Good day, ladies and gentlemen. Thank you for standing by, and we warmly welcome you all to the Greenland Technologies First Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Joston Sami [ph], Investor Relations Director of Greenland. Mr. Sami, please proceed.

Thank you, operator, and hello, everyone. Welcome to Greenland Technologies first quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer. We released results earlier today. The press release is available on the company's IR website at ir.gtec-tech.com as well as from Newswire services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Thank you, Josh, and good morning, everyone, and thank you for joining us today. I'll be handling a majority of this call as my CFO, Jing Jin, has lost his voice and is in no condition to contribute to today's call. I'd like to start by thanking our global team for continuing to drive the business during a difficult global market and continuing to develop a more efficient operation. As expected and stated during our last earnings call, our component business continues to recover from global market conditions in the first quarter. Again, this is due to the current market conditions and the material handling and manufacturing industry in China as OEMs recover and ramp up from the country's zero-tolerance policy. Now China's manufacturing PMI has fallen to 49.5% this year, which is below estimates of 50.3%, showing a slower recovery on the fears of a global slowdown. However, based on feedback from our clients in the component business and our internal estimates, we still stand by our forecast that our business will normalize and grow, especially in the second half of this year. The material handling industry continues to grow with demand reaching all-time highs. Grand View Research recently increased their forecast of the global forklift market to a compound annual growth rate of 13.2% through 2030 with a greater shift towards electric forklifts due to increased emission regulations around the world. As a market leader in the forklift drivetrain and transmission industry, this market growth will reflect on our own metrics and results. And as we are ready to capitalize on this demand with our advanced components for all forklift and material handling systems. As displayed in our results, we continue to improve our margins through product innovation, lower costs, and operational efficiencies. Gross margins are up 320…

Thank you. [Operator Instructions]. First question comes from the line of Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Good morning. Congratulations on the good quarter.

Thank you.

Yes. And so, I think you were saying this on the call, but as you experienced slower growth in China, can you pivot your resources -- more resources towards HEVI?

Yes, we can. And we actually have been part of our focus right now is expanding the team, accelerating the expansion of our team and talent to be able to execute on our vision. This is very important for us to be able to properly capitalize on the opportunities that we've been uncovering. So, we have been investing further in that aspect of it. And we anticipate further investment as well, also a little sooner than we had initially planned in both our marketing efforts -- our sales and marketing efforts and on our territory and expansion.

And you mentioned gross margin improvement here from product mix. Does that reflect on anything permanent? And related to that, do you have any pricing pressure in that channel?

Great question. So, a big portion of the product switch over towards our higher margin is actually based on the shift in the market towards lithium, how forklifts in particular. Our highest margin, yet most expensive transmission that we offer, is our drivetrain unit specifically cater towards lithium-powered forklifts. And because on a global scale, OEMs in the market is switching over to lithium, that's been really driving our product. And right now, it's actually a premier product still, just like with our traditional, both hydraulic and transmissions, to support fossil fuel. Forklifts, we've always been the premier product from a cost standpoint, but that has not driven away our clientele.

Thank you, very much.

The next question comes from the line of Rommel Dionisio from Aegis Capital. Please go ahead.

Good morning, thank you. Raymond, I know you were involved on the HEVI side with some pilot programs, United Rentals and so forth. And you also presented at, I believe, the trade show in New York recently. I wonder if you could just share with us so, the initial feedback to the extent that you can on some of these pilot programs as well as the trade shows you've been attending. Thank you.

Absolutely. So, with our United Rentals pilot, they have truly been enjoying the equipment. They've been getting a lot of positive feedback. And their sales teams have always been excited to travel over to the location where it's stored to learn more about it and see how they can introduce that to their clientele. And it's gone so well that the company United Rentals has both requested an extension of our pilot and additional products as well to demo. Right now, they have our GEL-5000, on our largest and most popular unit. But our GEL-5000, we've been getting so much demand for our product line for both product demos and pilots that we actually are shuffling around our inventory to be able to properly meet that demand. It's been a little more of a challenge than we anticipated logistically to support this influx of requests for our products across both New Jersey, Maryland, and Delaware and New York, and Pennsylvania, just to name a few. But what we're doing now is instead of catering towards individual single demos, we are actually looking to initiate a campaign where we do more product demo days to invite multiple organizations at once with an opportunity to be able to drive experience our equipment, utilize it to move the material, truly feel it out and couple that with a stronger and smoother sales operation and process. We hope that will be a more effective use of our equipment to generate sales.

Okay. And maybe just a quick follow-up. I know your 54,000-square-foot facility in Baltimore was supposed to eventually produce over 500 units annually. I think you were targeting first units to roll off in the second quarter, the assembly line of the assembly line. Is that still on track?

We are still on track for that. The first units will be a GEX-8000, which is our electric excavator and a GEL-5,000, our largest and most popular front loader.

Great. Thank you, Raymond. And by the way, I want to wish J.J. quick recovery. Thank you.

Thank you very much. He will be glad to hear that.

The next question comes from the line of Graham Mattison from Water Tower Research. Please go ahead.

Hi, good morning, Raymond. A quick question on the quarter. So, I mean the first quarter financial results and certainly the best quarter you guys have had in the last three. So, it looks like things are recovering in the Chinese market. Are you still seeing quarter three and quarter four to be the banner quarters that you had thought before? And what gives you the confidence?

Yes. I do still see the third and fourth quarter being the strongest of the year for us. And I still am optimistic that 2023 will be a banner year for our core component business. That is primarily due to the trend that I outlined last earnings call, where the zero COVID policy lifting in China was truly devastating to the entire region, but particularly in the manufacturing sense and it caused a big gap in the production cycle for a lot of the OEMs that at that time, we were even just trying to come back from shutdowns and aggressive policies to try to control the pandemic. So, the majority of our clients were -- has been overcoming a lot of bumps and bruises in their operations at the end of 2022, but the demand is there stronger than ever. They are still revving up and ready to go, and it's just part of the ramp-up cycle. So, because of that, it's not a fast process for them to get everything up and running so quickly. But the flow is beginning to normalize as we're seeing in our results. And as they ramp up, then our deliveries will execute. And we've been ready to go.

Great. And then coming out of the COVID lockdowns, do you see any changes in the competitive position and the competitive landscape of the market for the transmission business?

Initially, we did, so during, I'd say, end of 2021 through mostly 2022, we started to see a shift of our sales start to move outside of China. Still, a majority was in China. We're talking a switch from a few percent, let's say, from about 96% at the beginning of 2022 to about 91%, 92% towards the middle. So, we were seeing some trends that a lot of OEMs are trying to shift their manufacturing outside of the country of China. However, now that the manufacturers are starting to rev up and I think that because of challenges that they experienced in the international markets, who still needed more time, investment, and expertise to ramp up their manufacturing opportunities. We're actually seeing it come right back. So right now, again, a majority of our sales are entirely to Chinese OEMs right around the 97%, 98% again.

All right. Great. And then one last question, and that's great. With the feedback that you're getting at the trade shows as you're talking to people. Can you just walk us through the sort of process there? When you get a potential customer coming in and saying they're really interested in it, what's the next step? Is it they come and do a demo or do you get a product on their site? And can you just give some sense around how long the sales cycle typically is in the industry?

Yes. So, these -- it's difficult to compare to industry average sales cycle because for the HEVI industrial machinery industry, it's actually just led by a very small handful of players with very strong brand recognition. So besides, let's say, it's almost similar to politics for certain classes of machinery, you either go one brand or another brand. That's a -- so because of that, they have a much faster sales process and it's focused more on delivery and service. Now for our side, we have to overcome the big challenge of educating and getting people comfortable with the brand-new technology. But that actually is driving a lot of the interest that we see in the trade shows because people will double take every time when they see our machinery and then learned that it's electric. And they get a buzz with questions. How long does it last? How you charge it? How much does it cost? And these are the questions that really showcase the advantages and benefits of our product line. So, it gets them very excited. Now our traditional sales process that we were pursuing is from the interest that we received. We would schedule a demo on the client's site to provide them with an opportunity to be able to utilize the vehicle, see the power, really envision how we can support their operations, and go from there. But the challenge was from a logistical standpoint, this was expensive and slow. We were doing multi-day demos. So, in many cases, an asset would be at that prospect site for a week plus while we have others waiting in the line. For example, just last week, we were at the NYC Fleet Show in Queens, New York. And from that show, we actually walked away with over two dozen requests for demos and pilots from organizations around the New York City area. So, if we were to do it one by one, we're finding it resist too slow. So, we are changing it up. And now we're actually looking to do more of a group demo in pilot for just a few hours or on-site demos for no longer than a day.

Got it. And then as the one question to add in, as you're starting to roll more [ph] Quinn off the line beginning in 2Q, will that help that demo process?

Yes. it will. As it stands right now, our entire fleet is just dedicated to demos, and we still have a pipeline right now of over 100 different organizations that are waiting for their turn for the vehicle with their machines, I'm sorry.

Got it. All right. Great. I'll jump back in queue. Thank you, very much.

Thank you, for the questions.

Seeing no more questions in the queue. Let me turn the call back to Mr. Wang for closing remarks.

So, everyone, I just wanted to thank everyone again for participating in our call, and continuing to follow the progress of our company. We are on the path for great things, and though it may not reflect in our stock value, I still strongly believe that our company purposes significant value for our shareholders, and the opportunity and the timing where that will become recognized is surely coming down the line. So, I just want to thank everyone again for participating on our call. I want to thank my team for continuing to work so hard every day to deliver this value to our shareholders. And I hope everyone has a fantastic rest of your day.

Thank you again. This concludes the call. You may now disconnect.