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spk01: Welcome to the ElectroVoya Q3 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A 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. Please note, this conference is being recorded. I will now turn the conference over to your host, John Gibson, CFO. You may begin.
spk08: Thank you. Good evening, everybody, and thank you for joining us today on the call to discuss Electrovia's Q3 2023 financial results. Today's call is being hosted by Dr. Raj Dasgupta, CEO of Electrovia, and myself, John Gibson, CFO. Today, Electrovia issued a press release concerning its business highlights and financial results for the three-month period ended June 30, 2023. 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 discussions and analysis, you can access those documents on the new CEDARplus website at www.cedarplus.ca or on the SEC EDGAR website at sec.gov forward slash EDGAR. As with previous calls, our comments today are subject to the normal provisions related to forward-looking information. We will provide information relating to our current views regarding market trends, including the size and potential for growth and 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 Q3 fiscal 2023 results and the most recent annual information form and management discussion analysis under risks and uncertainties, as well as in other public disclosures filed with Canadian and U.S. security regulatory authorities. Also, please note that all the numbers discussed on the call are in U.S. dollars unless otherwise stated. And now I'd like to turn the call over to Raj.
spk06: Thank you, John, and good evening, everyone. Electrovia's fiscal third-year quarter was another strong quarter and further demonstrated our focus on execution, profitability, and growth. There is a long list of milestones that we achieved over and since the quarter, and I'd like to reflect on a few of them on today's call. First of all, we made a second consecutive quarterly profit, despite having increased legal and other costs associated with our recent NASDAQ listing. This was made possible through improved gross margins on our battery system sales. I expect us to continue to raise margins over the coming quarters, and as our top-line revenue increases, our profitability and financial strength will continue to improve. battery systems for material handling applications especially those at large corporations are responsible for the majority of our revenue in the last quarter we have continued to see revenue and order growth including two new fortune 100 pedestal customer orders overall we have seen over 50 growth in our backlog compared to last year with regards to our oem partners We are pursuing a number of new initiatives, including new product offerings, some of which will be launched in fiscal year 2024 and some in fiscal year 2025. We believe there is substantial untapped potential for our Infinity batteries in the material handling sector. I'd estimate our penetration for electrified vehicles with our main OEM partner to be under 10%. Market indications are that the lithium ion penetration rate should increase to about 50% by 2027, which would be about five times our current production rate. While electrified low voltage products may have been very successful in the material handling and robotic markets, we are now positioning the company to take a leadership position in other heavy duty market segments. This includes electric bus, truck, mining vehicles, and energy storage, which all require high voltage battery systems. We have developed our high voltage product line to take advantage of the core Infinity technology benefits with respect to safety and cycle life, and also the strong systems capabilities relating to performance and reliability that we have demonstrated in the material handling market for years now. Since we announced the product line on July 20th, we have had considerable interest and are expecting to start shipping pre-production packs starting in the first quarter of fiscal 2024. We have received some initial orders for packs which include heavy duty vehicle applications and are actively pursuing large opportunities. These are mostly for startup production in 2025, which is in time for our Jamestown, New York operations to supply. That brings me to our overall expansion plans. The heavy-duty market needs our Infinity battery technology, and this is going to be an enormous market, which is just starting to be electrified. These are applications that need better safety due to the size and sensitivity of the applications, as well as the higher duty cycle that they achieve. Furthermore, they operate with substantially higher duty cycles than automotive applications, and therefore longevity and cycle life are going to be key selection parameters. Unfortunately, most of the nascent electrification of these applications are utilizing batteries where the technology is optimized for passenger vehicles, and the results have been poor. If you examine recent news, even just in the last few weeks, you will see a large number of the initial electrified bus and truck segments have had safety recalls all relating to the batteries. So given our continuing growth in the material handling sector and the combined with anticipated demand for our high-voltage batteries, we see the need to increase our production capacity significantly. Currently, we are in late stages of securing the financing for the first phase of what should ultimately be a multi-gigawatt-hour manufacturing footprint at our Jamestown, New York campus. A further benefit of these expansion plans is our ability to leverage the Inflation Reduction Act incentives, which will provide approximately $45 million in cash incentives for every gigawatt hour of output. We recently provided a brief update on the progress on our plans in our press release dated August 2nd. With that, I'd like to pass the discussion back to John, who will go over the financial results in more detail.
spk08: Thanks, Raj. Revenue for Q3 fiscal year 2023 was $10.5 million compared to $4.3 million in the third quarter ended June 30th, 2022, an increase of 145%. We continue to improve output within the facility. Our weekly run rates are past $1 million per week in the quarter, and we're looking to build on this momentum and continue into the final quarter of the fiscal year. We ended Q3 with a strong backlog, which was up approximately 50% from the prior year, And we believe that this puts us in a strong position going into the final quarter of 2023 and into fiscal year 2024. We remain on track to meet our 2023 guidance of 42 million. This quarter saw the first real positive movement in gross margin for the fiscal year. Overall gross margin was 28.1%, an increase of almost three percentage points over the prior year and the prior quarter ended March 31st, 2023. And when looking at revenue streams individually, the numbers increase even more. Battery system gross margin came in at 30.3% for the quarter. This improvement was driven by locking in prices from key suppliers for 2023 deliveries, taking advantage of volume discounts where available, and operational efficiencies. We expect to see an increase in gross margin in the rest of calendar 2023. Adjusted EBITDA for the quarter was 1.1 million compared to a loss of 1.5 million in the prior year. For the second quarter in a row, we recorded a net profit showing 0.1 million in the quarter compared to a loss of 1.5 million in the quarter ended June 30th, 2022. This is despite being negatively impacted by the one-time costs that Raj mentioned relating to the NASDAQ listing. And we anticipate the company maintaining a positive adjusted EBITDA position for the remainder of fiscal year 2023 with an overall positive figure for the full fiscal year. The company generated a positive cash flow of $0.1 million for the nine months ended June 30, 2023, compared to a cash burn of $3.2 million in the nine months ended June 30, 2022, a significant milestone. At June 30, total debt was $16.6 million compared to $16.5 million in the prior year. The company is actively managing its cash to reduce its interest charges. The company believes its available liquidity, along with the collection of 10.1 million of its accounts receivable, conversion of 5.1 million of inventory into saleable finished goods, as well as receiving an additional 6.2 million of inventory in process for which deposits have been recorded in prepaid expenses, is adequate working capital to support our anticipated growth for the remainder of the fiscal year 2023 and into fiscal year 2024. That concludes the financial overview. I'll now turn the call over to Raj for concluding remarks.
spk06: Thank you, John. I'd like to start my concluding remarks by reiterating on the enormous opportunity that Electrovia has with respect to the Infinity technology platform. I believe that the timing for our scale-up for this technology couldn't come at a better time. Just as the electrification movement is reaching some level of maturity with respect to battery requirements, with a renewed focus on safety and lifecycle costs, our technology is being scaled up. As demonstrated by our internal testing and by third-party testing at DNV's labs in Rochester, New York, our infinity cell technology is in a league of its own. There are no competitors that I know of who come close to the cycle life with similar performance metrics. This type of performance, combined with our superior safety, is getting noticed as these markets mature. We are seeing interest not just in our battery systems, but also from very large potential OEM customers where there's potential for cell level sales as well. Moreover, the Infinity technology platform is ultimately a platform technology that is agnostic to chemistry. As a result, Electrovia can continue to improve in metrics like energy density or use lower cost cathode materials like lithium ion phosphate or lithium manganese oxide and still maintain a competitive edge with respect to longevity and safety. As part of our scale-up efforts, we will also be reshoring the separator production and will be working closely with our Japanese partners to ensure a seamless integration. As I've mentioned in prior calls, technology is in our DNA, and we are continuing efforts to stay at the forefront. We are adding more talent to our engineering team with a significant planned expansion over the next six months. We've recently filed four patent applications for battery system technology. Our team at Electrify Labs is making steady progress with respect to our solid-state battery technology and ceramics development. I expect all these efforts to benefit us in the long term. That concludes our remarks this evening. John and I would now be pleased to hold a question and answer session. John, please feel free to open the line for questions.
spk01: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 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 keys. One moment, please, while we poll for questions. The first question comes from Eric Stein with Craig Hallam. Eric, please proceed.
spk03: Hi, Raj. Hi, John. Hi, Eric. Hey, so maybe just starting with the high-voltage product, you mentioned some of the traction since launch. I'd love just to characterize the initial orders, if you could, and then maybe just break it down by end market. I know you've been working with a bus OEM and an energy storage. I also know you've responded to a large RFP and also some opportunities with materials handling customers, so a broad update would be great.
spk06: Yeah, so Eric, you're correct. Those are, that's what's, you know, there's a lot happening right now with regards to the high voltage business development activities. So we've received some small seed orders from a variety of heavy duty vehicle applications. And these are seed orders. So they want to see how the battery systems perform before looking to scale up utilization of our systems. As you mentioned, we're also bidding on some large opportunities, including in the electric bus space, as well as other segments, including energy storage. Now, ultimately, the good thing is all these applications use essentially the same pack design, so we can use the same system in a variety of applications. So it's going to be a common product. which makes it easier for us to look at more opportunities.
spk03: Got it. And so when you talked about these initial orders and that these would really be fiscal 25 opportunities, I mean, is that basically because that's how long you think it'll take just to get through this qualification period with these various parties?
spk06: Yeah, that's correct. So any sophisticated OEM is going to take about a year to go and to start a production with a new system. And that's sort of what we would expect. So our expectation is fiscal 24 is still going to be significantly dominated by material handling revenue, which is great. We're continuing to grow that. And the high voltage systems will start making meaningful revenue in fiscal 2025. with some revenue in fiscal 24, for sure. Got it.
spk03: Okay, thanks for that. Maybe just turning to materials handling, you mentioned the two new customers. Just curious, I know you're likely not able to share who it is, but maybe just some characteristics versus some of your current customers.
spk06: Yeah, so last quarter, I think we announced that we had 10 Fortune 100 customers Customers using our battery systems and this brings it up to about 12 Now the list up until now has been more dominated by the retail sector these two additions are in the food Food distribution Space put it that way Got it
spk03: That's interesting. I mean, I know what I've heard in the past is that sometimes there have been concerns of battery usage if you're in refrigerated, you know, temperature changes and that sort of thing. You know, just curious how the Infinity kind of stacks up in those different applications. Obviously pretty well if you've got these two new customers.
spk06: Oh, it certainly does. We are, our batteries, I'll have to check the full list, but we're operating in a numerous range. cold storage warehouses already. Ben & Jerry's ice cream is a good example. If you like Ben & Jerry's as much as I do, it's good to know that they're using vehicles powered by our batteries in those freezers. So we have a large number of cold storage warehouses, which I expect that to continue to increase.
spk04: Okay, thanks a lot.
spk01: Next question comes from Samir Josi with HC Wainwright. Samir, please proceed.
spk09: Yeah, thanks. Thanks for taking my question. I just was wondering how the gross margin has improved quarter over quarter despite the top line staying the same. And then part B is, should we expect even more gross margin improvements in the fourth quarter?
spk08: So, John will take this question. The gross margin improved in this quarter, a combination of factors. As we scale, we're able to take advantage of cheaper pricing with some of our suppliers. On top of that, we have been very efficient when it comes to the actual production schedule and getting everything through the plant. And we are also going through a almost like a review process where we optimize some designs with the engineering team. So it's a combination of those. Product mix is a big one, really. The historical low gross margin orders are out of the picture. We've delivered all those. There were none of them in the quarter. So going forward, we will see steady and improving gross margin. That's where we envision the number going.
spk09: Understood. And stepping back, the debt facility being negotiated, is that contingent upon your engineering studies and plans being ready? How does that work? If you can, a Gantt chart of progress on that front would be helpful.
spk08: Nothing's contingent. It's just Regular due diligence. All the engineering work we had already carried out is just the case of getting it reviewed again by a third party to make sure there's no bias in there. So that is more like a formality than a restrictive covenant on the debt.
spk06: Oh, yes. Samir, you're referring to the Jamestown financing or our existing debt refinance?
spk09: Sorry, I should have said that. Yeah, Jamestown. Okay.
spk06: Yeah. So I'd say, as John mentioned, we're in the final stages, more like legal and other parts of the due diligence process. But the main part of the engineering due diligence, we've passed that.
spk09: Understood. In terms of proving out the 52 amp hour technology with these newer customers, are these customers asking for like independent verification or are they good with the DSM studies and results?
spk06: Well, we actually have already completed third party validation testing on the 52 amp hour cell. So it's already been UL listed. We have quite a bit of performance data on it as well. So it's fairly well understood. So our plan is to introduce the 52 amp hour cell first in our high voltage products, which of course are being scaled up in 2025. And they'll also be introduced on our material handling products at some point in mid 2024.
spk09: Okay. But for these bus and trucks and mining customers, you don't expect additional testing from these potential customers?
spk06: We expect the sophisticated ones to want to test cells and or battery systems. So that will be part of the engineering process for them. Like sophisticated OEMs generally generally do that.
spk09: Got it. And then just coming back to costs, actually, interesting to see R&D costs come down, sales and marketing costs come down as well. Should we expect these levels or should we expect a ramp again once activity in New York increases and sales traction on the heavy, high voltage increases? Or should we look at the next, say, six quarters?
spk08: I think you should expect it to probably fluctuate somewhat. R&D is kind of an up and down expense because it covers obviously salaries for the engineers, but material that they use within their projects as well. So there could be a quarter where there's less material purchased. Salaries are the same, so that's why you're going to see it go up and down. In terms of sales and marketing, Yes, you will likely see an increase in costs as the high voltage gains more traction and as we put that out in front of more customers.
spk06: Yeah, but overall, Samir, we expect revenue to continue to increase. So any changes in those costs are going to be relatively small compared to top-line growth. And overall, John and I are laser focused on ensuring profitability is present throughout. So we're not going to, we are not planning to turn back and go back into the red at any point. We've crossed that chasm. We like it in the black and life is better black.
spk09: Certainly. As I understand, what you're saying is you do see operating leverage going forward. So that's good to see.
spk06: We definitely won't shine away from making investments where needed. Now, you may have noticed our sales and marketing costs are relatively low, and they've continued to come down. And some of that is due to our focus on partnerships, right? So we have a very small sales team because the OEMs want the product, so we don't really have to sell it too hard. And so actually our sales team is very small and it doesn't need to be large. So we can maintain relatively low costs with respect to sales and marketing. We also don't spend a lot of money on trade shows, et cetera. So we are cognizant of keeping Things tight.
spk09: Understood. Thanks for that. Thanks, Raj. Thanks, John, and good luck. Thanks, Samir.
spk01: The next question comes from Pavel Machinov with Raymond James. Please proceed.
spk05: Thanks for taking the question. I realize, you know, we're not quite yet at the end of the fiscal year, but as we look ahead to 2024, Maybe just talk in general terms how you're thinking about, you know, top line and you mentioned that EBITDA should remain in positive territory.
spk08: Yeah, for 2024, you know, we don't want to make any commitments right now. We're just in almost halfway through August. We'll probably make an announcement on planned 2024 revenue after the end of the fiscal. But, you know, we would like to go obviously higher than what we're planning on doing this year.
spk06: Yeah. So, Pavel, overall, you can expect pretty strong growth. We're growing 100% year over year right now. Will we be able to maintain that? Probably not, but will it be significant? you know, over 50%, that's what we're looking at right now. So somewhere between 50% and 100% at this point. That's a very broad football field for now, and we'll narrow that as we get closer to the end of the fiscal year, when we get close to announcing our fiscal year results.
spk05: In that context, when we think about the margin profile on the high voltage products for the buses trucks and and storage directionally should that be higher or lower versus you know the base material handling business well i'll take a step back you know the the reason we focus so
spk06: And we rightly focused on material handling first. We could have focused on high voltage systems earlier. And just two years ago, I would say if we had done that, our margins would be extremely tight because there was a lot of competition in the sector. And companies were quite happily selling battery systems at a loss in order to gain contracts and market share. Those companies that were doing that, of course, you know a few of them. One of them recently declared Chapter 11, and the other one was bought out by another group who's also struggling. So I think the opportunity for us now, especially post high-profile recalls in the electric bus and other sectors, bus and truck, put us in a position where we don't have to sacrifice margin in these applications. That said, this is a new product. It takes time to optimize it for costs. So we're not planning to lose our opportunities just because we want to maintain a 30% margin. But in the long run, I think the margins can be similar to what we're seeing in the material handling segments.
spk05: Yep, that's helpful. Last question, you know, we have seen in the last 100 days, battery prices come down at a pretty steep rate, you know, across the board, EVs, etc. Are you kind of observing that in the market? And what do you think explains that decline?
spk06: I think there's always going to be quite sharp cyclability with respect to the commodities used in lithium ion battery production. And we generally sort of hedge ourselves. So we take a – I think just last month we secured supply of some key materials for roughly, what, a 12-month period. We did take advantage of some cost reduction. But let's say next month you see a big drop in lithium carbonate pricing, we're not going to be able to take advantage of that. It's sort of on an annual basis for us. I think as the industry steadies itself and gets up to scale, you'll start seeing some more stability with respect to those prices. But lastly, we're almost in a bit of a league of our own again. We're selling a premium battery system for a specialized heavy duty market, which isn't as cost sensitive as the other markets. So passenger EVs, these make a very big difference for those markets. For us, we're definitely less sensitive.
spk05: Understood.
spk01: Thank you very much. Thank you, Pavel.
spk08: Thanks, Pavel.
spk01: The next question comes from Tom Kirken with Secort Research. Please proceed.
spk04: Hi, guys. Tom Kirken, Secort Research Partners. Tom, nice to hear you. Yeah, likewise. Thanks for taking my questions. So I'd love to hear an update on your solid-state battery platform and any points of progress that you would highlight from the quarter, and do you still believe you're on track for first commercialization in 2025?
spk06: So research, of course, is a bit of a roller coaster, so things change on a dime. That said, the team there is very confident they're making good progress. We're also starting, as of a few months ago, starting to produce the ceramic materials in-house. So that's aiding our development process. But I'd say it's too early to say at this point in time when this technology is commercializable.
spk04: Got it. And are you aware of any other development efforts occurring in parallel with yours around the anode-free concept, or do you believe this is an only-in-class innovation that you're advancing?
spk06: No, I think others are also focused somewhat on the anode-free setup there. So I don't think we're the only one. That said, I think our strength with regards to our solid-state battery development is both, of course, our team led by our Electrify Labs team is led by Dr. Shankar Dasgupta, our founder, and he's an amazing scientist. So they're making great progress. We also, of course, have substantial know-how with how to produce and use ceramic separators. Infinity Battery Technology Platform is based on a ceramic separator. And the solid state batteries in general will likely need similar materials. So I think that puts us in a good position. However, of course, it's too early to say whether this is a viable product or not.
spk04: Got it. Thanks for the update. Thank you. Thanks.
spk01: The next question comes from Sean Severson with Walter Tower Research. Please proceed.
spk07: Great, thanks. Good afternoon, everyone. Hey, Raj, when you're looking at the commercial applications, how do you do the commercial applications, are you talking to OEMs that already have a pretty good existing fleet out there of EVs and they're selling a lot? Or are these more of companies that are starting their product launches into the sector?
spk06: So all the companies, for the most part, that we're speaking with already have product offerings. So they already have launched, for instance, let's say an electric bus. And they're now looking at the next generation of those vehicles. And they want a better battery or a ultimately. That's what they're looking for. So which works in our favor, right? So if someone's had a bad experience with their battery supplier, it makes it all the easier to sell them our solution, especially if we're fixing problems with respect to safety or longevity, which I believe, well, if you look at the news, safety is definitely something that's been a concern in the industry, and that works in our favor. And we also believe some of the offerings aren't holding up with regards to performance, which also works in our favor. So I'd say that's the majority of what we're looking at. So that's when we're talking to OEMs. In some cases, for instance, in the mining sector, I'm talking directly to some of the big mining companies, right? And they're operating large fleets of vehicles. That's not a sector we had anticipated earlier, but looks much more
spk07: interesting than uh we what we thought and i'm assuming that this gives me some of that confidence and growth into 2025 because you're looking at these customers you're seeing volumes right so you i'm assuming if they make the conversion and they're making the move your adoption curve is going to be rapid inside the platform that you you would become the the dominant battery supplier for their platform is that a correct assumption to make
spk06: I think so. We hope so. I can't speak for the OEMs, but if our product is fitting well in their application, no reason why we shouldn't be.
spk07: And is there an opportunity for retrofit there, similar to material handling? Could you go back in and as the lithium ion battery packs are wearing out on existing buses, prior generations, can you retrofit there as well?
spk06: I'm sure you can. Our focus, though, is on, you know, we're a premium product. Premium products generally are better used on new equipment. So, I would forecast, you know, retrofits would be unlikely, perhaps more likely with respect to mining, but on buses and trucks, I don't It's hard to say. I can't say, but my gut instinct would tell me new vehicles would be the vast majority.
spk07: Sure. And then my last question on that is, you had an ROI sale and still do, of course, in the material handling side. In the commercial vehicle side and heavy duty side, is this just more about safety and some of the other concerns you mentioned, or is there... Is there an ROI calculator that you can look at that says, look, you use our batteries versus previous platforms. The economics are here.
spk06: I'd say it's both. First of all, if you have a recall, which a lot of these OEMs do, that's very costly. So that does factor into a return on investment in the long run. But we also, because of the longevity of the battery systems, we can potentially offer longer warranties. So that's one way we can provide a better return on investment, especially when OEMs or applications are looking potentially at augmentations on batteries, right? So a lot of the truck and bus applications did work in, let's say, a six-year or eight-year refurbishment. which we can avoid if they use our batteries. So that's one key advantage. And yeah, so there are aspects to both safety and longevity providing those benefits.
spk07: Great. Thank you. Congratulations on maintaining the momentum. Thank you, Sean.
spk06: Thanks.
spk01: Once again, if you have a question or a comment, please indicate so by pressing star 1. The next question comes from Aaron Martin with AIGH Investment Partners. Please proceed.
spk02: Hi, Raj. Hi, John. Congratulations on the progress. A lot of the questions have been answered. I'm not going to try to pin you down for the whole year next year, but in terms of seasonality, last year you kind of had a muted seasonality. How should we think about that as we go into the beginning of the fiscal year?
spk06: So, as I mentioned at the start, we have new customers, right, in segments like food distribution. And these are large corporations. And so, in previous years, we've been heavily dominated by retail companies, especially the e-commerce operator, as well as a few others. And they're very seasonal. However, when you taking into account these other opportunities which are expanding quickly, I would expect that seasonality still exists to some extent, but is definitely muted going forward. So does that sort of answer your question?
spk02: Got it. Appreciate that. And then, you know, on the gross margin, was the grant revenue a material mover there? Or that really wasn't part of the pieces, movement pieces?
spk06: Grant revenue, we have essentially no margin on grant revenue.
spk08: Yeah, there's a zero margin on grant revenue. There actually was a couple percentage detractor.
spk06: Correct. Yes, yes. You can almost say it's almost a negative margin because we're investing in some of those programs.
spk02: Okay, great. Thank you so much. Appreciate the update.
spk07: Thanks, Aaron.
spk01: Okay, we have no further questions in queue. I would like to turn the call back to management for any closing remarks.
spk06: We have no further remarks. John, thank you so much. That concludes our call, and thank you for listening. We look forward to speaking with you all again after we report our fiscal fourth quarter 2023 results. Have a wonderful evening.
spk01: Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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