Twin Vee PowerCats Co.

Welcome to the Twin V PowerCats Company third quarter 2024 investor call. As a reminder, this call is being recorded and all participants are in a listen-only mode. Your speakers for today's program are Chairman and CEO Joseph Visconti and Chief Financial and Administrative Officer Michael P. Dickerson. Before I turn the call over to Joseph, please remember that certain statements made during this investor call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements on this call, other than statements of historical facts, including statements regarding the company's future operations and financial position, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as believes, may, estimates, continue, anticipates, intends, should, plan, expects, predict, potential, or the negative of these terms or other similar expressions. The company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of risks and uncertainties and assumptions described, including those set forth in its filings with the Securities and Exchange Commission, which are available on the company's investor relations website at ir.twinv.com. You should not rely upon forward-looking statements as predictions of future events. We cannot assure that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Finally, this conference call is being webcast. The webcast will be available at ir.twinv.com for at least 90 days. Audio cast quality is subject to your equipment, available bandwidth, and Internet traffic. If you experience unsatisfactory audio quality, please use the telephone dial-in option. A question and answer session will follow the formal presentation. Please note, only those that have dialed in via telephone may ask a question. Those listening via webcast will be unable to submit questions. If you'd like to ask a question, you may signal by pressing star 1 on your telephone keypad. I will now turn the call over to your host, Joseph Visconti.

Good afternoon, everybody, and thank you for joining our third quarter 2024 earnings call. I'm Joseph Isconti, Chairman and CEO of TwinVee PowerCats. I'm here with our CFO, Michael Dickerson. Good afternoon, valued shareholders, partners, team members. I'd like to begin by expressing my sincere gratitude for your continued trust in TwinVee PowerCats. It's been an extremely challenging quarter. But as we gather here today, I want to share with you not just our current position, but also our outlook for the future. As we all know, the recreational vehicle and boating industries have been grappling with turbulent retail environment, economic headwinds, and inflationary pressures. And shifting consumer behaviors have made this one of the more difficult periods for the recreational vehicle market in recent memory. These challenges are not unique to Twin V, but have affected the broader industry. We have worked diligently to navigate by right-sizing our business, lowering production to meet demand, and we cautiously manage that field inventory with our dealers. Dealers are experiencing record high levels of inventory, and in some cases, these dealers have asked to delay shipments as they work through operational challenges and reduce inventory levels. We have incorporated that into our plans and have reduced overhead to mirror the current demand for our products. I believe our industry is resilient. I believe demand will strengthen, and I also believe that the next four to six months will continue to be challenging, but there's light at the end of the tunnel. I feel our team has done a good job navigating this environment. Q3 was one of the toughest quarters I personally experienced as a CEO of Twinbee since I acquired it 10 years ago. Along with Q3 operational losses, the quarter includes the operational expenses due to winding down Forza in Old Fort, North Carolina, and also stopping construction on the Marion County Forza factory after we completed the shell. Stopping construction on the shell was to preserve cash, and we currently have the Marion County property listed for sale. There's no debt on the building. The western region of North Carolina was severely damaged from Hurricane Helena. Our building was not damaged, but many manufacturing buildings in the surrounding area were flooded and destroyed. Our hearts and prayers go out to the families that are experiencing and dealing with the tragedies from Hurricane Helena. The quarter also included costs consolidating all production back into a single centralized facility, our Fort Pierce home base. Q3 included construction costs of our Fort Pierce factory expansion, included partial payments for our new CNC 5-axis router that is set to be delivered in January of 2025. The quarter was challenging and ugly. I believe our industry is resilient. I also believe that we will see demand strengthen. We are in a situation to adapt quickly to changing market conditions and maintain financial stability. I don't want to spend too much time talking and promoting new products, but I do want to highlight we are focused on the development of our price point boats, specifically a new line of Baycats, that have historically been very successful for Twin V. Our goal is to begin selling this new Baycat line in Q1 of 2025. While we are encouraged by the recent move in interest rates, we need to see a sustained cycle of rate cuts to bring back payment buyers into the retail market. I am a positive person by nature. but it's important that I communicate as clearly as possible the details of Q3 and lay the groundwork and hopefully give you confidence that our team here is making smart moves for our shareholders in preparing for this shift. I want to address something that is of great importance to me today, and that is optimism. While we have been dealing with a period of soft demand and uncertainty, I firmly believe that over the next four to six months, the retail environment for recreational vehicles will shift significantly for the better. Why do I say this? The political and economic context plays a critical role in shaping these market dynamics. I feel the direction of the U S economy under president elect Donald Trump will be positive for our industry with his return to the presidency. We expect to see policies that promote deregulation. tax incentives, and greater economic stimulation, all of which will directly benefit industries like ours. Specifically, Trump's administration has historically championed initiatives to reduce business taxes, encourage investments, and foster pro-business environment. These measures lead to increased economic growth and help create a condition that will benefit both manufacturers and consumers in our industry. The lifestyle trends towards outdoor experiences and family-centric vacations are still strong. And as the economic landscape stabilizes, people will once again turn to RVs and boats as a solution for affordable, flexible leisure. I believe the demand for our quality, reliable products from companies like TwinVee PowerCast will see an increase. especially as more consumers opt to invest in experiences that offer them a sense of freedom and adventure. Our strategy at TwinVie is designed with this recovery in mind. We've taken a proactive approach. We're carefully managing our production, refining our supply chain, and expanding our customer base. As the market shifts, we are well positioned with a solid product pipeline that includes exciting new designs, features, and models, We're not just hoping for a market rebound, we're preparing for it. And we're ensuring that we have the operational agility to capture this renewed customer interest. To our shareholders, let me assure you that while the road has been bumpy, we remain committed to the creation of shareholder value. I want to thank you and now turn this over to Michael Dickerson.

Thanks, Joseph. Good afternoon, everyone. Let me walk you through TwinV's consolidated financials. On a consolidated basis, net sales were $2.9 million for the third quarter of 2024, a reduction of $5.2 million, or 64% from the third quarter of 2023. This reduction is a continuation of a declining trend experienced all year, a result of the challenging end markets that we described in our earnings release and Joseph described for you just now. During this third quarter, we sold 20 boats, compared to 66 in the same period last year. With the change in focus last year towards bigger, higher-priced boats, sales are down less than a number of boats, while the average sales price is up 17%, largely due to the increase in the average length of the boats sold. At these depressed sales levels, we generated a slightly negative gross margin. as our cost-cutting efforts throughout the quarter didn't keep pace with the acceleration in the decline in sales. Throughout the third quarter, the company has been reducing expenses through reductions in headcount, research and development, and discretionary spending, partially offset by investments to improve quality and bring harness assembly in-house. Overall, consolidated operating expenses are down $541,000, or 16% compared to the third quarter of 2023. This comparison includes a 99,000 increase in depreciation and 141,000 increase in professional fees largely related to the merger of Twin V and Forza. Before the impact of these two items, third quarter 2024 consolidated operating expenses would have been down 781,000 or 28% compared to the prior year quarter. General and administrative expenses are down $220,000, or 22%, and salaries and wages are down $586,000, or 34%, compared to the third quarter of 2023, respectively. These overall reductions were achieved in both the FORZA segment as well as the TWIN-V segment. Research and development expenses were $89,000 in the third quarter of 24. primarily as a result of the receipt of long lead items placed by Forza in prior quarters. As we exited the third quarter, these costs were nearly zero. In terms of liquidity, on a consolidated basis, we ended the third quarter with $11.4 million of cash and cash equivalents. This compares to $15.1 million at the end of the second quarter. Of this $3.7 million reduction, $1.3 million was used primarily for additions to the new Fort Pierce building expansion, new product development, and progress payments on the yet-to-be-received state-of-the-art CNC machine. Additionally, we made excess payments against vendor balances that grew in the second quarter following the launch of the new GFX2 product line and the Aquasport 280 Superboat. Before the impact of these items, operational cash burn was about $547,000 per month. The cash burn at Vorza was approximately $150,000 per month of this amount, which has continued to decline as we exited the quarter. The overall level of cash burn may be understandable as we chased volumes lower throughout the year, but on a go-forward basis, both Joseph and I, as well as the rest of the leadership team, believe this is not acceptable and are focused on bringing down our cash burn. Plans have been developed and are already in the execution stage. We are driving sales efforts, looking for additional revenue-generating opportunities, eliminating nearly every discretionary spending item. We are further reducing headcount and scrutinizing every line item in our P&L for potential savings. In our supply chain, we are continuously looking for potential material substitutions that improve both quality and cost. actively working with our suppliers to drive our input costs lower, right-sizing inventory, moving more towards just-in-time deliveries, and standardizing components across product lines. While we cannot make any assurances, our goal is to achieve a run rate of a consolidated adjusted net loss of $400,000 a month or better as we exit the first quarter. Even while current sales trends in the fourth quarter are trailing those experienced in the third quarter just reported. With the successful vote by shareholders of both Twin V and Forza, we are moving forward with the execution of the merger and expect it to be completed before the end of the year. As a reminder, shareholders of Forza will receive .612 shares of Twin V for each share of Forza. I want to thank the shareholders of both companies for their support and continuing confidence in this leadership team to see us through these very difficult times in the marine recreational vehicle space. One of the most significant assets coming into the twin V-fold from Forza is its partially completed building in Marion, North Carolina. The company is exploring its highest and best use through the lens of maximizing shareholder value, which may be attempting to sell the building as is, finishing the building and marketing it for sale, finishing the building and holding for better market conditions, or finishing the shell and delaying the completion of construction. All of these possibilities are under active consideration Again, viewed through the lens of maximizing shareholder value and conserving capital. And I'll turn the call over to the operator who will assist with taking the questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd 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'd 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 start keys. One moment, please, while we poll for questions.

There are no questions at this time.

At this point, I'd like to turn the call back over to Joseph Visconti for closing comments.

Thank you. I want to thank our investors, stakeholders, and employees for their continued support, and I want to thank everyone on the call. Have a great day. Thank you very much.

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