Good day ladies and gentlemen, and thank you for standing by. And welcome to the Cenntro Electric Group Earnings Conference Call for the Year Ended December 31, 2021. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Marianne McInerney, Cenntro's Chief Marketing Officer. Ms. McInerney, please proceed.

Thank you, operator, and hello, everyone. Welcome to Cenntro Electric Group's earnings conference call for the year ended December 31, 2021. We have Peter Wang, Cenntro's Chief Executive Officer; and Edmond Cheng, Cenntro's Chief Financial Officer joining us on our call today. We released our 2021 financial results earlier today. That press release is available on the Company's IR webpage. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion contains forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts. Such statements may be identified by such words as may, believe, anticipate, could, should, intend, plan, will, aim, can, would, expect, estimate, project, forecast, position, potential, goal, strategy, outlook, and similar expressions. Examples of forward-looking statements include statements regarding assembly and distribution capabilities, decentralized production, and fully digitalized autonomous driving solutions. Forward-looking statements involve inherent risks and uncertainties, and other factors that could cause the Company's actual results to differ materially from the expectations expressed today. Further information regarding these risks and uncertainties is included in the Company's public filings with the SEC. The Company does not assume any obligation to update any forward-looking statement except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference are in U.S. dollars. In addition to our results determined in accordance with U.S. Generally Accepted Accounting Principles, we used adjusted EBITDA to evaluate ongoing operations and for internal planning and forecasting purposes. Adjusted EBITDA is a supplemental measure for our performance that is not required by or presented in accordance with U.S. GAAP. Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measure derived in accordance with U.S. GAAP. We define adjusted EBITDA as net income or net loss before net interest expense, income tax expense, and depreciation, and amortization, as further adjusted to exclude the impact of stock-based compensation expense, and non-recurring or extraordinary expenses, losses, charges, or gains. For reconciliation of adjusted EBITDA to our U.S. GAAP net loss, please refer to our earnings release that we posted on the Company's IR website shortly before this call. Finally, as an Australian public limited company, we are subject to the Australian Corporations Act of 2001, which requires financial statements to be prepared and audited in accordance with Australian auditing standards and international financial reporting standards. The financial information that we are discussing today was not prepared for the purposes of the Corporations Act and is considered non-IFRS financial information under the rules and regulations of Australian Securities Authorities. For a reconciliation of our U.S. GAAP financial analysis to our IFRS financial results, please refer to our earnings release that we posted to the Company's website shortly before this call. With that in mind, let me now turn the call over to our CEO, Mr. Peter Wang. Please go ahead, Peter.

Thank you, Marianne, and hello, everyone. Thank you all for joining our earnings conference call today. On the last day of 2021, Cenntro successfully became a publicly traded company on Nasdaq Capital Market through a stock purchase transaction with Naked Brand Group, making a significant milestone in Cenntro's history that opened a new chapter for us. At the closing of the transaction, the Company concurrently divested the remainder of Naked's historic clothing business and has more than $250 million cash on hand. That can support production expansion and accelerate future business growth. Our mission is to lead the transformation in the automotive industry and become a leader in the electric commercial vehicle sector, providing electric commercial vehicles from Class 1 to Class 4, mainly for use in urban delivery and urban services. With that mission in mind, we have developed vehicle models for each of our target markets in America, Europe, and Asia. We are pleased to announce that we achieved improved operational performance for 2021. We had vehicle sales volume of 918 units, representing growth of 29.8% from the previous year. This is a testament to our capability for producing and selling a continuously growing number of electric commercial vehicles, despite the global supply chain crisis, shipping disruption, and the resulting material cost increases. As demand for our vehicles remains very strong, our priority is to overcome the challenges of the supply chain crisis, ramping up production to expand our market share. We have made meaningful progress on this front to support target long-term growth. Last month, we completed a strategic acquisition of a 65% equity interest in Tropos Motors Europe, TME, a wholly owned subsidiary of Mosolf SE, and one of our largest channel partners. The TME has a distribution network of 50 dealers in Germany and 13 importers in Europe across 16 countries, and also sales directly to major fleet operators. We expect the acquisition will expand our European assembly capabilities with the TME's facility in Herne, Germany, which will produce some of our vehicles that are targeted for the European market. We believe the acquisition combined with our distribution effort in Europe will address the growing local market needs in the region. In December, we selected Jacksonville, Florida for our new U.S.-based manufacturing facility. This 100,000 square-foot facility is expected to be capable of assembling up to 10,000 vehicles per year, once fully operational. In addition, we plan for further expansion to support additional vehicles and the launching of battery packing operations. The site provides efficiency for materials, logistics, and also supports the export needs of finished vehicles for our partners and customer network. Besides the two additional plants, we are also planning to expand our existing production capability through acquisition of additional production space in Chongqing, China. Currently, we have three vehicle plants for production and assembly, and we also outsource production and assembly of our new vehicle models to third-party OEMs. As we scale up our production, we hope the further increasing economies of scale will reduce material production costs. Having secured needed working capital from our stock purchase transaction with Naked Brand Group, we intend to put more effort into developing our network of distributors and service providers to strengthen our marketing and sales capabilities. The acquisition of a 65% equity interest in TME has quickly increased our vehicle distribution capabilities in Europe, especially in Germany. We continue to develop new vehicle models to meet ever-growing demand and improve vehicle quality and add vehicle features that respond to our customer needs. 2022 will be a challenging year for all the industry sectors, given the backdrop of ongoing supply chain shortages, the global economy, the continuously evolving COVID pandemic and associated regional lockdowns, and the Russia-Ukraine conflict. We expect both the cost of logistics and the cost of materials of our critical components, including steel and batteries, to continue to increase. While near-term industrial conditions are fluid, our focus on leading commercial vehicle electrification remains strong. We are building a global brand to address growing needs, and we believe we currently have adequate cash to navigate the challenging environment. Looking ahead, we believe we will maintain our solid growth to capture the vast demand for electric commercial vehicles, as we strive to become a pioneer and a frontrunner in the automotive industry transformation. Now, let me turn the call over to our CFO, Edmond Cheng, who will provide details on our 2021 financial performance. Edmond?

Thank you, Peter. Thank you, everyone, for joining our call today. I will now go over our key financial results for the year ended December 31, 2021. For the full details of our financial results, please refer to our earnings press release. We are delighted to have delivered record revenue and gross margin improvement, led by increased vehicle sales and other service income. The performance demonstrated our ability to manage an increased supply, despite higher raw material and shipping costs. Additionally, in support of further revenue growth, we continue to step up sales and marketing efforts and boost production. Importantly, with the closing of the stock purchase agreement with Naked Brand Group, we solidified our balance sheet with a strong cash position, which gives us additional strength to fill our next phase of business development. Moving on to our results, our net revenue for the year ended December 31, 2021, was $8.6 million, representing an increase of 57.1% over 2020, driven by growth in sales of our vehicles and other service income. Within that revenue in 2021, vehicle sales accounted for 85% with another 13% from other service income and the remainder from spare part sales. Geographically, we generated 51% of our revenue from Europe and 40% from the United States, with the remainder from Asia and others. Compared to 2020, our cost of goods sold rose 44.7% to $7.1 million in 2021, primarily due to an increase in the number of vehicles sold to our channel partners. Despite higher costs resulting from supply chain and logistics disruption, we were able to improve our gross profit. We were able to generate gross profit of $1.5 million, up 163.7% from $0.6 million in the previous year. In addition, our gross margin was up 710 basis points year-over-year to 17.5%, primarily driven by an increase in vehicle sales and an increase in service revenue. Meanwhile, total operating expenses increased 60.3% to $18 million. The increase is largely due to an increase in selling and marketing expenses due to higher freight costs, and increases in general and administrative expenses relating to transaction expenses in connection with Cenntro's combination with Naked Brand Group and its proposed IPO, and also on the expansion of its U.S. operations. Selling and marketing expenses rose 32% to $1 million. General and administrative expenses increased 71.5% to $15 million. And R&D expenses were up 8.3% to $1.5 million in 2021. As a result, net loss was $16.4 million compared with net loss of $5.2 million in 2020. Adjusted EBITDA after adding back non-recurring expenses related to the combination with Naked Brand Group and the proposed IPO, was negative $7 million compared with negative $5.6 million in 2020. Upon the completion of the stock purchase transaction with Naked Brand Group, we were able to enhance our balance sheet in 2021, laying a strong foundation for the expansion of our manufacturing capacity and product portfolio. As of the end of December 2021, our cash, cash equivalents and restricted cash were $261.1 million compared with $4.5 million a year earlier.

Thanks, Edmond. Looking ahead, we believe our strong financial position coupled with a robust product roadmap and advanced technologies well positions us to address this market from a broader perspective and drive higher revenue and profit levels in the long run, while creating value for our shareholders. We have made strong progress against the backdrop of pervasive global and industry challenges. We introduced four new product lines, made a strategic acquisition, and are adding new capacities on three continents, all of which have positioned us for growth and market share gains. To that, we, like almost all other EV companies, are concerned with the challenges in the global supply chain and shipping sectors. While we believe we can navigate these challenges, we continue to exercise a strong degree of caution and incorporate localization into our supply chain. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you. Our first question comes from the line of Bruce Chan of Stifel. Your line is open.

Thank you, operator, and good afternoon to you, Peter, Edmond, and Marianne. I’m going to max out my three-question allotment here, if I may. First one, you stated in the release that December was your highest volume production month so far, which I think is great news. Can you maybe help us to extrapolate that number to what 2022 production could look like, and how that’s influenced by the China COVID shutdowns, the Ukraine situation, and the supply chain issues that you mentioned? And I guess specifically, what I’m curious about is whether we're going to continue to see that 600-vehicle per month number, and then how that changes once Jacksonville comes fully online?

Okay. Thank you, Bruce. Yes. In the last year 2021, the last month, we produced 628 vehicles, and due to the supply chain issues and others, we have also encountered the shipping issues. And this year, we will continue to do so, as we add our new product line and capacity. So, we are very confident that we will maintain this pace. However, we also, as the supply chain evolves, especially with the recent events, the chip supply and the battery remain our main issues, as does shipping and the internal lockdown, because most of our current supply chain is based in China. That's hurting us a little bit. We are going to maintain that pace, and in order to counter this, we have ordered three months of batteries for our shortened inventory and to co-produce things. Once our Jacksonville facility is operational, we will pack our batteries in the United States. So, we are extremely cautious how we are going to handle that. We are prepared for it. But at this moment, we cannot provide numbers as the whole situation is still developing.

Okay. That's really helpful. And actually that was going to be my second question about the battery supply issues. So, that's encouraging to hear. Maybe jumping to the third question then, and this one probably is for you, Edmond. I noticed that you had a press release towards the end of the year, talking about a change in your auditor. Just want to see if there are any concerns or implications to read from that auditor change.

Yes, Bruce. Marcum was previously our SEC auditor for the Cenntro Group, prior to the stock purchase transaction with Naked Brand Group at the end of 2021. Due to the nature of the transaction, the historical financial statements of the Cenntro Group became the financial statements of the Company. So, with the Audit Committee's approval, we appointed Marcum as our auditor for SEC purposes. Separately, the Company is an Australian public limited company. It is required to file IFRS audited financial statements with the Australian Securities and Investments Commission. For the purposes of compliance with Australian law, we appointed Wis Australia to conduct an audit under IFRS and file the required reports with Australian authorities. I wonder if I have answered your question, Bruce.

You did that. That’s very helpful. I appreciate those answers and I’ll jump back into the queue for any additional questions.

Thank you. Our next question comes from Michael Shlisky of D.A. Davidson & Company. Your line is open.

Hello. Good afternoon. Can you hear me okay?

Yes.

Great. Thank you just for having me on the call. I’ve got a couple of quick ones here. Maybe not so quick. Maybe if we first start off with talking about your current sales pipeline. Can you give us a sense as to the current selling environment? Are people unwilling to even speak with any EV companies, given supply chain challenges? Are you seeing a lot of large orders versus kind of one-off smaller business orders? Give us a sense as to who you are selling to, who you are talking with today, and kind of how it’s been going these past couple of months, given all the global issues that you’ve been seeing?

Okay. Hi, Michael. So, first of all, overall, the market demand for the electric commercial vehicle space remains very, very strong in Europe and also in the United States, especially in Europe and Japan, where there is very strong demand. The issue is not getting the order; it's how we are going to supply our products and provide aftermarket support. So, that is very important. This year, we spent a considerable amount of time developing our local distributor network and aftermarket network, including spare parts supply. So, for customers, we are currently targeting mid-tier and small businesses as our market's target customers, instead of big fleets. Those big fleets take time and require nationwide aftermarket support. We usually don't give purchase indications and only confirm orders knowing that we can deliver on time. We don’t take and confirm any orders if we don’t know exactly when we can deliver. So currently, we are not announcing any backlog of orders. We do have a lot of so-called backlog interest indications. At this moment, our key is to ensure we can deliver on time. To answer your question, the demand is not an issue. The order is not really the issue; the issue is how we can deliver the product, with quality, timely, and with the aftermarket to support.

Got it. And it actually leads to my other question. Can you give us some sense as to how the 2021 vehicles that were delivered performed relative to promised expectations as far as range, as far as performance? And this is going to be in the filing, but can you give us any sense as to what the warranty experience has been on those produced and delivered vehicles so far here in 2022?

So, what we do is purposely build our vehicles targeted for urban delivery and urban services. Mostly, they don’t require a long range, but we have provided them sufficient range for daily use. Because of the nature of commercial vehicles, it's essential to ensure that the vehicle operates 24 hours a day. You don’t want it to stop because it will hurt their business. We have to ensure that the aftermarket support capabilities are there, as well as our warranty. In Europe, the regulation requires a minimum of two years of warranty. However, we provide a warranty that is much longer than our competitors or counterparts in Europe. For example, for the battery, we provide a warranty for five years and also for five years or 100,000 kilometers; we also provide our powertrain, motor, and controller with eight years warranty and with 200,000 kilometers, whichever comes first. We are very confident in our quality, and our warranty is longer and better than other competitors.

Our next question comes from Karl Birkenfeld of American Trust Investment. Your question, please?

Okay. Great presentation. Thank you very much on the call there, Peter Wang and Edmond Cheng. The question I have is on the recent lockdowns of Shanghai. How will they affect the overall gross margins in 2022?

Yes. Okay. It is very hard to see where this will ultimately go. But, it is difficult not to see that the continuation of the lockdown, especially in China, could have a significant impact on the factories. As I touched on several aspects of shipping and supply chain shortages, we do not know how significant it might be since the situation is still developing. There is little we can do about this, besides the fact that we have placed orders for major parts and components for the next three months. This way, we should be okay for the next three months if the situation deteriorates, because we’re already warehousing three months of key components. We are also going to continue to develop supply chain sources in our local markets. That means, in the near future, we will pack our batteries in Jacksonville, in our home facility. Now, how that impacts us? I think the impact is obvious; just like anyone else, we cannot avoid it. But at this moment, we believe we will be able to implement our plans as we planned. However, we need to be very cautious about how things will play out. If the situation continues or deteriorates, then we may see our gross margins deteriorate a little bit, and we may also see revenue affected because shipping is crucial for us. We supply to Europe, the U.S., and Asia, so vehicle shipping will be a challenge affecting production realization. Therefore, at this moment, we cannot really project how the guidance will be, and we will monitor the situation.

Okay. Well, thank you. That was a great answer as far as making the supply chain localized. And I guess you’re preparing for three months' stock, correct?

Yes.

That’s great. That’s a good solution. Thank you, sir, for answering my questions.

Thank you. Our next question comes from Bruce Chan of Stifel. Your line is open.

All right. I appreciate that double dip here. And I’m not sure if I missed this earlier on the call, but I wanted to ask about capital allocation. You just wrapped up a major acquisition or majority purchase of Tropos. You mentioned that you still have about $250 million in dry powder on the balance sheet. How are you thinking about priorities for capital here? Jacksonville is asset-light and I assume fully funded at this point. So, are you going to be more focused on battery development, new model development, distribution? Is M&A still on the table for you?

Yes. Bruce, in the near future, what we’re looking at is there are two priorities we are focusing on. One priority we are focusing on is, as Peter mentioned, to secure enough supplies. So, investing in needed inventory, especially key parts and components, is key for us. Thus, our first priority is to allocate enough money for securing our working capital. That’s a very important piece for the inventory. Although Jacksonville is funded from that sense, we still need to look into continuing CapEx and R&D development in terms of new product development. Those are the two key focuses that we have to secure to continue our technology leadership as well as our new product developments for future revenue streams.

Okay, terrific. And then, just a final question here. You mentioned the geographic split as roughly 51% Europe, 40% U.S. Do you expect that to remain the case going forward?

Peter, do you want me to answer that?

Yes, or…

Okay. Go ahead, Marianne.

We do believe that Europe will continue to be the biggest market for our products in 2022. While we are not in a position to offer guidance for the future period, due to the evolving situation, we are excited by the response that our products have received in the U.S. and other new developing markets. So, we do anticipate that Europe will remain at least 50% as we move forward at this time. Again, it’s very difficult to provide specific guidance for this period due to uncertainties and the evolving situations with the supply chain, COVID, and geopolitical issues.

Okay. Understood, well received. Thank you all so much for your time. I appreciate it.

Thank you. If you have any other questions, please contact us via email. This concludes the call. You may now disconnect.

Thank you.