Canoo Inc. (NASDAQ: NASDAQ:GOEV), an electric vehicle startup, held its Q4 and full year 2023 earnings call, underlining a strategic approach to growth and financial discipline. CEO Tony Aquila emphasized the company's commitment to a sustainable business model, careful capital deployment, and a focus on high-margin, presold orders. Canoo reported modest revenues but significant progress in vehicle production and strategic partnerships, including a new deal with USPS. The company aims for a revenue range of $50 million to $100 million in 2024, with a controlled cash burn rate.
Key Takeaways
- Canoo's focus on sustainability and not rushing to market.
- Investment in high-volume delivery contracts and in-house IP and software.
- Acquisition of discounted assets and foreign trade zone status for cost reduction.
- Partnership with USPS for right-hand drive vehicle deliveries starting May.
- 22 vehicles completed in 2023; target of 20,000 units run rate at OKC plant.
- $285 million raised in equity or equity-linked capital in 2023, with $80 million in Q4.
- Guidance for 2024: $50 million to $100 million in revenue; $45 million to $75 million quarterly cash outflow.
- Company's emphasis on profitability, IP control, and disciplined expense management.
Company Outlook
- Canoo plans to harmonize the supply chain and fine-tune product mix in early 2024.
- Seeks to build a high-margin business with a focus on presold orders.
- Anticipates consistent revenue growth throughout 2024, with a phased ramp manufacturing approach.
Bearish Highlights
- Q4 2023 revenues stood at only $0.4 million, with $0.9 million for the fiscal year.
- Cash and cash equivalents at the end of the quarter were $6.4 million.
Bullish Highlights
- Reduction in research and development, SG&A expenses, and net losses year-over-year.
- Successful over-the-air upgrades and system testing.
- Positive feedback from U.S. Army during vehicle testing.
- Optimism about federal funding support, particularly from the DOE.
Misses
- Despite progress, the company's revenues remain low, reflecting the early stage of its business development.
Q&A Highlights
- Aquila discussed the importance of aligning workforce with customer demand and increasing efficiency through automation.
- Mentioned strategic deployment of capital and maintaining control over the burn rate.
- Canoo focuses on fleet customers and assists with their EV charging infrastructure needs.
- The company is cautious in its approach to acquisitions and international expansion.
Canoo's earnings call revealed a company that is carefully navigating the complexities of the electric vehicle market. With a strategic focus on disciplined growth, cost savings, and efficient capital deployment, Canoo is positioning itself to leverage opportunities in the evolving automotive landscape while maintaining fiscal responsibility. The partnership with USPS and the anticipation of federal funding indicate a positive outlook, although the company's revenue figures show there is still much ground to cover in its journey to profitability.
InvestingPro Insights
Canoo Inc. (NASDAQ: GOEV) has shown a commitment to strategic growth and financial discipline, as highlighted in their recent earnings call. While the company's future outlook appears cautiously optimistic, a deeper dive into the financial metrics and InvestingPro Tips provides a more nuanced picture of the current situation.
InvestingPro Data metrics indicate that Canoo's Market Cap stands at $220.35 million, suggesting a relatively small player in the electric vehicle industry. The company's Gross Profit Margin for the last twelve months as of Q3 2023 is notably negative at -73.99%, reflecting the challenges in achieving profitability. Additionally, the Price to Book ratio is 1.33, which can be a point of interest for investors evaluating the company’s market valuation against its book value.
InvestingPro Tips highlight several areas of concern and potential interest for investors. Canoo's cash burn rate is a point of worry, as the company is quickly burning through cash with short term obligations exceeding liquid assets. This could pose a risk to the company's financial stability if not managed effectively. On a more positive note, the company has experienced a significant return over the last week and month, indicating some investor confidence in the short term.
For readers looking to gain a more comprehensive understanding of Canoo's financial health and stock performance, there are additional InvestingPro Tips available. These include insights into the company's ability to make interest payments on debt, the high price volatility of its stock, and the lack of profitability over the last twelve months. For a full list of tips and to take advantage of the insights provided by InvestingPro, readers can visit https://www.investing.com/pro/GOEV and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 17 additional InvestingPro Tips available that can further inform investment decisions regarding Canoo Inc.
Full transcript - Hennessy Capital Acquisition Corp (GOEV) Q4 2023:
Operator: Hello, and welcome to the 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. It's now my pleasure to turn the call over to John Wolf, Head of Investor Relations. Please go ahead, John.
Unidentified Company Representative: 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. Greg Ethridge 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 10-Q and 10-K and other reports that we may file with the SEC including Form 8-Ks. 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. 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, at the opposite, and it's dangerous and expensive to hurry up to slow down. Even those with endless amounts of capital, like, Boeing (NYSE:BA) 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 multiyear 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 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 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 multiyear delivery schedules with our customers. This process takes time to integrate to our customers' delivery road maps which extends beyond the vehicle at 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. $0.20 on the dollar to purchase new or near new assets. This was unthinkable just 12 months ago by many analysts and investors who were worried that securing these items would have long lead times. We didn't disagree with you. We just focused on being the second new owner of that equipment. This resulted in a 35% to date or $48 million reduction in capital spending compared to our initial 2023 CapEx guidance of $140 million, which is directly attributable to 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 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 LDV 190 vehicles. The USPS being one of the largest fleets is driving the transition to electrification 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. Look out for the first vehicles delivering your mail starting this May. We will showcase our right-hand drive vehicles at several U.K. commercial vehicle fleet events in the coming weeks. 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 demo and sales to international customers. Our OKC assembly plant in less than one year is on schedule to achieve our targeted step level manufacturing of 20K run rate readiness. On the 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 up source centers. In addition to that, fine-tuning it to our customer base. By having concentrated customers, you don't charging network issues. In addition to that, the way we've done it, we can have fast action teams available within 4 hours to 8 hours for a customer's needs. These are very important building blocks and 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 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 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 after sales. 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 first 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 is the 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 to your weakest point and 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 run rate is in recent history, a great example of how you step through manufacturing, 3,000 and 20,000 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 what. 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. If you're too 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 cost to skyrocket as we can see here. But if you study the successful examples like Tesla (NASDAQ:TSLA) and while it was chaotic and difficult, their phase was purely positive violence. As you can see, as they moved from 3,000 units and stepped up to a 20,000 unit run rate, they had their economic right. They were harmonizing their supply chain, which as they went through and as Elon has said, manufacturing health. We understand it. It's hot down here. But one thing we didn't do because we didn't receive you with a big factory, with 150,000 unit annual capacity. We just didn't go to the luxury market. We stayed lean. We focused on areas where customer bases would be solid and where the would work and that you could work 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 has talked about in his materials and supporting him to build the right foundation for a successful 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 of the company, but I'm perfectly positioned to tell the evolution of the story since 2020. We needed the smoke to clear first and now that's happened. The amount of hard work that's gone to this refounding 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 transition. 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 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 well put to use and we will continue to make progress towards 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's 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 be for manufacturing and we think we are a very good candidate. Just a quick reminder on some of the statistics. The DOE ATVM has been funded with about $40 billion, $19 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 follow the road map to be able to access this 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 a 53% reduction in our research and development expenses year-over-year, 30% saving 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. After 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 pace ramp manufacturing. 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 Innovation Unit. We are at the beginning of our phased ramp manufacturing approach in delivering commercial vehicles here. We expect to 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 31, 2023. Our cost of revenues, primarily include vehicle components and parts, labor costs and amortized tooling and capitalized costs involved in producing an 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 '22. On an annual basis, research and development expenses totaled $139.2 million for 2023 compared to $292.2 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 $196 million in 2022, a 42% reduction from prior year. 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 $302.6 million for 2023 compared to negative $487.7 million in 2022, a reduction of 38% from 2022. Adjusted EBITDA was negative $54.6 million for the quarter compared to negative $60.5 million in the prior year period. Adjusted EBITDA was negative $224.7 million for the 2023 compared to negative $408.6 million in '22, 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 31, 2023, compared to $97.3 million for the 12 months ended December 1, 2022. Net cash provided by financing activities for the 12 months ended December 31, 2023 was $288.5 million compared to net cash provided for the prior year -- for a total amount of $290.4 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. Our relentless focus and discipline of 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 phased ramp manufacturing approach allows us to fully utilize our low volume tools prior to switching over to high volume tools and pace 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 in the future quarters. Turning it back to Tony for closing remarks.
Tony Aquila: Thanks, Ramesh. As you guys can see, it's a marathon, not a sprint. Some 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 our product with our customers and their workflows, and we have to stay disciplined on raising capital. It's not, as I've always said about how much capital you have, it's how effective we 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 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 in, 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.
Unidentified Company Representative: Operator, Kevin, thanks can you open the line up for questions?
Operator: Certainly. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Craig Irwin from ROTH MKM. Your line is now live.
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 results after testing starts later on this year. But Walmart (NYSE:WMT), I think, has 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 give us a little color on what you guys are learning? What the experience is? How this vehicle and the format of the vehicle is a fit for the services Walmart is using them to provide and how this is maybe informing your customer and production strategy?
Tony Aquila: Yeah. Hi, Craig. So it's being a workflow partner with your customers. We don't just sell vehicles. We integrate to workflows. And Walmart has been -- and we respect that completely. It's very proprietary about how they are doing things and how they're addressing their last mile delivery and what they need, configuration and so on. To your point, it hasn't been just a year of testing. It's been over a year of testing. 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 take that step so we don't get surprised and then 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. arms that 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 a little of backtracking as possible as we start -- And then we can start rolling out and roll out consistently and effectively.
Craig Irwin: 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 at Canoo. Can you maybe frame out for us the breadth of opportunities that you're looking at? And if you could -- I don't know, give us a little color on what's possible as far as the potential reduction in CapEx needs, if you're able to actually acquire and that you're also looking at out there, hopefully, to acquire over the next months and quarters?
Tony Aquila: Yeah. So Craig, we have -- this has been a key part of our strategy, and it was a risk in the beginning. 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. We brought the things in-house. We increased our amount of -- I think our patents went from 17 to 250 now. And we focused on bulletproofing the platform and 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 down for large volume was not smart. So we knew we weren't ready. We didn't want to risk our investors' capital, me being an investor as well. It seemed to me like it's mathematics, living through the 01 bubble the 08, you know that not everybody can make it in these new technology curves. And so this time around, with a few more laps around the track, we chose to focus on the perceived competitors that would likely not make it, that actually did make those leaks 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. It's unfortunate 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 to fruition, but fortunately, it has.
Craig Irwin: Understood. Well, congratulations on the progress. I’ll go and hop back in the queue.
Tony Aquila: Thanks, Craig.
Operator: Thank you. Next question is coming from Stephen Gengaro from Stifel. Your line is now live.
Stephen Gengaro: Thanks. Good afternoon, everybody. I guess, just sort of following up on that line of questioning and just maybe help me understand this a little bit. So the way I thought about it was, I think you had 20,000 units of readiness in Oklahoma City. And these assets you're buying are incremental to that capacity? I just want to make sure I understand that before I ask my question that goes along with that.
Tony Aquila: So yes, so some of it was -- like if you remember back in 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're still trying to lock down to go into mass production. 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 rate. So this helped us kind of close those gaps. And now we actually have additional robotics 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 where it took 16.5 manhours to inspect the wells on the frame, which holds on the MPP 1, which holds the modular battery packs. And as you know, these things have hunted many manufacturers. We now using AI, 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 BOM 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 move around them. So the things we kept manual, things that we knew that there were technology advantages or purchase advantages that we could do if we could -- we're 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, right.
Stephen Gengaro: No, no. That does help. I mean you're basically creating more efficiency around the 20,000 units, not necessary because I was just sort of thinking about in terms of why not get 20,000 between where you start spending more money, but you clearly made me understand how it increases the efficiency of the units being built. So that was very helpful.
Tony Aquila: Yeah. You can imagine how much usually caught that would otherwise be fixed cost. 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 wrong. And that's why we minimized 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.
Stephen Gengaro: Great. Thank you. And then the other question just kind of centered around some of the guidance parameters. But 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 types of capital and sort of the timing on kind of when you're going to try to pull the trigger on these finances?
Tony Aquila: Yeah. So look, I think the market has been more difficult for sure than we had hoped for. But our strategy had the ability to ratchet it down. If you think about it, a lot of people punished us because we didn't put a lot of cash on the balance sheet. We're good stewards of people's money. And as you can see, some of these companies that went out with high, 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've reduced ourselves down by, I think, 50% already 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 to expand, where to expand, where to automate, where not. 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 some good tailwind. But most of all, in young companies, the more capital you have, likely the more you 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, to the entrepreneurs that figured out how to bring it all together, whether it be in Henry's time, Elon'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, Elon called manufacturing Health. And what we've tried to do is learn from them, see what they did, see how they did the step level of manufacturing. And at the same time, pay attention to those that had endless amounts of capital like Boeing, you can’t push the quarter. You can’t move things faster than your workforce can perform the duties. You could have good quality at this level to pour 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: That’s great color. I’ll get back in the queue. Thank you.
Tony Aquila: You bet.
Operator: Thank you. Next question is coming from Dan Ives from Wedbush Securities. Your line is now live.
Daniel Ives: Yeah. Thanks. So when you give that revenue guidance, obviously, that's a pretty big range, the $50 million to $100 million. Can you just talk about the high end and the low end in terms of the variables for the year?
Tony Aquila: Yeah. So Dan, the reason why 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 want to do see anyone, right? The reality of it is the go post are wide right now because they have to be. Now granted, we could push. If 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 though we're 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 -- for the last 20-plus months the U.S. Army has been beating on it. That feedback is unbelievably valuable to us. And it's proven testing. It's not theoretical or just standard testing.
Daniel Ives: Great. And then just on the capital side, like, from a timing perspective, because your point is you're not -- you're going to take it as you need not just taking one stop. I mean that's sort of the point here. Is that like to really fund the operation?
Tony Aquila: Yes. I mean, look, right now, we've got to get all our suppliers harmonized. And we got to get our force completely trained. So we'll continue our schedule of building aligned with our customers. And they're in support of us doing it the way we're doing it. They've been on the other end of the curve when it does work. And they don't want to be on that. And that's the power of having large fleet customers. They actually understand this and so we'll build. We'll study. We'll deploy and we will sprinkle 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 pace. So we're not going to deploy capital wildly even as we arrange for capital to be available to us in its various forms. So it's the right thing to do.
Daniel Ives: Goit it. Thanks.
Operator: Thank you. Next question is coming from Donovan Schafer from ROTH and Capital Markets. Your line is now live.
Donovan Schafer: Hey, guys. Thanks for taking the questions. So I first want to ask about -- so the user experience in the vehicle, when we talk about NASA and the post office, they're both very high profile. In the case of NASA, you wouldn't anticipate that to be a large volume or that would lead to large volume. But from a user experience, a use case standpoint, it allows you to sort of highlight certain things like the ingress and egress from the back where you've got two astronauts and I don't know, million-plus dollar space suits and so forth. And with the post-office, just the frequency with which a delivery person – post-office workers coming in and out vehicle over and over again. So I'm curious, I guess the question is, how do you take the -- 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 the initial launch, space launch or whatever?
Tony Aquila: Yeah. I think for customers to see for government and large fleets to see that a young company can be selected by NASA to be a key provider. We literally control the first 8 miles of every Artemis launch. And 2.4 billion people watch 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 suits 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 because you know our platform can continue to go. We went from 130 to 190 and our platform has the ability to extend again. So that information from NASA was invaluable. 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 learn from them. For the Army, we learned some similar things. But in a rugged, so to speak, exponentially faster egress and ingress. What has to be in place, what do they need, what protection 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. The ability to have liquid goods inside a vehicle that require certain behaviors to protect their goods as an extension of their business. So we picked 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 try to align with people, and it's not easy to be 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, 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 is a world-class team when it comes to making this decision. 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 and element to it. And of course, as that happened, the minute we announced that, we had people from the U.K., which says our market is underserved, right-hand markets are always underserved. And my other company, we built a massive business in automotive in the U.K. It's 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 leap.
Donovan Schafer: Okay. That makes a lot of sense. And then I wanted to actually follow up on EV charging infrastructure. So I appreciate. I think in the prepared remarks, you talked about focusing on fleets, large companies with very large fleets that put them in a better position to get the infrastructure in place. But that certainly has been a challenge even in some cases with large fleets. And so my question is, how do you -- are you trying to -- are you engaging with the customers in a way where you're trying to get them, you're pushing them to think far enough out of time for procurement, getting things in place and maybe, how it's written in contracts? Do they have to take delivery if for their own reasons, they don't get the charging infrastructure in place or is that a condition where if infrastructure is not there, then they don't have to take delivery?
Tony Aquila: Actually, when you have a model where you sell to build, you actually have the luxury of doing a better service to your customers because you're not forcing it upon your terms are actually more aligned to their interest, 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. Range anxiety is a real thing for those of you who have been out there. It was a real thing when Henry Ford (NYSE:F) came around and started bringing us mobility on wheels instead of by hoof. And so we've been very realistic about it, and we focused on how our technology is universal, it's adaptable to all the different types. We've never had an issue with that, but we don't try to oversell people on the charging infrastructure. We do make sure we know their routes. What their delivery schedules. 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 unrestricted systems. In addition to that, our systems are developed such that the fleet customer can control the settings in the vehicle. So they keep a certain set of things which extends range because range can be different based on drivers. And we've used 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. 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 entertainable 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 it precursor before we qualify the customer.
Donovan Schafer: Okay. That makes lot of sense. I’ll take the rest of my questions offline. Thanks, guys.
Tony Aquila: You bet.
Operator: Thank you. Next question is coming from Sameer Joshi from H.C. Wainwright. Your line is now live.
Sameer Joshi: Hey. Thanks for taking my questions. Just a clarification or a little bit more light on the manufacturing assets that you have purchased. Will we lead any modification, customization or the 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 this or will it be six months from now, 2024, '25?
Tony Aquila: Yes. 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. If you look at the slide that we have up here, you can see some of this has got U.K. power systems, and 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 the costs are relatively small as far as some of 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. 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 achievements. One of the items is a seven state rollout of service centers. Is that within 2024 or will the rollout begin and you will have maybe one or two centers or one or two states with service centers?
Tony Aquila: Yeah. So we have a team -- a special team. They're much like a lead soldiers. They'll parachute in, if necessary, and we've kind of mapped out our rollout centered around where we have facilities, so we can deploy teams. We explained to our customers why that's important to them. In addition to that, when you have a lot of vehicles that are running often one to two ships, you can have your fast action team show up and at night and have and do the service activities on location. So the good news is 80-plus, I think we're getting close to 86% of all our activities are over the air. We've been successfully deploying that. There's some areas we're improving with our releases, but our over-the-air upgrades have been going better and better. As many of you know, with electric vehicles, it can be touching both. 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 software is key to the experience. I mean even in your ICE vehicles, how many of you have problems with your 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’ interest, and it’s also a very profitable business for us as well. They win, we win.
Sameer Joshi: Thanks for taking the question. Good luck for 2024.
Tony Aquila: Thank you.
Operator: Thank you. Next question today is coming from Jaime Perez from R.F. Lafferty. Your line is now live.
Jaime Perez: All right. Thanks for taking my questions. Hey, everybody. The assets that you guys purchase is everything in place? I mean, do you need any capital to get up and running? Has it been sort of optimize? What's the sort of status of the equipment...
Tony Aquila: Yeah. The good news is, it's as if we bought new equipment. I mean it's new literally. And because, unfortunately, the markets in some cases of those that didn't make it, wanted to see big facilities with all this stuff rather than drive a product and see it hard at work. 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 yeah, there's always some expense. I'd probably say probably somewhere in the $0.05 to $0.07 on a dollar net cost for us, but it's fixed because we brought it in-house, most of it. So maybe we got a few points of variable. But no, we sized all that up. Our team went on site before we made the move. Often we were the first ones to actually ignite the process because we were like, hey, we've got the money. We'll give you the money. We'll buy the equipment, and we'll buy it all, and here's what we'll buy. And we even will try to help them sell what we don't want. So -- but this is direct shareholder value, as you know, Jamie, right? So...
Jaime Perez: All right. One more question. I know we talked about EV infrastructure. What about on a fleet management? Because I know Tony you come from the software side. Any development on that?
Tony Aquila: Yeah. So look, I am excited to -- 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 TM as an OE versus an OEM, how we look at things and the benefit we bring to our customers. I will 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, and a lot of this will be proprietary configurations for our customer base. And of course, that makes a greater relationship on a long-term basis in 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 amazing things Henry and Elon did, but when you look at ours, ours is not including software revenue at this time because we’re not exposing the market to that.
Jaime Perez: All right. Thanks for taking my questions.
Tony Aquila: You bet.
Operator: Thank you. Next question is coming from Pavel Molchanov from Raymond James. Your line is now live.
Pavel Molchanov: Hey, thanks for taking the question. 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 fab at a particular site?
Tony Aquila: Yeah. So look, with respect to where we have sovereign partners, as you know, we have aligned with the sovereign partner, that partner is helping us refine our supply chain. They have the ability to invest capital and tooling and help us pay on a piece price. And we're 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. We're being very, very cautious as to how we move from a physical site location. We're 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 mats in the U.S. on I40. So our cost to deliver is less. Our cost to receive is less. So I would say it would have to be a deal where we got paid and it relined with a strategic move, and it was aligned with somebody less sovereign who was helping us expand. If that makes sense.
Pavel Molchanov: Yeah. Absolutely. And in fact, in that context, given that your recent acquisition was from a European-based company. Are you open to establishing a production footprint across the Atlantic?
Tony Aquila: I mean, next week or late this week, 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 1.5 years as we lay this out. If you study me from my history and my last company, we grew our business to 96 countries very profitably. We figured out the model. We were – we moved linguistically, socially and alignment with our product scalability. So 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. And so the answer is there is a plan. We’re focused on that plan. And when those pieces are lined up and well underway, is when you’ll likely hear about it.
Pavel Molchanov: Got it. Thanks very much.
Tony Aquila: You bet.
Operator: Thank you. Next question today is coming from Poe Fratt from Alliance Global Partners (NYSE:GLP).
Charles Fratt: Yeah. Hi, Tony. Hi, Greg. I'll make it quick since the call going on so long. Can you just help us understand the cash outflow number? Does that include CapEx or is CapEx over and above that?
Tony Aquila: No, it includes as one of the earlier questions asked about whether -- what the incremental purchases do for us. It helps us automate more. We have -- we developed a hybrid process just like Henry and Elon did. I mean, we're following the great ones. And so our number is inclusive.
Charles Fratt: And then on the annual revenue, if you just break out even -- put it evenly through the year, the first quarter, $12.5 million to $25 million, is that -- are you within a range in the first quarter or are we looking at more a second half ramp in annual revenue?
Tony Aquila: I mean, at this phase, 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 can see, those that have built whatever, 25,000, 50,000 units, and they still got negative 100%-plus margin unit. It's just -- what we're very focused on is getting those things right and we'll step out the rollouts, and we'll 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, we make sure our customers have the ability to charge their vehicles, store their vehicles that we can visit them on off ours 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 try to put it into place later. I built the largest service maintenance repair networks in my other 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.
Operator: Thank you. Our final question today is a follow-up from Stephen Gengaro from Stifel. Your line is now live.
Stephen Gengaro: Thanks. Thanks for taking the question. Just quickly. When we think about the kind of the revenue cadence in 2024, should we think about it kind of growing and developing throughout the year and being more back half weighted?
Tony Aquila: I mean, we'll definitely be -- if you're a believer in 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 much more displaying of our approach, it would tell you that we are going to consistently be stepping up. And if we slowed down, there's a very good reason because otherwise, we'd lose money building vehicles, which we don't want to do. So it gets back to -- I mean it's just -- 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 through scale.
Operator: Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.
Tony Aquila: 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.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
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