Earnings Call Transcript - KNDI Q3 2023

Operator, Operator

Greetings, and welcome to the Kandi Technologies Third Quarter 2023 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kewa Luo. Kewa, you may begin.

Kewa Luo, Host

Thank you. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the third quarter 2023. Earlier today, we issued a press release covering the results. You can find the press release on the company's website as well as for newswire services. On the call with me today are Mr. Xiaoming Hu, Chairman of the Board; Dr. Xueqin Dong, Chief Executive Officer; and Ms. Alan Lim, Chief Financial Officer. Dr. Dong will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&A session. 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. 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, Dr. Xueqin Dong. Go ahead, Dr. Dong.

Xueqin Dong, CEO

Hello, everyone. Welcome to our conference call today. I will begin discussing some of the highlights in the third quarter following our successful transformation from a loss to a profit in the first half of 2023. Our continued profitability this quarter underscores the positive outcomes we have gained from our product transformation initiatives. These profitable operations serve as a testament to the strategic adjustments we have made in recent years, which have paved the way for our success in the fully electric off-road vehicle market. Through the collective efforts of all employees, our company achieved a cumulative net income of approximately $6.3 million during the first three quarters, with diluted earnings per share of $0.08. This marks a significant improvement compared to the net loss of approximately $2.4 million or diluted loss per share of $0.03 for the same period in 2022. Our subsidiary, SC Autosports, completed the acquisition of the Northern Group. This enhanced our sales pipeline by utilizing their extensive sales skills and distribution networks. This strategic move allowed us to strengthen our market position, as seen in our recently announced partnership with Rural King, a major player in the American farming and home retail sector. They are assisting us in expanding by partnering with more stores and reaching a wider customer audience. In addition, we recently showcased our new fully electric vehicles at the Midas Renderos trade show, which connects vendors to a wide and influential network of independent farm, ranch, and home retailers. We received positive feedback and improved our presence across various distribution channels. Furthermore, to enhance SC Autosports' marketing capabilities, we acquired a 75,000 square foot shipping center in Texas during the third quarter, which is now operational. This development will significantly strengthen our marketing capabilities in the United States. As we look forward to 2024, our primary focus remains to expand our presence in the North American market. With Kandi's commitment to innovation and quality, we are positioned to meet the increasing demand for fully electric off-road vehicles, unlocking substantial growth potential and capitalizing on opportunities. Additionally, we are committed to entering global markets and are confident that our production and sales in 2024 will experience substantial growth compared to the current year.

Operator, Operator

Now we will move on to the Q&A session. Our first question comes from Michael Pfeffer of Oppenheimer and Company. Michael, please proceed.

Michael Pfeffer, Analyst

Hi. Thanks for taking my question. A lot of Wall Street pundits have been warning U.S. investors away from China stocks as well as electric automakers, likely the cause of Kandi's poor stock action in these last few months in spite of consecutive impressive jumps in quarterly performance. In reality, from a purely operational cash management view, management looks brilliant in both selling its legacy Jinwa facility for $60 million cash profit plus a government subsidy to build a new replacing facility and selling its China-based EV auto, JV Fengsheng, interest to former partner Geely for an additional $40-plus million profit, both just as the COVID epidemic began slowing China's economy. The JV sale to Geely looks particularly smart since Fengsheng has not shown up in the China media for years and seems to now have been terminated. Maybe you can just translate that and get to my questions.

Xueqin Dong, CEO

My question to management is to confirm or reject a theory that should clearly set Kandi apart from concerns regarding both electric vehicles and investors in China. The theory suggests that Kandi, by shifting its focus away from electric vehicles back to its long-standing export business in off-road vehicles, may be in a favorable position, especially since it no longer has to depend on internal sales in China. Kandi manufactures 90% of all parts for its electric fleet in-house, including chassis, body parts, motors, lithium batteries, and battery management systems in China, where the economy has slowed down along with significant declines in commodity prices such as copper and rare earth minerals. Kandi then ships vehicles in containers at these low prices to the U.S., which has a stronger economy and high demand for affordable electric transportation. It's not surprising that Kandi's CEO has forecasted gross margins around 38%. If you could clarify that, I would appreciate it.

A – Unidentified Company Representative, Company Representative

We will now begin the question-and-answer session. If you have a question, please press the keypad to indicate your interest. A confirmation tone will signal that your line is in the question queue. If you wish to withdraw your question, you can do so. For those using speaker equipment, be sure to lift your handset before pressing the start button. Please hold on for a moment while we gather questions.

Xueqin Dong, CEO

Does management agree with the stated observation? Is Kandi aggressively attempting to expand its global exposure? And if so, which markets do you expect to add over the next 12 months? Does management agree with the stated observation? Is Kandi aggressively attempting to expand its global exposure? And if so, which markets do you expect to add over the next 12 months?