Earnings Call: Q2 2021

May 12, 2021

Earnings release

Greetings, and welcome to the Electrovaya Q2 twenty twenty one Financial Results Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Helka, Executive Vice President and CFO. Please go ahead. Thank you, Brock. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's Q2 twenty twenty one second quarter financial results. Today's call is being hosted by Doctor. Shankar Dasgupta, CEO of Electrovaya and myself, Richard Halkett, Executive Vice President and CFO. On 05/11/2021, Electrovaya issued a press release concerning its business highlights and financial results for the three month period ended 03/31/2021. If you would like a copy of the release, you can access it on our website. If you want to view the 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'll provide information relating to our current views regarding trends in our markets, including size and potential for growth and our competitive position in our target markets. Although we believe 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 and 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 fiscal twenty twenty one second quarter results and the most recent annual information form and management's discussion and analysis under risks and uncertainties, as well as in our other public disclosure documents filed with Canadian security 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 Shankar. Shankar? Thank you, Richard, and good morning, everyone. Q2 twenty twenty one ending thirty first March was a busy quarter for us and we are pleased with our progress in this quarter. We grew revenue 50% in the quarter and around 96% for the six months ended 03/31/2021. The year over year revenue growth reflects growing customer demand. Our sales are coming from large intensive users that recognize the value of our batteries. Our battery safety cycle life and energy density is providing significant efficiency gain and strong return on investment to our customers. Richard will outline further the financial results. On the sales and revenue channel, we are getting traction in spite of the prolonged COVID disruptions. For our revenue, we have two channels to the market. The first channel is through Raymond Corporation, an OEM, original equipment manufacturer, who has an extensive sales network. The second channel is our direct sales to the customers. On the first channel, Raymond Corp, who is a wholly owned subsidiary of the Toyota Group, is the premium electric brand for electric lift trucks for Toyota. Raymond is also the largest manufacturer of branded electric lift trucks in North America and along with the Toyota branded trucks is the largest manufacturer globally in this sector. Electrovaya and Raymond signed the strategic supply agreement in December 2020 and this has been the first quarter after that agreement. And Raymond has launched this product with a revamped website at www.raymondcorp.com. Raymond's focus market is, of course, USA and Canada through its distribution chain. The Electrovaya battery is now integrated with most of the large lift trucks sold by Raymond. We are very bullish that Raymond will have our battery in very many customer locations in the lift truck sector. Last quarter was the first quarter that the Raymond strategic supply agreement came into effect. We continue to receive repeat orders for Fortune 500 companies as they recognize the efficiency gains from our lithium ion batteries in their operations. As an example of the new sales push from our OEM partner is one recent customer they secured recently is a Fortune 100 big box retailer who is now operating our batteries in five of their stores in the New York City area. This end user has several thousand stores and could become a significant opportunity for the company, several hundreds of millions potential with a single customer. Our batteries are being sold for both the Raymond and the Toyota branded electric trucks. As part of the launch program, Raymond has invested substantial sales and marketing effort behind these batteries through their Battery Essentials product launch. In addition to sales in USA, Raymond, through their overseas subsidiaries, has started marketing the Electrovaya batteries overseas initially to the South America and Australasia market. We delivered our first shipment to an e commerce customer in Argentina as well as to a multinational food conglomerate also in Argentina. We are now quoting customers through Raven into Australia, Colombia, Brazil, Philippines, Canada and elsewhere. No doubt, however, the largest market is The USA and we are now possibly powering lift trucks in some fifty, fifty five locations in The USA. This is a new Raymond corporate team marketing our products and we believe this team has the resources needed to make the Electrovaya battery a standard in the electric lift truck industry. Fundamentally, our battery has industry leading safety and longevity as tested by our partners, our customers and underwriter laboratories. The addressable market for electric lift trucks is large and we believe there are over 2,500,000 lift trucks being used commercially in The USA. If you are using an electric vehicle for extended periods like ten hours or more a day, we believe the rational choice should be Electrovaya. Hence, our attention also to batteries for electric buses. In March 2021, few months ago, we announced the launch of our electric bus lithium ion battery system with the delivery of a 700 volt, 300 kilowatt hour battery. This product launch marks electrovirus entry into the emerging electric bus market and we are receiving considerable interest regarding our new product offering. We believe the addressable market for electric buses is large and just emerging in North America and Europe. Typically, these large buses are being priced at around $600 to $1,000,000 each and the battery is some 30%, forty % of the total cost of the vehicle. The Canadian Federal Government has outlined a $2,400,000,000 investment to support the purchase of some 5,000 electric buses in Canada, The U. S. Government is planning something larger as part of President Joe Biden's two trillion dollars green energy revolution investments. I will now turn the call over to Richard to review our fiscal second quarter results in greater detail. Richard? Thank you, Shankar. It's been a very eventful quarter. We've taken significant steps to improve the company's liquidity and financial performance. I would just like to comment first on our revenue for this quarter. As Shankar mentioned, our revenue increased 50% to CAD 2,900,000.0 or CAD 3,700,000.0 as compared to CAD 1,900,000.0 or CAD 2,400,000.0 in Q2 twenty twenty. Revenue for the six month period ended 03/31/2021, increased 96% to $5,500,000 or CAD6.9 million as compared to CAD2.8 million or CAD 3,500,000.0 for Q2 fiscal twenty twenty one sorry, 2020. This is on track with our expectations. The transition from the Raymond sales agreement to the Raymond strategic supply agreement only occurred this quarter. As can be expected with any new sales channel, there will be a settling in period as the process is implemented. We expect momentum to increase as we go forward, but the exact timing is uncertain. We have improved EBITDA. EBITDA was negative $800,000 in Q2 twenty twenty one as compared to negative 1 million dollars in Q2 twenty twenty. EBITDA improved 20% year over year. We're focusing on controlling costs, but not at the expense of investing in the future. We have invested in sales staff and marketing, but we've reduced general and administrative costs. We will continue to invest in R and D, but we will look for strategies to pursue a reduction in our cost of debt. The company raised $7,800,000 in the quarter through a combination of private placement of shares, the exercise of warrants and the exercise of options. We used a portion of the proceeds to reduce the working capital facility by US1.8 million dollars or US2.3 million dollars further strengthening the balance sheet. We ended the quarter with CAD 2,800,000.0 in cash or CAD 3,100,000.0 and have drawn CAD 2,200,000.0 or CAD 2,800,000.0 on our working capital facility, which has a maximum availability of CAD5.6 million or CAD7 million. This provides us with a strong working capital position to continue our growth and investing and strengthening our competitive positioning. We remain confident about 2021. Our results to date have been on track to our original expectations, but our visibility has been reduced in this for the second half of the year. In 2020, we met or exceeded our outlook as we could clearly see forward orders and delivery dates. This is not the case in 2021. Hence, we have withdrawn our guidance. The clarity is blurred as businesses consider the impact of COVID on their purchase decisions. Our sales pipeline remains robust and growing. Our uncertainty is around the timeline and not quantum. I cannot emphasize that enough. We have confidence in the quantum that we have put out there. We do not have visibility in the delivery dates and the timing of that. In summary, we strengthened our balance sheet, improved our liquidity, grew our revenue, maintained our margins, controlled our costs. We also opened an exciting new sales channel and completed our first deliveries through that sales channel. We believe we are well positioned for growth as we continue with our working capital and sales channels to effectively compete in this sizable market. I would now like to turn the call back to Shankar to wrap up. Thank you, Richard. As Richard mentioned, our pipeline is very large indeed. However, it's because of COVID and the clarity, Richard needs great clarity on the guidance. So that's the reason he has the press release on the guidance. Now Electrovaya is moving well in many, many directions. In the lift truck business, we believe we should become the industry standard. Electrovirus battery, you can see Raymond's website, which calculates the return on investment for our batteries to be a matter of a few months. There is an ROI calculator in their website where one can put in the parameters and calculate. We are continuing research into the next generation cells and batteries, mainly in the areas of solid state cells, electrode production and higher energy density battery, along with our excellent safety and longevity. We continue to accumulate additional IP and patent applications. In February 2021, we had announced that we had submitted an initial application to list our common shares on the NASDAQ stock market. We believe that in the current market environment, battery manufacturers and other cleantech businesses listed in The United States may benefit from a greater visibility of listing on a major U. S. Stock Exchange. While there is no assurance our listing will be approved, we continue to make progress with this initiative. In conclusion, we are making excellent progress. Our revenues are increasing a 50% increase year over year in spite of COVID disruptions in demand, supply and employment. Our distribution channels are getting stronger with the Raymond strategic supply agreement and increase in our direct sales force. We've added more salespeople recently. The addressable market for electric lift trucks is large, possibly several billions. Our customers are major Fortune 500 companies. Our OEM channel is part of the world's largest lift truck manufacturer. Our battery technology is industry leading with unparalleled safety and longevity with excellent energy and power. We also now have developed a high voltage battery for electric buses, a 700 volt system. Both Canada and USA are planning multi trillion dollar investments in the green technology revolution. The lithium ion battery is the key enabling technology. Our IP and patent position is increasing. Our next generation battery development is being built upon some of our unique IP. We have an interesting technology development on a solid state cell. A feasible solid state battery is the Holy Grail in this energy transformation. Electrovaya staff, we understand the complex chemistry that is needed for solid state batteries and were involved years ago on developing the world's first commercial solid state battery. For years, electrovirus technology was ahead of the market and now we are really gratified that the market has finally arrived and vindicated our years in creating this technology. This concludes our remarks this morning. Richard and I would now be pleased to hold a question and answer session. Rob, please open the line for questions. Thank you, Doctor. Our first question today is from Craig Irwin of ROTH Capital Partners. On the success with Raymond, it's really nice to see the market leader adopt your products and offer them to their customers. Can you maybe frame out for us how the ramp is taking shape with Raymond? Was there maybe a little bit of a channel fill in the first quarter? And how much visibility does Raymond give you or did Raymond give you that contributed to the original revenue forecast that you put out in November? Hello, Craig. It's Richard Halka here. What has happened is we moved from a sales agreement, whereby we dealt directly with the Raymond dealers and their customers to provide the solution. In other words, we were right at the call phase in terms of when is it to be delivered and timing of that. Now everything goes through Raymond corporate. We don't have the contact with the dealers or the end customers that we did. Therefore, that transparency we had in 2020 is now somewhat clouded. We're working with Raymond. We have an excellent relationship, and we want to resolve this to understand a little bit better the forward orders, who they're for and the timing. We expect we'll be able to work through that. As I say, it was the early days, first quarter, teething pains. We will work through that over the next few weeks. As soon as we do have clarity with that, we'll be prepared to go to the market with our revised guidance. But until that's resolved, we know the Quasim is there. We don't know the timing. Craig, in your other question, I'm sorry? How many SKUs are you qualified to sell to Raven Corporate right now? Do you have other SKUs maybe in qualification or in development that will layer in over the next few quarters? Craig, we have over 25 models of batteries and it's going into most of the Raymond SKUs for 24 volts, 36 volts and upwards. For any large forklift, which is working reasonably long hours, we are integrated with their forklifts. Where the batteries, we don't touch other small walkies, which are $1,000 2 thousand dollars each. But pretty much we are, I would say, very integrated with the Raymond SKUs. Excellent. Excellent. So then can you maybe update us on the progress with some of the corporate customers that you went to directly with the forklift batteries? One of those customers is very well known for saving their end customers, the retail buyers saving money so they can live better. Another one is a global food brand that all of us will know. These are high profile customers. How have the fleet's been received by now that you've filled? What is the feedback they're getting? And do you see potential in these Fortune 500 companies for longer term framework agreements for much larger buys over the next couple of years? So far, the feedback has been very, very positive. And in fact, the data with one customer, I think we have over 530 large lift trucks running twenty four hours a day, seven days a week, have accumulated probably equivalency of 500,000 miles. And we are very pleased that the degradation of our battery after such amount of travel has not is very, very low, minimal. So we are seeing good repeat orders from these customers And especially in the food and grocery sector, I'm not going to say we are going to be dominant or something, but I can't think of anybody who's not talking to us. And the Waymo pipeline with this new strategic supply agreement is very, very large. But as Richard says, they talk to the customers and then it filters back to us. And but the pipeline is so large, we sometimes are scratching our heads and we'll see. I think generally the market likes the product. Excellent. That's good to hear. And then just to understand the guidance, right? It's kind of a little bit of a disconnect from the improving environment post COVID, right? Vaccinations in The United States, Vaccinations in Canada, affecting the recovery where people need more equipment. Can you maybe just talk a little bit about the COVID recovery? And if we were to exclude Raymond from your guidance completely, would overall revenue guidance potentially be lifting now versus where you were in November? This is Craig. In Canada, we are, I would say, two months behind The U. S. And we have a complete lockdown in Ontario and Toronto, which just started about, what, two weeks ago. It feels like forever. A month ago, I don't know. We due to the whole lockdown and working through lockdowns are difficult generally. So I think there's a phase difference between The U. S. And Canada. We are very optimistic that the vaccines are here and things are going to be much more normalized. So really going back to what Richard is saying, there's no loss customers. The quantum is very large. The pipeline which we see from our direct sales and we have added, by the way, a few more sales folks in the Chicago area and elsewhere. The pipeline is very, very large And it's going to let's see. And this is really as this is a new team in Raymond who's just started working with us. This is new team on top of the distributors we used to work with. So I think it's an addiction of new people. But as always with a new team, they have to get rolling and play the good teams. Just to add a comment to that, Craig, is these are large Fortune 500 companies that we're dealing with. Both our direct sales channel and through Raymond. These companies established their budgets annually quite early. So in 2020, they had established their budgets in a pre COVID period, and they carried out those budgets through that. Our biggest challenges through 2020 were more on the supply side. Now we're moving into this year, 2021, and we're finding that we're not getting as much visibility. There's still a very high level of interest. We still get a very robust pipeline, but the delivery dates and the exact timing of this is where the uncertainty is. So I think that has grown out of and I don't want to read too much into our customer base over the spillover from COVID as to how things will ramp up. I know we're looking at a recovery here. I know you're seeing one in The States, but I think the timing is uncertain and we're all dealing in a new normal right now that makes the predictability just not what it was pre COVID. And Craig, the predictability goes both ways, upwards and so on. Just as an example, on the electric bus sector, we had launched and we were planning a normal growth there, but I'm absolutely astounded by the amount of interest in the Electrovaya battery for an electric bus because of this incredible safety which we give on the battery, which is unparalleled and as well as the longevity. And now we are seeing the longevity from our batteries, which has been operating in the forklift sector. We've got 400,000, five hundred thousand, six hundred thousand miles, if you will, run on them and we can now predict longevity. So I think all these sectors are coming up very fast. And just now, the pipeline is very large. So we need to see where this guidance is going to come through. So I think Richard is very careful. Understood. Yes. A lot of companies are facing the same issue. So it's completely logical. So just last question, if I may, before I jump back in the queue. Is it possible for the lithium ion batteries for electric buses to be similar size or potentially even larger as far as the revenue contribution this year compared to the lithium ion batteries for electric forklifts? I think what we're seeing here, there is a fairly long lead time on the bus. I would say the impact in 2021 will not be as significant as what we're going to see on forklifts. Obviously, that's our big revenue generated this year. I think 2022 is when we'll start to see some movement there. Craig, I may be wrong here, but I suspect 2022, the electric bus sector will outpace the forklift sector. The demand is just very, very high. Got it. Understood. Hey, congratulations on the progress. Thank you for taking my questions. Thank you. The next question is from Gianluca Tucci of Torrent Capital. Please proceed with your question. Hi, good morning guys. Thanks for taking my questions. Could you perhaps speak to the dynamic and how that's changed into the Raymond channel under the new agreement? How that's impacted your pipeline, both good or bad? And like from their perspective, why can't they be transparent in terms of who the customers are, the timing of deliveries and those kind of variables? Gianluca, we are transparent. It's just and let me tell you what has happened is the pipeline is larger now because of this strategic supply agreement. So we are seeing a much larger pipeline through Raymond. And now and also they are going full speed ahead. This is the whole corporation has put their efforts behind it. So the pipeline is much larger. What Richard was saying about the visibility is previously and maybe that's we were accustomed, we used to talk to the final customer because it was a dealer who phoned and hey and say talk to Mr. A and B or C. One present is and so we knew who the customers were. And here, now the what we see is more a corporate approach where here is this massive pipeline, here is this piece and so it's the touch is different. The pipeline is larger, but the touch is different. I sort of addressed that with Craig. And I think really that's more that we had really, as Shankar has just described, a much closer relationship with the customer. And of course, now Raymond has a very large sales team that's moving this, and they speak to corporate and corporate speaks to us. This visibility will increase as we move forward. But out of an abundance of caution, we don't know whether this number will hit I'll give you a little example. Our trailing twelve months is at March, revenue is about 17 over US17 million dollars For 2020, that trailing twelve months was just over US4 million dollars So that's a $13,000,000 increase. So are we confident that we can, by the end of the year, get to a $14,000,000 increase over what we posted last year? Yes. Are we confident on that timing whether those deliveries will fall in, let's say, now till September or will it be from now to December? We're not sure. And that's where we want the transparency to be able to back a number. We're I take it as a matter of personal pride that when we went out with guidance last year, we hit or exceeded every quarter. And I need to ask myself, if I've set the bar to that level, can I meet the standard now? And no, we need a little more information and a little more time. And then we will come out with our guidance. And you can trust that guidance because we will have a high degree of confidence in it. Right. Okay. Yes. No, that makes sense. And it sounds like the right thing to do. And on the EBUS side, can you guys speak to a couple of the partners that you're working with? You made a delivery of your first e Bus battery in the March or just after, I forget, but just recently and like you know, how quickly can you scale up that division and how does the supply chain processor, the battery building process differ from that of forklift battery? It is we can scale that up quite quickly. Basically, if you think of it in terms of Allego building block, our modules are the same modules that go into a 24 volt sorry, 20 amp, 36 or 48 and bus. So basically, all the building blocks are the same. It's just how many of the Legos do you put in and obviously in a bus battery, a lot more. So the process is well established. We can scale up quickly. We've purposely been careful. We're on the high competitive ground now in a number of these areas. We don't really want to go out there and name who we're talking to until a relationship is firmly and long term established. So we don't want our competitors knocking on the same doors that we're knocking on, we're not going to give them our Rolodex. So And also, I agree with Sreedhar, also the way the financing on the buses are coming, it's coming through the federal government. In Canada, they have planned about $2,400,000,000 for about 5,000 buses. The money has been the legislation has not gone through yet. It's been in the budget. And so I think by the time the legislation goes through, etcetera, and then the fund goes out to the various municipalities who start buying, I would say 2022 is when you're looking at the earliest. And similarly for The U. S, I think President Biden has targeted about slightly around the $2,000,000,000,000 investment. And again, that has to go to the both houses. And by the time the money is allocated, approved, etcetera, I would say 2022 is the earliest for some reasonable revenues. But this sector is going faster than August 5, '6 months ago. Okay. And on the Canadian, I guess, grant side for investments, public sector investments into these types of endeavors, like how can the company strive to get a piece of that? Are you talking to various cities that have access to this money, those types of things? And how many competitors are in the EBAS market, at least in Canada? We are speaking to the bus manufacturer. So the bus manufacturer then goes and sells his bus to the city. So we are not approaching the cities directly. So we depend on the bus manufacturers and we have started speaking with most of them. Just as a general comment on government assistance, we are extremely good with lobbying, looking for opportunities. We have excellent relations with provincial, federal and various agencies within that. So it happens to be one of our strengths. And if you look at back through our financials, you can see the amount of support we've received over the years. And we continue to do that, and we initiated some new initiatives here to look at some of these substantial funding that is available. So yes, we're very, very busy in that area. Okay. Thank you, guys. Thanks, Thiago. There are no additional questions at this time. I would like to turn the call back to Doctor. Shankar Dasgupta for closing remarks. Thanks, Ragh. Well, that concludes our call. Thank you for listening this morning. We look forward to speaking with you again after we report our fiscal third quarter results in the summer, by which time, at least in Canada, we are all vaccinated. And in the meantime, we wish you all good health. Thank you. Thank you very much. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.