Earnings Call Transcript - ELVA Q2 2021

Operator, Operator

Greetings and welcome to the Electrovaya Q2 2021 Financial Results 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 conference over to your host, Richard Halka, Executive Vice President and CFO. Please go ahead.

Richard Halka, Executive Vice President and CFO

Thank you, Brock. Good morning, everyone and thank you for joining us on today's conference call to discuss Electrovaya’s Q2 2021 second 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. On May 11, 2021, Electrovaya issued a press release concerning its business highlights and financial results for the three-month period ended March 31, 2021. If you would like a copy of the release, you can access it on our website. If you want to view the financial statements, and Management's 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 related to forward-looking information. We will provide information relating to our current views regarding trends in our markets, including size and potential for growth, and our competitive position in our target markets. Although, we believe 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 and factors that could cause actual results to differ materially from expectations and about material factors or assumptions applying to making forward-looking statements may be found in the Company's press release announcing the fiscal 2021 second 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 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 Sankar.

Sankar Das Gupta, CEO

Thank you, Richard, and good morning everyone. Q2 2021 ending March 31 was a busy quarter for us and we are pleased with our progress in this quarter. We grew revenue by 50% in the quarter and around 96% for the six months ended March 31, 2021. The year-over-year revenue growth reflects growing customer demand. Our sales are coming from large intensive users who recognize the value of our batteries. Our battery's safety, cycle life, and energy density are providing significant efficiency gains and a strong return on investment to our customers. Richard will outline further the financial results. On the sales and revenue channel, we are getting traction in spite of the prolonged COVID disruptions. For our revenue, we have two channels to the market. The first channel is Raymond Corporation, an OEM, Original Equipment Manufacturer, who has an extensive sales network. The second channel is our direct sales to customers. On the first channel, Raymond Corp., a wholly-owned subsidiary of the Toyota Group, is the premium electric brand for electric lift trucks for Toyota. Raymond is also the largest manufacturer of branded electric lift trucks in North America and is, along with the branded trucks, the largest manufacturer globally in this sector. Electrovaya and Raymond signed a strategic supply agreement in December 2020, and this has been the first quarter after that agreement. Raymond has launched this product with a revamped website at www.raymondcorp.com. Raymond's focus market, of course, is the USA and Canada through its distribution chain. The Electrovaya battery is now integrated with most of the large lift trucks sold by Raymond. We are very bullish that Raymond will have our battery in many customer locations in the lift truck sector. Last quarter was the first quarter that the Raymond strategic supply agreement came into effect. We continue to receive repeat orders for Fortune 500 companies as they recognize the efficiency gains from our lithium-ion batteries in their operations. As an example of the new sales push from our OEM partner, one recent customer they secured is a Fortune 100 big box retailer who is now operating our batteries in five of their stores in the New York City area. This end user has several thousand stores and could become a significant opportunity for the company, potentially several hundreds of millions with a single customer. Our batteries are being sold for both the Raymond and the Toyota branded electric trucks. As part of the launch program, Raymond has invested substantial sales and marketing effort behind these batteries through their Battery Essentials product launch. In addition to sales in the USA, Raymond, through their overseas subsidiaries, has started marketing the Electrovaya batteries initially to the South America and Australasia markets. We delivered our first shipment to an e-commerce customer in Argentina, as well as to a multinational food conglomerate also in Argentina. We are now quoting customers through Raymond into Australia, Colombia, Brazil, Philippines, Canada, and elsewhere. No doubt, however, the largest market is the USA, and we are now possibly powering lift trucks in around 50 to 55 locations in the USA. This is a new Raymond corporate team marketing our products, and we believe this team has the resources needed to make the Electrovaya battery a standard in the electric lift truck industry. Fundamentally, our battery has industry-leading safety and longevity as tested by our partners, our customers, and Underwriter Laboratories. The addressable market for electric lift trucks is large, and we believe there are over 2.5 million lift trucks being used commercially in the USA. If you are using an electric vehicle for extended periods, like 10 hours or more a day, we believe the rational choice should be Electrovaya; hence, our attention also to batteries for electric buses. In March 2021, a few months ago, we announced the launch of our electric bus lithium-ion battery systems with the delivery of 700-volt, 300-kilowatt power batteries. This product launch marks Electrovaya's entry into the emerging electric bus market, and we are receiving considerable interest regarding our new product offering. We believe the addressable market for electric buses is large and just emerging in North America and Europe. Typically, these large buses are being priced at around $600,000 to $1 million each, and the battery is some 30%-40% of the total cost of the vehicle. The Canadian Federal Government has outlined a $2.4 billion investment to support the purchase of around 5000 electric buses in Canada. The U.S. Government is planning something larger as part of President Joe Biden's $2 trillion green energy revolution investments. I will now turn the call over to Richard to review our fiscal second quarter results in greater detail.

Richard Halka, Executive Vice President and CFO

Thank you, Sankar. It has been a very eventful quarter. We have taken significant steps to improve the company's liquidity and financial performance. I would just like to comment first on our revenue for this quarter. As Sankar mentioned, our revenue increased 50% to $2.9 million, or CAD 3.7 million, as compared to $1.9 million, or CAD 2.4 million in Q2 2020. Revenue for the six-month period ended March 31, 2021 increased 96% to $5.5 million, or CAD 6.9 million, as compared to $2.8 million, or CAD 3.5 million for Q2 fiscal 2021. This is on track with our expectations. The transition from the Raymond Sales Agreement to the Raymond Strategic Supply Agreement only occurred this quarter. As can be expected with any new sales channel, there will be a settling-in period as the process is implemented. We expect momentum to increase as we go forward, but the exact timing is uncertain. We have improved EBITDA. EBITDA was negative $800,000 in Q2 2021 as compared to negative $1 million in Q2 2020. EBITDA improved 20% year-over-year. We’re focusing on controlling costs, but not at the expense of investing in the future. We have invested in sales staff and marketing, but we've reduced general and administrative costs. We will continue to invest in R&D, but we will look for strategies to pursue a reduction in our cost of debt. The company raised $7.8 million in the quarter through a combination of private placement of shares, the exercise of warrants, and the exercise of options. We used a portion of the proceeds to reduce the working capital facility by $1.8 million U.S. or CAD 2.3 million, further strengthening the balance sheet. We ended the quarter with $2.8 million in cash or CAD 3.1 million and have drawn $2.2 million or CAD 2.8 million on our working capital facility, which has a maximum availability of $5.6 million or CAD 7 million. This provides us with a strong working capital position to continue our growth and invest in strengthening our competitive positioning. We remain confident about 2021. Our results to date have been on track with our original expectations, but our visibility has been reduced for the second half of the year. In 2020, we met or exceeded our outlook as we could clearly see forward orders and delivery dates. This is not the case in 2021. Hence, we have withdrawn our guidance. The clarity is blurred as businesses consider the impact of COVID on their purchase decisions. Our sales pipeline remains robust and growing. Our uncertainty is around the timeline and not the quantum. I cannot emphasize that enough. We have confidence in the quantum that we have put out there. We do not have visibility in the delivery dates and timing of that. In summary, we strengthened our balance sheet, improved our liquidity, grew our revenue, maintained our margins, and controlled our costs. We also opened an exciting new sales channel and completed our first deliveries through that sales channel. We believe we are well positioned for growth as we continue with our working capital and sales channels to effectively compete in this sizable market. I would now like to turn the call back to Sankar to wrap up.

Sankar Das Gupta, CEO

Thank you, Richard. As Richard mentioned, our pipeline is very large indeed. However, because of COVID and the clarity, Richard needs great clarity on the guidance, so that’s the reason he has the press release and the guidance. Now, Electrovaya is moving well in many directions. In the lift truck business, we believe we should become the industry standard. Electrovaya's battery, you can see Raymond's website which calculates the return on investment for our batteries to be a matter of a few months. There is an ROI calculator on their website where one can input the parameters and calculate. We are continuing research into next generation cells and batteries, mainly in the areas of solid-state cells, electrode production, and higher energy density batteries, along with our excellent safety and longevity. We continue to accumulate additional IP and patent applications. In February 2021, we announced that we had submitted an initial application to list our common shares on the NASDAQ stock market. We believe that in the current market environment, battery manufacturers and other clean tech businesses listed in the United States may benefit from greater visibility of listing on a major U.S. stock exchange. While there is no assurance our listing will be approved, we continue to make progress with this initiative. In conclusion, we are making excellent progress. Our revenues are increasing, a 50% increase year-over-year despite COVID disruptions in demand, supply, and employment. Our distribution channels are getting stronger with the Raymond strategic supply agreement and an increase in our direct sales force. We’ve added more salespeople recently. The addressable market for electric lift trucks is large, possibly several billion. Our customers are major Fortune 500 companies. Our OEM channel is part of the world's largest lift truck manufacturer. Our battery technology is industry-leading with unparalleled safety and longevity with excellent energy and power. We also now have developed a high-voltage battery for electric buses, a 700 volts system. Both Canada and the USA are planning multi-trillion-dollar investments in the green technology revolution. The lithium-ion battery is the key enabling technology. Our IP and patent position is increasing. Our next-generation battery development is being built upon some of our unique IP. We have an interesting technology development on a solid-state cell. A feasible solid-state battery is the Holy Grail in this energy transformation. Electrovaya staff understands the complex chemistry that is needed for solid-state batteries, and we were involved years ago in developing the world’s first commercial solid-state battery. For years, Electrovaya’s technology was ahead of the market, and now we are really gratified that the market has finally arrived and vindicated our years in creating this technology. This concludes our remarks this morning. Richard and I would now be pleased to hold a question-and-answer session. Brock, please open the line for questions.

Operator, Operator

Thank you, Doctor. Our first question today is from Craig Irwin of Roth Capital Partners. Please proceed with your question.

Craig Irwin, Analyst

On the success with Raymond, it’s really nice to see the market leader adopt your products and offer them to their customers. Can you maybe frame out for us how the ramp is taking shape with Raymond? Was there maybe a little bit of a channel fill in the first quarter? And how much visibility does Raymond give you or did Raymond give you that contributed to the original revenue forecast that you put out in November?

Richard Halka, Executive Vice President and CFO

Hello Craig, it’s Richard Halka here. What has happened is we moved from a sales agreement whereby we dealt directly with the Raymond dealers and their customers to provide the solution. In other words, we were right at the core phase in terms of when it’s to be delivered and timing. Now, everything goes through Raymond Corporate. We don't have the contact with the dealers or the end customers that we did. Therefore, that transparency we had in 2020 is now somewhat clouded. We are working with Raymond. We have an excellent relationship, and we want to resolve this to understand a little bit better the forward orders, who they're for and the timing. We expect we'll be able to work through that. As I say, it was the early days, first quarter, teething pains. We will work through that over the next few weeks. As soon as we do have clarity with that, we'll be prepared to go to the market with our revised guidance, but until that's resolved, we know the quantum is there, we don't know the timing. Craig, and your other question? I'm sorry.

Craig Irwin, Analyst

Well, how many SKUs are you qualified to sell through Raymond Corporate right now? And do you have other SKUs maybe in qualification or in development that will layer in over the next few quarters?

Sankar Das Gupta, CEO

Craig, we have over 25 models of batteries, and it's going into most of the Raymond SKUs for 24 volts, 36 volts and upwards. For any large forklift, which is working reasonably long hours, we are integrated with their forklifts. The batteries we don’t touch are the small walkies which are $1,000 or $2,000 each, but pretty much we are, I would say, very integrated with the Raymond SKUs.

Craig Irwin, Analyst

Excellent, excellent. So then can you maybe update us on the progress with some of the corporate customers that you went to directly with the forklift batteries? One of those customers is very well known for saving their end customers the retail buyers, save them money, so they can look better. Another one is a global food brand that all of us will know. These are high profile customers. How have the fleets been received by them that you filled, what is the feedback they're giving? And do we see potential in these Fortune 500 companies for longer-term framework agreements for much larger buys over the next couple of years?

Sankar Das Gupta, CEO

So far the feedback has been very, very positive. In fact, the data with one customer, I think we have over 500 fairly large lift trucks running 24 hours a day, 7 days a week, have accumulated probably the equivalency of 0.5 million miles. We are very pleased that the degradation of our battery after such a large amount of travel has been minimal. So, we are seeing good repeat orders from these customers, especially in the food and grocery sector. I'm not going to say we are going to be dominant or something, but I can't think of anybody who is not talking to us. The Raymond pipeline with this new strategic supply agreement is very, very large, but as Richard says, they talk to the customers and then it filters back to us. The pipeline is so large; we sometimes are scratching our heads and we'll see. I think…

Richard Halka, Executive Vice President and CFO

Yes.

Sankar Das Gupta, CEO

Generally, the market likes the product.

Craig Irwin, Analyst

Excellent, excellent. That's good to hear. And then just to understand the guidance, right, it's kind of a little bit of a disconnect from the improving environment post-COVID, right, the vaccinations in the United States, vaccinations in Canada affecting the recovery where people need more equipment. Can you maybe just talk a little bit about that COVID recovery? And if we were to exclude Raymond from your guidance completely, would overall revenue guidance potentially be lifting now versus where you were in November?

Sankar Das Gupta, CEO

Craig, in Canada, we are I would say two months behind the U.S. and we have a complete lockdown in Ontario and Toronto, which just started about what, two three weeks ago.

Richard Halka, Executive Vice President and CFO

Feels like forever. Months ago, I don’t know.

Sankar Das Gupta, CEO

Just reinstituted the whole lockdown. Working through lockdowns are difficult generally. So, I think there is a phase difference between the U.S. and Canada. We are very optimistic that the vaccines are here and things are going to be much more normalized. Really going back to what Richard is saying, there are no lost customers. The quantum is very large. The pipeline we see from our direct sales and we have added, by the way, a few more sales folks in the Chicago area and elsewhere, and the pipeline is very, very large. It’s going to... let's see, and this is a new team in Raymond who has just started working with us. This is a new team on top of the distributors we used to work with. I think it's an addition of new people, but as always with a new team, they have to get rolling and play as a good team.

Richard Halka, Executive Vice President and CFO

Just to add a comment to that Craig is, these are large Fortune 500 companies that we are dealing with. Most are through our direct sales channel and through Raymond. These companies establish their budgets annually, quite early. So, in 2020 they had established their budgets in a pre-COVID period and they carried out those budgets through that. Our biggest challenges in 2020 were more on the supply side. Now we're moving into this year, 2021, and we're finding that we're not getting as much visibility. There's still a very high level of interest. We still get a very robust pipeline, but the delivery dates and the exact timing of this is where the uncertainty is. I think that has grown out of, and I don't want to read too much into our customer base, the spillover from COVID, as to how things will ramp up. I know we're looking at a recovery here. I know you're seeing one in the States, but I think the timing is uncertain, and we're all dealing in a new normal right now that makes the predictability just not what it was pre-COVID.

Sankar Das Gupta, CEO

And Craig, the predictability goes both ways, you know upwards and so on. Just as an example, on the electric bus sector, we had launched and we were planning a normal growth there, but I'm absolutely astounded by the amount of interest in the Electrovaya battery for an electric bus because of the incredible safety we provide with these batteries, which is unparalleled, as well as the longevity. Now we are seeing the longevity from our batteries which have been operating in the forklift sector. We've got 400,000, 500,000, 600,000 miles equivalent run on them and we can now predict longevity. So, I think all these sectors are coming up very fast and the pipeline is very large. So, we need to see where this guidance is going to come through. Richard is being careful.

Craig Irwin, Analyst

I understood. Yes, a lot of companies are facing the same issues, so it's completely logical. So just the last question if I may before I jump back in the queue, is it possible for the lithium-ion batteries for electric buses to be similar sized or potentially even larger as far as the revenue contribution this year compared to the lithium-ion batteries for electric forklifts?

Richard Halka, Executive Vice President and CFO

I think what we're seeing here is there is a fairly long lead time on the bus. I would say the impact in 2021 will not be as significant as what we're going to see on forklifts. Obviously, that's our big revenue generator this year. I think 2022 is when we'll start to see some movement there.

Sankar Das Gupta, CEO

And Craig, I may be wrong here, but I suspect 2022, the electric bus sector will outpace the forklift sector. The demand is just very, very high.

Craig Irwin, Analyst

Got it, understood. Hey congratulations on the progress. Thank you for taking my questions.

Richard Halka, Executive Vice President and CFO

Thank you.

Operator, Operator

The next question is from Gianluca Tucci of Torrent Capital. Please proceed with your question.

Gianluca Tucci, Analyst

Hi, good morning guys. Thanks for taking my questions. Could you perhaps speak to the dynamic and how that's changed into the Raymond channel under the new agreement, how that's impacted your pipeline both good or bad? And like from their perspective, why can't they be transparent in terms of who the customers are, the timing of deliveries and those kinds of variables?

Sankar Das Gupta, CEO

Gianluca, they are being transparent. What has happened is that the pipeline has expanded due to this strategic supply agreement. We are now experiencing a significantly larger pipeline through Raymond, and they are fully committed to this effort. The entire corporation is focused on it. So, the pipeline is considerably bigger. Richard mentioned the visibility, and in the past, we were used to communicating directly with the final customer because dealers would reach out and refer us to individuals. Now, we have a more corporate approach with a substantial pipeline. The engagement is different. The pipeline has grown, but the way we interact is also distinct.

Richard Halka, Executive Vice President and CFO

I addressed that with Craig. I think that's more about our much closer relationship with the customer, as Sankar has described. Now, Raymond has a large sales team that is working on this, and they communicate with corporate, which then communicates with us. This visibility will increase as we progress. However, to be cautious, we are uncertain whether this number will be achieved. For example, our trailing 12 months revenue as of March is about $17 million, just over $17 million U.S. In 2020, that same period was just over $4 million, meaning a $13 million increase. Are we confident that we can achieve a $14 million increase by the end of the year compared to what we posted last year? Yes. Are we confident about the timing of those deliveries, whether they will come in September or between now and December? We're not sure, which is why we want to provide transparency before backing a number. It is a point of personal pride that when we provided guidance last year, we met or exceeded expectations each quarter. I must ask myself if I've set the bar high enough to meet that standard now. No, we need a bit more information and time, after which we will provide our guidance. You can trust that guidance because we will have a high degree of confidence in it.

Gianluca Tucci, Analyst

Right. Okay, yes I know that makes sense, and it sounds like the right thing to do. And on the E-bus side, can you guys speak to a couple of the partners that you're working with? You made a delivery of your first E-bus battery in the March ended quarter or just after, I forget, but just recently. How quickly can you scale up that division and how does the supply chain process or the battery building process differ from that of forklift batteries?

Richard Halka, Executive Vice President and CFO

We can scale that up quite quickly. Basically, if you think of it in terms of a Lego building block, our modules are the same modules that go into a 24 volt, sorry, 20Amp-36 or 48 and bus. So basically, all the building blocks are the same; it’s just how many of the Legos you put in, and obviously in a bus battery, a lot more. The process is well-established. We can scale up quickly. We’ve purposely been careful. We’re in high competition now in several of these areas. We don't really want to go out there and name who we’re talking to until a relationship is firmly and long-term established. We don’t want our competitors knocking on the same doors that we’re knocking on. We’re not to give them our Rolodex.

Sankar Das Gupta, CEO

And also, yes, I agree with Richard that the way the financing on the buses is coming is through the Federal Government. In Canada, they have planned about $2.4 billion for about 5000 buses. The money has been in the budget; however, the legislation has not yet gone through. So, I think by the time the legislation goes through, and the funds go out to various municipalities who start buying, 2022 is when you are looking at the earliest. Similarly, for the U.S., I think President Biden has targeted about slightly around the $2 trillion investment and again that has to go through both houses. By the time the money is allocated and approved, I would say 2022 is the earliest for some reasonable revenues. This sector is going faster than I would have thought six months ago.

Gianluca Tucci, Analyst

Okay. And on the Canadian, I guess grant side for investments, public sector investments into these types of endeavors, how can the company, like you know, strive to get a piece of that? Are you talking to various cities that have access to this money, those types of things and how many competitors are in the e-bus market at least in Canada?

Sankar Das Gupta, CEO

We are speaking to the bus manufacturers. The bus manufacturer then goes and sells his bus to the city. We are not approaching the cities directly. Therefore, we depend on the bus manufacturers, and we have started speaking with most of them.

Richard Halka, Executive Vice President and CFO

As a general comment on government assistance, we are extremely good with lobbying, looking for opportunities. We have excellent relations with provincial, federal, and various agencies within that. This has always been one of our strengths. If you look back through our financials, you can see the amount of support we have received over the years. We continue to do that, and we’ve initiated some new initiatives here to look at some of these substantial funding that is available. So yes, we’re very, very busy in that area.

Gianluca Tucci, Analyst

Okay, thank you, guys.

Richard Halka, Executive Vice President and CFO

Thanks, Gianluca.

Operator, Operator

There are no additional questions at this time. I would like to turn the call back to Dr. Sankar Das Gupta for closing remarks.

Sankar Das Gupta, CEO

Thanks, Brock. That concludes our call. Thank you for listening this morning. We look forward to speaking with you again after we report our fiscal third quarter results in the summer, by which time at least in Canada we are all vaccinated and in the meantime we wish you all good health. Thank you. Thank you very much.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.