Fabric.AI, Inc. Q4 FY2021 earnings call

• Tom took over as CEO in September 2021 and highlighted the transition phase, strong balance sheet with $69.2M cash and no debt.
• Focus on the low speed electric vehicle (LSEV) market, shifted from high speed EV due to less competition. Modified supply chain to North American sourcing to mitigate supply chain issues.
• Developed Ayro Z, a 2023 refresh of the Club Car Current, to launch by end 2022 with technology upgrades. Intend to have Ayro Z on federal GSA schedule in Q4 2022.
• Plan to offer food box architecture and telematics for Ayro Z. Targeted R&D approach for Ayro Z development to be cost-effective and advance the product.
• Expect sequential revenue growth in Q1 and Q2 2022, and continued cost containment leading to improved EBITDA and net loss in Q1 2022. Evaluating M&A in EV market.

In the fourth quarter of 2021, Ayro's revenue was $813,291, an increase of 4% year-over-year and 45% sequentially due to record unit sales of the Club Car Current. Cost of sales in the fourth quarter was $2.74 million, including approximately $1.78 million in one-time costs related to the shift to a North American supply chain. Total operating expense in the fourth quarter was approximately $5.2 million, down from $11.6 million in the third quarter. Adjusted EBITDA, a non-GAAP measure, was a loss of $7.1 million in the fourth quarter, an improvement from the third quarter. Net loss in the fourth quarter was $7.8 million, better than the $12 million net loss in the third quarter. Cash at December 31, 2021, was $69.2 million.

• Expect revenue to be up sequentially and set records in Q1 and Q2 2022.
• Anticipate continued sequential improvement in EBITDA and net loss in Q1 2022 due to cost reductions.
• Accelerating product development for Ayro Z and its extensions.

Q: Hey, good morning. A couple questions, first about the top line sales, what's going on there with Club Car? Are they doing something different or promotions? And guiding to better results going forward.

A: Barry, good morning. The answer is we continue to work very closely with Club Car and are seeing good response from the Club Car dealer network, partner Gallery, and Element. We expect momentum to continue into the first two quarters of this year.

Q: On expenses, current status of manufacturing, the $1.78 million inventory charge, and moving towards positive gross margin?

A: Yes, we are building units at Karma. The $1.78 million was due to net present value adjustment on freight costs from China, adjustments to prepaid accounts, and Karma reduction. We expect further sequential reduction in operating expenses and focus on cost reduction and prioritizing value accretion.

Q: On Ayro Z development, will R&D expenses increase?

A: No, we have a team with experience in rapid model year refresh development that is more cost-effective and focused, so we don't expect development expenses to go up, rather the opposite.

Q: On Ayro Z selling price, gross margin, and Current vehicle pricing?

A: That's a complex question. We are working on a world-class bill of materials sourced from North America. We can't comment on selling price or margin at this point, but we intend to conduct ourselves like a vehicle company with model year refreshes annually.