Cyngn Inc. Q2 FY2022 Earnings Call

Greetings, and welcome to Cyngn's Second Quarter 2022 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the call over to our host, Carolyne Sohn of The Equity Group. Thank you. You may begin.

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing Cyngn's results for the second quarter and six months ended June 30, 2022, is available at the Investors Section of the company's website at investors.cyngn.com. A replay of this broadcast will also be made available on the website after the conclusion of this call. Of note, for those of you who have dialed into the call by phone, we are planning to broadcast a short video presentation and encourage you to also log into the webcast to be able to not only hear the client testimonial, but also see our Autonomous Stockchaser being used at Flambeau facilities. You will have a few minutes to access the webcast now as I go over the safe harbor information. To do so, please go to the Events and Presentations page of the company's IR site at investors.cyngn.com. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, planned, outlook, and will, and include, among other things, statements regarding the company's continued development of the Enterprise Autonomy Suite or EAS, and its components, expectations regarding sales and/or revenues, growth strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment and operational focus. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Cyngn is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. On today's call, the company's Chairman and CEO, Lior Tal, will discuss recent operating highlights. Chief Financial Officer, Don Alvarez, will follow with a review of the company's financials for the second quarter and first half of 2022. Lior will return to make a few concluding remarks before opening the floor to questions. With that, I will turn it over to Cyngn CEO, Lior Tal. Lior?

Thank you, Carolyne, and good afternoon everyone. During the second quarter of 2022, our main priorities were pilot deployments of autonomous material handling, stockchaser, and recruitment. In particular, recruitment efforts focused on expanding our engineering. On the first point, we're very pleased to share the launch and additional pilot deployment of our autonomous stockchaser with Flambeau Inc, a member of the Nordic Group of companies. The pilot is taking place at Flambeau's 177,000 square foot manufacturing facility in Columbus, Indiana, where they specialize in manufacturing and distributing products for various industries. In a few minutes, we will share a video presentation featuring an interview with the General Manager of this Flambeau facility, including footage of our Autonomous Stockchaser in action as part of this deployment. We're thrilled to expand our partnership with the Nordic Group through this deployment with Flambeau and are excited that they're immediately seeing the value autonomous material handling vehicles bring to their operations. Another example of the impact that Cyngn's Enterprise Autonomy Suite has on material handling or 3PL customers can be seen in a case study we released last month, which quantified the value that our industrial autonomy technology brings to Global Logistics and Fulfillment or GL&F, for whom we deployed an autonomous stockchaser at their Las Vegas facility beginning in late 2021. The case study found a 64% reduction in human labor costs when compared to using manually operated forklifts, and a 33% increase in productivity when compared to using manually operated electric projects. The numbers speak for themselves. Additionally, the higher the throughput of the facility, the greater the potential savings and efficiencies further increases the value with each vehicle that is made autonomous with Cyngn's solution. Deployments like the one with GL&F and Flambeau have allowed us to gather client feedback and insights that have enabled us to make significant improvements to our Enterprise Autonomy Suite, culminating in EAS version 8.0 that we released just a few weeks ago. This release includes major improvements to our backend and infrastructure, as well as over 100 new features to reduce component complexity in cloud computing costs. EAS 8.0 is a key milestone and an important step towards commercialization. Moving to the second point of focus for the first half of the year—recruitment. We have been very successful in this area during the second quarter and are excited to have filled several key positions in recent months. As of July 31, 2022, Cyngn had 62 employees, a net increase of 29 since the end of last year. We have already doubled the size of the organization in just seven months, putting the proceeds of our financing to their intended use. We believe that a highly motivated team of top talent continues to be critical to our ability to achieve future milestones and remain competitive. Before turning to review our financials, we will now share a video featuring some words from the General Manager of the Flambeau facility where the autonomous stockchaser was recently deployed. We’re excited every time we hear from people working alongside our autonomous vehicles, sharing the impact that this cutting-edge technology can make on their daily workflows, bringing immediate value by increasing their productivity and lowering costs. We truly believe that our industrial autonomy software and data platform will be a leading factor in the move towards industry 4.0. And with that, I'll turn it over to Don to review our financial outlook results.

Thanks, Lior. I'll quickly go over financial highlights for the second quarter and first half of 2022, covering both R&D and G&A expenses, which make up our total OpEx. Additional details can be found on our earnings press release that was issued earlier today, as well as in the form 10-Q, which we anticipate filing with the SEC this week. As a pre-revenue company, we did not generate any revenue for the three months ended June 30, 2022, or 2021. However, we do anticipate the start of nominal revenue generation from pilot deployments and other products and services in the coming quarters. Total operating expenses for the second quarter ended June 30, 2022, were $4.6 million, compared to $2.1 million for the same quarter of the prior year. The increase was primarily due to a $1.4 million increase in R&D expenses related to non-cash stock-based compensation, costs incurred for additional engineering staff and contractors, allocated occupancy costs, and R&D related travel costs. We expect these costs to continue to increase as we continue investing in resources to support the commercialization of EAS. G&A expenses also increased by $1.1 million, which was also related to increased stock-based non-cash compensation expense, costs incurred for additional personnel and professional services to support our status as a public company, and higher occupancy costs related to the renewal of the company's lease that expanded the square footage of our Menlo Park offices. We reported a net loss of $4.6 million for the second quarter of 2022, compared to a net loss of $2.1 million in the prior year quarter as a result of increased operating expenses. Net loss per share on a basic and diluted basis was $0.15, based on approximately 30.7 million weighted average shares outstanding for the quarter ended June 30, 2022. This compares to a net loss per share on a basic and diluted basis of $2.20 per share based on approximately 1 million weighted average shares outstanding in the prior year quarter. For the first half of 2022, total operating expenses were $8.4 million, compared to $3.6 million in the prior year period. This was due to a $2.6 million increase in G&A expense, and a $2.2 million increase in R&D expense. Net loss was $8.4 million for the six months ended June 30, 2022, compared to a net loss of $3.6 million in the prior year period. Net loss per share on a basic and diluted basis was $0.29, based on approximately 28.7 million weighted average shares outstanding, compared to a net loss per share on a basic and diluted basis of $3.83 based on approximately 1 million weighted average shares outstanding in the prior year period. Turning to the balance sheet, we have $32.7 million in cash and investments in marketable securities at June 30, 2022, which compares to $21.9 million at the end of 2021. Our working capital was $32.2 million compared to $22.1 million at the end of 2021. Total stockholders' equity was $33.3 million compared to $22.2 million at December 31, 2021. I'd now like to turn it back to Lior. Lior?

Thank you, Don. To close, we continue to move forward with deployments and are working closely with our partners to enhance technology and platform to a point where customers will expect product consistency and maturity from the Cyngn brand. With that, operator, let's open it up for Q&A.

Thank you. Our first question comes from Rommel Dionisio with Aegis. Please state your question.

Thanks. Thanks for taking my question. I wonder if you could just characterize the hiring environment. There's so many moving parts, a tight labor market. But on the flip side, we hear of tech layoffs, as a prominent automotive company leaving the Bay Area and moving to another state. Could you maybe give us a feel for the environment for hiring? Obviously, you guys have added headcount very successfully, but are you getting the people you want and reaching out? Maybe could you give us a little granularity on that? Thank you.

Sure. Hi, Rommel. Thank you for joining us today. One of the things that sort of a byproduct of COVID is organizations that went through it, including us, ended up being very effective in working in both a hybrid setup where people can work from home or need to come to the office when needed, but also in a more distributed manner. What we ended up doing is concentrating a team in Menlo Park that needs to be close to the vehicles to test, to one another, and hiring both domestically in other states and out of the country in places where it's more cost effective, and makes more sense for other parts of the business. So at the moment, we're able to hire exactly the people we want. The prices went up, but not very significantly. But some of the costs are actually compensated by the fact that you don't have everyone at the office every day. So for us, so far, it's been a very successful year in recruiting.

Okay, good. And a quick follow up, if I may. Some obviously, overall stock market uncertainty and supply chain continued issues there. Are there any— you've obviously had some successful announcements of partnerships already, but do you get any sense that future potential partnerships might be in any way delayed by some of these macroeconomic issues, global sort of uncertainty issues? Thanks.

Thanks. Can you just elaborate when you say partnerships, what do you refer to?

I'm sorry, Lior, say that one more time?

Can you just explain when you say partnerships, what do you refer to?

Oh, no, just potential customers. And like Colombia or Greenland, they just obviously, you've got some very successful initial strategic partners. But I just wonder if—some of the macroeconomic factors and challenges that every company faces in technology these days are slowing down the marketing processes, sales process from your perspective at all.

So it's a good question. Organizations are generally more cautious when it comes to spend. But autonomy and automation, because of the impact it makes on people's operations by reducing dependence on human labor and giving more flexibility, and overtime cost reduction, is to some degree sort of a recession-resilient type of product. We have sort of two sides to this market. One is the supply chain that feeds into us, the vehicles, the components for the drive market. And the other is, like you said, the customer-facing. On the customer-facing side, one of the things that really allows us to be able to work with the customers in the way they want is our ability to either support new vehicles that come off the Colombia line or retrofit an existing fleet that the customer has, if they're not willing or not ready to invest in new vehicles and already have an existing operating fleet. On the supply chain, one of the things we started investing more in is adding more alternatives to the components we're buying, expanding our partnerships on that. That aspect domestically in the U.S. in Europe and reducing the dependence on China. But in general so far, we're optimistic, we're working the plan and everything seems to be according to the timeline.

Okay. Thank you so much.

Thank you. It appears that's all the questions we have for today. I'll turn the floor back to management for closing remarks.

Thank you all for your time today. We're always open to conversation with investors and have recently hosted visitors in our offices in Menlo Park. When you're available, you can witness our vehicles at work firsthand, and I think it really gives a sense of the potential of this technology. We'll be participating in the virtual Sidoti Micro Cap Conference next week and look forward to speaking with many of you there. Please feel free to reach out to us or our Investor Relations from the equity group with any additional questions. We look forward to speaking with you all again in our next quarterly call. Thank you very much.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.