Electrovaya Inc.

Greetings. Welcome to the Electrovia Q1 2024 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.

Thank you, and good evening, everyone. Thank you for joining today's call to discuss Electrovia's Q1 2024 financial results. Today's call has been 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 December 31st, 2023. If you'd like a copy of the release, you can access that on our website, If you'd like to view our financial statements and management discussion and analysis, you can access those documents on the new CEDAR Plus 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 relating to forward-looking information. We will provide information relating to our current views regarding market trends, including their size and potential for growth, and our competitive position within those target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, they do obviously involve risks and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additionally, information about factors that could cause actual results to differ materially from those expectations, and about material factors or assumptions applied in making forward-looking statements, may be found in the company's press release announced in the Q1 fiscal 2024 results, and the most recent annual information forum and management discussion and analysis under risks and uncertainties, as well as in other public disclosure documents filed with the Canadian and U.S. security regulatory authorities. Finally, please note that all the numbers discussed on the call are in U.S. dollars and less otherwise noted. Now I'd like to turn the call over to Raj.

Thank you, John, and good evening, everyone. Thank you for joining our fiscal Q1 2024 call. Our first quarter results met our internal targets, setting the company on track to achieve our full-year revenue targets. As those who have followed Electrovia for the last few years may recall, our first quarter is typically our weakest quarter of the year due to the purchasing patterns of our customer mix. Our revenue this quarter increased by 41% over the first quarter of last fiscal year, making for a good start to the current fiscal year. Importantly, our gross margins also improved substantially from the previous quarter with battery systems exceeding 30% and total revenue with more than 29% gross margin. We anticipate further margin improvements in the second half of fiscal 2024 from anticipated cost reductions and increased volumes. Finally, we continued our trend to profitability with our fourth consecutive quarterly positive EBITDA result. While it has been a short time since our last corporate update, I'd like to reflect on a few of the key milestones we achieved over the quarter and our vision going forward. First, we delivered a strong first quarter with strong revenue, improved margins, and order intake. We continue to track towards our fiscal year 2024 revenue and profitability targets. Sales of battery systems for material handling applications through our OEM partners drive the majority of our revenue. During the quarter, we also posted meaningful engineering services revenue, which is tied to a key development program with one of our OEM partners. I expect this particular development program to eventually lead to significant revenue potential as these products move from engineering and development to production by the end of the calendar year. This program also demonstrates the key partnership we have with this OEM and the level of investment being made into these new Electrify platforms by both Electrivia and the OEM partner. Second, we continue to make progress in broadening our market reach for other applications for our Infinity battery technology. We are in discussions with multiple potential partners in a diversity of markets, such as electrified construction, mining, transit, and energy storage. As we mentioned in our last quarterly update, Electrify is growing a relationship with one of the largest Japanese trading companies. Through them, we are in discussions with several potential OEM partners and are making good progress. I expect to have a customer win in the near term through this partnership. Also, last call, I mentioned some interactions with a leading bus OEM, and those have continued over the first few weeks of the new year. Our high voltage battery systems will also be going through a full ECE R100 certification in the coming months, which will support further sales development and prove some of the safety benefits of Electrivia's Infinity technology. My vision is for Electrivia to become the leading battery player for the heavy duty applications that require longer lasting and safer batteries. Thirdly, we are making progress in increasing our working capital availability through a new debt facility. This plan increase in working capital availability will be key to provide us with the runway to achieve our anticipated revenue growth for the current fiscal year. In parallel, we are making progress towards securing financing for investment in our project to expand manufacturing and sell assembly in Jamestown, New York. As mentioned previously, we anticipate the financing will have a government-backed component, which requires a higher level of due diligence to the part of the lenders. We have weekly calls with this government entity and are gaining a level of confidence in closing a transaction within the next two to three months. With that, I'd like to pass the call to John Gibson, who will go into the financial results in more detail.

Thanks, Raj. As you just mentioned, we continue the momentum from fiscal year 2023 into the first quarter, and that is emphasized by the results. Revenue for Q1 was 12.1 million compared to 8.6 million in the prior year, an increase of 41% year over year. This substantial revenue increase was due to sustained execution of growing orders and an operational transformation of the company in general. Growth margins increased by 360 basis points to 29.2%, significant growth margin for battery systems on an individual revenue stream basis. Importantly, our registered EBITDA grew by $0.8 million to positive $0.6 million for the quarter. We had a small operating loss of 0.1 million, which related primarily to some one-off costs in the quarter, and we expect that to turn to a profit as we progress through the fiscal year. Our overall net loss for the quarter was 0.2 million, an improvement on a loss of 2.4 million in the same quarter in 2022. The company had positive working capital, of 0.1 million for the quarter and a significant improvement from negative 2.5 million in the prior year. At December 31, 2023, our total debt was 17.4 million compared to 14.6 million in the prior year. The company continues to manage its cash conservatively. And that concludes the financial overview. I now turn the call over to Raj for some concluding remarks.

Thank you, John. Our fiscal year 2024 has had a strong start. We have set some clear priorities and goals for the fiscal year. This includes meeting our revenue guidance of between $65 to $75 million, finalizing the financing for the planned Jamestown Gigafactory expansion, establishing new verticals and OEM partnerships for our Infinity battery technology, setting ourselves up for strong and growing demand for fiscal 2025 and beyond, and finally, continue to make headway in technology development, including for our solid-state battery efforts. I believe that the team at Electrovia continues to make progress in developing each of these goals, and today we are reaffirming our guidance for the current fiscal year. As previously mentioned, we expect that our revenue for the fiscal year to be back-half-weighted. That concludes our remarks this evening. John and I would now be pleased to hold a question and answer session.

Thank you. At this time, we will be conducting a question and answer session. If you have a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that's for our one. If you have a question or a comment, the first question comes from Eric Stein with Craig Hallam. Please proceed.

Hi, Rajad, John.

Eric.

Hey, so maybe we could just talk about Jamestown for a little bit. I mean, you clearly sound very confident that you are closing in on getting that all wrapped up. And I know that you've got, you know, added manufacturing capabilities in Canada. So just curious, kind of where that stands. And do you have kind of a date in mind that you feel like you need to have that financing in place? I'm just trying to get an idea of I mean, it sounds like you're pretty comfortable with the timeline and being able to meet the demand as you look out to 2025 and 2026. But just love your thoughts.

Yeah, we'd love to see – we're, you know, pretty confident we have good visibility because of our frequent conversations with these parties. Some things have given us better clarity over the last few weeks, especially with regards to some of the environmental reviews that were being taken for the site, and those appear to be going faster than – and with a clear end in favor. If it moves into April, that's also okay. We'll still be able to have our operation up and running on schedule.

Okay. And just to confirm, that's the plan, that you would have that and you would be able to make those orders? Yes.

That's correct. So these investments are really for the bulk of them are for cell assembly, right? So we're already producing cells in Asia, but this is to augment that production, taking advantage of the inflation, et cetera, and also just overall improving our company's capacity to deliver larger and larger projects. So it's not, you know, the Canadian site already has capacity to do about $130 million in revenue. So it's not the revenue aspect that's pressing. It's really just enabling some of the projects in other sectors, which would benefit more from the IRA incentives for Made in America, those kind of things. So that's why we're interested to get it up and running sooner rather than later. Yep.

No, that makes sense. Thanks for that. Maybe just turning to the engineering services business you referenced in the quarter, just to confirm, did you say that was with a materials handling OEM? And if so, I mean, I guess we can probably guess who that is. But just curious, you know, how you see that process playing out and, and what you tend to see as the end result.

Yeah, so this is a project which has been ongoing for almost the last year. Its efforts, though, have been stepped up considerably, especially in our fiscal Q1, where the revenue for engineering services was, what, John, close to $600,000 or roughly there. That revenue, you know, we're, of course, putting in our own investments on top of that through time and engineering resources. But the target is for a new electrified platform to be launched, let's say, for 2025. A lot of work goes into that. But this is with one of our existing OEM partners.

Got it. Okay. And then maybe last one for me. You mentioned the discussions and the business opportunities that you're seeing because of the relationship with the Japanese trading company. I guess I had previously thought that that would be more skewed towards heavier equipment, so mining, construction equipment, but it does sound like that's a little more broad. So maybe, you know, I guess correct me if I'm wrong, is that a more diversified opportunity? And when you talk about that near-term potential either order or relationship, how should we think about that in terms of end market?

So if you're correct, the initial targets are mining and construction OEM partners. And we have been in discussions with one of them for some time. Nothing is completed, but these things, this is moving nicely. Again, revenue would primarily be for 2025 and beyond. But if this opens up a nice new sector for the company, another OEM relationship, it's an important milestone to hit when we do hit it.

Okay. Thank you. The next question comes from Amit Dayal with HC Wainwright.

Please proceed. Thank you. Raj, with respect to, you know, the Jamestown facility, and the annual guidance is provided. Does the guidance, is it dependent on the facility coming online or is it independent of it?

No, our fiscal year guidance is independent of Jamestown completely. So as I mentioned previously, the Canadian operations, which are focused on material handling applications, they can – we can – They can sustain revenue of about $130 million per annum, so roughly double our guidance. And the guidance is all based on material handling. Where Jamestown is going to be important is to support our high-voltage battery systems and, of course, cell and module production that becomes IRA-eligible.

Thank you for that. With respect to this Japanese partnership, can you provide any additional color on what this process looks like? It seems you indicated you may see a customer win shortly, but just any color on who does some of the sales type work on these deals? Is it you or is it the partner? Just any color on what the process looks like and what it takes to sort of win contracts here?

It's a partnership, more or less. So, we are closely involved. However, we're leveraging the relationships that the trading partner already has. So, in this case, it's with an OEM that they already supply, and we become a new technology partner for an electrified vehicle. So, Our team is, for instance, I just came back from Japan on Friday and our team is frequently over there. A lot of that is to work to gain these new partnerships.

Understood. Maybe just last one for me with respect to this Jameson financing. Is there any particular milestone that now needs to be accomplished or is it just you know, the process needs to play out and you think that can be done within the next, you know, one or two months?

I think it's just a process. Yeah, there's no other significant milestones. As Raj alluded to, the environmental work would usually take, you know, five, six to eight weeks to complete. But that due diligence has been cut down quite significantly, so... That was really one of the only things that kind of was lingering in the background. So now it's just a process going through the remaining questions with the lender and getting over the line.

Thank you, John. Just one more for you, maybe, John. Liquidity position, are you comfortable with your working capital needs, et cetera, for the near term? Given that you have, I guess, 1.7 million in transit right now, just wondering if you have adequate liquidity for near term in terms of growth objectives, etc.

Yeah, I believe we do. We have a significant amount of inventory that we can build batteries with. Yeah, converting our AR into cash and converting that inventory into products to sell to our to our customers. Yeah, I believe we have enough liquidity to see us in the rest of the fiscal.

Andrew, that's all I'm going to say. Appreciate it.

Up next, we have Jeffrey Campbell with Seaport Research. Please proceed.

Good afternoon, and congratulations on the quarter. Raj, when you made reference to a new electrified platform for 2025. Is this referencing or distinguishing the Infinity battery as an integral part of the OEM design as opposed to previously where batteries are adapted to prior designs?

Yeah, that's correct. So, you know, up until most of our revenue is derived from batteries which are designed for existing material handling vehicles. If you've seen these Forklifts, for instance, they have caverns designed into them, which have initially probably been designed for lead-acid batteries, and our lithium-ion batteries are designed to have the same form, fit, and function, just have lithium-ion power. What we're seeing the trend to move towards, especially for extremely heavy-duty batteries vehicles which were only designed for internal combustion, those are platforms where customized energy storage systems are designed into those vehicles. It's much more engineering work and development work, but that's what we're involved in right now. Okay. Now, I appreciate that.

John referenced the operational transformation in the company and its positive effects on revenues. Could you expand on what he was referring to by this transformation?

It's more just relating to the kind of internal efficiency and our ability to flow orders through the plant itself. So we're definitely getting more efficient even from the order intake perspective. It's really – It's really a pretty dynamic shift from, you know, where we were even 12 months ago.

Okay. Yeah, I was wondering if perhaps some of the automation efforts that you guys have talked about in the past might be part of this as well. This sounds like it's almost more of an HR systems kind of thing. Is that more accurate?

Yeah, it's more a soft skills improvement. We do still plan on, you know, assessing... where we could use any automation. Now, we're not going all out and converting the plant to a fully automated plant. There's still a requirement for a significant number of employees, and we want to keep that way because we value our team. They're a great asset to the company. But what it will do is it will just increase the efficiency and speed again that a battery can go through the system. production cycle. So we're assessing a couple of projects there and as we kind of choose which ones to go after and we'll make any press releases relating to that once we make a decision.

Okay, thank you. I appreciate that. Regarding the mining industry, I mean, I'm not, this is too specific and you can stay away until later, but I was wondering, are you primarily looking at really very heavy-duty machinery, or are you also including lighter vehicles, such as the Toyota Land Cruiser, which is the dominant off-road truck in the mining sector, particularly in the Far East?

So, starting with construction, we're probably starting out with smaller construction-related equipment. On the mining side, the target would not be those vehicles. you know, maybe it could be down the road, but we're not looking at the cars. It would be, again, heavy equipment.

Okay. My last one is kind of a higher view question. You've talked a lot recently about large customers in various industries that are adopting the affinity battery. I wonder how you see the structural shifts from lead-acid batteries to Li-ion batteries progressing. As this started

to become a catalyst for infinity battery sales yet i think so i think um right now our estimates is about 10 you know let's just let's say our our first oem partner which is raymond corp i would say we're at roughly 10 adoption rate um and lead acid still makes majority but the the lithium ion has gone from zero to ten very quickly um So I anticipate that growth to continue. In fact, what we were anticipating is to get into about 50% adoption rates within a few years.

Okay. Thank you. Appreciate the answers.

The next question comes from Tevil Mokhanov with Raymond James. Please proceed.

Yeah, thanks for taking the question. You've had more than a year now with positive adjusted EBITDA. And I'm curious, at what point or what needs to happen for you to start getting EBITDA guidance alongside the revenue guidance?

Yeah. Hey, Pablo. It's John. That's a good question.

I think that's something we can definitely kind of move towards as we see more regular... I think it really requires us to have... Because Jamestown is going to make such a significant difference to margins, we would have to have very clear clarity on when those operations are affecting... will be having an effect. So realistically, you're looking at, at some point, mid to late fiscal 25 for that kind of guidance to be provided.

Yeah, I mean, our EBITDA percentage for the quarter was about 5%. What we can say is we're targeting a much higher EBITDA percentage, but to give you the actual figure, it's probably not something we can do right now.

Okay. As you start, I guess you started in December, but as you start getting some revenue from the outside the forklift market, will that be accretive or dilutive to your gross margin percentage? It's clearly very high, right, given that you have this nice moat

in the forklift space is it going to be potentially lower in these other verticals it it will it will be lower but it doesn't make up a significant or it's not going to make up a significant portion of the overall revenue like it was just over just under 700 000 this year this quarter sorry it's not like we expect it to be that high every quarter

Yeah, Pavel, are you referring to the systems itself or the engineering efforts? The product sales. The product sales. So, like, in this current fiscal year, the product sales will be so much smaller than the material handling sales. It really won't make any difference. But, you know, where these are new products that are being launched, essentially you can consider them engineering sales. There's some engineering development aspect to them. So, yeah, the margins, we're not, you know, we're, of course, not targeting any applications which we cannot achieve more than 30% gross margins. So when these products go into production, we would be able to achieve 30% or higher gross margins. The segments we're looking at, the first ones would probably be construction, and the second would be electric buses, both of which we can sustain those types of stronger margins. When compared to material handling, material handling by that point will be even at higher margins than that. So it's a more mature product. It's an industry that values our Technology is familiar with our technology. We can consistently probably get the highest margins in material handling, but these other markets will be close behind, and as they mature, I would expect a similar trajectory in those markets.

Okay. Last question from my end. We saw just a few days ago the EU finalizing – you know, sort of their version of the inflation reduction act, you know, the net zero, uh, industrial plan. And you've talked about, you know, wanting to bolster your footprint in Europe, um, maybe just get an update on that.

Yeah, that's a, that's a, uh, overall, a positive, um, positive, uh, event. And, um, Our long-term vision is, first of all, to have Jamestown up and running, supporting our new verticals and existing verticals. At the same time, ElectroBias should be and will be the leading battery player for these heavy-duty applications, which does require us to expand our global footprint at some stages. And when that – the markets that we're looking at for that further expansion and that – you know, we're looking at past Jamestown, right? These are priorities that are further down, but we're looking at opportunities probably in Japan and in Europe. Europe, County of the United Kingdom, just FYI.

All right. Thanks very much.

The next question comes from Oren Hirschman with AIGH Investment Partners.

Hi. Congratulations on the progress. In terms of the NRE, is that all from that – Hi. Is that NRE all related to that one project, or there's multiple NRE projects?

That's just one project.

In terms of the reason for the need for NRE is because – It doesn't exist today in terms of, like you were saying before, there was no form factor, you know, to easily flip in electric in a heavy-duty construction vehicle or something or a mining vehicle like that?

That's correct. And if you think about it, the other batteries, they're Electrovia finished products, which can be removed from the vehicle. They can be installed in an older vehicle, et cetera. So they're almost a separate entity. In this case, the battery system is integral to the vehicle, and it's almost designed in. So that's essentially why there's significant NREs, which in other markets we don't use.

Is it being driven by clean energy, let's say, in heavy-duty construction, or there is a cost savings to being able to use electric in such an application?

So, overall, most industrial vehicles are headed towards electrification. So, if you just look at the material handling market, roughly, currently, 60% is already electrified. The remaining 40% likely will be electrified. Some of those vehicles are extremely heavy-duty in nature, and... traditional lead-acid battery technology would not have been able to work. However, our technology will. That's combined with overall movements on both the legislative bodies as well as industrial conglomerates to move away from IC engines in general. There's multiple driving factors to go electric here.

Okay. When you say 40%, you mean 40% of different types of materials handling has an option for electric. That's what you mean, correct?

No, no. If you just take a look at, let's say, all the vehicles produced in material handling today, 60% of them are electrified. 40% of them are primarily internal combustions. Roughly, right? And that 40% is going to be electrified as well. That's what we're – that's what this particular project is looking at.

I'm not following the numbers, though, if I may just ask. I apologize. You mentioned before with, let's say, with Raymond that, you know, you're up to 10% penetration. Go back and correlate those two numbers because I know they mean different things, so I can make sure I follow.

Yeah, they do mean different things. So with Raymond, Raymond only makes electrified vehicles. So 10% with Raymond is one thing. If you look at the overall market, though, including all the OEMs, that share of electric drops to about 60%. In fact, our other OEM partner, The majority of what they produce is IC engine space. So there's a large opportunity for us to both continue growth on already electrified platforms and in electrifying IC engine platforms.

Okay. And I assume on some of these projects, these NRE projects, there is some, you know, special advantage you have from the Infinity platform. Is that fair to say?

That's completely correct. So the reason we can electrify these platforms to begin with is, number one, we can package enough energy in the vehicle to meet their, let's say, eight-hour requirement. Then we can also charge this battery quickly and do so many times over without leading to degradation on the battery performance. So those are the key factors on choosing electrovised technology over another company's. Okay, and finally, cycle life advantage, energy density advantage as well.

And two last questions, if I may, and then I'll let other people ask, and thank you for giving me the extra audience. In terms of having to go to another shift or multiple shifts in Canada – where that could potentially have a dragging effect on your gross margin. Is that accurate, or it doesn't necessarily have a dragging effect on your gross margin?

Oh, I think that if we have to go to another shift, then that means we're essentially utilizing more of the labor time because there's more orders to go through the plan. So, labor doesn't make up a huge portion of our gross margin anyway, or our total cost. So, I don't expect that to have a significant effect on the gross margin.

And, Oren, when we do go to a second shift, the volume, you know, you can expect that to happen in the second half of the fiscal year if we need to. And by then, we're expecting gross margins to improve because of some cost reductions that we're expecting to kick in as well as other factors. Yes.

Okay. And finally, just if I have to ask it, and I know it's much further out in the future, but any progress on the solid state project?

There has been continued progress there. The reason I didn't put it into our remarks is it's been a few weeks since we last provided some update there. The direction we're going in is we're making a proprietary ceramic material in-house. as well as that ceramic separator utilizing that proprietary material. So our team is making good progress. We're looking to see improvements in consistency before we publish any results.

Okay, great. Thanks so much.

I would now like to turn the call back to management for any closing remarks.

Thank you, everybody, for joining our call today, for listening in. We look forward to speaking to you again as we report our second quarter 2024 results. Have a wonderful evening.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.