StableX Technologies, Inc. - Common Stock (SBLX) Q3 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Ayro, Inc. Third Quarter 2022 Financial Results and Corporate Update Conference Call. At this time, all participants are in listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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 will be available approximately one hour after the end of the call through February 3, 2023. I would now like to turn the call over to Scott Gordon of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Thank you, Debbie. Good morning, and thank you for participating in today's conference call. Joining me from Ayro's leadership team are Tom Wittenschlaeger, Chief Executive Officer; and Dave Hollingsworth, 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 annual report on Form 10-K and subsequent periodic reports filed with the SEC, 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 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 metric, please see the reconciliation table located in Ayro's earnings press release, which is available on its website at www.ayro.com under the Investor tab. The content of this call contains time-sensitive information that is accurate only as of today, November 3, 2022. 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, Tom Wittenschlaeger. Tom, please go ahead.

Hey, thanks, Scott, and good morning to everyone on the call. The third quarter was one of continued new product development that helped lead to the unveiling of the Ayro Vanish. The Vanish is the company's first low-speed electric vehicle to be designed and developed based on the new Ayro common chassis. The Vanish is a utility LSEV or low-speed electric vehicle, with a lightweight architecture and adaptable bed configurations to support both light-duty and heavy-duty applications. Moreover, it was designed to perform those utility functions with minimal impact on the environment, almost as if any trace of the vehicle's presence with minimal impact on the environment. The vehicle's presence thus, could be thought of as disappeared or, as I should say, vanished, where the name comes from. With zero emissions and fully swappable payload such as a flatbed, utility bed or van box, the Vanish ideally suited for stadium, arena, campus and resort environments, all situations where toxic fumes are a safety concern, as well as urban last mile delivery duties and a plurality of indoor environments. The Vanish 58-inch breadth allows us to enter buildings through double door access points. The Vanish is expected to be a street label vehicle of a maximum speed of 25 miles an hour, and its components are expected to be sourced primarily from North America and Europe, with vehicle final assembly and integration in our Round Rock, Texas facility. Our design and manufacturing teams have done a remarkable job in getting us this far in such a short period of time, with such a relatively small budget, especially when compared to some of our automotive and EV peers. I'm proud to add that, our new supply chain in place and our manufacturing build-out is coming along nicely. We should be in a position to reap the fruits of our labor once the Vanish completes its production transition and begin shipping to customers, which is expected to commence in the late first quarter of 2023. As we roll out our vehicle delivery, we also look forward to establishing the e-commerce channels to be able to ship directly to customers in States, where this is allowed by law. We also plan to offer units through a number of distribution channels, including with Element, a key partner in the world's largest Fleet Management company, Gallery Carts, and the GSA channel. The enterprise applications for a truly well-designed and ergonomic utility vehicle, with quality components and advanced technology features are many – and we're optimistic that our new distribution strategy will allow us to ship higher vehicle units, thereby creating sustainable shareholder value. In addition to the expected reduction in shipping times and costs, import duties and improved quality that we anticipate with the Vanish, we also expect to benefit in other ways. Specifically, the Vanish targets the light-duty utility and last-mile delivery markets However, using the exact same components, subsystems and chassis as the Vanish is built upon, should we desire to. It's not a big engineering leap to alter the design of the vehicle frame to be able to introduce a personal transport vehicle, such as a golf cart sold PTV, or a People Hauler, such as one sees at amusement parks or resorts, to move groups of people conveniently from one point to another. We believe that many of the design efficiencies that underpin the very essence of the Vanish's design can be extended to these other LSEV offerings with relative ease. Now to be clear, we are presently focused solely on successfully rolling out the production of Vanish. However, assuming that the Vanish is successful, we wanted to point out that this vehicle design as the potential to be adapted into other uses should we desire in the future in order to address other related clean vehicle needs. With respect to our financial results in the third quarter of 2022, our revenue declined sequentially due to the quality control issues I discussed in our last earnings call, to recap, in the second quarter, we received some defective battery components from a foreign supplier that were to be used in the lithium-ion battery-powered version of the current vehicle, we rejected this shipment of components, which led us to not have any inventory of lithium-ion battery-powered current vehicles to sell. Thus, our total unit volumes were down sequentially and leading to a revenue of $373,000, down from approximately $1 million that we had recognized in each of the two prior quarters. While this situation is unfortunate, it again highlights the beneficial and pragmatic approach of developing a primarily North American and European supply chain, beginning with the design and development of the Vanish. Our cash and marketable securities balance remained strong at $55.2 million, allowing us much flexibility and cushion to operate our business. In sum, I'm pleased with our team's ability to execute on an aggressive time line, yet truthfully, I expected Northern outcome in assembling our management and engineering teams, I felt strongly that our collective hundreds of years of experience would allow us to right the ship, reduce costs and device and deliver on an ambitious strategy that would set in [indiscernible]. We are nearing the end of the first part of this strategy, the design phase. Next year, 2023 is expected to mostly be about manufacturing scale-up and selling efforts for the Vanish. I am most eager to see our team deliver yet once again. That concludes my opening remarks. Now I'd like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail. Dave?

Thanks, Tom. Good morning, everyone. Here is a summary of our fiscal third quarter 2022 financial results. Revenue for the first quarter ended September 30, 2022 was $373,186, a decrease of 33% year-over-year and 62% sequential decline. The sales recorded in the third quarter of 2022 represent a run-off of our Club Car Current inventory as we transition to the Ayro Vanish. Third quarter sales decreased both sequentially and year-over-year due to the loss of all inventory for lithium-ion battery-powered current, given the defective components received from our supplier. Also, Club Car acquired a $2,000 per unit discount that applied to all previously recorded 2022 unit sales. The operating expense in the third quarter of 2022 were approximately $5.2 million, as compared to $11.6 million in the third quarter of 2021 and $4.1 million in the second quarter of 2022. The year-over-year decrease in total operating expenses was due primarily to the reduced research and development expenses and one-time expenses recorded in Q3 of 2021. The sequential increase in total operating expenses represents a ramp-up of development costs as we finalize Vanish. Adjusted EBITDA on a non-GAAP measure in the third quarter of 2022 was a loss of approximately $4.8 million versus a loss of approximately $8.2 million in the third quarter of 2021, and a loss of approximately $4.2 million in the second quarter of 2022. The net loss in the third quarter of 2022 was approximately $5.7 million, which was an improvement from a net loss of approximately $12 million in the third quarter of 2021 and a net loss of $6 million in the second quarter of 2022. The sequential decrease in net loss from the second quarter of 2022 was largely a result of a write-off relating to the aforementioned effective components and impairments, as well as a write-down of the third quarter of 2022 of the Club Car discount of all current vehicles, previously sold in 2022. This discount required us to record a net realizable value adjustment of approximately $414,000 booked to cost of goods sold. The cash and marketable securities at September 30, 2022, was approximately $55.2 million versus $57.9 million in June 30 -- at June 30, 2022, and $69.2 million at the end of 2021. Total debt was zero at September 30, 2022, as it was at June 30 and in December 31, 2021. As of September 30, 2022, the company had 37,131,380 shares common stock outstanding. That concludes my prepared remarks. I'd like to turn the call back over to Tom for any remaining comments. Tom?

Thank you, Dave. In summary, the unveiling of the Ayro Vanish represents an important corporate milestone. We believe that the market launch and penetration of the Vanish with its various anticipated reconfigurable payloads that can address a wide range of use in applications, compelling ergonomics and a range of in-cab technology offerings has the potential to redefine the LSEV market. I'd like to thank all of our shareholders for their continued support and I look forward to sharing additional corporate updates over time. With that, I'd like to turn the call over to the operator, so we can begin the question-and-answer session. Operator?

[Operator Instructions] The first question comes from Barry Sine with Spartan Capital Securities. Please go ahead.

Hey, good morning and congratulations on getting the Vanish launched in the time frame. You had said, I know it's a big a big project, but it looks like you're on the time line. A couple of questions, if you don't mind. First of all, how many prototypes are there in existence today? And what are you using them for? Are they at to customers, or where are they?

Barry, good morning. So how many prototypes are there. Today, we have -- we don't call them prototypes, Barry, we call them mules and we have two mules fully built. And fundamentally, we're using them for two things. One of them is, we're putting the mules on the dynamometer to test their propulsion system, test the electrical motor, the electrical subsystem, the vehicle controller fundamentally. And the second mule is really being used for final fitment checks. When a vehicle is comprised of over 500 parts, you actually have to put these things together to see, how they fit, if there are any issues with any of those parts. And then, you have to do a final tweak, before you do your transition to your next, let's call them, batch of first articles. So today, we're really doing very dynamometer testing, and we're doing fitment checks, before we take delivery of the totality of the incoming revised supply chain.

And I know it's early, but any comments on initial customer and/or partner responses, especially from folks like Gallery and Element that you've worked with in the past?

So right now, Barry, fundamentally, we have conversations with folks who are anticipating, seeing first production articles or let's call it, LRIP, low-rate initial production articles. Those discussions are as one would expect, and that is that people are anticipating what we're offering to the marketplace and they're looking forward to seeing one and driving one, but those discussions have not gone past that phase at this point in time.

But have they said -- had comments that are favorable, negative, neutral towards -- because you've introduced the -- some information, at least in print on the product? Any initial responses?

Well, all I would say, Barry, is that that customers view competition as favorable and customers view the option of a premium vehicle as favorable. So, I'll leave it at that without offering any further specifics at this point. We'll talk about it more in the future.

Next question. What are the remaining punch list items to get to a production vehicle? Is your supply being totally wrapped up, I know batteries are always a tough issue for a lot of EV manufacturers?

So Barry, what I would say on that is a supply chain is never really completed until all parts are flowing and the factory is standing up and operating at capacity. Today, we feel very optimistic about our supply chain. The lion's share of it is North America. The remaining part of the supply chain is Northern Europe. We don't anticipate at this point any true showstoppers, but the reality of building real products is that if you need 500 parts to build a vehicle, any one of those 500 not coming in on schedule has an impact. So, I'm not going to be overly optimistic about how things look. But at this point in time, we have no reason to be concerned.

Okay. And then as we look out to 2023, could you elaborate a bit more on your go-to-market strategy? It sounds like you're going to build your own sales team, build your own dealer network, build up a sales support capability, parts capability, service, training, capability, et cetera?

Well, I think what we've said in prior discussions and what we've said in prior filings, is that our sales strategy will have four branches. First of all, we will have the customary dealer branch where we will distribute through dealers in states where that is necessary. Secondly, we will have a direct branch that will operate out of locales that allow for direct vehicle sales without the use of a dealer. Third, we're going to have a branch for up fitters for people who take these vehicles and use them for other purposes. And then finally, we will have a sales branch through fleet partners, whether those fleet partners be a partner like Element, or those fleet partners are people who might offer these kinds of vehicles for use to the government, which would be a GSA partner. So, we'll have an up-fitter branch, a -- let's call it, a fleet partner branch, a direct branch, and a dealer branch. So, through those four discrete channels, we intend to offer this family of new products to the marketplace.

Okay. And I wanted to elaborate a bit. You mentioned the GSA, and I think you've spoken in the past that you have the product placed in the GSA catalog. Could you talk a bit about how that process works? So, presumably, the vehicle next year will be available for purchase by federal government agencies, what do you do to raise the awareness and convince the entities that are allowed to purchase through that channel to actually make purchases?

So Barry, one point of clarification, we are not in the GSA schedule today. We can't be until we transition to production. So fundamentally, we will approach the GSA schedule through a GSA partner that is already on the schedule who would add us to their list of products offered to the government. So fundamentally, because we will sell through that partner and the way that those sales would work is that we will have, obviously, a marketing effort to make select portions of the government aware of our product line, aware of the payloads, aware of the usages and in position to purchase them either for specific utility purposes or to purchase them as part of meeting their sustainability objectives for their particular organization. We'll have more to say about that as time progresses. But right now, I have to get the vehicle into production so that I can legitimately get on the GSA schedule of our partner.

And then future product road maps, you've called this more of a platform. We've seen the first vehicle thinking your prepared comments, you talked about a people mover application to golf cart like application. What is the road map? And what is the time line that we might see additional prototypes announced or additional mules announced?

So we're not going to comment on the time line until we are in full production so that we know that the supply chain is flowing properly. I mean that's the critical stage gate right now. We're comfortable with our supply chain, but we need to see it perform and we need to see these vehicles being finally assembled and integrated here in Round Rock before we make statements about future platforms. The answer to your question, however, Barry, is that fundamentally, once that supply chain is flowing we now have every common component we need for other style transport vehicles. So when you think about the Aero Vantage as a utility vehicle, as a premium utility vehicle, with features that virtually no other platform has, changing to a people mover, simply requires going from a high slung chassis to a low-slung chassis all the other components remain identical. Much the same with the personal transport vehicle with all the components remaining the same, you simply alter the frame to be a much shorter footprint using still the exact same component. So it's really a strategy of tool ones, invest once, use many. And use many just means use those exact components on a plurality of platforms that the market shows interest in having tooled and invested only once in the components that comprise those platforms. I hope that's clear to you, Barry.

Yes. And then kind of my last question, although it's a long one. I wanted to talk about everything you've just mentioned, the implications for financial results. So if we start with the remainder of 2022, presumably, you're selling the remaining centers, September 2021, you announced the $4.1 million backlog, and you've shipped 3.2 to date, although those are going out at a negative gross margin. So that's not too exciting. If we look into 2023, I think you've said by the end of the quarter, you expect to ship a small number of units, so maybe a little revenue from the Vantage there. And then by the time you get to the year-end, what is your production capacity in units? You've given us the ASP at $25,000 perhaps there is ability to upsize on that with options. But how many units should we think about? And then lastly, does that put you in position to be EBITDA breakeven at least by 2024?

Well, you promised that that would be a long question, and you delivered, Barry. So let's just talk about a couple of things. First of all, you are correct that today our focus is simply moving the residual legacy platforms into the marketplace. So, obviously, we don't want to carry any existing inventory. We need the space. We need the footprint to build the new platform. So part one of our activity is taking the legacy platforms and moving them into the marketplace. That's number one. Number two, we're not guiding on sales of Vantage right now, simply because, as I said, I need to see the supply chain flowing. I need to see the factory operating. I need to see the platforms coming off the line. I need to test them and make sure that we are getting exactly what we designed. By the way, we anticipate that we're going to get exactly what we designed. But you never know until you do it. And once you do it, you give yourself sufficient comfort to comment further. It is reasonable to expect Barry, that we do not expect to perform financially with the Vantage as we did with the legacy platform. It is further reasonable to expect that the marketplace will have a response to a premium platform as opposed to a commodity platform. But other than that, I don't want to be premature in commenting. I think we'll know a lot more in the next quarter. And I'm going to hold my remarks until we start to see early indicators so that what I'd tell you is as accurate as I can make it, Barry.

Okay. That's my questions. Thank you very much for taking them all.

You bet.

The next question is from Tyler DuPont with Augury Research. Please go ahead.

Hey guys, a quick question here. What are you guys expecting in terms of cash burn over the next quarter? And you guys have a ton of cash. I was just wondering, what are you guys thinking about doing with it all?

Good morning, Tyler. Well, first of all, you are correct that we have tons of cash. And the first thing we're going to do with it is we're going to launch a successful product line. And any other uses of cash, I defer to the Board of Directors and to the Strategic Committee of the Board of Directors, in whose wheelhouse that answer would be. For Dave and I right now, we are laser focused on getting first product built. We're laser focused on getting product into the marketplace, and we're laser focused on the implications of a premium platform in a marketplace that has done. So I'm not going to ratably for obvious reasons, I cannot comment on uses of cash. That is the purview of the board. But I think it is reasonable for you to it's reasonable for you to look at our track record in expanding cash, realizing that we are in a full-blown development effort right now. And that being the case, I think you can do the math of seeing what -- how long that would carry us were we to have no sales at all. And it's not our anticipation that we're going to have no sales at all. So I'll leave it with you with that as bookends towards your question, Tyler?

Okay. Got you. And just one more. You guys mentioned that you guys are going to have a premium vehicle. I was wondering what your anticipated ticket price for your vehicles and the cost per unit? A – Tom Wittenschlaeger: Well, the cost per unit will flush itself out as the supply chain starts to flow. As you know, in the vehicle world and in fact, in the entirety of the product development world your cost of good sales -- cost of goods sold actually changes substantially as your inbound supply volumes build. So fundamentally, it's premature for me to comment on COGS, except that right now, we're in first article. So we have a target, but that target remains to be seen once the supply chain is operating properly. Our ticket price is $24,750 for the chassis and then there are a plurality of different payloads that are priced individually.

Okay. Got you. I appreciate you taking my question. Goodluck. A – Tom Wittenschlaeger: Thank you.

The next question comes from Matthew Polish is a Private Investor. Please go ahead. Q – Unidentified Analyst: Good morning. A – Tom Wittenschlaeger: Good morning, Matthew. Q – Unidentified Analyst: You mentioned in the third quarter that sales were down because you had the return of a shipment of lithium-ion batteries that were defective. Have you been able to procure batteries now so that you could resume sales of the existing platform in the fourth quarter and first quarter until the vanishes and production.

So that's a good question. And -- it's actually a very complicated question because we didn't return them, we wholesale rejected them. And so fundamentally, the question really comes down to, do we want to put any more energy into procuring a battery for a legacy platform when we have a new launch platform that demands that equal attention. And what I would tell you, Matthew, is right now, we're laser-focused on the new platform, getting it properly sourced, getting it properly built integrated, tested such that we enter the marketplace with something that is very, very different from the legacy platform that we began with. I hope that answers your question in the context of where we put our focus. As you know, procuring -- when you procure a lithium battery, you're not buying a battery, what you're buying is a battery, a charging system, BMS, and interface to the vehicle control unit, a thermal subsystem, a radiator and/or a heat exchanger. So a battery isn't really a battery. A battery is a, let's call it, an energy storage subsystem comprised of more than five discrete systems. That said, replacing a battery becomes a very, very complex undertaking. And let me just say that we're very focused on the battery subsystem for the Vanish and we are less focused on such subsystem for any legacy platforms it might be in residual inventory.

Okay. So I apologize. Maybe I missed it during the call. Is it safe to say that you expect then, I'll call it, revenues going until the Vanish could be much lower than the third quarter for the remaining two quarters?

Well, we're not guiding on revenue right now, but fundamentally, it's our intent to move all legacy platforms into the marketplace so that we end up not having a bunch of residual inventory here in Round Rock. As I mentioned, we need the space for new inventory for new incoming supply chain components. And so it's reasonable to expect that the remaining inventory will find its way into the marketplace. What that looks like from a quarterly point of view remains to be seen, but we're working diligently to get it done.

Thank you.

You're welcome.

[Operator Instructions] The next question is from Harold Weber with Aegis Capital. Please go ahead.

Hello, Tom. How are you doing?

Harold, good morning.

Good morning. How are you? I'm glad to hear that things are moving in the right direction and everything seems to be coming together pretty well considering on mine in the marketplace. I just thought I'd like to mention and maybe as you say to talk to the Board about considering our cash position at this point and the sub-valuation of our shares, maybe we take a little bit of money, we buy back some stock, which could have a major outsized positive effect on us going forward next year?

I will -- obviously, we will include that periodically, Harold, in our discussion with the Board, we will make it a topic of every discussion with the Board of Directors. But I defer to the Board, and I defer specifically to the strategic committee as they evaluate our options going forward. But we appreciate the input, Harold and fully understand your point of view, fully understand the motivation. And I will again leave that to the good judgment of the Board of Directors.

Just another question in regard to the sourcing. Previously, we had talked about you had a certain percentage, I forgot what it was, maybe 75% that had to be sourced from the North America. Are we going to meet all those criteria in regard to the GSA front?

We are not going to meet the 75% criteria, Harold. We're going to meet the 85% criteria from North American content. The remaining 15% will come from Northern Europe. And I hope that answers your question.

Okay, great. Very good. Thank you.

You’re welcome, Harold. Have a good week.

You too. End of Q&A:

This concludes our question-and-answer session. I would now like to turn the conference back over to Tom Wittenschlaeger for any closing remarks.

Thank you very much. I'd like to thank all of you for participating in today's call and for your interest in Ayro. We look forward to sharing our progress on the next quarterly conference call when we report our fiscal year 2022 results likely in early March of 2023. Thanks to all of you. Have a great day.

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