Electrovaya Inc. (ELVA) Q1 2024 Earnings Report, Transcript and Summary

Greetings. Welcome to the Electrovaya Q1 2024 Financial Results Conference Call. [Operator Instructions]. 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 Electrovaya's Q1 2024 financial results. Today's call is being hosted by Dr. Raj DasGupta, CEO of Electrovaya, and myself, John Gibson, CFO. Today, Electrovaya issued a press release concerning its business highlights and financial results for the three month period ended December 31, 2023. If you would like a copy of the release, you can access it 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 SEDAR+ website at www.sedarplus.ca or on the SEC's EDGAR website at sec.gov/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 the 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 Form and Management Discussion and Analysis under risk and uncertainties, as well as in other public disclosure documents filed with the Canadian and US security regulatory authorities. Finally, please note that all the numbers discussed on the call are in US dollars, unless 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 target. As those who have followed Electrovaya 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 electrified platforms by both Electrovaya 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, Electrovaya 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 Electrovaya’s Infinity Technology. My vision is for Electrovaya 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 planned 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 cell 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. Gross margins increased by 360 basis points to 29.2%, significant gross margin for battery systems on an individual revenue stream basis. Importantly, our adjusted EBITDA grew by $0.8 million to a 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 our 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. Company had positive working capital of $0.1 million for the quarter and 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 million 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 Electrovaya 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. [Operator Instructions] The first question comes from Eric Stine with Craig Hallum. Please proceed.

Hi, Raj. Hi, John.

Hi, Eric.

Hi. 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 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 time line and being able to meet the demand, as you look out to 2025 and 2026, but just love your thoughts?

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

That's correct. So these investments are really for -- the bulk of them are for cell assembly, right? So we already are 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 -- 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 into other sectors, which would benefit more from the IRA incentives for Made in America those kind of things. So that's why we insist to get it up and running sooner rather than later.

Yes. 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 it's -- we can probably guess who that is. But just curious, how you see that process playing out and what you 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 quotes to 600,000 or roughly there. That revenue, 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, which would 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 in 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 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 Eric, 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 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 H.C. Wainwright. Please proceed.

Thank you. Good afternoon everyone. Raj, with respect to the Jamestown facility and the annual guidance that you've provided, does the guidance -- is it dependent on the facility coming online or is it independent of that?

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 sustain revenue of about $130 million per annum, so roughly double our guidance. So, -- 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.

Okay. Understood. Thank you for that. With respect to this Japanese partnership, can you provide any additional color on what this process looks like? It looks -- 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 with -- 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.

Okay. Understood. Maybe just last one from me. With respect to this Jamestown financing, is there any particular milestone that now needs to be accomplished, or is it just -- the process needs to play out and you think that can be done within the next one or two months?

I think it's just a process. Yes, there's no other significant milestones. As Raj alluded to, the environmental work would usually take 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? I'm just wondering if you have adequate liquidity for the near-term in terms of growth objectives, et cetera?

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

Thank you. That's all I have, guys. 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?

Yes, that's correct. So up until -- most of our revenue is derived from batteries which are designed for existing material handling vehicles. If you’ve seen these power plus 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 through a large, especially for extremely heavy-duty 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. No, appreciate that. John referenced the operational transformation of the company and it’s positive effects on revenues. Could you expand on what he was referring to by this transformation?

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

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

Yes. It's more a soft skills improvement. We do still plan on assessing where we could use any automation. No, 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 this production cycle.

Okay.

So, yes, 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 release relating to that, if -- once we make a decision.

Okay. Thank you. Appreciate that. Regarding the mining industry, I mean, I'm not -- this is too specific, and even you can say wait 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, maybe it could be down the road, but we're not looking at the cars. It would be, again, heavy equipment.

Okay. And my last one, just kind of a higher view question. You've talked a lot recently about large customers in various industries that are adopting the Infinity Battery. I wonder how you see the structural shift from lead-acid batteries to Li-ion battery progressing? And has this started to become a catalyst for Infinity Battery sales yet?

I think so. I think right now, our estimate is about 10, let's say, our first OEM partner, which is Raymond Corp. I would say we're at roughly 10% adoption rate and lead-acid still makes majority. But the lithium-ion has gone from zero to 10 very quickly. So I anticipate that growth to continue. In fact, what we were anticipating is to getting to about 50% adoption rates within a few years.

Okay. Thank you, Gib. Appreciate the answers.

The next question comes from Pavel Molchanov 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 giving EBITDA guidance alongside the revenue guidance.

Hi, Pavel, 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 -- it 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 some point in mid to late fiscal 2025 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 not -- 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 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.

Yes, Pavel, are you referring to the system itself or the engineering efforts?

The product sales.

The product sales, so like in this current fiscal year, it's -- the product sales will be so much smaller than the material handling sales, it really won't make any difference. But -- where -- these are new products that are being launched, essentially, you can consider them engineering -- some engineering development aspect to them. So, yes, the margins we're not -- we're, of course, not targeting any application, 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 second will be electric buses, both of which we can sustain those types of stronger margins. When compared to material handling, material handling by that point, we'll be even at higher margins from that. So, it's a more mature product. It's an industry that values our technology, it's familiar with our technology. We can consistently probably get the highest margins in material handling, not -- 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, sort of, their version of the Inflation Reduction Act, the net zero industrial plan. And you've talked about wanting to bolster your footprint in Europe, maybe just get an update on that?

Yes, that's an overall positive event. And 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, Electrovaya should be and will be the leading battery player for these heavy-duty applications, which does require us to expand our global footprint in some stage. And when that -- the markets that we're looking at for that further expansion and that -- 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, the United Kingdom, just that flat.

Right. Thanks very much.

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

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

That's just one project.

In terms of the reasons or the need for NRE is because it doesn't exist today in terms of like you were saying before, there was no form factor to easily slip in electric, in the heavy-duty construction vehicle or something your mining vehicle like that?

That's correct. And if you think about the other batteries, their Electrovaya 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 parts 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. And there's multiple driving factors to go electric here.

Okay. When you say 40%, you mean the – meaning 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 combustion 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, but if I may just ask, I apologize, you mentioned before, let's say, with Raymond’s, you're up to 10% penetration, go back and correlate those two numbers because I know they mean different things. So just – so I can make sure I follow.

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

Okay. And I assume on some of these projects, these NRE projects, there is some 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 Electrovaya's Technology over another companies.

Okay. And finally…

Sorry I'll add, 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?

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

And Orin, when we do go to a second shift, the volume, 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.

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.