Microvast Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

Welcome to the MicroVest Third Quarter 2023 Earnings Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, investment community professionals have the opportunity I would now like to turn the conference over to Rodney Wirthan, MicroVast's Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, Thank you, everyone, for joining us today. With me on today's call are Mr. Yang Wu, Founder, Chairman and CEO Mr. Zack Ward, President and Mr. Craig Webster, Chief Financial Officer.

Speaker 1

Ahead of this call, MicroVast issued its 3rd quarter 2023 earnings press release, which can be found on the Investor Relations section of our website at ir. Microvast.com. In addition, we have posted a slide presentation to our company 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.

Speaker 1

They should not be relied upon as representative of views for subsequent dates, and we undertake no obligation to revise or publicly release 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 ks filed on March 16, 2023, 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 MicroVAST's performance. These non GAAP measures should be considered in addition to and not as a substitute and our press release. A webcast of this call will also be available on the Investor Relations section of our company website.

Speaker 1

And with that, I will turn the call over to Mr. Wu for opening remarks.

Speaker 2

Thank you, And thank you, everyone, for joining in on today's call. I would like to start off with a high level review of the quarter. Before providing some operational highlights, I will then turn the call over to Zach Ward, our President, We will discuss additional operational updates and some of our key successes for the quarter, followed by Craig Webster, our Chief Financial Officer, who will discuss our financials in more detail. I will then address our outlook for Q4 and the full year 2023 before opening to the call up to questions. Please turn to Slide 4 as I cover a few highlights for the Q3.

Speaker 2

We posted 107 percent revenue growth year over year in Q3 2023, Delivery revenue of $80,100,000 This exceptional increase comes from incredible demand growth for our commercial vehicle business from customers in both Europe and Asia Pacific. We continue to expand our gross margins, achieving significant double digit improvement and adjusted gross margin of 24.2 percent, a 14 percentage points increase year over year. We closed the Q3 with a record backlog of 678,700,000 Driven by a strong order intake of RMB67,500,000 from our commercial vehicle business. Our current backlog is made up of more than 84 percent 53.5 amphoursale, Driving by strong demand in both U. S.

Speaker 2

And European markets, the backlog continues to display How our 53.5 hour technology is being readily integrated into both the energy storage and commercial vehicle segments worldwide. Turning to Slide 5. One of our most significant operational achievements in Q3 was the rapid commercialization of our 53.5 ampoule cell from the new Huzhou Phase 3.1 expansion. We are producing and delivering qualified products at more than 70% utilization with an updated year end target of at least 90%. Additionally, our yields have Surpassed our ramped production targets, and we will continue to focus on improvements To push even beyond this target level, I would like to provide an exciting update regarding our HuZhu facility capacity.

Speaker 2

As you will see from Slide 6, we plan on an expansion of 1 gigawatt hour with an automated flexible production line. This line will be able to produce both our 53.5 amp hour cells as well as our 48 amp hour high power cells that are needed by our growing customers based on hydrogen fuel cell OEMs. This new line already has funding in place, requires a minimal incremental investment, Ed provides us a substantial capacity increase in order to meet our high sales demand. I would now like to turn the call over to our President, Zach Ward, who will discuss some of our key operational updates, sales, Partnerships and achievements for the quarter.

Speaker 3

Thank you, Mr.

Speaker 2

Wu, and thank you all for joining us today. Now please turn to Slide 7 as I cover additional updates from the Q3. To begin, I'd like to share the latest developments On our U. S. Operations for Clarksville Phase 1a, we're approaching domestic operations with its determined and proactive mindset.

Speaker 2

Our goal is to ensure a seamless ramp up for our U. S. Operations. To achieve this, we have extended factory acceptance tests for various components of the production line incorporating those lessons learned and improvements from our Huusho 3.1 line. While this has led to a slight delay in SOP, it sets the stage for an accelerated ramp up after installation.

Speaker 2

On the construction side, we are nearly at completion, with the majority of the building now under joint occupancy and only minor work remains to be done in the Q4. We're also in good position with our production equipment where we're using the same Equipment that is now running with great success on our Huzhou 3.1 line. We have approximately 30% of the equipment on-site in Clarksville, with majority of the remaining equipment having already been shipped. We have set our sights on 2024 We target to deliver qualified sales and generate Section 45X IRA credit from the Q2 of 2024 onwards. Drawing on our commercialization success in Hujo, we have set the ambitious goal of achieving target production yields for Clarksville in the Q2.

Speaker 2

On the personnel side of things, we're continually enhancing our U. S. Workforce With battery specific expertise and skills to support launch efforts, our U. S. Headcount has increased by nearly 3 50% year over year as we move towards bolstering our domestic presence in 2024.

Speaker 2

Additionally, We are pleased to share that almost 1 third of our exceptional Clarksville team is made up of U. S. Veterans. Expect more updates regarding our U. S.

Speaker 2

Operations in the future. In the meantime, I'd like to provide a brief update regarding our Windsor Colorado Energy Storage Assembly Facility. The facility has successfully produced the first of our ME-four thousand three hundred Energy Storage Containers and has completed a successful customer factory acceptance test. Now let's turn our attention to Slide 8. Despite facing challenges such as customer project delays, We achieved an order intake of $67,500,000 and continued our year over year upward trajectory in revenue growth.

Speaker 2

Moving on to Slide 9 to discuss some of our major project developments. We are excited to announce our collaboration on a prototype e bus with OEM Autocar, which will utilize our 53.5 AutoCar is a leading Turkish company renowned for producing buses, military vehicles and industrial products. MicroVast is also extending its partnership with REE Automotive to equip their LCV platform with our 53 0.5 amp hour Gen 4 pack. We use a cutting edge next gen EV automotive technology company offering modular electric trucks and Platforms. In the quarter, we made deliveries of our 53.5 Amphora Gen 4 Pack South Korea in partnership with Hygir Bus for their e Bus platform.

Speaker 2

Hygir is a major player in the bus export industry with units in more than 100 countries and territories across Southeast Asia, Middle East, Africa, East Europe and the Americas. Furthermore, we signed a general purchase agreement for our 21 amp hour Gen 3 pack with JVM Group, The leading Indian bus OEM. We're very pleased to report that we've delivered approximately 100 megawatt hours to JVM Group during the quarter. We had another excellent quarter in expanding our EMAD business. Looking ahead to the quarter, we anticipate adding significant multiyear contracts As illustrated in Slide 10, both of these multiyear projects utilize the 53.5 amp hour cell, which we have previously mentioned is the linchpin of our multiyear high growth phase.

Speaker 2

We expect to finalize these contracts in Q4, at which point they'll be included in our backlog. I will now hand the reins over to our Chief Financial Officer, Craig Webster to delve into our financial performance in the quarter.

Speaker 4

Thank you, Zach, and thank you, everyone, for tuning in. I'll spend the next few minutes discussing our Q3 2023 financial results. Please turn to Slide 12, and I will summarize the main line items from our Q3 P and L. We recorded a really solid quarter With Q3 revenue of $80,100,000 an increase of 107% from 38 $600,000 in Q3 2022. This growth was driven primarily by strong sales demand in both our European and Asia Pacific markets for commercial vehicles as OEMs continue to increase their vehicle rents.

Speaker 4

On a year to date basis, revenue was $202,000,000 up 45% from 139,700,000 In the prior year 9 month period, our gross margin improved to 22.3% in Q3 2023 compared to 5.2% in Q3 2022. After adjusting for non cash level share based compensation expense and cost of sales, Adjusted gross margin increased to 24.2% in Q3 2023 compared to 10.2% In Q3 2022, that's a 14 percentage point improvement. With the continuous yield and utilization Improvement on the Phase 3.1 line, we expect to maintain and possibly improve these margin levels. Operating expenses were $44,700,000 in Q3 2023 compared to $39,600,000 in Q3 2022. On a year to date basis, operating expenses were $119,900,000 a decrease of 10% from $133,400,000 in the prior year 9 month period.

Speaker 4

After adjusting for non cash SBC expense in SG and A, Our adjusted operating expenses in Q3 2023 was $30,300,000 compared to 22,300,000 In Q3 2022, an increase of $8,000,000 This is mainly due to increasing headcount costs and attracting battery specific expertise as we expand our U. S. Business and begin ramping into the next year. Adjusted operating expenses year to date were $72,800,000 compared to $75,100,000 in the prior year 9 month period. On a year to date basis, this reduction in non GAAP operating expense was mainly due to higher share based compensation expense in the prior year 9 month period.

Speaker 4

GAAP net loss was CHF 26,200,000 In Q3 2023 compared to net loss of DKK36,500,000 in Q3 2022. After adjusting for noncash SBC expense and the changes in fair value of our warrant liability, Adjusted net loss was CHF 10,300,000 in Q3 2023 compared to an adjusted net loss of $17,400,000 in Q3 2022. On a year to date basis, Adjusted net loss was $30,200,000 compared to an adjusted net loss of $61,400,000 in the prior year 9 month period. You are starting to see that as we scale our business, we are making significant progress in narrowing our losses and expect this trend to continue in Q4 and beyond. The impact of these adjustments is shown in Slide 13.

Speaker 4

A reconciliation 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 14 shows the geographic breakdown of our revenue for Q3 2023 compared to the prior year period. As you can see, our European business showed an outstanding 4 55% Year over year increase and accounts for 24% of our revenue, up from just 9% a year ago as key customers begin their vehicle ramps. We continue to expect substantial growth in our EMEA revenues, especially for the 53.5 amp hour cell, With much of this already in backlog. As Zach mentioned, we have a couple of multiyear commercial vehicle nominations That would further add to our backlog position in Q4.

Speaker 4

When we add the important contributions from China and Asia Pacific customers, Our overall commercial vehicle revenues have grown 45% year to date versus 2022. On the U. S. Side, Revenues are behind where we wanted them to be as deliveries on projects have been pushed out slightly. We will begin deliveries in Q4 And this should then make a meaningful contribution to overall 2024 revenues.

Speaker 4

Turning to 5.15. Our expansion in gross margin in Q4 is a crucial proof point in the maturity of our operations and the growing contribution from the commercial introduction of our new 53.5 amp hour cell. We expect to see further positive impacts to gross margin as Peugeot Phase 3.1 approaches full utilization in Q4

Speaker 2

CAD678,700,000

Speaker 4

with over 84% of this for the 53 portable 5 amp power cell gives us good visibility Into the utilization rates for our capacity expansions. Around 65% of the backlog is booked for 2024, Mostly for customers in Europe and the U. S. And as Mr. Wu mentioned, we now need to launch a flexible Phase 3.2 line in Huizhou to bring on more capacity to meet demand for 48 ampouresand53.5 ampouresells.

Speaker 4

As you know, our golden rule is that we only add capacity if supported by demand. This new line is situated in the same building as the Phase 3.1 line, which was sized to support a total of 12 gigawatt hours. The lead time to add a new Phase 3.2 line will be around 4 to 6 months, with the majority of the investments being in additional production equipment. Net cash used in operating activities during the quarter was $29,300,000 which was primarily due to operating loss and working capital. Negative free cash flow in the quarter of $89,300,000 resulted from this net operating cash outflow as well as our capital investment program.

Speaker 4

The majority of this capital expenditure in Q3 was to fund our capacity expansion in Clarksville, which totaled $38,300,000 We also had capital expenditures totaling $21,600,000 relating to improvements to our existing facilities and ongoing R and D projects. Looking ahead, We estimate that full year capital expenditures will remain in the range of $180,000,000 to 210,000,000 and will primarily be used for the Clarksville Phase 1a capacity expansion. Turning to Slide 16, We detail the financial resilience of MicroVast. Our total debt outstanding of CHF 99,500,000 is relatively modest, and you can see that the maturity profile requires only $5,000,000 to be repaid in the 4th quarter. Looking further out, Total debt repayments up to 31 December 2025 are a very manageable 40,200,000 All of this debt is for our China operations and none of it has any recourse to our U.

Speaker 4

S. Holding structure or assets. We have approximately $70,000,000 available to draw down in order to continue expansion and growth at our Hugio facility, Artof is being used for the estimated $35,000,000 investment in the Phase 3.2 expansion. This incremental investment in a flexible automated line allows us to respond to both demand for the 53.5 amp hour cell That will exceed Phase 3.1 capacity and also to deliver 48 AMP cells for the hydrogen fuel cell market. Turning to the U.

Speaker 4

S. Operations. These currently remain free of leverage, and we continue to make solid progress on a project at financing, which is to be secured by the Phase 1a expansion. We anticipate that facility to be in place during Q4. With that, I will turn it back over to Mr.

Speaker 4

Wu to review our outlook.

Speaker 2

Thank you, Craig. Please turn to Slide 18, which provides a summary outlook for the upcoming months.

Speaker 3

For the

Speaker 2

Q4, we expect revenue to be in the range of 90,000,000 to 100,000,000, Up 47% from Q4 a year ago and the midpoint, driven by Increasing deliveries and production output from our EMEA and Asia Pacific commercial vehicle customers. We are also targeting adjusted gross margin of 20% to 25%. Additionally, we are targeting a further increase to our previous utilization and aim to achieve 90% on our Huzhou 3.1 Automated line. Finally, if you turn to Slide 19, We look at the full year guidance update. Due to customer project delays, some revenue Make recognition is being pushed into early 2024.

Speaker 2

We are providing an updated 2023 guidance for full year revenue to be in the range of $292,000,000 to $302,000,000 Representing year over year revenue growth of 43% to 48%, this is still a high growth year. It's also worth noting that while we still have some revenue slippage, the revenue As Craig just mentioned, this means we have made real progress in narrowing our losses. So some of our projected 4th quarter revenue are pushed into early next year. We continue to anticipate a strong revenue growth into 2024 provided by visibility through The excellent operational results we are Seeing out of our newest Tehuzhou 3.1 automatic production line gives us the confidence to expand capacity and focus on accelerated ramp at our upcoming Class V Phase 1a production facility. We are seeing strong demand trajectory for MicroVast battery solutions worldwide and anticipate our substantial Momentum in the 1st 9 months of 2023 to carry forward as customer orders As we look to the final quarter of 2023, the tangible deliverables We ask you to judge us by the start of this year, have been mostly accomplished.

Speaker 2

We are having a high growth year. We have record backlog that supports another high growth year in 2024. Most of that backlog is for 53.amp hour cell, which has been rapidly industrialized. We are improving gross margins and approaching gross margin levels that our mature scale competitors achieve. We have reached a qualified production operations in our Huzu Phase 3.1 line And I hit a very successful milestone on this sizable investment.

Speaker 2

On this last item, it's difficult for me to fully convey the challenges in bridging battery technologies to the point of skilled advanced manufacturing. This is our 3rd successful launch for the new technologies With their own dedicated line and the hospital Phase 1a will be a copy of Huzhou 3.1 production line. Before we close, I'd like to take a moment to thank our entire team at MicroVest for their hard work and a dedication. This quarter's results are a testament to your commitment To excellence, and I'm so proud of what we have accomplished together. You have all risen to the occasion and exceeded expectations, continued to innovate, deliver for our customers And support each other through second thing.

Speaker 2

Thank you for all I am truly grateful to be part of this team. And now I will turn the call back to Operator, to start the Q and A session.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Sameer Joshi with H. C. Wainwright.

Operator

Please go

Speaker 3

ahead. Hi, guys. Good afternoon. Thanks for taking my questions.

Speaker 5

Good to see gross margin improvements Beyond what you are targeting, and I understand yield improvements and some product mix may be at play. But is there any other items that is helping boost gross margins? And more importantly, What are your targeted gross margins now that you are seeing this improvement already?

Speaker 6

So you've nailed a couple of them, right? So the utilization is really good. It's utilizations that was not really achieved before on Phase 1, Phase 2. The actual yield, better than we thought it would be at this stage of the year. Other factors, raw material prices have definitely helped as well.

Speaker 6

And What we're trying to achieve in Q4 is maintained at 20% to 25% It's just a gross margin. And if we do that, we should narrow those losses even further.

Speaker 5

Got it. On the Clarksville sort of little bit of a push out, Are there any factors that stood out for the delay or was it just regular

Speaker 6

Duong, do you want me to do that one or are you going to take it?

Speaker 3

You do it. You can do it.

Speaker 6

Okay. Thank you. The reason is and Zach mentioned it a little bit earlier is that The equipment goes through factory acceptance test on China Sign, which is basically about 3,000 pieces of equipment that our team go through and make sure it passes that test. So we wanted to make some modifications that we learned about From putting 3.1 into operation, that's actually going to accelerate the ramp up when it comes to the U. S.

Speaker 6

Side. So You probably think about this as a slight push out in a quarter, but it actually benefits you because it's actually quicker and cheaper to ramp throughout Q2.

Speaker 5

Understood. Thanks for that color. On the deliveries that have occurred in In 3Q to Haier and JBM Group, do we have any feedback from them or is it Too early to have any sort of feedback from performance or any issues there.

Speaker 6

You're talking about customer feedback from Haika and JBM?

Speaker 5

That is right. Because of the total 80 units,

Speaker 2

yes.

Speaker 6

These have been long term customers. They just tell you that they love us, they love the products and they're coming back for more.

Speaker 5

Okay. And then there was a slight increase In R and D expense, this quarter related to previous quarters, I noted headcount increase, but

Speaker 6

It's really difficult to hear the last part of that question. I don't can you

Speaker 5

Was there any one time items in this $13,000,000 R and D expense or was it just should we expect these levels going forward?

Speaker 6

Okay. That's one time expense. But we If you look at the changes in OpEx is that we are adding more headcount And you're especially seeing that on the U. S. Side as Zach referenced.

Speaker 5

Okay, great. Good to see all the progress. Good luck. Thank you.

Operator

The next question comes from Sean Milligan with Janney. Please go ahead.

Speaker 3

Hey, guys. Nice quarter. Can you talk a little bit more about the Project push outs that you're seeing in the Q4 and your kind of confidence in timing for those being first half 'twenty four deliveries, Because it looks like kind of roughly, I guess, like $50,000,000 to $60,000,000 pushed out. And just again, when I give you the chance to reiterate your confidence And those coming through in the first half of next year. Matt, can you Mike, do you want to talk a

Speaker 6

little bit about The projects, and I can just talk about sort of like the financial bit into Q1 and next year.

Speaker 3

Sure. This is Zach. Yes, these are just normal push ins. We do anticipate that landing In 2024, there has been this is just normal push and pulls of projects that we see from customers.

Speaker 6

So the bit I've just mentioned on Q4, Sean, which is really relevant is that you're looking to see a lot bigger contribution from Europe. You've seen that already. So Europe was like 20%, 25% of Q3. Europe is going to have a really solid Q4 The point where probably European revenues are going to grow like 5x this year and then they're going to carry on Accelerating into next year, and that's mostly for like 53.5 amp hour cell. And then the backlog number is relevant.

Speaker 6

And I mentioned earlier, the like over 65% of backlog is for next year. That's mostly European and U. S. Customers. And as you know from our business, we The China, Asia Pacific don't really do backlog.

Speaker 6

So what we'd also get into next year again is a Really solid contribution from Asia Pacific customers.

Speaker 3

Okay. Thanks, Craig. That's really helpful. And I guess also kind of backing on to that, well, a little bit of a question about Q3 and Q4, which is Phase 1 in China. Can you talk about how the utilization there has ramped this year?

Speaker 3

I think it was said it's like 70% now and targeting 90% exiting the 4th quarter. If you run that through and you kind of run through the legacy Volumes in China, it seems like revenues would be a bit higher. So is some of that production can you talk about if there's any production from Phase 1 that isn't being recognized in the back half of this year because of shipments maybe to, I don't know, the U. S. For Storage containers or what's kind of being pushed into next year from that production profile?

Speaker 6

Okay. Phase 1 is really turning out 21 amp hour. So we're getting reasonable utilization of Phase 1 line. If you're reading through like utilizations and revenues, what you've seen is a much higher that's why I mentioned European contributions in Q3. That's pretty mature, like 53.5 amp power cell.

Speaker 6

And then what we've also been producing in Q3 It's like sales that have gone into inventory that we're going to deliver in Q4 and Q1. And then same, same Q4.

Speaker 3

Okay. And then Phase 3, 3.1 swap. But like you said, for Phase 3.1, Just based on the utilization that you talked about for the Q3 and the Q4, it seems like you're building a lot of cell inventory For the first half of next year, just trying to see if you could comment on that, like how much cell inventory you're building Related to pack deliveries currently next year?

Speaker 6

Yes. Sean, building inventory for orders, So that's to meet the revenue guidance that we've given you for Q4 and then also like backlog order that we need to deliver for Q1 as well.

Speaker 3

Okay. Yes, we can take that offline too. And then I guess, can you talk about the bidding environment in the U. S. For battery storage?

Speaker 3

I know you talked about potential for additional bookings in the Q4 related series to commercial vehicle contracts. I just wanted to get your thoughts on the utility scale storage bidding environment for Clarksville next year.

Speaker 6

You want to go?

Speaker 3

Yes. Would you like me to answer that, Craig?

Speaker 6

Yes, please.

Speaker 3

Yes. Hey, Sean. This is Zach Ward. Yes, we continue to see really strong demand in the energy storage sector, Sure. Unique advantage of MicroVAST in the market is that carps fill, which enables our customers to achieve That additional domestic content, which gives them the ability to capitalize another 10% of their projects.

Speaker 3

So We continue to see strong demand, a strong pipeline buildup and great results from that market. The overall market in the U. S. Has, I think, dissipated a little bit of headwinds with the raising interest rates and the appetite for tax equity, but it's still the number 2 market globally. Okay.

Speaker 3

Thank you. I mean, I guess the question would be like, do you anticipate Being able to sign additional offtake in the U. S. For 2024 on storage or are you Getting more on 25% and 26% at this point? Yes, we're working diligently to increase our order intake for all the capacity for Clarksdale 1A and as well as looking at opportunities for our 1B expansion.

Speaker 3

Okay, great. I'll hand it over and can come back if there's an opportunity.

Operator

The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Speaker 3

Thanks so much guys. So just with the Vincent and Gujo, I want to make sure I understand something. You've got another $92,000,000 of cash available that's not Shut up on balance sheet right now. So we've got plenty of cash to cover that $35,000,000 from what I can see. And then as you Execute on the ramp here.

Speaker 3

It sounds like you've powered our process and the equipment's head pretty well You're qualified at this point. So I just want to understand any sort of risk around either the financing or the equipment set and the ramp up that you guys are

Speaker 6

Okay. Uxong, should I take the financing part? And I think if you don't mind, can you do the ramp up part? That's So Colin, you're right. The availability we've got $70,000,000 to fund more CapEx in China.

Speaker 6

It more than covers what we need Phase 3.2, we've added another working capital line in China as well. The reason you can do it is because like you delivered on your promise. You told the bank, stay partly from the 3.1. You can build the building. You can get the equipment in.

Speaker 6

You can install it. You can get it to decent utilization. You can get it to good yield. And like you've got customers and they're growing, right? So we did all those things.

Speaker 6

Now we need to have capacity. There's more orders for that. So we it's funded. And I think at that point, I'll hand it over to Uzhong because he'll talk you through just how critical that ramp up is and What it involves and why it's really then relevant to look at financing on the U. S.

Speaker 6

Side as well?

Speaker 3

Yes. Thanks, Collin. To build a factory from a laboratory, the technology and To move to the products, it's not an easy job because the you build sample cells in the That's only a few or the dozen of them is much easier. If you're building the factory, you have Consistency control is really, really critical. You have to make every battery is identical and every cell is the same performance.

Speaker 3

And the yield is really a big cost saver for the manufacturing because if Your yield is low, you waste your net profit, not a gross profit. And so the yield, since make batteries like Look, really like a 14 steps. If you want to get a 97% yield, you have to make every step 99 point 9%. If you times every 14 times together, well, you get a 97%. That means every step you have to control very precisely.

Speaker 3

It's a big job And not easy to make a battery. But MicroVast right now, we really would get there. And we In the first line, the Fudo line, we spent a lot of effort to refine the process to refine the equipment. That's why we extend our FET test before class 4 production line. We intentionally Delay to the very zero, the SAT test, because if equipment move from China across the border to United That's much harder to fix the problem.

Speaker 3

That's why you see the ability to postpone. That's super helpful. And, Andy, you've ramped up the 63.5 amp hour sell. Obviously, gains based on yields And consistency is a key benchmark for your customers. Can you talk about how it's impacting both your commercial vehicle customers and your ability Close deals as well as what's happening with some of the stationary power customers that are looking forward to ramping up higher density product.

Speaker 3

You mean commercial vehicle customers? For both, right. I mean, what I'm the question is, as you've Proving out the viability of the manufacturing operation, is that improving your leverage with customers to close deals and even potentially start driving some price Every customer, they were doing very detailed, the factory inspection and audit. You have to get a high score, you have to get an 8 or over 90, the score over 90, When you can pass the inspection, it can be a qualified supplier. Not only for production line, they check your quality control, your Deliverability, can you deliver it or your consistency deliver and all kind of factors, they check it.

Speaker 3

It's very strict. Automotive is most strict in the process. Excellent. And I guess the last one is with the stationary power product, as you've gotten into kind of the fabrication of that, are there any surprises that have come up In terms of performance and fabrication that we should be attending to. Zach, can you answer that question?

Speaker 3

Yes. We've been really pleased, Colin, with the performance of the 53.5 hour It continues to be a dramatic performance improvement over the competition With energy retention as well as round trip efficiency, the round trip efficiency is just so critical because these Stationary projects continue to cycle every day for 20 to 27.5 years. So If you're losing 1% or 2% efficiency, you can amortize that over the life of the PowerPoint.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Mr. Wu for any closing remarks. Please go ahead.

Speaker 3

Yes. Thank you, everybody, to join us. Thank you.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Key Takeaways

  • Record Q3 revenue of $80.1 M (+107% YoY) driven by commercial vehicle demand, and a backlog of $678.7 M (84% tied to the 53.5 Ah cell).
  • Adjusted gross margin rose to 24.2% (up 14 ppt YoY) on improved yields and >70% utilization at Huzhou Phase 3.1, with a Q4 target of 20–25% and 90% utilization.
  • Rapid commercialization of the 53.5 Ah cell at Huzhou Phase 3.1 is underway, and a funded 1 GWh Phase 3.2 line will flexibly produce both 53.5 Ah and 48 Ah cells to meet growing global demand.
  • US Clarksville Phase 1a facility is nearing completion, with a slight SOP delay to integrate lessons learned; qualified deliveries and Section 45X IRA credits are expected in Q2 2024 as headcount rises ~350% YoY.
  • Full-year 2023 revenue guidance raised to $292–302 M (+43–48% YoY), with continued narrowing of adjusted net loss and a manageable debt maturity profile supporting 2024 growth.
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