Microvast Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

Key Takeaways

  • Positive Sentiment: Microvast achieved first-ever quarterly profitability in Q3 with a GAAP net profit of $13.2 million and adjusted EBITDA of $29 million, marking a historic milestone for the company.
  • Positive Sentiment: Q3 revenue reached a record $101.4 million, up 27% year-over-year, while gross margin improved by 10.9 points to 33.2%, driven by strong EMEA sales and operational efficiencies.
  • Positive Sentiment: Total operating expenses fell 38% to $27.5 million versus Q3 2023, largely due to cost-cutting measures and reduced share-based compensation expenses.
  • Positive Sentiment: New strategic customer agreements in India (Propel) and China (FCMG and LGMG) will supply batteries for mining and construction vehicles, with revenues expected by year-end and next year.
  • Positive Sentiment: For Q4, Microvast forecasts $90–95 million in revenue (15–18% full-year growth) and maintains a target gross margin above 25%, backed by ongoing product innovations such as the ME6 LFP ESS containers and silicon-enhanced cell technologies.
AI Generated. May Contain Errors.
Earnings Conference Call
Microvast Q3 2024
00:00 / 00:00

There are 4 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the MicroVest Third Quarter 2024 Earnings Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Speaker 1

I would

Operator

now like to turn the conference over to MicroPAST Investor Relations. Please go ahead.

Speaker 2

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.

Speaker 2

Wu will start off with a high level overview of the quarter before providing some operational and business updates. Ms. Khambavy will then discuss our financial results in detail before handing it back to Mr. Wu to wrap up our 2024 outlook and closing remarks. Ahead of this call, Microvast issued its Q3 earnings press release, which can be found on the Investor Relations section of our website, ir.

Speaker 2

Microbask.com. We have also posted a slide presentation to accompany management's prepared remarks. As a reminder, please note that this call may include forward looking statements. These statements are based on current expectations and assumptions and should not be relied upon as representatives of views for subsequent dates. We undertake no obligation to revise or publicly release the results of any revision to these forward looking statements due to new information or future results.

Speaker 2

Actual results may differ materially from expectations due to a variety of risks and uncertainties. For more information on material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. 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 the tables included at the end of our press release.

Speaker 2

After the conclusion of this call, a webcast replay will be available on the Investor Relations section of Microvast's website. And now, I will turn the call over to Mr. Wu for opening remarks.

Speaker 1

Thank you. And thank you everyone for joining today's call. Please turn to Slide 3, and I will cover the key messages from our Q3. As we communicated earlier this year, we are keenly focused on improving both efficiency and profitability. Through 2024, Microvaz has been executing on the strategies of our solid business in EMEA and APAC, while implementing strategic cost cutting measures in the U.

Speaker 1

S. 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 $13,200,000 and adjusted EBITDA of $29,000,000 This is a historical milestone for us. I want to thank the entire team here at MicroVest that made it happen. This is an incredible achievement for both the company and the domestic lithium battery segment in the U.

Speaker 1

S. The lithium battery manufacturing industry is a difficult business with a long term investment horizon. We have learned much during our rapid growth period. Microvast has commercialized the products across our technology stack and industrialized the manufacturing process many times over. We aim to continue innovating and focusing on our business strategy as we grow both in the U.

Speaker 1

S. And globally. To reiterate to our shareholders what our business strategy included, I'd like to briefly touch on it. 1st and foremost, Microvast is a vertical integrated battery technology company. The core driver of our business is innovation.

Speaker 1

We remain focused on technology and product development. With many exciting products on the way, our newest products, including our industry first overhaulable ME6 LFP ESS Containers and silicon enhanced cell technologies. We have also made material progress on our all solid state battery. We are continually seeking to broaden our revenue stream through products and services that support the global energy transformation. To achieve our goals, we must also capture future market shares.

Speaker 1

MicroVas continue to invest in commercialization of both current and future high demand advanced products. With our focus on the product innovation and capturing market share, Microvaz strives to achieve further growth. We continue to optimize our core business and aim to attain sustained profitability. Now, if you will please join me on Slide 5. Microbus continues to be successful in expanding our commercial vehicle reach, particularly in EMEA.

Speaker 1

Highlights from the quarter, including our successful unveiling of a new silicon based cell technologies at a premier electric mobility exhibition in Germany. These enhanced sales have improved energy density for ever evolving performance requirements of our customers. While we are very excited about the trajectory we are on, this quarter was without its challenges. Global uncertainty around the policy shifts in Europe and within the U. S.

Speaker 1

Has accelerated rollout of certain live commercial vehicle platforms. In addition, rapidly growing markets such as India and Thailand have prioritized LFP chemistries for their affordability versus high performance. Overall, in addition to being a historic quarter achieving profitability, the business posted a record 3rd quarter revenue with 27% growth year over year, delivering $101,400,000 We achieved this growth while maintaining a gross margin of 33.2%, a 10.9 point improvement year over year. This incredible growth comes largely from sales increase in EMEA. We once more sold triple digit percentage growth of 2 12% for EMEA year over year.

Speaker 1

Now if you will join me on Slide 6, we have some exciting new business developments in our commercial vehicle segment. Propel is a leading Indian industry mining, crashing, screening and construction company. Microvise will be fulfilling orders to power their mining and dump trucks. FCMG was founded in 1943 and has stood at the forefront of the construction and machinery industry in China. 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 1

And finally, LGMG is a major player in the mining and the actual equipment industry. MicroVas will be supplying them with our battery packs, and we expect to see revenues by the end of the year. This customer will utilize JingforPark with both our 53.5 ampoure48 ampourecell technologies. The heavy industry segments had increasingly adapted our high performance sales for their applications. We also continue to find success in adoption by hybrid and the fuel cell OEMs as well as the agriculture segment.

Speaker 1

I would now like to turn the call over to Ms. Khababi to discuss our financials in more detail.

Speaker 3

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. Starting with Slide 8, we will review the core financial highlights for the quarter. As Mr.

Speaker 3

Moo mentioned, Q3 was a record quarter with revenue reaching 101,400,000 dollars up 27% from $80,100,000 in Q3 2023. This growth was fueled by strong EMEA sales for commercial vehicles, driven by OEMs increasingly adopting our technologies. Our gross margin improved this quarter to 33.2%, up from 22.3% in Q3 2023. Excluding non cash share based compensation expenses, the adjusted gross margin rose to 33.9%, a 9.7 percentage point increase versus the prior year period. 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.

Speaker 3

Adjusted EBITDA turned positive, reaching $29,000,000 as we focused on achieving sustainable profitability. We reported a GAAP net profit of $13,200,000 in Q3 2024 compared to a net loss of $26,200,000 in Q3 2023. After adjusting for non cash items such as share based compensation expenses and fair value changes of our warrant liability and convertible loan, adjusted net profit came to $16,800,000 a substantial improvement from an adjusted net loss of $10,300,000 in Q3 2023. Turning to Slide 9, we will review the rest of the P and L in more detail. Operating expenses reduced to $27,500,000 in Q3 2024 compared to $44,700,000 in Q3 2023, a 38% decrease from the prior year period.

Speaker 3

This reduction across G and A, R and 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. After adjusting for non cash share based compensation expenses, our adjusted operating expenses in Q3 2024 were $22,000,000 compared to $30,300,000 in Q3 2023, a decrease of $8,400,000 The impact of these adjustments and 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. On Slide 10, we show the geographic breakdown of our revenue mix for Q3 2024 compared to the prior year period. RMEA business grew by 2 12 percent year over year and accounted for 59% of our quarterly revenue, up from 24% a year ago as we continue to grow our partnerships and key customers continue their vehicle ramp. Please turn to Slide 11, and we will briefly review our cash flow.

Speaker 3

Net loss for the 9 month period has impacted cash flow that has been substantially offset by non cash adjustments, including $30,300,000 of share based compensation and $68,800,000 from impairments, write downs and disposals. For operating cash flow in the 9 month period, we saw a net outflow of $3,300,000 dollars We received positive adjustments from improvements in our receivables, while we substantially reduced age liabilities and expenses for an overall net negative adjustment. From investing activities, we saw a net outflow of $12,000,000 for the 9 month period, primarily due to capital expenditures, partially offset by short term investments. For financing cash flow in the 9 month period, we saw a net inflow of $46,600,000 Overall, combined with a negative impact from exchange rates of $4,600,000 we had an increase of cash of $26,800,000 for the 9 month period, showing improved financial stability. We believe that our financial results demonstrate that we are building a profitable, resilient foundation with expanding market demand, especially in EMEA.

Speaker 3

Our focus on driving sustainable profitability, improving margins and achieving operational efficiencies continues to strengthen our position. 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 MicroVas brings to the energy storage and electric vehicle sectors. With that, I will hand it back over to Mr. Wu to go over our outlook for the remainder of 2024 and closing remarks.

Speaker 1

Thank you. Please turn to Slide 13, which provides a summary outlook for the rest of the year. For the Q4, we expect revenue to be in the range of $90,000,000 to $95,000,000 which put the full year anticipated revenue growth in the range of 15% to 18%. We continue to strive for operational efficiencies, and we are maintaining our target gross margin of at least 25%. For our APAC business, we continue to target production capacity improvements at our Huizhou facility as well as progressing towards exciting products to add to our extensive product portfolio.

Speaker 1

We also anticipated 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. 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. We are also looking into options for full financing solution for our Clarksville facility. I would also like to reiterate on the global level that our focus is on profitability through regional efficiency and growth. We are targeting sustained positive adjusted EBITDA contributions from our established business in EMEA and APAC.

Speaker 1

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. 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. I would like to take a moment to welcome new investors as well as reinforce who Microvast is as a company to our legacy stockholders. Microvast is a U.

Speaker 1

S. Company funded and a headquarters still today in Texas, where I founded the company. We strive to be a trusted global provider of cutting edge energy technology solutions. The company holds more than 7.75 patents that are either granted or pending. With our products currently powering equipment worldwide, we aspire to continue our groundbreaking product innovation across our extensive technology stack, and we aim to be steward of the electric energy revolution to create a cleaner and a more resilient planet for all our humanity.

Speaker 1

Our micro glass, our eyes remain firmly on the future of technology. We have recently announced our ME6, an overhaulable high performance LIP based ESS container. Our new container provides customers with an extended value proposition in total cost of ownership and a system that is reliable across the spectrum of applications. This includes everything from solar and wind utility scale storage to powering the data center required for cloud storage or AI computation. Additionally, at IAA 2024 in Germany, we unveiled multiple new cell technologies, leveraging silicon that provide improved energy density for high performance applications.

Speaker 1

Thank you all for attending our historical quarter update. We look forward to updating you on our progress again next quarter.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr