Electrovaya Inc.

Greetings and welcome to Electra Via's first quarter 2023 financial results conference call. At this time, all participants are on a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Gibson, Chief Financial Officer. Thank you. You may begin.

Thanks, Doug. Good evening, everybody, and thank you for joining today's call to discuss Electrovia's Q1 2023 financial results. Today's call has been hosted by Dr. Raj Dasgupta, CEO of Electrovia and myself. Today, Electrovia issued a press release concerning its business highlights and financial results for the three months period ended December 31st, 2022. If you would like a copy of the release, you can access it on our website. If you want to view our financial statements and management discussion and analysis, You can access those documents on the CEDAR website at www.cedar.com. As with previous calls, our comments today are subject to the normal provisions relating to forward-looking information. We will provide information relating to our current views regarding market trends, including the size and potential for growth, our competitive position within our target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, they do obviously involve risk and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the company's press release announcing the Q1 fiscal 23 results and the most recent management discussion and analysis under risk and uncertainties, as well as in other public disclosure documents filed with Canadian security regulatory authorities. Also, please note that, as usual, the numbers discussed on this call are in U.S. dollars unless otherwise noted. And now I'd like to turn the call over to Raj.

Thank you, John, and good evening, everyone. Electrify has made a strong start to fiscal year 2023. We have made significant progress with respect to operations, finance, business development, and technology development. Our Infinity battery technology platform continues to provide a competitive advantage with respect to cycle life and safety and differentiates Electrovia amongst its peers. Q1 is typically the weakest quarter of the year due to seasonality factors as our material handling customers are still highly weighted towards large national retailers who have a preference for delivery in other periods of the year. Despite this, we delivered the second highest quarterly revenue in our recent history this quarter. We expect our revenue to increase materially in the following quarters and thus are maintaining our revenue guidance for the fiscal year at $42 million. Electrovia has a strong backlog of orders in hand, combined with a growing pipeline of projects, primarily through our strategic OEM supplier agreement with Raymond Corp. This includes projects with existing customers and also some significant new customers. Over the last year, the majority of our revenue has come from Fortune 100 retail customers, and we expect this trend to continue in fiscal year 2023. Last week, we announced a new Fortune 100 retail customer, which we hope will progress into becoming a significant buyer in the years ahead. While material handling remains our largest segment, we are seeing interest for our battery technology in other sectors as well. ElectroBio will be delivering high-voltage battery systems to two customers later in the fiscal year. We are also developing customized battery systems for robotic fuel cell hybrid and material handling electric vehicles for a variety of OEM customers. These developments, while not generating significant revenue this year, could lead to larger demand for our solutions in the future. Furthermore, these development projects further indicate customers' confidence in electrified technology and ability to provide cutting-edge battery systems that meet the needs of the most demanding applications. To further support our long-term efforts for customized battery systems, the company is investing in an automated module assembly line that is expected to be commissioned in April of this year, while also bolstering our engineering team with new talent. Our largest near-term investment is our planned Gigafactory near Jamestown, New York. This facility is expected to augment our current supply and will also represent a return to vertical integration for ElectroVIA's cell assembly, which utilizes a unique approach and technology. The Gigafactory will also enable ElectroVIA to take advantage of growing incentives for domestic manufacturing, including new policies with the Inflation Reduction Act. As we mentioned previously, it is our intention that the majority of the funding for the initial phase of the project will be from non-dilutive means, including grants and debt. The company is in late-stage negotiations with two U.S.-based government-owned lending institutions to finance a significant portion of the first phase of the Gigafactory. We recently received a term sheet from one of the lenders, which we are in the process of negotiating. Despite progress and our optimism, there is no guarantee that either institution will provide funding for the project. I will now turn the call over to John to review our fiscal first quarter results in greater detail. John?

Thanks, Raj. Revenue for Q1 fiscal 23 was $7.8 million, compared to $1.2 million in the fiscal first quarter last year. which represents an increase of 522% year over year. As Raj mentioned, we have historically seen a downturn in revenue in the first quarter of the fiscal year, and this seasonality continues to be a factor with some customers preferring to defer deliveries past the seasonal holidays and into the next quarter. Despite this, Q1 represents the second highest quarter sales for the company in recent history. We are anticipating continued growth in fiscal year 2023 as production continues to scale to meet demand. The impact of supply chain issues and inflationary pressures continued during the quarter. The gross margin remained at 25% for the quarter, consistent with last quarter, compared to 29% for the prior year. We continue to have customers locked into historical pricing levels from the summer of 2021, but this will end in Q2 of this fiscal year. In addition to the price increases carried out during 2022, the company has locked in pricing from key suppliers for 23 deliveries and will be taking advantage of volume discounts where available. We expect to see an increase in gross margins in calendar 2023. Adjusted EBITDA for the quarter was a loss of 0.4 million compared to a loss of 1.2 million in the prior year. The Q1 2023 numbers included some one-off costs relating to R&D expenses of approximately 0.2 million for projects completed during the quarter. We anticipate the company returning to a positive adjusted EBITDA position for the remainder of fiscal 2023 with an overall positive figure for the full fiscal year. During the quarter, the company completed a private placement with existing institutional investors, new institutional investors, and company insiders. The proceeds were used to repay 6.8 million of promissory notes and in turn reduce the monthly interest cost from Q2 2023 onwards. At December 31st, 2022, the total debt amounted to 9.7 million compared to 16 million at the end of September 2022. The company is actively managing its cash on hand to reduce interest charges. The company believes its available liquidity, along with collection of 7.5 million of accounts receivable, the conversion of 5.8 million of inventory into saleable finished goods, and as well as receiving an additional $4.2 million of inventory in process for which deposits have been recorded within prepaid expenses is adequate working capital to support our anticipated growth for the rest of the year. That concludes the financial overview. I'll now turn the call back over to Raj for concluding remarks.

Thank you, John. Electrovi continues to execute our strategy for commercialization of our Infinity battery technology platform. Fundamentally, it is our opinion that this technology platform offers unbeatable performance attributes for heavy duty applications, making these applications safer and providing a lower cost of ownership. Technology is in our DNA, and I'm proud to say that we are pushing the envelope in this regard. We are in the process of filing more patent applications than any other point during my tenure with the company. Part of this increased effort with regards to IP involves our solid state battery program, where we continue to make good progress. Given the exciting developments occurring with respect to electrified technology and our solid state battery development specifically, we are planning to host a battery technology day early next quarter. More details will be released on this event in the coming weeks. We expect that Q2 fiscal 2023 the current quarter, and the remainder of the fiscal year will prove to be instrumental in our goal to achieve profitability while maintaining our growth trajectory. Furthermore, we are confident that our goals with respect to obtaining finance for our Gigafactory, key milestones associated with solid-state batteries, and new OEM agreements are all attainable in the near term. These are very exciting and busy times at Electrovia. That concludes our remarks this evening. John and I would be pleased to hold a question and answer session. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants, Using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Amit Dayal with HC Wainwright. Please proceed with your question.

Thank you. Good afternoon, guys. Good to see all the progress. Just a few questions from my side to begin with. On the loan that you are seeking for this facility, Raj, is this for the $45 million loan? for the phase one capex, could you give us any color on how much you are looking to get from these government grants versus how much you might have to contribute just from the equity side for the capex?

Hey, Matt, it's John. Yeah, this would be for the initial stage of the project, the $45 million. We are expecting to cover between 75% and 85% in total funding from the government in grants and debt.

Okay, understood. Thank you for that, John. And then, John, again, maybe for you, you commented on expecting gross margins improving in calendar 2023. I missed some of it. Is any of that driven by price increases that you may have already implemented? I know you guys talked about it last quarter. Just wondering if those have been already put in play or you are expecting to improve prices going forward?

Those price increases have already been made. But the impact of them, you'll start seeing that in the current quarter. So fiscal year Q2 will be the first quarter where the impact of higher pricing is seen. Sales pricing, yeah.

Should we expect?

Our next question comes from the line of Sean Severson with Water Tower Research. Please proceed with your question.

Great. Thanks. Congratulations, Raj. Great quarter. My question is regarding the sort of the stationary power business and not just that one, but some of the other markets that you're developing, you know, things like commercial vehicles and heavy duty. But if you just give a little color on the roadmap there, what that looks like, any additional investments you'd need to make. And then also, I think importantly, As those businesses grow, should we expect any impact on the overall margins when compared to the historical business at Electrovia? So in other words, what will they look like as they mature?

So I'll start with your first part of your question is, yes, we are, you know, as we put out a few months ago, we are actively pursuing targeting the energy storage markets. For the most part, we're looking at projects that are further out 2025 onwards, which can take advantage of our U.S. production. So, and these are projects which are also larger in scale and require higher volume production, right? So, that's what we're very much focused on. But in the near term, we're also looking at some smaller energy storage projects, which could be deployed even towards the end of 2023. That said, on the margin side, you know, Electrovi is making a premium product, premium lithium ion battery system that outlasts typical lithium ion batteries. And we are of the opinion we should be gaining higher sales prices for this type of product. So we will maintain strong gross margins, whether it be for a material handling application or an energy storage application.

Just as a quick follow-up, do you think you need to make any other significant investments in infrastructure around that? I'm thinking more from a sales process and a service process or any of the things that you need to do infrastructure-wise, not technology-wise, to develop those markets.

So our approach to this market, at least at this point in time, is through partnerships. It is not to go out and bid on projects ourselves. So for instance, in this release, we mentioned that we co-bid on a large-scale energy storage project with a leading energy storage developer. And that's the type of approach That's the type of approach we're looking at, at least for the time being, where we partner with a group, whether it be a developer or another technology company, to provide our solution. When you do this, infrastructure-wise, we don't really need to make any significant investments.

As a reminder, it's star one, ask a question. If there are no further questions in the queue, I'd like to hand the call back to management for closing remarks.

Thanks, Doug. That concludes our call, and thank you all for listening. We look forward to speaking to you again after we report our fiscal second quarter 2023 results. Have a wonderful evening.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.