Electrovaya Inc (ELVA) 2022 Q2 法說會逐字稿

Greetings, and welcome to the Electrovaya's Second Quarter 2022 Financial Results and Analyst Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to Richard Halka, Executive Vice President and Chief Financial Officer. Thank you. You may begin.

Thank you, Gerald. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's Q2 fiscal 2022 financial results.

Today's call is being hosted by Dr. Sankar Das Gupta, Chairman and CEO of Electrovaya; and Dr. Raj Das Gupta, Chief Operating Officer; and myself, Richard Halka, Executive Vice President and CFO.

On May 10, 2022, Electrovaya issued a press release concerning its business highlights and financial results for the 3- and 6-month period ended March 31, 2022. If you would like a copy of the release, you can access it on our website. If you want to view our financial results -- our financial statements, management discussion and analysis and annual information form, 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 relating to forward-looking information. We will provide information relating to our 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 and assumptions applied in making forward-looking statements may be found in the company's press release announcing the Q2 fiscal 2022 results and the most recent annual information form and Management's Discussion and Analysis under Risk and Uncertainties as well as in other public disclosure documents filed with Canadian securities regulatory authorities. Also, please note that all numbers discussed on this call are in U.S. dollars unless otherwise noted.

And now I'd like to turn the call over to Sankar.

Thank you, Richard, and good morning, everyone. The momentum we were anticipating for fiscal year 2022 has started in spite of all the global supply chain issues we continuously hear about. Our March quarter was 47% higher than March 2021. Our purchase orders in hand are now over USD 25 million, which is over CAD 31 million. And we are well on our way to substantial revenue growth over the next half of the year, doubling over last year's revenue and expecting the year to end with in the $21 million to $25 million range. And every week, orders from some diverse customers keep pouring in. Why?

All of the company's 5 pillars are functioning in unison. The first pillar, technology. Our technology of the Infinity battery platform is globally relevant, high safety, highest longevity without compromising energy or power. Our technology is our advantage, which has made our OEM partner, largest in the world, sign the strategic supply agreement with us.

The second pillar is producibility. We are powering over 3,000 vehicles today and have the capability in producing thousands of batteries. Producibility is not a risk anymore, although both COVID and supply chain continues to be challenges.

Our third pillar and important to us is the greenhouse gas reduction. Each of our electric vehicles work usually 24 hours a day, 7 days a week and on an average about 12 to 16x longer than an electric passenger car which means Electrovaya is eliminating greenhouse gases at a rate equivalent to about 50,000 electric cars every year.

If I was the policymaker, I would give higher preference for climate change mitigation to these hard-working electric vehicles. Our Infinity battery line has exceedingly good safety and longevity and if the -- and is the product going into electric forklifts and later into electric buses and other applications. We were an evangelist in climate change and delighted that finally the world is waking up.

If they had woken up sooner, it would have been better for all of us and all other species but better late than never.

The fourth pillar and important pillar is the market. It's emerging. This calendar year 2022, every week we're receiving purchase orders and our purchase orders in hand exceeds 25 million, and we are well on the way to doubling last year's revenue. As I mentioned earlier, we anticipate we'll come in at the $21 million to $25 million of revenues by the end of September 2022.

The fourth important pillar is finance. Finance for growth. We are delighted that our lender is generous enough and confident enough on Electrovaya that they have increased our line of credit by over 50% from CAD 7 million to CAD 11 million. This is critical oxygen for business growth and great for our shareholders that we did not have to dilute through an expensive equity raise. We are thankful to our finance partner.

And the fifth pillar of the company is our very dedicated people who are passionate in their fight for climate change mitigation. They came to work every day over the last 2 years of COVID, did not (inaudible) which they could have easily done. They organized their work and premises carefully and scientifically such that, to my knowledge, there was no workplace COVID transmission.

Our battery cycle life and safety, our technology are critical differentiators for us. They're game changers and fundamental to our current and future success. Our addressable market as it emerges is several tens of billions of dollars and the sophisticated, knowledgeable corporations, the Fortune 500 companies, are allowing Electrovaya to take charge of their mission-critical operations.

I'll now turn the call over to Richard to review our fiscal 2022 and second quarter results in greater details. Richard?

Thank you, Sankar. Revenue for Q2 fiscal 2022 was $4.3 million or CAD 5.4 million compared to $2.9 million or CAD 3.7 million in the fiscal second quarter, March 31, 2021, an increase of 47%. On a sequential basis, revenue in Q2 fiscal 2022 increased more than threefold compared to $1.3 million or CAD 1.6 million in the fiscal first quarter.

It is anticipated that sales will grow rapidly in the second half of fiscal 2022 as production has ramped up to meet existing demand. As Sankar has mentioned, purchase orders in hand for delivery currently exceed $25 million or CAD 31.5 million. As Sankar also mentioned, the impact of supply chain issues and inflationary pressures was evidenced in our gross margin for Q2 2022 of 25% compared to 32% for Q2 2021. The decrease was due to a number of factors, including inflationary pressures on material cost, increased shipping on logistics costs and foreign exchange movements.

The company has taken steps to reduce inflationary pressures, such as ordering key components necessary for 2022 deliveries, thus locking in current prices and avoiding further component price increases. An additional factor which contributed to lower margin in this quarter was due to sales which had been priced using 2021 prices and now delivered in the first quarter prior to price increases, which occurred in 2022 to offset inflationary pressures.

Our objective is to maintain gross margin in the range of 30%.

As Sankar mentioned, we recently amended our credit facility. The working capital facility was increased from CAD 11 million to CAD 14 million. The increase supports working capital requirements in order to accelerate production to meet current demands.

The company believes the available liquidity along with the collection of 3.9 million of accounts receivable, the conversion of 5.2 million of inventory into salable finished goods as well as receiving an additional 3.7 million of inventory which is in process for which deposits have been paid in the prepaid expenses is adequate working capital to support our anticipated growth.

I would now like to turn our call over to Raj for concluding remarks.

Thank you, Richard. As Sankar and Richard mentioned, our immediate revenue is primarily being derived from what we term our Infinity platform. This platform is based on a set of Electrovaya's proprietary cell technologies, which provides increased safety and cycle life over comparable lithium ion technologies. This makes this platform particularly suitable for hard-working electric vehicles, such as electric material handling vehicles, electric buses, electric automated-guided robots, long-duration energy storage, amongst many other applications.

These are all rapidly growing multibillion-dollar markets. That said, as we are all aware, the electric passenger car market is rapidly transforming with battery-powered electric vehicles replacing the internal combustion engines. For this market, Electrovaya's strategy is to successfully enter through a technology leap. Specifically, Electrovaya is working on a solid-state battery which could become a disruptive technology in this sector.

Our efforts are progressing well and quickly. We are filing key patents and building up our IP base. We are making hundreds of coin cells and now have scaled up to larger, single layer and multilayer pouch cells. We are seeing excellent cycle life and performance and the cycle life trend is anticipating, exceeding the needs for the electric passenger market, which targets about 800 cycles or more with 80% energy capacity retention. We anticipate exceeding that target. Our pouch cell cycling takes place without the need of pressurization which is quite significant.

Finally, we have started designing the production process for the Electrovaya solid-state battery technology. In conclusion, the remainder of fiscal year 2022 will be key for scaling of our production for our Infinity platform products as well as key for developing our next-generation battery technologies. Over this period, we expect our revenue to continue to grow sharply as we ramp production and deliveries.

That concludes our remarks for this morning. Richard, Sankar and I will now be pleased to hold question-and-answer session.

Operator, please open the line for questions.

(Operator Instructions) Our first question has come from the line of Jeffrey Campbell with Alliance Global Partners.

According to the press releases in January announcing the $6 million in orders through the OEM channel, these were to be completed by 3/31/'21 which obviously didn't happen. I was wondering, was this due to the production delays that were noted in yesterday's press release or something else? And secondly, what's the current status of these orders, meaning have they been completed and delivered yet?

So these are -- these orders were for new distribution center sites. And as we're all aware, construction schedules can change. And one of those sites was not ready for delivery of our products. So essentially, it was mostly to do with that. At the same time, we did have some supply chain hiccups on our end.

And Jeffrey, they didn't take it by March, but they're going to take it -- they're going to take a look. Yes.

No. Okay. So let's ask that again. What's the current status of the orders, meaning have they been delivered yet? And if not, when do you anticipate them being delivered?

Their distribution center will be ready very shortly, and they will accept these -- we'll deliver...

So the overarching message here is that it's really been delays on the customer side that has been the primary reason that the orders were not fulfilled in the time that was expected.

Jeffrey, we're doubling production, and I mean...

That's correct. Jeffrey, there's 2 distribution sites for that particular project. One of which was fully delivered. The other one was requested for us to hold back.

Got it. Okay. Regarding the supply chains challenges noted yesterday from a higher view. Do you think these are more closely related to China's on-again, off-again manufacturing due to COVID, the war in Ukraine, maybe a combination of the two, something else?

It's a global thing happening, and it's also related to shipping and so on. But what we are seeing, Jeffrey, it's -- the challenges are getting less. So we are feeling good about it.

Okay. Regarding the $25 million in the order book, what's your current time line to monetize those orders? Meaning is this $25 million that might be completed by the end of the fiscal year? If so, that would seem like your guidance revision is a little low. Or is this a 12-month rolling order book? Just trying to get a sense of the timing here.

Yes. Jeffrey, it's moving well. It's moving well. We are aiming to more than double our revenue this year. if some orders move from September to October, it does not really matter. And we provide a very high-quality product. And our customers are really focused on receiving it. And so we don't see really any production challenges.

And Jeff, that $25 million is within the 12-month period.

Okay. Great. Yes, that will help to all modelers out there.

Yes.

Turning to the outstanding performance of the Infinity forklift batteries and million mile service projection. As I think you noted, this would seem to be ideal for heavy-duty transport such as buses. So I was wondering how's the current effort with Vicinity progressing. And are you working on other relationships in that area?

Jeffrey, we're working on multiple relationships on the buses. Just today, the bus market, the electric bus market is a very small market compared to the materials handling market. The materials handling market, it's tens of billions of dollars. And the bus market, I know the press likes it and people like it because they can see buses running around every day. But it's a very small market today.

However, the market will grow quickly, we hope, as Washington, D.C. and other places start opening up the demand through the climate change various programs. So Jeffrey, our feeling is our technology should become the industry standard for any heavy-duty vehicles.

Okay. So that suggests that the incipient bus effort is not really yet competing with Raymond and the direct sales channel for materials. So by the time, you make more inroads in the bus market, you believe that you'll have sufficient materials to be able to service both markets.

Yes. We are planning to service both markets. We have separate engineering teams, and we think this high-voltage bus market is important to us, Jeffrey, because it also leads to these high-voltage electric truck markets, and there's a number of high-voltage applications coming up.

Okay. Great. And finally, I didn't want to ignore the exciting news on the solid-state battery front. Performance at room temperature with no external -- and no external pressure seems like features that no current competitor can match. What's the time line currently to finish constructing the patent portfolio to provide you the surety that you want and begin field testing the pouch configurations.

On the patent portfolio, we should have probably another 6 months for us to finish filing the key patent that we have on our road map. With regards to scaling this, our focus is -- big efforts are being made on the pouch cells right now. And we are slowly increasing the size of those pouch cells, making more and characterizing them heavily.

And in parallel, Jeffrey, we've also started the program for the manufacturing process. So we are cautiously bullish on this program.

Our next question has come from the line of Shawn Severson with Water Tower.

My first question is the economic sensitivity of electrification of the material handling market. I mean we know this trend is in place and offers an ROI. And maybe this is a question better for your customers. But what do you think the economic impact on electrification, if any, related to obviously the volatile global markets and things like that?

Shawn, that is really the fundamental thing the customer always looks at. What is the economic value, what is the return on investment. So our partner OEM has in their website a calculator which measures ROI, and you can put different items and different numbers there. And in the present calculator, it shows the -- it depends again on how long you're running the batteries and so on.

It shows a matter of months, 4 months, 5 months, 6 months, is the ROI. And this is so amazingly good that I think it's almost the end of discussion on which technology and how does people get into this materials handling structure and strategy. So the ROI for the Electrovaya product is very high.

So even if there is an economic slowdown, this probably stays towards the high end of the priorities because of the ROI.

Yes. And sometimes previously, we have noticed that when there's an economic slowdown, that is the time people are more focused on getting higher efficiencies. And actually, because we provide ROI, we may actually see a higher growth of people moving into higher efficient ways of handling -- electric materials handling vehicles by using the Electrovaya battery. So we might see a growth.

And Richard, talking about the return to your gross margin in the low 30s. Can you kind of -- can you walk through the components of that? I know you touched on it a little bit already in your commentary. But getting from today back to that number in the low 30s and maybe break it out by some components would be very helpful.

We don't provide the specific detail of the components. What I would say is that, that bulk order that we did that is currently on our way that's locked in our pricing for this year is very important. That will be one of the major factors. And the other factor that impacted this quarter, in particular, the second quarter, was because we had fixed the pricing on some of those orders in 2021, and we've had price increases since in 2022. So that will be reflected in our current sales.

Got it. And my last question is regarding solid-state batteries and your go-to-market strategy. So if you look at this in a perfect world and you say, here's how we would like this to roll over the next 12 to 24 months to roll out, what would be the things that happen there in terms of partnerships? I know you mentioned you got your patent portfolio you're still working on and looking to manufacturing. But can you help me better understand that 12- to 24-month rollout, interest in partnerships, et cetera?

Shawn, we are in the process of perfecting our patent position, our IP as well as the technology. So we are less worried on the partnerships. We are presently connected to pretty much major Fortune 500 companies, both from the automotive and other space. So it's very important that we are completely buttoned down before we launch. And we are not going to go into this year partnerships.

Okay. So if we're looking at milestones and catalysts, let's say, over the next 12 to 18 months, is there going to be more internal execution at Electrovaya on the platform in terms of technology and manufacturing. And along those lines, particularly, what types of things would be able to be announced during this time frame? I mean what milestones should we look for?

Shawn, we are -- strategic partners are already in touch with us. So we are not discounting partnerships at all. I mean these are going to run in parallel. But we are careful that the technology is not over exposed until everything is buttoned down. So that's really what it is. So I think you should see our big focus on the producibility starting happening in the next couple of months, you should see larger production coming through, and you will see a fairly large multi-layered pouch cells being produced and so on.

So the other interesting thing, Shawn, we have -- Electrovaya has the experience in manufacturability of lithium-ion batteries. And that is an important experience which very few people both in Europe and North America has. So we think it's very important that as you design the product, in parallel, you are also designing the manufacturability.

A lot of times in solid-state batteries, people have designed in the lab products and then they found that it was very, very difficult to produce it economically. And this parallel drive of designing and developing the technology as well as developing the producibility is to us very important.

And by that, I assume you mean that you can really leverage a lot of the existing skill sets and supply chain for lithium ion, right, for -- that are being translated in the SSB that you're not going to reinvent the wheel here in terms of manufacturing, let's say.

Absolutely, which is why the progress is moving quickly.

Thank you. There are no further questions at this time. I would now like to turn the call back over to Dr. Sankar Das Gupta for any closing comments.

Well, that concludes our call. Thank you for listening this morning, and we look forward to speaking to you again after we report our fiscal third quarter results. Have a wonderful day. Thank you.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.