Title

Presentation

Ayro, Inc. beats earnings expectations. Reported EPS is $-0.15, expectations were $-0.17.

Operator: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Ayro Inc. first quarter 2023 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through August 9, 2023. I would now like to turn the call over to Joey Delahoussaye of Core IR, the company’s investor relations firm. Please go ahead, sir.

Joey Delahoussaye: Thank you Kate. Good morning and thank you for participating in today’s conference call. Joining me from Ayro’s leadership team are Tom Wittenschlaeger, Chief Executive Officer, and Dave Hollingsworth, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address Ayro’s expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Ayro’s most recently filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and Ayro’s press release that accompanies this call, particularly the cautionary statements in it.

Today’s conference call includes adjusted EBITDA, a non-GAAP financial measure that Ayro believes can be useful in evaluating its performance. You should not consider this additional information is isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non-GAAP financial measure to net loss, it’s more directly comparable GAAP financial measure, please see the reconciliation table located in Ayro’s earnings press release, which is available on its website at www.ayro.com under the Investors tab. The content of this call contains time-sensitive information that is accurate only as of today, May 9, 2023. Except as required by law, Ayro disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

It is now my pleasure to turn the call over to CEO, Tom Wittenschlaeger.

Thomas Wittenschlaeger: Thank you Joey, and good morning to everyone on the call. We believe we’ve made important strides in the first quarter of 2023 that bring us ever closer to launching the Ayro Vanish, a lightweight, low speed electric vehicle, or LSEV with adaptable and reconfigurable payloads that will serve the stadium, arena, campus, resort, and last mile delivery environments both indoors and out. In the last few earnings call, we have gone to considerable lengths to lay out the business case for our product road map and to provide some context to our corporate strategy. From the outset, we recognized that while an 18-month design and manufacturing scale-up process is actually remarkably short in the automotive world, to many investors it may as well be four years.

Our team is enthusiastic about what we’ve already accomplished and even more so at the significant opportunities that we believe lie just ahead of us. We have made real progress on the dealer front and we have had encouraging discussions with potential fleet dealers. We believe our participation in a recent large trade show, where many potential customers were able to see the Vanish firsthand for the first time, has been very productive for us and we hope to be in a position to share some developments arising from those marketing efforts. We believe we can establish new fleet relationships that could provide meaningful sales opportunities. The benefit of fleet partnerships is the high unit order volumes they can potentially provide us from the recurring fleet refresh cycle within their respective customer bases.

A strong fleet partner can potentially equal dozens of standalone dealers without regard to territory exclusivity. That said, we are certainly focusing on signing up dealers under our dealership program. Earlier in 2023, we announced our first dealer indication of interest with Masters Golf and Utility Vehicles in Ontario, Canada. Since that announcement, we have signed many more dealers under our dealer program and, while we won’t provide specific dealer counts, I will provide some context for this topic. Under our former relationship with Club Car for the Club Car Current vehicle, Club Car had the potential to generate sales of the current from all of its approximately 450 dealerships; however, the reality was that only 42 dealerships out of this 450 ever generated a sale of the Current throughout our multi-year relationship.

For comparison, the number of locations operated by dealers with whom we are in discussions already exceeds 42, and we’re in various stages of negotiation with many more potential future dealers. I hope that is helpful in terms of outlook on the dealer and fleet channels. On the direct-to-consumer, or DTC channel, we’re working to finish our ecommerce site and an onsite location in Florida to support our DTC efforts for customers to be able to customize and order their Vanish directly from Ayro in those states that allow DTC vehicle sales. Florida happens to be one of those states, and we believe it is a large potential market for the Vanish and our follow-on products, the people mover we call the Valet and what we believe is the world’s most attractive gold cart, called the Vapor.

We expect our DTC capability to be ready to launch in the third quarter of 2023. Now I would like to talk about the status of the Vanish vehicle and just where we are in the process of bringing it to market. The Vanish will enter the homologation phase this week as we have just recently successfully completed a series of internal tests at a test track in Houston, Texas. The homologation process is a series of safety assessment tests on the vehicle that can take up to12 weeks, depending on the queue of other vehicles also waiting on homologation. However, while homologation is occurring with the Vanish and in parallel with that certification process, we plan to enter low rate initial production, or LRIP by early June to begin building the first 50 Vanish units.

These units are largely earmarked for dealer floors as demo vehicles. The LRIP phase is used to ensure the supply chain is flowing smoothly and allows our manufacturing team to scale that learning curve of assembling components and subsystems. Following LRIP, which we anticipate may take a month, we’d expect to begin full scale production where we are targeting nine vehicles per day, five days per week under a single shift scenario. This would equate to over 2,000 vehicles per year of capacity under the guidelines mentioned above. Until homologation is complete, we anticipate holding back any finished inventory of Vanish units. We believe any delays or deferrals in customer shipments of the Vanish should homologation take longer than we would prefer are rather trivial in the big picture and would be unlikely to lead to order cancellations.

As is always the case in first model year production, we expect and plan for supply chain uncertainties until all component suppliers are flowing in their products smoothly. Once in full production, we do have the ability and likely the intent, given some early signs of demand, to move to a second shift that can help us produce more output of Vanish units from our own manufacturing floor. Based on our current forecast, we anticipate moving to that production cadence as fast as possible post LRIP. Even more significant than adding a second shift is our potential ability to source additional production of the entire Vanish vehicle from an OEM automotive component supplier that currently serves the big three automakers. That supplier also happens to be our chassis component supplier for the Vanish.

Fortunately, they have production capacity at their facility to be able to handle the assembly of the entire Vanish vehicle should we choose to route any excess surge demand to them down the road. While this decision would likely come with initial start-up issues and a learning period from all parties that we would just need to accept, it does offer the potential for us to ramp our total production of units in a much faster fashion than greenfield construction of a new manufacturing facility, at least at this point in time, so we anticipate addressing any excess demand initially with a second shift and then likely by resorting to our relationship with this OEM component supplier for any true surge in demand that would otherwise overwhelm our manufacturing facility.

Needless to say, these would be very nice problems to encounter and address this early in the commercial launch of the Vanish. These so-called problems, and I use that term tongue-in-cheek, that we are now facing are simply the result of what we feel are the perceived quality and value proposition of the Vanish and advancements in a category that we feel has been quite stagnant for much too long. You don’t have to take my word for it, and certainly the market isn’t appreciating this aspect either, apparently. Thus far in 2023, we’ve won two prominent awards for design from two separate market research companies. The first was in January of 2023 when Frost & Sullivan awarded us the 2023 North American New Product Innovation Award in the low speed vehicle industry for the Vanish’s design, and as if that were not enough, in April we were named as a 2023 Red Dot Award recipient for product design for the Vanish based on its principles of good design and it’s socio-cultural character, technical focus area, and design expertise.

Many engineers and designers can go their entire career without winning either a Frost & Sullivan or a Red Dot Award. We won it on our first design after pivoting the company 18 months ago – that is a remarkable achievement, and I’m very proud of all our employees here at Ayro. One would expect that these validations of the design and value-add merits of the Vanish to translate into appreciable unit sales, and that is definitely what we are viewing this opportunity that is finally right in front of us. On the intellectual property, or IP front, we continue to grow our portfolio both in the rate of patent and trademark filings as well as in the rate of grants by the USPTO. We believe the combination of our anticipated future sales and sales growth together with our growing IP portfolio should add sustainable stockholder value and provide numerous opportunities in this segment that otherwise hasn’t evolved with prevailing technologies, nor with market opportunities.

In our 2022 year-end earnings discussion, I provided explicit guidance that revenue for the legacy Club Car Current vehicle would be minimal in the first half of 2023 given the run-off of current inventory in the sunset phase of that vehicle. That was certainly the case in the first quarter given our revenue of approximately $100,000. Quite simply, that phase of Ayro is in the past and I have maintained all along that I believe future sustainable stockholder value will come from the future adoption of our new LSEV products, not from revenue of our legacy products. Hopefully my comments this morning have painted a picture for Ayro that is as bright as ever. We continue to manage costs as effectively as possible, all while ramping our internal activities for the benefit of the Vanish and subsequently the Valet and the Vapor.

Our net loss in the quarter, even with considerably lower sales of the Current, was roughly the same as it has been over the last year. We believe our cash and equivalents balance of nearly $42 million will be sufficient for us to reach breakeven according to our current forecast. That concludes my opening remarks. Now I’d like to turn the call over to Dave Hollingsworth, who will review our financial results in more detail. David?

David Hollingsworth: Thanks Tom and good morning everyone. Here is a summary of our first quarter 2023 financial results. Revenue for the first quarter ended March 31, 2023 was $113,084, a decrease of 89% year-over-year. The sales recorded in the first quarter of 2023 represent the run-off of our Club Car Current inventory as we transition to the Ayro Vanish. Total operating expenses for the first quarter of 2023 were approximately $5.7 million as compared to approximately $4.4 million in the first quarter of 2022. The year-over-year increase in total operating expenses was due primarily to the completion of the Vanish product and a ramp to LRIP and full production. Adjusted EBITDA, a non-GAAP measure, for the first quarter of 2023 was a loss of approximately $5.1 million versus a loss of approximately $4.2 million in the first quarter of 2022.

Net loss for the quarter ending March 31, 2023 was approximately $5.5 million versus a net loss of approximately $4.6 million in the year ago quarter. This decrease was again a result of the completion of the Vanish product and ramp to LRIP and full production. Cash and marketable securities at March 31, 2023 was approximately $41.7 million versus $48.9 million at the end of 2022. Total debt was zero at March 31, 2023, as it was at December 31, 2022. As of March 31, 2023, the company had 37,352,204 common shares outstanding. That concludes my prepared remarks, and I’d like to turn the call back over to Tom for any remaining comments. Tom?

Thomas Wittenschlaeger: Thank you Dave. As you can probably tell from my earlier comments, I am optimistic and enthusiastic about our competitive positioning as we get close to the commercial launch of the Vanish. We believe we have the right design elements and solutions for the LSEV market, as the Frost & Sullivan and Red Dot Awards can attest to. We believe we have the right team given all that we have accomplished with the new common core chassis platform, the initial Vanish design, and the impending Valet and Vapor designs in such a relatively short period of time. We believe we have the right distribution strategies given what we believe is a consistent interest from dealers and fleet customers looking to offer our products to their customers, and we have a growing IP portfolio that can help us build moats around our technology, products and methods of creating sustainably engineered vehicles.

To date, the market doesn’t appear to have caught onto our better mousetrap, perhaps for a variety of reasons; however, as we continue to innovate and execute and share important corporate developments, we believe this will all change. With that, I’d like to turn the call over to the Operator so we can begin the question and answer session. Operator?

Operator: The first question comes from Brian Lantier of Zacks. Please go ahead.

Brian Lantier: Morning Tom and Dave.

Thomas Wittenschlaeger : Good morning Brian.

Brian Lantier: Good morning. I was wondering if you could just give me a little feedback that you may have received from some of the potential dealers or fleet managers from the trade shows that you’ve attended. Principally, what sort of attributes in the Vanish are standing out to them? Is it the quality of the build, the auto-like features, or maybe the configurability of the platform?

Thomas Wittenschlaeger: Well Brian, that’s a great question, and as you know, when you go to a trade show, everybody looks at things in their own unique way, so there is no uniformity of perspective when people are looking at product. What we saw that was fascinating kind of went into the following fundamental categories. The first thing is as people actually put their hands on the Vanish and compared it to apparently similar products at the show, it was a lights on epiphany in terms of the difference between a product built to automotive OE standards versus a product built, let’s just call it to commodity golf cart standards. The difference of every detail, the difference of the quality, the difference of the finish, the difference of the styling and the look, they all were night and day differences or, as we would say, jets and propellers compared to what currently exists in the golf cart world.

A lot of people commented, first of all, on the quality of the materials we use, which are unusual and unique in this space. A lot of people commented on how roomy the interior was and how significant the enhanced payload capacity was, and so from the point of view that we have a dual display head that can be used for a variety of purposes to the fact that our cargo subsystem is completely reconfigurable every morning by resort and golf operators, to the fact that this is just a fundamentally higher quality vehicle with the bonus points that this thing is designed in the United States, sourced in the United States, built in the United States and supported in the United States, as compared to the commodity products coming across the Pacific.

All those things seem to add up to make a pretty powerful impression on both dealers and fleet managers.

Brian Lantier: Great, thank you. That’s really good feedback. I’d just like to reiterate, I’m incredibly encouraged by the news and some of the early outlook for the rest of the year. That’s certainly a better outlook than I had built into my models currently. Regarding the motor order with Saietta, are those motors going strictly into the Vanish or will that be for the entire product line?

Thomas Wittenschlaeger: Brian, that’s a good question. The entire design philosophy of our product line is that every component in every vehicle is identical, so they’re not similar, they’re identical. A motor in a Vanish is the same as the motor in a Valet, is the same as a motor in a Vapor, and the reason we did that – the motors are the same, the wheels and tires are the same, the seats are the same, the displays are the same, the controllers are the same, the batteries are the same, that whole philosophy means that a customer who puts a logistics plan or a supply chain for spares and provisions in place for any of our vehicles has a supply chain for all our vehicles. The initial order you saw placed is an order that will provide axial flux motors for every single product in the product line this year and every single product anticipated on a go-forward basis.

Brian Lantier: Great. I think that’s an important point that investors will eventually pick up on as well. Maybe just a quick question for Dave – the growth in inventory associated with all the new products, there’s no longer any Club Car-related inventory in there principally, and then lastly for Dave, if I sort of look out through the forecast over the next 12 weeks to get past the homologation process, we could possibly be taking the first orders and booking sales in Q3, or should I look at that maybe being a Q4 item?

David Hollingsworth: Thanks Brian, I appreciate you. First off with the inventory purchases, no, inventory is vastly consumed by the Ayro Vanish. Now, we will of course be needing a few small parts to support our legacy product, that central product, but it will be minimal, completely immaterial to our books. Buys now are to set up for LRIP and then of course to set up for full production as we move forward and to increase those prepaids and actual inventory buys as we prepare for that. As for your second question, we have been talking through this presentation about getting our vehicles built as we complete homologation, and of course that will dictate when we would recognize sales in certain areas, so that will be something we’ll be following very closely.

We have everything aligned with those homologation teams so they can move as quickly as they are able to move, so that we won’t hold them up at all, because our priority is to get those vehicles out as quickly as they can, especially the demo vehicles to our fleet and channel partners, and of course recognize a corresponding sales along with those units being moved.

Brian Lantier: Great, thank you so much.

David Hollingsworth: Thanks Brian.

Operator: Again, if you have a question, please press star then one. The next question is from Matthew Policek , a private investor. Please go ahead.

Matthew Policek: Good morning Tom and everyone. For clarification, I think you mentioned that your remaining cash was about $41 million, but if I’m looking at the earnings sheet tear, it looks like the cash at the end of the period is $31.9 million plus a few assets around $137 million. Can you explain what I’m missing here?

David Hollingsworth: Yes, so the term we talked about with that $42 million is cash and marketable securities, so we still hold, if you look at that next line, a significant amount of mainly T-bills in our product portfolio to just get the best use of our cash that we’re not actively using. We do hold some in marketable securities that we include in that $42 million because we have easy access to that cash.

Matthew Policek: But I’m looking at–I just don’t see it. I’m in the–you said the next line?

David Hollingsworth: Depending on what chart you’re looking at, so we have–if you’re looking at my balance sheet, we have cash and marketable securities, so those are the two pieces that we include together because they’re very liquid.

Matthew Policek: Okay, thank you.

Operator: Again, if you have a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to Tom Wittenschlaeger for closing remarks.

Thomas Wittenschlaeger: I want to thank all of you for participating in today’s call and for your interest in Ayro. We look forward to sharing our progress on our next quarterly conference call when we report our second quarter 2023 results, likely in August of 2023. Thanks again. Have a good day.

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