ECD Automotive Design - Q2 2024

Transcript

Operator (participant)

Please note, this event is being recorded. I would now like to turn the conference over to Brian Prenoveau, Investor Relations. Please go ahead.

Brian Prenoveau (Head of Investor Relations)

Thank you, operator, and good afternoon, everyone. Welcome to the ECD Auto Design Second Quarter 2024 Earnings Webcast and Conference Call. Today's date is August 19th, 2024, and on the call today from ECD Auto Design are Scott Wallace, Founder and Chief Executive Officer, and Raymond Cole, Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see ECD Auto Design's most recent filings with the SEC.

All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release we issued this afternoon. Copies of today's press release are accessible on ECDA's investor website, ecdautodesign.com. In addition, ECDA's Form 10-K and 10-Qs are also available on ECDA's investor relations website. Now, I'd like to turn the call over to Founder and Chief Executive Officer, Scott Wallace. Scott?

Scott Wallace (CEO)

Thanks, Brian. First, I'd like to thank our shareholders and those interested in ECD Automotive Design for joining the call. This is our first go-around reporting earnings and holding a conference call as a public company, so we've learned a lot and appreciate everyone's patience. For those that are new to ECD Automotive Design story, we are the world leader in classic British car restoration. We have two facilities in operation, a manufacturing plant in Kissimmee, Florida, which we call the Rover Dome, and Logistics and Fulfillment Center in the U.K. We manufacture custom classic Land Rover Defenders, Range Rovers, and Jaguar E-Types as restomods. Our one-of-one builds carry a selling price of between $300,000 and $400,000. Early this year, we announced the addition of American muscle cars, which provides us a great opportunity to begin building classic Mustangs and other classic American cars.

Brian Prenoveau (Head of Investor Relations)

We also announced the addition of Black Dog Traders in June, which provides us the opportunity to build luxury models of the iconic Toyota FJ. ECD is not the usual SPAC company, and we've been delivering custom automobiles for over ten years. The company started with a $150,000 investment without outside capital or vendor credit terms. We have now built over 550 custom cars to date, and the company has generated over $100 million in lifetime revenues, with gross margins approximate to those of Ferrari. Up until we took the company public via de-SPAC late last year, the business was self-funded through internally generated cash flow for over a decade. Being a public company was never really our intention, but the demand for our products and the sector opportunity have led us to where we are today.

When we formed the business, we aimed to disrupt the automotive sector and industry. The auto sector has been relatively stagnant for years, and we feel we found a new operating model. Our plan places the customer at the center of our process and provides an experience not typically affiliated with auto sales. We're looking to let mechanics be creative and build a product rather than maintain a product. Keeping our team excited and engaged, we follow a retention model instead of a recruitment model for our team. We build one-of-one vehicles with the intellectual property owned by the clients. We do everything in-house, ensuring quality across all phases is to the highest standard. Lastly, we only take projects that excite us and our team. Today, we have over five hundred and fifty of our vehicles being driven around the world.

Our success to this day primarily lies in our strict capital allocation approach. We deploy capital to the right areas without any excess. We invest in mechanics and parts to ensure we could always build cars and drive working capital velocity. The opportunity to scale ECD follows three paths: organic, inorganic, by roll-up of subscale operators, and classic car ecosystem. I will discuss each path in detail. Our Kissimmee, Florida, factory is a 100,000 sq ft facility with capacity for three production lines. As mentioned, the building allows three lines to produce roughly 60 cars annually per line on an eight-hour shift pattern. With the addition of American muscle cars and Black Dog Traders, we can begin taking orders for the third line.

The capability to deliver 180 cars per year with average selling prices of roughly $350,000 would put ECD's revenue near $65 million annually, double what we anticipate doing in 2024. This model features minimal acquisition costs and a low entry point of capital expenditures. Adding a new model in the future would only cost approximately $150,000, which is the bill of materials. This low integration cost speaks to our ability to roll up subscale auto manufacturers who have developed identifiable niches, but whose operation needs to allow for meaningful growth. By folding these manufacturers within ECD, we can add them to our product line in incremental steps with minimal investment required.

For the second quarter, ECD reported revenue of $8.9 million, up 129% year-over-year, with gross margins of 31.8%. As ECD is a new company in the public market, I'd like to take some time to go over its past before discussing its future. As we drive towards our 2024 revenue expectations, ECD will have delivered revenue compound annual growth rates of 30% since 2018. As our revenues grow, so does our profitability. The secret here has to do with increased customization. Our clients are not cash-starved, they are time and creatively starved. We've resolved these limiting factors by placing the client in an immersive design experience. We hold their hand through several choices beyond the base model, and this is where our margin economics come from.

A base model ECD vehicle is $250,000. The average upgrade is roughly $80,000, with an average margin of 65% on those upgrades. The only other scaled public automotive manufacturer that can offer comparable customization is Ferrari. While Ferrari will produce 500 custom cars and refer to them as one-of-one, customization is relatively limited. There are 500 other versions of that custom, and their production line doesn't allow for the fluidity necessary to produce a one-of-one vehicle. Our customers are paying for exclusivity and quality, and our production lines were engineered from the beginning to allow for actual one-of-one customs. A car moves off our line every four days. During that period, we can customize every element of that vehicle.

Beyond the building of the car, we have learned that a broader ecosystem exists for customers that desire white glove experiences. The classic car ecosystem total addressable market is approximately $15 billion in the U.S. This TAM includes manufacturing, financial services, supply chain production, market channels, brokerage, and storage, and there is no dominant player within these markets. We recently took another step toward building ECD as an umbrella luxury automotive brand by securing funding of $2 million. This funding will allow us to enhance our efforts to provide ancillary services and revenue streams to our exclusive clientele. Thankfully, these paths to grow ECD are not mutually exclusive. We will work to fill the factory as we ramp up our now third manufacturing line, while looking for opportunities for inorganic growth and developing an umbrella luxury classic car brand.

We hope this gives investors a better understanding of our current business and how we see the long-term opportunities in front of us. As a publicly traded company, we'll be updating you on our progress frequently. With that, I'll pass the call over to Ray to go over our financial results and our expectations for the remainder of 2024. Ray?

Raymond Cole (CFO)

Thank you, Scott, and good afternoon, everybody. I'll begin my overview of the second quarter of 2024 financial results. For the quarter, we reported revenues of $8.9 million, compared to $3.9 million in the second quarter of 2023, representing an increase of 129%. The increase was primarily due to increased unit sales and higher average selling price per vehicle by $46,604, and increased sales of used vehicles helped as well. Gross profit also increased 129% in the quarter to $2.8 million, compared to $1.2 million in the year ago period. Second quarter gross margin also maintained the strength shown last year at 31.8%, equal to the second quarter of last year.

Brian Prenoveau (Head of Investor Relations)

Sales and marketing expenses increased by 157% year-over-year. This increase was primarily driven by increased volume of advertising and press as the company expanded its marketing footprint and launched new products. Additionally, we engaged in a new outreach program, testing the product and taking it on the road and bringing the product actually to sales events for customers to see, touch, feel, and buy. General and administrative expenses increased by 104% year-over -year, and this increase was primarily driven by public company costs associated with additional investment in front office staff, insurance, and professional fees. Income from operations was positive for the quarter at $117,000, compared to a loss of $19,000 in the year ago period.

Net loss for the quarter was $900,000 or $0.03 per diluted share, compared to a loss of $2.5 million or $0.05 per diluted share in the year ago period. Now, turning to the balance sheet a bit. Our cash balance as of June 30 was $5.6 million, compared to $8.1 million at the end of 2023. As Scott mentioned, our cash position will grow by $2 million with the completion of the previously mentioned capital raise. Looking into 2024, we previously stated a full year revenue growth target of 100%, and we believe that remains true today. Going forward, capital allocation priorities remain on parts and mechanics, with an occasional opportunistic acquisition when opportunities present themselves. I'll now pass the call back to Scott for some closing remarks. Scott?

Scott Wallace (CEO)

Thanks, Ray. ECD Auto Design is a labor of love for those of us involved with this company. We believe the classic car ecosystem represents a uniquely attractive opportunity for our customers and investors. I'm happy to finally be able to share our story with the broader public and look forward to the future updates. We intend to have robust investor outreach programs, so we look forward to participating in future investor conferences, meeting new investors, and hosting investor events at our Florida factory. You can also stay current on ECD by following our IR handle on X at ECD Investor Relations. Thank you so much for your time today. We'll now open up the call to questions. Operator?

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.... If at any time your question has been addressed and you would like to withdraw your question, please press star then two. First question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Theodore O'Neill (CEO)

Thank you very much. Scott, I was wondering, just a couple of questions here. Could you talk about the integration of the Brand New Muscle Car and specifically talking about the supply chain integration and, production floor changes at the Rover Dome to accommodate the, the Mustangs?

Scott Wallace (CEO)

Yeah, great question, and we spent some time on that this morning, Theo, at a weekly production meeting. The Mustang integration is going great. You know, when we made the acquisition with Brand New Muscle Car, the intention was to bring in knowledge from people that had built this product before. So, that's exactly what we've got. The Jaguar E-Type took us 14 months from an idea to conception when we did it on our own. The Mustang is going to take us closer to four to five months. So we are just about to make the line changes now. The first Mustang is going into production very soon. It will be finished this year, as will the FJ, actually.

Brian Prenoveau (Head of Investor Relations)

So we're not doing one integration move, we're actually moving production around in the line so that we can integrate both the Mustang and the FJ. So both of those products will be leaving production this year. Supply chain is relatively easy. We've got nothing, obviously, to import globally. Everything is domestic. That saves us time and saves us costs in shipping lines. So yeah, I mean, it's going better than we expected, really. I mean, we've, I mean, well, proof of the pudding will be in the next four weeks when we move one production line off that line and move the Mustang into it. But yeah, we're in good shape. We're confident about it. We've got some exciting news coming up in the next few weeks, hopefully.

You know, we're working on some things behind the scenes to just elevate the Mustang. I think they'll be really good additions to what we've been working on already. So yeah, we're excited about the Mustang integration. It's going to plan, and we're looking forward to taking the first one off the line in Q4.

Theodore O'Neill (CEO)

Okay. And I wonder if you'd care to comment qualitatively or quantitatively, however you would like, about sort of the backlog of business and or the order book, or whether you're seeing orders change over time?

Scott Wallace (CEO)

Yeah, backlog's been interesting. I mean, typically, summer is our quieter months, but this year we've seen a 50% growth on year-on-year. So but not, not only that, but, but it's coming from where you would think it would come from. Now, we're having, we call them new toys in the toy chest. So having Mustang, having FJ, having Defender, E-type, Range Rover Classic, we've got that ability to appeal to a broader audience. So backlog is doing nicely. We've just had our most, you know, we've had our most impressive summer since the conception of the business. I mean, COVID was a great year, oddly, for sales, when people had no downtime, when people had plenty of downtime, but this beat those expectations as well.

Brian Prenoveau (Head of Investor Relations)

Having that broader mix of toys in the toy box just allows us to appeal to a broader mix of people, and, you know, we're selling more units as a result of that, particularly over the last three months.

Theodore O'Neill (CEO)

Okay, thanks very much.

Operator (participant)

There are no more questions in the queue. So this concludes the question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.