Ayro, Inc.
Q2 2020 Earnings Call Transcript

Published: 14 Aug 2020

[Operator:]

Hello. And welcome to the Ayro Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, today's event is being recorded. And now I would like to turn the conference over your host today Jordan Darrow. Mr. Darrow, please go ahead.

[Jordan Darrow:]

Thank you. And welcome to the Ayro second quarter 2020 financial results conference call. With me today are Rod Keller, President and Chief Executive Officer, and Curtis Smith, Chief Financial Officer. Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position in markets, economic conditions, estimated impact of tax reform, product releases, new industry partnerships, impacts of the COVID-19 pandemic, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainties as to the impacts from the COVID-19 pandemic, along with expect to recovery efforts within the supply chain and among our customer base and sales channels, levels of orders, ability to record revenues based upon the timing of product deliveries, market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors and other risks, including those described from time to time in the company's filings with the Securities and Exchange Commission, press releases and other communications. The accuracy and completeness of forward-looking statements should not be unduly relied upon, Ayro was under no duty to update any of these forward looking statements. We will discuss certain non-GAAP financial measures today, including adjusted EBITDA, the earnings release and the presentation for today's call are available at ayro.com and include full reconciliations of each non-GAAP financial measure discussed to the nearest applicable GAAP measure. Now, I would like to turn over the call to Rod Keller, CEO of Ayro.

[Rod Keller:]

Thank you very much, Jordan. I am really excited to be speaking with all of you today on our first quarterly earnings conference call as a public company. We have posted slides on our website this morning to accompany the presentation for you to look at. I will not be prompting you through the slides, but feel free to scroll through them, as I take you through our update. Being that this is our first quarterly call as a public company, I'm going to provide some background information on the company, who we are and how we got here, to go along with what we achieved and what we were setting out to do here at Ayro. We went public through a business combination with DropCar effective May, 28 of this year. This event allowed us to instantly begin trading on NASDAQ the following day. This was not our initial plan to become public when I joined the company three years ago as CEO, but it led us to accomplishing our goal in a very successful way. We had and still have had an incredible runway with some of the best designs in the industry for purpose-built, low speed electric vehicles, which are supported by a supply-chain with a vested interest in our future. The major challenge until recently was financing and clearly previous capital constraints and then the COVID-19 pandemic had an effect on our revenue ramp and progress as we work through the first half of 2020. As part of our CFO, Curtis Smith remarks, he will detail our equity issuances since becoming public and our overall capitalization structure. The net result of these deals is that we are now well-capitalized for the foreseeable future. And as of the end of July, we have about $30 million in cash on the balance sheet. Now with substantial capital in hand, we are executing our business at full speed amid the remaining COVID-19 limitations. Now we are confident that we have sufficient capital to execute our exciting growth plans. From a strategic standpoint, looking at where we are today, we are a revenue generating EV company, with orders and a delivery schedule and an expanding sales funnel and unique opportunity in EV fleet sales and on track to reach a number of milestones in 2020 and beyond. I want to take a moment to address the COVID-19 situation. The pandemic has presented global challenges since the beginning of this year. With our revenues are primarily derived from US customers, we are indeed a global company with our supply chain in China. And we have global growth aspirations. Amid the pandemic, we are grateful for the health of our staff, our customers, partners, stakeholders and their respective families. We recognize with high esteem the sacrifices made by healthcare professionals and first responders around the world. At the same time, given the pace of accelerating activities with Ayro, we truly appreciate the hard work and dedication of our team. We remain committed to our priorities amid COVID-19 which are keeping our people and their families safe, keeping our facilities operating and servicing our channel partners and their customers. Under the circumstances during the past six months, global commerce has been anything but predictable. Expectations in general have been reduced and our performance in the second quarter reflected these business conditions. Yet at the same time, the past few months have been amazing. Our phones have been ringing non-stop. And we've had many developments to add to our social media links. We hope you were following us there. But just in case, I'd like to detail some of our recent initiatives and how we've come to enjoy the position that we are in today. We were founded by entrepreneurs and funded by Austin-area startup investors with common causes, centered on three key trends. One, efficiency and sustainability as key long-term drivers, supporting zero carbon footprint initiatives and higher education, corporate ESG commitments and governmental leadership toward preserving our planet. Two, growth in last-mile delivery demands and the evolutions of campus requirements where full-size work vehicles have a hard time satisfying new realities. And the third, alternatives being sought after for gas-powered vehicles which are expensive to maintain, produce carbon emissions and they're noisy. In terms of differentiation in a popular rising EV market, let me be clear, we do not compete with Tesla, Nikola, Hyliion, Kandi, Fisker and the like. We wish all of them the best of success because it leans to the overall adoption of EV vehicles, as an important mode of transportation in mobile commerce. And a few of them will have major operations in the Austin area. So perhaps one day there will be some cross pollination - pollenization. For the most part, our primary competition is commercial gas powered vehicles used for short-haul of people, equipment and cargo for property maintenance, surveillance, and other such services. We like our competitive position because we offer the lowest total cost of ownership, as well as cutting-edge technology options and of course, the environmental benefits. We're focused on the niche industry for EVs targeting low speed and short-haul applications, whether this is on campus, in urban settings or other regional applications. In total, we believe this niche market is a multi-billion dollar market and is estimated to have significant growth potential for the next decade. We have two primary vehicle models today, a four wheel vehicle known as the 411, and a three wheeled vehicle known as the 311. Among low speed EV makers, we don't believe anybody can rival our product portfolio, or our ability to design and bring new innovations to market. In large part this is the reason Club Car chose to partner with us. I'll talk more about this groundbreaking agreement in a moment. Among our important differentiators, we don't sell consumers because our go-to-market strategy is B2B, where we want to sell fleets of vehicles, not a single unit to a consumer off the street. Finally, a key differentiator against most other EV manufacturers, our vehicles can recharge on any standard household or commercial 110 or 120 outlets. We don't need any supercharging stations or to have fleet operators look into capital investment to provide for charging areas. As an example, a university can recharge our vehicles on the sidelines of the football field, or inside the stadiums concourse or in front of a dormitory or outside the student union building. This is a real world, practical advantage that is resonating with potential buyers. As a shareholder, you want to know more about our Club Car relationship. Club Car is a division of Ingersoll-Rand, a $13 billion industrial technology conglomerate. Club Car boasts nearly 60 years of industry-leading innovation and design, initially focused on golf carts and then expanding to commercial utility vehicles in personal use transportation. The key to our attraction to date is our partnership with Club Car, which has multi-hundreds of millions in annual revenues, as the market leader in the low speed vehicle market, that dominant market shares in personal, utility and golf operations vehicle categories. Club Car partnered with Ayro because of our mature technology platform, our fast product development cycle, our competitive cost and our streamlined supply chain management and experienced leadership team. The Club Car 411 is our four wheeled vehicle branded for them and sold exclusively through Club Cars vast dealer network and corporate accounts team in North America. The Club Car 411 is fully supported through their dealer network, just like the rest of their lineup. We team together on product support, feature enhancements, custom solutions and future product development. An offshoot of this relationship is our work with Gallery Carts, a privately held company based in Denver, Colorado. Together, last month Ayro and Gallery announced the launch of an all electric mobile food solution for Point-of-Demand Hospitality Markets. While COVID-19 has created certain challenges with logistics in March, which were now resolved and sales and marketing to universities and other end market disruptions which are gradually improving, the pandemic has brought about some new norms. One such new norm is the heightened demand for home food and restaurant delivery and point-of-sale food options. Gallery Carts is a leading provider of food and beverage kiosk, carts and mobile storefront solutions. They entered into a collaborative engineering partnership with Ayro, which has led to the launch of our first electric configurable mobile hospitality vehicle for on-the-go venues across United States. This innovative solution permits food, beverage and merchandising operators to bring goods directly to consumers. This enables Ayro to receive two streams of revenues, one for the sale of the standard vehicle through the Club Car dealer network, and the other stream for the configurable powered vendor box, which sits in the rear of the vehicle and is run on lithium batteries. This collaboration has enabled us to bring highly engineered EV food solutions to college campuses, major stadiums and arenas across the country. Demonstrating how fast we can go from concept to design to production orders, about two weeks after announcing our efforts with Gallery, we were awarded $584,000 in orders for the inaugural purpose-built EV hospitality truck solution. A portion of the orders have already been shipped with the remainder expected to be fulfilled in the third and fourth quarters of this year, from our newly expanded Austin factory and expansion that we announced in July last month. Initially, we made this vehicle in downtown Austin, Texas from Elise [ph] warehouse a 1000 tour buses for Willie Nelson. But we've grown a lot since then and needed a much larger facility. In July we announced our second move in as many years to accommodate increasing demand. To the north, we completed a factory expansion that took us from 10,000 square feet to 24,000 square feet. The expansion includes new assembly lines and additional engineering and product development facilities to accommodate new staffing and battery technology, powerrain, supply chain, service and application services solutions. Now we can handle up to 600 electric vehicles per month, a 200% production capacity increase. As you can see, we've made a lot of progress in the last few months. As a young company in a relatively new industry, we are relying on strategic partnerships to catapult our growth. Club Car is our exclusive partner for North America on our 411 platform, which effectively makes them a valuable channel sales partner. We're looking at global expansion with Club Car, whether it be through extending exclusivity or on a Greenfield basis without exclusivity. Among other strategic partnerships, we have a marketing relationship as the EV provider of choice for sure for Circuit of The Americas, the only Formula One racetrack in the United States, which is based in Austin, Texas. On the technology and mobile apps front, we have a partnership with Ford’s Autonomic [indiscernible], artificial intelligence and related software productivity tools. We have our supply chain partner for vehicle parts in China. We're looking into other partnerships for manufacturing, fleet management and aggregators. So stay tuned for the developments on these initiatives in the future. Another area we are investing in is the redesign of our 311 vehicle. The new model is expected to come with full feature sets to make it a far more comfortable and larger vehicle. With a second seat removed, the elongated rear would be able to accommodate ample storage space, including an oven, as we'll have the most advanced low speed EV for local food and restaurant delivery available on the market. Once again, COVID is bringing to life new norms, one of which is greater takeout options and delivery of food. Restaurant delivery is expected to grow by nearly 7% annually through 2024. So this is one of this group's most important segments where they will look to invest, and you can be certain that the restaurant operators want to own the process, instead of giving upwards of 30% particular way [ph] to third party delivery services. Our 311 is street legal, with up to 50 mile range and can recharge within six to eight hours in the standard 120 volt outlet. This will be very easy to do in the storefront or rear of the restaurant where charging to take place after the shift or in between delivery rounds. Stay tuned for more developments on the redesign of the 311. Now with that, I'll turn the call over to Curt Smith, our Chief Financial Officer to provide more details on the quarter. Curt?

[Curtis Smith:]

Thank you, Rod, and a good day to everyone. I'd like to first start off by providing a review of our public market activity. On May 28, we completed our business combination with DropCar and subsequently were listed on NASDAQ under the ticker symbol, AYRO. The effective conversion price per share was $3.89, which included an exchange ratio of 1.36, three fourth [ph] shares of Ayro into a publicly traded stock which was subject to a one for 10 reverse split, and a one for one stock dividend. The public company changes name to Ayro Inc, and commence trading under the AYRO symbol with approximately $12.5 million basic common shares outstanding. Following the close of the transaction, our ownership structure consisted of 37.7% ownership by a legacy non-affiliated Ayro shareholders, 18.3% ownership on non-affiliated legacy public DropCar shareholders, 33.7% ownership by investors and advisors associated with merger and related funding, and 10.4% by insiders, including our management team and our Board of Directors. Our board consists of select directors from both the legacy Ayro business and from DropCar, as well as another appointed member in connection with a merger. Three members from Ayro, are CEO, Rod Keller, Ayro, Co-Founder Mark Adams, and newly appointed member George Devlin. Members from DropCar included our Chairman Josh Silberman, Sebastian Giordano, Craig Shipman, Zvika Joseph. The merger transaction provided an additional $4.5 million cash on the balance sheet, which left us with a limited liquidity position to execute our business plan. Along with this liquidity position we conducted a series of stock offerings each at a higher price from the prior deal. On June 19, we closed the registered direct offering with certain institutional and accredited investors for an aggregate of 2.2 million shares of common stock. The price per share was $2.50 with gross proceeds of approximately $5.5 million before the deduction of fees and offering expense. On July 8, we closed the registered direct offering with certain institutional and accredited investors for an aggregate of 3,157,895 million shares of common stock. The price per share was $4.75, 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 billion shares of common stock and options purchased up to an additional 1,387,500 million shares of common stock honored before October 19 at the same price. The initial sale of 1.85 million shares has closed, well only the options remain outstanding. The price per share was $5 with gross proceeds of approximately $9.25 million for the deduction of fees and offering expenses. In addition to the aforementioned offerings, we received $2.98 million net of fees from the exercise of warrants and conversion of previously issued preferred stocks since the merger was completed. It secured [ph] and it was converted into approximately 4.6 million common shares. Total common shares outstanding as of June 30, was 16,509,964 million. And at the present time we have approximately 24.3 million common shares outstanding, which includes stock offerings and convergence which took place after the end of our second quarter. As of today, insiders count for ownership of approximately 5.8% of our outstanding common shares. Now on to my review of the second quarter financial results. Revenues for the second quarter ended June 30 were $286,000, which is a 28% decrease compared to the second quarter 2019. That decrease was primarily due to delays resulting from the COVID-19 pandemic which negatively impact our customers demand across the nation. Our backlog of firm orders as of June 30, 2020 was approximately $525,000. Our gross margin percentage increased from 22% to 28% quarter-over-quarter, primarily due to sales of higher margin products in the second quarter of 2020. Sales and marketing cost decreased in the second quarter by 19.9% over the second quarter of 2019. This decrease is primarily due to reduction in marketing programs than from the prior year, as we have focused on more targeted marketing initiatives. For the second quarter of 2020, research, the development costs decreased by approximately $102,000 over some same period in 2019. This was primarily due to professional service and design fees incurred in 2019, which were now repeated in 2020. During the second quarter of 2020, we incurred approximately 750,000 of G&A expenses, of which 82,000 was stock-based compensation expense, as compared to $335,000 per year - this quarter. Excluded in the one-time expenses, we expect our G&A expenses to increase modestly over the foreseeable future, as we scale headcount in order to grow with our business. Net loss was approximately a negative $1.5 million on a GAAP basis, a slight improvement compared to a net loss of approximately negative $1.8 million from the three months ended June 30, 2019. The decrease in net loss is primarily due to non-cash - non cash stock based compensation expenses in the quarter ended June 30 and now repeated in 2020. Adjusted EBITDA, a non-GAAP measure totalled a negative $683,000 compared to negative $1.1 million in the prior year period in the second quarter. Adjusted EBITDA includes 151,000 stock-based compensation and 114,000 in depreciation, amortization, $106,000 in amortization of discount on debt, a $353,000 loss on the extinguishment of debt, and $124,000 related to interest expense in second quarter of 2020. Our net loss per share, basic and diluted in the second quarter of 2020 was a negative $0.18 per share on a GAAP basis, as compared to a negative $0.65 per share in the prior year. The weighted average shares outstanding for second quarter 2020 were 8.2 million - 8.29 million compared to 2.79 million shares in the prior year. As we were in a net loss position, the fully diluted share account is not utilized for EPS calculation. Turning to the balance sheet. Ayro’s financial condition is strong with cash at June 30 2020 of $7.9 million, a $7.3 million increase compared to – when compared to 641,000 at December 31, 2019. The difference is primarily based on funding received in connection with the merger which was closed May 28 of 2020 and registered direct offering which closed on June 19 of 2020. Subsequent to the end of the quarter, we added approximately $24.8 million net of fees to our cash. We currently have $881,000 in debt outstanding related to bridge loans made in the fourth quarter of 2019 and a PPP loan received during the current quarter. Our capital expenditures totaled $243,000 in the second quarter of 2020, which comprised mostly of investments in R&D equipment, assembly line equipment for our expanded facility. Receivables were $313,000 at June 30, 2020, up from $166,000 March 31 of 2020. Payables were 830,000 as of June 30, 2020, down from 879,000 as of March 31 of this year. Working Capital at the end of the second quarter was $8.3 million as compared with a negative $423,000 to March 31 of this year, and $612,000 in December 31, 2019. That concludes my prepared remarks. However, before I turn the call back to the operator to begin the Q&A segment, I would like to alert everyone to the fact, that this presentation and our discussion is based on preliminary numbers. We expect to file our 10-Q in the coming days, which will contain our final second quarter results. Operator, will you please start the Q&A process?

[Operator:]

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Barry Sine with Spartan Capital Securities.

[Barry Sine:]

Hey. Good morning, gentlemen.

[Rod Keller:]

Morning.

[Barry Sine:]

Well, I have a couple of questions for you if you don't mind. First question on your press release, there's a paragraph that talks about your top priorities for the remainder of the year and there's a lot of information in that paragraph. So I want to kind of unpack some of that. So one of the things you talked about is expanding your sales funnel. And I know that 3 – is it 311 or 311 [ph] goes through Club Car dealers, you're going to focus on North America. Maybe we could talk about that process. How many dealers do they have in North America? How many are you in now? And what are the obstacles? What is the pushback when you go to a new dealer and I'm assuming you have to do that process yourself? You resolve [ph] the Ingersoll-Rand does not do that for you?

[Rod Keller:]

Thanks, Barry. This Rod Keller, the CEO. No, actually we work closely with Club Car on expanding the dealer base. But to answer your question, let me start by saying, Club Car is the largest manufacturer of golf carts here in the world and in North America and they have 535 locations, but a 167 of those are commercial locations. We signed a contract with Club Car in March of 2019. And we really got moving much quicker with them in September of last year, it is almost 12 months ago. Hired a new head of sales, began working very, very closely with them, began to see our – our funnel begin to ramp and then COVID hit earlier this year, as we all know. We were actually with Club Car all day yesterday in a quarterly business review. And we were more optimistic, as you'll see in the in the coming days, we've won a fairly significant opportunity with a large VA hospital, jointly with Club Car, and we expect to continue to see our demand increase. One of the challenges we're faced with, is that one of the largest segments for our light-duty electric vehicle with Club Car 411, our universities, and that's also one of the biggest segments overall. For Club Car and the challenge we're faced with is we all know what's going on with universities right now. Let me also be clear, the light-duty electric vehicle that we sell through Club Car is the 411 not the 311. 311 is a different product, and we'll talk more about that later. But they show the Club Car 411. We are in about close to half of the commercial dealers right now for Club Car. We're working closely with their Head of Sales, Michael Williams and Brant Mitchell, and Jeff Tyminski, their Head of Marketing to expand that. We really just need to get past this COVID issue and a lot of this pent-up demand we've got we believe will materialize even further.

[Barry Sine:]

Okay. And then also in that same paragraph, you talk about looking at additional captive markets, and you're off to a great start with one, with the Gallery partnership and that's food services. I guess the 311 restaurant delivery would be a different type of vertical also in food. Could you talk about the captive markets you're looking at, maybe size some of those, what are the other markets that you guys have on the near term horizon?

[Rod Keller:]

Yeah, I mean, we issued a press release not long ago, on the new relationship with Gallery. We expect that to continue. And many of those vehicles that we jointly developed with them are going into sports stadiums, will be going in universities. And we're working on a new vehicle that will complement what many golf courses are using today as gas powered, food and beverage vehicles to work on a vehicle that will complement what some of the golf courses are doing today. And obviously, Club Car is a major player in that space. On the 311 side, we're very excited about that. There's a little bit of a silver lining in COVID. And that is, that the mix of brick and mortar revenue for restaurants versus delivery has accelerated delivery for all the obvious reasons. And we started about a year and a half ago working on our first concept vehicle, the 311, and what we have found is that the opportunity to significantly reduce operating expense for these restaurants by as much as 50% is what we can show them. Because a lot of people don't understand that the aggregators such as DoorDash, Grubhub, Uber Eats, take as much as 30% of the restaurants ticket. When delivery was only a single digit percent of your total revenue, it wasn't that big a deal. But now at 40 to 50% it's having a big bite on their margin, and they're looking to companies like us, and we think we're taking a different approach in the sense, we did not just build a vehicle and then decide to try to deliver food in it, we're taking the opposite approach. We're building a food delivery vehicle. We think we're better positioned than anybody in the market today to go leverage that and some of that's proving to be true in some of the conversations that we're having with many of the large franchisees and even some of the franchise ORS [ph] and company-owned chains as well.

[Barry Sine:]

So rod, you talk about cutting costs for them by 50%. In your slide deck, there's an ASP listed for the 311 of around $10,000. Coincidentally, that's about 50% cheaper. There's a very similar or I think, similar competing vehicle out there. That's about double that price. Can you comment on that ASP, do you think you can really hit that number and get out to market in volume with that number?

[Rod Keller:]

Well, what we've learned is some of our tests with the first 311 that we developed, is there some additional features we needed to add to it. For example, we're going to move to lithium. It will make it a vehicle it will charge faster, it will extend the range and we're also taking the speed up, we're adding windows, removing the back seat. We're doing a number of things that will enhance the feature set, that are relevant features, and doing so we’ll take the cost up somewhat, but we still expect that we'll still be the leader in delivering a solution to restaurant delivery that is far better than what you're seeing in gas powered vehicles today or from any other EV company that's trying to penetrate that space as well.

[Barry Sine:]

Okay. And then your cost of goods sold. Correct me if I'm wrong, I believe you bring in kind of kits from the China market. Could you talk about the impact of tariffs? And specifically where are you sourcing the batteries today? Is that domestic, so you can avoid tariffs are those that coming from China?

[Rod Keller:]

No, we bring in - we've got a strategic partner, just outside of Shanghai, who's actually has a financial interest in us. We had a long relationship with them. The founders of our company actually had a relationship with them for almost 10 years. And you're right, we bring kits in semi knockdown, kits that are about 40% of the total vehicle. We are challenged with some of the tariffs. We bring our batteries in from there as well. In fact, you need new batteries in the US today. For all intents and purposes, they're all - even though they may be supplied here in the US, most of that still comes out of China, anyway. But we've got a great relationship with our supply chain there. They help us get to market which is one of the reasons why or faster I'd say, they help us get to market, which is one of the reasons why are faster, I'd say, they help us get to market faster than the most of our customers or competitors can get to. And as a result of that, that's why Club Car likes our relationship, is our ability to - I like to refer to us as the tip of the spear. And help them reach new markets with new solutions faster than they can do it traditionally themselves.

[Barry Sine:]

And are you in the 25% tariff schedule for those kits?

[Rod Keller:]

Depends on the component. Some components, yes, some are less, some are actually been waived. But yeah, I mean, 25% is not insignificant, but most of the companies that are in the EV space today are facing some of those tariffs coming out of China.

[Barry Sine:]

And then if I might ask a couple questions on the financials. So you completed the public company merger transaction on May 28. When we look at the financials in the income statement, it looks like that's a full quarter and that those are all your financials historically, that’s not a partial quarter and that's not their financials historically, not quite sure how that works from a GAAP perspective?

[Curtis Smith:]

Yeah, so we – this is Curtis Smith, Barry.

[Barry Sine:]

Hey, Curt.

[Curtis Smith:]

Good morning. We issued – under an 8-K, we issued our first quarter financials, I believe was June 4 after the merger as required by SEC regulations. Obviously, as I mentioned, the second quarter results we be published here through the next couple days under our 10-Q, this will be our first 10-Q coming out as a public company, so…

[Barry Sine:]

But now it is all your financials, and that's…

[Curtis Smith:]

Yes, yes. Correct. So what's going to be in our Q is 100% our financials, the Ayro financials. And what was - again what was on the 8-K post on June 4, or June 3, is 100% our financial, so obviously that's where we make the transition over from one set of financials to - or one set of books to the other.

[Barry Sine:]

And then, so you just reported I think 286 k in revenue, and obviously that's COVID impacted. Can you talk about the driver of the revenue year-to-date, last year's revenue? You know, one key metric that would be helpful, will be the number of vehicles that's related to, I'm assuming that's mostly 411 [ph] and then or 411 and related accessories?

[Rod Keller:]

Yeah, sure. Barry, on average, we had a million in revenues each of the last two years. And we adjusted that for a non-recurring transaction we had in 2018. So I mean, while we don't provide guidance. There were a few weeks where we didn't operate in Q2 of this year due to COVID. No deliveries were made. As a result, we couldn't record any revenues, which like many of our peers, even some of the largest companies in the world retracting their guidance for the year due to COVID and the stay at home orders which we're all dealing with to some degree. That said, the longer term, we believe on one shift with the new facilities that we've got, we could comfortably generate revenues in the $50 million to $100 million range, given the pricing that we expect and the product lineup and roadmap we've got. So how soon we get there is a little hard to say right now. But I think with the plans we've got, we're looking to get there faster as prudently as possible. One of the key things, of course, is expanding our footprint on the four level with Club Car, expanding outside the US, first to Europe then to Asia, and also the launch of our next generation 311, which is underway right now, the development of it.

[Barry Sine:]

And if you could help us, I know, you say you don't issue guidance. The forecast for the remainder of 2020, we've got a backlog number. So that's kind of a clue that we can use out there. Seems pretty good, there's obviously a risk factor with COVID universities are a big part of year end markets and they're even shutting down the football program, so they shut down football. I don't know what they're really going to do. But could you talk about how we can think about your 2020 forecast for the rest of the year?

[Rod Keller:]

Yeah, I mean, shutting down football in Texas. That's a heresy here. It's hard because we don't know when the pent up demand that we've got is going to be released, so some of that's a function of university, a lot of the cap expenses funded by athletic programs. So like, it's hard for us to give guidance for the balance of the year, even though we've got a significant pipeline, it's hard to predict when things are going to change here. But again, the meetings that we had with Club Car leadership yesterday, lead us to believe that the things are looking better, I think they had expected it to look better as well. And they're optimistic about the future and the applications for this joint solution we developed. But I can't give any guidance, just because we don't know what you know, the impact of COVID long term.

[Barry Sine:]

And then speaking about optimism in long-term, without again, without giving guidance, how should investors think about, let's say the next one to five years, you've got a very strong core product, your end markets will come back at some point and then you've got a new product you're going to be going to market with. So how should we think about that? We're trying to understand, what you can do potentially revenue wise, you've given us a revenue number, if you were at full production, but obviously, you've got to sell that production first.

[Rod Keller:]

Yeah, I mean, I think if you want to look or if you're talking from an investor's perspective, looking at us, I don't think there's any one better positioned than we are and I'll give you - I'll tell you exactly why. We've given some guidance, I believe, I think it's in our charts, on what we believe our gross margins or what we know our gross margin targets are and that's selling through a major channel partner like Club Car. When you look at some of our competitors, they've chosen a direct-only model, that makes it difficult and how do you service vehicles on a local basis. They decided to pursue their own manufacturing. We don't believe you have to own manufacturing, you just need to have that as an asset and a capability. For example, when you bring a vehicle to replace the solutions they’re using today for restaurant delivery, you can’t only bring a vehicle, you need to bring the entire ecosystem from charging, to service, to financing. And we're working with some partners to bring that entire ecosystem where I think other companies just are thinking that vehicles enough, and it's not. So we've got the leadership and the experience to I think leverage that, understand that and the relationships are already well underway. We're having those conversations, right. I think what you're seeing from this right now is the tip of the iceberg. The relationship before - with Club Car on the 411 is great. We need to COVID to reduce its impact on our current forecast, and we're very, very bullish on the future, as we work toward launching our next generation 311 in the second half of next year.

[Barry Sine:]

Operator Okay, thank you. And the next question comes from Michael Fiske [ph] with Colliers Capital.

[Unidentified Analyst:]

Hey. Good morning, guys.

[Rod Keller:]

Good morning.

[Unidentified Analyst:]

Maybe I'll start out with one of the just - a follow up what you just mentioned. In your comments, you also mentioned that a lot of what you're doing is going to be geared towards fleet operators, as opposed to trying to sell to individuals, especially on the 311. But 411 is going to be clearly a fleet product. Give me a sense as to what are the advantages of just selling to fleet as opposed to trying to go through a nationwide, you know, company-owned dealer network?

[Rod Keller:]

Well, whether it's company-owned, or whether it's franchise, I mean, if you've got the right relationships, and they've got the brand and support, I mean, I've - in my entire career, I've done it both ways through company-owned and they're not franchises, they're independent businesses. But Club Car has been in business since 58, 62 years. And we work very closely with not just the leadership at Club Car, but the regional managers in the field and the dealers directly. So hope this answers your question. I think it does. But we feel very confident. We work closely with a gentleman named Jeff Miller, who runs all the Strategic Accounts there. And we're excited about the opportunities we've got. And the reason we like fleet [ph] is it's a fewer number of skews, but the opportunities are bigger. And I think some of the companies that are focusing on selling one unit at a time incur a lot more expense. And I think we're very, very well positioned with the approach we're taking and the channel partner that we've aligned with.

[Unidentified Analyst:]

Got it. Maybe I can ask also, I mean, you've got a backlog. You've got your newly expanded facility. So let's just say a large order arrived today or another larger order. What number can you churn out today? What number per month or per quarter can you reasonably deliver based on your current hiring, and your current capacity that's actually open today?

[Rod Keller:]

Fortunately, for us to expand an additional line, it's only about $80,000 because remember, our vehicles come in, in what's called the SKD, a semi knockdown format to us, it's about $80,000 to add an additional line, with four lines and two shifts on 20 days a month, we could build up to 600 vehicles per month. Now, it would not be difficult for us to expand beyond that based on the availability here. But we're not obviously at that volume yet. But we could easily do today with enough lead time, meaning about 30 days to procure the components. We would not need more than about 30 to 60 days to take our production, not from a capacity perspective, but from a supply side from 200 to 400 to 600.

[Unidentified Analyst:]

Got it. And it's great to see that that Ayro is gross margin positive for this quarter, as well as I guess, with the same quarter in the prior year. Not everyone can boast that in the easy [ph] space these days. I'm kind of curious. Do you have any targets you can share or any kind of numbers that you're kind of gunning for once you hit that full capacity in your facility?

[Rod Keller:]

Hey, by the way, I'm sorry, I'd like to make that point, you made a good point that we’re gross margin positive, and we're gross margin positive. With an extra step of caution there, with the channel we've got, where some of the competitors that I've looked at, are targeting 20 points of gross margin, selling direct-only. And that's when they get to 10,000 vehicles per year through their factory. We will approach close to 30 points of gross margin, selling through Club Car. And that's with having a national dealer in the field or in the market that can do service as well on all of our vehicles sold. So I know that weren’t your question, if you don't mind asking it again, I'm happy to answer, but I wanted to make that clear differentiation between us and some other companies trying to do what we are.

[Unidentified Analyst:]

Sure. I can ask it even in a different way. I guess, perhaps do you expect to reach your full capacity anytime soon, as far as the amount of units per month. And then if you hit that capacity, do you have any kind of target gross margin that you're actually going for today?

[Rod Keller:]

Let me let me answer it this way. The value-added business that we do with Gallery is very, very attractive to us. It's attracted to Club Car, because it's at much higher ASP s, and it's much higher gross margins as well. Typically you're either at one end of the spectrum with the other where you're at high volume, low margin transactions, or you're at the other end - the other end of the spectrum where it's lower volume, high margins, very much value-added. And what we sell collectively with Club Car and Gallery is very much that. It's high margins, but the volumes are not necessarily that low, particularly when you look at the fact that universities are now faced with a challenging problem. How do we deliver food and beverage through the tens of thousands of students without cramming them all in university cafeterias? One of the ways they want to do that, is they're looking at our vehicle, some of the largest that I can't mention them yet, but they have placed orders with us through Gallery to take our vehicle and strategically place these mobile hospitality vehicles, strategically around the campus so that now instead of forcing students to go into cafeterias, they can now grab a food and beverage between classes or on their way back to their dorm or off-campus. The size of that opportunity is a little bit hard to gauge because in terms of timing of it, because we don't know when universities are going to be fully back, but we are very, very excited about that, because that could drive revenue significantly, as well as higher margins and we're already forecasting today. Obviously, on the 311 side, the opportunity there is even bigger, because when you look at the size of the restaurants, globally it's almost $400 billion. And many of these restaurants are not happy with the fact they're losing control of the experience of selling food. They don't like the fact that they don't control the data that's collected by the aggregator, rather than collecting themselves. And not to mention the economic impact at higher costs since we’re having to pay the aggregators. So, all aspects of our business have great opportunity in front of them. Again, I said, the restaurant delivery piece is really kind of the silver lining of COVID. And we're working very quickly to finish the development of our next generation 3-wheeled electric vehicle for restaurant delivery. To try to tell you exactly when I think we're going to get to 600 per month. Some of that, again, is a function of how quick we can get past this pandemic we're all face to live with today.

[Unidentified Analyst:]

Sure. If I can just ask, I didn't really ask, I wasn't really trying to figure out when, I was just trying to figure out what the gross margins could be once you do hit that full capacity, as far as a percent number, I know its very hard to get the exact time…

[Rod Keller:]

Well, I'm going to tell you, it's in excess of 30% and by the way, and that's before we add in any recurring revenue from subscriptions of services that we provide as well. But the hardware alone should be in excess of 30 points.

[Unidentified Analyst:]

Got it, perfect. And then do you know offhand whether other vehicle is eligible for the California HVIP voucher subsidy program? I'm not sure if the - if you're vehicles are of the correct size for that or if its just for trucks, but these are commercial vehicles. So I'm curious if you could share if you've learned anything about California subsidies previous?

[Rod Keller:]

Yeah. No, that's great question. No that is something we're investigating, such as California, there's other states as well that have started to explore this. So no that is in the works – so check that out as a competitive advantage or so. Now whether that is a process, so stay tuned for more on that.

[Operator:]

Thank you. [Operator Instructions] And the next question comes from Leonard Dunn [ph] with Mutual Trust Company.

[Unidentified Analyst:]

Good morning. I got on the call a little late. I had some problems I had attend to. So is this is asked already. I apologize. But you announced 600 vehicles a month is your capacity. And congratulations on that. But longer term, do you have any idea as to your expected mix of 311 and 411 model production? And then I have a follow up question to that.

[Rod Keller:]

Yeah. Let me let me answer it this way. The expectation is we're going to need more than 600 per month as we begin to ramp the 311. As I mentioned, the size of the market is significant. I've reviewed with our Board of Directors, the expectations of sales for the 311 in 2022. That's not something we're giving guidance on right now. But we are already in discussions to how we can meet the incremental demand well above 600 vehicles per month when we launch the next-generation 311.

[Unidentified Analyst:]

Okay. And looking nearer term because got to focus on the near term to get to the long term, given that we're mainly producing 411, now what kind of production rate could target [ph] coming out of this year, 50 a month, 100 a month, 200 a month?

[Rod Keller:]

Well, I'll answer it this way. The capacity capability we have today and through 2021 for building the 411 here in Round Rock, Texas, will support our budget for the balance of 2020 and all the way through 2021. We are always having conversations with potential partners to help us expand our capacity in the event we need that. But again, fortunately because we take semi knockdown kits from our strategic partner and our supply chain, it is not hard for us to expand that capacity, as I said, because we're doing assembly, not true automobile manufacturing here in Austin.

[Unidentified Analyst:]

Okay. No, I understand how it's set up and everything looks very promising. I was just trying to get a handle in my mind on the near term. And okay, it all seems to make sense. I'm glad you're looking at this in a very practical way. And not just to find the sky [ph] Thank you very much for your hard work and what you've accomplished so far.

[Rod Keller:]

Thank you.

[Operator:]

Thank you. And the next question comes from Melissa Fisher with Clinton Capital. [ph]

[Unidentified Analyst:]

Yes, thank you. You talked about street legal. But can you explain what this means for the 411 and 311?

[Rod Keller:]

Yeah, I'm glad you brought that up. Thank you for the question, because there was something in my comments, it was actually not correct. And I want to correct that now. We referred to the 311, or I did in my comments is a low speed vehicle, it is not a low speed vehicle. So to answer your question, specifically, let me describe the difference. The 411 is a low speed vehicle and what low speed vehicles mean in all 50 states is that it is legal to drive on any public street or road up to 25 miles per hour, but only with posted speed limits of 35 miles per hour or below. That is the designation of a low speed vehicle in all 50 states. So again, let me just repeat that, the 411 is a street legal vehicle, you can drive it up to 25 miles per hour on any public road, but only on public roads with published speed limits of 35 or less. Now the 311 is not - it's a strict legal vehicle, but not a low speed vehicle. The current version of that will run up to 50 miles an hour for a 50 mile range. The next generation 311 we're working on now, some of the enhancements will be greater range, faster charge time and more speed, closer to 60 to 65. But I don't want to - I don't want to give away too much of what the specs on our next vehicle will look like, so our competitors don't get too much of a look under the sheet so to speak.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

Thank you. And the next question comes from Jeff Daniels with Red Sparrow Capital [ph]

[Rod Keller:]

Hi, Jeff.

[Unidentified Analyst:]

Hi, good morning. And thanks, Rod and Curt. We have one question, all other topics have been addressed? Who are your primary public and private competitors and any other comments on your business model and benefits to customers that differentiate you from competitors? Thanks.

[Rod Keller:]

Yeah, it's a good question. Let me answer it two ways. Where we have the greatest success in our 411 with Club Car. In the Club Car we tell you the same thing is we replace a lot of gas powered vehicles. In fact, our light-duty electric truck that marketed on the Club Car 411. When you compare it to for example, I'll take the entry level Ford F-150 or Ford Ranger, our cost of operating is about 49% less, and CO2 emissions there is anywhere between 67% and 100% reduction when compared to a gas powered vehicle. Now that's not – the question you asked, who we compete against on a public basis. Arcimoto is - you could look at them as a competitor, we don't really look at them as much of a competitor. They've done a good job of marketing their company. I think one of the challenges they're faced with, is that they chose a direct only model. I've listened to earning call - earnings calls much like you probably listen to this one, and at 20 points of gross margin and 10,000 vehicles to get to that 20 points of gross margin, and a direct only strategy, we think we're in a better position because of the partner we've got like Club Car and the fact that we're already well above 20 points of gross margin today and that's what the extra steps through a channel. So I - and Electra Meccanica is an interesting vehicle, the solo product, which is the single passenger with speeds up to 85 and range of a 100 miles, interesting, might be successful in the HOV lane in California. Interesting product, but we don't really compete against them either. But you asked what other public companies and I think we're compared from a market cap perspective to those two companies probably the most. But in terms of what customers really look at in the marketplace, we're primarily compared against internal combustion, you know, gas options, rather than electric.

[Operator:]

Thank you. And the next question comes from Evan Greenberg with London Capital [ph]

[Unidentified Analyst:]

Hello. Just one question in many parts, like, back to school. Partnering with Ingersoll’s Club Car for distribution certainly would seem like a competitive advantage for you. First, can you comment how the partnership in particular for debt [ph] and provide some details of the dealer network and order flow that you’ve seen compared to, what you expected in compared to where you envision it? Also, one of the kinds of partnerships or relationships will you be possible looking to add in the mix?

[Rod Keller:]

Yeah, great question. And I encourage you guys to reach out to Club Car and you can ask the same questions, I think they will give you very similar answers. Club Car is very excited about our relationship and we are as well, I know that sounds a little like mom and apple pie. But one of the challenges we were faced with initially, was that a golf cart, is a golf cart, is a golf cart. Its not – there is not as much of learning curve in learning from one generation golf cart to the next one. But for dealers who have never sold street legal vehicles, like 411, it’s a little bit of learning curve. And we’ve addressed that working closely with not just leadership at Club Car, but with the leadership on the sales side, the leadership on their strategic accounts, the regional manager in the field and the dealers themselves. And we begin to ramp very quickly, as I said earlier, and then COVID hit in the late Q1 of this year and it slowed things down. But, we are very, very pleased with that relationship. We plan to expand our relationship to Europe next year with them and we’re looking at other solutions best [ph] as to consider for Asia as well. So the relationship in the US is very strong. We’re doing the right things to expand it and as I said, just not domestically, but also to EMEA and APAC as well.

[Unidentified Analyst:]

Thank you very much.

[Operator:]

Thank you. And that was all the time we have for Q&A session. I will pass the call back to management for closing remarks.

[Rod Keller:]

All right. Thank you, operator. Thank you for all your questions today. I’d like to close the call by thanking all of you for your participation today. We welcome the next opportunity to engage with all the shareholders and perspective investors. In fact, we are likely to be at the LD Micro 500 Virtual Conference on September the 1st and happy to meet with any of you there, if you choose to attend. But until then I hope you all remain safe and protective. I hope you continue to follow Ayro and thank you for your interest in us and we look forward to our next conversations. Have a great day.

[Operator:]

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