Earnings Call Transcript - ELVA Q3 2021

Operator, Operator

Hello and welcome to the Electrovaya Q3 Fiscal 2021 Financial Results Analysts Conference Call and Webcast. 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’s now a pleasure to turn the call over to Executive Vice President and CFO, Richard Halka. Please go ahead, sir.

Richard Halka, CFO

Thank you, Kevin. Good morning, everyone, and thank you for joining us on today's conference call to discuss Electrovaya's Q3 fiscal year 2021 third-quarter 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. We'll be joined in the question period by Dr. Raj Das Gupta, Chief Operating Officer. On August 9, 2021, Electrovaya issued a press release concerning its business highlights and financial results for the third and nine months period ended June 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 and management discussion and analysis, you can access those documents on the SEDAR website at www.sedar.com. As with previous calls, our comments today are subject to the normal provisions relating to forward-looking information. We will provide information relating to our current views regarding trends in our market, including the size and potential for growth, and our competitive position in our target markets. Although we believe those 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 applicable to making forward-looking statements may be found in the Company's press release announcing the fiscal 2021 third-quarter results and the most recent annual information form and management's discussion and analysis under risks and uncertainties, as well as in our other public documents filed with Canadian Securities Regulatory Authorities. Also, please note that all the numbers discussed on this call are in US 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 would like to start this morning by taking a minute to review Electrovaya's Q3 financial progress, and Richard will go over it in detail later on. Our balance sheet strengthened quite nicely with current assets going down, current assets going up, liabilities going down, and equity deficiency was reduced. Revenue was $1.9 million; there are some quarter-to-quarter changes happening there. Gross margins are in the 30s. Most importantly for us is that the strategic supply agreement, which we signed in December 2020 with the largest OEM, Raymond Corp, a premium electric brand for Toyota, is now starting to gain momentum with early adopters and Fortune 500 clients. If you look back, why are major corporations teaming up with Electrovaya? The differentiation is Electrovaya's unique technology. Our technology gives very high safety in the cells, modules, and batteries, very high longevity and cycle life, and we have strong intellectual property covering a large number of our products, processes, and systems. The other initiative we undertook in Q3 FY 2021 was starting the Electrovaya Labs. This new division focuses on research for the next-generation batteries. The next-generation batteries we have been working on are very exciting products. We've started our chemistry experimental work at the Sheridan research facilities, and the work on solid-state cells is continuing. We have filed an interesting patent there. We are making coin cells fabricated with lithium metal anodes, and we are seeing interesting results. We are also developing some novel electrode processing technology. So again, the Electrovaya Lab has been an important area. We are also targeting emerging markets, including electric materials handling vehicles, electric buses, and electric trucks. Climate change mitigation and battery technology is enabling this transition. Yesterday's UN report was quite alarming and suggests urgency in our actions. Regarding our market channels, last quarter, we made good progress in direct sales with a couple of orders secured. On the OEM strategy side, we have been collaborating with Raymond Corp. We signed the agreement in December 2020, and we are witnessing growing momentum with early adopters. They have a return on investment calculator on their website, showing significant returns for users in a matter of months. Raymond is focused on markets in the USA and Canada, and we’re seeing orders being placed from Latin America and beyond. We are operating in over 50 sites in North America and seeing early demand from Argentina and other countries. Those who can see the slides would notice we are engaging numerous early adopters, some of whom are among the world's largest public and private companies. We are genuinely pleased to see this conservative market, which is multi-billion dollars, starting to transform, with Electrovaya leading the charge along with our partner, Toyota. I will now turn the call back to Richard to review our fiscal third-quarter results in greater detail.

Richard Halka, CFO

Thank you, Sankar. Revenue for Q3 fiscal year 2021 was $1.9 million compared to $4.8 million for Q3 fiscal year 2020. Revenue for the year-to-date fiscal year 2021 third quarter was $7.4 million compared to $7.6 million for the year-to-date to nine months ended June 30, 2020. Our gross margin for the fiscal third quarter was 37%, up from 33% in the prior year fiscal quarter. For the year-to-date fiscal year 2021, the gross margin compared to 35% and 37% for Q3 fiscal year 2020 and year-to-date fiscal 2020, respectively. Our objective is to maintain the gross margin in the 30% to 35% range. Our margins vary with several factors, including product mix, special customer pricing, material costs, shipping costs, and foreign exchange movement. In the current fiscal year, we are witnessing an increase in the price of several components, most significantly the cost of steel, impacting the cost of battery enclosures. Management believes the year-over-year decline in revenue resulted primarily from reduced order volume due to a transition in the OEM strategic supply agreement signed in December 2020. This agreement brought in a new corporate sales team focused on large corporations, and the sales cycle for this emerging technology is relatively long. Continued supply chain disruptions caused by the COVID-19 pandemic have also led to component shortages, negatively affecting sales. However, it appears that these delays have been resolved, as we received several significant purchase orders late in Q3 2021 and early into Q4 fiscal year 2021. Most of the new orders were generated through the OEM sales chain, but we also received a significant new order through our direct sales channel. Orders were received from both new and repeat customers. The company's financial position improved as of June 30, 2021, compared to June 30, 2020. Current assets increased by 40%, while current liabilities decreased by 12%, and equity deficiency was reduced by 61%. The company ended the period with $885,000 in cash, having drawn $2.8 million of a $5.6 million maximum working capital facility, leaving $2.8 million available for drawing. We believe this total liquidity of $3.7 million, which comprises $900,000 in cash, plus the $2.8 million in available line of credit, along with the collection of $2.5 million in accounts receivable and conversion of $4.9 million in inventory into salable finished goods, is adequate working capital to support our operating activities for the next 12 months. I would now like to turn the call back to Sankar to wrap up.

Sankar Das Gupta, CEO

Thank you, Richard. In conclusion, we have exceptional battery performance, and as our OEM partner shows, the return on investment is very high. We believe this is a game changer with industry-leading cycle life and safety, along with excellent energy and power, and we are observing early adopters moving toward us. We've also initiated the Electrovaya Labs, which will commercialize a lot of pent-up technology sitting within Electrovaya, including next-generation solid-state cells and some unique electrode processing technologies. On the marketing side, as previously mentioned, in the materials handling sector alone, we are now operating in over 50 locations, likely nearing 60 by now. This represents a very large market; with an addressable market of 1 million to 2 million electric vehicles in this materials handling sector, it remains conservative, and we are seeing early adopters moving into this space alongside Electrovaya and its partners. We are also looking at emerging markets, particularly the electric bus market, electric truck markets, and automated guided vehicles market. We believe 2022 and 2023 will be significant growth areas for electric buses and electric trucks. The entire sector may accelerate due to new climate change mitigation approaches that governments are encouraging. Lastly, regarding our US listing, it is an ongoing process, and the Board and management are reviewing it. Thank you for your attention. We will now be pleased to hold a question-and-answer session. Kevin might assist those asking questions by calling in.

Richard Halka, CFO

And just to reiterate, the number to call in is 877-407-8291 if you would like to ask a question.

Operator, Operator

For those on the web, if you'd like to ask a question, you must dial in to do so. Our first question today is coming from Gianluca Tucci from Torrent Capital. Your line is now live.

Unidentified Analyst, Analyst

Hi. Good morning, guys. It seems like the visibility on the Raymond side has cleared up according to the remarks. Can you kind of talk about that or dive a bit deeper into what has changed today from a few months ago and what gives you confidence and visibility in that channel's growth?

Richard Halka, CFO

Good morning, Gianluca. I think there are numerous factors at play here, not just one. First, the entire Raymond organization needed time to ramp up, market toward their Fortune 500 customer base, and truly understand the product. The sales cycle with such end customers tends to be longer. However, what we now find is that we are obtaining many seeding orders and starting to receive repeat orders as well. Thus, we feel this area has progressed. Additionally, while there were supply chain issues, particularly concerning specific components, it didn't affect us as much. Everyone is aware of the chip market, which can impact ordering and manufacturing cycles. Fortunately, those issues seem to have cleared up now and are likely behind us. I'll pass it to Raj, who is better positioned to answer further.

Raj Das Gupta, COO

Great progress has been made over the last few months with these seeding customers who are buying relatively low unit numbers, but these customers have serious large potential. We also announced significant sales driven through the OEM channel recently, and those particular customers are vital.

Unidentified Analyst, Analyst

Okay. Can you talk about the significant advances in the e-bus vertical mentioned in the press release? What does that involve, and how do you envision rolling it out? Does that mean there are partnerships in the works?

Richard Halka, CFO

We can't add much more than what we've stated in our releases and MD&A. However, we received a lot of interest in the market when we launched our first battery. We've had active discussions with several parties, but we are not at a point to share additional details. We remain optimistic about this sector, especially moving into 2022 and 2023, as Sankar noted.

Sankar Das Gupta, CEO

Raj?

Raj Das Gupta, COO

Yes, we have prototypes operating in the field, and as Richard mentioned, the response from the OEM side has been quite strong. We are in discussions with several vendors.

Sankar Das Gupta, CEO

Timing will be driven largely by President Biden's budget of around $20 billion and Prime Minister Trudeau's $2.5 billion for supporting electrification. As those budgets move forward, we can expect developments.

Unidentified Analyst, Analyst

That's good color. Thank you. Can you provide an update on the status of the NASDAQ listing initiative?

Richard Halka, CFO

As mentioned in the press release, our Board and management team are evaluating capital markets and need to assess the risks and benefits for our shareholders. Currently, no decision has been made to proceed, but we are keeping all options open and observing the capital market situation closely. We aim to do what's right for our shareholders, pursuing an accretive transaction rather than detrimental.

Unidentified Analyst, Analyst

Okay. Thanks, guys. That's all. Thank you.

Operator, Operator

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

Sankar Das Gupta, CEO

That concludes our call. Thank you again for listening in this morning. We look forward to speaking with you again after we report our annual numbers for fiscal year 2021. In the meantime, we wish you all good health. Thank you.

Operator, Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time. Have a wonderful day, and we thank you for your participation today.