Good day, ladies and gentlemen. Thank you for standing by, and we warmly welcome you all to the Greenland Technologies First Quarter 2023 Earnings Conference Call. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Joston Sami, Investor Relations Director of Greenland. Mr. Sami, please proceed.

Thank you, operator, and hello, everyone. Welcome to Greenland Technologies first quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer. We released results earlier today. The press release is available on the company's IR website, as well as from Newswire services. 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 will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other 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 statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Thank you, Josh, and good morning, everyone, and thank you for joining us today. I'll be handling a majority of this call as my CFO, Jing Jin, has lost his voice and is in no condition to contribute to today's call. I'd like to start by thanking our global team for continuing to drive the business during a difficult global market and continuing to develop a more efficient operation. As expected and stated during our last earnings call, our component business continues to recover from global market conditions in the first quarter. Again, this is due to the current market conditions and the material handling and manufacturing industry in China as OEMs recover and ramp up from the country's zero-tolerance policy. Now China's manufacturing PMI has fallen to 49.5% this year, which is below estimates of 50.3%, showing a slower recovery on the fears of a global slowdown. However, based on feedback from our clients in the component business and our internal estimates, we still stand by our forecast that our business will normalize and grow, especially in the second half of this year. The material handling industry continues to grow with demand reaching all-time highs. Grand View Research recently increased their forecast of the global forklift market to a compound annual growth rate of 13.2% through 2030 with a greater shift towards electric forklifts due to increased emission regulations around the world. As a market leader in the forklift drivetrain and transmission industry, this market growth will reflect on our own metrics and results. And as we are ready to capitalize on this demand with our advanced components for all forklift and material handling systems. As displayed in our results, we continue to improve our margins through product innovation, lower costs, and operational efficiencies. Gross margins are up 320 basis points to 24.9% compared to last year. These improvements will further contribute to our success in 2023 as the market recovers and accelerates later this year. Switching to HEVI electric industrial machinery, we continue to make strides laying the foundation for the company. We recently recruited a new Chief Operating Officer, Dana Hopkins, who has really hit the ground running and is developing the infrastructure we need to succeed. It has always been our responsibility as a pioneer to educate the HEVI machinery industry on the advantages of electric compared to traditional fossil fuel systems, and we continue to see great success in this area. We have more organizations signing up for pilots and demos of our products. HEVI participated in three industry trade shows this quarter alone where we were met with tremendous interest at each one. Speaking with attendees and learning how our products can improve their operations always fuels my perspective that the demand for electric HEVI equipment is there and HEVI is on the right path to capture this opportunity. But I understand that HEVI needs to move and advance faster toward their milestones, so we will adapt our strategy accordingly. As we develop and deploy our network of authorized service providers, we will incorporate a new referral incentive to leverage their network to uncover and close new opportunities. This will increase the effectiveness of our sales personnel with warm leads and open new doors. HEVI will explore new markets for our product line that can benefit from clean operations, such as property maintenance, landscaping, and utility companies, to name a few. This also lends itself to exploring new market territories, both domestically and internationally that possess significant opportunity, and we will be doing so in a prudent and calculated manner not to take us away from our focus on establishing our presence in the Mid-Atlantic region of the United States. We have received interest in our products from companies in these industries at various trade shows, and we will begin to expand our marketing to target them accordingly. HEVI has also received a lot of feedback expressing interest in other heavy machinery that would benefit greatly from electrification. These opportunities are worth further research and market study and may lead to an expansion of our product line sooner than we originally planned. I am proud of the work that the GTEC team has accomplished. There is still more work to be done and milestones to be achieved, and I believe we are on the right track to reach those goals. And with that, let me dive into the financial results for the first quarter of 2023. As always, please refer to our earnings filings for full details of our financial results. So, for the first quarter of 2023, total revenue was $22.1 million, a decrease of 24% from $29.3 million a year ago largely due to logistical and supply chain challenges resulting from the initial wave of COVID cases following the end of China's zero COVID policies and significant pent-up travel demand during this year's Chinese New Year holiday. In addition, revenue was impacted by a stronger dollar relative to the Chinese yuan on an RMB basis. Excluding the impact of the foreign exchange, total revenue decreased by about 18% from the previous year. We sold 36,841 transmission product units compared to 41,902 units in the first quarter of 2022. Our cost of goods sold fell 28% to $16.6 million in Q1 2023, primarily due to lower sales volume. Gross profit was $5.5 million compared with $6.4 million in Q1 2022. However, driven by a strategic transition in Greenland's product mix towards a higher value component and more sophisticated products like hydraulic transmissions, our gross margin rose 320 basis points to 24.9% from 21.7% a year ago. Meanwhile, total operating expenses increased 5% year-over-year to $3.1 million. The company has focused on significantly streamlining costs over the past year, which has mostly offset increases in research and development investment and marketing activities related to the company's expansion. Our income from operations was $2.4 million compared with $3.4 million in Q1 2022. Net income was $2.5 million compared with $2.9 million in Q1 2022. As of the end of March, our balance sheet remained strong with $15.4 million cash on hand, an increase of 125% from a year earlier. With solid financials and sound growth strategies, we are confident in our ability to grow both the core transmission business as well as the HEVI division as we deliver significant value for our shareholders. And with that, that concludes our prepared remarks. I'm going to open the call up for questions. So, operator, please, you may go ahead.

Thank you. First question comes from the line of Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Good morning. Congratulations on the good quarter.

Thank you.

I think you mentioned this on the call, but as you faced slower growth in China, can you direct more resources towards HEVI?

Yes, we can. And we actually have been; part of our focus right now is expanding the team, accelerating the expansion of our team and talent to be able to execute on our vision. This is very important for us to properly capitalize on the opportunities that we've been uncovering. So, we have been investing further in that aspect of it. And we anticipate further investment as well, also a little sooner than we had initially planned in both our marketing efforts and on our territory expansion.

And you mentioned gross margin improvement here from product mix. Does that reflect on anything permanent? And related to that, do you have any pricing pressure in that channel?

Great question. A big portion of the product switch over towards our higher margin is based on the shift in the market towards lithium-powered forklifts in particular. Our highest margin, yet most expensive, transmission that we offer is our drivetrain unit specifically catered towards lithium-powered forklifts. And because on a global scale, OEMs in the market are switching over to lithium, that's been driving our product. Right now, it's a premier product still, similar to our traditional hydraulic and fossil fuel transmissions; we've always been the premier product from a cost standpoint, but that has not driven away our clientele.

Thank you very much.

The next question comes from the line of Rommel Dionisio from Aegis Capital. Please go ahead.

Good morning, thank you. Raymond, I know you were involved on the HEVI side with some pilot programs, United Rentals and so forth. And you also presented at, I believe, the trade show in New York recently. I wonder if you could just share with us the initial feedback to the extent that you can on some of these pilot programs as well as the trade shows you've been attending. Thank you.

Absolutely. With our United Rentals pilot, they have truly been enjoying the equipment. They've been getting a lot of positive feedback. Their sales teams have always been excited to travel to the location where it's stored to learn more about it and see how they can introduce that to their clientele. It's gone so well that United Rentals has both requested an extension of our pilot and additional products to demo. Right now, they have our GEL-5000, our largest and most popular unit. However, we've been getting so much demand for our product line for both product demos and pilots that we are actually shuffling around our inventory to be able to meet that demand. It's been a bit more of a challenge than we anticipated logistically to support this influx of requests for our products across New Jersey, Maryland, Delaware, New York, and Pennsylvania, just to name a few. What we're doing now is instead of catering towards individual single demos, we are actually looking to initiate a campaign where we do more product demo days to invite multiple organizations at once, providing them with the opportunity to experience our equipment, utilize it to move materials, truly feel it out and couple that with a stronger and smoother sales operation and process. We hope that will be a more effective use of our equipment to generate sales.

Okay. And maybe just a quick follow-up. I know your 54,000-square-foot facility in Baltimore was supposed to eventually produce over 500 units annually. I think you were targeting first units to roll off in the second quarter, the assembly line of the assembly line. Is that still on track?

We are still on track for that. The first units will be a GEX-8000, which is our electric excavator, and a GEL-5,000, our largest and most popular front loader.

Great. Thank you, Raymond. By the way, I want to wish J.J. a quick recovery. Thank you.

Thank you very much. He will be glad to hear that.

The next question comes from the line of Graham Mattison from Water Tower Research. Please go ahead.

Hi, good morning, Raymond. A quick question on the quarter. So, I mean the first quarter financial results and certainly the best quarter you guys have had in the last three. It looks like things are recovering in the Chinese market. Are you still seeing quarter three and quarter four to be the banner quarters that you had thought before? And what gives you the confidence?

Yes, I do still see the third and fourth quarter being the strongest of the year for us. I am still optimistic that 2023 will be a banner year for our core component business. That is primarily due to the trend that I outlined during the last earnings call, where the lifting of the zero COVID policy in China was truly devastating to the entire region, particularly in the manufacturing sense, and it caused a big gap in the production cycle for a lot of OEMs. The majority of our clients have been overcoming a lot of bumps and bruises in their operations at the end of 2022, but the demand is stronger than ever. They are still revving up and ready to go, and it's just part of the ramp-up cycle. It is not a fast process for them to get everything up and running so quickly, but the flow is beginning to normalize as we're seeing in our results. As they ramp up, our deliveries will execute, and we've been ready to go.

Great. And then coming out of the COVID lockdowns, do you see any changes in the competitive position and the competitive landscape of the market for the transmission business?

Initially, we did. During the end of 2021 through mostly 2022, we started to see a shift of our sales moving outside of China. Still, a majority was in China. We went from about 96% at the beginning of 2022 to about 91% to 92% towards the middle. We were seeing trends that a lot of OEMs were trying to shift their manufacturing outside of China. However, now that the manufacturers are starting to rev up, and I think that because of challenges they experienced in the international markets, which still needed more time, investment, and expertise to ramp up their manufacturing opportunities, we are actually seeing it come back. So right now, again, a majority of our sales are entirely to Chinese OEMs right around the 97% to 98% again.

All right. Great. And then one last question. With the feedback that you're getting at the trade shows, can you walk us through the sort of process? When you get a potential customer showing interest, what's the next step? Is it they come and do a demo or do you get a product on their site? And what's the typical sales cycle like?

Yes, it's difficult to compare to the industry average sales cycle because, for the HEVI industrial machinery industry, it's actually led by a very small handful of players with very strong brand recognition. Because of that, they have a much faster sales process focused more on delivery and service. For our side, we need to overcome the challenge of educating and getting people comfortable with the brand-new technology. However, that actually drives a lot of the interest we see in the trade shows, as people double-take when they see our machinery and learn that it is electric. They become excited with questions about its longevity, charging, and cost. Our traditional sales process involves scheduling a demo on the client's site to provide them with the opportunity to utilize the vehicle, see its power, and visualize how we can support their operations. The challenge has been that this was logistically expensive and slow, often involving multi-day demos. Just last week, we were at the NYC Fleet Show in Queens, New York, and walked away with over two dozen requests for demos and pilots from organizations in the New York City area. We found catering to individual demos was too slow. So we're changing that approach by initiating group demos and pilots for just a few hours or on-site demos for no longer than a day.

Got it. As you're starting to roll more off the line beginning in Q2, will that help the demo process?

Yes, it will. Currently, our entire fleet is dedicated to demos, and we have a pipeline of over 100 different organizations awaiting their turn for our vehicles.

Got it. All right. Great. I'll jump back in queue. Thank you very much.

Thank you for the questions.

Seeing no more questions in the queue, let me turn the call back to Mr. Wang for closing remarks.

So, everyone, I just wanted to thank everyone again for participating in our call and continuing to follow the progress of our company. We are on the path for great things, and though it may not reflect in our stock value, I still strongly believe that our company provides significant value for our shareholders. The opportunity and the timing where that will become recognized is surely coming down the line. I just want to thank everyone again for participating on our call. I want to thank my team for continuing to work hard every day to deliver this value to our shareholders. I hope everyone has a fantastic rest of your day.

Thank you again. This concludes the call. You may now disconnect.