Hello, and welcome to the Electrovaya Q4 year-end 2022 financial results webcast and conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, John Gibson, CFO. Please go ahead.
Thanks very much. Good evening, everyone, thank you for joining today's call to discuss Electrovaya's Q4 and fiscal 2022 financial results. Today's call is going to be hosted by myself and Dr. Raj DasGupta, CEO of Electrovaya. Today, Electrovaya introduced a press release concerning its business highlights and financial results for the three and 12-month period ending September 30th, 2022. If you'd like a copy of the release, you can access it on our website. If you want to view our financial statements, management discussion and analysis, and annual information form or AIF, you can access those documents on the SEDAR website at www.sedar.com, searching for Electrovaya. 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 current views regarding market trends, including the size and potential for growth and our competitive position within our target markets. Although we believe that the expectations reflecting in such forward-looking statements are reasonable, they do obviously involve risks and uncertainties, actual results may differ material from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ material 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 Q4 fiscal 2022 results, 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 Canadian securities regulatory authorities. Please note that all numbers discussed on the call are in U.S. dollars unless it's otherwise mentioned.
Now I'd like to turn the call over to Raj to give you a quick business update.
Thank you, John, and good evening, everyone. Fiscal year 2022 was pivotal for the company as we passed several major milestones, which I believe will set Electrovaya on course to being one of the leading lithium-ion battery players. First of all, we have continued to see strong and growing demand for our Infinity Battery products from some of the world's largest companies. Growing deployments of batteries to these customers have continued to demonstrate our capability to deliver and also that these products provide these customers unique benefits, including higher levels of safety with lower overall life cycle costs due to superior battery cycle life. These lower life cycle costs are despite the fact that these batteries are being sold at higher prices than typical battery products.
In the fourth quarter of fiscal year 2022, we demonstrated that our scale-up plans from both a supply chain and manufacturing standpoint could meet growing demand. In this fourth quarter, we had a record revenue of $10 million, which was also EBITDA positive. Two key milestones which position us to meet our guidance of $42 million in fiscal year 2023. One thing that I think is unique about Electrovaya in the clean tech and battery space in general is that we are managing this growth at near breakeven levels, and we will be positioned to move to a cash flow positive position in 2023. We are achieving this despite expanding our research and development efforts for our commercial and solid-state battery products, growing our headcount and planning investments for increased capacity.
We've been frugal and extremely effective in our execution of this strategy, which I think more people will appreciate in these times of high interest rates and a focus on corporations who can both grow and do so profitably. The revenue in the fourth quarter was achieved while managing a growing operational team and additional equipment, however, still operating within a single shift. We have established systems that will enable us to grow further. This included achieving ISO 9001 certification in July and adding some key quality and operations staff. We are embarking on some innovative automated assembly methods, which should come online in fiscal year Q3 to support assembly of high voltage battery systems in addition to new customized battery systems.
With these enhancements, we expect the Mississauga facility itself to be in a position to support in excess of $70 million in revenue annually with minimal additional capital spend. We see the need to support further growth, and this brings me to our Jamestown, New York expansion plans. As we announced in October, Electrovaya plans to establish our first gigafactory in Jamestown, New York. This facility will be central to our strategy in increasing capacity and enabling Electrovaya to enter new markets. Our highest priority is to establish our cell assembly at the facility, thereby augmenting our current contract manufactured products. This vertical integration should have a positive impact on our gross margins.
Furthermore, cell and module output will be eligible to access Inflation Reduction Act incentives, further increasing the financial benefits of reshoring these activities. From just an assembly perspective, this facility can mirror our Mississauga facility operations, thus increasing the final system capacity by a significant factor. I would expect us to have final assembly up and running in Jamestown first, we are targeting start of operations during the first half of calendar year 2023. The cell assembly capacity is capital intensive, we are in late stage discussions with two government backed entities to help support these investments through low cost loans. From a business development standpoint, we continue to make progress growing our relationship with Raymond Corp through increased dealer engagement, potential new leasing opportunities, and finally, new large accounts becoming customers. Our customers tend to be large corporations, most of them Fortune 500 companies.
Generally, most of our revenue is generated by a select few of very large end users, but this list continues to expand. The company continues to focus on developing additional OEM relationships in the material handling and other sectors. I expect us to be successful in announcing some further relationships in the near future. We have also received some initial orders for our high voltage battery systems. As I mentioned earlier, we are investing in a new automated manufacturing line specifically designed to meet the needs of these types of systems. This will come online in the calendar year Q2 of 2023, and will enable the company to start deliveries into new markets, including electric bus, truck, and other applications that utilize high voltage battery systems.
High voltage battery systems will also be used for stationary energy storage systems. We recently announced that we plan to develop batteries for this market, which will also be based on our Infinity Battery technology platform. We've already proven that this technology enables significantly longer cycle life with superior safety performance through mature deployments in our material handling and other applications. These factors are also highly valuable for this rapidly growing and maturing market, as many developments are now taking the overall life cycle cost of the solutions into account, a metric that is very much in the company's favor. Finally, when taking into consideration the Inflation Reduction Act incentives, our solutions will become ever more competitive. Given the size of these projects, we would definitely require our Jamestown site to have cell assembly operational prior to making deliveries.
We are now looking at projects in 2024 and 2025 periods and beyond. Last but not least, I'd like to briefly discuss our efforts with regards to our solid-state battery technology development. We have continued to make good progress in this area. Back in April, we had published results relating to what will be referred to as our solid-state hybrid battery. This approach had elements of both conventional lithium-ion technology with liquid electrolytes and also our solid-state battery electrolyte. More recently, we have made good progress with regards to a full solid-state battery and are considering both approaches with regards to commercialization efforts. We have started introductory calls with some high-profile automotive companies, and we hope to be in a position to start sampling cells in the first half of calendar year 2023.
Finally, we have continued to invest and grow our team at Electrovaya Labs, which is solely focused on the development of this solid-state battery technology. Given Electrovaya's successful execution of the implementation and commercialization of ceramic separator-based cells, I'm optimistic that we are in a good position to be successful with our solid-state battery efforts. I will now turn the call over to John to review our fiscal year 2022 fourth quarter results in greater detail. John.
Thanks, Raj. Revenue for Q4 2022 was $10 million compared to $4.1 million in the fiscal fourth quarter, from 2021, an overall increase of 140%. This has been a record for the company and now sets a target for us to beat going forward. On a sequential basis, revenue in Q4 increased significantly from Q3 by 132%, or was in excess of the first three quarters combined. For the full year, revenue was $19.8 million, compared to $11.6 million in the prior year, an increase of 71%. It is anticipated that sales will continue to grow in fiscal 2023 as production continues to scale to meet demand.
The impact of supply chain issues and inflationary pressures was evidenced by the gross margin for Q4 of 24.5% compared to 35% for Q4 in the prior year. The decrease also arose due to some customers being locked into historical price levels from the summer of 2021. Company has taken steps to reduce these inflationary pressures through several price increases and locking in pricing from key suppliers for 2023 deliveries. We expect to see an increase in the gross margins in calendar 2023. We recently amended our credit facility. The working capital facility was increased from CAD 14 million to CAD 16 million.
The increase supported working capital requirements in order to accelerate production to meet current sales demand. Company believes its available liquidity, along with collection of $6.3 million of accounts receivable and conversion of $4.5 million of inventory into sellable finished goods, as well as receiving an additional $3.8 million of inventory in process from which deposits have been recorded in the prepaid expenses, is adequate working capital support to support our anticipated growth. Finally, as we released last month, the company really completed a private placement for approximately $11 million. This has been used primarily to reduce debt, provide startup funding for Jamestown, and strengthen the balance sheet as we head into 2023. That concludes the financial overview. I'll now turn the call over to Raj for some concluding remarks.
Thank you, John. For my concluding remarks, I'd like to summarize some of the key value propositions that Electrovaya brings to the table. Electrovaya is both a technology and manufacturing company. We have successfully commercialized a unique approach to lithium-ion batteries, which is our Infinity Battery technology platform. This proprietary technology platform has been shown to enhance the safety and significantly improve the cycle life of a battery, regardless of the chemistry used. Our growing revenue and scale for the technology platform demonstrates the success in execution, something that we hope to repeat in a broader market context. I'm optimistic that we have much further growth potential with the Infinity platform and the number of applications and demand for solutions that would benefit from this technology is immense. We've continued to focus on additional technology development.
With the Infinity technology platform, we continue to make incremental improvements with regards to energy density and performance. We are also looking at other ways to monetize the unique performance attributes of our products. This includes renting or subscribing battery systems, which we are currently trialing at a Fortune 100 company. We are also looking to add additional smarts to our cloud-based remote monitoring system, EVISION, where we will be in a position to provide additional services like demand response. Our material handling battery systems have been shown to have minimal degradation even after four years of continuous operation. Given this performance, the rental and subscription route could become very profitable. We are also expecting our OEM partner to be able to implement larger quantities of leased products with higher residual values, something that we believe could drive demand for these products.
We are continuing to add talented engineers and scientists to our team, and I'm very encouraged to see how excited people are with the work they are doing and its contribution to the overall energy transition. Remember, an Electrovaya Infinity Battery is often doing about 10 x as much work as a passenger electric vehicle battery. A figure which also translates to very high impact in the reduction of greenhouse gas emissions. With regards to R&D, we have a growing number of funded projects to support our solid-state battery developments. We have continued to file patents, and I believe our growing IP portfolio is adding fundamental value to the company. This is also a testament to our core commitment to technology development. Finally, the market for our products is growing quickly, while also getting more adept at differentiating battery technologies.
This is good news for the company as we need to spend less effort in convincing customers of the need for solutions that have a focus on safety and cycle life. They are starting to have their eye out for these metrics themselves. In North America, there's also a growing focus on developing local supply chains for this critical industry. I believe Electrovaya is likely to benefit. That concludes my remarks for now. I would like to pass this on to the operator for a question and answer session.
Thank you. I'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one at this time. Once again, star one to be placed into question queue. If you'd like to remove your question from the queue, please press star two. One moment please, while we pull for questions. Our first question today is coming from Amit Dayal from H.C. Wainwright. Your line is now live.
Thank you. Good afternoon, everyone. To begin with, Raj, maybe, could you give us a sense of the CapEx for 2023 for the gigafactory effort?
The gigafactory effort is going to go in phases. Our first phase, the CapEx is approximately $45 million. And all in, we're looking at about $75 million. Now the timing of when we go from the first phase to the last phase really depends on how quickly the demand ramps up.
Of the $75 million, how much do you think will come from, you know, these low-cost loans from the government agencies versus how much equity you have to put in?
Hey, this is John. We're targeting, close to 90%-95% of this being covered by, you know, low cost loans and government grants or other incentives. We are targeting very little equity investment from ourselves.
Understood. Should we assume that there is some sort of, you know, a loan expected to close in the near term to facilitate the build out?
We're currently in discussions with two government-backed debt lenders. We're in late-stage discussions. We haven't finalized anything just yet, but we are optimistic we'll have some, you know, a term sheet with them early 2023.
Okay. Thank you for that. Just moving on to this, you know, this rental or subscription model, couple of questions on that, I guess. One is, are you renting this to, you know, the distributors or to the end customers? You know, what's the model over here? Are these based on an annual contract potentially? You know, is there any contribution from this rental model in our outlook for 2023?
It's a relatively small experiment. It's approximately $500,000 worth of assets. It's direct to the customer. This is a Electrovaya direct to customer relationship. The rental fee or subscription fee is rather, I would say it's advantageous to the company in that the fact that we would probably recover the capital costs within a year or less. It's a model that could be interesting. I don't think you've included it in your financial models, nor have we included this type of model in our financial projections. We will continue to be more focused on selling these battery systems rather than this route. This is an interesting thing to consider. When you own the battery asset, it enables you to do additional things.
You know, we can potentially use these assets as energy storage assets. You know, as we recover the costs of the battery systems, they become also very profitable.
Understood. John, maybe can you give us a sense of, you know, what we should be assuming for operating expenses next year relative to fiscal 2022?
Yeah. I think you're gonna see, you know, an improvement in the gross margin right off the top as we kind of have taken those steps. From an operating expense standpoint, we're still gonna invest in the people here and in the R&D side of things. Obviously, we're strengthening our balance sheet, and we've reduced some of our debt, so our interest costs, our finance costs are gonna go down. What we don't wanna do is hamstring the business by cutting costs all over the shop. We understand that in order to scale, and we're holding our projections at $42 million for next year, so that's a 100% increase from this year. In order to scale, we're gonna have to spend money.
The key would be, you know, choosing the most appropriate routes, to spend that money.
Okay. Can you remind us what your current cash and debt levels are?
At the end of September, our cash in the bank was just over $600,000. Our debt was CAD 16 million, and we had a promissory note for another CAD 6.8 million. That has since been paid back. As of today, we are looking at, I think our debt's about CAD 13.5 million.
Okay. Thank you. That's all I have, guys. Appreciate it.
Thanks.
Thank you. Next question is coming from Jeffrey Campbell from Alliance Global. Your line is now live.
Thank you, congratulations.
Thanks, Jeff.
Probably could probably ask 10 questions, I'll try to discipline myself a little bit. With regard to the newly announced stationary battery development program, I was wondering if as this new market unfolds, do you think it will increase the company's buying power for key components and improve its supply chain strength? Is this, or is the stationary and the material handling battery approach so different that there's not that many synergies between the two?
A great question. There is a lot of synergies. In fact, the cell materials themselves will be identical, whether they're used in material handling products or in energy storage products. You're correct. The energy storage, if we're successful in this market, the size of projects is much larger. It would entail A, having the Jamestown facility up and running with a good capacity, and B, it would also enable us to buy materials at larger volumes, and I would expect some costs re-reduced due to that scale.
Okay. Great. Thank you. Could you add some color on the automation that you referenced, that's gonna come, like if I understood it correctly, I think it's gonna be fiscal third quarter 2023? I mean, is this automation the primary reason for stating that the revenue growth in Canada would go from $42 million to, I think, $ 70 million? Or does that also assume maybe some increase in shifts? Because you mentioned you're still running a single shift.
This automation is really specifically targeted for our high voltage battery systems. Our high voltage battery systems require a different type of module design. We're installing an automated module assembly system here, which will enable us to build these packs more quickly. The system that we're installing actually has some flexibility, so we can make customized battery packs more easily. With regards to revenue, we haven't included high voltage battery system revenue in our forecast for fiscal year 2023. Our models are strictly based on our material handling products. That said, I would expect high voltage products to become hopefully a significant portion of our revenue in fiscal year 2024. Fiscal year 2023, though, we are proving out the systems.
We'll be working out new OEM agreements and really getting our product in customer hands. There's lots of demand for high voltage battery systems. We do have prototype systems in vehicles today, but we wanna have this production line in place so that we can take these larger contracts.
Okay. Is it fair to think, you mentioned, the ability to have customized battery packs, is it fair to think of that as providing you flexibility so that you could work with different OEMs and whatever their requirements are for fitting a battery pack into their vehicle design?
Yes, you're precisely correct there. Each OEM, you know, it would be nice to have a single pack which works for everybody. It unfortunately is not going to work out that way. We do need to have some flexibility in the module assembly to make packs for multiple types of applications. You're correct with that.
Okay, great. All right. I said I'd behave, so I'll just ask one more question. I thought this was interesting. Can you discuss the, perhaps the advantages or disadvantages of the hybrid solid-state battery versus the fully solid-state battery? Maybe the better way to look at it is why might it be possible to commercialize both approaches?
That's a good question as well. The hybrid system that we've already, you know, again, these products are in development. They're not ready to be commercialized. Thus far, the hybrid system appears to have slightly better rate capability, so your charge, discharge rates can be a bit higher. There, and I think that will remain a advantage for the hybrid systems. That said, a full solid-state solution has some additional benefits. You get rid of your liquids altogether. It probably will be, have a higher level of safety than the hybrid system. Again, it's a little too early to say. Rather than us focusing on one and giving up on the other, we're continuing to develop both systems, and we'll see how it goes.
Thus far, the team has been making great progress. We haven't published results since April, but I hope to put some new numbers out as soon as the team feels that they're ready.
Okay, great. No, I appreciate that color. That was very helpful. Thank you.
Thank you. Next question is coming from Shawn Severson from Water Tower Research. Your line is now live.
Great, thanks. Hey, Raj, can you comment on what happens between prototype to commercialization in the high voltage and particularly on the transportation side? Are there public milestones that you'll be able to announce? I know you said you have some pilot programs, but what should we look for to track that progress over the next 12 months?
We, you know, we've already received some purchase orders for high voltage battery systems. That said, we are only announcing what we would determine as material size purchase orders or OEM agreements, and we're not there yet. We're working on it. I would expect you to, as a milestone would be announcement of some sort of OEM agreement for our high voltage battery products. That would probably be our next step there.
To put that in a framework, time framework, I mean, obviously, you know, the automotive platforms can be very long, you know, transportation platforms. You think this is something that, you know, you don't have to go out and do 1 million mi on a prototype bus, right, in order to scale and ramp in a commercial way?
it really depends on the type of vehicle or type of application, how quickly it can be implemented into the OEM's platform. Some product, you know, some vehicles have startup production dates which are slated for, you know, let's say 2025. In order to get into that SOP, you need to have, you know, various samples and there's, there's quite a bit of testing and due diligence done prior to, to being able to go into mass production. Other applications, that timeframe can be quite a bit shorter, but perhaps the volumes will be less in those other applications. For high voltage applications in general, the, the number of applications are quite broad. There's electric buses and trucks. Those OEMs will take a little longer.
You know, we're also looking at some other, you know, for instance, energy storage or airport equipment. Those timelines are a bit shorter. It really depends on the application.
Got it. You were very strategic in targeting the material handling business because it really had the margins and profitability that you wanted, right? Now, with the Infinity platform, trying to understand as you go forward and you build out these other markets, you know, again, maybe there's gonna be broader applications. How should we think of margin profiles, let's say, when they have volume, not obviously in startup and things, but when you look at the long term in, say, stationary or, you know, high voltage for buses or trucks, is it gonna be comparable or will there be a difference in how we should model that?
First of all, material handling still is our number one priority for fiscal year 2023, it's gonna be accounting for the vast majority of our revenues. Even fiscal year 2024, we do forecast significant growth in that sector, and we have a lot of demand for our battery products in that, in that market. That will remain core to Electrovaya's strategy. The other markets, whilst they may not form as much of a size, especially in the near term, they're strategic in nature, especially as you're looking at higher volumes of deployments. That said, these other markets, the customers are more cost sensitive than material handling, and thus, potentially the margins will be lower.
The size of deployments could be very large, especially with the case of energy storage. Energy storage projects are now becoming very large in size, and it could be an interesting application for Electrovaya in the coming years.
Which will be leverageable at scale across all the business, right?
Correct.
Yep. Last question is as you looked at your historical margins, gross margins specifically, and obviously, there've been supply chain issues and pricing that you've had to work through. When you go through the outsource to insource process here and over the next 12- 24 months, do you think that creates, you know, new long-term, you know, higher gross margins, overall for you? Or is it something that you're kinda trying to keep pace with and using these innovations to, you know, fight off the natural, you know, the natural progression of the business at volume and margins?
No. Us reshoring and vertically integrating the cell production is going to have a very positive impact on our overall gross margins. If you think about it, the cells, they're our single largest cost center. By bringing that in-house, we're going to automatically increase our margins by the factor that our contract manufacturer currently takes. We're also going to reduce significantly our shipping and logistics costs from Asia. Thirdly, which was a nice surprise, is the Inflation Reduction Act offers significant incentives for cell and module production. This looks like a $35 /kWh incentive for cells and another $10 /kWh incentive for modules. It's a significant benefit for reshoring.
You know, I'd like to also point out, we would have gone ahead with this vertical integration despite the Inflation Reduction Act.
Great. Thanks, Raj.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
Well, thanks everyone for taking the time. That concludes our call. Thank you for listening. We look forward to speaking with you again after we report our first quarter 2023 results. Have a wonderful evening.
Thank you. That does conclude our teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.