Microvast Holdings, Inc.

Thank you for standing by. This is the conference operator. Welcome to the MicroVEST third quarter 2023 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, investment community professionals have the opportunity to participate in a question and answer session. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Rodney Werden, Microwasks' Director of Investor Relations. Please go ahead.

Rodney Werden Thank you, Operator, and thank you, everyone, for joining us today. With me on today's call are Mr. Yang Wu, Founder, Chairman, and CEO, Mr. Zach Ward, President, and Mr. Craig Webster, Chief Financial Officer. Ahead of this call, Microbats issued its third quarter 2023 earnings press release, which can be found on the investor relations section of our website at ir.microbats.com. In addition, we have posted a slide presentation to accompany management's prepared remarks. As a reminder, please note that we will be making forward-looking statements on this call. These statements are based They should not be relied upon as representative of use for subsequent dates, and we undertake no obligation to revise or publicly release the results of any revision to these four living statements in light of any new information or future events. These statements are subject to a variety of risk and uncertainty that could cause the actual results to differ materially from expectations. For further discussion of the material risk and other important factors, of the SEC, including our annual report on Form 10-K, filed on March 16, 2023, and the 10-Q filed earlier today. In addition, during today's call, we may discuss non-GAAP financial measures, including adjusted gross profit, adjusted net loss, and adjusted EBITDA, which we believe are useful as supplemental measures of micro-VAS performance. These non-GAAP measures should be considered in addition and not as a substitute for or an isolation from GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metric in the tables included at the end of our press release. A webcast of this call will also be available on the Investor Relations section of our company website. And with that, I will turn the call over to Mr. Wu for opening remarks.

Thank you. And thank you everyone for joining in on today's call. I would like to start off with a high-level overview of the quarter. Before providing some operational highlights, I will then turn the call over to Zach Ward, our president, who will discuss additional operational updates and some of our key successes for the quarter, followed by Craig Webster, our chief financial officer, who will discuss our financials in more detail. I will then address our outlook for Q4 and the full year 2023 before opening to the call after questions. Please turn to slide four as I cover a few highlights for the subquarter. We posted a 107% revenue growth year over year in Q3 2023. Delivery revenue of 80.1 million. This exceptional increase comes from incredible demand growth for our commercial vehicle business from customers in both Europe and Asia Pacific. We continue to expand our gross margins, achieving significant double-digit improvements and adjusted gross margin of 24.2%. A 14 percentage point increase year over year. We closed the third quarter with a record backlog of 678.7 million, driving by a strong order intake of 67.5 million from our commercial vehicle business. Our current backlog is made up of more than 84% 53.5 amp hour sale. driving by strong demand in both U.S. and European markets. The backlog continues to display how our 53-point amp hour technology is being readily integrated into both the energy storage and commercial vehicle segments worldwide. Turn to slide five. One of our most significant operational achievements in Q3 was the rapid commercialization of our 53.5 ampere cell from the new Huzhou phase 3.1 expansion. We are producing and delivering qualified products at more than a 70% utilization with an updated year end target of at least 90%. Additionally, our yields have surpassed our ranked production targets, and we will continue to focus on improvements to push even beyond this target level. I would like to provide an exciting update regarding our HUSU facility capacity. As you will see from slide six, we plan on an expansion of one gigawatt hour with an automated flexible production line. This line will be able to produce both our 53.5 amp hour cells as well as our 48 amp hour high power cells that are needed by our growing customers based on hydrogen fuel cell OEMs. This new line already has funding in place, requires a minimal incremental investment. and provide us a substantial capacity increase in order to meet our highest sales demand. I would now like to turn the call over to our president, Zach Ward, who will discuss some of our key operational updates, sales, partnerships, and achievements for the quarter. Thank you, Mr. Wu, and thank you all for joining us today. Now please turn to slide seven as I cover additional updates from the third quarter. To begin, I'd like to share the latest developments on our US operations for Clarksville Phase 1A. We're approaching domestic operations with a determined and proactive mindset. Our goal is to ensure a seamless ramp up for our US operations. To achieve this, We have extended factor acceptance tests for various components of the production line, incorporating those lessons learned and improvements from our HUSHO 3.1 line. While this has led to a slight delay in SOP, it sets the stage for an accelerated ramp up after installation. On the construction side, we are nearly at completion with a majority of the building now under joint occupancy and only minor work remains to be done in the fourth quarter. We're also in good position with our production equipment. We're using the same equipment that is now running with great success on our who show 3.1 line. We have approximately 30% of the equipment on site and Clarksville with majority of the remaining equipment having already been shipped. We have set our sights on 2024 with targets to deliver qualified sales and generate Section 45X IRA credits from the second quarter of 2024 onwards. Drawing on our commercialization success in Hoosier, we have set the ambitious goal of achieving target production yields for Clarksville in the second quarter. On the personnel side of things, we're continually enhancing our US workforce with better specific expertise and skills to support launch efforts. Our US headcount has increased by nearly 350% year over year as we move towards bolstering our domestic presence in 2024. Additionally, we're pleased to share that almost one third of our exceptional Clarksville team is made up of US veterans. Expect more updates regarding our U.S. operations in the future. In the meantime, I'd like to provide a brief update regarding our Windsor, Colorado Energy Storage Assembly Facility. The facility has successfully produced the first of our ME4300 energy storage containers and has completed a successful customer factory acceptance test. Now let's turn our attention to sliding. Despite facing challenges such as customer project delays, we achieved an order intake of 67.5 million and continued our year-over-year upward trajectory in revenue growth. Moving on to slide 9 to discuss some of our major project developments, we are excited to announce our collaboration on a prototype e-bus with OEM AutoCar, which will utilize our 53.5-amp-hour Gen 4 pack. AutoCar is a leading Turkish company renowned for producing buses, military vehicles, and industrial products. Microbats has also extended its partnership with RE Automotive to equip their LCD platform with our 53.5 amp hour Gen 4 pack. RE is a cutting edge next gen EV automotive technology company offering modular electric trucks and platforms.