ADOMANI, Inc. (ADOM) Q2 2019 Earnings Conference Call July 24, 2019 4:30 PM ET
Jim Reynolds - President and Chief Executive Officer
Mike Menerey - Chief Financial Officer
Conference Call Participants
Amit Dayal - H.C. Wainwright
Jeremy King - Phoenix House
Ed Woo - Ascendiant Capital
Good day, ladies and gentlemen, and welcome to ADOMANI’s Second Quarter 2019 Earnings Call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation.
At this time, it is my pleasure to turn the floor over to Ms. [Asia Lockheed Morris]. Please go ahead, ma'am.
Unidentified Company Representative
Thank you, Tom. And once again, good day and welcome to ADOMANI’s second quarter 2019 earnings call. With me on the call are Jim Reynolds, President and Chief Executive Officer; and Mike Menerey, Chief Financial Officer.
I would like to begin the call by reading the Safe Harbor statement. All statements made on this call with the exception of historical facts may be considered Forward-Looking Statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although ADOMANI believes that the expectations reflected in such forward-looking statements are reasonable on the basis of current expectations, ADOMANI can make no assurances that such expectations will prove to be correct.
Also these forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ considerably from ADOMANI’s current expectations due to changes in operating performance, technical and economic factors, and other risks and uncertainties disclosed in ADOMANI’s annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by ADOMANI from time-to-time with the Securities and Exchange Commission.
Any forward-looking statements included in this earnings call are made only as of the date of this call. ADOMANI does not undertake any obligation to update or supplement any forward-looking statements to reflect new information, subsequent events or circumstances, except as required by law. ADOMANI cannot assure you that projected results or events will be achieved.
Now, I will turn the call over to Jim Reynolds, President and CEO of ADOMANI. Mr. Reynolds, please proceed.
Thanks [Asia], and welcome everybody. I would like to begin by providing overview of our sales and operations for the second quarter of 2019 and our outlook for the remainder of 2019, and then pass it over to our CFO, Mike Manerey, for additional context and greater detail on our financials. After that, we will open it up for questions.
We are pleased with the second quarter sales revenue which came in at 82% of the total sales revenue for 2018 and with the six month sales revenue total which was 96% of the full year 2018 sales revenue. We remain confident that we will be able to convert majority of the existing backlog to shift to customers in 2019 which will position us to meet analyst consensus revenue estimates for the full year.
Sales revenue for the second quarter of 2019 were approximately $4.4 million that compared to 744,000 in the same period last year. Sales revenue for the six month ending June 30, 2019 was approximately 4.8 million compared to 1.2 million in 2018. Our backlog at June 30, 2019 was 10.7 million which compares to 6.3 in the same period last year. Let's get start with some of the highlights for the second quarter.
We participated in a statewide bid and we're successful in being awarded the purchase order for four electric cargo vans from the county of Santa Clara. This order is included in the June 30, 2019 backlog number. We continue to mark our electric trucks and vans and we expect necessary certification shortly. We believe we will then be able to convert the many enthusiastic responses we have received from showcasing our vehicles at recent demos and ride-and-drives and the purchase orders.
We've received a number of verbal purchase contents that once the HVIP listing is in place should count in the purchase orders. These indications of interest on the forms of one to three vehicles for customers and we have been informed that these will be test vehicles for the customers, and that once put in operation is successful, we will turn into orders for many more vehicles.
We showcased our all electric commercial trucks and vans in California ride-and-drive events including the annual Advanced Clean Transportation Expo known as ACT and the California Association of School Bus Officials. These are both in April and we met and demonstrate the vehicles of multiple school districts and other municipal agencies and a number of private fleet operators in the delivery and truck industry.
We also announced that we entered into an exclusive two year sales and service agreement with Pro-Motive EV, a commercial electric vehicle manufacturing and service provider, and with JFP Holdings, a company founded by Jack Perkowski, an ADOMANI board member. Pursuant to this agreement, we will be the exclusive distributors of the E-Riva Neighborhood Electric Vehicle and nine key Western and Southwestern states.
We believe these represent our best opportunities for sales and we will service these as well as sell then as an agent for NEVs in such states with Pro-Motive and JFP responsible for local inspection and shipment of the vehicle we manufacture. We recently received the first three NEVs and are excited about this new opportunity. We continue to experience delivery issues that have impacted our revenue recognition, and although we have seen improvements from our major subcontractors as you will see from the second quarter results.
Deliveries are still extended in the second quarter of 2019 caused orders that were in our backlog to be canceled. We're extremely disappointed by this cancellation. We gave our customers several alternatives however they chose to cancel this time because they either could not receive delivery on time or on their timetable in the case of 2017 legacy school bus project or because they did not receive anticipated dealer orders in the case of the drivetrain systems.
Nevertheless, we continue to be excited about the potential growth from our diversified products offerings of trucks, vans, chassis, NEVs any e-trikes. The previous disclosed Q1 consulting agreement with Roger Howsmon has been extended till the end of 2019 and the Q1 sales agreement with Zeem Solutions contribute to our confidence regarding these opportunities as they continued to demo and quote multiple fleets.
In addition, we recently announced the hiring of additional sales director with extensive experience in the trucking, government, educational, and retirement facilities industry. We are encouraged by the feedback we received from various school districts, cities, counties fleet orders and private companies for which we have had the opportunity to demonstrate our vehicles as they realized how their communities and the environment could benefit from our ADOMANI zero-emissions electric vehicles.
We continue to believe that, if we are able to effectively execute our business plan and capitalize on the opportunities that are presented to us, we will be profitable in 2020. We also feel that we have adequate cash to fund us to profitability. The-zero emission all electric commercial truck, van and EVs are part of ADOMANI's all electric product line up that helps reduce greenhouse gas emissions, provide a lower cost -- total cost of ownership for customers.
We are continuing to work with California's school district, fleet owners because the trucks and vans we offer meet the required range and we believe they are a good operational fit for the various departments from foodservices, warehousing, ground keeping, maintenance and operations.
Additionally, our white fleet of all electric trucks and vans are designed to allow these customers to utilize their existing or soon to be installed infrastructure charge of vehicles. On July 8th, the Bay Area Air Quality Management District released its Carl Moyer funding of $50 million, which will pay 6% the cost of zero emission all electric trucks and vans and other vehicles from Class IV through class VIII.
We're expecting an additional $142 million to be added to the California Air Resources Board [HIB] program. However, while we're expecting this funding by September as previous programs are indications, delays could run into early 2020. If that happens, any sales use of these funds would not be delivered until 2020, putting some pressure to make sure all of our current backlogs delivered to our customers.
These available subsidies reduced the cost of required these vehicle to a level that is on par with vehicles that operate on diesel, gas or even propane, all the while reducing greenhouse gases, other harmful emissions. In addition, the operating cost for fueling and maintenance electric vehicles are lower than the fossil fuel alternatives.
I like to reminder everybody that the 2018 unit sales number for Class III to Class VII vehicles totaled over 500,000 in the U.S. and Canada. We believe this represents a great opportunity for us to supply high-quality, zero-emission vehicles that meet the market needs. We also estimate that it represent a higher profit margin opportunity for us. Team members of the ADOMANI management team visit China in June as a follow-up to the February visit to the Philippines and China.
These meetings were intended to strengthen the supply chain for all electric vehicles and to meet with Chinese manufacturers in order to explore prospective alliances as well as develop relationships with progressive electric vehicle suppliers. We feel we made very good progress and that these in future meetings will result in ADOMANI having access to new and desirable vehicles for the marketplace.
We also recently expanded operations by acquiring the rights to 43,000 square-foot facility on 3.4 acres in Downey, California. This additional space will be used to conduct research and development activities, stage materials, assemble and/or manufacture vehicles, perform pre-delivery inspection, test demo vehicles, and securely stored vehicles. We will also have other equipment and finished goods inventory there. We have very recently retained the service of Renmark Financial Communications USA with multiple offices in U.S. and Canada to handle our investor relations activities.
Turing to our outlook for the full year 2019, I would like to re emphasize that we remain confident we are positioned to meet the full year 2019 analyst revenue estimates. Our confidence comes in the current backlog of 10.7 million, which we expect materially if not all of it will be delivered to customers by the end of the year. And while we still have six months of selling ahead of us, depending on timing of HVIP funding should add additional backlog, but may not be delivered until the HVIP funding is in place.
We have a new product line of trucks, cargo vans, chassis and recently announced NEVs. We're actively offering these vehicles for sale and expect to take additional orders for these vehicles before the end of the third quarter and anticipate this revenue segment may contribute to our overall 2019 FB CARB, HVIP program is funded between now and then. We also have the e-trikes, which we expect will be recorded revenue this year.
Turning to key balance sheet data points and profit insights. Based on our current projections, we believe that if we are able to effectively execute our business plan and capitalize on opportunities that are presented to us, we will achieve profitability in 2020 with cash and cash equivalents of 7.9 million. At the June 30, 2019 period, we believe we have cash to fund us the profitability.
At this point, I would like to turn this over to our CFO, Mike Menerey, to walk to the financials. Michael.
Thank you, Jim, good afternoon everyone. Hopefully many of you've seen our earnings release that went out shortly before the call started. So, I'll be brief and get through this and we will see what we have for questions. As Jim mentioned despite the supplier issues that we discussed, sales were approximately 4.4 million for the second quarter and 4.8 million for the six months ended June 30, compared to 722,000 for the second quarter of 2018 and 1.2 million for the six months ended June 30, 2018.
As also mentioned, the second quarter sales of 4.4 million were 82% of full-year 2018 revenue, and the year-to-date total of 4.8 million is 96% of that 2018 full year total. Cost to sales were approximately 4.1 million for the quarter and 4.5 million for the six months ended June 30, 2019 respectively, again compared to 722,000 for the three months ended June 30, '18 and 1.2 million for the six months ended June 30, '18.
General and administrative expenses for the three months ended June 30, 2019 were approximately 1.5 million, compared to approximately 3.9 million for the corresponding six month period of 2018.
That decrease of 2.4 million was primarily related to a $2.5 million decrease in non-cash stock-based compensation, expense in 19 versus 18, and the reasons for that have been previously disclosed and discussed. The decrease was partially offset by some increases in legal professional and insurance expenses but overall our general and administrative expenses remained flat.
The second quarter of 2019, general and administrative expenses did include approximately 300,000 of non-cash charges, including 275,000 for stock-based compensation. The general administrative expenses for the six months ended June 30, 2019 were approximately 2.9 million, compared to approximately 7.8 million a year ago.
That decrease of 4.9 million is primarily related to a $5.2 million decrease in the non-cash stock-based compensation expense that I referred to a moment ago. That decrease was offset by a small amount, by increases in legal professional insurance expense. The six months, general and administrative expenses include approximately 576,000 in non-cash charges which includes 528,000 for stock based compensation.
Consulting expenses were 77,000 for the second quarter and 154,000 for the six months ended June 30, 2019, respectively. That compared to 48,000 for the quarter a year ago and 95,000 for the six months a year ago. The increase is primarily a result of increased activity in sales and marketing consulting related activity this year.
Research and development expenses were 103,000 for the quarter and 148,000 for the six months ended June 30, '19 that compared to 440,000 for the three months ended June 30 of the year ago and 596,000 for the six months ended June 30, 2018. The decreases were primarily attributable to the timing of certain expenditures were made for research and development activity.
The total net operating expenses for the three months ended June 30 were 1.6 million. There were 3.2 million for the six months ended June 30, 2019. The 1.6 million compares to 4.4 million in the quarter ended June 30, 2018 and the 3.2 million compares to 8.5 million for the six months ended June 30, 2018.
The decreases of 2.8 million for the quarter and 5.3 million for the six months, respectively versus last year are related to the expenses previously discussed, primarily the stock based compensation decreases.
Our net loss for the three months ended June 30, 2019 was approximately 1.3 million, as compared to a net loss of approximately 4.2 million for the three months ended June 30, 2018, a decrease of 2.9 million, and again, it relates to those items I previously discussed.
Total non-cash expenses included in the net loss for the three months ended June 30, 2019 were approximately 301,000 versus 3.2 million for the three months ended June 30, 2018, again the big differences is stock based compensation.
Our net loss for the six months ended June 30, 2019 was approximately 2.7 million, as compared to a net loss of approximately 8.3 million a year ago that decrease of 5.6 million, again mostly stock based comp and the other items I mentioned previously.
The total non-cash expenses included in the net loss figures for the six months ended June 30, 2019 and 2018 were approximately 576,000 and 6.2 million once again primarily related to the non-cash stock based compensation expense.
At June 30, 2019 the Company had cash and cash equivalents and short-term investments of 7.9 million and outstanding debt of 4.3 million for net positive of 3.6 million, as compared to 7.7 million of cash, cash equivalents and short-term investments and debt of 1.8 million a year ago at June 30, 2018. Our working capital at June 30, 2019 was 5 million compared to working capital of 9.5 million at June 30, 2018.
That concludes my remarks for today. Asia [ph], we can open up for questions, if you like.
Unidentified Company Representative
Tom, please open the floor for questions.
Thank you. [Operator instructions] We will take our first question from Amit Dayal with H.C. Wainwright.
Just a couple of questions for me and then I will follow up offline. The 4.4 million in revenue is -- could you provide any color on what was delivered and to whom?
It was primarily drivetrain deliveries to Blue Bird and virtually all of it.
And a clarification on the backlog number, Mike. The 10.7 million is this the backlog we should be using, as what you have on hand after adjusting for the cancel orders and deliveries complete so far in 2019?
Yes, it was up to almost 19 million before the cancellation on those orders.
So essentially you are looking to filling majority of this remainder, you know, I’m just trying to get a sense of how the next two quarters will look like from Q, perspective. So, if 10.7 is, what is remaining and you hope to fill majority of it then we should see flat to higher quarters related to the second quarter, right?
That’s pretty accurate.
And then just one final one for me on the supplier chain issues, were these primarily stunning from Cummins? Do you have that relationship with them on going? Any color on gaps from Cummins just there are? Who is filling those for you? Just how are these issues are going to be resolved from here on?
I think the issue with Cummins for now has been changed the manufacturing from the West Coast to Indiana, and moving that production across the country, we establish it. There are assumptions where the things would get done a lot quicker and better at large facility with more experience people, but the technology transfers of how things went together and how they were delivered, a bit low longer than everybody plan.
So, it's really not an issue with wiring or high voltage systems. It's really once those come in, putting those together, making sure they are put together correctly. They're tested, ship to the customer if they're installed that in. So, there is -- has been some logistics that they have as you know from the first quarter, which most of backlog that they are working from right now was an existing in the first quarter.
And when we delivered $400,000 unchanged and they were able to do 10 times that in the second quarter. So, we see the problems lessening but we don’t see them going away completely yet. And our relationship with Cummins is good as always, it's fine.
And we will take our next question from Jeremy King with Phoenix House.
Hi, everyone. Thanks so much for the call. I have -- hi, how are you. Two quick questions, you mentioned the expansion of your sales capacity. And then I wanted to discuss that expansion of your sales capacity, as it relates to executing on your current orders. Can you just speak to balancing execution on your current orders and that sort of focus on increase sales capacity? How are you going to balance those things to ensure that we do execute on our current orders?
Sure. When we first started receiving orders on drivetrains, that was 95% my involvement in that, once we develop that drive train ahead of delivery and sort of received an ongoing order. It was primarily an operational issue from our side of the Company. So our sales that we have added and we currently have are all geared today towards the electric vehicles whether it'd be the truck, the van, the NEV, the chase, what they were might be.
So, our sales activities in the field today are all geared toward that. We do attend some deliveries for customers or school districts and hearing their first electric vehicles to make sure everything works well. We're available for calls for that, but primarily sales is working on the new products we've developed and operations is working on the drivetrains.
And I appreciate that I do and I just wanted to ask a question about your new leased property, I believe it's in California. How much initial expense do you anticipate associated with the new property? And what exactly will you be doing with new property?
The expense is less than $10,000 a month. We have a very favorable agreement there. And as of part of what we doing there today, we're doing a few things, we're doing storing the vehicles, completed vehicles that are being used for demonstration. So we storm there, load them up on a truck, take them out either account school district, fleet owner and demonstrate the product, have them drive around, bring them back to that location, do any repairs, update the vehicles.
We do some breakup dates on some of the older vehicles. The first one we received in to make sure they are compliant. As time goes on, we will store more of the finish goods inventory there which will be vehicles and we will also store parts. We will do R&D work there to develop the product we have a pretty good size facility to do that and equipment there.
So, it will be little bit of everything, it will be storing vehicles, it would be demonstrating vehicles, doing R&D work. Down the road, we very little could bring in SKD kits or CKD kits and do subassemblies of components there to installment vehicles or do complete assembly of vehicles from headlights to windows to doors, everything.
[Operator instructions] We will next to Ed Woo with Ascendiant Capital.
My question is your relationship you've mentioned that commented yet, how would you characterize your relationship with Blue Bird?
Our relationship with Blue Bird is good. I mean there is nothing that has happened except they have moved on to the ability to purchase directly from Cummins, which will help them, be more competitive. I don’t know if you saw the California Energy Commissions' latest release. They have $89 million that they put out. Lion out of Canada was recipient of most of that, early funding. Now all of that has been given out. There is early funding and there is also the ability to some menu bid or some [indiscernible] what are product they want to.
But because of the price of the drivetrain and the installation at Blue Bird, they were not as competitive as they thought they should be in which we agreed to. That’s one of the reasons we have emphasized and concentrated more on completed vehicles rather than drivetrains because the drivetrain that was being built was not as competitive. We think we can build one, down the growth as more competitive and we do. We talked to Blue Bird about presenting to the ADOMANI show and then what it looks like, whether they all accepted or not. Different matter completely, but certainly, they are open to see what's available to them out there and at a variable costs.
Great and we'll ask a difference question. What do you see also in terms of the competitive of landscape? I know you're in the lot more different markets. Do you see just a lot of different competitors now that you're more focused on all these other type of vehicles?
Well, there is certainly are a lot more companies in this space. And by virtue they're being in the space, we consider them competitors. But we do have inventory, we do have product in production now. We can deliver inventory while some of our competitors are still showing prototypes and demo units that they have built one-offs and not be able to deliver yet. So, I think the market is huge out there. It's -- you look at the Class III to Class VII, we talked about it.
It's 0.5 million a year replacement or addition. It does take much of that market as a percentage or a piece of percentage to be very successful in this marketplace. So, there is plenty of market available to everybody out there. We don't have a specific competitor. Most of the Company started off as we did years ago, doing conversion, taking existing vehicles and converting them to electric. And they've moved on from that to buy new vehicles, de-content them, taken out the engine transmission, fuel tanks and then install an electric drivetrain system.
We skipped that approach and decided to go directly to purpose built clean sheet of paper to design. So, we think that's what the future is. There will be a market for conversions. We have several quotes out right now on conversions, but the large part of the market we see are going to be for brand new units. And in that area, we don't have a lot of competition.
[Operator instructions] And there appear to be no further questions at this time. Ladies and gentlemen, this concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.