, which will help us achieve much better financings For the vehicle, in addition to that with as we now recalibrate our supply chain, they don't have to take risk because it's a binding purchase order And it's about delivery. So they get money, we get money. It's like it's the way it should When you're especially when you're young, you don't have a big balance sheet. You can't take the risk of flooring.

Speaker 2

I think we've harmonized this to what Henry and Ferdinand would do if they were in my shoes.

Speaker 7

Now the settlement, I mean, it's $1,500,000 as far as peers, I mean, we've heard some settlement. What's the magnitude

Speaker 2

Yes. So look, I think that the amount that the company got fined is A testament to the transparency, everything we did when we didn't when I came in and didn't understand the model, I told Immediately, I think it represents kind of how we've been running the shop. It's pretty low when you look at Some that have paid 100 of 1,000,000 of dollars. Obviously, our legal fees was 30 times more than the fund. But we did the right thing and as Ramesh said, we took the opportunity to look in the mirror and make sure we're running a real public Company, you know I've ran public companies and we didn't miss earnings for 34 quarters.

Speaker 2

We're really trying to build a very strong TEM, Technology equipment manufacturer business and not take the risk of getting it wrong. We're investing capital to get it right.

Speaker 7

All right. So let's switch gears a little bit pun intended. What about the battery? I mean, we've been hearing the news, one of your competitors have problems with the battery units that we called in. Sometimes you see Tesla's going on fire.

Speaker 7

Could you describe your technology compared to the peers?

Speaker 2

Yes. So look, we would have suffered many of the same things had we not done the type of and most people test to pass, we actually test to break. It's very different. And so when you do that especially with these new dense High power systems, I mean it's not an ice engine. You can't be careless about this.

Speaker 2

This is near nuclear grade energy. So That's the big area. It's around batteries. I think people have been just a little Speculative and theoretical, but one of the reasons we focused on Panasonic because Elon has done a great job working with them To make those sales dependable, we're using the same series. And in addition to that, if we had Followed the traditional path, we'd be in the same place all these other guys are.

Speaker 2

We'd be recalling like crazy. But one of the reasons we wanted to go after the DoD and they have very high standards and others is to test the hell out of this in scenarios we can't even imagine Because it can once it gets in the hands of customers, it what is going to happen is going to come back at you. So that's why we've done what we've done And I think it puts us in a much better place plus our technology is modular and it's at the cell level Of integration of the tech stack. So we can we know something like the U. S.

Speaker 2

Army And others that have really I mean these people test your vehicle like they do things you can't imagine. And In doing that, we get instant feedback from our control tower and it's Highly focused on how the batteries perform and perform in a cell failure. It's not a giant big pack. It's different and we've concentrated we're probably on I would say Generation 3 of that already. You bet.

Operator

Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Speaker 8

Thanks for taking the questions. Can we get an update on What's happening with Walmart and when deliveries to that customer are expected to start?

Speaker 2

Yes. Well, we have the 190 being tested right now. Once that's complete, We'll finalize the mix of and the delivery schedule. That's our focus with them Make sure we have the configuration right for their needs. I will say that The incredible heat that we've experienced here in Texas has been really good in helping us and helping everyone because I think everybody is crossing into new territories.

Speaker 2

As this global warming and others have effect Electric vehicles have to be considerate to what is happening in order for it to perform to the needs. This is the approach we're taking with all customers just so you know, is to really work with them, test it, get it right, Focused on a multiyear delivery schedule and because we have to ramp production, we have to invest CapEx and we're trying to really balance that Now, and that's the model we're going to take and then focus Whatever outfitting elements they need for their business and then to go ahead and deliver those deals, have a binding purchase order And then we build

Speaker 8

it. Follow-up question about batteries. It feels like in the last 100 days battery prices have fallen possibly at the fastest rate since the Global financial crisis or certainly the early days of COVID. Number 1, are you observing that Kind of firsthand in the market? And number 2, what do you attribute that to?

Speaker 2

Yes. So look, I think there's always like a bubble in things, right, as we all know, we've seen in things, Which is why we concentrated on saying, look, we're not going to go and unfortunately we had to unwind a bunch of stuff that was Over commitments of the typical $50,000 -100,000 commitment to a supplier, we really focus more on the mark to market Aspect of things, we believe that things were overinflated and with a binding purchase order when you go to your suppliers, It's easy for you to get priority. And in addition to that, our view was that as the Starts to become less dependent on single source environments and the availability of lithium and all these other Rare earth materials that are becoming more available, we're finding in Latin America, we're finding in many places there's access to these rare earth materials that are U. S. Allied nations.

Speaker 2

So we think that all those factors are coming together and the fact That the DOE and the U. S. Government is demonstrating an urgency around it. We think that that also helps. And I think some of the softening demand caused people to go, oh, I don't have a purchase order here.

Speaker 2

So it drops pricing, right? So it's after the height comes the recalibration.

Speaker 8

Understood. Thanks very much.

Speaker 1

You bet.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Speaker 2

I'd like to thank everybody for joining us today. The team is available to answer any questions and I just want to thank all the investors for their support. It's not easy to go through what we've gone through and what you've gone through, but we're here to do our job and build a profitable company. We thank all of you.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Key Takeaways

  • On August 4, 2023 the company settled the SEC matter relating to former executives after a 28-month process and $1 million in fines, freeing management to pursue capital markets without that overhang.
  • The business now follows a pre-sold fleet order model with a $3 billion order book (70% commercial), $500 million in binding contracts and $750 million committed, ensuring only vehicles with purchase orders are built.
  • Manufacturing progress at the Oklahoma City facility includes a 20 k units/year run rate on battery modules and assembly, using a hybrid in-house and outsourced strategy to limit capex and ramp to 40 k units by 2024.
  • Key strategic wins include deliveries to NASA, Phase 2 engagement with the Department of Defense, a new Fortune 100 fleet customer, and the launch of the LDV-190 derivative (30% more cargo capacity) plus modular battery sales targeting a $650 million market.
  • Financial discipline drove a 38% reduction in Q2 cash burn, a 57% narrower GAAP net loss, and guidance of H2 adjusted EBITDA of –$120 million to –$140 million (full-year –$235 million to –$260 million) with $80 million–$110 million capex to reach the 20 k run rate and gross-margin positivity targeted in 2025.
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Earnings Conference Call
Canoo Q2 2023
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