Canoo Inc.
Q4 2021 Earnings Call Transcript

Published: 28 Feb 2022

[Operator:]

Greetings. Welcome to the Cannes Fourth Quarter and Fiscal Year 2021 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Nick Cunningham. Thank you. You may begin.

[Nick Cunningham:]

Welcome to Canoo's quarterly earnings conference call. My name is Nick Cunningham, and I'm the SVP of Investor Relations and Capital Markets at Canoo. I recently joined Canoo after a 15-year career in investment banking, and I look forward to getting to know you all better. I chose to come in-house at Canoo because I believe in the company, vision and leadership. I'm excited by the pace and speed of activity and the mission to bring EVs to everyone. Today, I have with me investor, Chairman and CEO, Tony Aquila; and Interim CFO and Chief Accounting Officer, Ramesh Murthy. Tony will provide an update on our activity last quarter. Ramesh will then review our financial results for the quarter and turn it back to Tony, who will provide closing remarks. We'll then open the call up for questions. Please be advised we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our most recent Form 10-Q and 10-K and reports that we may file on Form 8-K with the SEC. All of our statements are made as of today and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non-GAAP financial measures. You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. With that, I will turn the call over to Tony. .

[Anthony Aquila:]

Thanks, Nick, and welcome to the team, and thanks, everyone, for joining us as we report the fourth quarter and the final fiscal year 2021 wrap-up. As we kick off fiscal year 2022, it is the perfect time to make clear who we are and who we are not. We are not a traditional OEM. We are a high-tech advanced mobility company. I believe you're all starting to put the pieces together, and the best is yet to come. So I want to thank all of our supporters because you are also innovators and you see the same future we do. . We are in it to change it, to build a company that is valued as a true high-tech customer-centric advanced mobility company. We know this takes time, sacrifice, perseverance and even at times, persecution by those who don't believe enough in the future and how different it will be, but we do. Those who joined Canoo, if they have the same ethos, they will make it here. They find their home, passion and mission to build a high-tech, cost-affordable, long-life ecological platform that is built upon diversity and inclusion from the very beginning. We're not looking to create the next GM or Ford. We respect them, but we have no desire to be like them within our culture and/or the long-term outcome for investors. That said, we want all American OEMs or those working in advanced mobility to win. For us, this isn't just about competition to win. It's about competition for American innovation and ingenuity to win. Those that are looking for just a job and some stock options are like travelers passing through on their way back to Detroit. At the very least, we hope to leave them more inspired. We've decided to make our home in the Heartland amongst many great founders and founding families that are innovators generation after generation that have protected the cost of living, higher education, affordable housing, health care and inclusion, blended with art, culture and the adventure of American nature. We are grateful and proud that Oklahoma and Arkansas and the Cherokee Nation are where we will make our platforms and our new home. These 3 coming together allows us an amazing workforce. People that understand what it's like to do what we do. By bringing 2 states and a nation together, we have greatly decreased our risks and accelerated our ability to grow. Before I get into the big news or no news, I'd like to give a few shout outs

[Ramesh Murthy:]

Thank you, Tony. Our fourth quarter of 2021 results are as follows

[Anthony Aquila:]

Thank you, Ramesh. We are committed to bringing high-paying jobs to local communities. We are honored to place special focus on hiring veterans and Native Americans, and we're thankful to see that come to fruition as we move to stand up our facilities in Arkansas and Oklahoma. I would like to thank all our supporters and partners again. We are doing something different here and all of you are incredibly important to us. We will continue to keep our heads down and stick with our philosophy of big news or no news as we execute on our vision. Thank you.

[Nick Cunningham:]

Thank you, Tony. Please navigate to the webcast landing page and access the video link on the right-hand side of your screen below your audio player. We will pause briefly while you watch the video. Operator, please open it up for questions.

[Operator:]

. Our first question is from Craig Irwin of ROTH Capital Partners.

[Craig Irwin:]

I really love that video. It's pretty snazzy. Great way to present the product. Tony, I wanted to ask if you could talk a little bit about the gamma testing, maybe if you can give us a little bit more color on the 5 properties out there. I know you're probably bound by confidentiality about exactly who and where. But can you maybe sort of tease out the character of the different programs where your vehicles are being evaluated? What kind of companies are playing with the platform? And what sort of opportunity there is with these different partners? .

[Anthony Aquila:]

Yes. I think, first of all, Craig, good to catch up. So we've seen a pretty diverse group of between upcoming businesses and strong legacy businesses that are making the transformation to bring it to me. I think as you saw, we unveiled the LDV, which has been pretty impressive, and hopefully, you'll get a chance to come see it in person and ride in it. It has a tremendous amount of space and efficiency and a lot of safety for its workers. So it's getting a lot of positive -- I think we're going to be in an allocation issue more than we are an order issue with the level of interest we're getting from both types of companies, the emerging ones and the legacy ones. So we'll pick the allocation properly so we can get the right breadth for our '24, 2024. I think 2022 and 2023 is how we'll build that bridge to those companies. And while we're also delivering LVs to customers that have put in their orders. So I'd say, from a square footage perspective, from a performance, from a density, from an improvement in energy, the way our packaging designs work, we're feeling pretty good. But of course, we live in a constant state of dissatisfaction, and we know we can do better. And we'll continue to evolve that through the gamma testing. But it was pretty exciting to see the vehicles come up online, and when you power them up, it's pretty cool experience because it is a high-tech platform. It's not like you're cranking over an engine. And they're out there and winter testing and they're doing really well. But we wanted to build a few more units in January, but we had internal COVID omni issues, slowed us down. We had a few suppliers that suffered the same thing. And -- but we've been conservative. I think you see everybody else is kind of bringing stuff down. I think we've got the right mix. Now we just got to make sure we don't stumble on anything else. But from a customer perspective, it's been an amazing quarter of interest and advancement in those relationships.

[Craig Irwin:]

So my second question is about VDL Nedcar. So congrats on the return of capital. That's impressive. And what's even more impressive is that they make an equity investment in Canoo. Can you maybe talk about this partnership a little bit? It was previously something others had speculated they might be able to help you with design or engineering or with procurement given their muscle in the global supply chains. How do you see this partnership evolving versus new partnerships forming? And are there multiple other sources of potential services, potential procurement support they're showing up equally as strong that can get you through to your initial production. .

[Anthony Aquila:]

Yes. So well, great question. I mean, I think it goes to our philosophy of partnership. We just recently have been communicating as part of the refunding how we want to do business. We want to be a good partner. We want to be a profitable partner. But when there's a problem, we want to solve it together. And I think with the help we got from Oklahoma and Arkansas allowed us to accelerate, as you remember, in the beginning when I took over the company before had been purely focused on outsourcing the manufacturing. When I came in, I dropped in a 3-phased approach. We've now been able to knock that down to 2 phases thanks to the support of Oklahoma, Arkansas and the Cherokee Nation. So that's great for America. I think that what VDL has done is really commendable, right? I mean not only do they -- they could have kept our money if they wanted to. I mean -- but it's not about that. It's about a relationship between the Vanderlay family and myself. We have a long history in the Netherlands in my other entities, in my former life. So I think those relationships really helped. We -- in addition to that, we bought some products from them on very favorable terms. They're helpful. And they even shielded us from the currency risk because they want us to be successful obviously. And they did transfer a lot of knowledge to us, and we're grateful for that. So look, we'll continue to evolve that relationship. We hope that things go well for them. And recently speaking to them over the weekend, as we are in one of our other businesses, we're desperately getting our employees out of the Ukraine into Poland. So are they. But they are also -- many of these guys are suffering some impact because of some of the parts that are made and wiring harnesses, et cetera, in the Ukraine for European-built vehicles. So I think we just -- we've made some good moves there with that relationship. We'll help them. I mean it's a 2-way street. And I believe we have. It will be up to them to discuss that at the time they see appropriate. And we'll continue to be like that with every one of our partners, whether it be Panasonic or anyone else. And we also are very focused on helping American companies diversify so that we're less dependent on these volatile issues.

[Craig Irwin:]

That's good to hear. So last question is kind of a big question, right? You're obviously not backing down from your production plans. You're gaining a lot of traction. The progress is really easy to follow, right? It's remarkable. But there is a capital need, and we all know you as a very intentional guy. I know you can't say specifically what you think you could do or what you think you want to do. But can you maybe sketch out for us the spectrum of options that you're looking at? There's quite a few different things that could be on the table. What do you see as the opportunities for capital access to support the trajectory out of '22 and into '23 and beyond with Canoo making thousands and tens of thousands of units. .

[Anthony Aquila:]

Yes. So look, I think as you're seeing everybody else is doing what we did in the beginning, right? I mean you remember the first call. And we just have some experience in the industry and around new product launches. So look, my view is we're very focused as shareholders as well as the management team to make sure we're using nondilutive capital for our shareholders. If you study the innovators to the slide that the team put up earlier during the earnings call, you'll see where we -- it takes patience, right, to do these things right. And if you look at these great disruptors, it's -- there's a tough period. If you do the right thing, you keep your head down, you focus on IP, you find a way to do it differently and make sure that it's great for the consumer and/or the industrial users of your product and your partners, you're going to come out ahead. So you got to kind of figure that out. Now you got to have more than one option, what I've learned over the years. First of all, every CEO out there should be focused on nondilutive capital for our shareholders. Sometimes getting a bunch of capital is not the right thing to do. And timing of it is important. So I think we've done a really good job on demonstrating how much, we're probably one of the largest ones to achieve this nondilutive capital. In addition to that, we had to build up assets. Assets allow you to access traditional financing. We learned a lot from how Elon figured out his way through this. I think there, he'd probably do it a little differently, but he gave us a good road map. So did others that did it wrong by raising too much capital. Look, I think a person in a company and entrepreneurs do the best when they have enough but not too much. And the timing of that could be very dilutive over a decade if you get it wrong. So I feel good about the ability to access other types of capital. And while I haven't covered it, but where we're building our factory is in an opportunity zone. And many people on this call may not know what that means, but it allows us to access other types of capital that is very low cost and very centered around ESG and the development of communities that have been dislocated. So look I think, as you said with your nice compliment, we're pretty methodical. We're still proving ourselves. We know the road ahead. We have options is the message I want to send clear.

[Operator:]

Our next question is from Jaime Perez of R.F. Lafferty.

[Jaime Perez:]

So I want to change topics a little bit maybe on the sales model. I don't think we've touched upon this and if you forgive me. How do you plan to sell? Do you plan to sell it to a dealership or direct consumer? Maybe give us a little bit color on that. And the second question, what innovations we expect to see in the new vehicles as far as software? Because I know, Tony, you came from a software background. .

[Anthony Aquila:]

Yes. Jaime, it's good to talk to you again. So look, I think the customer journey, our free cash flow per customer per year will go up per household. We do things differently here. Like I said, we're not trying to push steel. If you listen to the poem that describes our life and our passion in that video is we're leaving breadcrumbs, but it's a competitive space. We want to make sure people don't steal too many of our ideas. But you'll see a different kind of engagement model that's very customer intensive, meaning that they're engaging, and of course, it's a micro transactional model on the software side. So it will span beyond our own vehicles. As you know, we built a business worth billions of dollars from my garage on creating transaction value. We're helping customers through the journey of vehicle ownership and service maintenance and repair. We think that that's a very big business, and we'll announce some things in the coming period of work we've already commenced with various clients. In addition to that, I'd say, the other innovations you'll continue to see is, for us, we believe you've got to fight inflation by doing it differently. And you got to eliminate parts. You got to eliminate history that is no longer relevant to the customer's experience or gives him productivity and safety. So I think we've done a pretty good job on -- as we took the original platform. The team has done an amazing job. The design team is phenomenal here. They're really dedicated. I mean they are just amazing. They're very involved in our real prototype builds. We do build different kind of models than traditionally they do. In addition to that, consumers can basically keep their chassis, save $22,000 in the future. They can upgrade the system and change the top hat. So doing some things very differently will generate revenue. In addition to that, the way we're accessorizing the vehicles, like these are full packages. So as far as go-to-market goes, I'm not prepared to say it, but I would say it will be consistent to what you have seen us do over the last year. But it will be something that will be much more consistent, much more well controlled and give customers a higher experience and satisfaction. I mean it's pretty tough today to get through the process. We want to make it super easy, hybrid it between technology and physical interventions. So I will bring that forward shortly. And I think we'll see what people think, but we feel really good about it.

[Jaime Perez:]

Yes. And I'm just excited to see the analytics and the info system of the vehicle because we saw the vehicle last year, but I'm just little bit excited what you expect to -- from the vehicle itself.

[Anthony Aquila:]

Yes. And we'd love to have you come out. I'd extend that to you. Now that Omni is getting a little better, we will be able to come out and spend some time with us.

[Operator:]

Our next question is from Amit Dayal of H.C. Wainwright.

[Amit Dayal:]

So Tony, just with respect to these Stage 3 orders, does that involve any deposit or advances from the customer?

[Anthony Aquila:]

Those are committed purchase orders. So they'll either have deposits or they'll have, so to speak, binding agreements. In other words, based on the credit we'll predicate whether we want the discount or not -- I mean a deposit or not. So in certain cases, we'll take them. In certain cases, we won't just because of the type of buyer. That makes sense?

[Amit Dayal:]

Yes, yes. Understood. It does. And then

[Anthony Aquila:]

.

[Amit Dayal:]

Yes. What's the expected mix for the 2022 target of 3,000 to 6,000 vehicles between lifestyle and delivery?

[Anthony Aquila:]

So we sourced it so that it can have a little bit of flexibility. But right now, we're kind of 80-20 focused with some deviation capability between the LDV and the LV. And the main reason is these larger customers, they have long-term needs and getting them more used to the product and how it changes their workflow is important. So that's why we're kind of entering an allocation game with those customers. So right now, that's kind of the current mix, capability. To the extent that we need to make sure we're getting enough of the LVs out, we have the ability to also produce that. I think the biggest -- we brought our numbers down. So holding at 3,000, I think somebody just recently dropped by 1/3 or so. It's a tough environment. The first year or 2 are tough. But right now I feel like we've already done, aligned to what we can do. We feel pretty good about it. We still got a little stretch in there, but we got a pretty wide range between 3,000 and 6,000. And we're just going to keep our heads down and knock it out and not get too big. But the way things are firming up, we're going to need to find ways to accelerate our ability to deliver vehicles which is a good problem to have. I mean we're people who love to create problems worth solving and then solving them. It's no fun solve a problem you don't have.

[Amit Dayal:]

Understood. You touched on inflation, Tony, trying to sort of control inflationary trends and things of that nature. Has there been any change in your pricing plans for the vehicles given the inflationary environment we are in right now?

[Anthony Aquila:]

So we just recently had a meeting with a bunch of our partners, suppliers and vendors, and we've seen certain parts that were $2, $3 go up to $100. But I think our view was way back when, when we took over to bring the volumes way down is we -- committing to 50,000, 60,000, 75,000 units, a vendor or supplier is never going to believe you anyways when you're going to start, you're new, having been on the other side. So you kind of price it accordingly, and then you actually get ratcheted the wrong direction. So I think a lot of them are going to be facing some hurtful ratchets on their cost structure. But nonetheless, just the environment with the geopolitical and the pandemic, we've seen a few items go from a couple of dollars to $100. And -- but will we pass that cost along? No, the reason is, with those particular vendors, we are working with them on mitigation strategies, and we never overextended ourselves on commitments. So we can pivot to another supplier if we have to and/or bring it in-house. So I think it'll be a bumpy couple of years in this category for all of us as things smooth out and things calm down. But we've eliminated so many parts. That's our best inflation fighter, innovation. And -- but we are taking hits here. Labor costs are higher. Shipping costs, I mean, gosh, we'd be sitting here telling you about thousands and thousands of dollars per unit increases if we were still bringing the vehicle from Europe. Not to mention the lead time. I know I was talking to somebody the other day. They got 6 containers that can't move and won't move for weeks. So I think we're making the right steps. I mean there's always -- like I said, we live in a constant state of dissatisfaction. It's not a small task. But we're not trying to win it in a quarter, right? We're really grinding it out, navigating these items. But right now, we are holding the line on the pricing we've aligned with, but we went into that with cushion. It's getting away. And I do believe we're priced if you study us historically, we've always been able to bring price up a bit because the consumer backs us, the customer back us. And that's a partnership. And so if you look at where we were when others were at 70%, right, I mean I think our RBIs kind of speak for our thoughtfulness. I know many people have said, why don't you guys say more because it's tough to always pull those words back. I'm sure someday we'll pull a few here and there back. But you want to minimize that. Misses happen, but mitigation is something we are constantly focused on here, which is allowing us to keep pushing through those milestones.

[Operator:]

We have reached the end of the question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.