Q3 2022 Microvast Holdings Inc Earnings Call
Yeah.
Thank you for standing by this is your conference operator, welcome to Microsoft's third quarter spending 22 earnings call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation investing community professionals at the Opex you didn't need to participate in a question and answer session.
Joining the question Kelly you May Press Star then one on your telephone keypad should you need an operator assistance. During the conference you may now by pressing Star Zero I would now like to turn the conference over to Monica Gould Investor Relations for micro Paas. Please go ahead.
Sherry and thank you to the audience for joining us today.
Gosh, a kettle born President and Chief revenue Officer, and Craig Webster, Chief Financial Officer will host todays call ahead of this call Microburst issued its third quarter 2022 earnings press release, which can be found on the Investor Relations section of our website at IR Dot Microburst dotcom and.
In addition, we have posted a slide presentation to our website to accompany management's prepared remarks.
As a reminder, please note that we will be making forward looking statements on this call.
These statements are based on current expectations and assumptions and reflect our views only as of today.
Would not be relied upon as a representative about views as of any subsequent date and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations for further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC, including our annual report on Form 10-K.
Filed on March 29th 'twenty, 'twenty, two and the 10-Q filed earlier today.
In addition, during today's call, we may discuss non-GAAP financial measures, including adjusted gross profit adjusted net loss and adjusted EBITDA, which we believe are useful as supplemental measures of microburst performance. These non-GAAP measures should be considered in addition to and not as a substitute for or an ice.
[noise] solution from GAAP results.
These non-GAAP measures have been where you can sell to their most comparable GAAP metric in the tables included at the end of our press release.
A webcast replay of this call will also be available on the Investor Relations section of our company website.
And with that I'll turn the call over to Sasha for some opening remarks.
Thank you Monica. Thank you all for joining us.
Please turn to slide four as I cover a few highlights from the third quarter.
We posted a 4.7% revenue growth during the quarter delivering $38 6 million in Q3 2022 despite.
Despite the continuing difficult market conditions in Europe customer supply chain challenges and currency headwinds. We ended the third quarter with a strong backlog of $140 6 million driven by a healthy order intake of $81 9 billion led by a strong demand in China.
Some key wins during the third quarter included an order from site for about 24 million and an order from Brazil in excess of $10 million. We also continue to benefit from ongoing customer relationships with vascular sealant E vehicles.
Shell and others.
Raw material prices remain at an elevated level as a result of supply chain disruptions as well as worldwide inflation all unit cost across the board continue to track significantly higher than we anticipated at the beginning of the year.
Actively monitoring these trends and implementing migration strategies, where possible, including optimizing long term supply contract identifying new or additional sources of supply and increasing our selling prices where possible.
However, we expect raw material prices, especially for certain key materials like lithium to remain elevated through the end of 2023 and possibly all the way into 2024.
Looking forward into 2023, we expect our auto volume to increase after we bring the new manufacturing capacity online and who do we expect that additional volume to increase our production visibility, enabling us to lock in higher volume commitments.
Please turn to slide five which highlights some of our key partnerships in the commercial vehicle market.
Microsoft's joint and mining industry consortium led by shell, who whose goal is to offer an end to end.
Our model of truck solution for the mining industry, Microsoft's developing custom high powered battery solution with ultra fast charging capabilities. This ultra high voltage battery system would have an extremely high sea rate capability and long life of up to 20000 cycles under normal operating conditions, which.
Would be critical to enable the high power ultra fast charging and heavy duty use solution that the consortium is target to.
To deliver.
Comma part of Carbo, Tec, which offers a wide range of cargo handling solutions and services to port terminals and distribution centers and heavy industries across the globe extended their supply and purchase agreement with Microbot through 2026.
Karma will use on U M D B and N B C generation four packs to power their full electric and hybrid put for you.
Shanxi automobile group commercial vehicle OEM formed a partnership with Microsoft to support a 49 tonne hybrid truck sector with anticipated deliveries of 23 megawatt hours in Q4 2022.
<unk> seen with synergy the leading fuel cell battery system manufacturer in China is collaborating with Microsoft for its 49 tonne hydrogen truck tractor with anticipated deliveries of up to five megawatt hours in Q4 2022.
I will now turn the call over to track to review our financial performance.
Thank you Sasha I'll spend the next few minutes discussing our Q3 2022 financial results. Please turn to slide seven I'll summarize the main line items from our Q3 P&L.
First off we achieved third quarter revenue growth of four 7% to $38 6 million from $36 9 million in Q3 2021.
I will take you through the geographic breakdown in the latest slide, but I would like to note that the small the seventh quarter in a row that we have shown year over year revenue growth.
This came despite some challenges we encountered during the quarter. The session noted earlier, along with some currency headwinds.
On a year to date basis revenue was $169 7 million up 64% from $85 2 million in the prior nine month period.
We posted a gross profit of $2 million in Q3, 2022 compared to gross loss of $35 9 million in the prior period.
After adjusting for non cash settled share based compensation expense and our cost of sales. Adjusted gross profit was 4 million in Q3 2022 compared to adjusted gross loss of $33 6 million in Q3 2020 along.
This translates into an adjusted gross margin of 10, 2% in Q3 2022 compared to a negative 91.1% in Q3 2021, a 101.3 percentage point improvement.
Operating expenses were $39 6 million in Q3, 2022 compared to $78 million in Q3 2021.
The largest contributor to the decrease in operating expenses was the decline in SBC expense, which totaled $17 3 million in the quarter compared to 56 million in Q3 2021.
Hi, SBC in the prior year quarter was the result of recognizing $39 2 million of SBC expense upon accelerated vesting in connection with the business combination.
As I mentioned previously noncash SBC expense was a significant contributor to both GAAP operating expenses and operating losses.
We believe a more accurate representation of our financial performance, especially as it relates to cash operating expenses and operating loss is that illustrates in slide eight.
After adjusting for noncash SBC expense and SG&A, our adjusted operating expense in Q3, 2022 was $22 3 million.
GAAP net loss was $36 5 million in Q3 2022 compared to net loss of $116 5 million in Q3 2021.
After adjusting for noncash SBC expense and changes in fair value of our warrant liability and convertible notes adjusted net loss was $17 4 million in Q3 2022 compared to $65 1 million in Q3 2021.
Reconciliations of these non-GAAP metrics to the most comparable GAAP metrics are included in the tables at the end of our earnings press release.
Slide nine shows the geographic breakdown of our revenue for the three and nine month periods ended September 32022, compared to the prior year period.
You can see for the third quarter, our China business showed a 35% increase year over year.
This was partially offset by a decline in other Asia Pacific markets, a 39% as potential customer old is linked to the success of that tender bids did not materialize and some confirmed orders were pushed out into Q4.
As a result of the challenging market conditions in Europe . We noted earlier revenue in the region declined 30% compared to Q3 2021.
However, we have some exciting projects coming up in the region, especially in anticipation of a new 53.5 empower cell and we expect the growth rate to pick up starting in 2023.
Our balance sheet remains solid as you'll see on slide 10, we ended the quarter with cash cash equivalents and restricted cash of $415 7 million.
Net cash provided by operating activities during the quarter was $4 9 million, which was primarily choose the cash collections from customers, reducing our accounts receivables and notes receivables.
Negative free cash flow of $11 9 million was mostly as a result of our capex spend on huge or 3.1 and Clarksville one eight in Q3, 2022 which totaled $12 8 million.
We also had capital expenditures totaling $4 million from improvements to our existing facilities and ongoing R&D projects.
Our current estimates all that capital expenditures for the fourth quarter will be in the range of $90 million to $120 million and will primarily be used for our capacity expansion projects.
As our payments are determined by construction and equipment delivery milestones. It made the case that some of these payments all pushed out into 2023.
In our last call I explained that as we derisk the construction phase of our capacity expansions and have multi year old is in place and a broad and growing customer base, especially those in Europe and the U S. We would add leverage to our balance sheet.
I'm pleased to report that during the quarter, we completed a $111 million project finance facility to support our future expansion with a syndicate of banks.
This is a full year amortizing loan with a December 2020 six maturity and the current interest rate is four 8%.
With the benefit of this debt financing, we expect to close the year with at least $250 million in cash cash equivalents and restricted cash.
The huge capacity expansion brings out new high power and high energy sales online and supports our growth targets for 2023 and beyond.
Manufacturing equipment deliveries and installation began in the third quarter and our efforts are focused on ramping up production to meet very strong orders, especially for our new L. D C cells.
We currently expect clocks will speak in serial production in Q4, 2023 and be well positioned to take advantage of the recently announced initiatives under the inflation reduction at.
Oh, the I all right.
Please turn to slide 11, which details some of the most significant benefits of the IRA and Mike arrest.
The most notable of which is a tax credit of $35 per kilowatt hour of battery cells and $10 per kilowatt Alpha battery modules, both of which will be produced in our Clarksville facility.
This translates to a potential tax credit of $45 million two gigawatt hours of cell and module production with your initial phase of Clarksville supporting two gigawatt hours.
Given the level of customer interest in this facility across our energy storage and commercial vehicle solutions. We are already planning to increase this to four gigawatt hours.
Aside from the clear technological advantages of the 53.5 ampere of a cell that has produced a clock. So there is the added benefit of this qualifying as domestic content under the eye, alright, which allowed some of our customers to obtain an incremental 10% investment tax credit.
With that I will turn it back over to Sasha to review the outlook.
Thanks, Craig Please turn to slide 14.
We are tightening any revenue guidance for the full year, which is expected to be in the range of 35% to 40% for 2022 a foot.
Forecast of contracted revenue remained strong as our business with western customers is poised for further growth we continue to be optimistic about opportunities.
To grow market share and penetrate new markets, both geographically and with future innovated product. We look forward to the full deployment of our recently launched product, which I expect it to drive sales growth in 2023, and beyond let's say incorporated into much anticipated upcoming vehicle launches.
Accordingly, we have a good visibility on 2023 as a result of two large projects for deliveries to commercial vehicle customers in Europe , which we currently estimate at 80 million in revenue with potential upside and as well across our new energy storage business, which will add further positive momentum to our 2023 outlook.
We are therefore planning for sustained sustainable global increase in customer volume next year, which truly sets the platform for future years of gross.
Execution continues to be critical and to achieve our targets. We are focusing our efforts on first revenue growth through new multi year supply contract with existing and new customers second completing capacity expansion projects to service, increasing customer demands and third driving margin improvements as we.
[noise] scaled the business.
We're excited to begin planning on U S based polymer separate facility in collaboration with General Motors for which we recently received a 200 million grant from the department of energy.
This.
Oh, this not only validates our leading edge technology, but also sustainably expand our addressable market and our team works hard to execute significant progress has made over the last few months with multiple new U S. Government funding programs, we expect inflation reduction act of 2022 to be important because laser.
Advancing clean energy initiatives and helping to reduce carbon emissions in the U S why creating even more exciting direct and indirect business opportunities for Microsoft's going forward.
Our global macro best team, our focus oriented culture, and our ability to execute has been and will be a competitive advantage of microburst and I would like to thank personally the microdose team for their tireless work and commitment to our mission before turning to call back over to the operator to start the Q&A session.
Thank you.
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One moment, while we poll for question.
Our first question is from Colin Rusch with Oppenheimer and company. Please proceed.
Thanks, So much guys can you give us a little bit of a sense of the cadence on gross margin improvement really happy to see the progress you've made on during the quarter, even at lower revenue levels, but curious how you see that playing out through the balance of <unk> and into the early part of 'twenty 'twenty three.
Thanks for that calling I I'd say look what we're starting to see it.
Because there are a lot of it you are interested in the products is were increasing prices.
Increasing prices customers right spacing this.
Those negotiations have gone well it really underpins our forecast them.
For next year.
And tied into that as well is that as we have a lot of visibility around this 53.5 empower sell it.
It incredibly helps with production planning them until we get the scale effects.
All human factor and we'd really see that playing out into 2023.
Excellent and then in terms of customer engagement around medium and heavy duty you know obviously some of these ramps have been.
Mixed in terms of timing given any number of issues around supply chain, but I'm curious what you're seeing so far in terms of you know the move into production on these programs.
And the ability of these customers to take our product and in anticipation of their production ramps.
Colin you you probably have heard on the IAA out this year. This year fell on the biggest global commercial vehicle show trade show V. C. O M. P. Veeco announced the start of production I'll see bakery daily and as everybody knows we have a battery supplier. So the sop starts already in December and we have thought about.
Coming S&P project as I mentioned already in that field at beginning of next year, So electrification of starting there.
There was a delay through the pandemic.
And now it's moving ahead and that's the reason why we really have a positive outlook and into the future.
And so you're you're seeing real live activity right now and you know are are they going through kind of a measured slow start here. So far or are you seeing them really go full force Ah okay.
You haven't every effort as a P. You'll have a classic a ramp up phase so theyre ramping up from 23 will be the ramp up phase moving moving a half moving forth backed up by a lot of governmental projects they need to they need every every commercial vehicle manufacturer has to improve his C. O two footprint so everything place in all into <unk>.
Our cards.
And we are.
We are very confident in that case over the next years that are that would be a quick ramp up.
And in that area.
That's super helpful. And then a final one for me is just you know with with this deal we grant which is you obviously went through a fairly competitive process.
Can you talk a little bit about the customer engagement since that announcement and you know obviously I think it's an important validation of what you guys are up to you know, but curious how that how that response has been so far.
Collyn, it's been Super positive you know my colleague stopped to Matisse, and Shane did an awesome job with with D. O E M that Grand it's it's the grant we don't have to pay it back it's a huge validation of micro fast the technologies that we have.
Have they.
They want to have these technologies exclusively in the U S and then.
And then G M collaboration with US again, they've been very close to the development of this technology and where we're looking forward to exploring ways. How we move this business forward.
What we're hearing from them. So far is that they like this is very much a standalone entity that they want to be very close to this technology.
Oh there is other investors are also interested in then.
If we do it like that it really tease itself focusing that becomes a you know we run it separately and it'll be spun off at some point.
Perfect. Thanks, so much guys.
As a reminder, the star one on your telephone keypad.
Jim We've upsized perforate aircrafts.
Fair question.
Yeah.
And while we wait for additional questions to come in and I'll just read one that we received through the IR email and this is a bad I recently announced energy storage Division. If you could talk a little bit about how that is being received and what kind of feedback you're getting from customers.
Sure Zach and his team did an incredible great job to develop that product solution. It's based on our $53 five ampere hour cell and Jeff.
Classic product highlights our industry, leading energy density rate of four three megawatt hours long battery life of more than 10000 cycles easy transportation installation and maintenance on a 20 foot container. This is a this is market leading and the you can see already the customer feedback is there they they and they there.
Highly interested in our solution and you will soon hear more about that and things again to Zach and his team. He they did a great incredible job. This was a big success. So far what we received as a market feedback.
Yeah.
Great and then going back to the the large D. L. E. Grant that we received a can you talk a little bit about the selection process and how yeah micro vast I was able to secure such a large grant.
Sure, it's really down to the technology as a pollyanna made separate it took I am Mike arrest 10 years.
Fact that technology. The separator is the most critical component in the battery for safety.
You know my for bass is a safety first company is most critical path.
About the battery.
We have large and extensive patent protection on that and I think it was just a true recognition is one that we can develop technologies, but importantly, we can also commercialize them and that's why we resize received such a significant grant.
Okay.
Thank you said that looks like and that's it for the questions that we've received them.
Do you have any other closing remarks before we close up the call.
Yeah, I would like to thank the audience for part of the Apple participating today, and and I wish everybody a great evening and.
We will report soon again with further positive news, thanks, a lot for being with us today.
Okay.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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