PowerX, Inc (485A) Q4 2025 Earnings Call Transcript

Hi, thank you for tuning in to our annual earnings call. I'm Masa, the co-founder and CEO of PowerX. I'll be presenting our financials and then proceed to discussing future business prospects. Please allow me to share our screen. I'd like to begin by walking you through our four-year results for fiscal year 2025. We achieved revenue of 19.3 billion yen, and on the profitability side, EBITDA improved to a loss of close to 100 billion yen, bringing us very close to breaking even strong revenue growth higher gross margins driven by production improvements and tighter control of sgna expenses contributed to a significant reduction in losses at all levels compared with the previous fiscal year against our disclosed earning forecast we achieved all our revenue and profit targets excluding ordinary profit to give you a bit more detail on revenue demand for battery storage systems for grid scale storage facilities remained very strong long and in q4 alone we recorded approximately 12 billion yen in revenue for operating profit in EBITDA as mentioned earlier gross margin improvements and SGNA control contributed significantly to the improvement in profitability ordinary profit we recorded approximately 570 million yen in non-operating expenses related to financing activities which was the primary factor behind the larger loss ordinary loss as for profit attributable attributable to owners of the parent although we recorded special losses such as asset impairment our recent performance and improved visibility towards future profitability allowed us to recognize deferred taxed assets as a result we reported a net loss of approximately 1.6 billion yen let me now explain this in terms of our growth rate. Full-year revenue earnings grew 213.4% year over year, increasing approximately threefold from 6.1 billion to 19.3 billion yen. In addition, improvements in gross margin and tighter control of SG&A expenses led to a significant improvement in operating profit and EBITDA. Next, I will explain performance by segment. The battery energy sales systems are best business led overall performance recording revenue of 17 billion yen and operating profit of 3.8 billion yen. Although the power business is relatively new, it achieved revenue of over 1 billion yen and achieved operating profitability. Unfortunately, the EVCS business experienced a decline in revenue due to slower EV adoption across the board. However, improvements in cost structure reduce the scale of losses. Looking at growth by segment, the BESS business, which accounts for 88.6% of total revenue, grew 212.8% year over year. The power business also achieved strong growth of 170.6%. For the EVCS business, we expect difficult conditions to continue until EV adoption expands further. Next, I'd like to briefly comment on quarterly performance. because customers budget execution timing is heavily concentrated primarily due to subsidies and similar factors our revenue is concentrated in q4 revenue in q4 last year increased 168.8 percent year over year reaching approximately 2.5 times the level of the prior year's q4 in addition while the gross margin in q4 declined slightly to 25.3 percent this was due to the impact of certain large-scale projects that we accepted strategically. In Q4 alone, we recorded approximately 12 billion yen in revenue, a new quarterly record. In addition, we recorded operating profit of 1.5 billion yen and 1.3 billion yen on the bottom line. We have demonstrated our ability to handle production, shipment, and installation at this scale, providing a solid foundation to support further scaling of our operations. Next, I'd like to explain the breakdown of SG&A. Total SG&A decreased by 8.9% year-over-year, contributing to improved operating profit. Looking at the breakdown, sales and marketing expenses increased as these are directly linked to revenue. On the other hand, R&D expenses decreased by 26.5%, partly because the earlier upfront investment phase has begun to settle. G&A expenses also decreased by 15.8%, and we've been able to keep them under control. Next, I would like to explain the relationship between order backlog and revenue. First, please note that our order backlog includes only signed orders, amounts for which binding contracts have been executed, and does not include probable orders. At the beginning of fiscal year 2025, the backlog was 6.1 billion yen. After that, while the backlog was drawn down as revenue was recognized, we accumulated new orders, 13 billion yen 18 billion yen 10 billion yen and 7 billion yen and as a result at the end of last year form order backlog reached 37 billion going forward as you look at our quarterly results when revenue is recognized backlog decreases by that amount while new orders increase backlog we would appreciate it if you could monitor this trend next I will discuss the consolidated balance sheet Following the public offering and in connection with our IPO, total net assets increased to 6.6 billion yen. As a result, our equity ratio improved and our financial position has strengthened. Current liabilities increased to 16.8 billion yen, of which 9.1 billion yen relates to contract liabilities. These represent advanced payments received from customers at the time of contract signing. While classified as liabilities, they are recognized as revenue upon delivery to customers. Importantly, the increase in current liabilities is primarily attributable to these advanced payments rather than to an increase in borrowings. Next, I will briefly explain the consolidated cash flow. First, operating cash flow was positive at 1.3 billion yen. Although we still have a loss on the profit line, the major factor was the increase in contract liabilities. In other words, the increase in advanced payments. Next, cash flow from investing activities. Up to 2023, it had been approximately 4.1 billion yen of investment, but for last year, and this year, it's around 1.4. This is a business that inevitably requires upfront investment, but recently we have been able to keep the cash flow from investing activities under control. Finally, cash flow from financing activities. Due to the public offering, it was a significant inflow of approximately 6.3 billion yen. As a result, the year-end cash balance improved to 7.4 billion yen. Next, I will explain our financial forecast for the fiscal year ending December 2026. For fiscal year 26, we assume revenue of 38 billion yen, operating profit of 2 to 2.5 billion yen, EBITDA of 2.5 to 3 billion yen and a net income of 1 to 1.5 billion yen this will be a major earnings inflection point as we expect operating profit and ordinary profit to turn positive and we expect significant improvement at each profit level let me add some color for the best business demand for grid scale storage batteries and storage batteries and solar adjacent sites remains very strong and we expect substantial increases in both revenue and profit this fiscal year we also expect revenue to be weighted toward the second half instead of q4 as customers budgets and executions are timed next for the power business in addition to battery sales we expect increased revenue and profit throughout electricity sales and proactive initiatives and aggregation for evcs unfortunately difficult conditions are expected to continue and we assume a decline in revenue however on the profit side we intend to pursue further cost reductions let me supplement this from the perspective of growth rates for revenue we expect a 98.8 increase year over year or approximately 2x in growth For operating profit in EBITDA, we expect to turn profitable in line with this significant revenue expansion. This time, we are disclosing our forecast as a range, so I'd like to briefly explain why. Since January of this year, 2026, the phased removal of Chinese export tax rebates, they're basically VATs, and tighter lithium export controls and pre-deadline rush in demand have converged to drive up raw material prices creating a risk of rising module costs from suppliers while lithium prices are stabilizing and shifts the competitive new products are planned short-term performance may be impacted conversely at this situation affects the entire chinese storage battery market it is believed there are aspects that contribute positive positively to the competitiveness of our company which procures components rather than finished systems going forward lithium prices may also decline in addition we plan to implement price pass through to customers and shift to new products with stronger cost competitiveness for these reasons we believe that gross margin improvement can be achieved over the medium to long term but in the very short term there remains a possibility of impacts on our performance also many of these developments in china affect not only us but all battery storage for the products exported from China, and imported into Japan. Therefore, for companies like ours that produce only components, that procure only components, excuse me, we believe that in relative terms, these changes may contribute possibly to competitiveness. As for exchange rates, we assume 155 yen to the US dollar in our business plan, but despite having entered into certain FX hedges, volatility has still been very high this year and difficult to forecast us dollar to japan procurement costs depending on exchange rate movements there may be cases where we pass costs through sales prices but this takes time and in the short term there is a possibility of impacts on performance finally today we announced the modular data center as a new business i will talk about this in more detail momentarily but we are not assuming any revenue from this new business during this fiscal year and on the cost side we are only assuming a limited amount of r d expense demand is very still difficult to predict but in the short term this may also impact performance next i would like to add some supplementary information on the other pnl assumptions and quarterly performance as mentioned earlier gross margin has downside risk in the short term compared with last year for sgna we assume headcount increases in sales and marketing to support future revenue expansion For R&D, while upfront investment related to existing products has decreased, we expect increases versus last year for development of new battery storage products, development related to power transmission transport, and modular data center related R&D. We expect to keep this with a certain percentage of revenue, but is still expected to increase compared with last year. For G&A, we expect a minor increase. Regarding our view of quarterly performance in the best business, as projects become larger and deliveries are made in stages, we expect revenue to become more balanced compared with 2025. However, while Q4 concentration is expected to ease somewhat, we still expect revenue to be weighted towards the second half of this year. On current factory utilization, while production capacity itself has headroom, we are controlling staffing and other resources as appropriate, and current utilization is maintained at close to 100%. If orders exceed expectations by increasing staffing to some extent, we believe it would be possible to increase production by approximately 1.5 to 2 times, even in the short term. Finally, regarding our shareholder return policy, we are currently in a growth phase, and rather than allocating funds to dividends, we plan to reinvest them in R&D, capital expenditures, M&A and other investments that generate further profits and accelerate the company's growth this concludes the financial reporting part of my presentation and i would like to now proceed to the business uh to explain the business environment to you please give me a second while i switch over my slides okay next page please so i'd like to review uh our order backlog and forward outlook. The order backlog. Due to the adoption of subsidies, the number of orders expected for this year and next year have greatly increased. So for 2026, our projection is to do $38 billion in sales, of which we have $36 billion on order. For next year, we suddenly have a lot of signed and probable orders due to the awarding of subsidies for our customers abounding to 39.8 billion yen we have a total of 80.1 billion yen in signed and probable orders for the next four years so if you look at our uh this in a chart you hopefully this is more easier to understand so 2026 the company is projecting 38 billion in sales of which again 36 is on order and we still have six months left to really close more deals. So hopefully we can bring this to the upside a little bit and accumulate as many orders as we can. 2027 is going to be very exciting for us. We already have 39.8 billion yen booked and we still have 18 months left of sales opportunities remaining. We don't expect SG&A to increase significantly for 27, although we are not projecting certain numbers yet. So we should increase our profitability moving forward. Now, there may be a concern that with all these new orders, there may be concern on fulfillment, and this is not the case. So as I explained earlier, even for this year, we are able to increase production simply by increasing the hours that the factory is in operation. Right now, we're running on one shift and on no overtime, and of course, taking the weekends off. But if push comes to shove, we can increase production even this year. For next year, we are deploying capital to increase the factory capacity itself. And that will then translate into increased capacity in 2028 as well. Again, we still have plenty of time to prepare for 2027. And we will be disclosing how we plan to increase production in the coming months. Now, if we can get the orders and we can make the orders, the last bit is actually not trivial, but we have a plan for this as well, is to execute, install, and run the orders. So I just wanted to show you this. Last year versus 2024, our revenue again was very weighted into Q4. And in fiscal year 24, November to December, we installed 47 megawatt hours of batteries with 12 project managers last year, 2025. Between the same period in November and December, we installed 257 megawatt hours with nine project managers. So each project manager has a 7x increase in efficiency. So we've installed 93 three of our Megapower 2700s in the in November and December and we know how to do this really well now so we're not very concerned about field engineering and installation and also transportation all of this has been done and proven that we can do this very well so I'd like to update you on each of the business segments and also introduce the new business which is the modular data centers. All right, so when we talked to our investors last, when we disclosed our order pipeline last time, the subsidies were not announced. They were submitted, but it was still in the pipeline, and we did not see them as probable orders, as they were not awarded. At the end of December, the subsidies were all awarded to our customers, and PowerX batteries have been awarded in 16 subsidies granted to the tune of 33.4 billion for equivalent revenue for us. And that's a 49.2% share. And we were number one in both the number of subsidies granted and the amount, the financial amount granted for subsidies. So we remain the number one energy storage supplier in this segment, as you can see from subsidies. Now that we have lots of installation, and lots of projects are going live and being turned on, and they're running every day as power plants, we want to provide an extra layer of security and service to our customers. So we do have our field engineering team, which we are actually increasing headcount on, But we have been working with NTT Anode Energy to provide maintenance and operation for all of the sites that we are providing. And NTT Group has nationwide coverage of engineers. And so a lot of the maintenance required on our batteries can be done jointly. So this is something that we announced a couple of days ago. So trend-wise, most of our businesses are now in the extra high voltage range in Japan by classification. So they're bigger battery power plants. So each battery power plant, the size of them that we're receiving on order are increasing. And this really helps us because it helps the seasonality. Because each project now has 20 to 80 batteries, we need to get started earlier in the year. And so this reduces seasonality and revenue. So not everything is concentrated in December, for example. We start around the summertime, and then we can push through those orders. So Q3, you'll see delivery ramp-up starting for this year. Productivity and sales is better, obviously. The same amount of people can generate more revenue because each of these are bigger. And planning is a lot easier as well. And so this is a nice trend that we are welcoming. And I'd like to show a video of some of the battery power plants that we've installed and commissioned in the past couple of months. So let me show our video. Okay, so this is a typical very large-scale installation. There's still 20 or 30 batteries, I believe. Some of the bigger projects we have on order are up to 80 batteries in one installment. This is solar-adjacent, and this is a new segment, I think, that is going to be very strong in Japan. So this is a 10 or 15 megawatt, very large solar power plant in Kyushu with a lot of our batteries. So this is going to be a new trend as well. So going back to the slides, again, battery power plants are getting bigger. And if you look at our latest press releases, we have a lot of, again, tier one, the most reputable companies are buying PowerX. And I'm very proud of that. And we hope and are confident this trend will continue. All right. So our power business. So this is growing. And this is very interesting. So every time we sell our battery power plants, there's an opportunity for our power business to step in and leverage our customers' assets and do a revenue share with them for either aggregation or for us selling electricity to our customers. And so this is a type of business that is recurring, that sits on top of our flow business, which is battery energy sales. So we do three things in this business. Number one, we simply sell electricity. So this is everything from a PPA to retail sales. We do aggregation. So we operate the assets of our customers, if they'd like. We can do battery power plants, photovoltaic co-location, and of course, we can manage them on-site for industrial plants as well. We also do asset services, which is in very high demand now, where we develop the site. So we go find land, literally, procure and engineer the site, and give our customers a turnkey battery energy power plant. And this has worked all very well in conjunction with one another. so right now uh electric electricity wise we're selling it's still very small now but we're seeing very high growth in this sector 19 megawatts of uh contracted uh energy sales capacity battery power plants we're operating seven battery power plants right now to the tune of 14 megawatts of course this will increase and this is going to be recurring revenue for the company so along with operation and maintenance. We have electricity as a recurring revenue now, and we hope to grow this in the next few years. Okay, so moving over to the new business. So this is our Megapower DC. Now, we have a press movie. QR code is here. It'd be great if you can take a look if you're interested. But basically, we've taken the Megapower 2500 liquid-cooling, a liquid-cooled battery energy storage system. And we've basically taken about 60% of the batteries out. And then we've installed racks for computers. And we're using all that cooling, all the technology, the DC technology, direct current, DC technology, all that in the same container. And we can make this in our factory with no new CapEx. And this can be made alongside our regular batteries. now i can't go into the entire pitch for this here because of all of your time i encourage you to visit our website and look at our video where i explain this in detail but i want our investors to understand kind of what we may get out of this business so with very little risk in other words no new factories the r d is done technology that we can leverage we can sell data centers now if you put together 125 of these mega power DCs, we're at hyperscale equivalent in the amount of compute that these units can do. Each of these can be connected by NVLink or any other high-speed connection and act as one. 25 units amount to these data centers, 10 units, small size, and of course, we have edge data center use cases as well. And we expect, especially because Japan has very different power plant, the power plants are in a different situation as the rest of the world, we think this might be the easiest way to add data centers in Japan. So construction is expensive, power is very hard to find, batteries are going to unlock the power, and the containerized, the modular piece, will unlock the availability, because buildings take a long time to produce. So we expect use cases in power plant adjacent, containerized, these modular data centers popping up. We also expect co-location with our battery power plants that we make already. And we also expect very inner city, high density use in edge as well. So if we look at the addressable market, this is actually comparable to batteries, if not larger. So we have all the math here, but basically OCCTO, which is Japan's agency that manages the grid, is predicting about up to 70,000 gigawatt hours in electricity use from all data centers. Now, if you do divide that by all the hours available throughout the year, we're looking at five to eight gigawatts of data center power, of which two is deployed today. So there's about 3 to 6, 5.9 gigawatts of new data centers that will be powered. And if you translate that into trillions of yen, it's anywhere between 5 to 10. And so that is equivalent to the battery energy storage business that we have here in Japan. And we believe that our data centers may be the best and fastest way to deploy data centers here in this country. So what's the business model like? Again, no new CapEx. R&D is done. we can do this right now as a new business and we have I have we have the prototype and all that you can look at it on the video but it's we're gonna start with phase zero which is the contract manufacturing model so data center customers are already have lots of the Nvidia servers and what have you on order and instead of sending them to a building they send it to our factory And we configure and install them into the Megapower DC. And then we simply ship the site, install it, and operate. And we can help operate, turn them on. Phase one, hopefully, will be turnkey. So instead of doing an ODM style where we simply do contract manufacturing, we hope to have a few variations that we can sell to customers directly. Phase two, I don't want to get too much into detail. And again, we don't want to get too ahead of ourselves, but we think we can do something special. So instead of just making these for our customers and then having our own configuration where we're buying the computers, we think we can do a little bit more vertical integration. And we're very excited about this prospect, and we want our investors to also see value in this for this company. So we've already signed an MOU with IIJ, absolute leading company for data centers here in Japan. We're jointly exploring how IIJ and PowerX can put this together and execute and install data centers quickly throughout the country. And so we already have this project already has legs and we're going to push this through. Again, we don't expect any revenue for this year, but hopefully these are seeds that will grow out next year and beyond. Okay, I just want to spend maybe two minutes, especially for our international investors, why we're doing this thing, why we're doing modular data centers. So we are a battery energy storage company, and we do power as well. And the reason we do all this is because Japan needs energy independence, and we believe that we can help. So if you look at the Japanese archipelago, So we've got the Hokkaido, Northern Ireland, Kyushu, and right up north, where it's actually the snowiest, some of the snowiest cities on earth, there's a lot of potential to create power. So these green circles show curtailment of power plants. In other words, too much power can't run the power plants. Nobody's using the power. So the batteries are the first thing that we need to install. So Kyushu, when there's a lot of curtailment, you want to charge the batteries and have solar and nuclear available for 24 hours a day. However, when we've installed the batteries, Kyushu, Hokkaido, Tohoku, we're still going to have extra power, and Tokyo and Osaka and Nagoya, those three red bars, they're going to need more extra power, but power is very difficult to transmit for this very mountainous island. Next page, please. So don't want to get too technical here, but if you look at the top, power transmission lines cost anywhere between 500 million yen to 900 million yen per kilometer. So these are HVDC or HVAC cables. They're roughly this ballpark. So even if Kyushu had an abundance of power, sending extra power to a data center in Osaka, for example, is going to be really expensive to renew that grid. However, optical fiber cables are maybe 1.2 million yen per kilometer. So it's 200 million yen per kilometer. So it's practically much less than power. So in other words, in Kyushu, Hokkaido, So where there's a lot of extra energy, what we need to do is we need to build these data And then the data centers will do the computing with that extra energy and send the bits back to the cities. So we're leveraging all the extra energy that our batteries are helping the 24-hour availability of. And then we're going to turn that into bits and send them back to the cities. That's why we need to get involved. That's why PowerX feels that this is part of our mission to build these computers. We really need data centers and the control of AI done here in Japan. So again, our mission is to achieve Japan's energy independence. And our battery energy storage power plants are doing that right now. And we're leading the field here. Very high growth, but we will remain grounded and make a really good product that our customers will enjoy. data the data centers will then come on top of that so the data center business will take all that extra energy that we're storing and turn them into compute and really help this aging population we need physical ai we need lots of ai because of just population decline and the cheapest best way to do that is through these containerized modular data centers that we've built okay so that was a long presentation. Thank you very much. If you've got this far, I really appreciate it. We are quite focused and serious about doing proper disclosure and being very transparent with investors and our shareholders. We've released a bunch of new videos that explain what the company is doing, explain the situation that Japan is in, and we will continue to do this kind of disclosure as as best we can. I bring, I'm here in our factory in Okayama, in our headquarters. It'd be great if we can, if investors can reach out to us if they're interested in learning more about us. We have a very strong IR team that we can go through in details with you. So I appreciate your watching. Thank you very much. And we'll see you again in the next quarter. Thank you very much.