Nikola Corporation (NASDAQ:NKLA) Q1 2024 Earnings Call Transcript

Nikola Corporation (NASDAQ:NKLA) Q1 2024 Earnings Call Transcript May 7, 2024

Nikola Corporation reports earnings inline with expectations. Reported EPS is $-0.09 EPS, expectations were $-0.09. NKLA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. Welcome to Nikola Corporation’s First Quarter 2024 Earnings and Business Update Call. Currently, all participants are in listen-only mode. We will begin today’s call with a short video presentation, followed by management’s prepared remarks. A brief question-and-answer session will follow the prepared remarks. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Soy Jin [ph], Head of Investor Relations. Please go ahead.

Unidentified Company Representative: Thank you, operator and good morning, everyone. Welcome to Nikola Corporation’s first quarter 2024 earnings and business update call. Joining me today are Steve Girsky, President CEO; and Tom Okray, Chief Financial Officer. A press release detailing our financial and business results was distributed earlier this morning. This release can be found on the Investor Relations section of our website, along with presentation slides accompanying today’s call. Today’s discussion includes references to non-GAAP measures. These presentation includes adjusted EBITDA, earnings per share, adjusted free cash flow and other 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 discussion also includes forward-looking statement about our future results, 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 2 of our earnings call deck and also in our filings with the SEC. Forward-looking statement speak only as of the date on which they’re made. You are cautioned not to put undue reliance on forward-looking statement. After the video presentation, Steve and Brian will provide their prepared remarks, followed by analysts Q&A, then we will conclude with questions from our stockholders. Please begin the video presentation. Thank you. [Audio-Video Presentation]

Steve Girsky: Thanks, Sally and good morning everyone. Welcome to our first quarter 2024 earnings and business update call. We’re thrilled to be joined for the first time by Tom Okray, our new chief financial officer. Tom brings four decades of public company experience to Nikola, from GM to Amazon to Eaton. He’s approached our business with a fresh perspective. With this outlook and his keen sense of financial discipline we look forward to the impact he’ll make on Nikola in the quarters to come. Before handing it over to Tom, I’d like to talk about what’s going on with Nikola today. We continue to move forward rapidly and execute on our plans and please keep that in mind. We are in the execution phase not the planning or concepting phase.

Last quarter I talked about getting on the field with the first deliveries of our hydrogen fuel cell electric trucks. Today we are executing plays competing and cultivating more green shoots as we expand upon current markets and enter new ones. At Nikola we emphasize that this is not a science project. We have real trucks on North American roads and as you’ve seen we’re growing. At the end of Q1, we announced that we had wholesaled 40 hydrogen fuel cell electric trucks all designated for end fleets. This exceeded the high end of the guidance range. That makes 75 wholesaled fuel cell trucks in the first two quarters of serial production. We’re seeing green shoots with repeat and new fleets some in new markets such as New York. While our initial focus has been California and Canada, we can expand our reach to meet the demands of end fleet users virtually anywhere in the U.S. We’ve spoken about the chicken and egg challenge for years.

We’ve expanded HYLA’s North American reach in the quarter with the grand opening of our Ontario California modular refueling station and with our partners at ITD in Canada we announced the first commercial modular refueling station in Edmonton, Alberta. HYLA’s hydrogen highway plan remains on track for 2024. In fact, we recently opened another modular refueling station near the port of Long Beach, California to support primarily drayage fleets in this high density area. We continue to be encouraged by opportunities in constructive green policies. We are pioneers for our zero missions world to decarbonize the trucking industry. We cannot do this alone. We need both private and public partners. The tailwinds we see from the Inflation Reduction Act of 2022 EPA Clean Ports Program and state specific policies at CARB to name a few support our mission.

We’ve spoken many times of the one truck, two powertrain strategy. We promise that the first delivery of our improved battery electric truck which we refer to as the BEV 2.0 would be completed by the end of Q1. We delivered on this commitment. Now let’s get to the business update. Again we exceeded Q1 expectations and host held 40 hydrogen fuel cell electric trucks all designated for end fleet users. Repeat fleet customer IMC the largest marine drayage company in the U.S. with more than 2,000 trucks in their fleet and operations coast to coast order 10 fuel cell electric vehicles from our dealer network in Q1. This was after their initial order of 10 in Q4 and they’ve announced that they’re taking 30 more for a total of 50. IMC has expressed strong interest in growing with us as we continue to build out modular hydrogen refueling stations near critical ports such as Long Beach and along busy freight corridors where they operate.

Fleets such as AJR demonstrate our focus to fulfill prior commitments and align ourselves with their business needs. AJR with a total fleet of more than 500 trucks is a leading carrier for the United States Postal Service and a major drayage operator in the ports of Los Angeles and Long Beach. They announced a 50 unit purchase order for Nikola fuel cell trucks in May of 2023. We delivered the first 15 fuel cell trucks of this order to our dealer network in Q1 and we are working to continue our relationship with them as fueling solutions come online in freight corridors critical to their operations. New fuel cell electric vehicle fleet users such as Green Transportation Group or GTG help Nikola enter new markets in the northeast. GTG is a large full-service 100% emissions-free freight and logistics provider in the New York Tri-State area.

We delivered 10 fuel cell trucks to our dealer network designated for GTG. Notably GTG will locally source hydrogen from an authorized fueling provider independent from Nikola. Non-California or Canada customers such as GTG demonstrate that the sale of fuel cell electric vehicles can be decoupled from high-less sourced hydrogen which enable us to penetrate new markets with less capital. As Tom will explain later in the call expanding geographical focus especially with large volume accounts including national accounts is an important priority of ours going forward? Enabling our fleet users to access hydrogen independently is a growth factor in this strategy. Program to date, Nikola fuel cell electric vehicles have accumulated over 830,000 miles with an average fuel economy exceeding our target of 7.2 miles per kilogram.

We’re doing what it takes to delight prospective and existing customers with the best possible experience. Moving to chart 7 we maintained our dominant market share of HVIP vouchers for class 8 fuel cell electric vehicles and in the quarter with 362 of 367 or 99% of the vouchers that were requested in 2023 through March of 2024. We remained under soft cap review at CARB for much of Q1 after reaching a ceiling on unredeemed vouchers. For context in response to the strong demand of our zero mission trucks we have been requesting higher soft caps at CARB throughout 2023. Our most recent soft cap request for 500 unredeemed vouchers was granted in early April. On the battery electric vehicle side, we ended Q1 with 85 unredeemed vouchers or 30% market share during the same period.

Being a pioneer is not easy and again we cannot do it alone. We share an aligned mission with CARB to help California achieve its air quality and emissions reductions goals. HVIP is only one program and we continue to be encouraged by opportunities in other constructive green policies. Two, in particular help us fund our business. CARB’s heavy-duty omnibus regulation allows us to monetize the NOx and particulate matter or PM credits we generate from selling zero mission trucks on a model year basis. Other OEMs or engine manufacturers that sell products above emission standards in California must purchase credits to enable sales of combustion engines. We are pleased to confirm that Nikola has executed its first sale agreement for credits generated from model year 22 and revenue from this transaction will be recognized in Q2 2024.

We expect future revenue from the sale of CARB credits to grow over time and be meaningful. California Advanced Clean Truck ACT credits is another program that supports Nikola’s mission to decarbonize trucking. Again, we generate credits for selling zero mission trucks in California on a model year basis. OEMs that sell combustion trucks in California generate deficits that must be offset by purchase credits. We have an opportunity to be a market maker in this space and are actively negotiating with counterparties to monetize credits. In addition the EPA Clean Ports program provides $3 billion to fund zero mission port equipment and infrastructure as well as climate and air quality planning at U.S. ports. Nikola has engaged with several private and public entities at strategic ports across the U.S. to apply together for funding to help ports decarbonize and transition to zero missions.

Our HYLA team is executing its hydrogen highway plan and we remain on track. Previously, we had committed to nine additional HYLA refueling stations in California by year-end 2024. Now we are expecting to provide nine hydrogen fueling solutions by mid-year 2024 and 14 by year-end 2024. These solutions include modular fuelers and partner stations in California, Canada and our home station at our Coolidge Arizona manufacturing facility. We want to emphasize that building the hydrogen ecosystem requires industry-wide collaboration for the benefit of all. We need partners and they come in different forms and stages of infrastructure development. The shared mission is to build an open ecosystem accessible to all. As mentioned during Q1, we launched HYLA’s first modular fueling station in Ontario, California.

This station is live with 24/7 operations to support fleets. We also recently opened a refueling station near the port of Long Beach. This is a critical site for us to support the heavy drayage operations out of the port for fleets like IMC. Lastly, we announced Alberta’s first commercial hydrogen refueling station along Highway 2, a vital freight corridor connecting Edmonton to Calgary. This station supports our close collaboration with the Alberta Motor Transport Association and our Canadian dealer ITD Industries. Finally, we completed the first delivery of the remediated BEV in Q1. We continue to prioritize returning BEVs to customers and dealers and now expect to complete remediation of these units by year end 2024. Our ability to sell Nikola’s on-hand inventory, however, will be dependent upon future battery supply.

We now expect to opportunistically sell on-hand inventory for revenue in 2025. We’ve also taken this opportunity to future-proof the BEV 2.0 as it now shares significant software commonality with the battery and operating systems of the fuel cell electric vehicle, allowing customers to receive next-generation upgrades seamlessly over the air as they are deployed. We’ve kept our fleet users front and center as we’ve engineered over-the-air enhancements, including dynamic data gathering for predictive diagnostics, improved truck performance, and field-issue identification. We’ve also deployed new advanced driver assistance systems, features to effectively manage powertrain demand in aggressive route conditions such as mountainous driving. Again, growing Nikola is about being nimble, learning as we go, and adapting to meet the demands of our customers.

Passing it to Tom to cover the financial results. Welcome, Tom.

Thomas Okray: Thanks, Steve. I’ve learned a great deal in the two months I’ve been at Nikola. The energy and unflinching spirit I see here is inspirational. We’re pioneers at Nikola and bringing the world closer to our zero-emissions vision. Remaining committed to our mission and consistently following through on what we say we’re going to do will make our vision a reality. Moving to Chart 12, the Profitability Flywheel. As we have highlighted, we are excited about being in serial production and delivering 40 fuel cell trucks in the quarter and 75 trucks in the last two quarters. There is a market for our trucks and we’ve begun to demonstrate that. That said, profitability will not be where we want it to be until we can build scale.

Simply put, it is not practical to optimize our cost structure without a meaningful level of volume. So what are we doing differently to build the volume? There are a few things I would like to highlight. First, we are putting a greater focus on selling to national accounts, which we define as fleets greater than a thousand trucks. Second, we are being more forgiving on the economics of the initial deal to build confidence with our end fleet users. We are confident once end fleet users drive our trucks, they will be delighted and want more. Finally, we are expanding our geographical focus beyond California and Canada. In short, we will leverage partnerships to build volume across North America. With meaningful volume, we will be able to provide our supplier partners with a consistent order book.

The order book will enable suppliers to be able to provide their suppliers to optimize their cost structure by enabling economies of scale to reduce our bill of material. In addition, we will utilize the scale to optimize our cost, reducing our operating expenses and optimizing our manufacturing costs. The flywheel described above will not only lead to profitability, but also put Nikola in the driver’s seat of the hydrogen economy, attracting partners who believe in this mission and want to get a head start. Chart 13 contains our financial highlights. As noted previously, absent meaningful volume, profitability will be below our expectations. For the quarter, we had a gross loss of $57.6 million. That said, we’re making progress. With respect to the top line, we exceeded the high end of our volume guidance by delivering 40 fuel cell trucks with revenue of approximately $15 million, also above the high end of guidance after adjusting for BEV returns associated with dealer cancellations.

Further, the average sales price of the 40 fuel cell trucks improved sequentially by $30,000 per unit to $381,000. On the operating side, R&D and SG&A on an adjusted basis were favorable to guidance. With respect to cash, our unrestricted cash declined $119 million sequentially. Our cash burn improved sequentially versus the fourth quarter in 2023. We have a lot of work to do, but we are making progress. Moving on to chart 14. For fiscal year 2024, our fuel cell wholesale delivery guidance remains unchanged at 300 trucks to 350 trucks, with Q2 being between 50 and 60 wholesale deliveries. For the reasons highlighted earlier, with respect to the BEV, we will look to sell our on-hand inventory opportunistically in 2025. Profitability is related to execution of the flywheel discussed earlier in the call.

As such, we will be focused on gaining momentum. Finally, we have demonstrated an ability to raise capital, and as we continue to execute our plan, it will only increase as the flywheel gains momentum. Back to Steve for closing remarks.

Steve Girsky: Thanks, Tom. We’re glad you’re here. To close on a personal note, I have invested more than four years in Nikola and have been through the ups and downs of the company. I believe in our leadership team, our board, and what the team has created. As a leader, I am financially invested in the company, and I have never sold one share of Nikola’s stock outside of paying tax obligations, period. I am focused on removing unnecessary distractions, growing our business, and progressing on the path to profitability. As Nikola moves forward, we will keep hitting on milestones. On April 29th, our 100th production fuel cell electric vehicle drove off our Coolidge line. This is truly a testament to our Arizona teams in Phoenix, Coolidge, and supplier partners around the world.

This is just the beginning. I remain inspired by the people at Nikola, the faith of our stockholders, and the mission that we all share, to decarbonize trucking and pioneer solutions for a zero emissions world. These words are what our team lives by, and we thank you for being part of it. This concludes our prepared remarks. Operator, please open the line for analyst questions.

Operator: Thank you. [Operator Instructions] Our first question is from Scott Group with Wolfe Research. Please proceed. Scott, please check and see if your line is muted. Okay, we will move on.

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Q&A Session

Steve Girsky: Can’t hear you, Scott.

Operator: Okay, we’ll move on to the next question. Our next question is from Mike Shlisky with D. A. Davidson. Please proceed.

Mike Shlisky: Yes, good morning and thanks for taking my question. Tom, I may want to get a little more clarity about some of the comments that you made. If I took it correctly, if I understood what you’re trying to say, it sounds like perhaps the pricing of future FCEVs for the rest of the next of the year or so might not be as high as initially planned. Are you intending to cut prices to get customer trial, to get a few in there? And you also kind of said comments, basically saying that it almost implied that you don’t see much need to cut costs going forward either. It’s going to take the volume to meet those costs that you currently have, which are a bit lower than they have in the past, but it’s going to take more volumes to make the current cost structure work. So can you maybe just comment on whether you’re going to cut price, whether you do have any plans to reduce costs going forward?

Steve Girsky: Yes. Let me start with the second part of the question first, we definitely need to optimize our cost structure. No question about it. What we were trying to get at though, with the flywheel and my two months been here crawling around the numbers, is we need to have meaningful volume to be able to go to our supplier partners and work with them to optimize our bom [ph]. And that comes down to credible order book, something that they can plan their operations on and optimize their operations. And that’s where we touched on the three focus points in terms of national accounts, geography, as well as what was the third one?

Mike Shlisky: National account, National Council geography, and that was it.

Steve Girsky: Yes. Oh, and also the economics coming back. I’m sorry, coming back to your first point. So the three points are national accounts being forgiven on the initial deal and geography. So being forgiven on the initial deal. What does that mean? Does that mean a price cut? No, it doesn’t mean a price cut. In fact, you see that our price is increasing sequentially versus the prior quarter. What it does mean though is we need to land the big national accounts, those that are over 1000. And to do that, we are not going to be puffing out our chest and really wrestling with the economics at the expense of getting the volume on the road. We’re confident that once we get the trucks in the customer’s hand, that they are going to love the trucks and we are going to have longer term business with them.

So bottom line is, yes, for sure, we have to cut our costs. The other thing with the national accounts is it will give us more experience for our warranty expense, which is way too high right now. It will give us an opportunity to plan our manufacturing expense so the point of the flywheel is the volume is foundational, and we just want to be very open and say we need to be flexible with the initial part of the deal. Thanks for the question.

Thomas Okray: I think just to add to that, just in general, big customers get better price deals than smaller customers. I think it’s as simple as that. And if you have the bigger customers, as more of your, more of your volume, the price increases won’t occur as fast as, as if it was all small customers. It’s an efficiency issue, is how do you get to these small guys that will pay more versus the big guys that can bring more volume in and help you lower your material costs?

Steve Girsky: Yes. And just to amplify that one last time, I think in the past there have been some passing on larger accounts because the profitability wasn’t actually where we wanted it to be. And the issue is if you pass too much, then you’re left not with the scale, which is what we need to get this flywheel going. Hopefully that’s clear.

Mike Shlisky: Sure. Yes. I appreciate all that color. I also wanted to ask about some of your comments, Steve, around expanding a little further into New York. Can you give us a sense as to what you believe the current scale, the interest is within New York, and how would the hydrogen buildout look within New York.

Steve Girsky: So what’s interesting about that deal was, again, this is about experience, right? Getting on the field and learning. And one of the things we’ve learned from our modular fueler is we could put these anywhere, and in fact, anyone can put them anywhere. So that deal is we sold the trucks. There’s another hydrogen provider nearby that’s going to provide the fuel. The customer went to that hydrogen provider and did that. We can go anywhere now, anywhere where it’s economically viable for the customer and New York has, New York, Port of New York has some incentives. You’re going to see a lot of incentives. You’re already seeing it. The EPA was mentioned earlier about a Clean Ports program. So you’re going to see a lot of money towards these ports and we can start mobile fuels in a lot of these different ports or somebody else can.

They have the capital and that will sort of move the volume outside of California and Canada. Don’t, to be clear, the incentives in California and Canada are the best in the country right now, but other states have this FOMO going on where they want to get in the game and they’re starting to offer incentives of their own. And the ports is a very logical place for us to start. So you’ll see more of that.

Thomas Okray: Yes. Just to maybe amplify that a little bit more again as a new person coming in, I think we were so overly focused with California. We were leaving out a big part of the total addressable market. And now as we’re working with partnerships and the ability to move fuel elsewhere, we have an opportunity again to get this order book larger, which is the foundational part of the flywheel.

Mike Shlisky: Okay.

Steve Girsky: So we said New York, by the way, we said New York, it could be Newark. It’s called a tri-state area.