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spk00: Good day everyone and welcome to the X-ray Technologies Q3 2024 earnings call. At this time all participants are in a listen only mode. Later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Jeff O'Dowd. Please go ahead, sir.
spk02: Good afternoon, and thank you for joining today. We'll discuss our performance of the third quarter, followed by a Q&A session. Joining us today are Sue Ozdemir, our CEO, and Gerald Bishop, our CFO. During this call, we will make forward-looking statements. Actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements. Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our ND&A for the quarter that ended September 30, 2024, which can be found on CDAR and on our website. In addition, during the call, we may refer to specific non-IFRS measures. These measures are also reconciliation of non IFRS measures to the most directly comparable IFRS measures. Management believes these non IFRS measures provide useful information to investors regarding the corporation's financial condition and results of operations as they provide additional metrics of performance. These non IFRS measures are not recognized under IFRS do not have any standardized meeting prescribed under IFRS and may differ from similarly named measures reported by other issuers. Accordingly, they may not be comparable. These measures should not be considered as a substitute for related financial information prepared under IFRS. With that, I will now turn over our call to our CEO, Sue Ozdemir.
spk01: Thank you, Jeff. Thank you everyone for joining us today. We are proud of the operational and financial results we achieved this quarter and excited by our momentum heading into next year. We continue to deliver against our core strategy and make progress towards our key milestones of revenue growth, profitability, and technology integration. Our diligence and focus on execution drove revenue growth of 108% while also reducing costs. This revenue was driven by delivery of a company record of 74 e-propulsion systems to blue chip OEM customers, 106% increase over our Q2 2024 results. While we still have a way to go, we are moving closer to the future we all envision. I'm going to take a little bit to talk where we're living today we are living in an era where electrification is the now but the world is still grappling with this transition and the mass adoption of electric vehicles from grid inadequacies to electric vehicle adoption the quest for energy efficiency is paramount the barriers to electrification are many but we can group them really into three key buckets that continue to challenge everyone, including Exro, in the industry. From large legacy OEMs to emerging companies like ours, to motivated fleet owners that want to go green, these are some of the top challenges. Cost. Commercial vehicles are company assets. They are needed to deliver and aid a company's business outcomes. Beyond being energy efficient, these trucks need to have a total cost of ownership that makes sense. Within the passenger vehicle sector, the reasons are slightly different, but cost still remains the issue. This is a key challenge that we see OEMs striving for, trying to get to profitability through vehicle platforms that are affordable, with most global passenger automotive OEMs trying to aim for a sub 25,000 price point. Later, Daryl will delve into issues like this, the cost, and we'll discuss how our success is continuing to drive down costs on a unit level without compromising performance. The second issue, performance. Now, going beyond the driving itself, but being able to achieve the outcome that's needed of that vehicle, a garbage truck that can pick up the same number of routes, or an urban delivery truck that can tackle the heavy bulky loads with the same ease as intercity light loads. The variability of driving conditions and in particular fleet groups needs to be considered. This is how we at Exro talk about performance. There is no single solution as everyone drives differently. From the roads we climb on to the weather we navigate, the ability to tackle all conditions is how we achieve True mass adoption. And finally range. Now I know when we all think about range, we think about range anxiety charging station, but that is actually progressing in the right direction. There is a lot of work left to do, but we are overcoming this. We have many more chargers. Cross North America today than just a year ago. But in fleets there is still some work to go from a charging position. And we need to think about that impact on our grid and what we're going to face in the months and years to come. Central to the electric transformation is innovation. And in particular, innovation in power electronics. It is through power electronics that we control electrical energy and energy efficiency. This capability is where Exro shines. Our technology optimizes electric vehicle propulsion systems by expanding their capabilities of electric motors and batteries, which are two of the foundational elements of the electric transition. With our innovative technology, we have demonstrated that we can achieve performance without compromising price. Extra patented technologies provides the solution to achieving power trains with less complex systems that can deliver unprecedented real-world driving and cost-effective solutions. Our system utilizes power electronics to bring fast charging onboard the vehicle inside the inverter itself. The end result is charging infrastructure costs that are 10 to 20% of the cost of the DC fast charging stations in the market today. Our technology demonstrates the difference that real innovation makes. The transition to electrification is underway and innovation is the key to our future. While we are proud of our progress and the accomplishments, we believe that there is still a significant potential to drive further improvements in both performance and cost efficiency. So now let's dig into our Q3 financial performance. The past six months have been dedicated to execution on our core pillars that were part of our strategy for merging with Steelectric in April of this year. I'm going to spend a few minutes discussing where we stand with each of those core pillars and why we are proud of the progress. Our first pillar was around consistent growth and how we demonstrate building that foundation towards that growth. In Q3, we were able to deliver 74 propulsion systems, double what we did last quarter. While lower than what we had anticipated at the deal closing in April, this represents significant progress, especially given the challenge that we highlighted in Q2. This quarter, we course corrected and implemented key quality metrics, improved processes, and doubled down on our strategic supplier agreement. The quarter highlights not only our ability to deliver consistently, but also our commitment to ensuring that this momentum continues. Backed by our blue chip OEMs, we are now poised to ramp up production, which will in turn drive growth and scale. The second core pillar is our path to profitability. Delivering a record number of systems to top OEMs is not an easy task. Our team not only delivered, but also drove substantial cost savings that exceeded our initial goal of bill of material cost reductions of 5%. We have achieved over 18% savings on our systems since April 5th and remain focused on our path to profitability. As we talked about at the start of today's call, this is a core objective as this is key to the transition is performance without compromising price. Innovating great technology is hard. But innovating great technology that is affordable is exponentially harder. EXRO has long been committed to innovating while growing revenue and achieving profitability. Now as we continue with full commercialization, we are focusing on programs that have visibility to profitability. Daryl is going to discuss our progress in more detail, but I will note that we improved our unit cost of goods sold by more than 20% over last quarter. And finally, our technology disruption. As I said, Innovation is the answer to an electrified future. Regardless of the sector passenger vehicles, commercial vehicles, the answer lies in our ability to deliver solutions to solve our customers challenges. Improved energy efficiency and performance will driving down cost. Our patent technology has been integrated with our OEM partners. And it continues to progress. we not only are able to produce more systems at a lower cost, but we're improving the technology as well. The integration of our coil driver into all Exro propulsion systems remains on track for second half of 2025. We will provide more detail on our technology roadmap tomorrow at our inaugural analyst day. Before turning it over to Daryl to go through our financial summary, let's go over an operational update. I wanted to take a minute to address some items as we continue to progress and evolve our organization. To do this, I'm going to walk through our progress from April when we closed the merger until now. At the time of closing, we had five strategic goals for 2024. The first was delivering on 250 units in our first six months post-close. In Q2, we discussed certain integration challenges and their impact on our business and forecasts. We have worked hard to overcome these challenges. And while we cannot make up these units in the short term, our performance in Q3 should speak for itself in our commitment to delivering consistent quarter-over-quarter growth. With year-to-date revenue of $16.3 million and after six months of execution, we are now delivering against orders, backlog, and future demand. Our future is bright. The second was our cost savings of 20% across the business. Again, we've long been committed to the foundational processes and systems that deliver efficiency in operational execution. These initiatives are not always visible externally, but they are the foundation of how we've been able to overcome many of the challenges post-merger. These behind-the-scene efforts have allowed us to recognize on a quarterly basis the growth that we've seen quarter over quarter. They will become more evident as we continue to progress the business. The third was our first joint integrations. Our Hino platform was committed as our first integration partner, which we announced in August. This work continues to progress and we are pleased to announce that the vehicle is on site here in Mesa for our analyst day tomorrow with coil driver inside that allows featured extra patented charging solution. Our guys have enjoyed being out and driving the vehicle today and really being able to not only see the coil driver, but see it charging and really in full position. In addition to our Hino integration, we have targeted a MAC integration for the fourth quarter, which remains on track. Supply chain efficiencies with a 5% reduction in bill of material. This is one of our big steps forward. was an aggressive challenge although it may not seem that way with five percent we continue to make progress on our efforts to reduce costs we focused to reaching this profitability target and with the support of our partners we exceeded our expectations and delivered over 18 reduction in our bill of material in the past six months we'll provide more detail on this goal on our analyst day tomorrow these costs out have been driven by strategic sourcing within our supply chain, efficient ordering, and efficient logistics. And finally, our new innovation program. The Stellantis program announced in late Q3 provides a monumental step forward in our developments in the passenger vehicle segment. This program has pushed us to develop our cost position and improve performance without compromising price. As we develop our work within the passenger vehicle segment, We continue to stay on focus with our two key partnerships and mid and late stage discussions and have an additional partnership in commercial trucking that is progressing through commercialization as well. These top pipeline positionings are progressing as we had hoped for this time of year. Overall, will we recognize the frustrations experienced over the past year? I'd like to take a moment to say thank you to our shareholders and to remind all of our stakeholders that we cannot control the pace of the broader transition, but we can control the aspects within our reach. Our patented technology is fully de-risked, is demonstrating best-in-class performance, and is integrated into top OEMs in electrification. We continue to control our costs, developing ongoing cost reductions, and we control the partnerships we select in which we enter into, ensuring we collaborate with market leaders who share our commitment to excellence. I recognize all of the challenges and I acknowledge the misses that we've experienced. However, our vision of being best in class supplier for power electronics remains the same. We are ready to scale and grow alongside the ongoing transition. Thank you. And with that, I'm going to pass it over to Daryl. Sorry about that little mix up there. I thought my voice had went off on my phone, so I apologize.
spk05: Thanks, Sue. Nothing like a live event here. Good afternoon, everyone. As we dive into the financial aspects of the quarter, I want to ground everyone in that the story around the corridor is that we demonstrated a steady improvement over Q2. So first, we are beginning to recognize the benefits of the sea electric acquisition that closed in April of this year. Second, our operations are beginning to stabilize. And third, we continue to drive down costs to demonstrate a focus on profitability. As Sue highlighted, in Q3, we achieved a record revenue milestone of $11 million. more than double the 5.3 million posted in Q2. This revenue is primarily recognized from the delivery of 74 electric propulsion systems to OEMs during the quarter, a more than twofold increase on a sequential basis. Importantly, we also demonstrated our ability to drive down costs on our bill of material and across the business. We were able to achieve these results while also addressing the many challenges to our supply chain, which we highlighted on our Q2 earnings call. In Q3, we successfully reduced costs on a per unit basis while also doubling our deliveries. Our cost of goods sold for the quarter was $12.6 million, resulting in a gross profit loss, excluding a non-cash provision for inventory, of $1.7 million. This is compared to a $2.7 million loss in Q2. On a per unit basis, cost decreased by approximately 20% quarter over quarter. As we improved supply chain efficiency, we minimized air freighting of materials and ensured on-time delivery of parts. We continue to drive down that bill of materials that Sue highlighted, and we are targeting an additional 20% reduction by the end of Q2 2025. Turning to notable operating expenses, Payroll in SG&A accounted for $8.1 million and $3.4 million, respectively, showing reductions of 7% and 35% quarter over quarter. Following the close of Q3, we implemented additional cost-cutting measures, which included further reductions in payroll in SG&A as part of our ongoing efforts to streamline operations. Since April 5th, we have reduced our headcounts by approximately 35%, and annual payroll by more than US $10 million. Other items worth noting, accounts payable stood at 31.3 million at the end of the quarter, which was up slightly from just over 29 million in Q2 as we continued to work through the legacy C acquisition payables in conjunction with ramping up our working capital purchases to support the growth that you saw in Q4 and going into 2025. Offsetting this was an inventory value of $27.9 million, down from $32 million in Q2 as we advanced the conversion of inventory into revenue in Q3. The main components of this inventory at September 30th included raw materials, which were valued at just over $20 million. This includes batteries, motors, you know, the components that make up our repropulsion system. In addition to a work in progress inventory of $7.1 million. Moving to goodwill and intangibles. Given the decline in our share price through Q3 and the decreased volume outlook since April 5th, we were obligated by accounting standards to complete an impairment test. This test resulted in a write down of all goodwill and a portion of intangible assets related to the electric acquisition. This is a $211 million non-cash adjustment to the carrying value of these assets. From a cash perspective, we closed the quarter with cash and cash equivalents of just $14.0 million. This was supported by a $25 million equity financing, which we completed in Q3, which was backed predominantly by existing shareholders who are aligned with our long-term vision. As we continue our path to profitability, we are also actively engaged to secure additional non-dilutive capital. We believe our execution in Q3 has positioned us well to secure the necessary bridge to profitability with the goal of achieving self-sustainability in the second half of 2025. I want to take a few minutes to further highlight that path to profitability. I want to emphasize that we remain laser focused on our revenue growth in parallel with our cost out efforts so just want to dive into the progress that we've made on a couple of key initiatives first our bill of material cost reductions as sue highlighted when we closed the acquisition of sea electric in april we were targeting a five percent reduction in our bill of material on our propulsion systems for 2024. building on the progress made in q2 the team continued to drive down costs and implement continuous improvements As a result, we've achieved more than 18% in savings on our bill of material and are on track to further exceed our 2024 goals through Q4. Second, cross-business cost outs. In the first six months, we've achieved roughly $15 million US in annualized savings against the 2024 target of $10 million US. These cost reductions have been primarily driven by headcount reductions, facilities optimization, and operational efficiencies. While much of these savings are annualized, they underscore the strength of our CapEx-like business model and our focus on efficient processes and supply chain management. Third will be design evolution. We continue to make progress in R&D. While we've seen success in reducing costs, it has been driven by the foundational work we've done over the past few years. Our initial mission, which was set five years ago, was to build a technology platform that was both scalable and flexible. Our current R&D spend, alongside partnerships with world-class OEMs like Stellantis, Mac, Linamar, and Hino, and others, position us for continued innovation and cost reduction. And this all coincides with our plan to continue to demonstrate quarter-over-quarter growth and deliveries of our technologies with blue chip OEM customers through efficient execution. Before I turn it back to Sue and we open it up for questions, I just want to echo Sue's sentiment that innovation is that key to our electrified future. Over the first six months after we closed the merger, our organization has undergone a transformational shift, overcoming numerous challenges and delivering record results quarter over quarter. While the journey thus far has not been without its hurdles, we are making progress in the key drivers of our business, consistent growth, cost reduction, and a clearer path to cash flow profitability. With that, I'll turn it back over to Sue for some closing remarks and questions.
spk01: Thank you, Daryl. First off, I want to say thank you to all of the EXRO team for your dedication to our progress. Tomorrow marks our first inaugural Analyst Day in Mesa. where we will launch our integrated coil driver propulsion system with a ride and drive event that allows the opportunity to see the differentiation firsthand. And we will provide guidance towards our 2025 business plan. Thank you to all of our shareholders for all of your continued support. We greatly appreciate it. And with that, I'll open it up for questions.
spk00: Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. We will move first to Chris Murray with ATB Capital Markets.
spk03: Yeah, thanks, folks. Good evening. So just I guess the first question is just looking at kind of production rates and the ramp. I think, Sue, as you talked about, you know, initial expectations this year for 250, we've done, you know, call it, you know, maybe half of that, a little bit less than half of that. Can you talk about how the ramp is progressing as Q4 into 2025? And I know that you had mentioned, I think, last quarter, there were things around some software issues and things like that that are holding back some inventory and delivery. If you can just maybe address kind of where we're at in terms of that cadence, that would be helpful.
spk01: Yeah, sure, Chris. And tomorrow we'll be providing kind of the details around it. But what I would say is the software issues have been fully dealt with. They're not any type of barrier for us right now. And we continue to see that growth continuing into the quarters to come. We're well set up right now. We're expecting shipments in to continue to set us up through the first quarter. And we see that ability to continue the growth quarter over quarter.
spk03: OK. Alright, and then and then just maybe thinking about the the C write down and I appreciate there is some accounting requirements in this, but in going through the notes and thinking about you know what it kind of implies about kind of longer term revenue growth from C. Can you maybe address, you know, kind of puts and takes around the combination and and and you know what's really changed in the expectations? Since since you've done the transaction and as well i'm sure we're going to get this question, but in terms of the compensation that extra provided to see is there anything that offsets some of those changes, even at this point.
spk05: yeah maybe i'll jump in a little bit on the on the impairment first Chris and I think you kind of hit it with the the beginning part of your question in terms of you know this, I want to identify this as a non cash right down in. goodwill and intangible assets. A lot of it was driven by the share price depreciation that we've seen, as well as that forecast that we're lower today than what we anticipated at the beginning of the year when we announced the merger with C Electric. We'll give some additional color to that tomorrow when we go through the guidance and the outlook on the analyst day. But for the most part, this was driven by the bigger part of it would have been the depreciation of our share price from approximately $1 a share when we announced the acquisition of C-Electric earlier this year. And we were around $0.85 on April 5th when we closed. And then at the end of the quarter, we were sub $0.30 a share. And so that would have been the bigger driver in there.
spk03: Okay. Um, and then, you know, just one quick question, just, um, and, and, and I appreciate we'll get into more detail, but you had in previous quarters, um, and even as part of the combination talked about doing kind of a reverse split or share consolidation, any, any thoughts around that at this point with where the shares are trading?
spk05: Yeah, I think it's always something that's been, been out there. Um, Chris, I would say it's not a topic of conversation right now in, in anything that we're speaking with, uh, from, from a board level and a management perspective. To be quite frank, we are laser focused on the operations. We are focused on rebuilding the value that we see. And I think that we're starting to recognize from the execution within the business and kind of really put our head down on making sense of that first.
spk03: All right. Sounds good. Okay. I look forward to seeing you guys tomorrow. I'll pass over the line.
spk01: Thank you, Chris. See you tomorrow.
spk00: And a reminder, ladies and gentlemen, it was Star 1 if you have a question. We will move next to Jeff Gramp with Allianz Global Partners.
spk04: Evening. I was curious for Sue or Daryl, kind of the trajectory of those 74 systems throughout the quarter, or even better if you have anything post-quarter in terms of the shipment cadence, just wondering either the distribution of those shipments throughout the quarter, was there kind of an accelerating pace maybe exiting into September and maybe how shipments have trended into Q4. Anything along those lines that you could share would be great.
spk01: Yeah, thanks, Jeff. And great question. So, yeah, there's definitely kind of an acceleration. I would say, you know, we're not quite at that full ramp of week over week is exactly growth, but I would say you definitely see the ramp month over month where we kind of came out stronger at the end of the month as those efficiencies really started to take effect and kind of inventory started to catch up with supply chain and kind of really positioned as well as we go into the fourth quarter you know we've got some holidays so that's good you know we're navigating that but from a delivery and execution perspective we're really well set up i'm coming out of the quarter and expect that ramp to continue week over week okay great i appreciate those details um and for my follow-up on the cost side of things um appreciate all the um you know efforts you guys have made on that front would you say
spk04: Q3 OPEX is kind of a good representation of where you guys would like to keep things going forward or have there been some either cuts made in the quarter that you didn't get a full benefit from or anything kind of forthcoming that can further benefit the OPEX side of things?
spk05: Yeah, great question, Chris. I would say we are continuing our cost-out efforts across the business, including OPEX. When you look at the payroll numbers quarter over quarter, We made some progress there. There were some additional cuts that were made subsequent to the quarter through the month of October that you will see play out with our Q4 results and certainly on an annualized basis as we look into 2025. Now, when we are optimizing the business from that perspective, of course, that plays over into an SG&A perspective as well, your direct headcount impact from an SG&A standpoint. And so we would anticipate to see that those costs continue to decrease across the business.
spk01: And, you know, Chris, I'll add on a little bit on that one, just to say it kind of goes to what we were talking about with the foundational systems that we have in place and that ability to get more efficient as we go. So as we continue to ramp where a lot of companies have to do the investment at that point, that's investment that we've made over the past years that we're now recognizing. And so we can do those cost reductions but still ramp up the units that we need to do.
spk04: Great. I appreciate those details. Thank you, guys.
spk01: Thank you.
spk00: And one final reminder, if you had a question, it is star 1 on your telephone keypad. And with no other questions holding, I'll now turn the conference back to Sue Osmere for any additional or closing remarks.
spk01: Sue Osmere So thank you once again to our shareholders. Keep an eye on our website on our investor center where we'll be sharing all the highlights of our analyst day tomorrow. And we look forward to having everybody enjoy in our guidance and our innovation. Thank you so much.
spk00: Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at any time.
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