Canoo Inc. (ticker: NASDAQ:GOEV), an electric vehicle (EV) company, has reported significant strategic changes in its Q3 2024 earnings call, led by CFO Kunal Bhalla and CEO Tony Aquila. The company announced a shift in market focus towards commercial, government, and fleet customers, moving away from consumer vehicles.
Canoo reported a record revenue of $891,000 for the quarter, with an improved adjusted EBITDA loss of $37.7 million, down from $40.4 million in the previous year. The company is consolidating its facilities, resulting in a net increase of higher-paying jobs, despite workforce reductions in Oklahoma City. Canoo aims to stabilize its operations amid capital market challenges, with an emphasis on transparency and aligning with shareholder interests.
Key Takeaways
- Canoo reported a record revenue of $891,000 for Q3 2024.
- Adjusted EBITDA loss improved to $37.7 million, a 6.5% reduction from the previous year.
- The company raised $28 million and secured a $12 million credit facility this quarter.
- Operational adjustments include consolidating facilities from six to three, increasing higher-paying jobs in Texas and Oklahoma.
- Canoo is shifting its focus to commercial, government, and fleet customers, refunding consumer vehicle deposits.
- The company is rolling out fleet vehicles in the U.K., taking advantage of government incentives for zero-emission vehicles.
- Cash and equivalents stood at $16.1 million, with a forecast of $30 million to $40 million cash outflows in the next quarter due to facility consolidation.
Company Outlook
- Canoo is working towards stabilizing operations while navigating capital market challenges.
- The company is committed to transparency and accountability.
- Efforts are underway to meet customer demand and align with shareholder interests.
Bearish Highlights
- The company furloughed 23% of its Oklahoma City workforce.
- SG&A expenses increased to $19.6 million from $18.6 million year-over-year.
- Financing activities provided $26.3 million, down 65.7% from the previous year.
- The company anticipates cash outflows of $30 million to $40 million in the upcoming quarter.
Bullish Highlights
- Adjusted net loss per share improved significantly to negative $2.14 for the nine months ending September 30, 2024.
- Cash used in operations decreased to $26.5 million from $35.9 million.
- Production capabilities are expected to increase, with targets of three jobs per day by Q4 2025.
Misses
- A 12% reduction in engineering improvements and testing costs, compared to $21.3 million in the prior year.
Q&A Highlights
- CEO Tony Aquila confirmed that the working capital line is a 12-month facility, not a 90-day one.
- Aquila noted progress in securing non-dilutive capital, with a positive letter of encouragement for government program loans.
- The company is focusing on smaller government programs rather than large initiatives like sustainable aviation fuels.
Canoo continues to adapt to the evolving EV market, focusing on a more targeted customer base and improving its financial standing despite the challenging economic environment. The company's strategic realignment and operational adjustments reflect an agile approach to the dynamic automotive industry, positioning it for potential growth in the government and commercial sectors.
InvestingPro Insights
Canoo Inc.'s strategic shift and financial performance, as reported in their Q3 2024 earnings call, can be further contextualized with recent data from InvestingPro.
According to InvestingPro data, Canoo's market capitalization stands at $48.64 million, reflecting the company's current valuation in the competitive EV market. This relatively small market cap aligns with the company's status as a niche player in the industry, as noted in one of the InvestingPro Tips.
The company's revenue for the last twelve months as of Q2 2024 was reported at $1.49 million, which includes the record $891,000 revenue mentioned in the Q3 earnings call. This figure underscores the company's early stage in revenue generation and the importance of its strategic pivot towards commercial and government customers.
An InvestingPro Tip highlights that Canoo is "quickly burning through cash," which is consistent with the company's reported cash position and anticipated cash outflows. This cash burn rate emphasizes the critical nature of Canoo's efforts to secure additional funding and streamline operations.
Another relevant InvestingPro Tip indicates that Canoo "may have trouble making interest payments on debt." This aligns with the company's focus on securing non-dilutive capital and its recent acquisition of a $12 million credit facility, as mentioned in the earnings call.
It's worth noting that InvestingPro offers 20 additional tips for Canoo, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable given Canoo's ongoing strategic changes and the volatile nature of the EV market.
Full transcript - Canoo Inc (GOEV) Q3 2024:
Operator: Greetings. Welcome to the Canoo Q3 2024 Earnings Presentation. At this time all participants are in a listen-only mode. A question-and-answer session will follow formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Kunal Bhalla, Chief Financial Officer. Thank you. You may begin.
Kunal Bhalla: Thank you, everyone, for joining us on our Q3 2024 earnings call. During the call, Tony will update you on our business. I will provide an update on our capital raising efforts. Ramesh will go over the Q3 financial results. Please be advised that 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 our most recent Form 10-Q and 10-K and other reports that we may file with the SEC, including Form 8-K. 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 the call, we'll discuss non-GAAP financial measures, you can find a 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'll hand it over to Tony.
Tony Aquila: Thanks, Kunal. The automotive industry is facing challenges that are not only inflation, interest rates, supply chain disruptions but also in the center of political debate as it relates to rare earth materials and the transition to EVs, which means there is volatility until America becomes fully independent. With that backdrop, we have also struggled to navigate the capital markets to align with our step level manufacturing plan. While we sharpen our focus on our core customers and markets, we must continue to flatten the organization and take aggressive actions to be more cost disciplined as we realign our North American operations, which we should have done earlier in 2024. This starts with a committed executive team, which believes in the value of what we are building and are willing to do what it takes, including short-term pay cuts in exchange for long-term incentives, aligning us all with our shareholders and creating a leaner, flatter and more efficient and cross-functional operating structure. With that, Kunal and I will be more focused on raising the needed capital to meet our customers' demand for our product and solutions and getting us back on track with our step-level manufacturing plan. Our footprint consolidation. Consolidating our facilities from six to three, Justin, Texas, Oklahoma City and Pryor, Oklahoma. While we have been through some turbulence, we have brought a net increase of higher-paying engineering and advanced manufacturing jobs to the states of Oklahoma and Texas. Unfortunately, we've been on a roller coaster, which has impacted our workforce. And most recently, we made the difficult decision to furlough 23% of our workforce or 30 of our teammates in Oklahoma City, which weighs heavy upon us. This will continue to be difficult in a critical period as we consolidate, but we will do everything we can to get the capital in place and bring those jobs back online. On the positive, we have achieved 45 relocations to date from California to our Oklahoma facilities and Justin, Texas. We have received FTC certifications completed established our Oklahoma as our base for exports and import building blocks for both left and right-hand drive markets. Further, many of our suppliers will be happy to hear that we have established a share pool for our supplier partners, part of our supply chain partnership harmonization. Focus on commercial, government and fleet customers only, our prices are firming with growing customer demand, electrifying fleets is not just an environmentally friendly decision, it's also an economically beneficial business decision. In this phase, we will be solely focused on our fleet order books. Therefore, we have made the difficult decision to refund customer deposits for consumer vehicles. We appreciate all of our consumer orders we have received to date, but as many of you know, entering the consumer market is not profitable or viable for us until we have scale. Thus, our focus on fewer high credit grade customers that are serviceable and profitable at lower volumes. We are grateful for the support as the Company started originally with its focus on consumer vehicles. But as you all have seen over the coming or the prior quarters, we have pivoted the business into a very strong and fleet market. We have started also diversifying to pro-EV markets with approved mandates and government-backed incentives like the U.K. After successful engagements with major fleets in the U.K., we established a legal entity and selected Vista motion to launch commercial operations in the country. We completed IVA, which is individual vehicle approval, for our two pilot vehicles within three months and with 2% BOM change from our existing LDV 130 and 190 platforms. Improved cycle time, developed and validated the product with a customer, the USPS, which requires a right-hand drive vehicle. Our platform flexibility to economically expand into these right-hand drive markets, reduces launch time for us to enter a new market with a validated and proven product that has been tested and used by heavy fleet uses. SMR support for our customers. We selected automobile associations, service maintenance and repair and announced that agreement. And we now have a pilot program with a prestigious U.K. fleet testing our vehicles during the busiest, coldest and wettest season. Looking forward, we are mapping our U.K. rollout in a three-phased approach. Phase I with customers who represent the infrastructure in the backbone of the country, Phase II diversifying to various industries. This is our framework. We will only sell vehicles to customers after they have road tested it and we have debugged our product for their specific uses and marketings. Rushing to build, deliver product and underwriting high warranty risk is not our business model. The U.K. government incentives on clean energy, net zero goals, 70% of new vans sold in the U.K. to be zero emission by 2030 and 100% by 2035. Recently, they reapproved the £5,000 maximum plug-in grant available for large fleets. The U.K. providing £120 million in 2025 and '26. Over 2 billion over five years to support the automotive sector, including zero-emission vehicles, manufacturing sector and supply chain, approved as part of the autumn 2024 budget. For those who have followed me know my track record, I have operated in over 90 countries, and my past company opened a new office every 90 days. We understood currencies. We learned about them. Importance of localization, denominated manufacturing, labor pools and et cetera. Our modular flexible architecture was designed to support activities in different regions as kits, we call it the MPP, the multipurpose platform. Assemblies for full manufacturing more on this topic as we roll out our U.K. strategy. As we established international opportunities, domestic demand for Canoo LDVs also continue to build. Submitted application for California's Department of General Services, DGS, for our LDV-130. Current contract does not have enough electric vehicles available for state agencies with agencies unable to meet state electrification mandates, if approved, opens LDV-130 to a TAM of a few thousand vehicles. With that, I'll turn it back over to Kunal.
Kunal Bhalla: Thank you, Tony. I am humbled by the confidence that Tony and the Board have entrusted in me to take on the role as Chief Financial Officer at this very pivotal time in our company's evolution. Many of you already know me from my previous roles across Chief of Staff, Capital Markets, Corporate Development, Investor Relations and most recently purchasing over the course of my three-plus year tenure at Canoo. Those experiences have given me a unique perspective and understanding of the Company's strategy, business operations, challenges and areas of potential opportunities. But most importantly, I have had an opportunity to learn from Tony, and my fellow team members, the power of teamwork and what we can achieve together, and I will emphasize transparency and accountability as many who will work for me already now. I look forward to navigating this journey together and welcome your questions and insights along the way. Now let me quickly update you a few highlights from this quarter. We reported our highest revenue quarter at $891,000 in revenue. This includes higher margin engineering service revenues associated with onboarding our partner as we set up alternative supply chain options further reduce our lines in China. We raised $28 million in capital this quarter. And earlier this month, we secured a $12 million credit facility approved by the independent Board with AFV Management Advisors LLC, an entity affiliated with Tony Aquila. Tony mentioned in his opening remarks, our mandate is clear: greater focus on capital raising activities, cutting costs and reducing waste, supply chain negotiation and harmonization. I will update you on our progress in the coming quarters. Finally, during my time at Canoo, I worked very closely with Ramesh Murthy on many initiatives. Ramesh has been a great leader, a pillar of stability and help navigate the Company in many functions, including finance and corn. We look forward to continuing our partnership and congratulate Ramesh is step into his additional role of Chief Administrative Officer. With that, I will now turn the call over to Ramesh to cover the financial update.
Ramesh Murthy: Thanks, Kunal. Now let me walk you through the results for the third quarter fiscal year 2024. We continue to focus on our financial discipline. Key accomplishments include a record-breaking revenue of $891,000 in Q3 of 2024 with the life-to-date revenues of about $1.5 million, 20% further reduction in research and development in Q3 of 2024 compared to Q3 of 2023 driven by substantial completion of our product. The consolidation of our Torrance, California site into Oklahoma and Justin reflected in operating expenses follows our disciplined approach to drive savings and efficiency over the long term while expecting annualized savings of $12 million to $14 million. Moving to the income statement. Our third quarter 2024 results are as follows: a 6.5% or $2.6 million quarterly adjusted EBITDA improvement from negative $40.4 million in Q3 of 2023 to negative $37.7 million in Q4 of 2024. Research and development expenses, excluding stock-based compensation, totaled $18.8 million for the quarter, primarily driven by our support for key large customers and pilot programs. Final engineering improvements and testing compared to $21.3 million in the prior year period, a 12% reduction from Q3 of 2023. SG&A expenses, excluding stock-based compensation, totaled $19.6 million for the quarter compared to $18.6 million in the prior year period. We will continue to optimize cost and improve efficiency as a part of our footprint consolidation effort. As it relates to our key non-GAAP metrics, here is our summary: the 2.3% or $0.9 million quarterly adjusted EBITDA improvement from negative $38.6 million in Q2 of 2024 to negative $37.7 million in Q3 of 2024. 74.3% or negative 6.20 adjusted net loss per share improvement from negative 8.34 per share for nine months ended September 30, 2020 to negative 2.14 for the same period in 2024. 11.5% or negative 0.07 adjusted net loss per share improvement from negative 0.61 per share in Q2 of '24 to negative 0.54 per share in Q3 of 24. Turning to the cash flow. We ended the quarter with cash, cash equivalents and restricted cash of $16.1 million. Net cash provided by financing activities for the three months ended September 30, 2024, was $26.3 million compared to $76.7 million in the prior year period, a 65.7% decrease from the prior year. Cash used in operations for the three months ended September 30, 2024, was $26.5 million compared to $35.9 million in the prior period. We will continue to optimize our working capital needs in the future quarters. Our cash outflows from investing activities was $2.8 million for the three months ended September 30, 2024, compared to $11.5 million in the prior year period. We anticipate our cash outflow to be between $30 million to $40 million in the coming quarter, driven from our consolidation of locations. Let me turn it back to Tony for closing remarks. John?
Tony Aquila: Thanks, Ramesh. I would like to say thank you to our customers, suppliers, associates and stakeholders for your support and believing in the long-term vision. Recent changes have been tough, but necessary. While the automotive space is experiencing a tightening cycle, we remain focused on our cost discipline and continue to preserve the growing opportunities in the commercial EV space domestically and in our targeted markets. With that, we'll turn it over to the operator for questions.
Operator: [Operator Instructions] Our first question comes from Amit Dayal with H.C. Wainwright. Please state your question.
Amit Dayal: So just addressing sort of the elephant in the room, Tony, what are the financing options in front of you? Are you just going to slowly sort of raise capital to meet your OpEx needs, working capital needs? Or is there sort of a different view on how you want to address this aspect of the business? And that could allow you to maybe get to production, et cetera, in a faster time frame. Just any color on what options you have in front of you would be very helpful.
Tony Aquila: Yes. So, I think for the first time, we received also a letter of encouragement from some of the available programs from the U.S. government. But in addition to that, we've been working on a few transactions for capital raising efforts. And in addition to that, just looking at how we would use our ATM efficiently. We've been happy to see volume in our stock. So that gives us the options plus I put in place a revolving line of credit to help them until they can secure more financing that is debt related as well. In addition to that, we're in discussions with some Tier 1 banks on purchase order financing, which generally five to six months growth on it for manufacturing so we can harmonize our supply chain. And also, we finally completed creating a pull for our suppliers so that they can participate in the shares of the Company. So, we'll focus on raising capital that is non-dilutive where we can. We're entering markets that have incentives that we can access as we bring our products to localization. We picked very strong allied nations to United States as well as working with sovereign type investors for this next phase. We got over the part of getting the product right. Now we're getting how we service the customers and the geography expansion array. Now, we've got a supply chain that we got to harmonize and we got to catch up on some got to realign agreement, some we have to completely reshape the agreement, and others we have to add into the system based on the final configuration that we learned from our customers. So, those things are kind of moving in conjunction with that. But that ability helps us to reduce our demand on cash for front-loading our supply chain. So, those are the multiple areas of capital we'll focus on. And we are very focused on doing it, though, in a step level. In other words, we don't want to raise too much capital at once. As we learned over these four years, if we -- the efficiency of a young company is not at the highest maturity, obviously, because it's young. I do believe we now enter a period of we understand where we should be spending money and on which customers, which segments, and I think I feel like our maturity level for that is good, which align well with our raising of capital.
Amit Dayal: Okay. Understood. So, in this context, how should we think about production capabilities and production timelines. We have certain assumptions for 2024 and 2025. I'm guessing visibility around that is very limited at this point. But any guidance in terms of how you are thinking about meeting customer needs for the moment with the resources you have would be helpful.
Tony Aquila: Yes. So, I think right now, based on the fact that you probably saw some of the vehicles that have been exposed. We don't disclose what our customers are pilot customers or anyone's doing that's just -- we consider this part of their business secrets, the way they operate. But we're focused on, and we are behind plan, to your point, which is part of my comments in there. We thought we'd be further along than we are by now. But by the Q4 of 2025, we should be at three jobs per day and moving up to multiple jobs per hour in 2026. That we'll give more on that detail. But we did have some good breakthroughs in the quarter. As you know, if partners purchased the manufacturing facility, and we did receive notification that a tenant within the area in the complex is leaving, which gives us access to an entire paint shop. We had -- this has been something that was in our strategy. Of course, we bought the building from the tenant, and that will allow us to paint multiple jobs per hour in an already established paint shop. I know there's been commentary about paint shop. We've been very deliberate on why we think slowed down on that investment and the type of investment because we knew there was the ability for that tenant to lead, but we'll be hopefully, we'll get ahead of schedule here, and we'll even do better than this. But that site can do as it is configured today with the addition of some e-coat equipment, we now have the paint shop capability. We have future modifications to it, but we will get that side up to roughly 10 jobs per hour on the MPP1 and 8 jobs per hour for the full build, and we're currently capable of doing five battery modules for entire vehicles per hour. So, we still got -- we're still a little lumpy in there. We still got to smooth out some pieces and we got to get -- the biggest thing for us now is getting our supply chain and the final piece is now that we know the exiting tenant, for our facilities in Oklahoma City and then crank up production. In the meantime, we'll slow build our vehicles. which means its more manual process. We've been building the MPP1s out of Oklahoma City and following all the proper regulations for labeling the vehicle is built in Oklahoma. So that kind of gives you probably a bit more color on facilities, CapEx as well as production.
Operator: [Operator Instructions] Our next question comes from Jawad Bhuiyan with Stifel.
Jawad Bhuiyan: I want to touch on some of the speculation on right hand drive units and potentially vehicles coming into the U.K. postal service. I was wondering if you might talk a little bit about that in terms of timing or if there's -- I guess, if there's anything tangible to share? And then I just had another quick follow-up.
Tony Aquila: Yes, Joe. So, we never comment on customer pilots or activities as you may or may not have experienced with us. And like I said, we see ourselves as partners and to do the work we have done in this company and others that we built is to make sure we protect our customers way of doing business, the way they use our configurable platform to optimize their business operations. So, we -- I can confirm to you that we have built a right-hand drive vehicle. They have been there's well over probably 15,000-plus delivery miles, I would imagine by now, by the U.S. mail and the delivery mile is stopping every 50 feet. So, there are right-hand drive vehicles. We have IDA certified, and that's all I can kind of tell you at this time.
Jawad Bhuiyan: No, that's fair. I was wondering if you could also shed some color relating in terms of ramping production at your manufacturing facilities in Oklahoma. And I guess if there were any updates on, I guess, how we should start to see meaningful volumes coming out of the factory?
Tony Aquila: Yes. I think before we talk about meaningful volumes, we've got to get our capital in place and this reconfigured supply chain fully aligned. As you know, many OEMs and any level of manufacturer TEM or whatever, will go through a period of where they land on their final products, if you will, kind of their fuel first-generation commercialize a product. We've hit that point. We have also a couple of derivatives in the queue that we still will have to engineer in order to kind of get to volume, but capital and supply chain and that's where we got a little bit out of alignment. We were anticipating a bit faster access to capital. And so it's tough to ramp all of the divisions up in harmony. They're constantly tugging on each other. I think we're closer in alignment now than ever. Unfortunately, it costs for some dislocation and that weighs on us for certain people in Oklahoma City. But we will we will be in a better position to talk about how we ramp as capital. As you see us announce capital, it's going to have a direct correlation to manufacturing the vehicles, with the exception of the lead time on the reconfigured supply chain that Canoo talked about as part of his mandate.
Operator: And our next question comes from Poe Fratt with Alliance Global Partners (NYSE:GLP). Please state your question.
Poe Fratt: I had two questions. Just to clarify earlier comments. One, can you just clarify on the working capital line that you've put in place? It's one now secured and it's also a 90-day facility? Is that correct?
Tony Aquila: No, it's a 12-month facility, Poe.
Poe Fratt: But I thought it was very -- I thought it matures in 90 days or three months, Tony?
Tony Aquila: I think those were the grid notes that then converted into the letter of credit -- the line of credit, sorry.
Poe Fratt: Okay. So, it's a 12-month facility then?
Tony Aquila: Yes. The way to think about that, Poe is -- sorry, is that those were like bridge loans, if you will, until the independent Board could approve the credit facility.
Poe Fratt: Yes. I'm sorry. I thought I read it differently, but thanks for clarifying that. And then I think in response to the first question, you talked about non-dilutive capital and I thought I heard -- I might have misheard, but I thought you had said that there was substantial progress or favorable progress on getting governmental program loans. Did I hear that correctly? And if so, can you expand a little bit on that?
Tony Aquila: So, we're in a red state, as you know. We recently have received our first letter of encouragement accessing some of the non-dilutive capital. Our estimation is that this administration will likely wrap up like most administrations and they're on their way to wrap up the programs that they've opened up, and we're optimistic as the new administration kind of figures out its American manufacturing plan that people in the Heartland will get a bigger share or let's say, an appropriate share of that type of funding. And then, of course, we're all excited to see Elon and Vivek getting positions to make our country and our manufacturing environment much more self-independent.
Poe Fratt: Can I just ask a little bit, so do you expect a letter of commitment before this administration turns over? And are we talking about the DOE program the AFPM for whatever the acronym is?
Tony Aquila: Yes. So, I will -- it would be more difficult to predict the government when it decides to make its distribution than the market itself. So, I will tell you, we got a letter of encouragement for the first time. We've got mostly in the last year or so letters of discouragement. And so, that's a super positive sign when you think about it. And maybe they just got to the areas we're in, but that will be coming out of the current administration announced programs. And we've applied for multiple ones, by the way, but we've only received one letter.
Poe Fratt: And is it for the big program, Tony, like when you look at the sustainable aviation fuels programs that were just -- there were two huge commitments announced recently, is it those type of programs?
Tony Aquila: No, they're not that big. But for our size and for the phasing approach we're going, it's meaningful to us.
Operator: And there are no additional questions at this time. I'll hand the floor back to management for any closing comments.
Tony Aquila: No, no, operator, we just, again, would reiterate our thanks to the team and to all our supporters out there. Thanks, everyone, for joining us today.
Operator: Thank you. And with that, we conclude today's conference. All parties may disconnect. Have a good day.
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