StableX Technologies Inc (SBLX) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Ayro, Inc. third-quarter 2020 financial results and corporate update conference call. (Operator Instructions) Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call we'll be available approximately one hour after the end of the call through February 6, 2021.

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

Good morning. And thank you for participating in today's conference call. Joining me from Ayro's leadership team are Rod Keller, President and Chief Executive Officer; and Curt Smith, Chief Financial Officer.

During this call, management will be making forward-looking statements, including statements that address Ayro'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. For more information about these risks, please refer to the risk factors described in Ayro's most recently filed periodic reports on Form 10-Q filed with the SEC in the next few days, and Ayro's press release that accompanies this call, particularly the cautionary statements in it.

Today's conference call includes adjusted EBIT, a non-GAAP financial measure that Ayro 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 to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in Ayro's earnings press release. The content of this call contains time-sensitive information, that is accurate only as of today, November 6, 2020. Except as required by law, Ayro disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It is now my pleasure to turn the call over to CEO, Rod Keller. Rod?

Thank you, Jules, and good morning to everyone on the call. As a reminder, this is our second quarterly call as a public company and we're excited about the trajectory of our business. The third quarter of 2020 marked another period of accomplishments by Ayro that we believe will lay the foundation for our future growth. Additionally, we were able to show sequential revenue growth in each of the three quarters thus far in 2020, no small feat given the global disruption from COVID-19, and the general economic uncertainty.

As we have stated before, our target market is not the traditional consumer that may be deciding between a Tesla or any other electric vehicle or hybrid and a gas-powered vehicle. Rather, our focus is on the fleet market with our purpose-built, street legal, low-speed electric vehicles that excel in last mile delivery and campus applications, along with the burgeoning food delivery market that has accelerated due to COVID-19 and is expected to reach $470 billion globally by 2025, according to Morgan Stanley.

Restaurants are being squeezed by third party delivery services like Grubhub and Uber Eats, that can charge them up to 30% of the bill to make deliveries. This dynamic threatens many restaurants. So a major strategic goal of ours is to offer an EV solution whereby restaurants can own the delivery process by using an affordable fleet of purpose-built vehicles that are specifically built for last mile and food delivery. In fact, we like to say we don't develop and sell vehicles or deliver food. We develop and sell food delivery vehicles.

Our EVs offer tremendous operating cost savings for fleet management and are simply better for the environment and gas-powered vehicles. The total cost savings and benefits are real, as is the practicality of being able to charge our vehicles on any standard or commercial 110 volt or 220 volt outlets, thus eliminating the need for special charging stations.

We feel our two primary vehicle models, the 411 and the 311 are unsurpassed in price, performance, and cost of maintenance for fleet operators. Our partnership with Club Car, a division of Ingersoll Rand, and the market leader in the low speed vehicle market with their personal, utility, and golf cart vehicle categories, we believe demonstrates our confidence in our technology platform, our fast product development cycle, our competitive cost in our supply chain management capabilities.

The Club Car 411 is its branded four wheel vehicle and sold exclusively through their 167 commercial dealerships and corporate account teams in North America. In August, we reported an initial order from Club Car for nine Club Car 411 EVs to serve a military medical campus in the Northeast US. This was the first Club Car 411 deployment that will serve a major medical center, but there's opportunity for additional follow-on orders.

Plus, there are more than 6,000 hospitals in the US, that could benefit from a purpose-built EV that is flexible enough to handle campus maintenance services and installations, promotes a synergistic, quieter, healthier and emissions free image to the public and still offers tremendous operating cost savings over gas-powered vehicles. As an extension of our Club Car relationship, in the third quarter, we also partnered with Gallery Carts, which has decades of experience delivering custom food kiosk solutions, to jointly launch a mobile hospitality EV for on-the-go delivery of food, beverage, and merchandise directly to consumers at venues across the US.

These mobile food carts allow for hot and cold beverage and food equipment to be integrated directly into the Club Car 411. Gallery's customers in the mobile food and beverage distribution markets could have applications for such a purpose built EV on universities, corporate, and government campuses as well as at arenas, resorts, and event centers, especially since COVID-19 has greatly reduced the desire for large crowds and gatherings.

This mobile hospitality EV can alleviate solutions or situations rather, where large numbers of people would otherwise be in risky proximity to one another. Shortly after announcing the Gallery Carts partnership, we announced an initial order where $584,000 for this hospitality EV. Of this order, approximately $82,000 was recognized in the third quarter with the remainder in our backlog rolling into Q4. This partnership with Gallery Cart is a testament to the entire Ayro team addressing the needs of new customers and end markets and adapting the business conditions.

And we will continue to innovate design with plans to bring next-generation models to market that should better address the needs of our customers. For example, our next generation 311 EV is designed to include an expanded range and increased speed to meet the food service and last-mile delivery markets that the COVID-19 pandemic has helped bring to the forefront of the restaurant industry.

The expansion of our Austin manufacturing facility was completed in July, and we now have the capacity to produce 600 EVs per month versus 200 EVs per month previously. The city of Austin, Texas, our home, is quite busy with EV activity and our plant expansion shows our commitment to the industry in the region that Ayro was playing for the long term trend from gasoline to electric-powered vehicles.

During the third quarter, we also announced a strategic manufacturing, engineering, and design partnership with Karma Automotive Innovation and Customization Center. Karma will provide contract manufacturing and component assembly services for our next generation of EVs and help provide strategic input into the design of EVs for the fast-growing delivery and micro distribution markets.

We believe that the combination of Ayro's end user market and engineering expertise and Karma's manufacturing, development, and global supply chain capabilities could allow the partnership to be able to produce over 20,000 EVs through 2023, which would have a combined value of over $300 million. The initial targeted market will be customers in North America, but there is no reason why we can't leverage our combined expertise to eventually meet more global demand.

Finally, it is worth mentioning that we successfully raised $24.25 million in gross proceeds from two registered direct offerings during the third quarter. These raises helped bring our cash balance to approximately $28 million at the end of the third quarter. Thus, we believe that we are in a strong financial position to execute on our corporate goals.

And with that, I'll now turn the call over to Curt Smith, our CFO, who will review our financial results for the third quarter. Curt?

Thank you, Rod, and hello, everybody. As Rod just mentioned, during the third quarter, we conducted two equity raises. On July 8, we closed a registered direct offering with certain institutional and accredited investors for an aggregate of 3,157,895 shares of common stock. The price of the offering is $4.75 per share, with the gross proceeds of approximately $15 million, before the deduction of fees and offering expenses.

On July 23, we closed the registered direct offering with certain institutional and accredited investors for an aggregate of 1,850,000 shares of common stock with the right to purchase up to an additional 1,387,500 shares of common stock on or before October 19, 2020, at the same price. The Board then agreed to an extension of its right to purchase until October 18, 2021.

The initial sale of 1.85 million shares is closed, while holding the additional rights of purchase remains outstanding. The price was $5 per share with the gross proceeds of the initial close of approximately $9.25 million before the deduction of fees and offering expenses.

In addition to the aforementioned offerings, during the third quarter, we received approximately $2,470,000 net of fees from the exercise of warrants and conversion of previously issued preferred stock, which could call converting approximately into 2.8 million common shares. As of September 30, 2020, the company has 24,298,333 common shares outstanding. As of today, insiders account for ownership of approximately 6.3% of our outstanding common shares.

Now, on to my review of the third-quarter financial results. Revenue from the third quarter ending September 30, 2020, was $388,634, which is a 46% increase year over year from the third quarter of 2019. This offer represents quarter over quarter over quarter growth in 2020 as Rod mentioned earlier. The increased revenue was primarily due to the volume increase of vehicle sales and sales of [time of order auctions] for our vehicles. Gross margins in the third quarter of 2020 decreased to 15.9% versus 23.9% in the third quarter of 2019, primarily due to the one-time cost absorbed and our first production runs of some of [our time of order off].

Sales and marketing expense in the third quarter of 2020 decreased by 29.5% on a year-over-year basis to just over $304,000, primarily due to reduction in contracting of external marketing firms, kind of reduction in discretionary marketing programs as we focus on more targeted marketing initiatives.

Research and development expenses increased 123% in the third quarter of 2020 to $664,000 as compared to the third quarter of 2019, due to the increased professional services, designed contracting, and increased salaries due to staff additions and related expenses, as we've increased significantly the engineering-based investments in our product portfolio.

General administrative expense increased by 5% to $1,428,000 (sic - see Press Release "$1,482,018") in the third quarter of 2020 versus the same period in 2019. Increase in contractor professional services to support the public reporting requirements [for] compensation expenses and administrative salaries were offset by a reduction of $783,000 in 2019 stock-based compensation related director equity awards, not repeated in 2020.

Net loss attributable to common shareholders for the third quarter of 2020 was $3.11 million on a GAAP basis versus a loss of $2.14 million in the comparable period of 2019. The aforementioned increase in R&D expense, a loss on extinguishment of debt and the GAAP team dividends on [scrappage] scheme dividend awards largely drove the increase in loss for the third quarter of 2020 versus that of 2019. Our GAAP basis net loss per share was negative $0.13 per share in the third quarter of 2020 versus negative $0.77 per share in the third quarter of 2019.

The weighted average number of shares outstanding that we used was approximately 23.6 million shares in the third quarter of 2020 as compared to 2.8 million shares in the third quarter of 2019. Adjusted EBITDA, a non-GAAP measure totaled negative $2.09 million in the third quarter of 2020, versus a negative $1.19 million in the comparable period of 2019. Adjusted EBITDA for the third quarter of 2020 includes $115,000 in depreciation and amortization expense of $168,000 in stock-based compensation, $67,000 in amortization of a discount on debt, $29,000 in interest expense and $214,000 in loss on extinguishment of debt discount.

Turning to the balance sheet. Ayro's financial condition is strong with cash as of September 30 of this year of approximately $27.9 million. That's a $27.3 million increase as compared to $641,000 as of December 31, 2019. So this is based primarily on the funding received in connection with the merger that was closed on May 28, 2020, and the registered direct offering of June 19, June 8, and July 23, 2020, as well as the warrants exercised as we discussed earlier.

We currently have approximately $241,000 in debt outstanding, consisting of a PPP loans as well as the vehicle loan. Our capital expenditures totaled $337,000 in the third quarter, which comprised mostly of investments in R&D, equipment, and prototypes. Receivables were $414,000 at September 30, 2020, up from $313,000 as of June 30, 2020. Accounts payable were $1.13 million as of September 30, 2020. That's up from $830,000 at June 30, 2020.

Working capital at the end of the third quarter was $29.9 million as compared to $7.9 million at June 30, 2020, and $612,000 as of December 31, 2019. Our backlog of firm orders as of September 30, 2020, was $624,000.

That concludes my prepared remarks. Please refer to our Form 10-Q filed this morning for our full quarterly results. And with that, I'll turn the call back over to the operator to open the call for questions. Operator?

Speakers, your lines are now open.

And now we're going to record the remainder of Rod Keller's closing remarks.

I want to thank all of you for participating on today's call --

(Operator Instructions) Barry Sine, Spartan Capital Securities.

Good morning, gentlemen.

Good morning, Barry.

Couple questions if you don't mind, on the Karma announcement. Obviously a very, very big announcement. Could you give us the expected timeline -- when you'll begin production at that facility, and then on a related note, so the existing vehicles, the 411. On a related note, I'm wondering about the impact of margins, specifically I know now that you bring over [kits] from China, and pay a tariff on that. Will that continue or can you make the kits at that facility and will that impact the gross margin?

Barry, this is Rod. We are working on a next generation vehicle -- light duty electric truck or low speed vehicle that will launch roughly in Q1 of this coming year and the agreement that we have with Karma is they will begin assembly there. The primary difference is, rather than shipping it from the port of Shanghai across the Pacific, through the Panama Canal, into Houston, and then through Houston to us, which takes 33 days and the freight cost is it'll ship in 17 -- it'll be received in 17 days from the Port of Shanghai into Long Beach, and then be assembled in the Karma's factory in Reno Valley, California.

So we'll see a reduction in freight costs. We'll see an increase in transit time, I should say, it's an improvement in transit time. And we don't expect -- at least initially, we don't expect to see much difference in our margin from what we see today here, to what we see there. We may see an improvement in freight costs, as I mentioned, but beyond that we don't expect to see a big difference in margin. And you had another question after that?

No, you have addressed both parts, the timeline and the margin, but I do have another -- I do have a couple more questions if you don't mind.

Similarly, on the 311, if you could, you've gone through what your process is for articulating a mission and a design for that vehicle. Where are we today and what is the timeline -- what investors are going to look to see is revenue hitting the income statement for shipments of those new 311s. I know that's a little ways out, but could you give us some visibility on that process where we are and then the timeline to get to revenue on that new vehicle.

Yes, let me answer it as best I can, because I don't want to telegraph too much to our competition. But the only silver lining we've seen from COVID is acceleration of delivery as a percentage of mix in restaurants and as we've mentioned before, you and I discussed the cost of delivery -- it wasn't as significant before COVID as it is now and we're well on our way in development of a next generation vehicle, I think in the comments we had here working to increase the speed as well as increasing the range.

I will tell you that -- when you think about the delivery of a vehicle that's used in delivery like the 311 is. It's not simply a vehicle. If you think about it, you need a complete ecosystem that addresses how do you store it, how do you charge it, how do you finance it, how do you get it repaired in the field, and how do you insure it? The vehicle is one small piece of it. So as we develop the 311 or our next generation 311, we're also working to bring together all those other aspects I mentioned that are important to create a complete ecosystem.

I will tell you it's a high priority for us, our boards intimately aware of what we're doing and in support of that we are working to bring revenue on from this as quickly as we can. I just hesitate to talk about it right now for fear that some of our competitors would really like to know where we stand on that.

But it sounds like you talked about a Q1 for the new vehicle out of the Karma facility. It sounds like that'll be to the right of Q1, a little bit further out than that new 411 process.

Yes, I mean you can expect that the revenue generated from our next generation three wheeled auto cycle will come well after what we're going to call the 411 or next generation light duty low speed vehicle truck.

Okay. One more question if you don't mind my last question, if I take a look at your income statement and I compare that to what you reported to the third quarter, and zero in on the three operating expense lines you break out, key difference I think between the second quarter and the third quarter is, in the third quarter, you had access to capital. You had raised capital, and obviously you started to spend it on forward-looking items such as R&D.

How representative, is that third quarter in terms of those three expense items you spending what you need to. Was there some, one-time spending that may not recur going forward or are those good run rate levels of spending for those three expense categories?

Hey Barry. Curt Smith here. Appreciate the question. Definitely very good question. Obviously third quarter did, we did increase our spend and especially in the R&D portion of the mix as we did get the funding as we talked about earlier, the three registered direct offerings, which really allowed us to move forward with the development of next generation 311 vehicle like Rod said. So obviously, as we progress through that development cycle, I see R&D going up, a little bit quarter over quarter obviously not tripling down by any stretch of the imagination but that number will continue to increase somewhat as we get closer to the launch of the next generation vehicle. So I would expect the levels to be slightly up.

Hey Barry, this is Rod, let me make a comment on that because I think it's important to note, And Curt mentioned it but let me put a little more color around it. And that is in the August timeframe, we kicked off a 90-day project to really get a detailed understanding of what is our next generation vehicle for delivery need to look like. And when I look at some of the companies out there that are trying to compete in this space it feels like they built a vehicle through [Wongsee application],stick where we like to say we don't develop and sell vehicles. We deliver food we develop and sell food delivery vehicles.

So we're working from the ground up to ensure that we build a vehicle that solves a specific problem and not trying to build a general-purpose vehicle and I think as a result of that, you'll see from us I think a vehicle that will likely be accepted very well by restaurants and other delivery applications. So, hope that helps.

Yes, that's helpful on R&D Curt, if you could give us kind of a similar answer on the other two-line item sales and marketing in G&A.

Sure. Sales and marketing, I think, I think that's going to be pretty consistent that's pretty representative going forward until we get close to bring out our [boyband] market. G&A, I think that's pretty representative as well. We really -- we have the team in place really to do what we need to do on go forward basis so I feel pretty good about both of those numbers. Obviously as volume increases, those kind of things will get will increase as what, as you would see in any business, but obviously not ratable to revenue by any stretch of imagination.

Okay. Thank you very much for taking all my questions.

Thanks you, Barry.

Yeah, Happy to.

[Operator Instructions]. There being no further questions at this time, I would like to turn the call back to our speakers for closing remarks.

Very good. I want to thank all of you for participating on today's call and for your interest in our company, Ayro. And we very much look forward to sharing our progress on our next quarterly conference call when we report our fourth quarter results in early 2021. Thank you again and hope you have a wonderful day.

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