Earnings Call Transcript - ELVA Q4 2021

Operator, Operator

Hello and welcome to the Electrovaya’s Fourth Quarter and Year-End 2021 Financial Results Analysts Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Richard Halka, Executive Vice President and CFO for Electrovaya. Please go ahead, sir.

Richard Halka, CFO

Thank you very much, Kevin. Good morning everyone and thank you for joining us on today's conference call to discuss Electrovaya's Q4 and fiscal 2021 financial results. Today's call is being hosted by Dr. Sankar Das Gupta, CEO of Electrovaya and myself, Richard Halka, Executive Vice President and CFO. On December 20, 2021, Electrovaya issued a press release concerning its business highlights, financial results for the three and 12-month period ended September 30, 2021. If you would 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. As with previous calls, our comments today are subject to normal provisions related to forward-looking information. We will provide information relating to our current views regarding trends in our markets, including their size and potential for growth, and our competitive position in our target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied to making forward-looking statements may be found in the company's press release announcing the fiscal 2021 annual and fourth quarter results and the most recent AIF and management's discussion and analysis under risks and uncertainties, as well as in our other public disclosure documents filed with Canadian Securities Regulatory Authorities. Also please note that all the numbers discussed on this call are in U.S. dollars unless otherwise noted. And now I'd like to turn the call over to Dr. Sankar Das Gupta. Sankar?

Sankar Das Gupta, CEO

Thank you Richard and good morning everyone. I'd like to start this morning by highlighting some of Electrovaya’s initiatives and our progress. We had revenues of about Canadian 14.8 million or U.S. 11.6 million which is excellent considering that a new OEM corporate sales team took over the OEM sales space from our earlier OEM distribution team. There was always a learning time gap between the two teams building new websites, training new sales, and marketing teams. Ultimately, we believe the corporate team has more resources with higher reach and will do much better. Furthermore, the chip and component shortage in the auto industry and COVID also impacted our revenues. In the coming year, we are expecting our sales revenue to more than double to about U.S. dollars 27 million or Canadian 34 million. The revenue is anticipated to be generated from both direct sales and OEM sales. The OEM strategic supply agreement has an exclusivity provision that is triggered starting January 1, 2022, where the OEM must make annual purchases of over U.S. 15 million to maintain exclusivity and we believe they will be able to maintain their exclusivity. The users of our batteries are a wide and diverse group including groceries, retailers, manufacturers, logistics, hardware stores, and distribution centers among others and the market is expanding and emerging. Our second significant item this year was on financing. We had applied for a base shelf of U.S. 100 million, which allows flexible financing. We have extended our working capital line and our two principal promissory notes. Richard will explain more of our financial highlights later. Technically, we believe the most important advantage Electrovaya has over our competition is a truly exceptional battery with industry-leading safety and longevity. Our battery cycle life and safety are critical differentiators for us. We believe they are game changers and fundamental to our current and future success. Safety is the key important technological differentiator as OEMs in recent years have major vehicle recalls due to battery safety incidents costing several billions of dollars. Unsafe batteries in electric mobility are expensive to recall. The longevity of our battery is industry-leading and we have named this line as our Infinity Battery product line. This Infinity Battery product line meets the demand from commercial users who not only need the safest battery but also the lowest cost on a holistic basis. Our infinity line fulfills both these requirements. We believe commercial electric mobility applications such as electric materials handling vehicles, electric buses, and electric trucks need the safety and longevity performance of the Electrovaya battery. I will now turn the call over to Richard to review our fiscal 2021 and fourth quarter results in greater detail.

Richard Halka, CFO

Thank you, Sankar. Revenue for Q4 fiscal year 2021 was $4.2 million compared to $6.9 million for Q4 2020. But it increased significantly compared to $1.9 million for Q3 2021. It was our strongest quarter of the year. Revenue for fiscal year 2021 was 11.6 million compared to 14.5 million for fiscal year 2020. The year-over-year decline was primarily due to a reduced order volume resulting from a transition to the OEM supply agreement as Sankar has mentioned. This agreement brought new sales and corporate teams. Management believes the sales cycle is relatively long for these customers. There was continued disruption in the supply chain, as well as component shortages as Sankar has discussed. We are encouraged by the strong quarterly sequential growth and believe the situation has improved moving into 2021. We're receiving strong indications from our major customers that our order volumes will increase. Our gross margin for fiscal year 2021 was 34%, which was consistent with fiscal year 2020. Our objective is to maintain gross margin in the range of 30% to 35%. Our margin varies with a number of factors including the product mix, special customer pricing, material costs, shipping costs, and foreign exchange movement. In the current fiscal year, there's been an increase in the price of some components, most significantly the cost of steel, which has recently stabilized and impacts the cost of battery enclosures. However, this was offset by pricing adjustments due to the increase in our energy density. This allowed us to maintain the margins at the same level. The company's financial position improved in fiscal year 2021; as of September 30th, current assets were 12 million, an increase of 4 million over fiscal year 2020. Current liabilities were 13.5 million, a decrease of 3 million for fiscal year 2020. The equity deficiency was negative 1.7 million, a reduction of 7 million over the fiscal year-end 2020. As Sankar has also mentioned, in December 2021, the company filed a base shelf prospectus. The base shelf prospectus is valid for a 25-month period and permits the offering of debt and securities for up to a total of $100 million by filing supplements to the shelf, thereby fast-tracking as opposed to a normal prospectus. We also extended our working capital facility and promissory notes which were due on December 31, 2021. The 7 million working capital facility was extended for a year to December 31, 2022. The 6 million promissory note was extended to July 1, 2020. The company has provided our anticipated revenue for fiscal year 2022 of 27 million. We're encouraged by the strong indicators we've received from our major customers. As in past years, we expect that Q1 of fiscal 2021 will be a sequential drop from fiscal Q4 2021 as our major customers wish to push deliveries after their busy season of late November and December and into the New Year. However, after that, we expect strong traction in our sales through the year. I would now like to turn the call back to Sankar to wrap up.

Sankar Das Gupta, CEO

Thank you, Richard. I will touch on our next steps as well as our next generation research work being done at Electrovaya labs. As mentioned earlier, our infinity battery line is focused on the commercial vehicles that demand the highest safety and lowest holistic costs without compromising energy and power. We are making good progress there and moving to a leadership position for the emerging lithium-ion powered material handling vehicles. We are finding that our customer base is now becoming large and diverse; we believe there will be growing demand for our batteries in electric buses and electric trucks, and this market will emerge once the various financing legislation is in place in both the USA and Canada. Again, we believe safety and longevity are the two most important performance parameters in this commercial transportation space. For electric cars, however, the consumer demand is for the lowest sticker price. So Electrovaya is developing two major disruptive technologies in this lithium-ion battery space. The first disruptive technology is the solid state battery. The solid state battery has conceptually the highest energy density and possibly the lowest cost battery approach. Electrovaya understands solid state batteries and is making good experimental progress in filing many patents in this sector. We had announced some of our initial coin cell results, where we showed cells demonstrating nearly no capacity fades after 80 deep charge and deep discharge cycles. This experimental work is done through our Electrovaya labs division. The second disruptive technology being developed at Electrovaya labs is to commercialize our patented novel electrode production process, which has the possibility of causing disruption in the standard lithium-ion cell production. The standard lithium-ion electrode and cell production process is expensive, uses massive quantities of toxic solvents, and the electrode microstructure suffers from tight boundary restrictions, which is what the conventional process entails. The Electrovaya patented electrode-making process does not use toxic solvents, is inexpensive to operate, and creates superior electrodes with superior microstructures. On our capital markets initiatives in Canada and the United States, we have added certain advisors, and both the management and the Board of Directors are carefully monitoring the capital markets before a decision is made regarding the next steps towards a potential listing on the NASDAQ Stock Exchange. That concludes our remarks this morning. Richard and I would now be pleased to hold a question-and-answer session. So Kevin, please open the line for questions.

Operator, Operator

Our first question today is from Jeffrey Campbell from Alliance Global Partners. Your line is now live.

Jeffrey Campbell, Analyst

Good morning and congratulations on the quarter. Addressing your standard cell process and innovations that you just discussed, I'm just wondering what's the plan here? Is this something that you might license to others or will this remain an in-house advantage?

Sankar Das Gupta, CEO

Currently at Electrovaya labs, we believe this is a very disruptive technology, and we will produce it in-house while also exploring licensing the technology.

Jeffrey Campbell, Analyst

Okay, great. Thank you. Sankar, now the direct sales channel is largely concentrated on the Canadian market, I wondered if any of your large multinational customers in Canada have discussed bringing Electrovaya batteries to any of their operations in the United States?

Sankar Das Gupta, CEO

Actually, Jeffrey, our direct sales team is also based in the U.S. We have team members in the southern part of the U.S. and around the central Chicago area. We are making good progress in direct sales, and I would think our direct sales in the U.S. might be an order of magnitude larger than our direct sales in Canada.

Richard Halka, CFO

Morning, Jeffrey, it's Richard. I just want to add something. And thanks for joining the call, Jeffrey. When we look at it, it's kind of skewed because we have a couple of very significant customers in Canada where the volume of orders is low, but the value per order is high, for example, Walmart. In the U.S., we have quite a high number of orders in, but the values are somewhat lower because these customers are getting acquainted with the product. They tend to put in initial orders that are smaller, let's say anywhere from 5 to 20 units, as they test and trial the product. Once they're comfortable, they typically order for an entire warehouse or distribution center. So we feel quite encouraged that we will call them the level of seed orders that we've received in the U.S. is quite significant. I think I'm just echoing what Sankar said; we will see a trend of growing direct sales from our direct sales.

Sankar Das Gupta, CEO

I mean it is growing quite well. We have got two major teams running direct sales in the U.S.

Jeffrey Campbell, Analyst

That's very helpful color; I appreciate that. First, I want to congratulate you on the recent descending motor e-bus and e-truck win. My question is, is the plan to concentrate on this opportunity exclusively for 2022 or do you plan discussions of any additional bus manufacturers at this time?

Sankar Das Gupta, CEO

We are in discussion with additional bus manufacturers. Everybody is positioning themselves as the market emerges. It's still a very small market; people are looking at the legislation which is happening. I think all the bus manufacturers are positioning themselves. So yes, we are talking to a number of them.

Jeffrey Campbell, Analyst

It's good to know. There's been some talk about both the sales and leasing model for your batteries. I was wondering if you could share your thoughts on these two possibilities and whether they mainly relate to your OEM work or if these models could also be applicable in direct sales.

Richard Halka, CFO

At this point, I just mentioned that with the OEM, they do offer leasing. So it is a solution for their customers and financed by them. That certainly is attractive to quite a number of their customers. For the direct sales side, at this stage, it's still something we're evaluating. There's a pretty major investment required for leasing, and I think we're monitoring this. But at this point, I don't think in the very near term we're going to be looking at any leasing. I think there are third parties out there that we've worked with. If our customer wishes to lease, they can provide the financing. So at this stage, it's not on our priorities.

Jeffrey Campbell, Analyst

Okay. My last question is about the shelf mentioned in the press release, and I want to express our appreciation for the 2022 guidance that accompanied it. At a high level, could you share some insights on potential investment areas if funds are raised? I'm thinking about manufacturing expansion, any M&A activity, or your technology experience. Any additional information would be helpful.

Sankar Das Gupta, CEO

No, Jeffrey, we will be opportunistic. We see demand growing in the U.S. We have a very strong partnership with a global OEM and we just received our first order in Australia. So the funds will be used for growth. Additionally, as Richard mentioned earlier, we have consistently maintained a gross margin of 30% to 35%. With revenue reaching around 27 million, our bottom line is quite healthy. Therefore, we are focused on growth, likely through organic means rather than mergers and acquisitions.

Richard Halka, CFO

And I think that it's also something we've alluded to in the past; we are considering expansion into the U.S. with a facility there, but this is we're considering all the options on the table. But that's something that is attractive to us, and is certainly something that we're looking at very closely.

Jeffrey Campbell, Analyst

Right, I appreciate the color and again congratulations on the quarter, and we're looking forward to a good year in 2022.

Sankar Das Gupta, CEO

Thank you very much, Jeffrey.

Operator, Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Sankar Das Gupta, CEO

Well, that concludes our call. Thank you all for listening this morning. We look forward to speaking with you again after we report our fiscal first quarter results in the New Year. We wish you all the very best for a safe and happy holiday season. Best wishes for a Merry Christmas and a Happy New Year. Thank you.

Richard Halka, CFO

Thank you everyone.

Operator, Operator

Thank you. It does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.