Greetings! Welcome to the Electrovaya Q3 2023 Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, John Gibson, CFO. You may begin.
Thank you. Good evening, everybody, and thank you for joining us today on the call to discuss Electrovaya's Q3 2023 financial results. Today's call is being hosted by Dr. Raj Dasgupta, CEO of Electrovaya, and myself, John Gibson, CFO. Today, Electrovaya issued a press release concerning its business highlights and financial results for the 3 months period ended June 30, 2023. 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 discussions and analysis, you can access those documents on the new SEDAR+ website at www.sedarplus.ca or on the SEC EDGAR website at sec.gov/edgar. As with previous calls, our comments today are subject to the normal provisions related 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 reflected in such forward-looking statements are reasonable, they do obviously involve risk 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 Q3 fiscal 2023 results, and the most recent annual information form and management discussion and analysis under risks and uncertainties, as well as in other public disclosures filed with Canadian and U.S. security regulatory authorities.
Also, please note that all the numbers discussed on the call are in U.S. dollars, unless otherwise stated. Now I'd like to turn the call over to Raj.
Thank you, John. Good evening, everyone. Electrovaya's fiscal third year quarter was another strong quarter and further demonstrated our focus on execution, profitability, and growth. There is a long list of milestones that we achieved over and since the quarter, and I'd like to reflect on a few of them on today's call. First of all, we made a second consecutive quarterly profit, despite having increased legal and other costs associated with our recent Nasdaq listing. This was made possible through improved gross margins on our battery system sales. I expect us to continue to raise margins over the coming quarters, and as our top-line revenue increases, our profitability and financial strength will continue to improve. Battery systems for material handling applications, especially those at large corporations, are responsible for the majority of our revenue.
In the last quarter, we have continued to see revenue and order growth, including two new Fortune 100 potential customers orders. Overall, we have seen over 50% growth in our backlog compared to last year. With regards to our OEM partners, we are pursuing a number of new initiatives, including new product offerings, some of which will be launched in fiscal year 2024 and some in fiscal year 2025. We believe there is substantial untapped potential for our Infinity batteries in the material handling sector. I'd estimate our penetration for electrified vehicles with our main OEM partner to be under 10%. Market indications are that the lithium-ion penetration rate should increase to about 50% by 2027, which would be about 5 times our current production rate.
While Electrovaya's low-voltage products may have been very successful in the material handling and robotic markets, we are now positioning the company to take a leadership position in other heavy-duty market segments. This includes electric bus, truck, mining vehicles, and energy storage, which all require high-voltage battery systems. We have developed our high-voltage product line to take advantage of the core Infinity technology benefits with respect to safety and cycle life, and also the strong systems capabilities relating to performance and reliability that we have demonstrated in the material handling market for years now. Since we announced the product line on July 20th, we have had considerable interest and are expecting to start shipping pre-production packs starting in the first quarter of fiscal 2024. We have received some initial orders for packs, which include heavy-duty vehicle applications, and are actively pursuing large opportunities.
These are mostly for startup production in 2025, which is in time for our Jamestown, New York, operations to supply. That brings me to our overall expansion plans. The heavy-duty market needs our Infinity battery technology, and this is going to be an enormous market, which is just starting to be electrified. These are applications that need better safety due to the size and sensitivity of the applications, as well as the higher duty cycle that they achieve. Furthermore, they operate with substantially higher duty cycles than automotive applications, and therefore, longevity and cycle life are going to be key selection parameters. Unfortunately, most of the nascent electrification of these applications are utilizing batteries where the technology is optimized for passenger vehicles, and the results have been poor.
If you examine recent news, even just in the last few weeks, you will see a large number of the initial electrified bus and truck segments have had safety recalls, all relating to the batteries. Given our continuing growth in the material handling sector and the combined with anticipated demand for our high-voltage batteries, we see the need to increase our production capacity significantly. Currently, we are in late stages of securing the financing for the first phase of what should ultimately be a multi-gigawatt hour manufacturing footprint at our Jamestown, New York, campus. A further benefit of these expansion plans is our ability to leverage the Inflation Reduction Act incentives, which will provide approximately $45 million in cash incentives for every gigawatt hour, gigawatt hour of output. We recently provided a brief update on the progress on our plans in our press release dated August second.
With that, I'd like to pass the discussion back to John, who will go over the financial results in more detail.
Thanks, Raj. Revenue for Q3 fiscal year 2023 was $10.5 million, compared to $4.3 million in the third quarter, ended June 30, 2022, an increase of 145%. We continue to improve output within the facility. Our weekly run rates are past $1 million per week in the quarter, and we're looking to build on this momentum and continue into the final quarter of the fiscal year. We ended Q3 with a strong backlog, which was up approximately 50% from the prior year, and we believe that this puts us in a strong position going into the final quarter of 2023 and into fiscal year 2024. We remain on track to meet our 2023 guidance of $42 million. This quarter saw the first real positive movement in gross margin for the fiscal year.
Overall, gross margin was 28.1%, an increase of almost 3 percentage points over the prior year and the prior quarter, ended March 31, 2023. When looking at revenue streams individually, the numbers increased even more. Battery system gross margin came in at 30.3% for the quarter. This improvement was driven by locking in prices from key suppliers for 2023 deliveries, taking advantage of volume discounts where available, and operational efficiencies. We expect to see an increase in gross margin in the rest of calendar 2023. Adjusted EBITDA for the quarter was $1.1 million, compared to a loss of $1.5 million in the prior year.
Furthermore, for the second quarter in a row, we recorded a net profit, showing $0.1 million in the quarter, compared to a loss of $1.5 million in the quarter ended June 30, 2022. This is despite being negatively impacted by the one-time costs that Raj mentioned relating to the Nasdaq listing, and we anticipate the company maintaining a positive Adjusted EBITDA position for the remainder of fiscal year 2023, with an overall positive figure for the full fiscal year. The company generated a positive cash flow of $0.1 million for the nine months ended June 30, 2023, compared to a cash burn of $3.2 million in the nine months ended June 30, 2022, a significant milestone.
At June 30th, total debt was $16.6 million, compared to $16.5 million in the prior year. The company is actively managing its cash to reduce its interest charges. The company believes its available liquidity, along with the collection of $10.1 million of its accounts receivable, conversion of $5 million of inventory into saleable finished goods, as well as receiving an additional $6.2 million of inventory in process for which deposits have been recorded in prepaid expenses, is adequate working capital to support our anticipated growth for the remainder of the fiscal year 2023 and into fiscal year 2024. That concludes the financial overview. I'll now turn the call over to Raj for concluding remarks.
Thank you, John. I'd like to start my concluding remarks by reiterating on the enormous opportunity that Electrovaya has with respect to the Infinity technology platform. I believe that the timing for our scale-up for this technology couldn't come at a better time. Just as the electrification movement is reaching some level of maturity with respect to battery requirements, with a renewed focus on safety and life cycle costs, our technology is being scaled up. As demonstrated by our internal testing and by third-party testing at DNV's labs in Rochester, New York, our Infinity cell technology is in a league of its own. There are no competitors that I know of who come close to the cycle life or with similar performance metrics. This type of performance, combined with our superior safety, is getting noticed as these markets mature.
We are seeing interest not just in our battery systems, but also from very large potential OEM customers, where there's potential for cell-level sales as well. Moreover, the Infinity technology platform is ultimately a platform technology that is agnostic to chemistry. As a result, Electrovaya can continue to improve in metrics like energy density or use lower-cost cathode materials like lithium iron phosphate or lithium manganese oxide, and still maintain a competitive edge with respect to longevity and safety. As part of our scale-up efforts, we will also be reshoring the separator production and will be working closely with our Japanese partners to ensure a seamless integration. As I've mentioned in prior calls, technology is in our DNA, and we are continuing efforts to stay at the forefront. We are adding more talent to our engineering team with a significant planned expansion over the next 6 months.
we've recently filed four patent applications for battery system technology. Our team at Electrovaya Labs is making steady progress with respect to our solid-state battery technology and ceramics development. I expect all these efforts to benefit us in the long term. That concludes our remarks this evening. John and I would now be pleased to hold a question-and-answer session. John, please feel free to open the line for questions.
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Eric Stine with Craig-Hallum. Eric, please proceed.
Hi, Raj. Hi, John.
Hi, Eric.
Hey, maybe just starting with the high-voltage product, you mentioned, you know, some of your the traction since launch. You know, I'd love just you to characterize the initial orders, if you could, and then maybe just break it down by end market. I know you've been working with a bus OEM, you know, and in energy storage. I also know you've, you've responded to a large RFP and also, some opportunities with materials handling customers. A broad update would be great.
Yeah. Eric, you, you're correct. Those are... You know, there's a lot happening right now with regards to the high-voltage business development activities. We've received some small seed orders from a variety of heavy-duty vehicle applications. These, these are our seed orders, so they wanna see how the battery systems perform before looking to scale up utilization of our systems. As you mentioned, we're also bidding on some large opportunities, including in the electric bus space, as well as other segments, including energy storage. Now, ultimately, the good thing is all these applications use the same, essentially the same pack design, so we can use the same system in a variety of applications. That, that's... It's going to be a common product, which makes it easier for us to look at more opportunities.
Got it. So when you talked about, you know, these, these initial orders and that these would really be fiscal 2025 opportunities, I mean, is that, is that basically because that's how long you think it'll take just to get through this qualification period with these various parties?
Yeah, that, that's correct. Any, any sophisticated OEM is going to take about a year to go and to start a production with, with a new system. That's, that's sort of what we would expect. Our expectation is fiscal 2024 is still going to be significantly dominated by material handling revenue, which is great. We're, we're continuing to grow that. The high-voltage systems will start making meaningful revenue in fiscal 2025, with some revenue in fiscal 2024, for sure, but.
Got it. Okay, thanks for that. Maybe just turning to materials handling, you mentioned the two new customers. You know, just curious, I know you're, you're likely not able to share who it is, but, you know, maybe just some characteristics versus some of your current customers.
Yeah. Last quarter, I think we announced that we had 10 Fortune 100 customers using our battery systems, and this brings it up to about 12. Now, the list up until now has been more dominated by the retail sector. These two additions are in the food, food distribution space, put it that way.
Got it. That's interesting. I mean, I know what I've heard in the past, that sometimes there have been concerns of battery usage if you're in refrigerated, you know, temperature changes and that sort of thing. You know, just curious how the Infinity kind of stacks up in those different applications. Obviously, pretty well, if you've got these two new customers.
Oh, it, it certainly does. We are our batteries, I'll have to check the full list, but we're operating in a numerous cold storage warehouses already. Ben & Jerry's ice cream is a good example. If you like Ben & Jerry's as much as I do, it's good to know that they're using vehicles powered by our batteries in, in those freezers. We, we have a large number of cold storage warehouses, which I expect that to continue to increase.
Okay, thanks a lot.
Next question comes from Sameer Joshi with H.C. Wainwright. Sameer, please proceed.
Yeah, thanks. Thanks for taking my question. Raj, just was wondering how the gross margins have improved quarter-over-quarter, despite the top line staying the same? Then part B is, should we expect even more gross margin improvements in the fourth quarter?
It's, John will take this question. The gross margin improved in this quarter, combination of factors. As we scale, we're able to take advantage of cheaper pricing with some of our suppliers. On top of that, we have been very efficient when it comes to the actual production schedule and getting everything through the plant. We are also going through a, almost like a review process, where we, yeah, we optimize some designs with the engineering team. It's a combination of those. Product mixes is a big one, is a big one, really. The historical low gross margin orders are out of the picture. We've delivered all those. There were none of them in the quarter. Going forward, we will see steady and improving gross margin.
That's where we envision the number going.
Understood. Stepping back, the debt facility being negotiated, is that contingent upon your engineering studies and plans being ready? How, how does that work? Like, can, can you... Like, if you, if you can, a Gantt chart of progress on that front would be helpful.
It's not-- nothing's, nothing's contingent. It's just regular due diligence. All the engineering work we had already carried out. It's just a case of getting it reviewed again by a third party to make sure there's no bias in there. That is more like a formality than, than a restrictive covenant on the, on the debt.
Okay.
Yes, Samir, you're referring to the Jamestown financing or our existing debt ref- refinance?
Oh, no, no, I was, sorry, I should have said that. Yeah, Jamestown. The Jamestown financing.
Okay. Yeah. I, I'd say, as, as John mentioned, we're, we're in the final stages, is more like legal and other parts of the due diligence process. The main part of the engineering due diligence, we've passed that.
Understood. In terms of, proving out the 52 Ah technology, with these newer customers, are these customers asking, for, like, independent verification, or are they, are they good with the DNV, studies and results?
Well, we actually have already completed third-party validation testing on the 52 amp hour cell, so it's already been UL listed. We've been... We have quite a bit of performance data on it as well, so it's, it's fairly well understood. Our, our plan is to introduce the 52 amp hour cell first in our high voltage products, which, of course, are being scaled up in 2025, and they'll also be introduced on our material handling products at some point in mid-2024.
Okay. For these bus and trucks and mining customers, you don't expect additional testing from, from, from these potential customers?
We expect, you know, the sophisticated ones to wanna test cells and/or battery systems, so that, that'll be part of the, part of the engineering process for them. Like, sophisticated OEMs generally, generally do that.
Got it. Just coming back to costs, actually, interesting to see R&D costs come down, sales and marketing costs come down as well. Should we expect these levels, or should we expect a ramp again once activity in New York increases and sales traction on the heavy, high voltage, increases? How should we look at the next, say, six quarters?
Yeah, I think you should expect it to, to probably fluctuate somewhat. R&D is kind of an up-and-down expense because it covers obviously salaries for the engineers, but material that they use within their, within the projects as well. There, there could be a quarter where there's less material purchased. Salaries are the same, so that's why you're going to see it go up and up and down. In terms of sales and marketing, yes, you will likely see an increase in costs as the high voltage gains more traction and as we, we put that out in front of more customers.
Yeah, overall, Samir, you know, we expect revenue to continue to increase, so any changes in those costs are going to be relatively small compared to top-line growth. Overall, John and I are laser focused on ensuring profitability is present, throughout. We're not going to. We, we are not planning to turn back and go back into the red at any point. We've crossed that chasm. We like it in the black, and, life is better black.
Certainly. As I understand, I mean, what you're saying is you do see operating leverage going forward, so that's good to see.
Yeah, we, we definitely won't shy away from making investments where needed. If you've You may have noticed our, our sales and marketing costs are, are relatively low, and they've continued to come down, and some of that is due to our focus on partnerships, right? We have a very small sales team because the OEMs want the product, so we don't really have to sell it too hard. Actually, our sales team is very, very small, and it doesn't need to be large. We can maintain relatively low costs with respect to sales and marketing. We also don't spend a lot of money on trade shows, et cetera. We are cognizant of keeping things tight.
Understood. Thanks for that. Thanks, Raj. Thanks, John, and good luck.
Thanks, Sameer.
The next question comes from Pavel Molchanov with Raymond James. Please proceed.
Thanks for for taking the question. I realize, you know, we're not quite yet at the end of the fiscal year, but as we look ahead to 2024, maybe just talk in general terms, how you're thinking about, you know, top line and, you know, you, you mentioned that EBITDA should remain in positive territory.
Yeah, for 2024, you know, we don't wanna make any commitments right now. We're just in almost halfway through August. We'll, we'll probably make an announcement on planned 2024 revenue after the end of the fiscal. You know, we, we, we would like to go obviously higher than what we're planning on doing this year. Yeah. Pavel, overall, you can expect pretty strong growth. You know, we're growing 100% year-over-year right now. Will we be able to maintain that? Probably not. Will it be significant, you know, over 50%? That's, that's what we're, that's what we're looking at right now. Somewhere between 50%-100% at this point.
That's a, that's a very broad football field for now, and we'll, we'll narrow that, as we get closer to the end of the fiscal year or when we get close to announcing our fiscal year results.
In that context, when we think about the margin profile on the high voltage products for the, you know, buses, trucks, and, and storage, directionally, should that be higher or lower versus, you know, the base, material handling business?
Well, I'll take a step back. You know, the, the reason we focus so-- and we rightly focused on material handling first, right? We had-- we could have focused on high voltage systems earlier. Just two years ago, I would say if we had done that, our margins would be extremely tight because there was a lot of competition in the sector, and companies were quite happily selling battery systems at a loss in order to gain contracts and market share. Those companies that were doing that, of course, you know, a few of them, one of them recently declared Chapter 11, and the other one was, was bought out by another group who's also struggling.
I think the opportunity for us now, especially post-high profile recalls in the electric bus and other sectors, bus and truck, put us in a position where we don't have to sacrifice margin in these applications. That said, this is a new product. It takes time to optimize it for costs, so we're not planning to lose our opportunities just because we want to maintain a 30% margin. In the long run, I think the margins can be similar to what we're seeing in the material handling segment.
Yep, that's helpful. Last question. You know, we have seen in the last 100 days, battery prices come down at a pretty steep rate, you know, across the board, EVs, et cetera. Are you kind of observing that in the market, and what do you think explains that decline?
I think there's always gonna be quite sharp cyclability with respect to the commodities used in lithium-ion battery production. We generally sort of hedge ourselves. I think just last month, we secured supply of some key materials for roughly, what, a 12-month period? We did take advantage of some costs reduction. Let's say next month you see a big drop in lithium carbonate pricing, we're not gonna be able to take advantage of that. It's a sort of on a annual basis for us. I think as the industry steadies itself and gets up to scale, you'll start seeing some more stability with respect to those prices. Lastly, we're almost in a bit of a league of our own again.
We're selling a premium battery system for a specialized heavy-duty market, which isn't as cost sensitive as the other markets. Passenger EVs is, you know, these, these make a very big difference for those markets. For us, we're, we're definitely less sensitive.
Understood. Thank you very much.
Thank you, Pavel.
Thanks, Pavel.
The next question comes from Tom Curran, with Seaport Research. Please proceed.
Hi, guys, Tom Curran, with Seaport Research Partners.
Tom, nice to hear you.
Yeah, likewise. Thanks for taking my questions. I'd love to hear an update on your solid-state battery platform, any points of progress that you would highlight from the quarter, and do you still believe you're on track for first commercialization in 2025?
Research, of course, is a bit of a rollercoaster, so things change on a dime. That said, the team there is very confident they're making good progress. We're also starting, as of a few months ago, starting to produce the ceramic materials in-house. That's aiding our, our development process. I'd say it's too early to say at this point in time, when this technology is commercializable.
Got it. and are, are you aware of, any other development efforts occurring in parallel with yours around, the anode-free concept? Or, or do you believe, you know, this, this this is an only-in-class, you know, innovation that you're, you're advancing?
No, I think others are also focused somewhat on the anode-free setup there. I, I don't think we're the only one. That said, I think our strength with regards to our solid-state battery development is both, of course, our team, led by-- our Electrovaya Labs team is led by Dr. Sankar Das Gupta, our, our founder, and he's a, he's an amazing scientist. They're making great progress. We also, of course, have substantial know-how with how to produce and use ceramic separators. The Infinity battery technology platform is based on a ceramic separator, and the solid-state battery, batteries in general will likely need similar materials. I think that puts us in a good position. However, of course, it's too early to say whether this is a, a viable product or not.
Got it. Thanks for the update.
Thank you.
Thanks.
The next question comes from Shawn Severson with Water Tower Research. Please proceed.
Great. Thanks. Good afternoon, everyone. Raj, when you're looking at the commercial applications, are you talking to OEMs that already have a pretty good existing fleet out there of, you know, EVs, and they're selling a lot, or are these more of companies that are starting, you know, starting their product launches into the sector?
All the companies, for the most part, that we're speaking with, already have product offerings. They already have launched, for instance, let's say, an electric bus, and they're now looking at the next generation of those vehicles, and they want a better battery or a lo-- ultimately, that's what they're looking for. Which is, works in our favor, right? If someone's had a bad experience with their battery supplier, it makes it all the easier to sell them our solution, especially if we're fixing problems with respect to safety or, or longevity, which I believe, well, if you look at the news, safety is definitely something that's been a concern in the industry, and that works in our favor.
We also believe some of the offerings aren't holding up with regards to performance, which also works in our favor. I'd say, that's, that's the majority of what we're looking at. That's when we're talking to OEMs. In some cases, for instance, in the mining sector, I'm talking directly to some of the big mining companies, right? They're operating large fleets of vehicles. That's not a sector we had anticipated earlier, but looks much more interesting than what we thought.
I'm assuming that this is giving you some of that confidence and growth into 2025 because you, you're looking at these customers, you're seeing volumes, right? I'm assuming if they make the conversion and they're making the move, your adoption curve is going to be rapid inside the platform. That you, you would become the, the dominant battery supplier for their platform. Is that a correct assumption to make?
I think so. We hope so. I can't speak for the OEMs, but, if our product is fitting well in their application, no reason why we shouldn't be.
Is there an opportunity for retrofit there, similar to material handling? Could you go back in and as the lithium-ion battery packs are wearing out on existing buses, prior generation, can you retrofit there as well?
I'm sure you can. Our, our focus, though, is on, you know, we're, we're a premium product. Premium products generally are better used on new equipment. I, I would, I would forecast, you know, retrofits would be unlikely, perhaps more likely with respect to mining. On, on buses and trucks, I, I don't, you know, it's hard to say. I can't say, but my gut instinct would tell me new vehicles would be the, the vast majority.
Sure. Then my, my last question on that is: you had an ROI sale and, and still do, of course, in the material handling side. In the, in the commercial vehicle side and, and heavy-duty side, is this just more about safety, and some of the other concerns you mentioned, or is there, is there an ROI calculator that you can look at that says, "Look, you, you use our batteries versus, you know, previous platforms, the economics are here?
I'd say it's both. Well, first of all, if you have a recall, which a lot of these OEMs do, that's very costly, right?
Yeah
Does factor into a return on investment in the long run. We, we also, because of the longevity of the battery systems, we can potentially offer longer warranties. That's one way we can provide a better return on investment, especially when OEMs or applications are looking potentially at augmentations on batteries, right? A lot of the truck and bus applications did work in, let's say, a six-year or eight-year refurbishment, which we can avoid if they use our batteries. That's one key advantage. And yeah, there are aspects to both safety and longevity providing those benefits.
Great. Thank you, and congratulations on maintaining the momentum.
Thank you, Shawn.
Thanks.
Once again, if you have a question or a comment, please indicate so by pressing star one. The next question comes from Aaron Martin with AIGH Investment Partners. Please proceed.
Hi, Raj. Hi, John. Congratulations on the progress. A lot of my questions have been answered. I'm not gonna try to pin you down for the whole year next year, but in terms of seasonality, I mean, last year you kinda had a muted seasonality. How should we think about that as we go into the beginning of the fiscal year?
As I mentioned at the start, we, we have new customers, right, in segments like food distribution, and these are large corporations. In previous years, we've been heavily dominated by retail, companies, especially the e-commerce, operator, as well as a few others, and they're very seasonal. However, when you take into account these other, opportunities which are expanding quickly, I would expect that seasonality still exists to some extent, but is definitely muted, going forward. Does that sort of answer your question?
Got it. Appreciate that. You know, on the gross margin, was, was the grant revenue a material mover there, or that really wasn't, part of the pieces, moving pieces?
The grant revenue? Grant revenue, we have essentially no margin on grant revenue.
Yeah, there's a zero, zero margin on grant, grant revenue.
That actually was a couple % detractor.
Correct.
Yes, yes.
We're you can almost say it's almost a negative margin because we're investing in some of those programs.
Okay, great. Thank you so much. Appreciate the update.
Thanks, Aaron.
Okay, we have no further questions in queue. I would like to turn the call back to management for any closing remarks.
We have no further remarks. John, thank you so much. That concludes our call, and thank you for listening. We look forward to speaking with you all again after we report our fiscal fourth quarter 2023 results. Have a wonderful evening.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.