Nikola Corporation (NASDAQ:NKLA) Q1 2023 Earnings Call Transcript

Nikola Corporation (NASDAQ:NKLA) Q1 2023 Earnings Call Transcript May 9, 2023

Nikola Corporation reports earnings inline with expectations. Reported EPS is $-0.26 EPS, expectations were $-0.26.

Operator: Good morning and welcome to the Nikola Corporation First Quarter 2023 Earnings and Business Update Call. Currently, all participants are in a listen-only mode. We’ll begin today’s call with a short video presentation, followed by management’s prepared remarks. A brief question-and-answer session will follow the formal prepared remarks. [Operator Instructions] As a reminder, this conference is being recorded. It is my pleasure to introduce Dhillon Sandhu from Investor relations.

Dhillon Sandhu: Thank you, operator, and good morning, everyone. Welcome to Nikola Corporation’s first quarter 2023 earnings and business update call. Joining me today are Michael Lohscheller, Chief Executive Officer; Stasy Pasterick, Chief Financial Officer; and Carey Mendes, President of Energy. A press release detailing our financial and business results was distributed earlier this morning. The release can be found on the Investor Relations section of our website, along with presentation slides accompanying today’s call. Today’s discussions include references to non-GAAP measures. These measures are reconciled to the most comparable U.S. GAAP measures and can be found at the end of the Q1 earnings press release we issued today.

Today’s discussions also include forward-looking statements about our future expectations and plans. Actual results may differ materially from those stated, and some factors that could cause actual results to differ are also explained at the end of today’s earnings press release and on page two of our earnings call deck and also in our filings with the SEC. Forward-looking statements speak only as of the date on which they are made. You are cautioned not to put undue reliance on forward-looking statements. After the video presentation, Michael and Stasy will give their prepared remarks, followed by analysts’ Q&A. We will conclude with questions from our shareholders. Please begin the video presentation. Thank you. [Video Presentation]

Michael Lohscheller: Thank you, Dhillon, and good morning, everyone. Again, welcome to our first quarter 2023 earnings call. During the call, we will update you on our truck programs and energy business, and of course Stasy will cover our financials. Before hopping into this, I want to let you know one thing. Nikola is a real deal. We have real trucks that are being ordered, delivered and operating and customer fleets now. We have world class software and technology and elegant zero emissions products, decarbonizing the high polluting commercial transportation market. We are building a real hydrogen business via our HYLA brand with solutions for the entire ecosystem, production, supply and refueling. We recently signed a deal with Voltera for up to 50 refueling stations, advancing progress with HYLA mobile fuelers and are moving forward on the Phoenix Hydrogen Hub in Arizona.

We are doing these things at a time when governments are offering incentives for transitioning to zero emissions now and introducing regulations requiring the transition in the near future. We think we are the best positioned company to spearhead the zero emission transition and accelerate the hydrogen economy with our trucks consuming our hydrogen fuel on the highway. So, with that in mind, let’s get started. The last few years at Nikola, we have been laying a foundation. This foundation allowed us to gain many skills, great technology, great products, great people and a bit of humility, as we hit some speed bumps, along the way. But the strong spirit of the Company remained constant. With this foundation and spirit comes one thing, focus, focus on our mission to pioneer solutions for a zero emissions world.

Let me lay it out very plainly. The future of Nikola is hydrogen, hydrogen with our HYLA energy brand, together with our Class 8 hydrogen fuel cell truck. And for more efficiency, integrated autonomous technology, software and vehicle controls in our purpose built trucks. Our market, North America, that’s it. With that focus comes important decisions. Part of the plan for the new and refocused Nikola is to be geographically focused on the North American market. The United States is a leader in the energy transition with revolutionary federal incentives such as the Inflation Reduction Act in many states like California, New Jersey, and New York, offering both, truck and fueling incentives. California is also mandating zero emissions vehicles through the advanced clean fleet through establishing targets for drayage fleets, government fleets and fleets over 50 vehicles.

Beginning January 1, 2024, only zero emission drayage trucks may register in the CARB Online System. All drayage trucks entering seaports and intermodal railyards would be required to be zero emissions by 2035. As part of this transition, we are selling our stake in the European joint venture to Iveco. This will reduce Nikola’s cash spent and capital commitment and allow us to dedicate our resources to the task at hand in North America. Iveco is and will remain an important partner and key supplier for Nikola. Iveco will also maintain a substantial stake in Nikola and continue to cheer for us in our long-term success. We are grateful for the partnership and expertise we have gained and look forward to continuing our work with them. As we get our fuel cell truck ready for production, we are pausing production of our battery electric truck.

The battery electric truck is a great product and its development has allowed us to create many of the critical components and software systems that we can apply to the hydrogen fuel cell truck. We have sufficient inventory of battery electric trucks for our customers and when production resumes this July, the battery electric will be built to order at our facility in Coolidge, Arizona to better align with our capital allocation plans and improve working capital. I am confident to say we have best in class products and no other company can do what we have set out to do. This direction is exciting for all of us. We are creating an ecosystem that will allow Nikola’s customers to own a hydrogen fuel cell zero emission truck, and with HYLA fuel that truck with readily available hydrogen.

It has already started. The U.S. and Canada have put themselves on the forefront of hydrogen production, and the countries and states or provinces have created incentives to make it possible to dedicate all of our efforts to capture a sizable share of the commercial trucking market as well as a quickly growing hydrogen infrastructure business. The upside potential on both businesses is virtually unlimited, and we are well on our way to making it happen. Nikola fuel cell trucks are in heavy testing along with HYLA hydrogen mobile fuelers, all of which will be available to customers later this year. Autonomous technology with our PLUS.ai partner is being tested today on the battery electric truck and will be available next year with availability on the fuel cell falling shortly afterward.

It is truly amazing to see what this technology does to the trucking experience, improving safety, easing stress for the driver, and adding even more energy efficiency to each trip. We have made changes to our business as well. We have a new CFO, a revised sales organization, a more focused board, and have transitioned out or promoted the right people to the right positions. We have new partnerships and have continued progress with our previously announced partners on the energy side especially, recently announcing our joint development with Voltera to create the largest North American open network of commercial hydrogen refueling stations. And we have a stronger sales, commercial and service network with new dealerships and sales people eager to sell our trucks and energy solutions.

Our employees and team members, including everyone listening in on this call are our focus. We are all in making this happen together. What does this mean? The future looks bright, if we do as we say, build and sell trucks, continue constructing the HYLA business and drive costs down. There is no doubt we can be successful. Beginning with our energy business, on May 2nd, we announced the execution of definite documentation with Voltera Power, a subsidiary of EQT, one of the largest clean infrastructure firms to develop the refueling infrastructure required to support Nikola’s hydrogen fuel cell electric vehicles. We plan to develop up to 50 stations with Voltera throughout North America over the next five years. Voltera intends to supply the capital for the station cost as well as operating the stations.

Nikola will provide the hydrogen fuel and the technical expertise for the station construction. And the stations are expected to provide both, hydrogen refueling and electric charging for Class 8 trucks. We have made significant progress on the Phoenix Hydrogen Hub, recently receiving unanimous approval from the City of Buckeye on our general plan amendment and rezoning application, and continue to progress on ordering long lead time equipment. In addition to the progress made on the Phoenix Hydrogen Hub, we continue to work on completing Phase 2 of the Department of Energy loan program office application process, and work closely with for Fortescue Future Industries on the co-development of large-scale U.S. green hydrogen production facilities across North America.

We believe these two strategic partnerships, along with many others announced over the last several months further validate our business strategy to be capital efficient, improve the demand for financial partners and the buildout of our hydrogen refueling ecosystem. The most critical component for early adoption we believe are flexible fueling solutions. We believe mobile fueling will be an important part of our business moving forward as we look to provide customers with refueling, while at the same time remaining capital efficient and matching fuel cell truck network fueling demands. We are pleased to announce to date, we have commissioned four HYLA hydrogen mobile fuelers. During the quarter, we announced our partnership with Chart Industries, which includes collaboration for the development of new mobile fuelers and modular hydrogen refueling stations.

We have also signed agreements for additional mobile fuelers from other third party partners, including Taylor Wharton. Mobile fueling solutions can be rapidly deployed in any geography and with lower capital requirements than permanent station infrastructure. Mobile fuelers and modular stations allow us to match the hydrogen fueling requirements in geographies as trucks are introduced into the area. In our hydrogen fuel cell program, we remain on track to deliver trucks to customers later this year. We are currently building 10 gamma trucks. Gamma trucks will be used for customer pilot testing and to finalize vehicle validation. As of today, we have completed the first two trucks and are in the process of finishing the next four trucks. The remaining four will be built and commissioned by the end of June.

Pilot fleets include Biagi, Walmart, Linde, and AJR Trucking, a leading carrier for the United States Postal Service, who recently announced an order for 50 trucks. The first production units are anticipated to be built in July. We believe Nikola will be the only company with the production Class 8 hydrogen fuel cell truck available for purchase this year. Our dealers have already received more than 100 orders for the fuel cell truck from end customers. Our commercial team is working diligently to secure additional orders and fill our remaining backlog for 2023 and 2024. The hydrogen fuel cell truck and our energy business will be long-term value creation opportunities for Nikola. We believe we are the best positioned company to take advantage of the massive incentives provided by state and federal governments and can take a significant market share as a first mover in the Class 8 zero emissions vehicle market.

We are also beginning to build sales momentum with the battery electric program. During the first quarter, we produced 63 battery electric trucks delivering 31 to dealers. In the quarter we achieved 33 retail sales, a significant increase from 2022. Our revamped commercial and sales organization and strength in dealer network have improved the go-to-market strategy and we believe we will continue to improve end customer delivery numbers. This will be made possible through new financing options and providing customers with fully integrated mobility solutions. We believe these positive changes will continue to compound and build momentum as we look to reduce inventory and move trucks into customer hands, and we will continue to provide these battery electric trucks to customers on a build-to-order basis.

In Coolidge, we continued with progress on the Phase 2 assembly expansion hall, which will be complete by the end of Q2. At the end of May, we will temporarily pause production in Coolidge as we convert the assembly line to accommodate both, the battery electric and hydrogen fuel cell trucks. We will resume production in July as we begin fuel cell production. We also plan to begin battery module and pack manufacturing in Coolidge by July 2023 and will begin Bosch Fuel Cell Power Module assembly in Coolidge by December 2023. I will now pass it on to our new CFO, Stasy. I am happy to have Stasy join me on the leadership team. She has great knowledge of our business and her passion for the Company is evident in her work. She’s off to a flying start and will be a great partner with me and the rest of the leadership team.

Stasy Pasterick: Thank you, Michael, and good morning, everyone. I would like to begin by saying I’m thrilled to be Nikola’s new CFO and I’m thankful for your support. In my last four years with Nikola, I had the opportunity to develop a deep understanding of the Company’s operations and financials. By joining the leadership team alongside Michael and our Board, I am excited to be in a position to make a positive impact on the strategy of our business with a greater focus on financial discipline. I believe Nikola is the leader in Class A zero emission transportation and hydrogen economy, and can capitalize on the virtually unlimited opportunities in the marketplace. To get that opportunity, we need to navigate a highly challenging macro environment, make the right business decisions, and unlock the long-term value of our business and the positive impact Nikola can have on the world.

My number one goal is to align our spend with our strategic priorities focusing on fuel cell, hydrogen and the North American market. It is critical that we optimize our cost structure, lower cash burn, and achieve positive EBITDA by 2025. Now, let’s review our Q1 results. During the first quarter, we delivered 31 trucks to dealers and recognized total revenues of $11.1 million. Cost of revenues for the quarter was $44 million, generating a gross loss of approximately $32.9 million or negative 296% versus nearly negative 700% in Q4. This is a substantial improvement attributable to higher delivery volumes. Lower inventory costs specifically related to transitioning out of Cypress, improved inbound freight costs as we manage inventory receipts, while we pivot our manufacturing strategy for battery electric to build-to-order and improvements in plant and labor overhead cost structure.

R&D expenses came in below our Q1 guidance and below Q4 levels at $64.4 million, including $9.1 million in stock based compensation. SG&A expenses came in at the midpoint of our guidance and significantly below Q4 levels, totaling $53.7 million, including $14.7 million of stock-based compensation. With the new executive compensation plan and cancelation of remaining market-based RSU awards, we expect the stock compensation run rate to be substantially lower moving forward at roughly $16 million per quarter in the second half of 2023. GAAP net loss for the first quarter totaled $169.1 million, and on a non-GAAP basis totaled $143.6 million. GAAP net loss per share was $0.31 basic and diluted, and on non-GAAP basis was $0.26 basic and diluted.

Turning to the balance sheet, we ended the quarter with approximately $206.3 million in cash including $85.2 million of restricted cash. Not included in our Q1 cash balance is $96.5 million of net proceeds we received from the follow-on and direct offerings, which closed in April. Our current access to capital is approximately $796 million and is comprised of $206.3 million of cash on the balance sheet including restricted cash, $243 million available on Tumim ELOC, $200 million available on ATM, $50 million available of convertible debt, and $96.5 million of net proceeds received in April from the follow-on offering. We want to be clear, much of this capital availability is dependent upon additional shares being authorized by our stockholders in June and registering those shares per the applicable agreement, along with certain other contractual limitations and market conditions, including stock price.

In addition to facilities we already have in place, we are vigilantly monitoring opportunities to raise capital, including monetizing the existing assets on our balance sheet. At the end of the quarter, accounts receivable balance was approximately $27.6 million, down by approximately $4 million from Q4 despite higher sales volume. Through April, we have been able to secure $20 million in floorplan facilities, resulting in AR collections of $15.4 million. We know it is important for our customers to have financing available, and they’re working hard to substantially improve our financing options, both on a dealer and retail side to enable sales and faster cash conversion. At the end of Q1, we held approximately $123.6 million in inventory, flat versus Q4 levels.

This includes $80 million of finished and WIP inventory, including 152 battery electric trucks and Coolidge. Now that we have sufficient stocked inventory, we are adjusting our manufacturing strategy from build-to-stock to, build-to-order to improve cash burn and optimize working capital requirements by minimizing raw materials. CapEx for the first quarter totaled approximately $52.3 million and was predominantly spent on Coolidge manufacturing facility expansion, which is now substantially complete, supplier part tooling for the fuel cell truck, hydrogen production equipment, hydrogen mobile fuelers, and the fuel cell power module production line. As Michael said earlier, we are exiting the JV with Iveco in Europe, allowing us to exclusively focus on our most important market, North America.

In exchange for our 50% stake in the JV, Iveco will pay Nikola $35 million cash and deliver 20 million shares of our common stock back to Nikola. By shifting our focus to the North American market, we expect to realize near-term benefit consisting of savings from European development spend, future JV contribution commitments, return of investment from Iveco, and being able to utilize the 20 million shares for additional capital raise activities. We see improved sales momentum from our new commercial team and remain focused on hitting our delivery numbers this year. The product mix may shift from battery electric to hydrogen fuel cell as we see strong demand for that technology. For full year 2023 guidance, it is too early in the year to update as we are working through cost center alignment and prioritization.

At this time, full year 2023 guide remains unchanged from the last call. We do have a line of sight to reduce CapEx by at least $20 million by optimizing our manufacturing footprint and being capital efficient on our energy infrastructure. We are also taking a critical look into our operating expenses and will provide an update on our Q2 call in August. In Q2, we expect to deliver 30 to 60 battery electric trucks for revenues of $10.5 million to $21 million and generate gross margins of negative 240% to 130%. We expect gross margins to continue to improve, as we scale our volume throughout the year. Once production commences, we expect the gross margin on a hydrogen fuel cell trucks to be substantially and immediately superior to the battery electric, due to higher ASP and lower bill of material costs.

Our goal is to reach gross margin breakeven point by the end of 2024. Our estimated R&D for Q2 is in the range of $75 million to $80 million including $8 million in stock compensation. 2023 R&D expenses are front-loaded due to the beta fuel cell build in Q1, gamma fuel cell build in Q2 and fuel cell validation activities ahead of launch. We expect our R&D run rate to drop by approximately 30% in the second half of the year. SG&A will be in a range of $60 million to $65 million, including $20 million in stock-based compensation expenses. Stock compensation will be higher in Q2, due to the cancellation of the remaining market-based stock awards for executives of $7.2 million and impact of executive retirement of $3.3 million. We anticipate Q2 CapEx to be $45 million, primarily focused on modification of the production line in Coolidge to accommodate the hydrogen fuel cell truck, to fuel cell power module assembly line and fuel cell supplier part tooling.

Going forward, we expect our CapEx spending to reduce significantly, as we will have the footprint and capacity to build trucks, with minimal additional investment. In Q2, we expect the weighted average shares outstanding for the quarter to be approximately $687 million and the total shares outstanding to be approximately $698.5 million. Our redefined focus of Nikola will allow us a much lower cash burn, as we realign our cost structure. In 2022, our cash burn was approximately $200 million per quarter and $240 million in Q1 of 2023. Q1 cash burn was inflated by almost $40 million of cost related to Cypress operations and severance. This level of cash burn is not sustainable for our business, and we are looking at every option for reductions in spending.

We are already beginning to see some progress with April cash burn coming in at $46 million. I am personally driving renewed focus on aggressive management of all three pillars of working capital: cost reductions, specifically payables; inventory procurement and management; and of course, cash collection. We already have a line of sight to achieve approximately $150 million cash burn per quarter and are working in template to reduce quarterly cash burn further with target of $120 million by the end of 2023 and a $100 million in 2024. This will take focus to find further opportunities to improve our cash position and show tangible progress towards reaching profitability. Now, I will pass it back to Michael for closing remarks.

Michael Lohscheller: Thank you, Stasy. Let me summarize our priorities and how this focus will make Nikola better. We will focus on our hydrogen refueling business and the fuel cell truck in North America. This is where we have clear competitive advantages. We are the first in the market with our hydrogen fuel cell truck and have a leading role with our energy infrastructure. We will change our model to build-to-order for the battery electric truck and focus on autonomous technologies which help drivers and fleets. We expect this focus will reduce our cash burn and in turn help Nikola achieve profitability sooner. By focusing on our strengths, we will continue to increase our sales momentum in both, hydrogen fuel and battery electric trucks and capture a meaningful share of the market. This concludes our prepared remarks. Operator, please open the line for analyst questions.

Q&A Session

Operator: [Operator Instructions] Our first question is from Jeff Kauffman with Vertical Research Partners.

Operator: Our next question is from Bill Peterson with JP Morgan.

Operator: Our next question is from Dillon Cumming with Morgan Stanley. Please proceed.

Operator: Our next question is from Mike Shlisky with D.A. Davidson.

Operator: Our next question is from Winnie Dong with Deutsche Bank.

Operator: [Operator Instructions] Our next question is from Tyler DiMatteo with BTIG. Please proceed.

Operator: Our next question is from Jeff Osborne with TD Cowen.

Operator: Thank you. I will now hand the call back over to Dhillon for shareholder questions.

Michael Lohscheller: Thank you all for listening to our first quarter earnings call and for your ongoing support. As we discussed, we are very-focused and will continue executing our business plan. Wish you a wonderful day. Goodbye. See you soon.

Operator: Thank you. This now concludes today’s conference. You may disconnect your lines at this time. And thank you for your participation.