Q4 2023 Canoo Inc Earnings Call


Participants

Jon Wolk; IR; Canoo, Inc.

Tony Aquila; CEO and Executive Chairman; Canoo, Inc.

Greg Ethridge; CFO; Canoo, Inc.

Ramesh Murthy; SVP of Finance and Chief Accounting Officer; Canoo, Inc.

Craig Irwin; Analyst; ROTH Capital Partners, LLC

Stephen Gengaro; Analyst; Stifel Nicolaus and Company, Inc.

Dan Ives; Analyst; Wedbush Securities, Inc.

Donovan Shafer; Analyst; Northland Capital Markets

Sameer Joshi; Analyst; H.C. Wainwright & Co., LLC

Jamie Perez; Analyst; R.F. Lafferty & Co., Inc.

Pavel Molchanov; Analyst; Raymond James Financial, Inc.

Poe Fratt; Analyst; Alliance Global Partners

Presentation

Operator

Hello, and welcome to Canoo Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. (Operator Instructions) A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. And is now my pleasure to turn the call over to [Jon Wolk], Head of Investor Relations. Please go ahead.

Jon Wolk

Thank you, Kevin, and thank you, everyone, for joining us on our Q4 and full year 2023 earnings call. During the call, Tony will update you on our business and strategy. [Catherine] will provide an update on our financing activities, and Ramesh will go over the Q4 and full-year 23 financial results and also provide some perspective on our outlook for 2024. Please be advised that we may be making 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 other reports that we may file with the SEC, including Form 8-K’s. 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’ll hand it over to Tony.

Tony Aquila

Thanks, John, and thanks, everyone, for joining us today. You’ve all seen the recent news from us and others, which has highlighted the big opportunities and the big problems, the perils of hurrying to market before being ready. We’ve heard for three-plus years that asset light and racing to high volume was the path to success and profitability when in fact, it is quite the opposite and it’s dangerous and expensive to hurry up to slow down, even those with endless amounts of capital like Boeing have learned the hard way and it has impacted tens of billions of shareholder value. We have always been realistic about our business shared what we knew when we knew it and made tough decisions and took you through it. It’s our job to tell our shareholders what is competitive, what works and doesn’t and what gives us an advantage as we’ve learned from our customers, we do things differently from others because it’s the right thing to do for us.
And based on my experience and our team’s experience with building successful businesses across different industries. This has not been an easy task early on. We decided to invest in a highly profitable, large market, and that was a pivot for us, but it had over $1 trillion TAM with high volume, multi-year delivery contracts with opportunities to expand and democratize our technology. We needed to control our IP and software. So we brought it in-house. We created a scalable global platform that addresses all service maintenance repair activities, including some customer workflows, built an economically resistant customer base. We didn’t go after consumers. We went after customers with large orders, high grade bankable credit, discerning fleet, industrial and gas government customers that could help us refine our product under stress and fatigue.
We developed a step level manufacturing process. We talked to you about 20,000 incremental unit increments to be capital efficient so that we can scale our CapEx with our presold vehicle demand. Then we move to validate the product functionality, mix and multi-year delivery schedules with our customers. This process takes time to integrate to our customers’ delivery road maps, which extends beyond the vehicle itself, we have seen a very difficult market. We have adapted our disciplined capital deployment approach by raising only the amounts of capital we need for each milestone and we will continue to do so as market conditions continue to evolve.
As you can see on the slide that we put in front of you, we remain in a position to take advantage of these dislocations to reduce CapEx and scale our operations $0.2 on the dollar to purchased new or near new assets. This was unthinkable just 12 months ago by many analysts and investors who were worried at securing these items would have long lead times. We didn’t disagree with you. We just focused on being the second new owner about equipment This resulted in a 35% to date or $40 million reduction in capital spending compared to our initial 2023 CapEx guidance of $140 million, which is directly attributable to unrealized unrealized shareholder value. We believe that our disciplined approach and in light of recent dislocations makes our stock an attractive investment opportunity in a very important and unstoppable sector.
Achieving the foreign trade zone designation took a lot of work by many people on the team for our Oklahoma, our Oklahoma City facility. It is an important building block in our strategy and the value of this will become more apparent to you in the coming quarters. But let me give you a few highlights. It will generate additional working capital benefits, including moving these newly acquired assets into our facility, enhances our geographic expansion opportunities while reducing our cost of delivering our Made in America vehicles at globally competitive prices up to $70 million in permanent working capital reduction, incremental opportunities by vertically integrating more critical components with our key suppliers.
Recently, we announced the USPS. purchase of our right hand drive LDD. one nine d. vehicles, USPS. being one of the largest fleets. He’s driving the transition to electrification tire powered by one of the largest veteran workforces in the country. We are proud to be working with them to provide our right hand, drive steer-by-wire technology lookout for the first vehicle vehicles, delivering your mail. Starting this May. We will showcase our right hand drive vehicles at several UK Commercial Vehicle three events in the coming week. Over the past year, we have made significant progress in our business we’ve completed our product, advanced our manufacturing scale and delivered vehicles to customers.
22 vehicles completed in 2023, of which 17 were completed in Q4 three delivered to NASA at the midyear and nine delivered to customers in Q4, 10 have been allocated for d.e.m.o. and sale to international customers. ROKC. assembly plant in less than one year is on schedule to achieve our targeted step level manufacturing of 20 k. run rate readiness.
On this slide, you’ll see that there’s a couple of important things in that we’ll talk about in a minute, which is our strategy about how to roll out our product without high cost of service centers. In addition to that, fine tuning it to our customer base by having concentrated customers, you don’t have charging network issues. In addition to that, the way we’ve done it, we can have fast action teams available within four to eight hours for our customers’ needs. These are very important building blocks in building a sustainable business. We will now shift our focus to harmonizing and optimizing our supply chain to support step level manufacturing what has been lost on many is that you have to have four key elements in place before you scale.
You’ve got to be disciplined not to hurry up to go slow you must have your product, your platform and your economics, right, a highly trained workforce that can produce the same quality as you move up from low volume to step level manufacturing run rates, a support organization that is harmonized and up optimized across the supply chain. And that aligns with your quality and step level manufacturing and tracking process and to support workforce that is focused on the quality of the product, delivery, safety, continuous training, customer journey and aftersales. These cannot be after thoughts. They come across quickly. And I know this because I come out of aftersales.
I’d like to talk to you a little bit about this slide. Many people have asked us why have we picked 3,000 ish units to be in your 1st year because you can as you study how the successful new entrants have done it going all the way back to Henry himself, you can see that there’s these step level functions in manufacturing, and that’s because of the confluence that you have to bring together all of the relevant elements. Otherwise, you break it your weakest point in your production stops in your cost skyrockets. We’ve been very focused on that. And while it may seemed very unpopular at the time the 20,000 unit run rate, he’s in recent history, a great example of how you step through manufacturing 30,000, 20,000 thousand. As you can see on the slide, we remain steadfast in our belief and have prepared a few slides to help you further understand and appreciate our production strategy. We encourage you to look at it and ask questions when we get to the Q&A so that we can drill down a bit deeper into the walk. We are very cautious to make sure we do not get in the situation of others.
This next slide is a very telling slide as well in that a lot of everybody thought that if you can produce more volume, your economics get better. And that’s really actually not the case. It actually starts with your embedded logic in your run rate and the CapEx for year two CapEx heavy, as you can see in this example, you’re way ahead of your ability to produce, you will ultimately slow down based on your weakest link, and that will cause your costs to skyrocket as we can see here. But if you study the successful examples like Tesla and while it was chaotic and difficult there, but their phase was purely positive islands. As you can see, as they moved from 3,000 units and stepped up to a 20,000 unit run rate, they had their economics, right? They were harmonizing their supply chain, which as they went through and as Jan has said, manufacturing, how we understand it, it’s hot down here.
And but one thing we didn’t do because we didn’t we didn’t receive you with a big factory with 150,000 unit annual capacity. We just didn’t go to the luxury markets. We stayed, meaning we focused on areas where customer bases would be solid and where the economics would work and that you could worked through all of the four key elements and grow your business and grow into a profitable one and learn how to scale it in those increments. This slide is a slide we wish we could have showed you a year ago but I don’t think you would have believed us because everybody was focused on more volume. As you can see, it doesn’t help. You’ve got to first get it right now that you have a better understanding of our strategy.
The first three quarters of this year will be about the things I mentioned above, including and very focused on harmonizing the supply chain and fine tuning our product mix to our customers’ workflows. We’re collecting data from our vehicles constantly in collaboration with our customers with over 20,000 customer miles driven over the last few quarters, same day, fast action teams across any point of our disciplined rollout map across the seven states. As we disclosed earlier, we have had very few deployments. We’ve had many opportunities to do upgrades over the air and test our system, and that has prevailed well. I’m going to now turn it over to Greg for some financial metrics.

Greg Ethridge

Thanks, Tony. Our team is focused every day on executing what Tony’s talked about in these materials and supporting him build the right foundation for success the Company. I’m also focused on telling this story to the market. We’ve been very quiet for a lot of reasons and the repositioning the refunding of the company. But I’m perfectly positioned to tell the evolution of the story since 2020, we knew the smoke to clear first and now that’s happened. The amount of hard work that’s gone into this resounding has not been properly explained. We are an IP sensitive company.
So we tend to under speak, particularly when we’re in the process of transitions, but now we’re out and it’s my job to make sure the market and our investors understand the progress and understand Tony’s vision. We have been very active since the last earnings call and we’ve just scratched the surface. But let’s be very clear. We will only raise the capital that we need, we have and will to continue to raise capital based on milestones and progress. There have been many mistakes made in our industry, but one of them is also raising too much capital. You can only effectively deploy so much capital at one time.
Just to recap the financing activities. In 2023, we were successful raising $285 million of equity or equity-linked capital. And of that, $80 million was raised in Q4, including the $45 million that was funded from an international strategic partner all of this capital was very, very well put to use, and we will continue to make progress towards accessing and accessing additional forms of debt and other non-dilutive forms of capital as we move into 2024, some of you may be wondering about the DOE and other non-dilutive forms of capital.
And as we recently announced, we received our first funding from the state of Oklahoma, and we very much appreciate the state support, but we also expect to see progress on the federal side. We continue to monitor and apply for many forms of government support focused on our industry. The DOE programs have appropriately been focused on critical materials and battery technology, but we believe the next phase will will be for manufacturing and we think we are a very good candidate.
Just a quick reminder and some of the statistics DOEAG., the ATVM has been funded with about [40,000,000,000] billion has been conditionally approved across 11 different companies. Almost 95% of that has been focused on battery technology or materials, but only $2.5 billion was actually funded. So we have not missed this opportunity. It just hasn’t come to us yet, and we’re very excited to continue to to to follow the roadmap to be able to access that funding. Now I’m going to pass this over to Ramesh to cover the financials and our guidance.

Ramesh Murthy

Thank you, Greg. Now let me walk you through the results for the fourth quarter and for the fiscal year 2023. This was a year of calibration. We are very proud of our financial discipline this past year, which was driven by our operational focus to achieve our desired milestones. Key accomplishments include it’s 53% reduction in our research and development expenses year over year, 30% savings from workforce transition from California to Oklahoma as well as from engineering to other key areas of need and a 50% reduction in legal expenses, primarily resulting from the SEC resolution and 60% reduction from other professional services, as I have talked to, having achieved our lowest quarterly operating expenses in Q3 of 2023.
Since we’ve been a public company, we have turned the corner and began a gradual and cautious phase that manufacture our revenues in the fourth quarter and fiscal year 2023 were $0.4 million and $0.9 million, respectively. Revenues were generated from our deliveries to NASA as well as from our commercial deliveries in Q4 of 2023. Revenues in fiscal year 2023 also include amounts generated from the completion of certain engineering milestones and the delivery of certain battery modules to the Department of Defense’s defense innovation unit.
We are at the beginning of our phased ramp manufacturing approach in delivering commercial vehicles here, we expect to ramp volumes over the rest of 2024 at a measured pace to match with the delivery schedules that are being agreed to with our customers. We incurred $1.5 million in cost of revenue during the three months ended December 31st, 2023. Our cost of revenues primarily include vehicle components and parts, labor cost and amortize tooling and capitalized costs involved in producing and assembly of our parts and components. Moving to the income statement, our fourth quarter 2023 results are as follows. Research and development expenses totaled $31.5 million for the quarter compared to $44.2 million in the prior year period. A 29% reduction from Q4 of 2020 on an annual basis.
Research and development expenses totaled one $39.2 million for 2023 compared to $92.2 million for 2022, a 53% reduction from prior year. Sg&a expense was $28.1 million for the quarter compared to $36.4 million in the prior year period, a 23% reduction from Q4 of 22. On an annual basis, SG&A was $113.3 million in 2023 compared to one $96 billion in 2022, a 42% reduction from prior year’s GAAP net loss was negative $29 million for the fourth quarter of 23 compared to a GAAP net loss of negative 80.2 million in the prior year period.
Gaap net loss was negative three or $2.6 billion for 2023 compared to negative for $87.7 million in 2022 and a reduction of 38% from 2022. Adjusted EBITDA, it was negative $54.6 million for the quarter compared to negative $60.5 million in the prior year period. Adjusted EBITDA was negative to $24.7 million for the 2023 compared to negative $48.6 million in 2022, a reduction of 45% from 2022. Adjusted EPS was negative 0.08 per share for the quarter pre-split compared to adjusted EPS of negative 0.19 per share for the prior year period. Adjusted EPS was negative 1.73 per share post-split for the quarter and negative 9.73 per share post-split for the year.
Cash flow summary, turning to cash flow, we ended the quarter with $6.4 million of cash and cash equivalents after giving effect to the proceeds from our prepaid advances for a total of $50 million. Our cash balance would have been $56.4 million. Cash used in operations for the 12 months ended 31 December 2023 was $251.1 million compared to $400.5 million in the prior year period. Our capital expenditures were $67.1 million for the 12 months ended December 31st, 2023 compared to 97.3 million for the 12 months ended December 31st, 2022. Net cash provided by financing activities for the 12 months ended December 31st, 2023 was to $88.5 million compared to net cash provided for the prior year for a total amount up to $90.4 million. Our monthly cash outflow in Q4 of 23 was approximately 35% lower than our average cash flow per month in 2022. We continue to optimize cash as we move into 2024.
Moving to our guidance, our guidance for 2024 is as follows. Annual revenues between $50 million to $100 million and a cash outflow of between $45 million to $75 million per quarter. Causal and plus focus and discipline on expense management, including labor arbitrage and transition of our workforce to Oklahoma, amongst other factors allow us to improve our negative adjusted EBITDA guidance.
From a CapEx perspective, our first plant manufacturing approach allows us to fully utilize our low volume tools prior to switching over to high volume tools and base our asset expansion to align with our production, thereby avoiding a high amortization over initial units produced. These reasons, combined with seeking opportunities to acquire distressed assets, which are new or like new allow us to optimize investments in CapEx for this upcoming year as we continue to seek opportunities to acquire distressed assets, we will provide our CapEx guidance into future quarters. Turning it back to Tony for closing remarks.

Tony Aquila

Thanks very much. As you guys can see, it’s a marathon, not a sprint, so many of you have been down this road a few times as well as we have. We want to remind everyone that we’ve been very focused on highly profitable, large markets, controlling our IP not being dependent on China or others developing economically resistant customer bases who are committed to the EV rollout, stepped manufacturing approach, coordinating our manufacturing in alignment with our supply chains and validating products, our product with our customers and their workplace. And we have to stay disciplined on raising capital, which not as I’ve always said about how much capital you have it’s how effectively you can deploy it and you can only deploy it in certain increments.
And in this particular case, we’ve been very effective at being able to take the market opportunities and reduce the spend that we would otherwise have done. We spent hundreds of millions less than others, and we couldn’t have done this without the support of our customers. Our supply chain partners and all our associates that have worked hard because this is a very lean phase in a company’s life and everybody has to get more than 100% and I can tell you that I’m very proud of this team and what they’ve done and what they continue to do in the coming quarters.
Our story will become even more clear, and we have an earnings call coming up in May, and so we look forward to closing the gap. Again, I want to thank everyone who believes in us and always know that we put our own money and we stand in front of you and we will continue to do so. We believe in what we’re doing and we know it takes time to prove it. And that’s what we have to do and that’s what we will do.

Jon Wolk

Operator, Kevin? Thanks. So can you open the line up for questions?

Question and Answer Session

Operator

(Operator Instructions) Craig Irwin, Roth MKM.

Craig Irwin

Hi, good evening and thanks for taking my questions. So Tony, I guess investors are probably going to be most excited or really excited about the Post Office results after a after testing starts later on this year. But Walmart, I think, has had had some vehicles from you guys over a year now.
Right? And they’ve been using those for deliveries in the Dallas area. Can you maybe just you know, give us a little color on what you guys are learning, what the experience is and how this vehicle in the format of the vehicle is a fit for the services, Walmart is using them to provide and how this is mainly informing your customer and production strategy?

Tony Aquila

Yes, as I said, Craig, so as being a workflow partner with your customers, we don’t just sell vehicles, we integrate to workflows and you know, Walmart has been and so forth. We respect that it completely is very proprietary about about how they’re doing things and how they’re addressing their last mile delivery and what they need configuration and so on. But to your to your point, it hasn’t been just a year of testing. It’s been over a year of testing. And it’s and it’s been tested in extreme weather conditions, and we’ve learned a tremendous amount and it’s really helped us fine-tune how their rollout schedule will work as well as others. So we really tried to take that step.
So we don’t get surprised and they slow down on receiving vehicles and so on. So we learned a lot from them, but we also learned a lot from the U.S. Army. Nasa taught us a lot as well. We tried to go after customers, which I think is the point that you’re making is customers that will teach us exactly what we need to do. So we have as little of backtracking as possible as we start to rollout schedule and then we can start rolling out and rollout consistently and effectively.

Craig Irwin

Understood. Understood. Then probably the biggest change in the story in the last couple of months is your new strategy of acquiring equipment that other people have spent a lot of money to buy to bring down the necessary CapEx that can do. And can you maybe frame out for us the breadth of opportunities that you’re looking at. And you know, if you could I don’t know, give us a little color on what’s possible as far as the potential reduction and CapEx needs, if you are able to actually acquire some of these things that you’re also looking at out there, hopefully to acquire over the next few months and quarters?

Tony Aquila

Yes. So Craig, we have we this has been a key part of our strategy. And you know, it was a risk at the beginning when we when we realize contract manufacturing economics don’t work and you don’t have enough control and you end up with very little unique IP. We as you remember, we pivoted and we went into say we got to do it ourselves and brought things in house, we increased our amount. I think our patent went from 17 to 200, close to 250 now. And we and we focused on bullet proofing the platform and in getting those kinds of items, right? But at that time, we knew that the product was fine tuning itself. So locking and getting pouring the foundation now for large volume was not smart. So we knew we weren’t ready. We didn’t want to risk our investors’ capital.
You know, we’ve been an investor as well. It seems to me like it’s mathematics is living through the oh one bubble, the oh eight, you know that not everybody can make it in these new technology curves. And so this time around with a few more labs around the track. We chose to focus on the perceived competitors that would likely not make it that actually did make those leap early. We tracked on them. We studied that as we studied the volume, the step level volumes in manufacturing and all the pieces you’ve got to get right and we continue to do that. We see more opportunities out there.

Craig Irwin

It’s unfortunate that that that these things happen to them. But it’s fortunate for our shareholders because we’ve had the discipline to wait. And we also had secondary strategies in the event that that didn’t come deferral wishing, but fortunately it had understood. Well, congratulations on the progress. I’ll go and hop back in the queue.

Tony Aquila

Thanks, Craig.

Operator

Stephen Gengaro, Stifel.

Stephen Gengaro

Thanks. Good afternoon, everybody. And I guess just following up on that line of questioning and just maybe help me understand a little bit. So the way I thought about it was I think you had 20,000 our units of readiness in Oklahoma City and these assets you’re buying are incremental to that capacity for.

Tony Aquila

I just want to make sure I understand that before I ask my question that goes along with that. So yes, so some of it was like if you remember back and how Tesla came up online. They had some manual and some automated processes that we call it hybrid automation. And you want some of that because you want to be able to keep an eye on certain things that you are still trying to lock down to go into mass production. And this is really kind of in certain areas that we were fixed. We have capacity above that 20,000. But in other areas, we had it at a manual, right? So this helped us kind of close those gaps.
And now we actually have additional robotics and to help us as we kind of look at some of the steps that we’re going to be preparing to move towards automation versus having a hybrid of workforce activity, like for example, today, we are now using AI that were to have 16.5 man hours to inspect the welds on the frame, which holds on the MPP. one which holds and the modular battery packs and the as you know, these things have haunted many manufacturers. We now using a I have increased our Sigma and that operation can be performed in less than an hour with a higher accuracy rate.
So there’s we’re really focused on, if you will, this starts to get to our bond costs and our economics getting that right, you go too fast. You have to lay down things that are fixed and then it becomes tough to to move around. And so the things we kept manual were things that we knew that there were technology advantages for purchase advantages that we could do if we could were successful at purchasing that equipment from others, hopefully, that makes sense. That gives you a more detailed response, but that was what the way our strategy was put together.

Stephen Gengaro

And that’s that does help. I mean, you’re basically creating more efficiency around the 20,000 units, not necessarily because I was just sort of thinking about in terms of why not get 20,000 or 20 before you start spending more money. But you clearly you clearly made me understand how it increases the efficiency of the of the units being built there. That was very helpful on the UK, you can imagine how much you actually costs that would otherwise be fixed cost?

Tony Aquila

If you look at that slide that we gave an example of the other companies, it is very tough to make it up on volume when you get the foundation, right? And that’s why we minimize the number of parts increase the amount of technology in our own IP. So yes, you’re right. This is the right way to do it to get to the right economics and to be able to deliver a high-quality product.
Great. Thank you.

Stephen Gengaro

And then the other question, just kind of centered around around some of the guidance parameters. But when when we think about that cash outflow per quarter number that you provided and sort of the funding gap to sort of to meet those needs. I mean, how should we think about that? I mean, clearly, you’re going to need more capital as the year evolves. How should we think about the the types of capital, the and sort of the timing on kind of when you’re going to when you’re going to you’re trying to pull the trigger on these finances?

Tony Aquila

Yes. So look, I think the market has been more difficult for sure than we had and we had hoped for. But our strategy with had the ability to ratchet it down. If you think about a lot of people punished us because we didn’t put a lot of cash on the balance sheet and we’re good stewards of people’s money. And, you know, as you can see some of these companies that went out with high volume facilities, they’re burning cash. They’re going to burn cash and they’re still going to be refining their product because it takes maturation and customer feedback. So I think from our perspective, we had we reduced ourselves down by, I think, 50% already and to kind of align to the areas but we’re very focused on the workforce being aligned to the customer base, the sequence of the customer base, how do we expand where to expand, where to automate?
We’re not and the good news is we’re picking up savings as we start to migrate to manufacturing in Oklahoma because the cost of living is so significantly less there than in California. For example, we’re able to pick up a very positive arbitrage. So we got we got some good tailwinds, but most of all in young companies, the more capital you have likely the more you’ll waste the bigger the facility you build and if you don’t figure out how to align CapEx to growth, you will burn your shareholders’ money. It will take you a while to get it right. It will take you a while to get it right? No matter what, because we’re only as strong as our weakest link in the supply chain, we continue to work on that.
That’s a big, big focus for the next few quarters as we start to ramp ourselves up. But one thing I want to let you guys know the 3,000 unit threshold goes back in history. Could the to the entrepreneurs that figured out how to bring it all together, whether it be in Henry’s time, Elan’s time, these people are inspirations to us and we studied what they did, the pain, they felt through the journey. As I said earlier, you learn called it, manufacturing, hell. And what we tried to do is learn from them, see what they did see how they did this step level manufacturing and at the same time, pay attention to those that had endless amounts of capital like Boeing, you can’t push the quality curve.
You can’t move things faster than your workforce confirmed form the duties. You could have good quality at this level to poor quality at another level we saw Japanese manufacturer when they globally expand do that we’ve done a lot of studying so that we can be really at the end of the day, we will be a company that can produce margin at low volumes, and that gives us the ability to geographically replicate our model as well.

Stephen Gengaro

Great. That’s great color. I’ll get back in queue. Thank you.

Tony Aquila

You bet.

Operator

Dan Ives, Wedbush Securities.

Dan Ives

We are going so when you give the revenue guidance amounts that’s a pretty big range, the 50 to 100 million. Can you just talk about the high end in the well, in terms of the variable cost for the year?

Tony Aquila

Yes, yes. So So Dan, the reason why that the thing is variable this, why because you got to harmonize your supply chain, you’ve got to bring up your workforce, you’ve got a lot of things we don’t wanted to see anymore, right? We the reality of it is the goalposts are wide right now because they have to be Now granted, we could push if we had as we chose to deploy more capital, we could accelerate it. But our error rate would go up and our cost per unit would go up with it because you lose the advantage in your supply chain discipline and you have to harmonize it.
That’s why we studied the step level manufacturing function of those who were successful as well as those who are burning massive amounts of cash per unit and will continue into the tens of thousands of units produced. That’s not what we plan to do. We plan to build a business that has high margin has extensibility into our customers’ workflow and can grow in 20,000 unit increments that are presold and with customers that have given us multiyear orders they actually are very much aligned with us.
They don’t want a product that has problems. That’s why we tested it for multiple years with these customers. That’s why we fit for the last 20 plus months. The U.S. Army has been bidding on it. That feedback is unbelievably valuable to us and it’s proven testing. It’s not theoretical or just standard test.

Dan Ives

Okay. Great. And then just on the capital side, like from a timing perspective, and because your point is you’re not you’re going to take it as you need, not just taking one stop, right? Like I mean, that’s sort of the point here. Is that, like I said, to really funding the operations.

Tony Aquila

Yes. I mean, look, right now, we got to get we got to get all our suppliers harmonized and we got to get our workforce completely trained. So we’ll continue our schedule of building aligned with our customers and they are supportive of doing it the way we’re doing it. They’ve been on the other end of the curve that when it doesn’t work and they don’t want to be on that. And that’s that’s the power of having a large fleet customers, they actually understand this.
And so we’ll we’ll build, we’ll study, we’ll deploy and we will sprinkle our our technologies into a few international markets that can help capitalize us, but that we have the ability to control our burn rate down as low as $15 million a month up to probably $35 million a month. But after that, you just don’t have the efficiency at this space. So we’re not going to deploy capital wildly even as we arrange for capital could be available to us in its various forms. So it’s it’s the right thing to do.

Dan Ives

Got it. Thanks.

Operator

Donovan Shafer, Northland Capital Markets.

Donovan Shafer

Hey, guys, thanks for taking the questions. So I first wanted to ask about sort of the user experience in the vehicle for when we talk about NASA and the post office and they’re both very high-profile. And in the case of NASA, you wouldn’t you wouldn’t anticipate that to be a large volume or does our lead the large volume, but from a user experience and a use case standpoint, it allows you to sort of highlight certain things like the the ingress and egress from the back where you’ve got two astronauts and I don’t know, $1 million, $2 million million-plus dollar space suits and so forth.
And with the post office, just the frequency with which a delivery person postal post office workers coming in and out of the vehicle over and over again. So I’m curious, I guess the question is, how do you take it that maybe it’s better to focus on the case of NASA where it’s not a lot of volume. But the question is how do you leverage that experience to convince others and beyond just, you know, the initial launch space launch or whatever?

Tony Aquila

Yes, I think you know, for customers to see for government and large fleets to see that a young company can be selected by NASA to be to be a key provider. We literally control the first eight miles of every Artemis launch and 2.4 billion people watched for the longest stent of time that launch and to be able to have our brand there. That’s just one benefit. The other benefit is what they taught us about ingress egress, fully kitted individuals in in suites that are tens of millions of dollars and nothing can go wrong. The stumble and snag elements that we learned. Those are all very important workflows as we bring our platform up in size as well.
And we learned a great deal from that from the existing platform to even as we continue to expand. As you know, our platform can continue to go. We went from one 30 to 1 90 and our platform has the ability to extend again. So that information from NASA was was really invaluable week. We would have had many, many engineers on ingress egress, which would actually ended up probably giving us something similar to what every other vehicle if you’ve driven our vehicles, you see the ingress egress is very different. And the way you can work around the vehicle is very different.
The way you can enter the vehicle from the work element is different. So these are things that we learned from them from the Army. We learned some similar things, but in a rugged, so to speak exponentially, we faster egress and ingress and what has to be in place, what do they need? What protection on those kinds of things. Those are all very similar behaviors. And then you get the Walmarts of the world that give you just incredible start and stop data open and close data and the ability to have a liquid goods inside a vehicle that requires certain behaviors to protect their goods as an extension of their business.
So we pick things that would actually help us develop this product with using less money because we were solving a big problem for all of them. And we tried to align with people and it’s not easy to be as a young company to convince these guys to take a shot. But when they saw how committed we are and what our mission is and how we can return capital to them then, of course, those things lined up. So we are very proud about it. And I appreciate you acknowledging it.
And the other thing that the post office, they ran test for quite a while on our vehicle. They took the vehicle, they tested it and they came back and they made their first order. I would say the USPS. team is a world-class team when it comes to making this decision and what what the postmaster general has done in assembling his team is impressive, but it gave us the shot to prove right-hand drive without us going to the right hand drive market. So we already got that lean element to it.
And of course, as that happened the minute we announced that we had people from the UK, which as our market is underserved, right, end markets are always underserved. And my other company, we built a massive business in automotive in the UK is a very great workforce. Our product fits perfectly in that marketplace. So those kind of things we’re trying to always figure out how to do things where we can get it proven before we take the lead.

Donovan Shafer

Perfect. Okay. That makes a lot of sense. And then I wanted to actually follow up on EV charging infrastructure. So yes, yes, I appreciate I think in the prepared remarks, you talked about focusing on fleets of large fleet. The Company has a very large fleets that puts them in a better position to get the infrastructure in place, but that certainly has been a challenge, even in some cases with large with large fleets.
Yes. And so my question is, you know, how do you are you trying to are you engaging with the customers and where you’re you’re trying to get them, you’re pushing them to think far enough ahead of time for Chairman and getting things in place and maybe how it’s written in contracts, you know, do they have to take delivery? It’s for their own reasons. They don’t get the charging infrastructure infrastructure in place or is that a condition where it’s been restriction on their spend and they don’t have to take delivery.

Tony Aquila

Actually, you know, when you when you have a model where you stand, you sell to build, you actually have the luxury of doing a better service to your customers because you’re not forcing it upon them. Your terms are actually more aligned to their interests, which creates greater partnerships. We don’t sell to anyone that can’t charge and we help them figure it out. We see business opportunities there. They’re not in our priority immediate priority list, but this is why we have to concentrate on certain state rollouts and certain customer configurations because they have to charge these vehicles, ranging varieties are real things for those of you who have been out there. It was a real thing when Henry Ford came around and started bringing us, you know, mobility on wheels instead of by hub.
And so we’ve been very realistic about it. And we’ve focused on how our technology is universal adaptable to all the different types. We’ve never had an issue with that, but we don’t tried to oversell people on the charging infrastructure, we do make sure we know their routes what their delivery schedule is. One of the benefits of our business is these are known activity routes. So it’s a lot easier to figure it out versus unknown and unrestrained systems. In addition to that, our systems are developed such that the fleet customer can control the settings in the vehicle so they keep in a certain set of things which extends range and because range can be different based on drivers.
And we use technology to minimize that. That’s workflow, that’s workflow efficiency that’s increased return on capital and less greenhouse gas emissions activities. So it’s things like that, that we’ve really concentrated on to take away the risk of that. But at the same time, as Greg mentioned, with the DOE., they’re rolling out giving money to help get the raw materials. We’re big supporters of that. We need the time on our side before those loans would even be entered into attainable for us just as us. And so we want to see that infrastructure because that will help us step up to the next 20,000 in the next 20,000.
We know the market is there. We know the market is there, particularly with our customer base. It’s not economically sensitive because these vehicles yield a return on capital. And so getting that charging infrastructure, right is a precursor before we qualify the customers are kind of a macro sense.

Donovan Shafer

I’ll take first my questions offline.

Tony Aquila

Thanks, [Yvette].

Operator

Sameer Joshi, H.C. Wainwright.

Sameer Joshi

Hey, thanks for taking my questions. Just a clarification or more of a little bit more light on the manufacturing assets that you purchased, will the any modification customization or upgrades to be fully implemented? And then once they are well, first, what is the time line for that? And are there costs associated with that? And when should we start seeing the benefits from them? Like are you already using these or will it be six months from now 2024, ’25?

Tony Aquila

Yes. Yes. Some some of the equipment is deployed. Some of it is being deployed and some of it needs modification. So your question really spans across all the elements is the answer. And if you look at the slide that we have up here, you could see some of this is Scott UK power systems. We got to change the controllers. We know the cost. We’ve worked with the manufacturers. In many cases, we’ve gotten actual brand new warranties extended to them and and that the costs are relatively small as far as the some of the the integration elements, which I think is a question you may be alluding to, but we brought most of that programming in-house as part of this strategy.
So we wouldn’t be caught at risk from our team has done a great job at developing those skill sets along with AI to help us accelerate our ability to bring our product to manufacture.

Sameer Joshi

Understood. And then just another one on the 2024 sort of outlook and the humans. One of the items is a seven state rollout of social center is that we did in 2024 or will the rollout began and you will have maybe one or two centers or one or two states what are the service centers?

Tony Aquila

Yes, it’s a so we have a team, a special team there, much like a lead soldiers Bay that they’ll parachute in if necessary. And we’ve kind of mapped out our rollouts centered around where we where we have facilities so we can deploy teams and we explain to our customers why that’s important to them. In addition to that, when you have a lot of vehicles that are running off in one to two shifts and you can have your fast action teams show up and at night and have and do the service activities on location. So the good news is 80 plus, you know, I think we’re getting close to 86% of all our activities there over the year. We’ve been successfully deploying that and there’s some areas we’re improving with our releases by our over the air upgrades have been going better and better.
And as many of you know, with electric vehicles, it can be touch and go. And I think we’re just way farther along because of the help we’ve gotten from the customer base that has been actually driving these vehicles for two years. I mean, it’s not like we’re rolling the dice and done and software is key to the experience and even in your ICE vehicles. So many of you have problems with your with plugging your devices into the vehicle. So we’re very sensitive to keeping it simple, keeping it democratized and upgradable. So as the hardware changes, you can upgrade that piece of hardware.
You don’t have to buy a new car to us. That is a very important way of aligning to our customers’ interests. And it’s also a very profitable business for us as well. They win, we win. Thanks for taking the questions and good luck with 2024.

Sameer Joshi

Thank you.

Operator

Jamie Perez, R.F. Lafferty.

Jamie Perez

Yes, thanks for taking my questions. Have everybody the T&E you just as you guys purchase, is everything in place? I mean, do you need any capital to get that up and running has been sort of optimize what’s this sort of status that of the equipment and you for?

Tony Aquila

Yes, the good news is it is that we bought new equipment and it is new literally. And because, you know, unfortunately the markets in some cases have those that didn’t make it wanted to see big facilities with all this stuff rather than drive a product and see it see it, it works. So we’ve been able to pick those up. In some cases, it’s just power translation, others is just normal software programming for the robotics and we brought that in-house. But yes, there’s always some expense. I’d probably say, you know, probably somewhere in the five to $0.07 on the dollar net cost and for us, but it’s fixed because we brought it in house most of it. So maybe we got a few points of variable.
And but now we sized all that up. Our team went on site before we we made the move up and we were the first ones to actually make the process because we were like hey, we’ve gotten we’ve got the money. We’ll give you the money or buy the equipment, and we’ll buy it all and here’s what we’ll buy. And we’ll know we even will tried to help them sell what we don’t want. So but this is direct shareholder value, as you know, Jamie hope so.

Jamie Perez

And And one more question, and I know we talked about EV infrastructure. What about on I saw on Fleet Management is I know, Tony, you come from the software side. Any yes, the development on that.

Tony Aquila

Yes. Well, look, I am excited to, you know, similar to the fact that we’ve always kept things a bit quiet until we got them pretty far in motion. As you can tell, I’m really excited about where we are as a TEM. as in oh eight versus an OEM, how we look at things now and the benefit we bring to our customers and I’ll tell you. This is a very, very important area to me, and it’s a very, very meaningful thing to our customers.
So the answer to that is a lot of this will be proprietary configurations for our customer base and of course, that that makes a greater relationship on a long-term basis and a residual return on capital for us over time. Obviously, you’re entering the software margins, by the way, the example we posted up about learning from what, what, what amazing things Henry and Elan did it. But when you look at ours, ours is not including software revenue this time because we’re not exposing the market to that growth.

Greg Ethridge

Thanks for taking my question, [Tony].

Operator

Pavel Molchanov from Raymond James.

Pavel Molchanov

Thanks for taking the question up. Can I just clarify, as you guys look for kind of interesting distressed stuff to buy, are you looking for only physical equipment? Or would you be open to buying an entire at a particular site?

Tony Aquila

Yes. So look, with respect to where we have sovereign partners, as you as you know, we have aligned with the sovereign partner that partners helping us as we refine our supply chain. They have the ability to invest capital and in tooling and help us pay on a piece price, maybe really working on some things that will continue to evolve out there. But what I will tell you is we’re not diving deep into the water. You know, we’re being very, very cautious as to how we move from a physical site.
Location were dead center of the United States. Right now. We have a free-trade zone, which means we can export, we can import, we can do everything we need to do and do a dead center, massive U.S. on a 40. So our cost to deliver is last our cost to receive is less. So yes, I would say it would have to be a deal where we got paid and it relying with a strategic move and it was aligned with somebody like a sovereign who is helping us expand.

Pavel Molchanov

That makes sense. Yes, absolutely. And in fact, in that context, you given that your recent acquisition was from a European based company, are you open to establishing a production footprint across the Atlantic? I mean, next week or late this week?

Tony Aquila

I’ll be leaving for a couple of continents of meetings that we’ve been engaged in with people for, in some cases, the last year point. And as we lay this out, as you study me from my history and my last company, you know, we grew our business to 96 countries very profitably. We figured out the model. We were we moved linguistic lease socially and in alignment with our product scalability on so that that was kind of my earlier point where you got to get the four pillars right before you hit the volume curve. It’s not impressive to have to pull all these things back on. And so the answer is, and there is a plan we’re focused on that plan. When those pieces are lined up and well underway, it’s when you’ll likely hear about it, I’d say thanks very much.

Operator

Poe Fratt, Alliance Global Partners.

Poe Fratt

Yes, hi, Tony and Greg. Can Make it quick since the call governmental bonds. Can you just help us understand the cash outflow number, does that include CapEx or is CapEx over and above that now it includes as one of the earlier questions you asked about whether what the incremental purchases do for us?

Tony Aquila

It helps us automate more. We have developed a hybrid process just like Henry and Ivan did I mean, we’re following the great ones. And so our number is inclusive. And then on the annual revenue of future breakout, even put it evenly through the year, the first quarter would be $12.5 million to $25 million. Is that for you within that range in the first quarter or are we looking at more a second half ramp in annual revenue.
I mean, at this phase, you know, it’s really it’s really about the run rate rather than the quarterly revenue. I would say once we’re in once we’re in a different phase, we’d probably say giving it to you the information that way. What’s really important is by the time we get to 3,000 units, we have to have the economics, right? We’ve got to have the supply chain aligned the workforce trained. Otherwise, we can’t go to 20,000 units without breaking. It’s proven history. So that’s what we’re focused on. We’re focused on being able to execute that and then move to the next increment.
As far as what we release every quarter, it depends on the workflow. We’re working on with the customer and getting these economics right are critical as you as you can see, those that have been built, whatever, 25,000, 50,000 units installed, that negative 100 plus percent margin units is just what we’re very focused on is getting those things right? And we’ll step out the rollouts and we will do them in conjunction with our clients because that’s the way they expect it to be done as well. And by the way, when we do our agreements with customers, we give them in year one, we only give them a certain level of accuracy because we want to allow our supply chain to mature and they accept that because they know that’s the truth of things.
But we have a minimum level and we focus on that and that aligns with the rollouts with the infrastructure, make sure our customers have the ability to charge their vehicle store, their vehicles that we can visit them and off hours and do any service work. I mean, there’s a lot of things that are coming into play that a lot of people just hurried up and rushed over and then tried to put it into place later. I built the largest service maintenance repair network, some out of the business. This is no joke stuff and you will lose a customer if you don’t do this, right? And what we’re doing here is we’re doing it right, because we know it. We understand the value of it and uptime is everything.
So that’s the way we’re doing it. We’re not giving guidance any other way than telling you. The most important thing is that we cross this threshold and we know our economics, our product quality and our supply chain consistency and our workforce capability.

Poe Fratt

Thank you.

Operator

Stephen Gengaro, Stifel.

Stephen Gengaro

Thanks for taking the question. Just quickly, when we think about the big kind of the revenue cadence in 2024, they should we should we should we think about kind of growing and developing throughout the year and being seeing more more back half weighted?

Tony Aquila

I mean, we’ll definitely be, if you will, if you’re a believer in us and you look at everything we’ve said and what we’ve done and how we’re doing it and how we’re laying it out for you now that it’s the time to being much more displaying of our approach. It would tell you that we are going to consistently be stepping up. And if we slow down, there’s a very good reason because otherwise we’d lose money building vehicles, which we don’t want to do. So you know, it’s it gets back to you now if you can analyze the reality of things versus the projections of things in this industry and the aviation industry and see what will stop you from scale.

Operator

Thank you. We’ve reached the end of our question-and-answer session, and I’d like to turn the floor back over to management for any further or closing comments.

Tony Aquila

I’d just like to thank everybody for your questions your time today and your commitment to help us build a great company. And we’re going to do it here in America, and we hope all of you join us. Thank you. Thank you.

Operator

That does conclude today’s teleconference webcast. You may disconnect your line at this time. Have a wonderful day. We thank you for your participation.



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