ElectraMeccanica Vehicles Corp. (SOLO) Q3 2022 Earnings Call Transcript

ElectraMeccanica Vehicles Corp. (NASDAQ:SOLO) Q3 2022 Results Conference Call November 14, 2022 5:00 PM ET

Company Participants

Kevin Pavlov-CEO

Mark Orsmond – CFO

Kevin Pavlov

Hello everyone and thank you for joining us today to discuss ElectraMeccanica’s third quarter earnings and the road ahead.

I’m joined by our new CFO, Mark Orsmond, who will offer some more granular insights into our financial performance shortly. As you may recall from some of the announcements we’ve made, Mark is one of a number of senior hires we’ve made over the past few months as we continue to professionalize our leadership team and improve our operational expertise in anticipation of our next stage of growth.

First, let’s talk about the headline numbers.

SOLO production for the third quarter was 103 vehicles, a drop sequentially from this year’s second quarter as our manufacturing partners and vendors were impacted by pandemic aftershocks and China’s Zero COVID policy, but roughly the same as production a year ago. We saw very slightly lower sequential SOLO deliveries during the quarter as we delivered 64 vehicles versus 68 last quarter. Revenues were correspondingly slightly lower at 1.44 million versus 1.55 million during the prior quarter, but roughly 12 times higher than the same quarter a year ago. Finally, and while we have a lot of work to do on this front, I want to highlight that we also improved our gross margins by roughly 55 points from last quarter. We expect margins to be volatile from quarter to quarter, given the unpredictable macro environment but directionally, we are headed in the right way, and I want to give credit to everyone in ElectraMeccanica who’s working hard to make sure that we’re running our business as efficiently as we can.

If you haven’t had a chance to read our investor letter for this quarter, I encourage you to do so, but I wrote that there were three important takeaways from our business this quarter. Let me touch on them briefly.

First, while we produced and delivered fewer vehicles this quarter than Q2, we don’t see a slowdown in either demand or in our ability to scale in order to capture our horizontal market opportunity. Our manufacturing partners who faced a Zero COVID policy headwind are back on track and at the same time right now, we are activating a new marketing campaign across multiple channels that we expect to have a significant impact at every point of our sales pipeline. What this means is that across our key markets and in front of key audiences, the SOLO will be visible, dynamic and changing the conversation around mobility. If you want to see what this looks like, there are links to our newest video spots on our website, and I also think they are terrific. They perfectly convey the excitement, energy, and maximum minimalism the SOLO provides.

The second takeaway, it’s clear to me that the decision to onshore our manufacturing capabilities to our owned facility in Mesa was exactly right. It will allow us to dramatically shorten our supply lines and associated lead times, reduce costs, avoid unexpected tariffs, give us direct control over manufacturing and operations, place us in the heart of what we expect to be a key market and not least the potential to create hundreds of jobs in our home market, the United States. And we got additional good news for Mesa where we were awarded a license to sell EVs in Arizona.

Part of our strategy is to be continually expanding our sales footprint, but Arizona and Phoenix in particular represent a valuable opportunity for ElectraMeccanica. In many ways, it represents a place and population that could not more closely align with our vision of an ideal market for the SOLO. It’s one of the largest metro areas in the US It’s home to thousands of businesses, dozens of colleges and universities and tens of thousands of students. This area has popular major league sports teams, world class recreational facilities and of course it’s beautiful, just outside the urban and suburban areas is some of the best biking and hiking anywhere in the country. And to get a sense of the opportunity for the SOLO, as most recent US census data, nearly 1.5 million people in the area commute to work by driving alone. That’s an incredible number and opportunity.

For the third takeaway, look, I want to be candid about how difficult this current environment is for everyone. Consumers are being battered by price increases on the things that matter the most, from food to housing to energy. Businesses face similar cost pressures, something we feel keenly every day as we source the parts and materials we need to build our vehicles.

At the same time, ElectraMeccanica is in the fortunate position of having both, high confidence in our strategy and our product and most importantly, the resources necessary to pursue and realize that strategy. Nothing about the current environment suggests to me that the long-term market opportunity ahead of us has diminished. In fact, the opposite is true. In an environment where the cost of simply getting to work is soaring, the SOLO is an elegant, affordable solution for everyday need shared by hundreds of thousands of commuters. And we have great people, the right approach to manufacturing, and we have managed our resources, particularly our balance sheet with a view to making sure we have the runway we need to meet our goals.

With that and before I offer some final remarks, let me turn to Mark to review the financial performance. Mark?

Mark Ormond

Thanks Kevin, and thanks everyone for joining today. I’ve had a chance to meet some of our investors already, but I’m sincerely looking forward to getting to know more of you as I settle in.

As Kevin said earlier, our revenues in the third quarter were $1.44 million, up over 12 times from the previous year and a slight 6.9% decline from the prior quarter, reflected by the reduction from our 68 SOLO deliveries to 64 our production, as Kevin mentioned, was 103 vehicles. We believe production figures are influenced by temporary pressures on our vendors, manufacturing partners and related supply chain disruptions resulting from Zero COVID policies. Our gross margin was minus 66.3%, which represents a 55% sequential improvement from the previous quarter. Obviously, we are pleased at the direction and scale of this change, but we are mindful that we could experience some volatility here on a quarter to quarter basis.

In the near term, like every manufacturing business, we are managing against inflationary pressures and costs and the supply chain issues. Over time as we complete the process of onshoring our manufacturing facility in Mesa, this will enable us to have a greater control of our supply chain, avoid unpredictable tariff policies and expect that this will positively contribute to our gross margins.

Our operating expenses, which include SG&A and R&D, increased 14.2% sequentially over the prior quarter to $20.9 million, reflecting higher costs to support our expanding operations.

We continue to be disciplined as possible when it comes to allocating our capital, while at the same time making investments that are core to our strategy and success as a business. Consistent with this, our investment in both R&D, sales and marketing have increased on a year on year basis, reflected in the higher OpEx expenditures. All in all, our net loss for the third quarter was $21.5 million, a 6.1% sequential increase from the prior quarter. Finally and most importantly, our balance sheet remains healthy with a working capital of just over $173 million at the end of the quarter.

Everyone is working hard here to ensure that the financial and operation machinery is in place to support our strategy and growth. And we appreciate your confidence. With that, I’ll return the call to Kevin. Thank you.

Kevin Pavlov

Thanks, Mark.

Before I go, I want to say again that I’m encouraged as I look forward. We have great momentum for both, our vehicles and brand and our business. On the vehicle front, as some of you might have seen, maybe even in person, depending on where you live, in September, we launched a pilot project with California’s largest Pizza Hut franchise, American West Restaurant Group. Over the course of the 13-week pilot, which ends in December of this year, AWRG will have put at least 12 of our SOLO Cargo vehicles through their paces, delivering pizza in its temperature controlled, custom-built cargo area across Los Angeles and other southern California counties. We’ll be learning alongside with the folks at AWRG which will in turn contribute significantly to the development of our SOLO Cargo program.

And as I said earlier, we are also continuing to up level our senior leadership team, and we are pleased to welcome not only Mark Orsmond as CFO, but also just welcome our new General Counsel and Corporate Secretary, Tony Dent. Both have hit the ground running.

Last quarter we also committed to improving our communication and connectivity with you, our investors. We are making good on that commitment. We have launched not only a refreshed Investor Relations website, but a brand new landing page for not just investors, but anyone curious about the latest developments in our business and our markets, emvinsights.com. We’ve already heard from a number of you that the insights and engagement are helpful and appreciated and we encourage everyone to visit. Finally, and while it is some time away, we’ll be hosting our first Investor Day at our Mesa facility in February. Investors will have an opportunity to see not only the plant and our assembly line, but meet the people at ElectraMeccanica who are working every day to meet the mobility challenges of the future. We’ll provide more details on this event in the near future.

We’re excited about the next quarter and the next year. With the launch of our new marketing campaigns, the SOLO will be more visible to more people than ever before. Our pilot program with AWRG will provide valuable insights as we develop the SOLO Cargo. Every day, we’re closer to bringing our manufacturing onshore and in-house and we continue to expand our sales footprint.

When I took over as CEO almost a year ago, I said that I wanted our company to be understood as an OEM, because that was how we were going to operate our business and deliver returns to our investors, making and selling great vehicles. Nothing about that has changed, and every day we continue to put the pieces in place that will allow us to scale into a mobility opportunity that continues to grow. That’s a lot to look forward to for everyone at ElectraMeccanica and for you, our investors too. Thank you again for your confidence, and stay simply electric.

Question and Answer Session

End of Q&A

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