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spk01: Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2023 earnings conference call for Loop Energy. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Loop Energy, you may now begin your conference. Hello and welcome everyone.
spk02: Thank you for joining us this afternoon for the second quarter 2023 earnings conference call for Loop Energy. Joining me is our President and Chief Executive Officer, Ben Nyland, and our Chief Financial Officer and Corporate Secretary, Paul Catterford. We will all be available for questions at the end of the call. Before we begin, I would like to clarify that our comments today will include statements and answers to questions that could affect future events and financial performance and could include the use of non-GAAP and non-IFRS measures. These statements are subject to risks, uncertainties, and assumptions accordingly. Actual performance could differ materially from statements made today, so please do not place undue reliance upon them. We also disclaim any obligation to update forward-looking statements, except as required by law. I ask that you read our legal disclaimer and refer to our risks and assumptions outlined in our public disclosures, in particular, the section entitled Forward-Looking Statements and Risk Factors in our Annual Information Form for the year ended December 31, 2022, and our filings, which are available on CDAR+. Second quarter results were released today after market. The press release, financial statements, and MD&A are available on CDAR Plus and our website at loopenergy.com. I would now like to turn the call over to Ben Nyland.
spk04: Thank you, Natalie. In my remarks today, I will update you on the three key initiatives we've been focusing on in the first half of 2023 – And then I will provide some brief comments on our strategic engagement with the company's financial advisor, Credit Suisse. Following that, I will pass the call over to Paul Catterford to provide a summary of our second quarter financial results. And following Paul's comments, we will open the lines for Q&A. We remain focused on projects and design wins that provide clear near-term value creation and market opportunities. In this regard, let me update you on the initiatives that I mentioned on our last call. Firstly, we've been working aggressively on completing the development of our low-profile 60-kilowatt unit, which is targeted at the European municipal bus market, where the demand is for low-profile fuel cell systems designed for rooftop installation. Our OEM bus transport customers are seeing municipal purchasers making their decisions based on reduced emissions and climate change mandates. This is a key growth market for Loop, and in the second quarter, we announced the Polish electric bus manufacturer ARPE Vehicles has selected our T605 fuel cell system for its new hydrogen electric bus platform. This announcement marks Loop's third win with European bus manufacturers and its sixth win globally. Under the agreement, our rooftop fuel cell system will be integrated into ARP's new 12-metre hydrogen-electric transit bus for the European market. We anticipate delivery of the first T605 will take place in Q4 2023. Further, on Tuesday, we announced that our value-added distributor in South Korea, NGVI, has secured a supply contract for a hydrogen-electric bus project with a second municipality in that country. This marks Loop's second design win in South Korea in less than one year and provides strong validation for our product in the bus sector. It is also a strong signal of the South Korean market growth potential and accelerated demand for fuel cell adoption. The two-year government project will see the hydrogen electric bus put into operation in the hydrogen hub of Ulsan in South Korea in 2024. By way of background, the serviceable market for fuel cell electric buses across Europe, South Korea, and Australia is estimated to be up to 12,000 units per year. The second key initiative we have been working on is completing the vertical integration of the bipolar plate manufacturing process for our next-gen products. This has been progressing well, and we are bringing the plate manufacturing in-house at our Burnaby facility to improve our product development process and engineering agility. We see this as one of the key pillars to reducing our cost of goods and improving our gross margins over time. The third key initiative is sourcing a strategic partner to develop an electrolyzer using LUT's proprietary eFlow technology. The preliminary test work with Fraunhofer ISE shows that lube can deliver greater efficiency and compelling value in the development of electrolyzers. Our chief scientist, Sean McKinnon, and our chief commercial officer, George Rubin, have been having productive discussions and workshops on this with potential strategic partners. So I will provide you with more of an update on that during our next quarterly call. Now, let me provide a brief update on the strategic initiative we are undertaking with our financial advisor, Credit Suisse. We remain pleased with the level of interest and engagement from potential investors, acquirers, and government partners. In general, we can say that over the last five months, we've reached out to over 120 companies and organizations and continue in active discussions with a number of interested parties. Given the current state of the capital markets and industry, potential investors and acquirers are being thorough. Both the board and the management team remain open-minded and committed to this process and are taking into consideration the best interests of all our stakeholders, including our employees, partners, customers, and, of course, our shareholders. In conclusion, I would say that the global demand for fuel cell solutions in 2023 is very similar to 2022, supporting the comments that we provided last quarter. In this current macroeconomic environment, we continue to see longer decision-making timelines, which has led to delays in commitments and rollouts. This is impacting demand across the value chain, and we are continuing to work collaboratively with our customers and suppliers to adjust our production schedules accordingly. We expect full-year revenue in 2023 to be in line with or slightly above 2022 on a year-over-year basis. subject to current market uncertainty and the risk factors that the company has outlined in the quarterly MD&A and annual information form. With that, I will now turn the call over to Paul Catterford for his review of the second quarter financials for 2023.
spk05: Thanks, Ben. I'll now review Loop Energy's results for the three-month period ending June 30, 2023. Year-to-date revenues of $1.2 million remain unchanged year-over-year. In the second quarter, we reported $300,000 in revenue compared to $1.1 million for the same period in 2022. At this time, we expect full-year revenue in 2023 to be in line or slightly above 2022. At the gross margin level, we reported a quarterly loss of $2.7 million in Q2 2023 compared to Q2 quarterly loss of $2.5 million in 2022. As the company is collaborating with numerous OEM customers in early-stage product commercialization at low volumes, we expect gross margins to remain negative until our unit volumes increase to commercial level. In the second quarter, our operating expenses after cost recoveries were $5.6 million compared to $7.7 million in the same quarter last year. While we did have some cost savings in Q2 resulting from the reduction in force that we implemented in Q1, we expect operating costs to continue to decrease in the second half of the year as we continue to work to improve our operating efficiency and to reduce manufacturing costs and engineering costs. The company's net loss in the second quarter of 2023 was $8.2 million compared to a loss of $9.9 million in the same period in 2022. On a year-to-date basis for Q2, the net loss was $15.5 million compared to a year-to-date loss in 2022 for the second quarter of $18 million. Loss per share in Q2 2023 was $0.24 compared to loss per share of $0.29 in Q2 2022. CapEx in the second quarter of this year was $1.5 million, unchanged from the second quarter of 2022. Capital expenditures in the second half are resulting from prior period commitments made and are very modest. Cash and cash equivalents at the end of Q2 2023 was $9.9 million, compared to $13.2 million at the end of the first quarter of this year, burning only $3.3 million in cash during the second quarter. after cost recoveries. The company continues to believe it has adequate cash resources and funding commitments to continue operations until the end of the calendar year. Thank you. This concludes our prepared remarks, and we will now turn the call over to the operator for questions and answers.
spk01: Thank you. At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to complete the Q&A roster. We will take our first question from Rupert Murr, National Bank.
spk06: Hi. Good evening, everyone. I'm wondering if you can talk about how your sales pipeline has evolved over the last few months, and are you seeing any activity in that pipeline that is a result of your strategic plan discussions?
spk04: Hey, Rupert. Thanks for joining. Great question. So we're continuing to see the sales pipeline develop. I think it's important to note that a number of projects are being pushed out and delayed, but we haven't had any cancellations, which is great. I think it's indicative of the market right now that customers are optimistic. They're being cautious about the process. I can't really speak to elements of the strategic process and whether or not that's affecting things. But I would say we're happy with the sales funnel at this point and prospects continue to continue to come.
spk06: All right, great. And maybe even as part of the strategic review, I'm sure you're gaining some insights into your competitive position in the market. Just wondering if you have any thoughts on your relative efficiency or cost potential in your product. Any more insights into your competitive position?
spk04: Sure. I would say that the strategic review has really reaffirmed for us our thoughts on the competitive value of eFlow and the quality of the products that we're bringing to the market.
spk07: So it's been very good from that perspective. Okay, great. I'll leave it there. Thank you. Thanks, Robert.
spk01: Once again, that is Darwin if you have a question. We'll take our next question from Maxwell Cormark.
spk03: Hi, good evening. When you look at your discussion on the revenue being flattish in 2023, it looks like you're expecting the second half of 23 to be a fair amount stronger than the second half of 22. Do you have those orders in hand? Can you speak to how your guidance continues to be that sort of in-line? when the sort of the orders that you're delivering seem to be a bit light so far this year?
spk05: Yeah, Mac, thanks for the question. Yeah, as far as the sales pipeline is concerned and so forth, it's probably a similar point to where it was last year at the same point in time. You know, sales and revenues are lumpy for us. I mean, it takes us a while to take the orders, process the orders, put together the materials and ship them out before we can recognize revenue. But I would say that we're in a similar position as far as sales forecast and pipeline and confidence and our ability to execute at the end of the year than we were last year. So last year was a strong second half. I think relative to the first half, I think we're going to see the same thing in this fiscal year.
spk03: Okay. When you look at the latest news items you went through, that shift to municipal buses, seems to be dominating the activity level this year versus more commercial trucks last year. Can you give us sort of an update on what's happening in the commercial front? I know things sort of slowed down, and I'm wondering, are we into sort of a situation with the bus market that's different than the commercial market? Can you give us sort of some insight into maybe the buying patterns that have made the differences in the way those buyers may behave over the course of the next 12 months?
spk04: Yeah, absolutely, Max. So the buyers are very different, and they're driven by different mandates. So the truck market tends to be driven by private commercial fleets. So think of companies like FedEx, UPS, those sorts of companies. What we're seeing in the buying behavior and the adoption of new technologies into those fleets has slowed as a result of the prevailing economic conditions and their concerns about operating costs. The municipal bus market, the buyers tend to be cities. Those cities tend to have mandates to continue to reduce emissions in spite of the current economic conditions, and so that buying activity continues. Now, that being said, even at the city level, we are seeing that tenders are taking a little bit longer, payments are taking a little bit longer, but those buyers continue to move forward in this market. And so we would expect as the economy starts to recover and as fleet operators have more confidence in that recovery, we would expect the truck market to start to move again. But that's really the macro influence that we're seeing right now.
spk03: Okay. And I just noticed you're – I think you've pulled down another $2 million in debt on – was that all from that JGF program loan?
spk05: Yes. Yeah, that was all GGF reimbursement for capital expenditures. So we did, you know, the capital expenditures for 23 really were just final deliveries and commitments that were made in prior periods. And we already had lined up a GGF funding resource for that. And then we're just drawing down the GGF funding resource.
spk03: Okay. Okay. Okay, great. That's all my questions. Thanks, guys. Thanks, Mac.
spk01: We'll go next to Fred Gattali, Raymond James.
spk00: Hi there. Thanks for taking my question. You discussed a bit of the cost savings on the margin side. Maybe if on the gross margin, could we get a sense of what the underlying gross margins of some of these modules are, and do you have a target margin for these? And then just a second part to that question, maybe if you could discuss what sort of pricing you're getting on the raw materials. Thanks.
spk04: Yeah, Paul, can you take the question on the gross margin?
spk05: Yeah, so, I mean, the gross margins consists of, I mean, basically three components. If you look through the details in our financial statements, bill of materials, labor, and overhead. As far as the bill of materials are concerned, those are tied to supply agreements and so forth, but we haven't hit commercial scale yet, so our costs are significantly above what our revenues are and the reason for the negative gross margin. As we move forward to commercial levels of production, I mean, into the thousands of units, we expect to get to gross margin break-even, and then when we get to the 3,000 to 5,000 annual units of production, and we look to get to some levels of gross margin profitability in line with other Tier 1, Tier 2 automotive manufacturers is kind of the target gross margin for us.
spk00: Okay, and then maybe just do you have any update on partnerships or how the market in China is going? Just a few quarters back, there was the Nanjing program, maybe is there an indication or have you had any sort of indication of the resumption of that program or that market overall?
spk04: That's a great question. So we continue to watch China closely. As you know, we've got a facility just north of Shanghai. What we've seen in the Chinese market is during COVID a real slowing down of fuel cell adoption. Many of the municipalities were required to to support COVID initiatives and zero COVID initiatives, and that had a fairly significant impact on their treasuries. We're seeing them starting to rebuild those treasuries and some of those programs starting to relaunch. China, we continue to expect and believe that it's going to be one of the most significant fuel cell markets in the world. Today, most of the activity there is heavily dependent on subsidies. and the government entities that need to put those subsidies in place are still rebuilding their treasuries from the COVID battle. So we continue to watch it closely. We do see indications like Shanghai's recent reassertion of their objective to get to 10,000 fuel cell vehicles by the end of 2025 as a positive signal that that market is starting to move towards deployments, and we'll continue to watch for that.
spk07: Okay, that's all from me. Thanks. Okay.
spk01: Thank you. There are no further questions at this time. Mr. Nyland, I'll turn the call back over to you.
spk04: Great. Thank you, Lisa. I would like to conclude today's call by thanking our staff and the management team at Loop Energy who have been working very diligently over the last two to three quarters despite all the recent changes. We have a really high caliber, a really high caliber group of employees, and the effort and commitment is deeply appreciated. That concludes our quarterly call today. Thank you all for attending.
spk01: And this concludes today's conference call. You may now disconnect.
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