Q2 2023 AYRO Inc Earnings Call

Participants

Joey Delahoussaye; IR; CoreIR

Tom Wittenschlaeger; CEO; AYRO, Inc.

Dave Hollingsworth; CFO; AYRO, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the AYRO, Inc., second-quarter 2023 financial results and corporate update conference call. (Operator Instructions)
Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through November 15, 2023.
I would now like to turn the call over to Joey Delahoussaye of CoreIR, the company's investor relations firm. Please go ahead, sir.

Joey Delahoussaye

Thank you, Anthony. Good morning and thank you for participating in today's conference call. Joining me from AYRO's leadership team are Tom Wittenschlaeger, Chief Executive Officer; and Dave Hollingsworth, Chief Financial Officer.
During this call, management will be making forward-looking statements, including statements that address AYRO's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in AYRO's most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC in AYRO's press release that accompanies this call, particularly the cautionary statements in it.
Today's conference call includes adjusted EBITDA, a non-GAAP financial measure that AYRO believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, its most recently -- its most directly comparable GAAP financial measure, please see the reconciliation table located in AYRO's earnings press release, which is available on its website at www.ayro.com under the investors tab.
Content of this call contains time-sensitive information that is accurate only as of today, August 15, 2023. Except as required by law, AYRO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.
It is now my pleasure to turn the call over to CEO, Tom Wittenschlaeger.

Tom Wittenschlaeger

Thank you, Joey, and good morning to everyone on the call.
We've continued to make progress in the second quarter and beyond towards our goal of commercializing our new LSEV, the AYRO Vanish. While our entire and singular focus today is the successful launch of the Vanish and its many payload options, we've made all preparations to efficiently advance our Valet and Vapor models as line extensions of the Vanish in the next phases of development following the successful launch of the Vanish.
We've strengthened our balance sheet, ramped up inventory build, and are awaiting the receipt of final certifications of our homologation, safety, and testing requirements, which we anticipate will be completed shortly. These certifications will enable AYRO to commence sales with confidence in our product's performance, safety, and quality in earnest, and we're thrilled to have passed all of the requisites to obtain these.
In addition to homologation, we've been very busy drive testing and track tuning the drive performance, suspension settings, regenerative motor breaking, and even climate control performance, enclosed and open environments of the Vanish so that it will represent what we believe are the highest engineering standards in the LSEV space. We're in the final stages of calibrating our braking and motor control tuning after completing our ride dynamics optimization of the suspension, tires, steering and handling features.
In addition to the two prominent design awards the Vanish has received term Red Dot and from Frost & Sullivan, we want to ensure that the manufacturing of the vehicle and the customer experience match award-winning design elements.
With a combination of numerous payload options available for the Vanish, along with all of the quality control measures I've just described, we believe the Vanish will find strong customer acceptance in the market for a host of end market uses whether it be campus or arena setting or even in a last mile or last mile extension application.
With homologation largely behind us, our attention is now focused on completing the transition to low-rate initial production or LRIP. We're working to make AYRO synonymous with quality, innovation, safety, and performance. And we believe our production ramp is now more streamlined as we addressed a number of supply chain and sourcing constraints in the quarter.
Our focus has now turned to building out inventory, and I'm delighted to report that we're close to finishing the build of our 12 Vanish first article unit. Numerous models have been used in our homologation testing, while others have gone to our marketing efforts for demonstration to distributors, strategic partners, outfitters, and potential customers. We expect we will continue into full-fledged LRIP in the coming quarter with the intention of beginning the ramp to production quantities of the Vanish.
We plan to build approximately 60 Vanish units during LRIP with the intention of selling and placing these early units with vehicle outfitters, distributors, strategic partners, and key end customers that we believe will offer the greatest sales leverage entering 2024. Of course, it will be a learning curve for our manufacturing team during LRIP as we scale the manufacturing floor and gain further assembly and product flow experience.
Following LRIP and the Vanish launch, we will target moving to full-scale production, which we currently expect to commence in early 2024. For context, we currently anticipate producing nine vehicles per day with our first full shift underway, which would translate to over 2,000 vehicles per year of capacity under the guidelines mentioned above.
Assuming a ramp in demand, we are in a position to add a second shift here in Round Rock in our Round Rock factory as well as utilizing an established automotive OEM partner to manage surge demand. We believe our infrastructure in preparation for fulfilling demand is developed, sound, and on target.
Once we move to full production, we anticipate cost savings per vehicle resulting from the use of production tooling, volume leverage, and learning curve improvements, all of which are customary in vehicle production programs. We believe that these advances in 2024 will allow us to improve our gross margins.
As we continue to make progress on our goals to produce our award-winning Vanish, we're also keenly focused on sales and marketing and have made strides in building a growing network of dealers; potential fleet customers; and a growing cadre of potential large multi-vehicle customers in the stadium, resort, campus, corporate, and hospitality fields, among others.
Our relationship with Masters Golf in utility vehicles in Ontario, Canada is ongoing. And we're excited to move forward into full production and commence sales and marketing activities that we envision will bear strong results. We've signed a growing number of dealers under our dealer program, and we look forward to expanding this impressive list.
We further formed relationships with the vehicle upfitters that will see the Vanish as an enabler to improve functionality in their respective spaces. We're making steady progress on our efforts in establishing our direct to consumer or DTC sales channel. We're finalizing our e-commerce site and our first on-site location in Florida that will enable our DTC efforts, allowing customers to order, configure, and customize the Vanish directly from AYRO's e-commerce website.
Establishing our presence in Florida will serve two goals for AYRO. Florida happens to be one of several states where direct-to-consumer vehicle sales are permitted. It is also an expansive potential market for the Vanish and our follow-on products, the people mover, we call the Valet; and what we believe is the world's most stylized golf cart, the Vapor. We believe we're on track with establishing our DTC capability and expect to launch within a week.
On the intellectual property front, we're strengthening our IP portfolio consisting of both design patents as well as utility patents. We continue to believe the combination of our anticipated future sales and sales growth, together with our growing IP portfolio, has the potential to create sustainable shareholder value and provide numerous differentiators in this segment that otherwise hasn't evolved with prevailing technologies nor market opportunities in several decades.
Moving on to our financials. Sales in the second quarter were in line with our expectations of the sunsetting of our legacy Club Car Current vehicle, slightly higher than sales in the first quarter. As I've mentioned before, our principal focus has been on the development of the Vanish and our inventory of remaining Club Car Current vehicles is now quite minimal.
We began increasing inventory during the second quarter to prepare for LRIP and beyond. As an EV company building a disruptive product in markets with very strong demand, we aim to sell large distributors, strategic partners, and customers with large appetites. So our need to ramp inventory according to our forecast is significant.
We believe our efforts to create a plurality of vehicles on our new platform are exciting and significant and will offer flexibility and leverage for additional vehicles beyond the Vanish.
To this end, we recently raised $22 million in cash from existing stockholders. This additional capital allows us to continue building our business and execute our strategic plan without a market pause for capital and offers additional runway and strategic options to ramp inventory, to grow the platform count along our path to profitability. Quite simply, we're now better positioned financially.
That concludes my opening remarks. Now I'd like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail. Dave?

Dave Hollingsworth

Thanks, Tom, and good morning, everyone.
Here's a summary of our second-quarter 2023 financial results. Revenue for the quarter ended June 30, 2023, was $139,544, a decrease of a 6% year over year. The sales recorded in the second quarter of 2023 represents the runoff of Club Car Current inventory as we transition to the AYRO Vanish.
Total operating expenses for the second quarter of 2023 were approximately $6.1 million as compared to approximately $4.1 million in the second quarter of 2022. The year-over-year increase in total operating expenses was due primarily to the completion of the Vanish product and a ramp to LRIP and full production.
Adjusted EBITDA, a non-GAAP measure, for the second quarter of 2023 was a loss of approximately $5.5 million versus a loss of approximately $3.6 million in the second quarter of 2022. Net loss for the quarter ending June 30, 2023, was approximately $6 million versus a net loss of approximately $6 million in the year ago quarter.
Cash and marketable securities at June 30, 2023, was approximately $33 million versus $48.9 million at the end of 2023. Total debt was zero at June 30, 2023, as it was on December 31, 2022.
As of June 30, 2023, the company had 37,536,101 common shares outstanding.
That concludes my prepared remarks. I'd like to turn the call back over to Tom for any remaining comments.

Tom Wittenschlaeger

Thank you, Dave.
We look forward to continuing to execute on our business model and to accomplishing our goals to become a leading force in the very exciting LSEV space.
And with that, I'd like to turn the call over to the operator, so we can begin the question-and-answer session. Operator.

Question and Answer Session

Operator

(Operator Instructions) It appears we have no questions. I would like to turn the conference back over to Tom Wittenschlaeger for any closing remarks.

Tom Wittenschlaeger

Thank you, Anthony. I'd like to thank all of you for participating on today's call and for your interest in AYRO. We look forward to sharing our progress on our next quarterly conference call when we report our third-quarter 2023 results likely in November of 2023. Thank you and have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.