Canoo Inc (GOEV) 2021 Q1 法說會逐字稿

Hello, and welcome to the Canoo Inc.'s First Quarter 2021 Earnings Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Kamal Hamid, Vice President, Investor Relations. Please go ahead, sir.

Welcome to Canoo's First Quarter 2021 Earnings Conference Call. My name is Kamal Hamid, VP of Investor Relations at Canoo. As part of our presentation today, we will direct you to a short video that you can access from the landing page for this webcast. If you haven't joined via webcast, we invite you to log on using the link in our earnings release so that you can view the video.

Today, I have with me Tony Aquila, our Chairman and CEO; Renato Giger, Interim CFO; and Ramesh Murthy, Chief Accounting Officer. Tony will provide an update on the progress we have made since our last call and describe the metrics we will report on for the balance of 2021. Then he'll turn it over to Renato and Ramesh, who will go over our first quarter financial results. Tony will then provide closing remarks, and we'll open it up for questions.

During this call, we may make forward-looking statements based on current expectations. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent Form 10-Q and 10-K and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, May 17, 2021, 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.

Now before I turn it over to Tony, we would like to share a new piece of marketing creative. This video embodies our mission to bring EVs to everyone. It shows our expanded product line, including the lifestyle vehicle, multi-purpose delivery vehicle and the pickup. It also highlights the families, fleets and working professionals that the Canoo product portfolio will soon serve while delivering an extraordinary customer experience.

Now please navigate to the webcast landing page and access the video link towards the bottom left of the page. We'll pause briefly while you watch the video.

(presentation)

For those of you who were not able to view the video, you can access it on our YouTube channel or the IR portion of our website.

With that, I'll turn the call over to Tony.

Thanks, Kamal. At Canoo, our mission is to bring EVs to everyone, and this video shows how we have progressed the product portfolio to address a wide range of use cases and expand our total addressable market. It has only been 7 weeks since we last reported earnings due to the timing of our SPAC transaction. Now we are moving into a normal quarterly cadence with this report.

In 2021, we will report on the following business areas: product and technology, our progress towards production, manufacturing, our order and sales pipeline, human capital and operations and any other material updates. Reporting on these areas will keep you up-to-date on how we are progressing on key aspects of our business.

Before going into the business update, I wanted to share our view of the EV and SPAC market today. There are many things happening in the market, including an evolving regulatory environment. SPACs have democratized access to capital for emerging growth companies that would normally have been backed by early-stage private capital. By nature, these early-stage companies will remain dynamic as they mature in the public view.

We have transitioned our strategy to better position us for success as a public company. Our new leadership conducted deep due diligence and course corrected our strategy, and we have performed in line with the EV SPACs over the past number of months. The EV sector has seen significant investor interest with billions of dollars being invested. But EV SPACs are now facing some near-term headwinds, including the SEC's interest and determination on how warrants are treated, supply chain constraints impacting both EV and frankly ICE OEMs and company-specific issues. Our experienced leadership at Canoo has navigated many market cycles. We are focused on building a business today that will be positioned for long-term success.

Now let me walk you through some of our business updates. We have a large, fast-growing and profitable addressable market. Our business model takes into account total addressable markets, as we call it TAMs, for both sales of new vehicles and sales in the aftermarket. Today, the new vehicle addressable market for our products is projected to be 4.4 million vehicles in the U.S. and Europe by 2026. The new vehicle market is projected to grow by 16% annually from 2023 through 2026. In addition to new vehicle sales, we intend to capitalize on aftersales TAM in 3 ways: $280 billion in service, maintenance and repair with an approximate 40% to 50% gross margin and $400 million in over-the-air services with a 70% to 80% gross margin and $24 billion in accessories and customization with an estimated 50% margin. And finally, by focusing on the full multiple owner life cycle, Canoo will have the opportunity to capture over 70 monetizable transactions across owners 1, 2, 3, 4 and beyond.

As we announced today, preorders are now open on our website for all our vehicles: The lifestyle vehicle; the multi-purpose delivery vehicle, or as we call MPDV; and our pickup truck. All of these vehicles can be preordered with a refundable $100 deposit. Please feel free to reserve your vehicle on our website today. The lifestyle vehicle will be our first product to market and will come in 4 trims: One, delivery; two, base; three, premium; and four, adventure. We're targeting a starting price range of $34,750 to $49,950 before upgrades for the delivery, the base and premium trims of the lifestyle vehicle. Pricing for the adventure trim will be announced in the coming quarters. These prices are before incentive programs, which we hope for customers to apply to upfitting. Further, we will provide you more details on our digital service offering and customer journey platform in the near future.

Canoo is building and refining our go-to-market strategy and team, and we are continuing to fine-tune our analysis to determine the proper revenue mix. The optimal mix will include a subscription program that represents approximately less than 20% of our volume. This will allow our customers to take advantage of the tax credits and rebates associated with vehicle purchases and leasing and is in line with the current administration's emphasis on expanding clean energy and EV penetration and infrastructure. We will provide more information on mix, margin and geography in the coming quarters.

Our retained top-tier accounting and management consultants are helping validate our analysis on these topics as well as our reforecast of the financial model. We will take a disciplined sales pipeline approach to managing opportunities, which will provide more certainty about projected orders and will be closely tied to how we develop our production system. We will report our sales order pipeline in 3 stages. The first will include potential customers that have qualified. Two will include orders with a commitment volume and date. Third and the final stage will include orders accompanied by a binding contract with a nonrefundable deposit. Disclosing our pipeline in this way will reduce any misperceptions of the difference between a refundable reservation and a binding order.

At Canoo, we continuously innovate on 3 vectors: engineering, software and hardware. To give a few examples, we have developed our own electric motor with approximately 40% higher power density, 24% higher peak power and 18% fewer parts than comparable EV motors. We designed the first harmonized drive-by-wire system and a unique transverse leaf spring technology, which allow us to eliminate strut towers, creating a flatter platform and more than 50 cubic feet of additional interior space. We have implemented bidirectional charging capability, which enables our vehicles to function as mobile power plants and meets what we believe will be an increasing demand from private and commercial customers. We use leading battery cells, which are cleverly and efficiently packaged into an MPP using proprietary Canoo technology, resulting in superior specific energy and energy density than other EVs.

The above further clarifies our focus on engineering and protecting our IP. We believe this focus generates a higher return on capital than contract engineering, which features operating margins in the mid-single digits and, as an innovative company, reduces our competitive advantage by enabling others.

As part of our continuous innovation, we would like to announce a multi-state university program, and we will start with the University of Wisconsin. This partnership will focus on advancing key electric powertrain technology, further enhance U.S. competitiveness that we believe benefits the entire EV industry over time, accelerate and expand our ability to innovate and create more IP for Canoo and broaden access to a critical talent pipeline of PhDs, undergraduates and interns before entering the workforce, which is a huge mutual benefit. We have targeted to launch our partnership with the opening of the university post-COVID.

Now I want to give special thanks to a great American visionary and innovator, former Governor Tommy Thompson, President of the University of Wisconsin System. I would also like to thank Chancellor Rebecca Blank for her insight and leadership in encouraging the university faculty to further partner with companies like Canoo. But to be clear, this partnership is separate and does not influence our Phase 2 manufacturing selection process.

Through our beta phase, we have invested more than $250 million in R&D, validation and testing, which has allowed us to log and analyze a huge amount of data. With our beta phase complete, we are now accelerating Phase 1 of gamma. In gamma, we will produce vehicles with design and parts using production tools and processes. This is an important phase that validates the car's final design and our manufacturing method. In this phase, we will produce 120 to 150 vehicles and log hundreds of thousands of additional miles; two, ensure that the highest production and quality standards validate the production vehicle in the real-world testing across multiple climates and environments; iterate on the software ecosystem; better define service, maintenance and repair processes; and improve customer satisfaction and reduce total cost of ownership.

We believe deeply in providing our customers with the highest safety standards, which is why we are investing in our gamma phase before start of production or as we say, SOP. By investing in this important step, we can reduce the likelihood of recalls and customer dissatisfaction, which can cost hundreds of millions of dollars. We remain on track to complete gamma and meet SOP by late 2022. We will provide an update on gamma phase on a quarterly basis.

We do not currently expect delays due to COVID-19 at this time. However, if certain conditions that exist today continue to affect the market, then our expected timing may be impacted. Our current production plan is to produce 500 to 1,000 units in 2022 and 15,000 units in 2023. In 2023, there is some additional capacity beyond our plan. However, we are taking a conservative approach to our projections. We will continue to update this in the coming quarters.

Now an update on our 2 phases of manufacturing.

Phase 1, third-party contract manufacturing. We will deliver the 4 trims of our lifestyle vehicle to market. This enhances our ability for geographic expansion and speed to market. To meet our timeline of SOP by late 2022, we have accelerated our down selection to 2 high-quality, established, globally positioned contract manufacturers. Our team's work to carefully evaluate potential partners is expected to result in savings of approximately $200 million. We will now move to final selection, which we plan to announce in the next quarter. In addition, as to the end of Q1 2021, we have sourced 74% of our supply chain for Phase 1.

Phase 2, our wholly owned manufacturing. This will be for high-volume North American delivery, built in and for America and beyond, aligns with the current administration's vision for investing in American clean energy and provides us an opportunity to access nondilutive capital in the form of state and federal subsidies, creating more American advanced manufacturing jobs. It reduces our BOM and transportation costs and strengthens our global competitiveness while reducing local taxes and import cost. To date, we have evaluated more than 100 potential sites across the U.S. for our Phase 2 manufacturing facility.

Our team and world-class advisers have met with multiple governors and other state and local leaders. I have personally been inspired by the reception of these forward-thinking governors and senators who are focused on securing a leading position in new, sustainable, clean energy technology and advanced manufacturing. Recently, states such as New York and Michigan have announced incentive packages for EV adoption and infrastructure. We see this trend continuing as part of the U.S.' focus on enhancing clean energy and infrastructure. At our recent Board meeting, we officially narrowed our search from 8 states to 4, 1 site in each of the 4 states. We plan to down select to 2 sites by the end of the quarter and update you on the next call.

As of the end of Q1, our workforce has grown by 28% versus Q4 2020 to 544, driven by hiring of engineers. Our workforce consists of 452 FTEs and 92 contractors. We work with contractors on short-duration projects that require flexible staffing and where competitively sensitive information is not involved. Given our focus on innovation, about 80% of our workforce is dedicated to R&D, which is made up almost entirely of engineers. And we continue to attract top talent to drive this innovation.

In addition, we have substantially built out our executive management team and have recently filled key roles in the go-to-market, fleet sales and software development, which we will be profiling in the coming quarters. In addition to our design and engineering hub in California, we are diversifying our footprint of our employee base. We have added or will be adding offices in: Texas, focused on corporate functions, rapid prototyping and go to market; Michigan, focused on purchasing and costing; and as I mentioned earlier, Wisconsin, which will focus on electric powertrain research and innovation. We're also exploring international hubs for further expansion. Geographic diversification of our workforce will optimize our human capital costs and enable us to attract talent specific to certain regions. The result is a workforce that is stronger, more diverse and drives higher return on capital that is able to work in multiple time zones.

As I mentioned earlier, there has been a lot of attention on SPACs. We recently received a notice from the SEC that they are conducting an investigation of Canoo. They characterized the process as a fact-finding inquiry. Unfortunately, for obvious reasons, we are unable to take any questions regarding this, but we are committed to providing timely updates as appropriate. We are also pleased to announce that we have been able to repay the essential PPP loan of $6.9 million that was granted in July of 2020, prior to the merger with Hennessy Capital Acquisition Corp. IV and our public capital raise.

We would like you to save the date for Canoo's first IR Day. Before I turn the call over to Renato and Ramesh, I would really like to share that we are hosting our first IR day on June 17 in Dallas, Texas. This event will be webcast, and in-person attendance will be limited. You will hear from several members of our senior management. And we will provide updates on projected volumes, timing and other important milestones. Registration is now open at to canooirday.com.

With that, let me turn the call over to Renato and Ramesh.

Thank you, Tony. Our first quarter of 2021 results are as follows. Research and development expense was $39.3 million for the quarter compared to $19.3 million in the prior year period. Excluding $7.1 million of stock-based compensation, research and development expense was $32.2 million. SG&A expense was $55.6 million for the quarter compared to $4.1 million in the prior year period. Excluding $38 million of stock-based compensation, SG&A expense was $17.6 million.

GAAP net loss was $15.2 million for the quarter compared to a GAAP net loss of $30.9 million in the prior year period. GAAP net loss in the first quarter of 2021 included a $83.6 million noncash gain on the fair value change of earnout shares liability related to the periodic remeasurement of the fair value of our contingent earnout shares liability and a $1.6 million loss on the fair value change in private placement warrants liability. Adjusted EBITDA was minus $49.8 million for the quarter compared to minus $23 million in the prior year period.

Ramesh?

Thank you, Renato. Turning to the balance sheet and cash flow, we ended the quarter with $641.9 million of cash and cash equivalents. Cash used in operations for the 3 months ended March 31, 2021, was $53.9 million compared to $23.7 million in the prior year period. Capital expenditures were $12.1 million for the 3 months ended March 31, 2021, compared with $0.7 million in the prior year period.

Turning to our guidance. For the second quarter of 2021, we anticipate the following expenditures: approximately $65 million to $75 million for operating expenses, excluding stock-based compensation and depreciation; and approximately $45 million to $55 million for capital expenditures.

Before we open the call up for Q&A, I'll turn the call over to Tony for closing remarks.

Thank you, Ramesh. As we look ahead to the balance of 2021, we expect to execute against several of our key initiatives, including announcing a contract manufacturing partner, a location for our future own manufacturing facilities and identifying supply chain partners. I would like to close by thanking the whole Canoo team and all our advisers and consultants for their hard work and for their many accomplishments in such a short time.

We would now like to open the call for Q&A. Operator?

(Operator Instructions) Our first question today is coming from John Murphy from Bank of America.

I got to agree with you. I mean, some of your comments about market segmentations and other things in the industry are very on point. So clearly, you're understanding a lot here. But one thing about the SPAC side of things that, I think, is debatable in what you're saying is these early-stage companies like yourselves forming in a public forum. One of the things that we had thought initially, and this might be wrong, and I want to get your perspective on it, is that the SPACs funding allows you to accelerate and maybe shoot the gap more nimbly and faster and get out there and take market share ahead of the incumbents doing so. And based on some of the timelines that you're talking about and the volumes that you're talking about, it seems like you're going to have a lot of incumbent competition online at similar times as you. So maybe you could just comment on that and maybe if you could move faster or you think they're going to move slower? Or how do you think the competitive environment is going to shape up over time?

Yes. So John, I think that's a good point to kind of further discuss. So my view on -- I'm pro for the democratization of venture capital, private equity and public equity to participate in innovation. We see our competitive countries doing similar things. So from my perspective, it absolutely accelerates the innovation curve, and I think it's super positive impact.

What it does do, though, is there's kind of having taken another company public and been involved in public offerings before, a traditional IPO is different than a SPAC, as you know. They're called emerging growth companies, and they have a little bit different standard. So the public has to get used to some of the fact that some of this stuff is being evolving in front of the public view, and that's why it's called an EGC, right? So that was the point that I was making there.

However, from our side, being that we have public company experience, what we've done is we move dramatically much more to our style, which is to be conservative. One, it's better to outperform than underperform. It's a long-term investing game. And we want to build a great, long, strong company that can globally expand and can really return capital over all of its owners of the vehicle. In fact, the return on capital goes up as the vehicle changes hands.

So we're very grateful for the fact that we've been able to participate in this SPAC. But my only point is that the world is learning how to use them, and I am convinced they will continue to get better. But we are big supporters. And I think some styles will be too maybe optimistic for some people like us, and some may think of us as too conservative. But it's a long-term game. And the big triggers in this industry is really in the 2024, 2025 time frame, if you think about it, right? That's when the rubber really meets the electric road.

And so we believe that if somebody really looks at the real investments we've made in platform, our own IP, our security capability layers, the fact that we use less chips than anyone, if anybody really looks how we invested our money to this point, how much head count, human capital we've assembled, it would say that we are a contender. And the more we focus now on go-to-market, and we're pretty excited about some of the things that we will be rolling out, but we will always take a conservative stance going forward.

So it's not just head count. It's the right folks. It's the right human capital, talent that you need. Where do you think you'd reach critical mass on that? How do you think about that as a key milestone? Obviously, you could talk about the number of vehicles you're making, the miles driven on test wheels and all that stuff. But I mean, head count and sort of that critical mass on the human capital side is really going to be a critical measure. How do you think about that? And where you think you'd turn the corner on that? Is that 1,000, 2000, 5,000? I mean, because you're up against companies, as you know, that have hundreds of thousands of employees, to some extent. Not a lot of them are engineers, so it's not necessarily apples-to-apples. But I mean, how do you think about that human capital level at which you turn the corner and things really start changing?

Yes. So look, I think in an entrepreneurial environment, fully focused own product line. We can, today, with the use of technology -- and keep in mind, when you engineer a platform that is technologically capable of adaptations and is able to take multiple derivatives and to do it from a technology focus, primarily, you get exponential output out of your personnel. In addition to that, what you get is in this design, you've got 20% less plus parts to 30% less parts as well. And so you pick up a lot of speed. Why? Because you have no steering column. You have none of those things that, again, I refer back to the point that I made earlier, where somebody really looks at what we've done. And that will all come out in time, and that's why we're excited about having an IR Day next month, so people can see the real product and the real depth.

But critical mass, in my opinion, for us, based on what we've announced to date, is in the 750 range to 1,000. And that's kind of where we're targeting right now for what we've announced. And that's really on the shorter end of that curve, which is, call it, through 2022. Now we'll be updating that. We opened our order pipeline today, and it got huge reaction already in just for hours. That's just (inaudible) hours. We have additional capacity in our projection. We focused on world-class global producers that can give us geographic reach on the third-party manufacturing partnership side. And we're focused -- which aligns very well with the administration initiative of bringing this advanced manufacturing of EV to the U.S. So will our headcount rise over time? Yes. But right now, everything we're focused on is to get into that 750, 1,000 range of FTEs based on our product road map.

Okay. And then just lastly, I mean, it seems like with the road map that you're laying out, that incremental capital over time may be something that you need. I mean, is that something that you think is going to continue to be relatively available and open and hopefully stay low cost to get this machine really running? And how do you think about sort of the cadence of potential capital raises over time?

Yes. So look, I mean, one of the good things, obviously, that's happened is our government is now acting like the Chinese government and others, where they're stimulating clean energy technology. So that allows us to access nondilutive capital. We've seen and we have really deeply dived into how that capital can help us accelerate things. Of course, we haven't factored that into any of our projections. So again, conservative approach. But for those of you who know me, I've raised billions and billions of dollars of various instruments, as you go back and look at the kind of ebb and flow of cash in Tesla's journey. And our journey, we will manage cash very appropriately, and we will pace it to our product road map. In the event we see more positive trends, because we're running now a more conservative model, we'll then be raising capital ahead of it.

And so -- and this is (inaudible) industry (inaudible) evolution where capital will be important. And of course, we got to punch out milestones. So it's as nondilutive as possible, but we're building everything from now. And our relationship with The Street, now that the market's opening up again, we'll be out on the road telling our message. And at the appropriate times, we'll be raising capital.

(Operator Instructions) Our next question is coming from Jaime Perez from R.F. Lafferty & Co.

Thanks for the update on the manufacturing. I'm sort of focusing on Phase 2, where the manufacturer comes in-house. Have you started ordering long lead time equipment? Because it looks like over the next couple of years, the field of manufacturing is going to be pretty crowded. So could you give us any update on that?

Yes. So we are -- so because we're entering into gamma in the LVs, the tooling and equipment we're ordering, many of it has already been ordered. So we've got a very good grip on the large items on the stamping and all those other items, so yes. Second of all, because we get high utility of derivatives that we can put on the MPP, we obviously get a lot of scale. So we're very focused on that, for those of us coming out of this industry and understanding it deeply. And of course, we can set up assembly lines in a laddered fashion to meet our demand.

So we are feeling good about it. Of course, we haven't ordered the second batch of stuff. It could be impacted by demand and/or pandemic effects. But that's why we took a two-pronged approach, which, one, gets us off the ground. It's quick. It's leveraging somebody else's site facilities and expertise, while we get ours up and get it perfected so we can move to high volume and then flip to the other relationship and make it much more focused on geographic expansion. And as we discussed in the earnings part is we've already sourced 75% approximately of the parts, and that's going up every day.

So look, again, I'd come back to -- this isn't an outside-in design. This is an inside-out design with an outside-in focus. And so I think that as we roll out the customer journey piece, we're focusing on multiple owners, those things will also become an area of focus and appreciation compared to the competitive landscape. And so my comments on that would be some will -- in fact, just based on your comment, will report more in detail by segregation of the Phase 1 manufacturing and the Phase 2 when we get towards the equipment and stamping piece for the wholly owned facility.

All right. And then the next one is more of a comment. I mean, you've taken a pretty bold step in transparency and kind of end up being more transparent compared to other companies because the issue of preorders reserve is also a question. But yes, I was just glad to hear that there's more transparency on the preorders. Yes, that's all I have.

Jaime, I appreciate that. And we definitely are very focused on transparency and clarity because, obviously, we want to make sure that people understand the difference between someone's reservation and someone's order.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Kamal at this point.

Thank you, everybody, for joining us. Look forward to seeing a lot of you on IR Day on June 17. Those of you who can't attend in person, would love to have you attend virtually. So it will be a hybrid event. So please reach out with any questions you have, and we'll be sure to get back with you. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.