Carbon Revolution Public Limited Company (CREVF) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Carbon Revolution's investor briefing for today's announcement on the merger with Twin Ridge Capital Acquisition call. I'm Andrew Keys, and I am facilitating this briefing. In a moment, participants will be hearing from Carbon Revolution's Chair, James Douglas; and then CEO, Jake Dingle. CFO, Gerard Buckle, is also here. At the conclusion of Jake's section, there will be a Q&A session. Please note the slide on the screen is a placeholder only. There are no slide contents for this briefing. Over to you, James.

Thank you, Andrew, and good afternoon, everyone, and thank you for joining us today. Jake is going to go through the details about the merger announcement and the transaction shortly. But before he does that, I wanted to make a few comments on behalf of the Board of Directors of Carbon Revolution. The proposed transaction we've announced today is an important and potentially extremely positive one for our company. When completed, it will capitalize the company and should allow us to deliver on the potential of our technology and the demand for our wheels. The merger announcement is the completion of a lengthy process commenced by the company earlier this year to identify the best strategic path for us. As part of that process, we reviewed a range of alternatives for the company with advisers here and internationally. The Board of Directors of Carbon Revolution unanimously supports the transaction and will recommend that shareholders vote in favor of the scheme, obviously, in the absence of superior proposals and subject to the independent expert's report concluding that the scheme is in the best interest of shareholders. We're excited about this transaction. Thank you again for your support, and I'll now hand to Jake to review the transaction in detail.

Thanks, James. Good afternoon, everyone, and thanks for joining today on what is a very exciting day for Carbon Revolution. We've been reviewing a number of strategic opportunities, as discussed in our FY '22 results in September 14, so we've announced the proposed merger transaction with Twin Ridge Capital Acquisition call, a special-purpose acquisition company listed on the New York Stock Exchange. This is an important transaction for our company. When completed, it's expected to provide material new capital. This will allow us to deliver on the potential of our technology and the accelerating demand for our wheels. Merger announcement is a completion of an extensive process. This was initiated earlier this year to look to identify the best strategic path for us, reviewed a range of alternatives from the company with advisers both here and internationally. To implement this proposed merger, we've entered into a binding business combination agreement and accompanied it with scheme implementation deed. Under this is a newly formed company, which will be named Carbon Revolution plc, well acquire both Carbon Revolution Limited and the SPAC. When the transaction completes, the ordinary shares and warrants of the new company will begin trading on the U.S. exchange. We're very excited about this transaction and believe that our company and shareholders will greatly benefit from it. Most importantly, it represents an implied pre-money enterprise valuation of USD 200 for Carbon Revolution or about AUD 312. This implies a notional share price of around $1.41 per share for each share and represents a premium of 593% to our share price of $0.215 as of the 30th of October 2022. This valuation and notional share price are based on a range of assumptions and these are set out in the ASX announcement released this morning. This transaction also has the potential to provide critical investment capital to support commercialization and speed up our path to profitability. This enhancement to our capital position and access is expected to demonstrate balance sheet strength to customers. This is crucial to be awarded to being awarded and being -- and for being awarded large and strategically important programs in the future. Full detail of the merger is included in our announced earlier today, I encourage to recap the detail. The Board unanimously supports this transaction as you just heard from James. The transaction is expected to complete in the second quarter of calendar '23, subject to satisfaction the range of conditions, including receipt of bridge funding and approvals from our shareholders and the SPAC shareholders. There are a number of other conditions, including receipt of required regulatory approvals, the approval of shareholders of both Carbon Revolution and SPAC, no prescribed events in respect of Carbon Revolution, the SPAC or Carbon Revolution plc occurring and no material breaches or threats in marquee supply in the open causing the extension of the deadline for the SPAC to undertake a business combination, which is currently the 8th of March 2023 to allow for sufficient time for the transaction to be finalized. In a certain degree, ancillary agreements including lockup and registration rights agreements being entered into by our directors and the sponsors of the SPAC. Government relations, obtaining a percent of key contractual counterparties as well, being certain customers, grant providers and debt financiers. And there are other customary conditions to the scheme of arrangements such as Australian court approval and independent expert confirming that the transaction is in the best interest of our shareholders. Carbon Revolution and mergers -- well, or Carbon Revolution plc's, current cash positions are expected to be impacted by the transaction -- sorry, the SPAC's cash distribution, in fact, will be impacted by the transaction. In particular, as is common for SPAC, its ordinary shares are held by the public and included a redemption feature. This permits redemption in the event of a shareholder vote in connection with both the extension of the SPAC's business combination deadline and the business combination itself, which the transaction would amount to. This means that the amount of cash available for the Carbon Revolution for the trust account will only be known following the closing of the transaction. Given that the transaction is not expected to be completed until the second quarter of next calendar year at the earliest, and considering the company's current cash and liquidity position, we will be arranging or we'll need to be arranging short-term bridge funding to meet cash flow requirements until the transaction closes. And this may require up to $30 million of bridge funding to fund near-term transaction costs on an ongoing basis. Discussions are currently underway to secure this capital. Positively, an initial payment of $9 million is expected to be made to the company in the next fortnight note through the federal government's model manufacturing initiative. In our 4C announcement of the 31st of October, the company discussed the engagement with government to improve short-term liquidity by bringing forward grant payments. This is just one of those initiatives. As a result of those discussions, this initial tranche is $4.2 million higher than the $4.8 million initial tranche that was then expected. The overall grant remains at $12 million. We are very grateful, as James said, to our shareholders, for your continued support, seeing this as an important and exciting development for Carbon Revolution following a very challenging period. I'll hand back to Andrew to take questions.

Thank you, Jake. [Operator Instructions] Cameron McDonald from Evans & Partners, can you want to mute your line, please?

Can you hear me?

Yes.

Thanks, Jake. Just -- so -- just so I understood that clearly. With the short-term funding of up to $30 million, is that Aussie or U.S. to start with? And secondly, did you say that, that could be secured against the firm IP?

Firstly, Cam, yes, that's Aussie dollars that we said up to that amount. And we're looking at a range of initiatives, including the discussions with government and customers and potentially other sources. And I think that is something that we're certainly exploring as a possibility, but it's just one of the range of elements.

So how would that actually work though? Because I mean, does that mean that the payments are sort of being secured? Or what about just the industrial processes that people have got from their experience and in their brain.

Yes, Cam. Let me -- if I can just give you a view of how we're going about bridge funding. So working with the -- by federal and state governments initially, and we had the announcement starting yesterday around -- regarding the MMI grant pulling forward that grant into the coming weeks or the majority of it, which is great. State government -- working with the state government is going very well. It's very positive. We're then -- we're also working with customers on initiatives around payment terms and whether that be for sort of [ touring ], engineering, finance or wheel sales. There's a range of those discussions going on. Just working with strategic investors as well and then a range of other sort of opportunities with funding. Traditional bridge funding providers is one of those. IP funding, as Jake mentioned, there's an alternative there. I think it's highly unlikely that we would have IP funding in place to help us with this bridge funding. But it's being investigated. It's a sort of a remote chance. If we were to have IP funding, IP is an asset we need to work through with our existing debt providers, how that sort of relationship over sharing of assets would work. But I'm not supposed -- that's a highly unlikely opportunity, I think, for us right now.

Questions have been typed in. Firstly, what is in place for shareholders who wish to cash out near or the quoted $1.41 valuation rather than hang on to their shares and own U.S. securities?"

So Andrew, the opportunities to buy and sell Carbon Rev shares up until close, they we're listed on the ASX. There's very traditional methods of buying or selling shares up until we close. And that's obviously whatever the prevailing share price is at the time. After closing, then the company will be listed, plans to be listed in the U.S. on a North American exchange. There are numerous trading platforms that shareholders who want to buy or sell shares that are listed in the U.S. can do that via numerous trading platforms.

There's also no guarantee that the share price will be $1.41 at the time of listing, subject to a range of assumptions as we set out in the statement.

Okay. Another question. Will the current operations in Geelong continue if the proposed merger proceeds?

Yes, absolutely. So this is obviously a funding source. We expect to continue to grow the operations here in Geelong in the way that we have. But obviously, we -- the demand for the technology is accelerating and this gives us the ability to keep accelerating what we're doing here. So that's absolutely the intention.

Other questions. What does the management of Twin Ridge brings the business aside from capital and a U.S. listing?

So part of this, sort of the broad -- the Twin Ridge team and the broader team involved with the transaction have some very deep and relevant experience in automotive and the industry in general in North America. And as part of this transaction, there will be 2 additional board members at it, which we expect to be board members that bring relevant and deep industry experience to the team.

Look, I've got quite a depth of experience in U.S. financial markets. So for these instruments like CF and FDA, those sorts of things, I've worked with them before. I've worked with quite a range of providers. And so given the best arrangements for all those sorts of things and funding -- the funding of Carbon Revolution as we grow over the many years to come, that will be instrumental in that.

Thank you, Gerard. Another question has been typed in. Can you please comment on the timing it went up to $30 million of bridge funding is required to be secured to avoid other potential outcomes like voluntary administration?

Yes, look, up to $30 million of bridge funding is required between the period now and closure, and we've allowed for some months after that as well. And that is required progressively. We don't need to sort of go and lock in sort of $30 million of funding over the coming weeks. Progressively over that period of time, we will put bridge funding -- the bridge funding initiatives we're working on. We'll put them in place. There'll be a range of initiatives, and that will be being placed either in that period toward closing.

Thank you. A question from [ Margaret Thorne ] and I realized we probably need to go over again the difference between if you currently own Carbon Rev shares and those that are existing holders of the SPAC as it is now, what is the redemption fund for if it is not for Carbon Rev shareholders to redeem their shares before the completion of the deal?

The addition fund -- maybe we can just explain how SPAC works and what redemptions are for everyone on the call. SPAC a single-purpose acquisition company. If it's set up, we will have investors. Investors will invest into that trust. And the Twin Ridge Trust investments are over USD 200 million. The people are the founders who are managing that will look for an investment and then they'll bring an investment opportunity, which in this case is time is Carbon Revolution, bringing that to their investors. The investors will then get to decide on whether they would like to keep their money in the trust and invest in the target, which is Carbon Revolution or withdraw their money at that point in time. That process happens after -- through the closing. It's the way SPACs work. At closing, we will know where the redemption sit and then how much money is left in the SPAC that we're merging with.

Thank you. Jake, can you please recap the benefits of the proposed merger again?

Yes, no problem. So obviously, there's an implied increase in the value of the company based on the value of -- the value that's been placed on it as part of this merger agreement. But critically from a strategic point of view, it provides investment capital within -- we're seeing an accelerating demand through our technology for major customers who are keen to be comfortable that we have the sources of capital and balance sheet strength that would allow us to grow and service the needs of their larger programs. And so that is one of the critical benefit and it provides us with a more certain pool of capital to be able to grow at the rate that our customers are demanding. So as I'd say from a strategic point of view, that's really one of the critical pieces.

Thank you. [Operator Instructions] All right. There are no more questions in the queue. So thank you to all participants for joining us at relatively short notice today. Thanks to Jake, James and Gerard and David Nock for responding. We will close the webinar there. Enjoy the rest of the day.