Earnings Call Transcript - ELVA Q1 2022

Operator, Operator

Greetings and welcome to Electrovaya's First Quarter 2022 Financial Results and Analyst 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. I would now like to turn the call over to Richard Halka, Executive Vice President and Chief Financial Officer. Thank you. You may begin.

Richard Halka, Executive Vice President and CFO

Thank you, Operator. Good morning, everyone. And thank you for joining us on today's conference call to discuss Electrovaya's Q1 Fiscal 2022 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 February 14, 2022, Electrovaya issued a press release concerning its business highlights and financial results for the three-month period ended December 31st, 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 MD&A or our annual information form, you can access those documents on the SEDAR website. As with all previous calls, our comments today are subject to the normal provisions relating to forward-looking information. We'll provide information relating to our views regarding trends in our markets, including their size, 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 at making forward-looking statements, may be found in the company's press release announcing the Q1 fiscal 2022 results, and the most recent annual information form, and management discussion and analysis, under risks and uncertainties, as well as in other public disclosure documents filed with Canadian Securities Regulatory Authorities. Also, please note that all 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 would like to start this morning by taking a minute to review our Infinity battery line, which has exceedingly good safety and longevity, and is the product going into electric forklifts and later into electric buses and other applications. Our target for Fiscal Year 2022 is to make this year our breakout year, with target revenues of about US $27 million and EBITDA breakeven or positive. This target revenue would be more than double our revenues of $11.6 million in fiscal year 2021, representing 130% annual year-to-year growth over fiscal 2021. In our press release last night, we are reiterating our target barring any unforeseen circumstances. Our Q1 numbers were low because some of our major users today have the majority of their income in the December quarter; hence, their off-take in the last quarter was nil. That demand comes through in the nine months from January to September. For example, this year, one of our major users has already given us $6 million in purchase orders to be delivered in this quarter ending March 31, 2022. We expect more in the next two quarters. Our OEM channel partner, Raymond Corp, the premium electric brand of the Toyota Group, signed a strategic supply agreement. In that agreement, they have a minimum purchase plan, which was triggered on January 1, 2022, that started last month. We feel they will exceed their minimum purchase needs. Raymond Toyota was named the number one forklift manufacturer in the world for 2021 with about $13.8 billion in revenue. Raymond is also the largest manufacturer of electric lift trucks in North America. Going forward, we have strong commitments from our OEM partners and key end-user customers to reach our targeted revenue for the current fiscal year. We are now operating in over 80 locations, powering electric materials handling trucks, and we feel this conservative market is now emerging. Our battery cycle life and safety are critical differentiators for us; they are game changers and fundamental to our current and future success. I will now turn the call over to Richard to review our fiscal 2021 and fourth quarter results in greater detail.

Richard Halka, Executive Vice President and CFO

Thank you, Sankar. Revenue for Q1 fiscal 2022 was $1.3 million compared to $2.6 million in the fiscal first quarter ended December 31, 2020. Electrovaya has not historically experienced seasonality in its business. In recent periods, however, as Sankar pointed out, revenue has been relatively low in the fiscal first quarter, reflecting the preference of certain customers to defer product delivery past the holiday season in order to minimize disruptions at high volume distribution centers during peak periods. We remain confident of reaching our target of $27 million for fiscal 2022 and positive EBITDA, and we have maintained our guidance. We expect the revenue to increase quarter-over-quarter as we move through the year, barring unforeseen circumstances. Global supply chain challenges continue to impact the company's supply chain for many of its vendors. This puts strain on the company's ability to meet delivery targets and results in associated cost increases. Steps have been taken to mitigate supply chain interruptions, such as holding additional safety stocks, qualifying multiple vendors, and increasing emphasis on onshore supply. Management is monitoring the situation closely and taking corrective action to minimize disruptions as much as possible. The impact of supply chain pressures was evidenced by the gross margin in Q1 fiscal 2022 being 29% compared to 30% for Q1 fiscal 2021. The decrease in gross margin is due to a number of factors, including product mix, material cost inflation, increased shipping and logistics costs, and foreign exchange movement. Our objective is to maintain gross margin in the range of 30% to 35%. The company ended Q1 2022 fiscal quarter on December 31, 2021, with $400,000 of cash and had drawn $3.1 million of working capital facility, with a maximum availability of $5.5 million, leaving a further $2.4 million available for drawing. The company believes this available liquidity of $2.8 million, plus $1.4 million of accounts receivable and $4.9 million of inventory is adequate working capital for the operating activities at the anticipated sales levels for the 12 months ended September 30, 2022. We have, however, filed a final base shelf prospectus, which is valid for a 25-month period, during which time the company may issue equity or debt securities in an aggregate of up to $100 million. We have nothing planned at this stage regarding that shelf, but we will monitor the situation of capital markets and are focused on creating shareholder value. I'll now turn the call back to Sankar to wrap up.

Sankar Das Gupta, CEO

Thank you, Richard. As we have said, we are optimistic about our Infinity battery product line, which is commercial today, and we expect the 130% increase in revenues over last year. Our focus is on electric forklifts. Our continuing research through our research division, Electrovaya Labs, into next-generation cells and batteries is ongoing in the areas of solid-state cells and clean electrode production. We are seeing good cycle life in our solid-state battery, and we'll report soon on the progress and performance of this patented approach. The company continues to work in the e-bus market and is developing relationships with OEM bus makers. Similarly, in the automated robotic vehicles. The company is making progress with its capital markets initiatives, including receipt of the shelf; management and the Board of Directors always monitor the capital markets before any decisions are made regarding the next steps, including any potential U.S. listing. As Richard mentioned, on the finance and working capital side, Electrovaya has an excellent lender who supports the company with working capital of about CDN $7 million, a promissory note of about CDN $6 million, and other financial support such as purchase order financing as needed. This concludes our remarks this morning. Richard and I would now be pleased to hold a question-and-answer session. Operator, please open the line for questions.

Operator, Operator

Thank you so much. We will now be conducting a question-and-answer session. Our first questions come from the line of Jeffrey Campbell with Alliance Global. Please proceed with your questions.

Jeffrey Campbell, Analyst

Good morning, gentlemen. Let's start with the first quarter '22 results. First, was the revenue result consistent with your expectations for seasonality, or was it a little lighter than expected?

Richard Halka, Executive Vice President and CFO

I would say it's consistent in terms of seasonality, but the impact of e-commerce in that quarter was more; in other words, they wouldn't take any orders that quarter had a bit more of an impact than it did on previous first quarters. So, it was in line with expectations. It was lighter than where we'd like it to be. But the good news is it's really just a shift from the first quarter now into the second.

Jeffrey Campbell, Analyst

Okay. Thanks. And to that point, if we think of the $27 million guidance that you've reiterated on a percentage basis, the first quarter results were only about 4.6% of that guidance figure, which suggests there's going to be a lot of catching up for the rest of fiscal year 2022. Can you provide us some sense of how that catch-up arc will progress over the remainder of the fiscal year?

Richard Halka, Executive Vice President and CFO

Jeffrey, I don't think I want to go into any more detail than what I said as we're anticipating quarter-on-quarter growth. Obviously, it is going to be some hockey stick growth here, which we anticipate the second quarter will be significantly higher than the first, and as we move through the year, we'll add growth on each quarter. Overall, we're comfortable at the $27 million maintaining that guidance, breaking it down by quarter, though, is difficult to do. As I've mentioned, shifting from one quarter to the next depending on delivery commitments, etc.

Sankar Das Gupta, CEO

And Jeffrey, as we had announced, the folks are placing orders of $6 million, which was in early January, and they expect the products to be delivered before the end of March, so we see good growth. And so, the December quarter was not as unexpected.

Jeffrey Campbell, Analyst

No, that was helpful. Thank you. And finally, on the gross margin. If it continues to be challenging for the reasons noted, will any of these costs be passed on to customers?

Richard Halka, Executive Vice President and CFO

We do look at things such as that. For example, we increased our density, which actually reduces material costs for the same output. So, we're looking at measures like that. We're constantly innovating our products. On the supply side, as I mentioned, we have multiple vendors. We've on-shored some activities, and actually we managed to achieve some cost reductions there. I think it is challenging, but I think we're rising to the occasion. We meet the challenges as they arise.

Sankar Das Gupta, CEO

We had a 7% increase in energy density, so it reduces all our component costs, and we are seeing certain components like steel coming down in prices.

Jeffrey Campbell, Analyst

Okay. That's helpful. Thank you. I want to ask about Vicinity Motors. I know it's early days, but I just wondered if the work has encountered any roadblocks or if it is progressing as expected?

Sankar Das Gupta, CEO

It's progressing as expected. A lot of the electric bus programs will be guided by government policies and thoughts. So, we are watching what's happening in both Washington, DC, and Ottawa on these policies.

Jeffrey Campbell, Analyst

Did I hear correctly in your prepared remarks that you're in talks with other bus manufacturers besides Vicinity?

Sankar Das Gupta, CEO

We are. Again, Jeff, the addressable market for electric forklifts is very large. It's probably much larger than the bus market, and we've got a very focused approach there. So, our focus is strongly on the electric forklift markets.

Jeffrey Campbell, Analyst

Okay. And then finally, referring to the shelf that Richard mentioned in the prepared remarks, can you provide any color on how those funds might be allocated at some point in the future? Specifically, I'm wondering if manufacturing capability might be expanded outside of Canada at some point?

Richard Halka, Executive Vice President and CFO

I think we would like to keep all our options on the table. It's certainly something we're considering. Just to add one thing, there's a certain credibility it adds to have that shelf available; that you do have the possibility if you have a large transaction to finance it. It was not an easy process to go through to get the shelf, but I think we've gotten over that bar, and we're pleased to have it in place, but we have no immediate plans for it.

Jeffrey Campbell, Analyst

Okay. Great. Thanks very much for your time, and we look forward to further wins in the material handling business.

Richard Halka, Executive Vice President and CFO

Thank you very much, Jeffrey.

Operator, Operator

Thank you. Our next questions come from the line of Shawn Severson with Water Tower Research. Please proceed with your question.

Shawn Severson, Analyst

Thank you. Good morning, gentlemen. My questions are around the $27 million for the year. How much of that is in hand, let's say, or in known orders? I'm trying to understand, let's call it, turns business that comes in a shorter period of time but is in that $27 million backlog. I'm trying to understand if that is a backlog of confirmed orders to understand the variability of the $27 million.

Sankar Das Gupta, CEO

Shawn, in the electric forklift business, we have a clear sight on that $27 million. But in this business, people placing the orders expect the product in the next eight weeks or 10 weeks. For example, the $6 million order position we received in January is expected to be delivered in the next couple of weeks. Regarding the $27 million, we do have good visibility.

Richard Halka, Executive Vice President and CFO

Yeah. Morning, Shawn. And I would just add that we have very good visibility on that. It comes from a couple of sources. First, we’re in discussions with the end users. They've indicated the volumes they are looking to purchase through the year and anticipated deliveries. But as Sankar says, you don't see the PO until they're ready for it. But they've given us very clear indications and commitments that that's what they're going forward with. The other thing that I would add is that our distributor, Raymond, is also in discussions with customers and they have indications of the volume of orders there, and as well, they release the orders to us when it's ready to go to the customers. But all-in-all, in the intelligence we have, which is direct with customers and through Raymond, we have a high degree of confidence in that $27 million. I don't want to give you a specific dollar figure of what we have in hand because it does change quite rapidly.

Shawn Severson, Analyst

Great. Thank you for the explanation. And the next question is on retrofit for Lithium-Ion Batteries. Give us the progress report and update there, and maybe what you expect through this fiscal year.

Sankar Das Gupta, CEO

The $27 million, Shawn, includes both batteries for new electric lift trucks as well as batteries for retrofits or upgrades to the lift trucks.

Shawn Severson, Analyst

Okay. I didn't know if that was all OEM orders, but that includes what you know about retrofit as well.

Sankar Das Gupta, CEO

Yeah, that's right. With the OEM, we also received retrofit orders to the OEM as well.

Shawn Severson, Analyst

Okay. And then just lastly, I wanted to touch on solid-state batteries a bit, and think about it as a little update there. What should we be looking for, remainder of your fiscal year, call this calendar year, in terms of progress reports or milestones that could be coming from that effort?

Sankar Das Gupta, CEO

The cycle life of the solid-state battery is the most important thing. The batteries are focused on electric passenger cars, which need certain cycle life. We will update our cycle life data and progress hopefully soon in a separate press release. So far, we are optimistic about the progress of the work going on at Electrovaya Labs.

Shawn Severson, Analyst

Great. Thanks. I'll take the rest of my questions offline. Thank you.

Richard Halka, Executive Vice President and CFO

Thanks, Shawn.

Operator, Operator

Thank you. Our next questions come from the line of John Luca Tucci with Torrance Capital. Please proceed with your questions.

John Luca Tucci, Analyst

Hi, good morning, guys. Thanks for taking my question. It's been over 12 months now that the company has inked the supply agreement with Raymond. Can you speak to the nature that that agreement has evolved or how that connection has evolved and to the degree of transparency, how has that improved today versus 12 months ago?

Sankar Das Gupta, CEO

You know, look at Raymond as a large company, so this is a new business venture for them. They always felt they needed to develop all their infrastructures, whether it's website, building up their sales organization, etc. But it would take a few months, which is why the purchase agreements were really starting on January 1, 2022, and I think that progress is going well. We are now very well integrated with their vehicle, both digitally, mechanically, electronically, and electrically. Their sales team is doing well, and we're very pleased with it.

Richard Halka, Executive Vice President and CFO

I think that out of the gates, there was a learning curve for both organizations which they went through in 2021. I think we're feeling very strong about the relationship right now. I can tell you it's operating smoothly, and we have much better transparency into the orders and the pipeline there.

John Luca Tucci, Analyst

That's great color. Thank you. And on your guidance of 27 for this fiscal, can you split that out between e-bus? Does the company expect e-bus sales at some point this year, or is it principally focused on the forklift side? How's the outlook on the e-bus for 2023?

Richard Halka, Executive Vice President and CFO

John Luca, I think the potential here, the addressable market and the exciting opportunities we have in the Material Handling sector, we are laser-focused on that. That is our growth engine in 2022. That is where we are very clearly focused. E-bus, we'll see how that develops, but we don't see that as an immediate addressable market as we do with forklifts. We have an opportunity sitting there right now working with the largest OEM in the industry. We built some really good relationships, and I think this is a year that we really leverage all that. We need to keep laser-focused on where our value is created.

John Luca Tucci, Analyst

That's excellent color. Thank you. And on solid-state, you did talk about it in your prepared comments about potentially upcoming milestones. Where are the next milestones for that division and that lab piece of the business to accomplish?

Sankar Das Gupta, CEO

The big milestone is the cycle life for a solid-state battery; energy density is very high, and the projected energy density is high. This makes it perfect for electric passenger cars, which need low initial costs. Typically, these electric passenger cars need certain cycle life. This has been difficult to meet with other solid-state cells and batteries. We will give our progress, and the results so far are good. We will provide more comprehensive information on the progress shortly as the results come out.

John Luca Tucci, Analyst

Excellent. Thanks, guys. I look forward to this year.

Richard Halka, Executive Vice President and CFO

Thank you very much, John Luca. You have a great day.

John Luca Tucci, Analyst

Thanks.

Operator, Operator

Thank you. That is all the questions we have today. I would now like to turn the call back over to Dr. Sankar Das Gupta for any closing comments.

Sankar Das Gupta, CEO

That concludes our call. Thank you for listening. This morning, we look forward to speaking with you again after we report our fiscal second-quarter results. Have a wonderful day.

Richard Halka, Executive Vice President and CFO

Thank you very much.

Operator, Operator

Thank you. This concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.