FFAI - NASDAQ

Greetings, and welcome to Faraday Future Intelligent Electric Inc. Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jonathan Maroko, the CFO. Thank you. You may begin.

Thank you, and welcome, everyone, to Faraday Future's second quarter 2023 earnings call. We issued a shareholder letter reporting our results and filed our quarterly report on Form 10-Q for the second quarter of 2023 this afternoon, August 21, 2023. Joining the call today from Faraday Future is our Global Chief Executive Officer, XF Chen; Global SVP of Product Execution, Matthias Aydt; and myself, Jonathan Maroko, Interim Chief Financial Officer. You can find a copy of the Q2 2023 shareholder letter now and a replay of this call later today on the Investor Relations section of our website at investors.ff.com. Please note that on this call we will be making forward-looking statements based on current expectations and management assumptions. These statements reflect our views only as of August 21, 2023, and should not be relied upon as representative of our views as of any subsequent date. Except as required by law, we undertake no obligation to revise, update or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including the section titled Risk Factors in our latest annual report on our amended Form 10-K and our quarterly earnings report for the second quarter 2023 on Form 10-Q. In addition, during today's call, our management team will give our prepared remarks and answers to investors' questions in English. A translator will provide simultaneous Chinese translation which can be accessed through ff.com. All translations are provided for convenience only. In the case of any discrepancy, management's statements in English will prevail. With that, I will turn the call over to XF Chen, Global CEO of Faraday Future.

Thank you, Jonathan, and good day, everyone, and thank you for joining our conference call. To start the call, let me give you a brief update about our progress with our production and deliveries. Following this, Matthias will provide an overview of our vehicle knowledge, and Jonathan will provide a review of our financials, covering projects, tighter underwriting, and then majors with [indiscernible] to strengthen our technology. For those who have not had a chance to meet Jonathan, [indiscernible] joined the organization at an interim level and went forward to leveraging his talent and his valuable experience. I'd like to start today's call by stating that I couldn't be prouder of the FF team and our combined efforts propelled the company to accomplish significant milestones over the second quarter and beyond. On April 14, 2023 our first FF 91 2.0 Futurist Alliance vehicle came off the line by our FF ieFactory California. This moment reflected the combination of years of our undergoing research and development underscored by the tenacity and the dedication of our internal team. A few months later, our August 12, we celebrated the delivery of the first of FF 91 2.0 Futurist Alliance to our first industry expert developer corporate. Along with the start of Phase 2 delivery of our vehicle, we kicked off our Developer Co-Creation festival at Pebble Beach this past week, and launched our Developer Co-Creation Officer recruitment project. Here, I want to highlight 2 of our Co-Creation officer projects. FPO, Futurist Product Officer, is an open platform where FF interacts with user product expertise through being invited to engage deeply in the entire process that features product development, design, development and testing. FPO helped identify user experience [bug] in the [EVs], offers improvements recommendations, provides multiple insights for better product experience and contributes to the product power upgrade. This impacts product definition process, is aimed to jointly create products that best embody Ultimate AI TechLuxury. An FTO, Futurist Technology Officer, those two participate in the development of new vehicle software, AI algorithms, applications and service through the SDK, technology open platform and application release platform released by FF. FTO also work with FF engineers through the open source community to provide valuable R&D support to FF and jointly drive technology transformations in the automotive industry. For more details of our Developer Co-Creation projects please see our ff.com website. With launching our Co-Creation campaign, collaborations with industry engineers have delivered valuable insights in areas like brand marketing and user acquisition. By intertwining innovation with partnership, we are propelling the company and our industry forward. As we go ahead and move from a project-based company to an operationally focused company, we are intensifying our efforts to strengthen our operational capabilities. In line with this vision, we are -- enriched our team by welcoming stated professional from the industry. Rich Schmidt has stepped into the Vice President of Manufacturing role. Edward Darwick have taken their part as Head of Financial Operations, and Jonathan Maroko, who you just [indiscernible], has been appointed as our Interim CFO. Their combined expertise and extensive experience underscore our dedication to achieving operational excellence and the financial prudence. And then actually on August 17, we completed the business registration for FF Auto Hubei Company Limited, marking for a significant step forward in the progress of our China efforts. We believe that a successful collaboration will shape the next generation of shared intelligent transportation ecosystem and establish the most influential internet-based intelligent electric vehicle brand, both nationally and globally. We further expect that such a collaboration will support the development of leading high-end internet-based intelligent electric vehicle industry globally, becoming a representative base for new energy and intelligent vehicle [industries]. With that, I would like to turn the call over to Matthias.

Thank you, XF. With Phase 2 of delivery commencing, the manufacturing team at Hanford is diligently focusing on delivering the highest quality FF 91 vehicles to our users. We have developed and implemented our customer craftmanship audit procedure and standards, a strategic move that enhances our ability to evaluate the performance and quality of our vehicles effectively. I am pleased to report that the car is now in the hands of users and on the road. As we look to the future, our manufacturing team continues to optimize the facility, preparing for increased volumes throughout the rest of 2023. We are planning to triple our manufacturing team in the coming months with the addition of a second shift, a step that will support our anticipated increase in production volume. A commitment to excellence that has characterized our progress so far will remain a guiding principle as we move forward. I'd also like to take some time to highlight this revolutionary vehicle, the FF 91 2.0 Futurist Alliance, our innovative flagship model and further elaborate on our state-of-the-art automotive AI capabilities. More than just a vehicle, we believe the FF 91 Futurist represents a new era in performance and user experience, charting the path for the automotive industry. With the 2.0 phase of development at FF we are heralding the future of the spire mobility industry, the future marked by 4 distinct trends, All-AI, All-Hyper, All-Ability, and most important, Co-Creation. We believe these trends are not abstract concepts. They are tangible realities in our offerings. The All-Ability aiHypercar FF 91 2.0 Futurist Alliance stands out with superior configurations and performance, equipped with the 3 motors generating 1,050 horsepower and 1,977 Newton meters of torque. It leads the class with a 142 kilowatt hour battery pack and an EPA-certified range of 381 miles. The vehicle showcases the pioneering moat body structure and moat pack structure, together forming the largest in-class site impact crumble zone around the battery design. This design enhances occupant and battery protection without compromising the spaciousness of the vehicle. Underpinning the FF 91 2.0 is our FF aiHyper 6x4 Architecture 2.0. Powered by FF AI, this architecture is designed to permit the car to understand user habits, continually learn and evolve to provide a user-centric experience. The third AI Space augments the interior space, ensuring unparalleled comfort and pleasure. The integration of FF's 6 technology platforms with our 4 technology systems, symbolized by 6x4, lays the groundwork for our commitment to pioneering innovation and excellence in the automotive sphere. Since unveiling our Generative AI product stack in early May, we have been diligent in enhancing its functionality. The development of Watch and Chat product prototype exemplifies this catering to specific multimedia scenarios. It leverages a large language model supplying real-time information on an ultra-wide passenger screen for an engaging experience. The integration of different AI models ensure flexibility, intelligence and adaptability to user diverse needs. Moreover, we introduced FF aiDriving at our launch event. The system offers ultimate safety and a suite of features like automatic emergency braking, adaptive cruise control and smart parking. We took the vehicle on the road recently, driving down from Silicon Valley to downtown L.A. on a single charge. FF stands at the forefront of automotive AI integration, utilizing advanced models like ChatGPT and GPT 4. Since launching the FF 91 in 2017, we have continually refined our AI capabilities, ensuring that our offerings remain at the pinnacle of the industry. The FF 91 2.0 Futurist Alliance is a significant evolution, symbolizing a fresh perspective from the vehicle we introduced 6 years ago. We believe we are not merely following the industry's path. We are charting its course. Our vision continues to drive innovation, redefine the automotive experience and set new standards that others aspire to meet. Now I will turn the call back to Jonathan, who will go over the financials.

Thank you, Matthias. I would like to begin by providing a financial overview, followed by a discussion of our funding effort and cost-cutting strategy. First, I would like to summarize our financial results for the second quarter of 2023. Faraday Future reported an operating loss of $56.0 million for the 3 months ended June 30, 2023, as compared to an operating loss of $137.5 million for the 3 months ended June 30, 2022. The reduction in the operating loss was primarily due to a decrease in engineering, design and testing services as the company substantially completed R&D activities related to the FF 91 vehicle in 2022 and was focused on capitalizable activities attributable to the start of production, which was achieved on March 29, 2023. This was coupled with decreases in personnel, compensation and professional services as part of the company's cost-cutting efforts. Net loss was $124.9 million for the 3 months ended June 30, 2023, as compared to a net loss of $141.7 million for the 3 months ended June 30, 2022. The change in net loss was primarily due to lowered operating expenses partially offset by higher noncash mark-to-market measurements and settlements of secured convertible notes recorded in the second quarter of this year. Turning to our balance sheet. Total assets on June 30, 2023, were $567.5 million compared to $529.3 million on December 31, 2022. Total liabilities were $289.8 million versus $328.3 million on December 31, 2022. Since inception, the company has incurred cumulative losses from operations and negative cash flows from operating activities and the company's accumulated deficit was approximately $3.8 billion as of June 30, 2023. Net cash used in operating activities for the 6 months ended June 30, 2023, was $160.7 million compared to $235.1 million for the 6 months ended June 30, 2022. Capital expenditures were $25.9 million for the 6 months ended June 30, 2023, compared to $90.2 million for the 6 months ended June 30, 2022. Net cash provided from financing activities for the 6 months ended June 30, 2023, was $181.8 million compared to net cash used in financing activities of $85.8 million for the 6 months ended June 30, 2022. Cash balance at June 30, 2023, was $19.4 million, including restricted cash of $1.5 million. Now let me provide you with a funding update. During the second quarter, as previously highlighted, we secured a commitment of $100 million in gross financing through unsecured convertible notes contingent on specific terms. Notably, FF Global Partners, a consortium of approximately 20 present and past senior executives, pledged $80 million out of this committed amount through an independent investment fund. Our management team's dedication was further exemplified when they funded $22 million of gross commitments ahead of schedule for going certain closing prerequisites to bolster Faraday Future's growth. Moreover, on June 26, we fast-tracked a sum of $15 million from secured notes and secured $90 million of funding commitment from our existing investors, subject to certain closing conditions. As of today, we have $171.3 million of gross committed funding not yet funded, equity line of credit, or ELOC, of $350 million. Both the gross committed funding and access to the ELOC are subject to certain conditions. Concurrently, the company is also in financing discussions with potential long-term strategic investors in exploring asset-based debt financing. I'd like to take a step back and talk big picture about Faraday Future and our prospects. It's been a remarkable 9-year journey to reach where we are today with no shortage of obstacles, and we finally delivered a vehicle. I have immense gratitude for the hard work of both current and former members of the FF team. The delivery of our first vehicle is a huge step in the development of our company and certainly one of the key milestones in building a successful, profitable business. We appreciate our investors' understanding and support during this journey. Our focus this year is the rollout of our first vehicle and the continued improvement in the efficiency of our operations. In terms of profitability and operational efficiency, we believe there is substantial room to reduce our costs, both on a per vehicle cost and at a company-wide level. As I noted, our accumulated deficit is $3.8 billion. I think it's important to understand the perspective that this figure is also representative of the amount of capital that has gone into progressing the business to where it is today, it's capital that has gone into our product and our technology, and it has enabled us to deliver our flagship FF 91 vehicle. It is a notable data point when thinking about the cost to recreate a leading-edge business like ours. I'm sure there is and will be a lot of attention paid to our vehicle production and vehicle delivery numbers. We believe our Hanford facility has an expected production capacity of approximately 10,000 vehicles per year. As such, the number of vehicles we produce and deliver this year, while obviously important, does not meaningfully determine the long-term value of our business. What drives our long-term value is our ability to achieve product market fit to make sure we have and can create the demand to meet our ability to supply the market. We believe our sales and marketing team is now able to realize their strengths and can focus on reaching potential customers. At the same time, we will continue to work on improving our per vehicle production costs and slowly ramp up production this year in conjunction with those cost cuts. In this stage of our business, we are being very strategic and selective in deciding who we deliver vehicles to. We continue to believe that we operate in a unique market segment, a hybrid of technology, luxury and performance, which we believe we outperformed any other automaker. Given our Dual Home market strategy, our ability to access the China market, the largest global automotive market, is unique among ultra high-end vehicle manufacturers such as Rolls-Royce, Ferrari, Bentley and Maybach. I'd encourage analysts and investors to look at the annual vehicle delivery figures for publicly traded ultra-high-end vehicle manufacturers. You'll see that huge production and delivery figures are not requirements to establishing meaningful market capitalizations. But what is required for us is improved margin, increased awareness of our vehicles and the creation of brand strength. We are focused on that. Lastly, I want to quickly touch on our status of implementing internal controls over financial reporting. Over the past year, the company has been working diligently to improve its business and system processes and implement internal controls over financial reporting. As we sit today, we believe we have a better system and processes in place than we did 1 year ago. Today, concurrent with this earnings release, we've issued restated financial statements for Q3 2022, full year 2022 and Q1 2023. The errors were first identified as a result of the company's implementation of actions to remediate material weaknesses in the company's internal control over financial reporting. The restatement was primarily due to noncash and nonoperating classified items relating to its accounting for the conversion of the notes payable and exercising of its liability classified warrants under its debt arrangements. The company has corrected the identified material and immaterial misstatements in those affected periods. The company remains committed to improving its internal controls and upholding the highest standards of financial reporting. Finally, we want to emphasize, our goal is to create a profitable business with operating cash flow breakeven in 2025. With this goal in mind, I will now turn the floor back over to XF.

Thank you, Jonathon. I'm immensely proud on the unwavering dedication and the [indiscernible] efforts displayed by the FF team to achieve this significant milestone in our delivery plan. As we move forward, we eagerly anticipate reaching Phase 3 [indiscernible]. I extend my gratitude for your time and interest, and I'm excited to keep you informed about our latest developments in the future.

Operator, we are ready to take questions.

[Operator Instructions] Our first question comes from Stephen Gengaro with Stifel.

The first for me is, you talked about Hanford a little bit, but can you talk about what types of volumes you expect maybe in the back half of this year and kind of what a reasonable expectation might be for 2024?

I think it's a great question. I certainly understand the desire for guidance around production and delivery volumes. We've just launched a new vehicle. We're a new brand, and we want to be very thoughtful about how we enter this new market. We want to make sure the FF 91 is well received. So we're being prudent with our production ramp and the delivery of vehicles to market. We're an ultra-high-end vehicle manufacturer. So the key for us is not massive volume at this stage, but rather strong brand recognition driven by an exceptional product. We also want to partner with the right users, give these users an unparalleled luxury experience, and we'll do this while working with them to ensure the vehicle meets and exceeds the discerning standards. As we ramp up production, we'll continue to host created events that introduce our vehicle and the experience of driving and riding in our vehicle to our target users. So the focus for the remainder of '23 is less so on huge volume and more so on brand building and creating a community of enthusiastic ambassadors to amplify our brand, and we believe that this will set the stage for a ramp in volume in 2024.

2 more for me. Just one as a follow-up to that. Is there any guidance or any targets you have given what you're doing on the cost side as far as what volumes you think you need to get to cash flow breakeven or EBITDA breakeven?

Sure. So we're working through that internally. We have a sense of it internally, but we're not yet ready to disclose that publicly. But I understand the question. I think it's a valid question.

And then just one more for me. As you -- You did mention getting the financials restated numbers filed for the last 3 quarters. Can you give us a little more color on kind of the internal controls and improvements that have been implemented?

Sure. I'll reiterate a bit what I mentioned earlier. The team has been working very hard over the past year to improve and implement internal controls. The system we have in place now and processes we have in place now are certainly better than they were 1 year ago. We've improved internal controls in both the preventative and detective categories. As you saw today, we issued restated financials for 3Q '22, fiscal year '22 and 1Q '23. And in doing so, we corrected all material and immaterial misstatements in those periods that we identified. And bigger picture, medium term, our goal is to remediate a portion or all of the material weaknesses when we released our annual report in early 2024.

Our next question comes from Mike Ward of Benchmark Company.

Jonathan, maybe just to follow up on that. When we're looking at production unit deliveries for '23, when you say some, are we talking 50 or are we talking 100? Do you have any guidance at all you can provide us? You mentioned in the release that you expect to be generating some cash from vehicle sales.

Yes. We're still hesitant to put a specific number on that at this point. I think maybe next quarter or certainly in 4Q, we'll probably give more detailed guidance around deliveries and production.

So then it's safe to assume in 3Q, we're talking just a few, maybe 10, and then maybe we can step it up a little bit as you get to 4Q and then '24 is another story. Is that the right way to think about it?

I think that's the right way to think about it. 2024 is really going to be when we see the ramp in production, is what we believe internally. And again, like I mentioned, a lot still is on the brand building side and making sure that the users who have purchased the vehicle enjoy the vehicle. And yes, in this, there is going to be cash received from selling these vehicles.

And along with that, I don't know if anyone there can talk about what you're doing on the side of customer support service, how those programs are working? How do you intend to push that forward to enhance your user experience?

Before I answer your -- the aftermarket question, I think for the volume, yes, I appreciate everybody has kept very close eyes on how much -- what's our ramp-up plan and how much volume we plan to deliver this year, 2023 and 2024, and we will kind of breakeven. So I think all of these questions are under review by the company. As Jonathan just mentioned in this short stage for 2023, our major objective is to think about how to build our brand as an actual luxury brand. That's a very important position for a new brand. So -- and in parallel, we successfully passed the SOP, and we successfully delivered the vehicle, which means we are compliance with the regulation requirement. And in parallel, on the operations side, we released the order to our supplier base continually. The more volume -- numbers already been placed -- or order already been placed for the [ long ] part. And in parallel, we are under discussion what the approach and what kind of derivative of vehicle will be produced. So later on, we will -- I think we will have some more accuracy numbers with a very strong philosophy behind. And then operation -- for that question -- And then back to the service after -- normally, after OEM deliver vehicle or the customer, industry we're thinking about what kind of service we can provide to their customer to make sure their experience being protected and be better. So we have built a suite of after service for the vehicle. For example, with FF concierge service, users will never have to bring their FF 91 to a service location. With preliminary vehicle pickup for FF's mobile service, compensate and the worry-free support is moment away. Utilizing the FF 91 intelligent vehicle remote diagnostic and over-the-air software updates. We ensure our user's peace of mind through their FF journey. They can schedule their service through the FF [APP], which will include other functions such as service alerts and direct reach to FF service support team. Some of the key assumption or key service, like one is FF roadside assistance. For 5 years, after purchasing FF 91, users will have a piece of mind that they are covered by FF roadside assistance, 24/7 and 365 days a year. User can contact roadside assistance directly through the FF [APP] or calling the FF roadside assistance number. The second one is the FF Portable Charger with high voltage capability with both Level 1 and Level 2 AC charging capability. The FF Portable Charger achieves up to 9.6 kilowatt of the output. And also, we talk about the FF Home Chargers for fully utilized FF 91's charging capability. We will offer a branded FF home charger supported up to 19.2 kilowatt. And FF Home Charger is a smart Wi-Fi connected charger comfortable with most EVs, is -- can be installed indoor or outdoor. And also, we simplified the installation process by partnering with Qmerit for charging installation service. The last one is for the public charging. Users can enjoy the commitment of charging on the go. FF is offering $1,000 FF charging credit with a [indiscernible] FF 91 edition. With up to 188 kilowatts of [indiscernible] power capability, our FF 91 is compatible with wide network of public charging stations throughout the U.S. and Canada. I wish I answered the question.

Just one last one for me. You have a couple of charts on the slide deck talking about Co-Creation. Could you talk a little bit about that, because that seems to be unique out in the marketplace. The structure and maybe the strategy you guys are implying with that and what you hope to get out of it?

Yes. This Developer Co-Creation is FF's innovative brand marketing and user operating methods, which is different from the silicon OEM marketing and the product improvement measures. The Co-Creation engage high-quality users earlier in the process and at the same time, obtain this users vision and their expertise for the products, technologies, brand, service through their user feedback. This helps the company build a very positive image and improve products and technologies among others. The first group of the car orders have been invited to join FF Developer Co-Creation mission, and third, as an FF Developer Co-Creation Officer. With the industry expertise, these users will create value while benefiting from FF innovation -- innovative offerings. This alignment for the interest -- this kind of aligns with our interest. No doubt that it embodies FF core philosophy and the business model of value of co-creating and the benefits for the co-sharing. So although -- so where it takes some more time to kick off these partnerships. But we strongly believe it will work for the [indiscernible] and the value propositions.

So these people will be customer/partners is the way it's set up structurally?

Yes. Myself, I work for the -- a lot of -- sorry, myself, I work for other traditional OEMs in the past 20 years. Normally, once we launch a car, we hold a very big launch event, spend a lot of money and just for PR purpose and we introduced MSRP, the pricing, the service, the technologies of the product, and then just a push to the market, right? So -- and then it goes into the routine production and sales, service, that kind of group. However, when you move to the EV, you say some of the outstanding strong products like FF 91 Alliance, we offered more than 150 horsepower and with a very strong AI integration systems. So there will be a lot of uniqueness of this kind of auto luxury product. So we do need to have this kind of Co-Creation process with our customers and our partners. I cannot say train them, I just want to show to them what -- how we drive this car, how we use this car, how we operate this car and how we feel this car, right? There's a lot of operation and a lot of feeling are quite different to the normal traditional brand or traditional products. And a lot of -- to be honest, a lot of expertise, they also have a very strong infusion what should be jumped into this kind of process. I mean, to drive the car, find the issues, provide their suggestions and to see the OEM can take their valuable suggestion and to upgrade to this kind of integration between OEM with our partner users who is using a vehicle, design the vehicle, developing the vehicle, upgrade the vehicle. So actually that's the real value of this kind of Co-Creation.