Thank you for standing by, and welcome to Microvast Fourth Quarter 2023 and Full Year Conference Call. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. With me on today's call are Mr. Yang Wu, Founder, Chairman and CEO; and Mr. Craig Webster, Chief Financial Officer. Mr. Wu will start off with a high-level overview of the quarter before providing some operational updates. Mr. Webster will then discuss our financials in more detail before handing it back to Mr. Wu to address our first quarter '24 outlook and open the call up to questions. Ahead of this call, Microvast issued its fourth quarter and full year 2023 earnings press release, which can be found on the Investor Relations section of the company's website ir.microvast.com. In addition, we have posted a slide presentation to the website to accompany management's prepared remarks. As a reminder, please note that statements made on this call are forward-looking and based on current expectations and assumptions. They should not be relied upon as representative of views for subsequent dates, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements due to new information or future events. Actual results may differ materially from expectations due to a variety of risks and uncertainties. For more information on material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. We may also discuss non-GAAP financial measures during this call. These measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metrics in the tables included at the end of our press release. After the conclusion of this call, a webcast replay will be available on the Investor Relations section of Microvast's website. And now I will turn the call over to Mr. Wu for opening remarks.

Thank you for joining us today. Let's start with Slide 3 as I highlight some key points from our full-year 2023 financial performance before we discuss our significant achievements in Q4. I’m happy to report that we reached a record revenue of $306.6 million for the full year 2023, largely driven by a remarkable 434% increase in revenue from our EMEA business compared to 2022. We also experienced double-digit growth in both APAC and China. Overall, our business saw a 50% year-over-year revenue increase, achieved at a high gross margin that rose to 90%, up from 4% the previous year. I am also very pleased with the results from our Huzhou 3.1 expansion completed this year. In the second half of 2023, we began delivering qualified products to our diverse customer base from our new fully automated production line. This shows our ability to successfully scale our technology. Now, let’s move to Slide 5 to review our achievements in the last quarter of the year. We posted our highest quarterly revenue of $104.6 million, a 61% increase year-over-year, with an adjusted gross margin of 23.5%. Our commercial vehicle business saw significant successes as we expanded our relationships with OEMs around the globe. We are collaborating with new manufacturers to test our products for additional contracts in 2025, and we have begun to gain traction in specialized vehicle segments. However, we also faced some challenges this year, including a difficult financing environment, a reduced energy storage contract through mutual agreement with a customer, and overall negative market sentiment affecting our sector and similar rapid growth companies. Moving on to Slide 6, we have made exciting progress in our commercial vehicle operations. We received numerous new orders and delivered various products to customers, showcasing the strength of our technology portfolio, including leading OEMs. On Slide 7, we’ll discuss updates regarding our APAC operations. As mentioned earlier, our Huzhou Phase 3.1 automated line is now operational, producing qualified products, and these are being delivered to our customers. We don’t anticipate significant additional capital expenditures related to Phase 3.1 going into 2024. Our APAC business generated $290 million in revenue for the full year 2023, reflecting an 18% increase year-over-year. We expect this sector to achieve original profitability as operations have matured and are self-funding, while also delivering sustainable growth margins. We foresee further revenue growth year-over-year driven by two primary factors: stable revenue from our established base of e-bus OEMs in China, and promising expansion in the electrified mining and earth-moving sectors, where our high-power products have performance advantages. The second contributor is the rapidly growing Indian market for e-buses, supported by government incentives, which our major partners expect to leverage. Now, on Slide 8, we will review updates regarding our EMEA operations. We saw remarkable growth in 2023, with regional revenues increasing by over 434% year-over-year. We have localized the production of our modules, and we anticipate customer demand will lead to increasing volumes. We also expect further revenue growth in the region for 2024. Having reduced our losses in 2023, we aim for regional break-even this year. We are developing a pipeline of new and exciting commercial vehicle customers, and we see several growth catalysts for 2024, including higher expected volumes from e-bus and light commercial vehicle platforms. As demand continues to grow in this segment, we are also collaborating with a leading refueled truck OEM with a demonstration expected at IAA 2024. Finally, let's move to Slide 9 for updates on our U.S. operations. The challenging financing environment means we are currently maxed out in Clarksville on our own balance sheet. Thus, growth and profitability in our APAC and EMEA operations will be critical for our business in 2024 until we secure the third-party financing needed to complete the Phase 1A facility. We do not expect to see material production volumes or revenues from the Clarksville facility in the near term and do not anticipate IRA 45X credits in 2024. Once we secure financing, we estimate that six to eight additional months will be necessary to achieve SLP for Clarksville Phase 1A. During this period, we will focus on managing liquidity, evaluating financing options, and building our U.S. operations for success in 2025. After reaching SLP, we expect to generate IRA credits and deliver qualified products to commercial vehicle and energy storage customers in the U.S. The current lack of funding in the U.S. does raise concerns regarding our continued growth without additional capital. We are actively engaged in financing and customer initiatives to address this situation urgently. However, we maintain a positive outlook for the U.S. due to the significant opportunities it presents. The energy storage market is poised for exponential growth, and there is considerable customer interest in our Clarksville capacity, particularly due to its advantages in security and compliance with domestic content requirements. In the commercial vehicle sector, OEMs are increasingly electrifying their fleets, creating demand for our diverse technology across various segments, with numerous projects underway that we expect will generate demand for Clarksville production in 2025. Thus, while 2023 brought its challenges, it also showcased our successes, and we are proud of our accomplishments. We look forward to pursuing the many opportunities that lie ahead in 2024. I will now turn the call over to Craig Webster for a more detailed financial discussion.

Thank you, Mr. Wu. I'll spend the next few minutes discussing our full year and Q4 2023 financial results. Please turn to Slide 11, and I will summarize the main line items from our Q4 and full year P&L. We recorded revenue of $104.6 million in Q4 2023 compared to $64.8 million in Q4 2022, a 61% year-over-year increase, and as Mr. Wu mentioned earlier, a record revenue quarter for the company. On a full year basis, despite facing several challenges, we achieved revenue of $306.6 million, up 50% from $204.5 million in the prior 12-month period. We posted gross profit of $23 million in Q4 2023, compared to gross profit of $2.2 million in Q4 2022, a 934% improvement. On a full year basis, our gross profit was $57.2 million, compared to a gross profit of $9.1 million for the prior year, a 531% improvement. Our gross margin for full year 2023 was 18.7%, whereas in the prior year it was 4.4%, a 14.3 percentage point improvement. Operating expenses were $46 million in Q4 2023, compared to $37.3 million in Q4 2022. The largest contributor to the increase in operating expenses was the increased headcount for both our Colorado and Tennessee facilities as we build out our U.S. operations. Full year 2023 operating expenses were $165.9 million compared to $170.7 million in the prior year, a 3% decrease. GAAP net loss was $24.6 million in Q4 2023, compared to net loss of $33.7 million in Q4 2022. GAAP net loss for full year 2023 was $106.4 million, compared to a net loss of $158.2 million in the full year 2022. These results show that as we scale our business and industrialize our technologies, we are narrowing our losses. We believe a more appropriate representation of our financial performance, especially as it relates to cash operating expenses and operating loss, is as illustrated in Slide 12. After adjusting for non-cash settled share-based compensation expense in our cost of sales, adjusted gross profit was $24.6 million in Q4 2023, compared to adjusted gross profit of $4.2 million in Q4 2022. This translates into an adjusted gross margin of 23.5% in Q4 2023, compared to 6.4% in Q4 2022, a 17.1 percentage point improvement. We're pleased to see another quarter of gross margin improvement as our business benefits from higher sales volumes, increased utilization, and better raw materials pricing on these higher volumes. When making the same adjustments for full year 2023, our adjusted gross profit was $63.3 million, compared to an adjusted gross profit of $16.8 million in full year 2022. This translates into an adjusted gross margin of 20.7% in full year 2023, compared to 8.2% in full year 2022, a 12.5 percentage point improvement. After adjusting for non-cash SBC expense in SG&A and R&D, our adjusted operating expense in Q4 2023 was $34.3 million compared to $21.4 million in Q4 2022. When making the same adjustment for full year 2023, our adjusted operating expense was $107.1 million, compared to $96.5 million for full year 2022. This was an 11% year-over-year increase, a much slower rate of increase than our top line growth of 50%. After making those non-cash SBC expense adjustments and accounting for changes in the fair value of our warrant liability, adjusted net loss was $11.4 million in Q4 2023, compared to $15.9 million in Q4 2022. On a full year basis, adjusted net loss was $41.6 million in full year 2023, compared to $77.3 million in full year 2022. Reconciliations of these non-GAAP metrics to the most comparable GAAP metrics are included in the table at the end of our earnings press release. Slide 13 shows the geographic breakdown of our revenue for the 12 months ended December 31, 2023, compared to the prior year period. As you can see, our three largest markets were Asia Pacific, China, and EMEA growing 19%, 18%, and 434% respectively, year-over-year. Revenue in our U.S. region for full year 2023 posted a slight decline of 14% compared to full year 2022, with revenue losses in our ESS division being the biggest disappointment. However, as Mr. Wu mentioned, despite some near-term financing challenges to address in the U.S., we expect our U.S. business to make meaningful contributions in the future, as we are well positioned to capitalize on the domestic content opportunity in the U.S. once our Clarksville facility reaches SOP. I will now turn it back over to Mr. Wu to provide some visibility and the outlook for the coming year.

Thanks, Craig. Please turn to Slide 15. We expect Q1 2024 revenue to increase 40% to 60% year-over-year. This puts Q1 revenue guidance in the range of $65 million to $75 million. We also aim to maintain a gross margin target of between 20% to 25%. From Asia-Pacific operations, we expect all three Huzhou Phases to deliver qualified products to customers throughout 2024. We will also be targeting increasing utilization, continuing progress on R&D for new products, and targeting regional profitability. In 2024, we also expect our EMEA operations to continue meaningful revenue growth with new customer wins for specialty commercial vehicles. We are targeting regional breakeven for the year. Turning to the U.S., we plan a reduction in OpEx and CapEx spending for the year until we can secure funding for Clarksville. Once the facility is online, we will be targeting rapid growth and aiming to secure capacity commitments from both energy storage and commercial vehicle customers to achieve high utilization levels. For 2024, the company's core focus is going to be maintaining revenue growth and our margin profile as catalysts to improve our liquidity and provide us with a road to break-even. With that, I would now like to open the call up to your questions. Operator, please provide instructions for the Q&A session.

Thank you, sir. Our first question comes from the line of Colin Rusch of Oppenheimer. Please go ahead, Colin.

Thanks so much, you guys. Can you talk a little bit about the overall quantum of capital that you're going to need to secure to get Clarksville back on track? And then also, how we should think about the moderation in OpEx in the U.S. and how that impacts the overall company OpEx run rate?

Mr. Yang, do you want me to take that one?

Yes, please. Great.

Hi, Colin. Hope you're well. So as we indicated last time, we've got about halfway through Clarksville on CapEx. So to get it done, it's about $150 million. That includes some aging AP. And so, the majority of what's left to spend relates to equipment and installation. And to do that, we need to raise money, as we've always said. We got this as far as we could on our balance sheet. So, we've been working for quite a period now, and you're probably sick of hearing us talk about it on the financing. And it wasn't done at the end of the year. We're still making progress on that. No guarantees that it's done, but we've been spending a lot of time with one lender in particular. The estimated timing to get Clarksville to SOP would be six to eight months from when we close that financing. And as I just mentioned, the majority of that time is to do installation. We'd already started some installation during Q4. And OpEx wise, currently, we're managing that because we've not closed the financing. So, really, as we mentioned on the call, there's a regional focus on what we do, which is China's got really good and decent growth rate. It's profitable. It's self-financing. It's got access to its own CapEx and OpEx credit lines. Europe, as you just saw, had a really good year. The start of like electrification for a lot of its customers. And we'd expect Europe to have another really solid year in 2024. The operating base in Europe is much smaller because it's just a module line. Doesn't need any financing. Got a really good customer base. Does that answer your question?

Yes, it does. Regarding customer growth in Europe and China, can you discuss the revenue for the first quarter and the order activity trends compared to last year in terms of backlog and how those orders are anticipated to progress?

Okay. The backlog impact we've had has come from energy storage. So, we've reached a mutual resolution with a customer to reduce the volumes on their contracts. That impacted backlog. So backlog now is predominantly commercial vehicles. You know our business pretty well. So Q4 is always seasonally the strongest quarter, particularly in China where they defer a lot of their orders until the end of the year. Q1 is still going to be a really solid quarter for us. And as you know, it's always the slowest one, because of impacts of Chinese New Year. So, we lose a lot of revenue in - and so now it's February this year. The encouraging part on Europe is the number of platforms that we're on. So it's e-bus, it's light commercial vehicles, and it's commercial truck specialty. So, we'd expect Europe to have - it's a big contribution to overall revenue growth in the year. But just looking at where we're at on the financing side, which is a key focus, we can give you a much more informed decision on the year, and what things look like in a couple of months' time.

Okay. Thank you so much, guys. I'll hop back in queue and follow-up offline. Thanks.

Okay.

Thank you. Our next question comes from the line of Sean Milligan of Janney Montgomery Scott. Your question, please, Sean.

Hi, Craig. Can you walk us through expectations for 2024, on kind of like operating cash flow? Like you highlight that you're trying to run Asia and Europe, kind of break-even or above break-even, just kind of trying to get the expectations on op cash flow for this year, and then just updated CapEx figures. If you're not spending anything for CapEx in the U.S., we're spending on that 48-amp hour line in China, and that's still fully funded via the facility, correct?

Yes. So any CapEx spend in the U.S. is going to be completely contingent on raising financing to do that. So if we are successful to close, then we'd expect to spend around $150 million in the US. That's Clarksville Phase 1A debt funded. And CapEx elsewhere would be very, very minimal. China, if we need to do the Phase 3.2 expansion, and that's a smaller amount of dollars, like we estimate around $30 million to do that. We would do it provided we've got financing in place. And as you know, we've got the CapEx, it's a line we've not used yet in China from the local banks. So the biggest project, and it's highly contingent on that financing, is doing Clarksville Phase 1A. Operating-wise, we're self-funded in China, self-funded in Germany. Germany's got a very strong position with its customers in terms of backlog, increasing sales. And it's not an expensive operating base to run. We've got to be quite careful in the U.S., and depending on where we get to in terms of that total financing solution for the U.S., we're going to have to be quite prudent in how we manage U.S. operations going forward.

Okay. So right now, as it stands, that Phase 3.2 in China, is that going forward or not?

Currently, we'll put 3.2 on hold. We've still got plenty of decent growth opportunities in China without that.

Thank you. Our next question comes from the line of Derek Soderberg of Cantor Fitzgerald. Your line is open, Derek.

Yes, hi guys. Thanks for taking the questions. On gross margin, guidance 20%, 25%, really good number there. Curious what's driving that. Can you talk a bit about who's your utilization today and kind of where that's going to move throughout the year? And maybe if you could just kind of frame, gross margin directionally from there, how we should sort of move throughout the year, that'd be helpful? Thanks.

Mr. Yang, do you want me to take that one?

Go ahead. You can answer his questions. Okay.

Okay. Okay. Sure. Okay. Thanks. Derek, you're right. Really - a really solid year for us in terms of gross margin business fundamentals. We know the news on liquidity in the U.S. is not great, but we feel we've got solutions for that. And the business fundamentals lend into it, right? So, we've just grown revenue 50%. We really expanded the gross margin line, and we really managed our OpEx. And remember, we're a global business. So compare our OpEx to other people that are trying to launch a sort of new technology battery business, right? As a global operation, we've managed that pretty well. Gross margin expansion really came down to higher sales always helps. So higher sales, better pricing on our raw materials, and yields have been really good across the three phases, Phase 1, 2, and 3. And then raw material prices have helped as well. So that's been the real contribution there. As we look out this year, I think we're going to see good utilization on all lines, Phase 1, 2, and 3. And Phase 3 is 53.5, because they're going to be delivering to all regions, China, Asia Pacific, Europe, and the U.S. So, we'd expect this year, to be able to hold gross margin at 20% to 25%. And then it will just come down to, if we're really accelerating Clarksville again, then there will be some push up on OpEx. But if we don't do that, we will be managing OpEx not far from where it's currently at.

Got it. That's helpful. And then just related to sort of a previous question, just wanted to clarify some things. With the OpEx management here, is there sort of a revenue run rate you would need to get to reach profitability? Could you share that with us? And then just to clarify, it sounds like APAC is going to be profitable this year. What about EMEA and the broader business? If you can kind of relate that back to the revenue run rate you would need to get to profitability, that'd be helpful? Thanks.

Sure. So APAC had consistent profitability the whole year, '23. We'd expect that to continue into '24. EMEA, if it can deliver the volumes that we're expecting, so a decent growth year, would be very close to break-even. The Q4 numbers are quite illustrative of what it needs to take, to get close to break-even. So probably when we're at a sort of $150 million run rate revenue per quarter, we're going to be very close to break-even.

Got it. Really appreciate it. Thanks, guys.

I would now like to turn the conference back to Yang Wu for closing remarks. Sir?

Okay. Thank you all for joining us today. I look forward to updating you on our progress again soon for the first quarter of 2024, along with additional operational updates and guidance for the rest of the year. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.