RIDE (2021 - Q2)

Ladies and gentlemen, thank you for standing by, and welcome to the Lordstown Motors Second Quarter 2021 Earnings Conference call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host today. Carter Driscoll, Head of Capital Markets and Investor Relations. Please, go ahead sir. Carter D

Thank you, Operator. Good afternoon. And thank you to all for joining Lordstown Motors, second-quarter 2021 Earnings Conference call. The supplement today's discussion. Please go to our IR website to view our press release and investor deck. Before we begin, I want to call your attention to our Safe Harbor provision for Forward-looking statements that are posted on our website and are part of our quarterly update. Safe Harbor provision identifies Risk Factors that may cause actual results to differ materially from the content of our Forward-looking statements. For the reasons that we site in our Form 10-Q and other SEC filings, including uncertainties, flows by the difficulty in predicting future outcomes. Joining us today, we Lordstown Motors, Executive Chairwoman Angela Strand, President Rich Schmidt, and Interim CFO, Becky Roof. Angela will provide the strategic update on the business, followed by Rich, who will give a more detailed update on production. And then Becky will cover the financial results, followed by Angela, who will provide our outlook and closing remarks. With that, I'd like to turn the call over to Angela Strand.

Thank you, Carter, and to everyone for joining us today. Our strengthened leadership team has been in place now for less than two months and has thoughtfully broadened our go-forward commercial strategy. We have identified 5 critical strategic priorities for Lordstown Motors that put us on our path to profitability. Today, our goal is to tell you as much as we can about these strategic priorities as we believe they will unlock the value of both our physical facilities and our technology. We will also provide you with the latest available information on the commercialization of the Endurance on our continuing efforts to raise additional capital and the other initiatives that our leadership team is undertaking. I want to start by highlighting how our key assets are moving us forward. Our deep and experienced team, our tremendously large and highly flexible plan, and the breadth of technologies we've developed. First, we have become more convinced than ever about our innovation in the inherent value of our technology. Lordstown's tremendous engineering team with its close partner Alafi (ph), has expanded our unique hub motor designs. Many of you on this call today are familiar with in-wheel hub motors. But since more and more people are now only hearing about us, I want to take a moment to explain. Our in-wheel drive puts the motor completely inside each wheel and is controlled through integrated software to make them all work together safely, powerfully, and efficiently. Rather than replicating the gas engine powertrain with inefficient transfer cases, axles, and differentials. We have a motor in each wheel and a centralized mind that controls them, providing unrivaled all-wheel-drive control with exceptional performance, torque, tow, turning, and TCO So we at Lordstown take a clean-sheet approach to where the power should really come from in electric vehicles since we have no legacy mindset or assets tying us to the past. We believe that form should follow function and our relentless about meeting customer needs. We feel it's the way you build a work truck if you're starting from new. We are now redoubling our efforts to explain our hub motor technology to the market and to potential investors. We believe that the more our hub motors are proven out through continued testing, the more investors and customers will appreciate Lordstown's unique technological value proposition. Second, we are accelerating actions to unlock the full potential of our factory on our campus. Lordstown controls a 6.2 million square foot manufacturing plant on 650 acres of land in a great location in Ohio's Voltage Valley, with access to suppliers, rail, and a highly trained workforce. The plan itself was kept form by its prior owner. And this year, we have upgraded the factories such that it is completely vertically integrated, with our commission battery and soon-to-be commissioned hub motor lines. As a result, we are now well-positioned to produce our endurance truck. But even more than that, we have seen the multiple opportunities that our manufacturing facilities in our large surrounding campus present to other companies that are seeking ready-to-go manufacturing capabilities for their products. This is a significant market. Serious discussions are now underway with several potential partners, and we expect that many more will become attracted to the potential of our factory, as word of our decision to unlock its full potential spread through the marketplace. This is a critical strategic pivot for us. A decision that we believe will lead to significant new revenue opportunities for Lordstown. At the same time as the production of the Endurance is ramping up in the Endurance portion of the factory. Simply put, because of our factory and our campus, Lordstown is uniquely positioned to accelerate production, both for our partners and for Endurance. Third, we have gained an even deeper understanding of the broader potential marketplace and are more convinced than ever about our ability to penetrate important opportunities in this space. We believe that Lordstown Endurance can address both the commercial and direct-to-consumer segments in the electric pickup truck marketplace. Initially, the commercial fleet segment is one where we have every reason to believe Lordstown's Endurance can succeed in a big way. The opportunity is substantial and it is just a subset of the overall $90 billion potential markets for electric light-duty pickup trucks. And while they're already competitors, including big brands, the EV pickup market is so underserved that there is plenty of room for all. With our particular focus initially on the commercial fleet market, as well as strategically targeting delivery trucks, military vehicle programs, and technology licensing of our batteries, hub motors, and skateboard platform. We believe Lordstown has a wide and clear road forward into a lucrative and expanding EV marketplace. Fourth, our strengthened leadership team is determined to build the Endurance the right way. As everyone knows, the last month has been difficult for vehicle manufacturers generally. Shortages of semiconductors and vehicle parts of all kinds have created enormous production challenges for even the most established traditional OEMs. And we at Lordstown are not immune from these acute supply problems. Our team is adapting and will continue to adapt to these short-term challenges and to make the best decisions for our stakeholders. First and foremost is production readiness. We will be prudently ramping production to ensure a quality product and to accommodate supplier realities in the near term. We are on track to begin limited production at the end of September and complete vehicle validation and regulatory approvals from December to January. This will be followed by deployments with selected early customers in Q1, in advance of commercial deliveries in early Q2, with the ramps between the second half of next year. This responsible commercial plan is important for 3 reasons. 1, to ensure that we provide our fleet customers with the time necessary to experience and then build out the required charging infrastructure for larger deployment. 2, to manage our supply chain challenges prudently, particularly as shortages and COVID impacts persist through the next few quarters. And 3, to further fortify our capital position to fully support our commercial launch. Finally, our fifth strategic priority. Our experienced leadership team has embarked upon a comprehensive effort to raise the new capital that will be necessary to ensure Lordstown's ultimate success. We have already announced an equity purchase agreement for up to 400 million. The agreement was the first of what we believe will be several steps to ensure that the Company has the financing it needs to succeed in profitability. We are now exploring a variety of other financing options, including non-dilutive private strategic investments and debt. We look forward to updating all of you as we reach agreements regarding these new financing options. I will now turn the call over to Rich.

Thank you, Angela, and good afternoon to everyone on the call. I am Rich Schmidt, President of Lordstown Motors and I'm happy to provide an update on production, engineering, and quality. First, in terms of management changes, I want to reiterate the strong team we have, always had in place, in production and engineering. The second, the Endurance status. We have completed our beta builds and we are using betas for our crash, durability, and other validation tests. We have passed multiple crash tests and are achieving the standard requirements to meet FVMSS and plan for a five-star crash rating for our vehicle. As someone who has over 30 years of experience building cars and trucks, have many different plans and for many different OEMs around the world, I'd say that to be this far advanced in crash tests in the first-pass using the beta vehicle, is unique and a testimony to the team's innovative use of CAE and design innovation speed, and our vehicle technologies. Third, we continue to refine the components for cost and quality and production validation, and preproduction vehicles. We're launching a mix of soft and hard tools to protect these improvements. Once complete, we will lock in with hard tools, which are our production equipment needed to build trucks and mass-scale cost-efficiently. We will use pre-production vehicles for NHTSA crash testing and validation. Once the final steps before we go to commercial production. If you recall that PPB's will have a production process with better and [Indiscernible] built in-house, as well as paint sub-assembly and frames all completed here in our plant. We're retooling the plant to be flexible to ensure the multiple vehicle platforms, vehicle platforms inexpensively from trucks to cars. We have made substantial progress on this since last May when we last spoke. The stamping, body, and paint shop reconditioning are all complete. General Assembly is also on track for September production readiness, and we have installed a new chassis [Indiscernible] line. With the flexibility considered upfront in our retooling, our current footprint utilizes about 30% of the plant's 6.2 million square feet. So, we have ample room for potential partners to build vehicles, for us to build vehicles for others, and for additional LMC vehicle platforms, as well as other opportunities such as selling batteries, hub motors, and our complete skateboards to other companies. Shipping focus to propulsion. We started installing the first Electric hub motor line on-site and it is currently undergoing site commissioning in advance of limited production builds. The first battery pack module impact assembly line is now fully commissioned. Finally, we continue to develop and refine our hub motors. We want to develop multiple motor sizes in different platforms and use cases and broadens involves increased torque, towing capacity, and energy efficiencies. Improvements to the motors were developed in-house in conjunction with our partners Alafi. We believe the performance improvements should open up our opportunities set within the commercial space. Our innovative technologies are leverageable in many different ways for Lordstown, including the power, our unique truck, skateboard, and to expand our use of our revolutionary motor across many vehicle applications. Because of our technology, we have no doubt that we will be at the center of the discussion as fleet customers and consumers look at electric pickup differently. And with that, I will hand it over to Becky to take you through the financial results. Thank you.

Thank you, Rich. Good afternoon. And I also want to thank everyone for joining today's call. I am Becky Roof, Interim Chief Financial Officer, and I will review our second quarter 2021 results and mention other items as well. But before I do that, let me note some of the actions I am taking to both bolster our team and address our Auditors' concerns. First, we are adding several experienced financial personnel in Accounting, Treasury, and Controller functions. Second, we are implementing additional financial software tools to enhance our reporting and control processes that will also support our SOX compliance testing that will be taking place over the balance of the year. Our financials are presented in accordance with GAAP. In the second quarter of 2021, we recorded a net operating loss of $108.2 million versus $125.2 million in Q1. Our expenses consisted of $33.8 million in SG&A versus 14.4 million in Q1 or an increase of 19.4 million. Our R&D expenses were $76.5 million compared to $91.8 million in Q1 or a decrease of $15.3 million. Included in the Q2 amounts is 3.9 million of stock compensation expense. The quarter-over-quarter increase in SG&A expenses is principally driven by higher legal, consulting, and payroll expenses. Our legal expenses were $9 million higher in Q2 than in Q1 largely due to the special committee in SEC investigations. Consulting fees were 6.2 million higher, largely due to the same reasons and vehicle development expenses. We believe that much of the increase in legal and consulting expenses are non-recurring in nature. For Q2 we believe that as much as 13 million is non-recurring. Payroll expenses were 2.8 million higher as a result of adding team members as we head to limited production. The quarter-over-quarter decrease in R&D expenses was driven principally by lower product type components expense of 28.9 million related to the completion of purchases for our betas and a decline in purchases of pre-production vehicle components, as many of those purchases were made in prior quarters. We also experienced lower supplier services fees in the amount of 1.4 million. These reductions were offset by higher total payroll costs of 7.3 million for increased headcount as we ramp up our manufacturing teams. And also, by increased operating expenses, including utilities, building maintenance and supplies, and shipping, totaling 4.8 million. We anticipate that quarter-over-quarter R&D expense should continue to trend downwards over time as our external service activities in vehicle development are concluded. Turning to the Balance sheet, we ended the Second Quarter of 2021, with a total cash position of $367 million. We have total assets of $687 million, largely consisting of our cash position plus $286 million in PP&E and construction in progress. On the liabilities and equity side, we have $88 million in total liabilities. Mainly accounts payable and accrued expenses, and $599 million in Shareholder s equity. From a cash flow perspective, we used $98.8 million in cash from operations, used $121.3 million in investing activities from purchases of capital assets, and generated $0.5 million from financing activities. Our combined cash used in operations and investments was $220.1 million. We ended the quarter with approximately 177 million shares outstanding. If all outstanding warrants were converted today, we would have approximately 180 million diluted shares outstanding, not counting employee stock options. As Angela mentioned, we are pleased to have recently announced an equity line of credit with a notional amount of $400 million. This gives us the flexibility to raise capital quickly and at our discretion. We recognize there is dilution from utilizing this instrument. And we want to balance our future capital needs using less dilutive instruments. We are in discussions with multiple parties and exploring access to other types of capital, including public instruments such as Debt, strategic partnerships, and we're continuing our discussions with the Department of Energy Loan Program Office regarding our obtaining an ATVM or advanced technologies vehicle manufacturing loans. Angela mentioned unlocking our value. We have a large and strategically located campus, the plants of the past, making vehicles of the future. We are reporting a book value for our land, buildings, machinery, and equipment, and vehicles in the amount of $45.5 million. We have invested an additional 240.1 million in construction and progress assets, as we continue our plant readiness preparation. We believe that when coupled with billions of dollars that the former owner invested before Lordstown Motors acquired the facility, that the fair market value far exceeds what we are reporting on a GAAP basis. We are in the process of engaging third-party appraisals to opine on this valuation. Finally, and in connection with the delivery in placement into commercial service of our Zero-Emission Vehicles or ZEV under various federal and state rules and standards, we will earn tradable credits that can be sold to other OEMs. We intend to take advantage of these regulatory frameworks by registering and selling these credits. In addition, we have entered into an Emissions Credit Agreement with GM, pursuant to which and subject to the terms of which, during the first 3 annual production model years. Wherein we produced vehicles at least 10 months out of the production of Model Year. GM will have the option to purchase such emission credits at a purchase price equal to 75% of the fair market value of such credits. Please see our 10-K/A for a detailed description of additional terms related to these debt credits. Thank you. And I'll now turn the call back over to Angela, who will provide our outlook and closing remarks, and guidance.

Thank you, Becky. As we make everyone aware, during Lordstown Week, we're committed to our values of teamwork, technology, and transparency. Now, onto guidance. As we have already indicated, our expenses -- our expenses have exceeded prior management's expectations for the reasons laid out earlier and the pace of our commercial production ramp will depend on multiple factors. We are updating the outlook for a full-year 2021 that was provided last quarter. First, we have chosen to build a limited number of early production vehicles in the fourth quarter for validation and regulatory clearance, as well as gaining real-world experience with the customer, pilots, and demonstrations. This prudence will allow us to mitigate supply chain ramp up, risk and expense, and achieve a more favorable cost of goods targets prior to moving into commercial production and launching Q2. Second, for full-year guidance, we expect between 375 million and 400 million in capital expenditures, up from 250 million to 275 million, largely due to prepayments for hard tool purchases. On the operating front, we now forecast. 95 million to 105 million in SG&A up from 55 million to 60 million of which 8 million in stock compensation expense, 310 million to 320 million in R&D up from 280 million to 290 million of which 12 million in stock compensation expense. Third, for our liquidity position, we expect our cash at the end of the third quarter to be in a range of 225 million to 275 million before giving effect to any financing. As noted above, the equity line gives us the flexibility to access capital and will do so if needed, while we also continue to explore other financing and strategic options. We remain in discussions for multiple strategic and financing opportunities. In addition, we also remain in due diligence for an application for an ATVM [Indiscernible], and we continue to seek and pursue opportunities for other tax credits and grants across multiple jurisdictions. We want to thank all of our talented employees for their hard work and dedication across our officers in Lordstown, Ohio, Farmington Hills, Michigan, and Irvine, California. We are proud to be part of the Voltage Valley renaissance in Ohio, creating good jobs that help address climate change and sustainability issues. In summary, our mission to bring to market the first full-sized all-electric pickup truck is reinforced by our 5 strategic priorities stated previously. Our technology, our plant, our commercialization plan, our production capabilities, and importantly our team. We are seeing numerous paths to unlock the value of our business with additional vehicle platforms, contract manufacturing opportunities, and multiple and diverse revenue streams. Lordstown is a Company with a heart that is building a real truck with real people and a real plan. And our future is very bright. Thank you for your time and we very much look forward to talking with you again in November.

Operator, we will now take questions.

Thank you, as a reminder to ask a question. [Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from the line of John Murphy with Bank of America. Your line is now open.

Good afternoon, everyone. This is Aileen Smith on for John. The first question is on the increase in the CapEx outlook for this year. When we compare it to the outlook that was provided a few months ago, is it fair to interpret the 1Q outlook as perhaps encompassing a more conservative budget as the team was focused on maintaining appropriate liquidity levels? And therefore, this new outlook reflects what would have been in your internal expectations, now that you've to wind up incremental capital with the Equity Purchase Agreement, or is there something more operational in the CapEx outlook that reflects a significantly higher level of spending than what you assumed a few months ago?

Thanks, Aileen, I appreciate the question.

Yes, I think you're on the right track.

In terms of this -- the ordering of the hard tools and the prepayments, we're along the lines of the budget before the increased expenses. So, we're really back to what the plan was in the first quarter.

Okay. Got it. And then I wanted to dig in a little bit into the strategy with the strategic partners that you've referenced a couple of times and get a little clarification. Is that more of an effort by Lordstown to get into contract manufacturing or rather opening up the significant capacity within the facilities for your partners to use as they see fit. And it's either offering more or less ideal for large talent. And how do you think about the economics of working with those partners?

Thanks for the question. We're exploring multiple partnership contracts that include contract manufacturing, that includes licensing in addition to producing our own vehicles and so of course you understand I can't disclose partnerships that are in discussions. But broadly, were discussing with multiple OEMs who are interested in exploring how they can leverage the assets that we have today.

Okay. Understood. And then a final one, if I may, in some of the recent management changes and resignations. Can you talk about some of the customer or partner feedback you've received with the DC development? And in terms of the search process for a new CEO and CFO, do you have a thought process on some of the priorities of candidates that you want to bring into the Company? Meaning those with more automotive experience or technology experience?

Thank you for the question. I'll take the second part first, so we are in an active recruitment process for our CEO and CFO and that process is proceeding. And there is a diverse range of candidates that we're evaluating -- and that is evaluating that to the present time. The second, as to the customer and stakeholder response to the newly expanded leadership team, as you know, we hosted more than 450 people during Lordstown Week. And that was a very diverse range of investors, policymakers, customers, and suppliers. And the response has been extremely positive. And we've really been able to accelerate our momentum, and specifically, now that they understand that we're committed to the long-term viability of the Company, and also really to unlocking the full value, not just for the endurance, but also for the other assets that we have at our disposal.

Okay. Great. That's very helpful. Thanks for taking the questions.

Appreciate it. Thank you.

Thank you.

Thank you. Our next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is now open.

Hi, good afternoon, everybody.

How are you doing Emmanuel.

Hi, doing well, thanks. So, it's encouraging to hear about upcoming limited production in the fourth quarter, both for validation and also for customer pilots. Can you talk about which customers will be piloting some of these early models? And then any update you're able to provide on the shape of demand beyond that when you start actual productions and deliveries. I don't know if it's in terms of order books. Have you started taking some deposits? Just anything that helps us in terms of how to think about it once you start delivering your vehicles.

Sure. Thanks for the question. It was nice to meet you by the way, at Lordstown [Indiscernible] In terms of the customers, we -- and I'm sure you understand we're not disclosing the cost of a specific list of customers, but the contours, in addition to Home and ARI, who we've already disclosed, we have a Vehicle Purchase Agreement with. We'll be working with Fleet Management Companies and understanding that they are important because they also serve their own fleet, as well as fleet customers directly. And we're hitting all of the major segments, telecom, utility, construction, as well as municipal. And we'll be working with -- across those segments in the first quarter as we move to commercial ramp in the second quarter. Perhaps for the second part of the question, I'll ask Carter to comment.

Yeah. Thanks, Emmanuel. What we've always felt comfortable with is that we build a truck that is a quality product and it meets the specs that our customers demand and at a price point that's attractive, were never really concerned with demand. We feel very comfortable that, there will be -- demand will most likely outstrip our production capabilities for the first couple of years. Were hesitant to put a number around it, as you know, because of the way that we have discussed our order book in the past. We will get a lot more feedback as we give some of those customer demonstrations in trials. And we expect to continue to pursue expanded vehicle purchase agreements as that process involves.

That's fair. So, I guess just if you can give us a sense of where you are in that process? If you already started taking some firm orders or the ones that have required deposits or are that something that would be coming later on?

Yeah. I mean, we're still in terms of the timeframe, we're very cautious. We don't have a product, right? We've always said until we have a product available, we can't meet rev recognition terms. So, their vehicle purchase agreements, we continue to pursue, do include some form of deposits, each of them is different, so these are all each unique. But as we get closer to these demonstrations, we will become -- we'll more forthcoming description of what those purchase agreements look like. But they generally follow the form of what we've talked about in the past.

Understood. And then the second question, in the last quarterly updates, I think part of the update involves around the supply chain, constraints, and the ability to sort of getting access to some of the parts, that you needed which prompted, in turn, some in-sourcing and some of those parts. Can you just update us on what you are seeing in terms of the supply chain? Have you essentially been in the process of in-sourcing all that you needed, are there any additional constraints coming up or actually making -- actually pretty stable going through your early production?

I have Rich to that.

Thank you for the question, Emmanuel. Basically, is not really any different than the difference in the supply chain from last quarter to this quarter. We are in-sourcing some of the major components that -- or some of the potential risk last time. As we discussed last time, we have brought the frame in-house. Part of that, so it gives us flexibility on multiple platforms which allows us to build the technology of our skateboard, which with the flexibility of building the frame, the hub motor, and the battery gives us multiple platforms and we can really build off of that platform to multiple vehicle platforms other than just the Endurance truck if we need to.

Understood. Thank you very much.

Thanks, Emmanuel.

Thank you. Our next question comes from the line of Joseph Spak with RBC Capital Markets. Your line is now open.

Thank you. Good afternoon, everyone. So, you just guided second-half OpEX a little bit under $200 million. Even if we just split that to $100 million, we plug (ph) your cash balance, which takes you down to, call it 265. So, to get to your third quarter liquidity target, it makes it seem like there's a really big decline in the CapEx next quarter. Can you help us with the cadence of OpEX and CapEx, so we can calibrate here?

Sure. I'll ask Becky to answer that question.

Thank you, Angela, and thank you, Joseph, for asking the question. So, we made very significant CapEx expenditures in Q2 when compared to Q1, it was 121.3 in Q2 and 5043 (ph) in Q1. The biggest change in our CapEx outlook for the balance of the year is the prepayments on hard tooling that will make either late third quarter fourth quarter and those were not contemplated when we provided guidance earlier this year with regards to liquidity, at the end of Q3, cash forecasting is always as much of an art as it is a science. And we have levers to pull when we make large cash outlays, like the one that I just described, we have the flexibility, and when we make those pre-payments for our hard [Indiscernible] So will make these kinds of decisions, when we see how market conditions are and what kind of strategic and financial partnership discussions, how those are progressing. We do have the equity line of credit that we just put in place and we have not yet utilized that line.

Okay. Maybe that's a good Segway into the follow-up. So last quarter, you said you're going to -- you thought you're going to end the year 50 million to 75 million. Now you raised spending, but you do have the e-lock. What are you targeting for the end of the year or maybe put differently, how much do you plan to draw on the e-lock for the year?

Thanks for the follow-up. As I just said, we put the ELF in place to create a lot of flexibility for ourselves. And so, as our other strategic and financial discussion, progress and as Angela mentioned were in discussions with multiple parties on both fronts. As we see how those come together, coupled with the availability under the ELF line, will make the decision -- that make the decisions about how we spend our CapEx.

But there's no -- there's no cash level, under your cash level, you're targeting as of today.

No, because just let me think about just the different levers that Becky was talking about. So, we've made the commitment to hard tools because that's incredibly important for us to get to vehicle profitability, and they have long lead time components as you know. So, we're going to make the appropriate strategic partnership decisions and financial decisions to make sure that we have sufficient cash to execute our plan. But those are still -- there are 3 or 4 different moving parts. And we will have a better sense over, say, the next 2 months as to where we would be. It's a little premature for us to give you a year-end cash figure, but we're very conscious of where we stand today and we have a lot of optionality’s is what we're trying to say. We will update you appropriately in the coming weeks.

Okay. And one more, you mentioned strategic partners and the optionality there from building vehicles for others or it sounds maybe even subleasing space. But it's interesting you're calling it "strategic partnerships" or "our strategic partners" now, I think last quarter and then prior conversations, it was called Strategic Investment or Strategic Capital. So, is that also -- is that also [Indiscernible] option, is that off the table, or is the financing more likely to come from financial capital raise as opposed to strategic raises? And then the partnership conversations are really more about how they can potentially utilize your assets.

So, it's a great question and the answer is, it's both. And so, when we talk about strategic partnerships, they can also come with investment, as well as financial investors. So, I think your interpretation is accurate.

Okay. Thank you very much.

I would separate them, Joe (ph) into 2 buckets, right? There are multiple different financial options and multiple different strategic options. And some of those come with financial investments.

Okay, thank you.

Certainly.

[Operator instructions] Our next question comes from the line of Jon Lopez with Vertical Group. Your line is now open.

Hi. Thanks very much. I apologize, I just wanted to come back to portions of the prior topic and just maybe try and ask it this way. It seems like based on the cash guidance, your combined OpEX plus CapEx has to drop to like sub 150 million in Q3, but then increase to above 250 in Q4. Is that, directionally, right?

I'll ask Becky to answer that.

So, I don't think I provided any difference between Q3 and Q4. And again, this reiterating that we have a lot of flexibility around when we make our large disbursements. And that's not just CapEx disbursements, but that's also for expenditures that are currently classified as R&D. And will stay R&D until we go into production. So that's how I would answer your question, is just the optionality that we very carefully put in place.

And think about when the timing of it, Jon, right? Some of the straddle 3Q, 4Q. So, some could lead one to the other. So, it's tough to delineate when it could stretch from the end of September and early October. Though we kind of gets it, we put it in that second half bucket, without trying to parse the 2 filings of the third quarter, you have a range of third quarter and there's some movement there. But we have the optionality to be able to move it. And part of this is also our anticipation of the types of the financing were going to get.

I see. Okay, that helps. Sorry, I had 2 other quick ones if I could, hopefully, they will be quick. Secondly, it sounds like the messaging now is commercial production is shifted to the calendar second quarter of 2022. So, could you just -- if I'm interpreting that incorrectly, please correct me. I suppose my question underlying that is, a lot of the prior management's focus was on being early being first, and to the extent that you pushed commercial production there, you're now sort of layering on top of a large competitor's timing. So how do we think about that? Does that influence your view of the initial opportunities, the longer-term opportunity, maybe just talk to these dynamics for a second if you could?

It's a great question.

Thank you. The distinction I will make with -- you're correct that commercial production and commercial production ramp begins Q2. However, the vehicles that will be deploying with a limited number of customers in Q1 are production quality vehicles. And the distinction that I'll make there is we still plan to be first-to-market, particularly in the commercial fleet space. And what we've heard from fleet customers and fleet management companies is that based on the performance of the vehicle, the configurations, the options, the performance in the TCO will be really well-positioned to establish a leading market share. And as I mentioned in our prepared remarks, it's a very, very large, underserved market and there's room for multiple players.

Got you. Understood. My very last one here is I do want to talk hub motors for a quick second, which you guys seem to be highlighting maybe a bit more. And I think I heard you guys referencing potentially some licensing opportunities there. And I suppose my question is this, I guess our understanding is that you're licensing the core technology itself, some LLC, which you [Indiscernible] a few times. But then your also paying workhorse for some past development thereof one sort or another. So, sorry the question here is, for this thing to license something like, what exactly is yours to license?

Thanks for the question. So, you are correct in that we have a licensing partnership with Alafi and we're continuing to work with Alafi as we developed, expanded, and unique configurations and applications, not only for the hub, but the hub integrated into our skateboard. And so, there are multiple levers that we're pulling there, as different customers and partners are interested in different configurations.

Okay, understood. Thank you very much for your thoughts.

Thanks, Jon.

You're welcome.

Thank you. There are no further questions. I would now turn the call over to Angela Strand for closing remarks.

Thank you again, everyone. On behalf of our team at Lordstown Motors, we appreciate your time, all of your support today, and we look forward to speaking with you again in November.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.