Kandi Technologies Group Inc (KNDI) 2022 Q3 法說會逐字稿

Good day, and welcome to the Kandi Technologies Third Quarter 2022 Financial Results Call. (Operator Instructions) This event is being recorded. I would now like to turn the conference over to Kewa Luo, Manager, Investor Relations at Kandi Technologies Group. Please go ahead. Thank you, operator.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the third quarter of 2022. Earlier today, we issued a press release covering the results. You can find the press release on the company's website as well as from newswire services. On the call with me today are Mr. Hu Xiaoming, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Mr. Hu will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&A session.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today.

Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the call are in U.S. dollars. With that, let me now turn the call over to our CEO, Hu Xiaoming. Go ahead, Mr. Hu.

[Interpreted] Hello, everyone, and welcome to Kandi's earnings conference call today. Let's start with financial results, which were promising. We doubled Q3 revenue versus last year, growing to $33.7 million from $15.8 million in Q3 2021. This was our highest quarterly sales since the start of 2021. As important, if not more so, net income turned positive midway through the quarter. We are excited about this performance, considering the global economic slowdown and ongoing supply chain demand as well as resurgence of COVID. The solid performance was driven by the strategic pivot we initiated a couple of years ago when we redirected resources in reaction to the pandemic.

I would like to thank all our shareholders for their understanding and support during this transitional period. Also, I'm grateful to our dedicated employees for their hard work in delivering this positive performance. The swing to positive net income was a function of better margins. Gross margin improved largely due to the higher gross margin earned by off-road vehicles and associated parts. This planned operating expense control also contributed to the bottom-line performance. We were pleased with the product mix, which improved as we executed our strategy, off-road vehicles and negotiated part sales contributed over 60% of total revenue in the third quarter.

Rising sales were primarily driven by our strategic pivot and the onboarding of new sales channel in the U.S. established by Kandi America. Consumer interest is accelerating for our golf cars, UTV and other off-road vehicles, we expect to see higher sales and net income in 2023. Finally we believe that our healthy cash position enables us to be open to opportunities. We expect more top line growth based on our diversified and resilient business model. Despite possible economic weakness that could affect the consumer demand, we will comfortably launch new products in the electric vehicle business to gain market share and create more value for our shareholders. Let's now start the QA session. Kewa will take any English questions and translate for me. Operator. Please go ahead operator. We can start a Q&A session.

(Operator Instructions)

The first question comes from [Harold Dobry], the private investor.

My questions have to do with the status of Kenny's off-road products like the K 32 off-road trucks or bikes. I heard that dealers want a K12 truck, but it's not yet available almost a year later, if true, Why? Besides that, I have 2 short questions. How about the various golf carts which I believe are gas powered? Are we going to consider making an electric gold card? Another question. What about our electric bikes -- are they currently available for purchase? And how are the sales doing? And my last question is since off the road looks like a major primary business in the U.S. for Kandi, I would think it's time for the company to start breaking down each of the segments in the security filings, instead of all together under off-road vehicles. I see some of the stuff that's been done in the latest quarter 3 report. But still, we think that we should separate golf cart bikes and scooters, so that we see the numbers for each group.

That’s a good question. [Interpreted]

So first of all, thank you for your questions. So regarding the production conditions for the K2 off-road trucks, we have been refining the whole production workflow in the past few months. And right now, we are capable of the full and mass productions. As a matter of fact, we have been gradually started to ship in a normal process, and we will arrange the production plan according to the market demand.

And as for the gold card powered by gas, indeed, the sales volume is also for the whole market has declined this year. And so all vehicles, including the golf carts are currently produced by us will be gradually electrified, which is a trend for the whole market, but we are in the more advanced position. And besides, we have -- we do not produce the electric bicycles at the moment. And finally, our focus really stick on the pure electric highway vehicles. As for the disclosure issues, we actually stack with the requirements and the guidance from the SEC. We'll make sure we have accurate reporting and disclosure. But we will consider your points and consider how we can refine down the road.

The next question comes from [Frank Blederman], private investor.

Yes. I have 2 questions. Has Kandi solve the airbag issue regarding the K23 and K27 and either self-certified or submitted to the DOT for certification for highway use? And number 2, on July 19, 2021, a press release was issued announcing the purchase of Ding Zai Hua battery company begin my pronunciation. What was the contribution of revenue of that acquired company in the third quarter?

[Interpreted]

[Interpreted] So thanks for your question. The first question regarding the APAC problem for K23 and K27. At the moment, we have not been able to resolve that, and we are trying hard to do so. We'll keep be posted for any new update. As for the sales revenue from the Jiangsu, the revenue generated for the third quarter was about USD 6.3 million. Thank you. Okay. Thank you very much.

The next question comes from [Mike Buffer] with Oppenheimer.

Based on Q3 2022 financials to date, it appears that the 2022 could be the strongest year ever for Kandi. Yet to date, the company has only put out one breaking news type of PR back on January 10, 2022, and PR announced Kandi interest framework agreement to produce battery swap enabled electric vehicles, referencing a signed framework agreement with Hendren automobile company to jointly produce battery swap enabled pure electric vehicles.

So let me ask a few questions regarding this relationship. First, on the last conference call, Mr. Hu said, our cooperation with Hendren is mainly that we are responsible for the production of the electric vehicles that enable that battery swap mode. We produce the motors, parts and then Hengrun will take our parts and assemble to be a whole vehicle. What does it mean that we are responsible for the production of electric vehicles. But on the next line, you say Hengrun will take our parts and assembly to be a whole vehicle. What is the difference between production by Kandi and assembly by Hengrun is the final assembly at Hengrun or Kandi Haiku facility? If this is a JV, what is the detailed sharing arrangement?

Thank you for your question. Let me translate to right now that you can ask after that okay?

[Interpreted] Okay. So the corporation, it really depends on the regulation from China's system. So the way we work is basically for the key and main components are all produced by us of the Kandi-Hengrun. And our partner, Hengrun, is responsible for the final assemble of the vehicles. And those vehicles are sold with the Hengrun production qualifications or the license. So that's how we cooperate.

Okay. One other question. From a PR by Hengrun on its website in China, October 13, 2022, they announced their Hengrun H23, formerly the Kandi K23 with quick battery exchange has been officially released for sale at RMB 139,800 around USD 19,800. Can you give us some details on this? And if true, why didn't Kandi put this news out in the U.S.? U.S. holders have been waiting for years for Kandi to be back in the China EV market.

[Interpreted] Okay. So the update is the model 23 that we manufacture along with Hengrun was actually announced by the Ministry of Industry Information Technology on May 1 this year. So basically, we are approved and qualified to produce and manufacture such model in the PLC market. And there were a small amount of the sales that incurred in the second and third quarters of this year. At the moment, the China's domestic electric vehicle market is still not in a healthy or orderly development stage, many of the companies, they even try to sell with deficit loss in order to occupy the market. So right now, we will keep track and try to improve. However, we're starting to keep and retain the small-scale operation at the moment in order to keep our budget and our cash. And we will definitely accelerate the progress when the China market become more healthy and profitable. And we'll keep posted for any third update, of course. Thank you.

All right. Just the last question. What does this really mean to Kandi, i.e., is this part of the 300,000 EV program? What specific revenue mountain sources does Kandi get from each sale. With Geely, we knew we got paid for the parts and 50% initially of the profits and loss. How is this the same or different?

[Interpreted] So first of all, our cooperation with Hengrun means now our electric model 23 produced by our corporation as announced by the Ministry of Industry and Information Technology. So meaning we are now officially approved and capable of manufacturing and selling such model in the PLC market. We don't have such qualification ourselves. That's why we are working with Hengrun work together in order to get such a qualified process in place. As for the income and the revenue, we basically get all the income generated from the complete steps of this part, we sell to Hengrun. Unlike the cooperation with Geely, which we are in the joint venture relationship, meaning we will share and split whether there's profit or loss. The relationship with Hengrun is a partnership and then the trading relationship, meaning we will generate the revenue as long as we deliver the set of the EV parts to them. And then they will go and sell from their own resources. But basically, the revenues generated once we deliver to Hengrun. I hope they can address your questions.

The next question comes from Arthur Porcari with Corporate Strategies.

A really nice quarter. I'm glad to see you beat -- the Street estimate by about 15% and went from a negative to a positive on net. But that brings me to my question today. It's going to be a little lengthy. I know they usually are, but this one is important because this is primarily to do with new U.S. Kandi electric golf cart crossovers and some recent discoveries made, so this may require me to lay down some background first. So let's start with that.

On our last conference call, Mr. who confirmed that in the earlier 10-Q also, the Kandi had at that time received 2 contracts for electric golf carts totaling some USD 70 million for this year with almost all in the second half. He told us he was anticipating strong immediate production in the vicinity of 2,000 gold cards per month. What he didn't tell us was who is going to be buying all those golf carts.

A few weeks ago, on info, I got from an exciting Kandi independent dealer who is patiently waiting for a zone golf carts order in the truck by the way, that Lowe's Corp was now selling Kandy's golf carts. Initially, I doubted him, as I couldn't conceive such a huge contract would not have been announced by the company. As a regular Lowe's, I've never seen off-card of any brand there being sold. This time, to my surprise, a really sharp golf cart was right outside the front door. A quick look around, I noticed Defect said Colman, then I saw a small inspection plate behind the front right wheel to my amazement, it's a KandIcruiser with A-K at Etsy Auto Sports, which is Kandy subsidiary company, along with Kandi America's Dallas Address.

I went back into the store in the garden section, saw a second similar car park there, over priced at $9,999 which was under the Colman-Kandi's 10,999 MSRP that you have on your website and then check YouTube, and then found actually a couple of very positive reviews that already come out on the Kandi electric cart purchased at Lowe's. -- positive in both price and quality by several YouTube providers and most impressive was confirming its 35-mile range and 25 to 30 mile an hour top speed. Go ahead and pass that on.

I learned from these videos that the Lowe's carts were cheaper than the independent dealers due to less features, front rack, ice chest and only 2 colors. I then went to 2 other lows in my area, both had the golf carts, one of them actually had 4 on-site just received. The cards are also available through Lowe's online. The U.S. alone has some 2,250 Lowe's stores. I posted on the private chat board about this and shortly members from all over the country reporting back that golf carts were also in many but not all of their local Lowe's stores. With this setup, I have more to add on the subject, but let me stop now and I have a question for now.

My first question is, why were shareholders not told about this? It's incomprehensive that Kandi would do a private label deal with multibillion-dollar Colman for Lowe's, one of the world's largest golf cart maker in the world and not put out a press release. I'm sure even easy go, the largest golf car maker in the world would have put news out on something like this.

[Interpreted] So for that transaction, even though we have not released individual news separately about the matters you mentioned, we did include such transactions in the earnings press release of the first quarterly report of this year that was released back in May 2022. But ongoing, we will consider such transaction and maybe consider how to improve our press release channel.

Okay. Well, here's something else too, you may or may not -- you might have heard about it now, but you probably know about it, but you probably didn't know to shareholders to get access to this. But additionally, members of the private chatboard recently discovered a publicly available subscription service, tracking all commercial container movements globally. Through this service, it appears that Kandi's already shipped almost 500 containers in the past 4 months with either 20 or 12 carts in each container depending on whether they were 4 seater carts or 6 year with this level of information easily available to the public for a few dollar subscription -- it seems almost unfair to unaware shareholders to be left in the dark on the information. So I appreciate the fact you say you're going to start looking at putting out more news on this. But let me go on.

A few weeks ago, with Kandi in the low 2s and 30% discount to cash, a 60% discount to book value with no news for 8 months, it appeared to me that Kandy was going out of business. I even know some long-term holders that threw in the towel sold the stock. However, with this information available, it's easy to see that Kandi has already embarked on an incredible future in just this very hot sector alone that could pass $80 million in sales in the second half of this year, surprising all of last year's revenues. I mean, you've already said earlier in the year, we should do $70 million on the first 2 contracts, and we did about $20-some million so far, so we should probably do the balance, I'm sure in the fourth quarter. Anyway, it's very rare that blue-chip companies such as Coleman and Lowe's would risk their reputation and give such a vote of confidence on such a new provider is Kandi in this high-ticket market unless they saw a bright future together. So let me wrap this up with a few more questions.

In addition to the additional variations, the 6-seater I aforementioned and a new modified version of the 4-seater which gives up the back seat and replaces it with a hydraulic dump bed and includes a 3,000-pound electric winch on the front. This utility version would seem like a natural for Lowe's. Do you anticipate that Coleman Lowe's would also be taken on these new variations or will this be mainly for independent dealers?

[Interpreted] Okay. First of all, about the sales information and update development, even though we may not have the individual press release separately. However, we have always disclosed such the sales information and related analysis in our quarterly reports. And based on your opinion, we'll definitely take a heat of that and try to refine our disclosure as much as possible in the future. And regarding the product information that -- and the questions that the models that I talked about, I guess, we are still working on the details with our partners in U.S. market. So we may not be able to disclose too much at the moment, but please pay attention to upcoming disclosure for a new development. So stay tuned, please. Thank you.

That's very encouraging, okay. A couple of -- I seem to remember from a prior call, the Kandi has a China partner with this project? If so, who is it? What facility is making the cards? And what are each company's responsibility, each company's revenue and profit sharing terms and percentages?

[Interpreted] So as for questions, our partner is called Jiangsu Xinsun. Regarding such transactions, we have actually fully disclosed quarterly reports since the first quarter of this year. In February of this year, we -- and Jiangsu Xinsun to sign a joint venture agreement. The journey invests approximately USD 4 million to establish a new entity is to Hainan can be holding new Energy Technology Company Limited at the Hainan City of Hainan province. So Wealth Group Kandi Hainan holds 66.7% of such entity, whereas the Jhansi seems to hold 33.3% of the entity. At the moment, such the crossover golf cart is manufactured by the new entity Hainan can be holding, even though the production was taking place in our Hainan facilities of Kandi. The professing scheme is based on the shareholding ratio of such entities. So meaning we will have 66.7% of such revenue generated from this entity.

That's excellent. I remember, Jiangsu Xinsun that's a huge operation. We talked about dealing with them a few years back. Okay. is about finished here. Are there any more major clients like this expected in the near future? Can you give the shareholders the company's revenue growth forecasts for Q4? And you already said 2023 as you continue into, so maybe a forecast for 2023 as well. I know he doesn't like given forecast, but I can ask...

[Interpreted] As for the major customers, there are some parties they are working with and are in the negotiations. So please stay tuned to an upcoming disclosure for further development and the details. For the 2023, as we mentioned in the past, we do believe that there will be a large increase of the revenue for upcoming year. However, we don't have such detailed figures at the moment.

Well, fantastic. My last question is just it's kind of off topic. I noticed that Kandy has put out an excellent new investor presentation deck on its parent website IR section. -- recently without any shareholder notice. Usually, Kandi does this when they're getting ready to attend a stockbroker analyst symposium of sorts. Any particular reason why it was quietly put out now?

[Interpreted] Thanks for your attention to our website, actually from time to time, we are updating the content and the information on the website according to the key development of the companies. It is a routine process and with really a specific reason of doing that. It just routine task force to update their website. Looks very good.

Anyway, congratulations to both Mr. Hu and the quiet person back in the U.S., Jehn Ming, I think maybe Mr. Hu should bring them on the next conference call introducing to the shareholders. It seems like he's done a pretty phenomenal job.

[Interpreted] Thanks again for your opinion and suggestions.

The next question comes from [Mark Miller], a private investor.

On your wholly owned battery subsidiary that you announced in December 21 and your first quarter filings, you achieved $8 million in revenue from a slight drop-off in quarter 2. And in comparison to what you guys paid, it seems like you did a really great transaction here for the Kandi shareholders. Was the sales decline in Q2, what was the reason for it? You had $8 million in quarter 1 and $6.3 million in quarter 2.

[Interpreted] About the issue you mentioned, due to the continuous impact of the pandemic and the lockdown, there's disruption of the market for the demand and the whole production chain. So it brings the whole decline of the supply and demand in the market. And subsequently, of course, sales of the lean batteries was impacted proportionately. Although we have a more stable revenue since quarter 3 compared to quarter 2, we saved around USD 6.3 million. For the whole fiscal year of 2022, we expect it will generate roughly USD 27 million to USD 28 million of sales from this Jiangsu entity.

That's good news. Okay. One quick one here. Does Kandi OEM, do they make their own batteries for their own golf carts, spikes, cars, et cetera. Just can also the OEM with a cotenant Changing in OEM gains.

[Interpreted] Yes. So basically, the golf cart, they adopt 2 types of the battery. One is the lead acid battery and other one is a lithium battery. So we have now gradually switched the models from to the battery. So upcoming Wuling will manufacture more batteries for our golf cart.

Okay. Great. And then last one here. How am I pronouncing the subsidiary name? Huiyi, how are we pronouncing that name.

Hui-yi.

Okay. Do they do any private labeling for other battery companies?

[Interpreted] Yes. So where they have their own market share and so they have their own brand. That's why they usually just manufacture the own brand of batteries to sell the OEM for other companies. Okay. Great. I wish you guys all the best and keep up the great work.

The next question comes from [Frank Biderman], private investor.

Yes. Thank you for taking my second major question here. With regard to your reorganization plan, part 1, what is the current status? Part 2, if it goes forward, will your Sears continue to be listed on the NASDAQ and if not, where and at what stage will shareholders know. Part 3, what is the legal impact of Kandi and corporation in the British Virgin Islands on its obligations to keep shareholders apprised to material development. legal obligations aside, what do you intend to do once you've incorporated in the British Virgin Islands with communication to shareholders; and number 4 here, the last part, what will be the impact on K&D filing and communicating quarterly earnings reports once you are re-corporated in the BVI.

Thank you for your questions I'm sorry, can you repeat your last question?

Yes. What will be the impact on Kandi filing and communicating for earnings report?

[Interpreted] So regarding the status of the reorganization and the demo sell to BVI. Our company is still in the progress of taking such a task. In the meantime, we are completing the Form F-4, the following that is necessary for the reorganization plan. Once the Form F-4 gets effective, we will then plan to hold a general meeting for the shareholders at that time, we will have the voting to determine whether the registration to BVI and the demo cell can be completed. And once the reorganization plan is approved by the general meeting of the shareholders, our listing status on the NASDAQ actually remain unchanged. So basically, actually, the legal structures can be more accurately reflect our operations, our development and then our order plans upcoming.

And we believe with such reorganization can protect the long-term interest of the shareholders to a greater extent. And even though we are not worry, we are still a regular NASDAQ-listed companies. So our communication and the disclosure to the shareholders, actually, we will be pretty much the same without much material changes because for all the disclosures and such as the financial reports, we have to file quarterly or regularly based on the master requirements. And all other public information will be submitted and filed to public as per the requirements of the SEC regulations. So that's pretty much it for our status update for the re-organization plan.

I would like to turn the conference back over to a Kewa Luo for any closing remarks.

Thank you again for attending today's conference call. If you have any more questions, please feel free to contact us via the e-mail IR@kandi.com. You can also contact our IR advisor Blueshirt. We look forward to updating you on our next earnings call. This concludes our call for today. You may now all disconnect.

Thank you. Again, the conference has concluded. You may now disconnect. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]