Good day, and thank you for standing by. Welcome to the Lordstown Motors Q3 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Carter Driscoll. Please go ahead.
Thank you, operator. Good afternoon, and thank you to all for joining Lordstown Motors third quarter 2021 earnings conference call. To supplement today's discussion, please go to our IR website to view our press release and investor deck. Before we begin, I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and is part of our quarterly update. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our Form 10-Q and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be Lordstown Motors CEO Dan Ninivaggi, new CFO Adam Kroll, outgoing interim CFO Becky Roof, and Shea Burns, our new Senior VP of Operations.
Dan will provide an update on the Endurance program and overview on our partnership with Foxconn, followed by Adam, who will cover our financial results and outlook, followed by Dan, who will provide closing remarks. With that, I'd like to turn the call over to Dan.
Thank you, Carter, and welcome everyone. I was named CEO of Lordstown Motors just under three months ago. Since then, a lot has happened at Lordstown and in the EV industry generally. The country and the world were already headed towards a day when most new vehicles would have electric powertrains, but EV growth has accelerated at an even faster pace. All of that was before the U.S. infrastructure bill passed six days ago, putting more than $7 billion into a half a million or more electric vehicle charging stations. Every part of the automotive industry, including and perhaps especially the large commercial fleet sector that Lordstown is targeting, is headed to an electric future.
The conversion to electric powertrains provides a once in a lifetime opportunity for startup OEMs to penetrate the automotive market, which is why we've seen so many EV startups over the past couple of years. The cold, hard reality of the automotive industry is that scale really matters. While I personally believe that the Endurance pickup truck is different from and will be better than many competitive offerings, a great truck alone does not make a great business. To succeed, Lordstown Motors needs innovation, a competitive cost structure, a vehicle development platform that brings products to market quickly and efficiently, and a differentiated commercial plan. We need a strategy that wins meaningful market share in our target markets against much larger competitors.
I joined Lordstown Motors because I believe that the company has a strategic path to becoming a competitive EV manufacturer by focusing on partnerships and targeting the commercial vehicle segment. The strategic partnership with Foxconn is an important first step that supports the critical success factors I just mentioned, particularly competitive and much more flexible cost structure and a vehicle development platform. Our partnership with Foxconn by no means guarantees our success, but it does address some significant preconditions. I'll talk more about our Foxconn relationship in a few minutes, but first let me start with an update on our top operational priority, bringing the Endurance to market as soon as possible. In the third quarter, we continued to build and test prototype vehicles. We began building pre-production vehicles earlier this quarter. These vehicles are production design intent based on learnings from our prior CAE and prototype vehicle testing work.
We expect to build approximately 100 pre-production vehicles over the next three months to pursue a variety of validation activities aimed at achieving full homologation. This reflects a modest delay in our pre-production build schedule from earlier expectations and is largely the result of part shortages, raw material availability, delayed semiconductor shipments, and other supply chain disruptions, which as you all know, are impacting the entire automotive industry. The delay in the pre-production vehicle build, as well as revised testing schedules, mean that we expect commercial production and customer deliveries to begin in the third quarter of 2022. From there, we would expect to gradually ramp production through the back half of the year. Next, I want to update you on our progress tackling the commercial fleet segment.
While all major OEMs are accelerating their electric pickup truck programs, we believe demand will outstrip supply for the foreseeable future and continue to grow. We also believe that demand will be especially strong among commercial fleet customers who are particularly focused on total cost of ownership and performance. That's where we believe the Endurance will deliver. The hub motor design offers unique benefits in its combination of horsepower, torque, handling, and turning radius. Today, we have some updates on our go-to-market progress. As you know, our primary sales channel is fleet management companies and commercial fleet operators. Our team spends a lot of time at trade shows and other industry events, and we're seeing the results from this outreach. We're receiving strong positive feedback from potential customers who have recently evaluated or experienced a ride in the Endurance.
We continue to execute on our commercial fleet first strategy and have received additional indications of interest from a number of commercial customers, including fleet management companies. These indications of interest, while non-binding and subject to certain conditions, are a show of confidence in the Endurance and demand for electric pickup trucks generally, and are important steps in building our order book. In addition to our focus on the private sector fleet market, we are also excited about the opportunity with the public sector, with growing demand emerging from federal, state, and local government entities for zero-emission vehicles. As a fleet-first OEM, Lordstown is well-positioned to help meet the myriad of federal, state, and local initiatives targeted at transitioning public fleets to zero-emission with the Endurance. Since our last earnings call, we've also made progress towards securing the resources fleet operators will need after they purchase the Endurance.
You've heard us say before that trucks with fewer moving parts will need less maintenance, but our fleet customers will expect timely and easy access to options when they do need service. To support our fleet management partners, we've signed a memorandum of understanding with Cox Automotive with a mutual goal to provide service and support to all Lordstown Motors EV fleet customers. Cox Automotive Service Marketplace has more than 6,000 service centers, 3,000 partner locations, and 800 mobile technicians nationwide. The Cox team would deliver a full suite of service solutions, including preventative scheduled maintenance, vehicle pickup and delivery, battery servicing, vehicle and collision repairs, and roadside assistance.
Coupled with our advanced connected vehicle technology and over-the-air update capabilities, we're confident that we'll be able to meet our customers' needs once we have executed a commercial agreement and they begin to take delivery of our vehicles. We've also expanded our team here at Lordstown. As we shared earlier this week, Edward Hightower, a veteran automotive executive, has been appointed President of Lordstown, effective November 29th. Ed has 30 years of experience serving in product development, engineering, manufacturing, commercial, and senior executive roles between Ford, BMW, and GM. He led GM's $15 billion global crossovers business as the Executive Chief Engineer and Vehicle Line Executive. At BMW, he helped drive 5 Series sales, market share, and profitability in the U.S. to record levels. We also announced this week that we're bringing on board Shea Burns as Senior Vice President of Operations.
Shea has been working with us for a couple of months in an advisory capacity and will primarily focus on Endurance launch readiness as well as the implementation of the Foxconn transaction. Shea has over 25 years of experience in the automotive industry, including having previously served as Vehicle Launch Leader at Ford Motor Company and Senior Director of Quality and Director of Engineering Operations at Meritor. Ed and Shea, together with the recent appointment of our new CFO, Adam Kroll, significantly strengthen our engineering, product development, operations, and financial teams. This brings me to our partnership with Foxconn, which we believe will be transformative for our company and mutually beneficial for both organizations.
As previously disclosed, on September 30, we entered into an agreement in principle, or AIP, with an affiliate of Hon Hai Precision Industries, also known as Foxconn, to work jointly on Lordstown Motors electric vehicle programs in our production and assembly plant in Lordstown, Ohio. Shortly after the AIP, as a sign of confidence in our partnership, Foxconn purchased $50 million of common stock directly from Lordstown at a price of approximately $6.90 per share. I'm happy to report that a definitive asset purchase agreement with Foxconn was entered into yesterday. The final agreement is substantially similar to what we provided in the agreement in principle.
We have agreed to sell the Lordstown facility, excluding certain assets such as our hub motor assembly line and battery module and pack lines, for $230 million, in addition to the reimbursement of certain operating and facility costs incurred from September 1, 2021 through the closing date. The parties have also agreed to pursue a contract manufacturing agreement for the Endurance pickup truck, which must be entered into before closing, which is currently targeted for April 30. The parties will pursue a joint venture agreement to co-design, engineer, and develop vehicle programs for the commercial market in North America and internationally using Foxconn's MIH open platform. Lordstown would have the right to commercialize these new EV programs in North America, and Foxconn would have the right to commercialize the programs outside of North America, subject to mutual licensing agreements.
Hon Hai Precision Industries, the parent of Foxconn, is the largest electronics manufacturer in the world, as well as a leading technology solution provider for manufacturers. The company is well known for making Apple iPhones and other consumer electronics, but not everyone may know that the company, under its chairman, Young Liu, is pursuing an aggressive expansion plan in three areas: robotics, digital health, and EV manufacturing. In their recent Tech Day, Hon Hai unveiled three new prototype vehicles, each of which utilizes the company's open source vehicle development platform called MIH, which stands for Mobility in Harmony. MIH has been referred to as the Android of EV manufacturing. It is designed to promote collaboration in the industry, to lower barriers to entry, and cut development time and cost through the use of common standardized components and systems in a flexible modular platform.
We look forward to becoming an OEM development partner on the MIH platform and through our joint venture with Foxconn, using the MIH platform to jointly design, engineer, and develop commercial vehicles that can be marketed globally. In addition to other strategic benefits. The Foxconn partnership will unlock the tremendous potential of the Lordstown plant by getting it to scale faster. At 6.2 million sq ft and 640 acres, the Lordstown complex was one of the largest internal combustion automotive plants in North America that is now being converted to a state-of-the-art EV manufacturing facility. Foxconn has an excellent opportunity to fill the plant, having already announced that the Fisker PEAR program is intended to be manufactured in Lordstown. LMC and all OEMs whose vehicles are built at the plant will benefit from the increased capacity utilization, possible use of common components and lower overhead costs.
As I said earlier, scale in automotive manufacturing matters a lot. Use of shared space together with the MIH open platform provides smaller, more specialized OEMs the opportunity to achieve the benefits of scale without being a large, fully integrated automaker. Finally, the partnership with Foxconn should significantly reduce our raw material component and other input costs. As the largest contract manufacturer in the world, Foxconn has the purchasing power, supply chain network and the logistics capabilities to help us significantly reduce vehicle production costs and minimize our supply chain risk. We also stand to benefit from Foxconn's expertise in hardware and software integration critical to EVs, given their expertise as a multinational electronics manufacturer. As we grow together, these benefits will only improve. Before I turn it over to Adam, I wanted to share my overall thoughts about Lordstown's future.
Our goal is to become a capital-light engineering design and development company focused on producing multiple all-electric vehicle programs, primarily for the North American commercial vehicle market. In Foxconn, we gain a great partner that has a vision of an all-EV future and the resources to build a global vehicle engineering and manufacturing footprint. The transaction will significantly de-risk our balance sheet, lower our production costs, and allow us to focus on bringing innovative electric vehicles to market quicker and more cost effectively. I'd like to thank the entire Lordstown and Foxconn teams for working so hard to get to this stage. I do realize that this is only the beginning, and Foxconn is only part of the solution. We must execute and execute better and deliver the Endurance truck. Our team gets it, and we'll do everything possible to deliver.
With that, I'll now turn it over to Adam.
Thank you, Dan. Good afternoon, and thank you all for joining today's call. I am Adam Kroll, our new Chief Financial Officer, and I will review our third quarter 2021 results. First, let me say that while I've only been here for three weeks, I'm excited by what I've seen, impressed by the talent we have, and look forward to realizing Lordstown's significant potential. I'll begin by reiterating the benefits we see of our new business model and elaborating on the Foxconn transaction. As Dan said, with the Foxconn deal, we are pivoting to a less capital-intensive business model. Foxconn is one of the preeminent manufacturers in the world. They are a significantly larger, more established and skilled operator of scaled manufacturing facilities. Our Lordstown, Ohio facility was originally designed for substantially higher volumes.
At the company's current forecasted volumes without the Foxconn transaction, there would be materially higher overhead costs resulting in greater financial losses over the next several years. Under the arrangement, Foxconn is expected to use the excess capacity to produce vehicles for other OEMs, including Fisker, which has already been announced. As a result, the plant should be operated more effectively and efficiently, reducing our operational risk and future overhead burden. We are well underway working with Foxconn to identify ways to capitalize on their buying power. For example, we believe our steel consumption represents a small fraction of Foxconn's global spend. I am equally excited about the potential joint venture agreement. The MIH consortium will enable us to be a manufacturer with virtual scale.
With more than 1,900 suppliers in the consortium, development costs can be essentially spread across substantially greater global volumes, along with accelerating time to market for new vehicles using a flexible modular platform with common standardized components and systems. Now to the funding from the transaction. The total proceeds to LMC from the asset sale will be $230 million. We will receive an initial down payment of the purchase price of $100 million on or about November 18. An additional down payment of $50 million on February 1, 2022, and a third down payment of $50 million no later than April 15, 2022. The remaining $30 million of purchase price, together with reimbursement of certain operating and facility costs incurred from September 1, 2021 through closing, will be paid at closing.
In exchange for the down payments, we will be granting Foxconn a first priority security interest on substantially all of our assets, along with committing to maintain minimum cash balances of $100 million through January first, $50 million through March first, and $30 million thereafter. As Dan mentioned, we already received a $50 million equity investment in October. Turning to our financials. In the third quarter, we recorded a net loss of $95.8 million versus $108.2 million in Q2. Our expenses consisted of $31.3 million in SG&A, roughly in line with the prior quarter. Albeit $1.9 million lower than Q2, our legal expenses remain elevated, representing approximately 40% of total SG&A due to the ongoing litigation matters. Personnel costs in SG&A and headcount have remained flat quarter over quarter.
Our R&D expenses were $56.9 million compared to $76.5 million in Q2, a decrease of $19.7 million, driven almost entirely by timing of prototype component design and testing expenses. As with SG&A, personnel costs and headcount remained flat quarter over quarter. Non-cash expenses for the quarter totaled $21 million and includes stock comp, amortization, and the mark-to-market for the warrants. We ended the third quarter with total cash of $234 million. From a cash flow perspective, we used $81.6 million in cash for operations, offset by a $6.7 million working capital benefit from accounts payable and accrued expenses. We incurred $80 million for CapEx as we continue to invest in the facility and supplier tooling in preparation for commercial launch.
The substantial majority of the CapEx was categorized as construction in progress as we continue to make the plant production ready. Finally, we raised $20 million from our equity purchase agreement in exchange for 3.9 million shares. With the funding of the Foxconn deal, we materially improve our liquidity. As we disclosed on our September 30 business update, we continue to evaluate additional financing alternatives, including private or public equity transactions, debt financing, or a combination of both. With the asset purchase agreement, we believe we are well-positioned to secure this next tranche of financing before the Endurance goes into commercial production. We are also continuing our discussions with the DOE regarding obtaining an ATVM loan. Now, turning to guidance. We are updating our full year outlook.
We anticipate ending the year with between $150 million and $180 million of cash on hand, inclusive of the initial down payment provided by Foxconn. This would be a total cash burn of approximately $70 million in Q4. Ending cash represents an improvement of approximately $45 million at the midpoint due to lower capital expenditures. We are now forecasting $330 million-$350 million in capital expenditures versus prior guidance of $375 million-$400 million. The investments are being delayed rather than eliminated due to supply chain challenges and tactical decisions based on lead times and ROI. Our guidance for SG&A and R&D are unchanged.
SG&A is expected to be $105 million-$120 million, and R&D, $320 million-$340 million for the full year. The previously mentioned reimbursement by Foxconn for a portion of our operating expenses in CapEx at closing is not reflected in our guidance. We will not be providing 2022 guidance at this time. As we have indicated, we are transitioning our business model to be a more flexible and less capital-intensive business. We anticipate providing 2022 guidance once we execute the contract manufacturing agreement with Foxconn, targeted for April 2022. Thank you, and I now turn the call back over to Dan for closing remarks.
Thanks, Adam. I wanna thank our entire Lordstown team for their continued dedication, hard work, and support. We look forward to continuing our close working relationship with Foxconn over the next few months as we focus on bringing the Endurance to market, finalizing the contract manufacturing agreement, closing the asset purchase agreement, and working on the development of future vehicles together. Thank you for your time today, and I look forward to taking your questions. Carter?
Thank you, Dan. Operator, please open the lines for Q&A.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes through the line of Joseph Spak from RBC Capital Markets. Your line is now open.
Thanks. Good afternoon, everyone. Two questions. I guess the first one is, you know, appreciate that you're not giving 2022 guidance now, but is it possible to give us some guide points as to how you are now thinking about stuff like margin and CapEx as you shift to this more, you know, variable model with Foxconn?
Thanks for your question, Joe.
Well-
Let's-
Yeah. Let's.
With the contract manufacturing with Foxconn, the Endurance-specific CapEx will roughly be the same, maybe somewhat lower based on just buying power and our ability to do it better through Foxconn. Facility CapEx will come down. General equipment CapEx will come down. Some things will be built into piece price. Generally, it'll be lower. Our R&D costs, I don't know, Joe, if you asked about R&D costs. I forget the question now. But
Yeah
R&D costs are really gonna be dependent on timing of testing and the final build and SOP. We saw, as Adam mentioned, we had lower R&D costs in Q3. We expect that they'll ramp up a bit more normalized in Q4. If all goes well, we get through testing, the PPV build and testing, then they should significantly decrease next year.
Okay. The second question I had is just, you know, related to the opportunity with the MIH platform. My understanding is that, you know, most of the initial vehicles off that MIH platform are more consumer vehicles. It seems like Lordstown wants to stay more focused on the commercial market. Just curious if you could, you know, let us know what you've sort of seen from that platform that makes it applicable for commercial. Then, you know, what's the plan for, you know, hub motors. Does the MIH even take that? Because even if I look at your picture on slide 11, it looks like you're using more traditional, you know, e-motors. I know that's sort of the idea of MIH, right? You get to scale across, you know.
Right
... many different vehicles. Lastly, I guess related to MIH is like what's a reasonable timeframe for, you know, those first vehicles off MIH?
Yeah. I'm glad you asked. We've spent a fair amount of time studying MIH, and in fact, I brought Edward Hightower in about a month ago, a month and a half ago, to do a deep dive analysis of opportunities on MIH. It is relatively new, and the reference designs and standards will increase over time. The vehicles they revealed a couple weeks ago at their tech day, it was a Model C, Model E, which are essentially sedans, crossovers, and then there was a transit bus. We've already started doing design concepts off of those vehicles, one of which I don't wanna reveal right now, but it is a commercial van, off...
It's an extension of one of those models that we think would have a lot of resonance in the market, not only here, but internationally. Foxconn, I think it's fair to say, is very excited about it. We had to do some adjustments. Like I said, it's a modular platform. It has fixed points, but it also has flexible points so the platform itself can be extended. It actually adapted to a commercial vehicle pretty well. Now, again, I expect there'll be different vehicle architectures on that platform over time, and we'll be able to produce even more types of commercial vehicles. Off that one design, we were able to come up with what we think would be a really interesting commercial vehicle and two variants off that vehicle.
I think it has great potential.
Okay. The future of hub motors on that platform?
Oh, hub motors. You know, hub motors, I think are really important for the pickup truck, and they'll definitely be part of our product portfolio going forward. But not every vehicle needs hub motors, and we'll weigh the trade-offs, the use cases, the cost targets, et cetera. I wouldn't say that all of our vehicles will have hub motors, but it'll be part of our product strategy going forward.
Okay. Thank you very much.
Thanks, Joe.
Thank you. Our next question comes from the line of Greg Lewis from BTIG. Your line is now open.
Yeah. Hey, thank you, and good afternoon, everybody. I just wanted to talk a little bit about, you know, post the sale of the Lordstown factory. You know, the company still does own the battery module and pack line as well as the hub motor line. You know, realizing that you're giving full year comp at CapEx, but you're not really giving guidance into 2022, is there any way to kind of think about where we are in the process of having those, you know, both the hub motor line and the battery line? Where are we in the process of having those up and in terms of completion?
Yeah. The battery line, I think we said on the last call, we've been substantially commissioned.
Mm-hmm
It's operating. Hub motor line is in place. It's not fully commissioned yet, but we think it will be before the end of the quarter. We're producing motors off that line. We think it'll be sufficient for the PPP bill.
Okay. Great. That's all for me. Thank you.
All right. Thank you.
Thank you. Our next question comes from the line of Jon Lopez from Vertical Group. Your line is now open.
Hey, thanks so much. I had a couple quick ones if I could, hopefully quick ones. The first one, I guess I just wanna make sure I understand the moving pieces here. You have $234 million in cash as of September. If we just plug in what you're giving us for the year, OpEx and CapEx in Q4 is, like, something close to $215. That gets us down to, like, $20. If we add the $100 from Foxconn and the $15 from the ATM, still seems like it lands below the $150-$180. Can you just, you know, correct me wherever I'm wrong there?
Well, one piece of it's gonna be the SG&A and R&D are both have some non-cash expenses in them, right? You can't just take those numbers and subtract them from the total. You know, you've seen like our. That's one of the things, you know, we reported the stock comp expense. That's kind of one of the numbers that would be in the expense items.
Okay. Got it. That's like $ low single-digit millions, right?
Well, of course, the other thing is working capital.
Yeah, working capital.
Okay. Gotcha.
Yeah.
Meaning payables?
Yeah.
Okay. Gotcha. Yeah, that helps. The second thing, sorry, I guess I'm like a little lost in the narrative. As you think about, I know you're not gonna give guidance for 2022, but I guess you're gonna put some pre-production units out between sort of now and March, and you're talking about a commercial ramp in Q3. Like, just help us understand what that looks like. Like, A, what happens in Q2? And also just what does that look like? Is that a broad nationwide thing? Is that targeted to a select number of fleet customers? Just help us understand what's next.
Right. The latter part of Q1 and Q2 are really taken up with testing. The long pole in the tent is the active and passive safety testing that we need to do with pre-production vehicles. You can't do that testing as well as some of the other testing without PPVs. The objective is to get the PPVs built by, call it, mid Q1, and then undergo all the testing we need to do to get homologated and have sellable vehicles by Q3.
Got it. Sorry. Once that starts, what? When you say sellable Q3, like what does that look like?
Oh, well, we sell them largely to fleet customers, fleet management companies, maybe some fleet operators. We have a list of customers who, you know, want vehicles, and we go through that list. We'd start ramping, you know, the current plan is Q3, and then gradually, you know, ramp up during the course of the back half of the year.
Okay. Gotcha. That helps. The last thing I was hoping you could talk a bit about, I guess I hear the words large commercial markets more in the last, I don't know, month or so than I had prior. That seems to be something you're trying to focus us on. What is that? Like what are you trying to message there and what does that? When do we start to learn more about that?
Yeah. Well, the commercial market, obviously with fixed-based operations, charging, you know, charging infrastructure is a little bit less relevant for many of those commercial customers. There is more demand. They're focused on total cost of ownership. They're sensitive to ESG issues. We're seeing just a lot of demand there. If you take, let's say, the pickup market as a whole, right? That's a roughly 3 million unit market, you know, go back to a normal year like 2019. You know, commercial is a meaningful 25% of that market, roughly. Then you have good penetration rate if you believe the forecasters of, let's say, 30% penetration by 2025. You get into a substantial market, and that's just pickup trucks.
You look at vans, and you see the growth in delivery as a service and last mile delivery. You know, we see huge demand for vans. So that's the market we're going after. If you look at the capacity announcements for other OEMs, obviously everybody has pulled forward the EV plans and have announced increases in capacity. If you actually add up all the capacity across the industry, it's still likely to be short of demand. That's where we see the opportunity. I think that's gonna be the case for the next several years.
Gotcha. Okay. Really helpful. Thanks for the thoughts.
Thanks, Jon.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. At this time, I am showing no further questions. I would like to turn the call back over to CEO Dan Ninivaggi for closing remarks.
Thank you very much, operator. In closing, again, we realize that our company is not just an appendage to Foxconn. It's not all about Foxconn. We're focused on the Endurance. We know we have to get that truck out. It's been a challenging quarter with raw material shortages, part shortages, supply chain disruptions, particularly from international sourcing, but we're doing everything we can to mitigate it. You have our commitment that we're gonna do everything possible to get the truck out on our revised schedule. I will say on the Foxconn relationship, people have analogized cars, you know, in the future as being cell phones on wheels. You know, who better to partner with than the largest cell phone manufacturer in the world. I think the partnership has tremendous opportunity. We'll take it one step at a time.
The joint venture agreement, I think, is probably one of the most attractive aspects of the agreement to jointly develop and design vehicles. Our teams are already working together, our engineering teams, and I'm very excited about the change in the business model and the opportunity it brings. I appreciate all the shareholders who have hung in there with us. It's not easy. We see the papers in the news every day with a $100 billion market cap for Rivian. We know we have a long way to go, but we feel like we have a path and a strong partner, and we look forward to talking to you again in Q1. Thank you very much for joining the call.