Thank you for standing by. This is the conference operator. Welcome to the Microvast fourth quarter and full fiscal year 2021 earnings call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need any assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Sarah Alexander, Microvast General Counsel. Please go ahead.
Thank you, operator. Welcome and thanks everyone for joining us today. Mr. Yang Wu, President and Chief Executive Officer, and Leon Zheng, Chief Financial Officer, are hosting today's call. Sascha Kelterborn, our Chief Revenue Officer, is also on the line to discuss the product launch we announced last week. Dr. Wenjuan Mattis, Chief Technology Officer, and Shane Smith will also be available to participate in Q&A. Ahead of this call, Microvast issued its fourth quarter and full fiscal year 2021 earnings press release, which can be found on the investor relations section of our website, ir.microvast.com. As a reminder, please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative about views as of any subsequent date.
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our annual report on Form 10-K filed earlier today. In addition, during today's call, we may discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Microvast performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A webcast replay of this call will also be available on the investor relations section of our company website. With that, I'll turn the call over to Mr. Wu.
Thank you, Sarah, and good afternoon, everyone. 2021 was a challenging year with an anticipated headwind. Despite those headwinds, our team rallied together to grow revenue 41% compared to 2020. I'm proud of the accomplishments of our team. Global supply chain disruptions were a major challenge in 2021. For Microvast, the impact was largely indirect. The global semiconductor shortage caused many of our OEM customers to delay certain projects, which in turn also shifted demand for certain of our products to the right. The delayed projects remain in our book of contracted revenue, and we expect to begin seeing more revenue from those large contracts later this year and further ramping up in 2023. The timing of those projects is lining up with our ongoing manufacturing capacity expansions.
In addition to supply chain challenges, we also faced increasing raw material prices throughout 2021. Unfortunately, this is a problem that we expect to continue into 2022. We are taking steps to mitigate the impact of rising raw material prices where possible, including entering into long-term supply contracts and seeking additional sources of raw materials in some instances. At the same time, we are discussing the possibility of price adjustments with our customers as a direct result of those inflationary pressures. Leon will review our financial performance in more detail in a few moments. However, I would like to touch on a few highlights. In the first quarter, we challenged our production team to meet demand, which included a seasonal influx of quick turn orders.
It was not easy, but the team executed, and it turned in a solid Q4 revenue performance of $66.8 million, which represents 39% growth over the same quarter of prior year. It is worth noting that our revenue growth substantially in each of the four fiscal quarters in 2021 compared to 2020. On a full-year basis, this achievement translated to $152 million in revenue, representing 41% growth comparing to the prior fiscal year and achieving the guidance range we established in August 2021 following our business combination.
We ended the year with a strong backlog of $114.5 million, representing 161% growth over $43.8 million in backlog at December 31, 2020. A sequential growth of 117% over $52.7 million in backlog at September 30, 2021. This backlog creates a solid foundation going into 2022. Our business development team has done an excellent job of generating long-term, multi-year sales contracts with new customers and expanding existing relationships. This is evidenced by growth in our forecasted contract revenue from $1.5 billion in February 2021, the date when we, you know, the merger was announced, and to $2 billion-$2.5 billion at year-end.
When we refer to forecast contract revenue, we are describing backlog plus management's estimates for revenue we expect to realize from existing contractual relationships with customers. Most of those contracts include estimated volume requirements. However, they do not typically include a volume commitment. We expect to realize current forecast contract revenue between 2022-2031. We continue to have success with large OEMs in the commercial vehicle sector and are excited for the journey ahead. Next, I will provide an update on the construction progress at our various manufacturing operations. We are pleased with the progress. The environment is certainly tough to execute construction projects given labor shortage, inflation, logistic hurdles, and other challenges. As you know, we are in the process of constructing a new building on our existing campus in Huzhou, China, which we refer to as the phase three.
The progress at this site has been impressive. From a greenfield site in July 2021 to finishing the roof installation in less than six months. We posted an updated time-lapse video to our social media account in late January. Once completed, this building will feature approximately 700,000 sq ft of manufacturing space. The manufacturing equipment has been ordered, and we will be ready to begin serial production by the first quarter of 2023. Completion of this initial phase will bring our total capacity in China up to 5 GWh per year. In addition, we have space for more growth as the new facility is large enough to expand our total manufacturing capacity in China to approximately 12 GWh per year. We are also making progress in Clarksville.
The focus of the project has been renovating and remodeling the interior of the existing building. We expect the delivery and installation of equipment in Clarksville to lag our Huzhou project by approximately six months. We expect to begin serial production in mid-2023 at this site. In Orlando, we have been actively recruiting personnel for the research and development facility. We have also begun the detailed planning process to convert the existing space into laboratories suitable for future global R&D projects. Our module and pack facility in Berlin, Germany is complete and is in production as projects with European OEM begin to ramp up. This facility recently received ISO and IATF certifications. We distributed a press release announcing the two new Lithium-ion battery cells, as well as our Gen 4 battery pack last week.
We are excited about our customers' response to the performance of those cells and expect those solutions to become important revenue drivers in future years. Before turning the call over to Leon Zheng to discuss our financial results, I would like to invite our Chief Revenue Officer, Sascha Kelterborn, to discuss those new solutions in more detail.
Thank you, Mr. Wu. It's my pleasure to be here today to discuss these exciting developments. By introducing the new MpCO-48Ah and the HpCO-53.5Ah cells to our commercial customers can now select a battery solution based on their operational requirements. We can now provide a high power or a high energy battery with what we believe is market-leading performance in each category. These new cells are built to offer overall better performance with optimized energy density, cycle life, and total cost of ownership, while reserving the important fast charging capability. Both cells are available in the same dimensions and can be integrated into the new standard Microvast Gen 4 battery packs. The new packs have the same black box design as our old generation battery packs.
This high level of compatibility of the new series allow us, the OEMs, to switch batteries based on the technical requirements without changing the powertrain design or the interfaces. Compared with the Gen 3 battery pack, the new version delivers around 20% more energy and power. The new pack has additional safety features at the model and pack level to improve thermal management and meet the toughest safety requirements. The Gen 4 battery packs will be certified to meet global cross-regional battery standards. In addition, the lightweight and long-life pack design, combined with the new battery cells, present an attractive value proposition in terms of total cost of ownership to our customers. Our new series of battery cells and pack cover the common and future demands of commercial vehicle OEMs. In addition, we shared a brief new product video on our social media feed yesterday.
With having said that, I would like to turn the call to my colleague, Leon Zheng, our CFO, to discuss our financial performance.
Thank you, Sascha. Good evening, everyone. I will spend a few minutes to discuss the results of our operations in 2021. Despite many industry-wide and global challenges, we successfully grew revenue in every quarter during 2021 compared to the same period in 2020. The achievement culminated in 39% revenue growth to $66.8 million in Q4 2021, compared to $48.1 million in Q4 2020. Revenue up 41% from $107.5 million in 2020 to $152 million in 2021. We posted gross profit of $1.2 million in Q4 2021 compared to gross profit of $8.7 million in the same period.
attributable to increased share-based compensation expense, including the warranty expense, inventory impairment, and price increase. Gross loss was $0.7 million compared to the gross profit of $17.1 million in 2020. The change was largely due to the increase in product warranty expense of $49.5 million, of which approximately $17 million were related to the prior quarter. In addition, inventory impairment in 2021. Excluding the warranty expense and the inventory impairment related to legacy product as well as share-based compensation, we would have had gross profit $28.1 million in 2021. This translates to a gross margin of 18.5% for the full year of 2021. Expenses were $52.2 million in 2021 compared to $20.6 million in the prior year period.
For the full year, operating expenses were $157.4 million, compared to $49.2 million in 2020. Increased operating expenses were non-cash stock-based compensation for the quarter and $78.6 million for the full year of 2021. In addition, the company increased headcount to support its planned growth initiative and also incurred additional expenses related to operating as a public company. In 2021, the net loss was $206 million compared to net loss of $33.6 million in the prior year period. As Mr. Wu mentioned, we had a backlog of $114.5 million at the end of year 2021, which was up more than double year-over-year as well as sequentially. This gives us confidence going into 2022.
Moving to the balance sheet. We ended the fiscal year of 2021 with approximately $536.1 million in cash equivalents, and restricted cash. We are continuing to use capital to expand our manufacturing capacity. Capital expenditure totaled $87.9 million in 2021, compared to $18.6 million in 2020. The increase was largely driven by the manufacturing capacity expansion. We expect the spending to further increase in 2022, and estimate our capital expenditure will be between $300 million-$350 million for the upcoming fiscal year. With that, I'll turn it back to Mr. Wu to discuss our business outlook.
Thank you, Leon. The last several years have been full of challenges, many of which were unprecedented. Our team pushed forward, and we are continuing to build a strong foundation for future growth. We believe our business can sustain a strong growth rate going forward. Our preliminary guidance for the upcoming year is 30%-45% growth compared to 2021. We are optimistic about our opportunity in 2022. However, developments over the last several weeks have added a, you know, level of uncertainty. I'm pleased to note that we do expect a strong start to the 2022 fiscal year. We anticipate that our revenue for the first quarter will be between $32 million-$34 million. It's representing 115%-128% growth over $14.9 million for the prior quarter.
Thank you all for your time today. Before I turn this call over to Sarah, let's pray for peace. Everyone deserves to have a beautiful and a peaceful life.
Thank you, Mr. Wu. I'd now like to turn the call back to the operator to moderate the question-and-answer session.
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press Star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're on speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press Star then two. Your first question comes from Adam Jonas from Morgan Stanley. Please go ahead.
Hey, everybody, good evening, and thanks for doing the call. Mr. Wu, thanks for those really very kind and thoughtful comments and the prayer at the end. That's. I wish more people did that. Thank you. Just a couple questions. First, on the capital strategy, I think just your CapEx alone will spend, of course, well over half your cash balance. I think if you add some reasonable amount of cash, operating expense over the year, that if I were to grow it, let's say, in line with your growth of revenue, just for discussion, you're gonna consume maybe two-thirds or more of the cash.
Tell us what's your capital strategy in terms of debt or equity or government loans or grants, and your minimum cash balance, please, that you would expect to run the business, what you would not wanna go below. Thank you.
Leon, you wanna answer this question?
Sure, definitely. Thanks. Thanks for your question. As you know, there are many headwinds and so many uncertainties that we are facing. We could not give you very detailed quantitative figures. From our side, you know, we end up for 2021 more than $536 million. So the best is around $650 million. By end of, we should have a minimum cash balance around $200 million or above.
Okay.
Based we need to be.
Okay. I'm having great difficulty hearing you. I'm so sorry, but your connection is not great. I heard you said a minimum cash balance of $200 million. I just wanna confirm that. I didn't know if you had any strategy or at even at a high level how you would approach bringing in more capital before you need it. You know, it's always better to bring in capital when you have a growth opportunity before you reach a minimum cash balance. I'm curious how you prioritize the various sources, please.
Sure. Sorry. I just wanted-
Thank you.
to repeat what I said.
I couldn't hear it.
I just-
Apologize.
Can you hear? Hello?
Leon , your phone, is interrupted almost every sentence. It's not c ontinuous speaking.
Can you hear me now?
Yeah. We'll try it again, and then otherwise we'll ask a different question, so and we can follow up. We can hear you. Why don't you try again, please?
Can you still hear me now?
Yeah, I think so. Let's continue. Thank you.
Okay. So sorry for the bad communication. It's just, you know, I would like to repeat what I said.
Thank you.
Based on our current estimate, we do believe by end of this year, we should have minimum cash balance is $200 million or more.
Okay.
Regarding our capital funding plan going forward, what do we do? Basically, we get a certain amount of bank finance, so from local bank in China. At the same time, we also actively negotiate with the U.S. financial institutions to get additional loans before the end of this year. If we are able to get additional finance, so our cash balance will be even larger than the minimum amount we currently projected.
Thank you, Leon. Just one more follow-up from me, if that's okay. The CapEx guidance of $300 million-$350 million for fiscal year 2022, is this CapEx ready to be spent right now? Meaning is that expenditure based on any further final investment decision, environmental approvals, or is it contingent upon any financing commitment, including some of the loans that you're pursuing that have yet to be finalized?
Good question. Let me answer the question. I would like to have Shane Smith, our Chief Operating Officer, to answer the second part regarding the CapEx progress. I think that the short answer to your question is, you know, the cash balance we currently projecting without considering we get additional balance from the financial institution, either in the U.S. and in China. The short answer is, the money with the CapEx to be spent in 2022 will come from the equity we raised the last year.
Okay.
Yeah. Adam, this is Shane Smith.
Hey, Shane. Thanks.
Hey.
Hi.
How are you doing? Hey,
Good.
Yeah, as you know, we're not looking at environmental conditions in terms of putting the money to work. We've outsold what we have capacity for. Of course, we've got to put that capacity in place. We basically have contracts in place for $400 million. And what you're seeing is just the payment schedule for either the construction milestones or equipment milestones that we expect. S o some of that money that we've already put to work just kind of rolls into 2023. And that's why you're seeing only the $300 million and a little over $300 million that we're paying out this year. But again, the contracts are already in place, both on construction and equipment to get where we need to be to execute the plans that the customers are closely watching.
Back to your other question. I mean, we are spending a fair amount of CapEx, but we have assets in place that it's fairly easy to get financing for. We've been fairly on the low debt side, if you will. Probably too low for a company our size, for the contracts we have in place, and for the capital we're spending. We're now putting that money to work in a different way through the assets. Leon's well on his way. Actually, he's already inked some of those funding options. I think we have more room in that area before we would look at the equity market, if you will. I think the equity market is more of a, "Hey, we keep winning business," is where you'll hear that story. So far, so good. That's a likely story, maybe in the next 18 months. The market's gonna receive that message well.
Understood. I really appreciate that, Shane. Can I just squeeze in one more for Professor Mattis, please, on the supply chain, if that's okay? Dr. Mattis.
Hey, Adam. We're ready. Yeah.
Hi. Hope you're well. Good to hear your voice.
Yeah. I hope you are well. Thank you.
Dr. Mattis, could you elaborate a bit more on supply chain prices? I understand you can do LFP and nickel rich, which gives you flexibility 'cause your technology is, you know, material agnostic, if you will, which is great. But you mentioned long-term supply contracts. I'd be curious any capital commitments that you need to make to make that secure? I'd love your thoughts on how we should think about pass-through, particularly of lithium, which you cannot avoid, which is up about 5x, price is 5x in China, if I understand lithium carbonate.
Yeah.
A little more detail there would be really helpful. That's my last question. I do appreciate the opportunity. Thank you.
Yeah, sure. Yeah. The supply question would actually better refer to Mr. Shane Smith. I would like to just talk about my point of view. As for the cathode material pricing, in the China market, it went up to 2.5x . Nevertheless, the other materials, such as PVDF, the lithium TFSI, the electrolytes, those all ramped up. As for Microvast's strategy, the most expensive component in the lithium battery is a cathode material. By making our own material, not only it increases the capacity, increases the safety, and also saves more than two-digit percentage for Microvast in terms of the cost. We do have the strategy collaboration conversations already started in United States, in Europe for the long-term collaboration in terms of the recycling of our product.
Also in recycled scrap material in the cell production line. Yeah, those topics are well on the way. By this point, Microvast was not limited by the supply chain change, the interruptions currently have spread out in the world. I will pass this call to Mr. Shane Smith for more accuracy.
Adam, it is as Mr. Wu alluded to in his opening comments. It is one of the areas that we're closely watching. We're trying to engage how long of a contract to get in because we are doing a little bit of. Do you think when are prices gonna go down? Is this a trend we're gonna continue to see? Right now, I'm saying it's a continued trend that will go through 2022 and into 2023. So it's something that we closely watch. On the sales side, we are engaging customers to increase prices. Trying to keep that balance is challenging.
I think that will be a part of our story in terms of margin pressure.
Thanks, Shane. Thanks, everybody.
Yep.
Thanks, Adam.
Good to hear from you, Adam.
Thank you. Once again, if you have a question, please press star then one. Your next question comes from Gabe Daoud from Cowen. Please go ahead.
Yeah, hi. Thanks for taking my questions. My first question is, do you guys plan on providing any additional details on the backlog regarding regional or customer dynamics, and how much of the backlog will be realized in 2022?
Sascha, do you wanna go ahead and take that question?
Yes, please. I will go ahead. Thanks for that question. I mean, most of the backlog which we have right now will be realized in 2022. Partly, some backlog could be shifted to 2023, but actually, most of it will be realized in 2022. If we talk about the forecasted contracted revenue, this is something which will start end of 2022 and move all the way till 2031, as already mentioned. The increasing factor will start exponentially through various vehicle projects in 2023 as well as in 2024.
Got it. The second question I've gotten-
Regional-
Yeah, regional.
And, and regional-
Yeah, I was just saying it.
Okay, go ahead.
Yeah. Regional, I think
Regional, it will be. Yeah. Shane, go ahead, please.
Go ahead, Sascha. Go ahead.
Okay. Regional, it will be dedicated to Europe as well as to the Asian India Asian market, mainly, and also to the U.S.
Can you provide any additional percentages or not?
I would not at that stage. It's way easier to shift that in 2023 and 2024, because a lot of projects are just starting. We're building up, as already mentioned, the capacities in the core now for the U.S. market. Mainly it will be dedicated in the first step to Europe as well as to especially also Asia. In the second step, it will directly move over to the U.S.
Got it. Thank you. The second question I've gotten from several investors was regarding your lawsuit with your former general counsel. I was wondering if you could give us an update on where that stands. Any plans to get this overhang behind you?
Sure, Gabe. This is Sarah Alexander. A trial has been scheduled and postponed a number of times. It's currently now scheduled for May. Yes, we would like to get that behind us and move forward. It's been outstanding for quite some time.
Perfect. Thank you.
Thank you. This concludes the question and answer session. I would like to turn the conference back over to Sarah Alexander for any closing remarks.
Thanks, Matt. Before we go, we received some great questions in response to our Ask Microvast campaign. While we don't have time to address every question we received, I would like to take a few minutes to address a few important themes. Thanks to everyone who submitted questions. We appreciate your feedback, and keep them coming. The most frequently asked question was a request for an update on the status of our S-1 registration statement.
To provide some additional color on the timeline of events, our business combination with Tuscan closed on July 23rd, 2021. Our understanding is that shortly after the completion of our business combination, the SEC chairman made public remarks directing the SEC staff to quote, "Take a pause for now on approving the registration statements of certain issuers with a significant portion of their operations in China." We filed our initial S-1 registration statement in the middle of this pivot in mid-August. Over the course of the next several months, we received correspondence from the SEC following each of our S-1 filings and have responded with amended filings to address those comments. Most of the comments have related to clarifying certain aspects of our operations in China, as well as the implication or potential implication of current or future laws on our operations.
As an example, we were requested to make additional disclosures following the PCAOB and the SEC's implementation of the Holding Foreign Companies Accountable Act in the December 2021, January 2022 timeframe. It's also our understanding that many of the comments we received were issued by the SEC to many other similarly situated companies during the same time period. In addition, we've been informed by the SEC staff that due to the significant increase in the number of recent transactions, the SEC's internal review process and turnaround time is slower than issuers may have experienced in previous years. Finally, the current delay between our last S-1/A filed in January 28th, 2022 is because the financial statements included in that filing were current as of September 30th, 2021.
Those financial statements became stale in mid-February, and the document is required to be updated with December 31st, 2021 results. Our annual report on Form 10-K was filed earlier today, so we will now turn our focus to the S-1, get the financials and disclosures as of 12/31 updated quickly, and get the next amendment on file as soon as possible. We recognize that this process has taken longer than is typical, and we fully understand our shareholders' frustrations. We're moving the process forward as swiftly as possible, and we appreciate your patience and understanding as we bring this process toward a conclusion. In addition, we've had several people ask for clarity about the Holding Foreign Companies Accountable Act and its potential impact on Microvast.
I can provide you with a little bit of additional background information on the regulation which originally became law in December 2020. Among other things, the statute requires the SEC to identify public companies that have retained a registered public accounting firm to issue an audit report where the firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspect the books of such accounting firm. On December 16th, 2021, the PCAOB published a list of the accounting firms in Mainland China and Hong Kong that it determined it is unable to inspect. That list does include Microvast's auditor, a Mainland China office of Deloitte, as well as the Mainland China and Hong Kong offices of other major accounting firms also located in the region.
On January 10th, 2022 , new SEC rules became effective, which amended the disclosure requirements in annual reports for issuers that the SEC identifies as having an audit report issued by one of the above-mentioned accounting firms. The SEC refers to these issuers as Commission-identified issuers. Pursuant to the HFCAA, if an issuer is a Commission-identified issuer for three consecutive years, the SEC shall prohibit the securities of the issuer from being traded on a securities exchange. Microvast does anticipate that it will be designated as a Commission-identified issuer following the filing of its 10-K earlier today. But we've also begun discussions with our auditors to determine a path forward and a timeline for compliance as we expand and diversify our global operations. Those are all of the questions that we have time for today.
Thanks everyone for joining, and this concludes today's call.
This concludes today's conference call. You may disconnect your lines. Thank you for participating. Have a wonderful day.