StableX Technologies, Inc. - Common Stock (SBLX) Q3 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Ayro, Inc. Third Quarter 2020 Financial Results and Corporate Update Conference Call. [Operator Instructions]. I would now like to turn the call over to Joel's Abraham [ph] [indiscernible], 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 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 EBITDA, a non-GAAP financial measure that Ayro's 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 reconciliation of this non-GAAP financial measure to net loss, it's most directly comparable GAAP financial measure, please see the reconciliation table, located in Ayro's earnings press release. The contents 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 a burgeoning food delivery market that is 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, whereby restaurants can own the delivery process by using an affordable fleet, a 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 that 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 or 220 volt outlets thus eliminating the need for special charging stations, we feel are two primary vehicle models, the 411 and the 311 are unsurpassed in price performance and cost of maintenance for fleet operators. Our partnership at Club Car, 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 competence in our technology platform. Our fast product development cycle, our competitive cost and our supply chain management capabilities. The Club Car 411 is its branded four wheeled 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 EV's to serve a military medical campus in the Northeast U.S. This was the first Club Car 411 deployments that will serve a major medical center but there's opportunity for additional follow on orders. Plus, there are more than 6000 hospitals in the U.S., 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 partner 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 U.S. 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 were $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 of Gallery Carts was a testament to the entire Ayro team addressing the needs of new customers and in markets and adapting to business conditions. 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. We now have the capacity to produce 600 EV's per month versus 200 EV's 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 there 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 EV's and help provides strategic input into the design of EV's 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 EV's 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 were 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 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 8th we closed the register direct offerings with certain institutional and accredited investors, for an aggregate of pre 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 operating expenses. On July 23rd, 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 rice purchase up to an additional 1000 1,387,500 shares of common stock with the rights purchase up to an additional 1,387,500 shares of common stock on or before October 19, 2020 in the same price. The Board did agree to an extension of its right to purchase until October 18, 2021. The initial sales 1.85 million shares is closed, while only the additional rights of purchase remains outstanding. The price was $5 per share with the gross proceeds of the initial flows of approximately $9.25 million before the deduction of fees and expenses. In addition to the aforementioned offerings during the third quarter we received approximately $2,470 million net of fees for the exercise of warrants and conversion of previously issued preferred stock which are converted approximately into 2.8 million common shares. As of September 30, 2020 the company had 24,298,333 common shares outstanding. As of today, insiders account for ownership of approximately 6.3% of our outstanding common shares. Now let's have a review of the third quarter financial results. Results revenue from the third quarter ended September 30, 2020 was $388,634, which is a 46% increase year over year from the third quarter of 2019. This also represents quarter over quarter over quarter growth in 2020 as Rod mentioned earlier. The increased revenue is primarily due to the volume increase of the vehicle sales and the sales of [indiscernible] 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 into our first production runs of some [indiscernible]. Sales and marketing expense in the third quarter of 2020 decreased by 29.5% on a year over year basis just over $304,000, primarily due to a reduction in contracting of external marketing firms, kind of reduction in discretionary marketing programs is where we focus on more targeted marketing initiatives. Research and Development expenses, increased by 123% in the third quarter of 2020 to $664,000, as compared to the third quarter of 2019, due to the increased professional services, design contracting and increased salaries dues to staff additions and related expenses as we've increased significantly the engineering base investment in our product portfolio. General administrative expenses, increased by 5% to $1.420 million in the third quarter of 2020 versus the same period in 2019. Increasing contracts of professional services to support the public reporting requirements for compensation expenses and administrative salaries grossed up by a reduction of $783,000 in 2019 stock-based compensation related director equity awards, not repeated in 2020. Net loss attributable common shareholders for the third quarter of 2020 was $3.11 million on a GAAP basis first 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 a [indiscernible] dividend on the same 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 cents per share in the third quarter of 2019. The weighted average number of shares outstanding that we use was approximately 23.6 million shares in third quarter of 2020, as compared to 2.8 million shares in 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 $150,000 in depreciation and amortization expense, $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 30th 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 was closed on May 28, 2020, and the registered direct offerings of June 19, June, 8 and July, 23 of 2020, as well as the warrants exercise as we discussed earlier. We currently have approximately $241,000 in debt outstanding consistent of PPP law as well as the vehicle note. Our capital expenditures total $337,000 on a third quarter, which comprise mostly of investments in R&D equipment and prototypes. Receivables reported $14,000 in 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-10Q filed this morning for our full quarterly results. And with that I'll turn the call back over to the operator to open call for questions. Operator? And now we're going to record the remainder of Rod Keller's closing remark.

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

[Operator Instructions]. First question today will come from Barry Sine with Spartan Capital Securities.

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?

We are working on a next generation vehicle for 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 311. 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 have 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 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 that'll be to the right of Q1, a little bit further, 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 you know 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, you know, one-time spending that may not recur going forward or those good run rate levels of spending for those three expense categories?

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 [ph] 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 of vehicle. So I would expect [Technical Difficulty].

This is Rod, let me make a comment on that because I think it's important to note, 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 [indiscernible] and see what 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 and 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 [indiscernible] 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.

[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.