Earnings Call: Q1 2020

May 19, 2020

Earnings release

Greetings, and welcome to the Electrovaya First 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 Halka, Executive Vice President and CFO. Please go ahead, sir. Thank you, operator. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's fiscal twenty twenty first quarter financial results. Today's call is being hosted by Doctor. Shankar Das Gupta, CEO of Electrovaya and myself, Richard Halka, Executive Vice President and CFO. On 02/14/2020, Electrovaya issued a press release concerning its business highlights and financial results for the three month period ended December 3139. If you would like a copy of the release, you can access it on our website. If you want to view our financial statements and management's discussion and analysis, You can access those documents on the SEDAR website at www.sedar.com. As with previous calls, our comments today are subject to the normal provisions related to forward looking information. We'll provide information relating to our current views regarding trends in our markets, including their size and potential for growth and our competitive position in our target markets. Although we believe that the expectations reflected in such forward looking statements are reasonable, such statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward looking statements may be found in the company's press release announcing the fiscal twenty twenty first quarter results and the most recent annual information form and management discussion and analysis under risks and uncertainties, as well as other public disclosure documents filed with the Canadian's 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 Shanta. Thank you, Richard, and good morning, everyone. For the listeners in Canada who had Family Day yesterday, I hope you enjoyed the long weekend. I'm pleased to say that our order backlog continues to expand. As we reported last week, it now exceeds USD 12,000,000 or CAD 16,000,000. We announced new lithium ion battery orders worth approximately $4,000,000 near the December and we have subsequently received more. The orders for commercial battery products are coming from both new and repeat customers and demand has been solid through both of our key sales channels, direct sales to large global customers and sales through OEM distribution. As you can see, we are building significant momentum and we expect our order volume to continue to grow. Our customers are pleased with the performance of our batteries and we continue to receive new inquiries from large global companies. As I mentioned on the last call, we moved into a new head office and manufacturing facility at 6688 Kiddymet Road in Mississauga during the first quarter that comprises approximately 62,000 square feet of space. We are pleased with the new office, which provides us with the space we need to scale up production as customer demand increases. The new location also places us closer to key customers. The move during the last quarter, which ended thirty one December was done in rapid time moving production, research and equipment along with our office. Our team worked seven days a week round the clock to achieve this move and the disruption in production during Q1 did of course take place, but we are pleased to report that the first batteries produced from our new location in Kitimat have been delivered. Back in November, we said we expect battery deliveries to ramp up in the fiscal second quarter, which is this quarter, barring unforeseen circumstances as we complete deliveries on our Walmart orders. Obviously, the coronavirus was an unforeseen circumstances. The outbreak in China has caused temporary disruption to the global supply chain, which is impacting our delivery schedule. We now expect some deliveries to extend into the fiscal third quarter ending thirty June, again, barring further unforeseen circumstances. This slight delay is happening and we continue to monitor the situation and keep in close contact with our suppliers and of course with our clients. We still anticipate completing deliveries on approximately 10,800,000 or Canadian fourteen million of orders by the end of fiscal third quarter, which is June 2020. While we are focused on generating more order volume, we are also aggressively reducing costs to boost profitability. After excluding interest and stock based compensation, we reduced overhead costs by 38% in the first quarter of fiscal twenty twenty compared to Q1 last year. This will continue to be an important priority for us going forward. Overall, we believe our competitive position is strong. Our order book is growing. We are reducing our overhead costs and we are scaling up to meet customer demand. Our customers, both through direct sales and through our OEM channel, are large sophisticated corporations and we believe we had a global choice and that choice is a tribute to our technology, our team and our products. We anticipate significant growth in revenue and profitability in the months ahead as we fulfill orders currently in our backlog and receive new ones. I will now turn the call over to Richard to review our fiscal first quarter results in greater detail. Richard? Thank you, Shankar. Revenue for the three months ended December 3139 was $900,000 compared to $2,000,000 in the first quarter last year. As Shankar has already mentioned, this decline was due in part to the relocation of our manufacturing and other operations during the quarter. We also needed additional working capital to fulfill purchase orders, which has been secured. We expect higher revenues in the coming quarters as we complete deliveries on outstanding orders. Gross profit for Q1 twenty twenty was $300,000 or 37% of revenue compared to $700,000 for the quarter before for the Q1 twenty nineteen quarter and again 37% of revenue. Net loss was $1,900,000 in the quarter compared to a net profit of $2,800,000 in Q1 last year. The net profit in Q1 twenty nineteen was primarily attributable to a one time gain of $4,200,000 on the sale of our former head office building. Total operating expenses were $2,100,000 in Q1 twenty twenty, down 16% from $2,500,000 in Q1 last year. As Shankar noted, our operating expenses were down 38% year over year after excluding finance and stock based compensation. Turning to our balance sheet. We had $600,000 of cash and cash equivalents at December 3139, compared to $300,000 as at September 3039, which was our fiscal twenty nineteen year end. We used a total of $1,800,000 of cash in operating activities during the first quarter compared to $500,000 in Q1 last year. We continue to manage our working capital carefully. During Q1 twenty twenty, on November 1139, we announced the closing of a secured C5.5 million dollars credit facility agreement with the Canadian Financial Institution, which increased our overall credit facility limit with this institution to CAD 7,000,000. The facility supports the fulfillment of our recently announced purchase orders. The ongoing support of this institution underscores the strength of Electrovaya's products and customers' base. Inventory was $1,200,000 as of December 3139, compared to $1,000,000 as of September 3039. Overall, we are focused on expanding sales and carefully managing our costs. We're also working hard to access essential financial resources to grow our business. I would now like to turn the call back to Shankar to wrap up. Thank you, Richard. The interest in Electrovaya's lithium ion battery products has never been higher and our market presence continues to grow. Our batteries are currently powering e forklift systems in some 28 locations, including about 24 in The United States, Two in Canada, One in Mexico and one in Costa Rica. Customer satisfaction is high and the strong word-of-mouth is spreading. Our growing order backlog is clear evidence of this positive trend. It took a large amount of time and effort to pivot to this commercial electric vehicle space and validate the Electrovaya battery, including its strength in cycle life, safety, energy, power and system design with sophisticated customers with global reach. Our product models keep growing and we expect this technology to drive us into many commercial vehicles, including electric buses. That concludes our remarks this morning. Richard and I would now be pleased to hold a question and answer session. Hector, please open the line to questions. Thank you. Uh-huh. Your first question comes from the line of Bob McWhirter with Selective Asset Management. Please proceed with your question. Congratulations on growing the backlog. I think you're seeing to be doing well. When you talk about increasing a credit facility from 5.5% to total of 7% to support the current neutral purchase orders, I'm just wondering if you could talk about the convertible debt is due roughly around the March and what might be done to accommodate repayment of the debt or expansion of terms. Thank you, Bob. It's Richard Halka here. I think that we've been a bit quiet on this because we are involved in active discussions with them as well as other institutions. And I think at this stage, I really wouldn't want to say anything more about it because it is, as I say, an active discussion. But we are certainly progressing well with this. And we think that we should be able to say something within the coming weeks. But at this stage, as we are still in active discussions, we prefer not to provide too much color around this at this point. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Doctor. Sankar Das Gupta for closing remarks. Well, thank you, Hector. That concludes our call. Thank you all for listening in this morning. We look forward to speaking with you again after we report our fiscal second quarter results. Have a great day. Bye. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.