Electrovaya Inc (ELVA) 2018 Q3 法說會逐字稿

Greetings, and welcome to Electrovaya's Third Quarter 2018 Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Richard Halka, Executive Vice President and CFO of Electrovaya. Please go ahead, sir.

Thank you very much, Kevin. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's fiscal third quarter 2018 financial results. Today's call is being hosted by Dr. Sankar Das Gupta, CEO of Electrovaya; and myself, Richard Halka, Executive Vice President and CFO.

Yesterday, Electrovaya issued a press release concerning its business highlights and financial results for the third and 9 months ended -- for the 3 and 9 months ended June 30, 2018. If you would like a copy of the release, you can access it on our website. If you would like to view our financial statements and Management's Discussion and Analysis, you can access those documents on the SEDAR website at www.sedar.com.

As with previous calls, our comments today are subject to the normal provisions related to forward-looking information. We will provide information relating to our current views regarding trends in our markets, including their size and potential for growth, and our competitive position in our target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the company's press release announcing the third quarter results and the most recent annual information form and Management's Discussion and Analysis under Risk and Uncertainties as well as other public disclosure documents filed with the Canadian securities regulatory authorities. Also, please note that the numbers discussed on this call are in U.S. dollars, unless otherwise noted.

Now let me turn the call over to Dr. Sankar Das Gupta, CEO of Electrovaya.

Thank you, Richard, and good morning, everyone. Thank you for taking the time to listen in on our fiscal third quarter results conference call.

If you have followed our recent news releases, you can see that our business is gaining momentum. Since our last conference call in April, we have announced purchase orders from new and existing customers worth more than USD 3.6 million for our forklift battery products. We are getting more orders, and we're excited about this for a number of reasons.

We are receiving orders from both new and existing customers. We are getting significant orders for both replacement batteries for existing vehicles and new batteries for brand-new vehicles from OEM manufacturers. We are receiving orders from large global companies across a wide variety of industries, including Fortune 500 companies.

And we are getting orders across diverse markets, including our first-ever customer in Mexico. Many potential new customers are also testing our products and liking what they see. In our view, this is evidence that the market for Lithium Ion batteries in material handling electric vehicles is beginning to assert itself.

We believe we are the leading supplier of these products in North America. It takes time for companies to realize what a positive difference our product can make in terms of improving the safety and performance of their material handling electric vehicles, but they are beginning now to understand that the benefits are very significant.

A customer with a strong understanding of our products is Walmart Canada. As we reported on July 25, we have completed the commissioning of batteries for a Walmart distribution center in North America. The forklifts in that center, all of the forklifts, are now running entirely on Electrovaya's Lithium Ion batteries. It is one of the largest Lithium Ion battery installations we are aware of in North America, if not the largest.

Completing this work took a great deal of work, but the Electrovaya team has done a tremendous job. These batteries are working well. We are confident that the forklifts in this distribution center will outperform forklifts at other centers that are powered by lead acid batteries. We are now seeing many other companies taking note of this with increasing interest in our products. We are pleased by our recent order volume, and we believe the momentum is just beginning to take hold.

I will now turn the call over to Richard to review our fiscal third quarter financial highlights in greater detail. Richard?

Thank you, Sankar. Revenue for the 3 months ended June 30, 2018, was $400,000 compared to $1 million in the same quarter last year. And just as a reminder, these are all U.S. dollar figures. Approximately 3/4 of the Q3 revenue came from sale of large-format batteries. The relatively low revenue this quarter was due largely to the timing of sales.

We recorded most of the revenue from Walmart in the second quarter. As Sankar noted, we have recently announced orders worth more than $3.6 million, which will be recorded in subsequent quarters. Just as a reminder, there is a significant lead time between when the order is placed and when the delivery occurs. Walmart order was received in September and delivered in March, so we expect the orders we've announced to turn into revenue over the next couple of quarters.

Gross profit was slightly negative in the third quarter compared to $100,000 last year. Net loss was $2.5 million or $0.03 a share. That compares to a net loss from continued operations of $1.9 million last year. The increase in Q3 net loss is primarily due to higher general and administrative expenses as there was a reimbursement in 2017.

Please also note that the Q3 2017 number I just cited excludes Litarion operations, which allows for an apples-to-apples comparison with 2018. As a reminder, we placed Litarion in a voluntary insolvency process on January 25, 2018. On April 30, 2018, the administrator assumed control of the assets.

I'll now review our 9-month results for fiscal 2018, which provides a less lumpy overview of our financial performance. Revenue was $4.4 million, more than double the $2.1 million we reported last year. The increase was primarily due to revenue from the Walmart Canada order. Gross profit was $1.2 million compared to $800,000 in the prior year.

The net loss from continued operations was $7.8 million compared to $3.2 million a year ago. The increased loss was primarily due to the higher general and administrative expenses I just noted as well as higher sales and marketing costs and finance costs.

Inventory was $1.5 million as of the 30th of June 2018. That compares to $4.1 million as of September 30, 2017, which was our fiscal 2017 year-end. We have drawn down stocks during the first 9 months of the fiscal year for order fulfillment, as anticipated.

Turning to our balance sheet. We have $1.4 million in cash -- restricted cash as at 30th of June, and we used $4.8 million of cash in operating activities in the first 9 months of the fiscal year. However, that includes $1.8 million from discontinued operations.

We have recently taken measures to improve our working capital and our balance sheet. On May 30, we completed a private placement in which we raised CAD 667,500. We were pleased to see certain directors, officers of Electrovaya buy shares in this private placement, demonstrating their confidence in the company and positive outlook for this business.

On July 27, we announced that we entered into a binding agreement for the sale and leaseback of our headquarters in Mississauga for approximately CAD 22.5 million. Net proceeds to Electrovaya are expected to be approximately CAD 21 million before transaction expenses. It's a very important transaction that will allow us to pay down debt and improve our working capital position significantly. We will leaseback 50,000 square feet of warehouse space and 4,000 square feet of office space in the building. As we have said before, we require less space in our headquarters as we transition to greater use of contract manufacturing. The sale-leaseback transaction is expected to close September 18. For more information, please see our July 27 press release.

Finally, earlier this month, we entered into a $1.5 million secured loan facility with the corporation controlled by a director of the company. Interest is payable at 10% per annum. This facility provides additional financial flexibility in the short term as we fulfill orders. As we said in our Q3 disclosure, management is confident that Electrovaya has or has access to adequate resources to continue operations for the foreseeable future.

I'll now turn the call back to Sankar to wrap up.

Thank you, Richard. This has been a transitional year for Electrovaya. We had to restructure the company and improve the balance sheet, so that we can be properly positioned to capitalize on the growing interest and demand for our products. Richard just described the significant moves we made, including the recently announced financing and the sale-leaseback of our head office in Mississauga.

With those decisions behind us, we can truly capitalize as the material handling electric vehicle battery opportunity establishes itself. We have the best products from a technological standpoint. We believe we are most likely the leading supplier in North America, and we are winning purchase orders from major companies in which we sometimes compete with much larger companies. We believe it is just a matter of time before Lithium Ion batteries becomes the preferred option for this industry. The advantages of Lithium Ion are undeniable. An increasing proportion of new vehicles will be equipped with Lithium Ion batteries, and the replacement market is about to grow rapidly as well.

It is important to remember that this market is still in its early stages. However, the opportunity is massive. As I've said previously, the Industrial Truck Association has estimated that more than 250,000 forklifts were sold in North America last year and well over 1 million worldwide. In the U.S., more than 60% of these forklift vehicles are electric vehicles, primarily powered by lead acid battery. And when you factor in these forklift already in operation that would benefit from replacement Lithium Ion batteries, you get a sense of how big the addressable market is.

This market needs Lithium Ion batteries with outstanding performance, especially cycle life, as the forklift truck is operating 20, 22 hours a day, an equivalent of some 250,000 or 300,000 kilometers per year, and is fast charged multiple times a day. An electric car, on the other hand, works average of 2 hours per day and possibly charges twice a week. Hence, the batteries available for electric cars had difficulties in meeting these intensive-use, mission-critical industrial applications. And the Lithium Ion transformation in this industry did not occur. At which time, Electrovaya came with its much higher cycle life battery with improved safety and improved fast-charging capabilities.

So now this is happening. This transformation is happening, and we are in the forefront in this large electric vehicle and truck industry. It has taken times for companies operating these electric forklifts to understand what a difference we can make for the performance of their business, and they are growing more comfortable with our products every single day. Our focus for the fourth quarter and fiscal 2019 is to continue to expand sales of our forklift battery products to large global companies.

We are excited by the additional opportunities we have with OEMs and in the emerging energy storage market and other intensive-use applications such as electric buses where, again, the Lithium Ion battery has to perform with much higher cycle life and with fast opportunity charging capabilities. But those markets still will need time to evolve. We believe the forklift battery market is on the cusp of major growth, and we expect our sales momentum to go stronger in the months ahead.

We are disappointed that our share price has not responded better to our recent purchase orders and other key announcements. However, we are confident that this will take care of itself as we continue to execute on our strategic plan.

This concludes our remarks this morning. Richard and I would now be pleased to answer any questions you may have.

Kevin, please open the line to questions.

(Operator Instructions) Our first question today is coming from Carter Driscoll.

This is Carson Sippel, on for Carter Driscoll, and I just have a few quick questions. Can you address any capital needs you have for the near term even after the refinancing of the headquarters and the other moves you made?

It's Richard here. I think that in the short term here, with regards to the $1.5 million, which essentially bridges us through to the building sale and the proceeds out of the building sale, I think that will provide adequate liquidity. We are, however, looking at some other options available to us, which would be premature to discuss right now. But we think it will provide an adequate but we would like to supplement it with a little bit more going into the future, just to allow us to have a bit of a safety stock there.

Sure. Can you discuss the competitive landscape regarding other Lithium Ion players in the space?

There are a large number of Lithium Ion players in the space. Generally, our feeling is the Lithium Ion batteries is really, really good. However, for the intensive user where he's using the battery for round-the-clock, 24 hours a day, 7 days, they needed much higher cycle life, they needed higher fast-charging capabilities. And this is just my opinion that those capabilities were not there, which is why this industry, which is -- which needs that fast-charging and long cycle life requirements were not moving to Lithium Ion, and Lithium Ion -- until Electrovaya came. And all our users, these are very major Fortune 100, Fortune 500 companies, they tested our batteries intensively over months, running 24/7, and they felt very comfortable that this battery was really meeting the specifications. So yes, there are other players in this industry. But I think this industry is performance-driven, and they're choosing us, so it's good to see they're choosing us.

That's good to hear. Then last one for me is, can you talk about any ramps that you're doing beyond what just finished with Walmart Canada?

We have a very wide selection of people who are using our batteries. Walmart is the -- of course, the largest user, and on one complete distribution center, you have very, very many vehicles all running with the Lithium Ion batteries, so it's a really nice sight to see. But our users or applications or purchase orders are coming from diverse industries and both manufacturing industry and distribution industry, in multiple industries, food, warehousing, et cetera.

We reached the end of our question-and-answer session. I should turn the floor back over to management for any further or closing comments.

Well, this concludes our call. Thank you for listening in, and we look forward to speaking with you again following the release of our fiscal fourth quarter and year-end results. And have a wonderful summer. Thank you.

That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.