Q3 2024 Microvast Holdings Inc Earnings Call
Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith
Thank you for standing by. This is the Conference Operator.
Speaker Change: Welcome to the MicroBest third quarter 2024 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to MicroBest and Best Relations. Please go ahead.
Speaker Change: Thank you for watching. Please subscribe to our channel. See you in the next video.
Speaker Change: Thank you, Operator, and thank you, everyone, for joining our quarterly update today. With me on today's call are Mr. Yang Wu, founder, chairman, and CEO, and Ms. Faryal Khanbabi, CFO. Mr. Wu will start off with a high-level overview of the quarter before providing some operational and business updates.
Speaker Change: and Bobby will then discuss our financial results in detail before handing it back to Mr. Wu to wrap up our 2024 Outlook and closing remarks.
Speaker Change: Ahead of this call, MicroVast issued its third quarter earnings press release, which can be found on the Investor Relations section of our website, ir.microvast.com. We have also posted a slide presentation to accompany management's prepared remarks.
Speaker Change: As a reminder, please note that this call may include forward-looking statements.
Speaker Change: We may also discuss non-GAAP financial measures during this call. These measures should be considered in addition to, and not as a substitute for, or in isolation from, GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metrics in the tables included at the end of our press release.
Speaker Change: After the conclusion of this call, a webcast replay will be available on the Investor Relations section of MicroBast's website. And now, I will turn the call over to Mr. Wu for opening remarks.
Thank you.
and I thank you everyone for joining today's call.
Speaker Change: Please turn to slide 3 and I will cover the key messages from our third quarter.
Speaker Change: As we communicated earlier this year, we at Kennedy focused on improving both efficiency and profitability.
Speaker Change: Through 2024, Microblast has been executing on the strategies of our solid business in EMEA and APAC while implementing strategic cost-cutting measures in the U.S.
Speaker Change: Despite the challenging environment in the U.S., I'm excited to announce we have achieved the profitability in the quarter with a net profit of 13.2 million and adjusted EBITDA of 29 million.
This is a historical milestone for us.
Speaker Change: I want to thank the entire team here at MicroVest that made it happen.
Speaker Change: This is an incredible achievement for both the company and the domestic lithium battery segment in the U.S.
Speaker Change: The lithium battery manufacturing industry is a difficult business with a long-term investment horizon.
We have learned much during our rapid growth period.
Speaker Change: MicroVas has commercialized the product across our technology stack and industrialized the manufacturing process many times over.
Speaker Change: We aim to continue innovating and focusing on our business strategy as we grow both in the U.S. and globally.
Speaker Change: To reiterate to our shareholders what our business strategy includes, I'd like to briefly touch on it.
Speaker Change: The core driver of our business is innovation. We remain focused on technology and product development.
Speaker Change: With many exciting products on the way, our newest product including our industry-first overhaulable ME-6 LFPE-SS containers and silicon-enhanced cell technologies.
Speaker Change: We have also made material progress on our old solid-state battery.
Speaker Change: We are continually seeking to broaden our revenue stream through products and services that support the global energy transformation.
Speaker Change: To achieve our goals, we must also capture future market shares. Microvats continue to invest in commercialization of both current and future high-demand advanced products.
Speaker Change: With our focus on the product innovation and capturing market share, Microblast strives to achieve further growth. We continue to optimize our core business and aim to attain sustained profitability.
Speaker Change: MyProvost continues to be successful in expanding our commercial vehicle reach.
Speaker Change: These enhanced cells have improved energy density for ever-evolving performance requirements of our customers.
Speaker Change: While we are very excited about the trajectory we are on, this quarter wasn't without its challenges.
Speaker Change: In addition, rapidly growing markets such as India and Thailand have prioritized LFP chemistries for their affordability versus high performance.
Speaker Change: Delivering $101.4 million, we achieved this growth while maintaining a gross margin of 33.2%, a 10.9 point improvement year over year.
Speaker Change: This incredible growth comes largely from sales increase in EMEA. We want more so triple-digit percentage growth of 212% for EMEA year over year.
Speaker Change: Now, if you will join me on slide 6, we have some exciting new business developments in our commercial vehicle segment.
Speaker Change: SDMG was founded in 1943 and has stood at the forefront of the construction and machinery industry in China.
Speaker Change: We are proud to partner with them and expect to start serial production of our battery packs for use in their construction equipment next year.
Speaker Change: And finally, LGMG is a major player in the mining and accelerator equipment industry. Microvats will be supplying them with our battery packs, and we expect to see revenues by the end of the year.
Speaker Change: The heavy industries segment has increasingly adapted our high-performance cells for their applications. We also continue to find a success in adaption by hybrid and a few cell OEMs as well as the agriculture segment.
Speaker Change: I would now like to turn the call over to Ms. Kababi to discuss our financials in more detail.
Ms. Kababi: Thank you Mr. Wu and thank you everyone for tuning in. I'm going to start by walking you through our Q3 2024 financial performance, focusing on some key metrics that underscore our progress.
Ms. Kababi: Starting with slide 8, we will review the core financial highlights for the quarter.
Ms. Kababi: As Mr. Wu mentioned, Q3 was a record quarter with revenue reaching $101.4 million, up 27% from $80.1 million in Q3 2023.
Ms. Kababi: This growth was fuelled by strong EMEA sales for commercial vehicles, driven by OEMs increasingly adopting our technologies.
Ms. Kababi: Our gross margin improved this quarter to 33.2%, up from 22.3% in Q3 2023.
Ms. Kababi: Excluding non-cash share based compensation expenses, the adjusted gross margin rose to 33.9 percent, a 9.7 percentage point increase versus the prior year period.
Ms. Kababi: This increase in gross margin is due to a combination of factors, including better economies of scale through operational efficiencies, more favorable product mix, and sustained lower raw material prices.
Ms. Kababi: Adjusted EBITDA turned positive, reaching $29 million as we focus on achieving sustainable profitability.
Ms. Kababi: We reported a gap net profit of $13.2 million in Q3 2024 compared to a net loss of $26.2 million in Q3 2023.
Ms. Kababi: After adjusting for non-cash items such as share-based compensation expenses and fair value changes of our warrant liability and convertible loans,
Ms. Kababi: Adjusted net profit came to $16.8 million, a substantial improvement from an adjusted net loss of $10.3 million in Q3 2023.
Ms. Kababi: Turning to slide 9, we will review the rest of the P&L in more detail.
Ms. Kababi: Operating expenses reduced to $27.5 million in Q3 2024 compared to $44.7 million in Q3 2023, a 38% decrease from the prior year period.
Ms. Kababi: This reduction across G&A, R&D, and sales and marketing were largely due to reductions in share-based compensation and cost control measures we began implementing in May this year.
Ms. Kababi: After adjusting for non-cash share-based compensation expenses, our adjusted operating expenses in Q3 2024 were $22 million compared to $30.3 million in Q3 2023, a decrease of $8.4 million.
Ms. Kababi: On slide 10, we show the geographic breakdown of our revenue mix for Q3 2024 compared to the prior year period.
Ms. Kababi: Our EMEA business grew by 212% year-over-year and accounted for 59% of our quarterly revenue.
Ms. Kababi: up from 24% a year ago as we continue to grow our partnerships and key customers continue their vehicle ramps.
Ms. Kababi: Please turn to slide 11 and we'll briefly review our cash flow.
Ms. Kababi: Net loss for the nine-month period has impacted cash flow that has been substantially offset by non-cash adjustments, including $30.3 million of share-based compensation and $68.8 million from impairments, write-downs and disposal.
Ms. Kababi: For operating cash flow in the nine-month period, we saw a net outflow of 3.3 million.
Ms. Kababi: We've received positive adjustments from improvements in our receivables, while we've substantially reduced age liabilities and expenses for an overall net negative adjustment.
Ms. Kababi: From investing activities, we saw a net outflow of $12 million for the nine-month period, primarily due to capital expenditures, partially offset by short-term investments.
Ms. Kababi: For financing cash flow in the nine-month period, we saw a net inflow of 46.6 million.
Ms. Kababi: Overall, combined with the negative impact from exchange rates of $4.6 million, we had an increase of cash of $26.8 million for the nine-month period, showing improved financial stability.
Thank you.
We believe that our financial results demonstrate
Ms. Kababi: that we are building a profitable resilient foundation with expanding market demand.
Ms. Kababi: Especially in EMEA, our focus on driving sustainable profitability, improving margins and achieving operational efficiencies continues to strengthen our position.
Ms. Kababi: We are committed to executing our strategic vision, and we believe that as our results continue to unfold, the market will recognize the intrinsic value that microvast brings to the energy storage and electric vehicle sectors.
Speaker Change: With that, I will hand it back over to Mr Wu to go over our outlook for the remainder of 2024 and closing remarks.
David Soderberg, David Soderberg, David Soderberg,
Thank you.
Speaker Change: Please turn to slide 13, which provides a summary outlook for the rest of the year.
Speaker Change: For the fourth quarter, we expect revenue to be in the range of $90 to $95 million, which puts the four-year anticipated revenue growth in the range of 15 to 18 percent.
Speaker Change: We continue to strive for operational efficiencies, and we are maintaining our target growth margin of at least 25%.
for APAC Business.
Speaker Change: We continue to target production capacity improvements at our Huzhou facility, as well as progressing towards exciting products to add to our extensive product portfolio.
Speaker Change: We also anticipate that our high-growth email business will achieve an 80% revenue increase year-over-year, and we are working to secure new strategic partners for both current and upcoming products.
Speaker Change: For the American segment, we are focused on expansion of our commercial vehicle footprint while securing future orders for our new ME6 LFP ESS platform.
Speaker Change: We are also looking into options for a full financing solution for our Crossrail facility.
Speaker Change: We are attracting sustained positive adjusted EBITDA contributions from our established business in EMEA and APAC.
Speaker Change: Consistent revenue growth and the ability to maintain a healthy gross margin profile is the key to improving our liquidity and providing a route to long-term profitability.
Speaker Change: To summarize, our full focus continues to be on product development, operational efficiencies, key customer growth, reducing liabilities, and strategic cost cutting.
Please join me on slide 14.
Speaker Change: I would like to take a moment to welcome new investors, as well as reinforce who Microblast is as a company to our legacy stockholders.
Speaker Change: Microblast is a U.S. company founded and a headquarters still today in Texas where I founded the company.
Speaker Change: We strive to be a trusted global provider of cutting-edge energy technology solutions.
Speaker Change: The company holds more than 775 patents that are either granted or pending, with our products currently powering equipment worldwide.
Speaker Change: We aspire to continue our groundbreaking product innovation across our extensive technology stack.
Speaker Change: And we aim to be steward of the electric energy revolution to create a cleaner and a more living planet for all of our humanity.
Speaker Change: This includes everything from solar and wind utility scale storage to powering the data center required for cloud storage or AI computation.
Speaker Change: Additionally, at IAA 2024 in Germany, we unveiled multiple new cell technologies leveraging silicon that provide improved energy density for high-performance applications.
Speaker Change: Thank you all for attending our historical quarter update. We look forward to updating you on our progress again next quarter.
This concludes today's conference call.
Thank you for participating. You may now disconnect.
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Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith
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Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith
Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith
Speaker Change: Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith, Yaser Ali, Unknown Executive, Yang Wu, Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith, Yaser Ali, Unknown Executive, Yang Wu,
Yaser Ali, Unknown Executive, Yang Wu, Nancy Smith