Earnings Call: Q3 2020

Jul 21, 2020

Earnings release

Greetings and welcome to the Electrovaya Third Quarter twenty twenty Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Richard Holka. Thank you. You may begin. Thank you, Melissa. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's fiscal twenty twenty third quarter financial results. Today's call is being hosted by Doctor. Shankar Dasgupta, 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 three and nine month periods ended 06/30/2020. If you would like a copy of the release, you can access it on our website. If you want to view our financials, financial statements and management 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 views regarding trends in our markets, including their 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 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 fiscal twenty twenty third quarter results and the most recent annual information form and management discussion and analysis under risks and uncertainties, as well as in 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 I'd like to turn the call over to Shankar. Thank you, Richard, and good morning, everyone. We are pleased Hi Melissa. Yes. We're still connected. Please go ahead. Okay. I'm sorry. Where did I get cut off? Doctor. Das Putho just began. Okay. Thank you very much. All right. Sorry about that, with that technical hitch, I guess. So our momentum now is translating into stronger financial performance. Our present third quarter revenue of about CAD 6,500,000.0 shows good sequential growth quarter by quarter. Our Q3 fiscal year twenty twenty revenue of CAD 6,500,000.0 doubled their CAD 2,700,000.0 revenues in Q2, while Q2 revenues itself doubled over Q1 twenty twenty. Hence, representing a four fold increase on a sequential basis over three quarters. We are also pleased to report a positive Q3 EBITDA of about CAD 700,000. We believe there is good growth possibility in this market. And as we reported yesterday, we are expecting revenue for the 2020 fiscal year to exceed CAD 16,000,000 and the revenue for 2020 calendar year ending thirty one December twenty twenty to exceed about CAD 21,000,000. These represent significant increases and they're based on our expectation of continued strong revenue performance over the rest of the calendar year. It is good to see our revenue rise as we deliver on orders. As we noted in our last quarter, some of our deliveries to customers were delayed because of supply chain disruption related to the coronavirus outbreak. These disruptions are gradually improving and we are completing deliveries and collecting revenues as anticipated. Our operations are performing well. We are now fully settled in our new head office and manufacturing facility in Mississauga and it is enabling us to effectively scale up production in order to meet demand. And with the support of our lender, we are continuing to maintain the liquidity we need to deliver on the customer orders. I'm also pleased to say that our new health and safety protocols are working and although none of our employees have contracted COVID-nineteen, we need to be extra vigilant as people may be getting tired of the safety protocols and as Ontario and the Greater Toronto Area moves from Phase two to Phase three. Overall, with our strong operating performance and rising demand from our customers, we believe we are well positioned for continued business growth and improved financial performance. I will like to now turn the call over to Richard to discuss our Q3 financial results in more detail. Richard? Thank you, Shankar. I'd just like to point out that I'm going to be using Canadian dollars when I speak about the figures as I note that most of our listeners today are Canadian. Revenue for the three months ended 06/30/2020, was C6.5 million dollars As Shankar noted, this was a fourfold increase compared to the C1.6 dollars we reported in the third quarter last year. It was almost more than double the CAD2.7 we reported in the fiscal second quarter year ended 03/31/2020. The revenue increase reflects strong demand from customers and the scaling up of our battery production at our facility in Mississauga. Gross profit for Q3 twenty twenty was C2.3 million dollars That's a margin of 35% of revenue compared to C0.5 million or 35% of revenue in Q3 last year. We had a positive EBITDA of approximately C700000 for the quarter. To calculate EBITDA, we take the loss from operations of 50,000 add back the finance costs of approximately C700000 dollars and add stock based compensation of approximately CAD 20,000. Net profit for the quarter was approximately CAD 6,500,000.0 compared to our net loss of US1.2 million dollars in the third quarter last year. The net profit this year was primarily due to a gain of CAD7.1 million on the reduction sorry, on the amendment of the convertible debentures and strong revenue growth. Total operating expenses were CAD2.3 million in Q3 twenty twenty compared to CAD 2,000,000 in Q3 last year. The increase primarily reflects higher R and D spending as we continue to focus on growing our IP and also controlling our costs. I will now briefly review our results for the nine months ended 06/30/2020. Revenue was CAD10.3 million, an increase of 73% compared to CAD6 million in the same period last year. Gross profit was CAD3.8 million or 37% of revenue compared to CAD2.2 million or 36% of revenue last year. And we had a net profit of CAD2.4 million compared to a net loss of CAD500000 in the prior year. The net profit this year was primarily due to the gain on the amendment of the debentures that I just mentioned. We also provided some revenue guidance that reflects our order backlog and continued strong customer demand. We're currently expecting revenue for the fiscal year ended 09/30/2020, to exceed CAD 16,000,000, barring unforeseen circumstances, and that compares to C6.7 million last year. For the calendar year ending December 3139 sorry, 2020, we expect revenue to exceed C21 million dollars a major increase from C5.2 million dollars last year, again, barring unforeseen circumstances. Turning now to our balance sheet. We had C500000 of cash and cash equivalents as at 06/30/2020, compared to C400000 at September 3039, which was our fiscal year end. Inventory was C3.7 million at June 30 compared to C1.4 million at September 30. We used a total of CAD1.6 million of cash in operating activities during the third quarter compared to CAD2.3 million in Q3 twenty nineteen. We continue to manage our working capital and our costs carefully. I would also like to review some important recent developments related to our balance sheet. In April 2020, we announced that we amended the terms of our CAD 15,000,000 convertible debentures with a 9% coupon. We paid the lender two million dollars in cash and issued $2,000,000 of common shares of Electrovaya and agreed to a further $2,000,000 cash payment on or before September 29 to satisfy all obligations under the venture, including accrued but unpaid interest. Also in April, we announced the closing of a secured C4.5 million credit facility arrangement with the Canadian financial institution. And in July, subsequent to the end of the quarter, we announced an agreement with the financial institution to increase a revolving credit facility from C1.5 million dollars to C4.5 million dollars These measures increased our overall credit capacity limit with this institution to CAD14.5 million. As of today, we have repaid CAD 4,400,000.0 from the facility. The facility has helped us scale up production to meet demand, and we are pleased with the continued strong show of support that we have received from our financial partner. Overall, we remain focused on expanding sales, carefully managing costs, while working to access financial resources and continue growing our business. I'd now like to turn the call back to Shankar to wrap up. Thank you, Richard. You can see from our third quarter results and from our guidance for the rest of the calendar year that Electrovaya is in the midst of a strong growth. Finally, we are often technology pioneers and ahead of the market. When we were developing interesting batteries for the emerging electric vehicle market in Europe, the market did not develop. Hence, our pivot from the electric car and similar stuff in Europe to the commercial lift trucks in North America, where that market needed exceptional technology, but did not need us to create the market. So the market for electric lift trucks were there, creating an exceptional battery and which and needed a very high cycle life, ability to operate 20 fourseven, which translates into millions of kilometers over its life, operate the battery to operate at thousands of cycles, fast charging, must give exceptional safety and at the same time give it excellent power and energy. So we pivoted and built over the last few years an interesting battery and then spent quite a bit of time validating it. Validation takes years in this mission critical market. I'm often asked three questions. How good is your battery? How big is the addressable market for electric lift trucks? And where else does your battery fit for other applications? On how good is your battery? I believe our battery technology must be pretty good. Otherwise, why would so many Fortune five hundred companies repeatedly start purchasing from us for their mission critical application of moving goods efficiently. Similarly, we get some assurance that the major OEM in North America is our sales channel partner. We have now delivered over 700 batteries, which is powering 700 electric lift trucks and we have supplied over 1,000 batteries for automated guided vehicles, mainly supplying to large sophisticated Fortune 500 companies. How big is this addressable market? I really do not know and can only guess. I'm told there are several million lift trucks operating in North America, a market big enough for us. How do we reach this massive market? We are reaching this market through direct sales and through the OEM channel. We have partnered with a major OEM. The market is both for new electric lift trucks as well as for the upgrade. Once you get used to lithium ion batteries, it is addictive. Nothing else comes near it. Imagine powering your mobile phones or laptop computers with lead acid batteries or hydrogen fuel cells or propane or diesel. The addictive transformation to lithium ion is happening and we feed that addiction. The third question is what other markets what other markets needs exceptional long cycle of battery with outstanding safety? Maybe electric buses, electric trucks, electric taxis, solar energy storage and other plausible markets come to our mind. But our focus is firmly on the electric lift trucks. Although we have a variation of our battery, getting ready for electric buses and electric trucks whenever that market opens up. We look forward to the future with enthusiasm with its exponential growth possibility. Our EBITDA positive milestone, as Richard mentioned, was important to us. It allows lower cost of working capital and allows for phenomenal growth. But equally important to us and our team is that we are eliminating greenhouse gases at a gate pace. One electric lift truck operates 10 to 15 times longer than a regular electric car. Hence, it removes greenhouse gases in a corresponding multiplier. So our evangelical days are over and we now look forward to potential exponential growth and importantly profitable bottom lines. That concludes our remarks this morning. Richard and I would now be pleased to hold a question and answer session. Operator, Melissa? Thank Our first question comes from the line of Ashok Kumar with Bank Equity. Please proceed with your question. Good morning, Richard, Shankaran and Jason, congratulations. Just a three part question. One is, you've mentioned profitability, gross margins in the mid-30s. Do they represent your profitability level at scale? And the timeline on a cash flow basis and the revenue level that you reach sustainable profitability. To you, Shankar, you'd mentioned about supply chain normalizing. What timeline do you see that you're at pre pandemic levels? And the last question, just an additional granularity on top line drivers for the remainder of calendar 2020 and 2021. You talked about OEM versus direct and continued market opportunity given that it's very nascent both in AGV as well as lift trucks. Just some what are you seeing in the pipeline over the next six quarters, right, that gives you confidence that you can maintain the revenue momentum? Thank you once again and congratulations. Thank you, Ashok. It's Richard here. I'll take the first question and then pass it over to Shankar for the second and third. With regards to our gross margins, I think you'll see that when you look back, we've been very consistent around that 35% mark. So we have a great deal of confidence going forward. There are two sort of counter movements of that. One, of course, is pricing pressure, which will tend to push that margin down. But we've been able to offset that with both efficiency gains in terms of cost efficiency, economies of scale, etcetera, but also technology gains in terms of improving our cells and all aspects of the battery. So we would see that being very sustainable moving forward. As far as the positive EBITDA is concerned, I think you can see and we've demonstrated we've crossed over that breakeven point. And we feel at this level and moving forward at even a greater level of revenue, we should be able to maintain and increase our positive EBITDA. So I think we're pretty we feel pretty much that we've come around the bend here and are very well positioned for some good growth going into 2020 concluding 2020 and going into 2021. So I'll turn it over to Shankar for the second and third. Good to hear from you, Ashok. The two questions, one was the supply chain normalizing. Yes, the supply chain has normalized now pretty much for us. However, it was a little bit of a wake up call. So we are looking at multiple suppliers in North America as against depending so much into Europe or Asia. So we are validating certain supplies in North America. On the top line drivers, presently, I would say direct sales and OEM channels, these two channels are more or less at a 50% basis, but our pipeline through the OEM is much stronger. This particular OEM has got tremendous reach into the market. And so going forward, we see OEM driven sales through the OEM channel will become larger. Although we had started from top down, we went after the very large companies on a direct sales basis and they have very large pulling power as well. So hard to say, but we see that the pipeline to be very, very strong over the next little while. Ashok, have we answered your questions? Or do you have any further clarification? Yes, congratulations. Yes, thank you very much. Thank you, Ashok. Thank you. Thank you. Our next question comes from the line of Bob McWhorter with Selective Asset Management. Please proceed with your question. Hi, Bob. Can you run me through the guidance towards sales in the coming quarters? Basically, you said the twelve months ended September will be CAD 16,000,000. And if I work the kind of previous three quarters of U. S. Numbers converting back, I get a number of still expected and then I've done the same thing for December. And I just wondered if you could end up making it so that you could say, okay, let's pull in all the numbers out from the 16, sorry, yes, the $16 Canadian to $21 Canadian, what are the actual numbers for Q3 and Q4 implied on those estimates sorry, Q4 and Q1? Yes, Bob, we haven't it's Richard here. Bob, I think I'll leave it with you and the reader. We haven't gone into specific quarter by quarter analysis, but I think as you look at it, it's pretty clear to see that what we've established in this quarter, we certainly see that continuing. And we Okay. So let me come out a little bit, Mike. You'll understand why I'm scratching my head. If we take basically the coming quarter, in other words, the most recent quarter we had sorry, a year ago, we had sales of $500,000 US, US1.99 dollars US, most recent quarter, US4.8 million dollars We'll roll all that together and then say, okay, we've got, if I understand correctly, dollars 11,500,000.0 on trailing twelve month sales. I look forward to see, okay, what's the intake of the growth of September, I think the US0.9 dollars US1.9 dollars US, most recent quarter $4,800,000 and I get $10,500,000 Canadian subtract your $16,000,000 sorry, the total number and $16,000,000 minus 10,500,000 gives me $5,500,000 worth of sales. And I'm scratching my head because the most recent quarter was $6,500,000 Canadian equivalent and yet you've suggested overall, geez, our business is getting brisker and getting brisker. And that's why I'm struggling with the okay, if I've got my numbers right, the coming quarter will be $5,500,000 worth of sales. And then as I do the same thing for Q1December calendar quarter, I mean that was US1.9 million dollars US4.8 dollars the estimate that I've just done in Gideon and ended with a gas demand of $6,600,000 for effectively Q1. And relative to the $6,500,000 you just reported, that doesn't seem to be an awful lot of growth. That's why I'm scratching my head and figuring out, okay, clearly you've got all the numbers in front of you. And so I'm trying to say, okay, even the SVO number is back out of the original or the quarter by quarter number for September or December, that would be helpful. I follow you now, Bob. I think the operative word in there is exceed. It was not a precise counter. In other words, we did not say we expect the quarter to be or the year to be x. We said we expect to exceed that. So you could say that, that would be where we set the low point on the bar. We expect to come in over that. We feel a very high degree of confidence that, that number is certainly more than achievable. So I think probably, Bobby, could accuse us of being a little too conservative for the next two quarters. And I think it's a little understandable as we move through the calendar year, move through the impacts that we've seen on the world from the pandemic, we feel confident in these numbers and in exceeding these numbers. So I think you're attributing a level of precision to that calculation of the number which is not there. This would be sort of where we would see coming over. Does that answer Yes. That keeps you happy. And most recently, Walmart Canada has suggested they are going to invest some huge amount of billions of dollars, dollars 2 point 5 billion over the next five years in Canada. And obviously, they bought a portion of web based and they're describing their customers. They're going to be building two new distribution centers. I'm assuming that the logic is since they are one of your large customers that a fair amount of that Walmart business, the two new distribution centers would follow you away as well. Is that a reasonable guess? Bob, I wouldn't want to speculate on specific customers and where they are. I guess, the call is really to look back at our third quarter results. We certainly have a lot of drivers in there and a lot of growth potential. And obviously, we're operating in three warehouses for Walmart right now. So I think there's certainly the potential there, but I wouldn't want to go any farther than that on this call. Okay. Thank you very much. Thank you, ladies and gentlemen. That is the time that we have for questions. I'll turn the floor back to Doctor. Das Kapow for any final comments. Thank you, Melissa. That concludes our call. Thank you for listening in this morning. We look forward to speaking with you again after we report our fiscal fourth quarter results later this year. We issue all good health and hope you enjoy the rest of the summer. Thank you. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.