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

Hello, and welcome to Carbon Revolution's Investor Call for the third quarter of financial year '23. Last Friday, the company released its quarterly activities report and appendix 4C cash flow report. My name is Andrew Keys, and I am facilitating today's call. Today, participants will be hearing from CEO, Jake Dingle and CFO, Gerard Buckle. At the conclusion of their updates, there will be a Q&A session. [Operator Instructions] Please also note, there is no presentation material today. It is an audio briefing only. Good morning, Jake. Over to you.

Thanks, Andrew. Good morning, everyone. Welcome to Carbon Revolution's Third Quarter FY '23 update and 4C. In terms of highlights for the quarter, 1 new wheel program started production during the quarter. This is our first SUV wheel. Production of the Corvette ZO6 wheel also resumed. Commissioning of the Mega-line is progressing well in our Geelong facility and 2 programs have now successfully being -- are now successfully being produced on the line. 2 new molding stations are in place and being commissioned in advance of production starting through those stations. Our merger with Twin Ridge, which was announced late in 2022, is progressing with the first amendment of the Registration Statement 4C -- F-4 lodged with the U.S. Securities and Exchange Commission or SEC. We do expect the merger to be complete in July. The bridge funding initiatives that we've previously spoken about to take us up to the merger completion are continuing. I'll provide a more detailed update on each of the key elements from those highlights. Firstly, the merger process. On the 28th of February, we announced the initial filing by the newly formed Carbon Revolution Limited, which I'll refer to as MergeCo, of a registration statement on Form F-4 with the SEC. This relates to the proposed public offering of shares by MergeCo in connection with the transaction and Twin Ridge's proxy solicitation with respect to approval of the transaction by its shareholders. On the 8th of April, the first amendment to the registration statement was submitted to the SEC, and the next amendment is expected to be submitted during May. This is a normal expected part of this part of the merger. The filing of the 4F (sic) [ F-4 ] with the SEC is an important milestone in this transaction. It also requires approval by Carbon Revolution shareholders. Shareholders will receive the relevant information via scheme booklet, closer to the time of the shareholder vote during June. I'll now hand over to Gerard to talk you more detail about the bridge funding initiatives that have already been delivered and those that remain in progress, and then I'll come back and talk more about the operations of the business over the last quarter. Over to you, Gerard.

Thanks, Jake, and good morning, everyone. Our approach to funding is involving two things. Firstly, securing sufficient bridge funding initiatives in the near term and then securing a new debt facility, which will see the business well-funded to the merger and beyond. Firstly, an update on our bridge funding. We've made good progress on the near-term bridge funding initiatives in Q3. We continue to work with customers, suppliers and our lenders to secure sufficient near-term funding to advance through to the proposed new debt facility, which we are seeking to put in place. In our half year report, we noted that bridge funding of $10.8 million of net cash inflows from early payment and bailment arrangements was anticipated to be secured from certain customers for the period from March '23 to May '23. Of this, $8.1 million has been secured, and the initiatives to secure the remaining amount are underway. As anticipated, the company has also secured a short-term convertible debt funding of $2 million with the funds received in March '23. I'd like to thank all parties assisting our business with near-term funding initiatives. Now an update on our proposed new debt facility. We're seeking to secure new debt funding which will ensure that the group remains funded through to the anticipated completion of the merger transaction and beyond. I'm pleased to report that the process to secure this funding remains on track. We've received 2 sets of nonbinding and conditional general terms for a new debt facility. Finalization of documentation, and the settlement is targeted to occur in the near term with one of these processes. If successful, the proposed new debt facility will bring approximately a net $70 million of funds into the business, and we have a target closing date of May '23. These funds will, in part, be used to repay existing debt of approximately $14.8 million. I'll now hand back to Jake for business update.

Thanks, Gerard. Now by way of an operational update for the quarter. Our quarterly revenue was $7.1 million with sales of production wheels for a new program, the SUV program, I mentioned, commencing towards the end of the quarter in March. Production and sales resumed on the Corvette program and increased steadily through the quarter. Ferrari sales moderated somewhat in Q3 FY '23 following a strong first half of the financial year. As a result of the resumption of wheels to the Corvette program and commencement of the production ramp for the SUV program, we exited the quarter with very good momentum with March wheel sales representing 63% quarterly wheel revenue. Revenue for the quarter represented a 9.7% reduction versus the prior corresponding period and a 1.6% reduction in revenue for the 9 months year-to-date versus prior corresponding period. Wheel sales volume was 2,430 with an average selling price of $2,834 achieved, which reflects the product mix during the quarter. Looking forward, we now have 11 fully awarded programs, 5 in production and 6 in development with global OEMs. There are further 3 programs under engineering contracts, which we expect to transition to full award as they reach program milestones. The start of the quarter, the company commenced production of the 1 new program that I mentioned, and we expect a further 2 programs to transition into production across the next 12 months. Inside the factory, Mega-line commissioning has been progressing at pace. Installation and commissioning of the 2 new mold stations and the associated resin delivery units being completed. Validation wheels are now being produced in these mold stations, which is the final precursor to them entering full production. There's a strong focus during commissioning and the elimination of commissioning issues or what we call special pauses. Progressively increasing the overall speed of line is now a key focus as we work to close of any remaining commissioning items. Production rate across the line has been increasing steadily with improved reliability and reductions in processing time, which is very pleasing. Looking ahead, we expect that the 2 new mold stations will be brought into production during this fourth quarter. Production from our latest generation of automated rim layup equipment, or ARL3 as we call it, is also expected to occur in this quarter. I'll hand back to Gerard now for a final update on our current cash position. Thanks, Gerard.

Thanks, Jake. As of 31 March '23, our cash balance was $4 million. We had net cash outflow of $10 million for the quarter, which was a result of net cash outflow from operating activities of $8 million. Cash receipts from customers of $7.7 million and government grants of $0.1 million were offset by payments to suppliers and employees. Net investing cash outflow of $3.3 million supported Mega-line milestones and investment in program development. Payments comprised of $2 million of targeted and essential investment in property plant equipment and $1.3 million of investment in intangibles. And net cash inflows from financing activities of $1.3 million consisted primarily of $3 million of inflows from liquidity improvement initiatives involving 1 customer and the previously mentioned $2 million short-term convertible funding offset -- these items are offset partly by costs relating to the proposed transaction. I would like to note again that our bridge funding initiatives continue, and negotiations for the proposed new debt facility of approximately $70 million are continuing with the targeted signing and completion date in May. I'll just hand back to Jake for some closing comments.

To sum up the quarter then and where we stand as a business today. We're seeing strong uptake from existing customers as demonstrated by the increased program awards shown in the updated table provided in the 4C document. There's also a very positive business development momentum building with potential new customers. So for this reason, I remain very confident in our long-term strategy and our strong fit with the EV market that will become -- will come to dominate the automotive injury in the remainder of this decade. The whole Carbon Revolution team has been rallying incredibly well to manage the combined challenges of a complex merger process, managing our cash position carefully and still delivering on our critical operational demand. These are both from customers across our business. That includes the all-important Mega-line commissioning and the launching of new programs, which are critical to the business. So I congratulate the whole team on the remarkable performance and their endurance through this period and certainly making good progress on each of these very important fronts. I'll now hand back to Andrew to take any questions.

Thanks, Jake and Gerard. Yes, we've got a few questions. First one, when do you estimate the fifth OEM will announce their vehicle utilizing Carbon Revolution wheels?

We'll certainly be -- we expect it to be in this quarter, so we can't give any specific dates, but we are expecting and hopeful to see that in this quarter, the current quarter.

Thank you. Next question. Approximately, when will the choice of the U.S. exchange, i.e., NYSE or Nasdaq and the new ticker symbol be announced?

Look, those things will be in our scheme booklet, which we would expect to be publishing in June.

Thank you, Gerard. Next question. Has promotion of the brand product by social media channels and influencers, specifically auto reviewers -- has that been budgeted into the use of proceeds from the bridge loan in preparation for the U.S. listing to help drive exposure and awareness into the U.S. investor market?

Yes, it's a good question. We have engaged with a very experienced adviser in the investor relations and public relations space in North America to assist with this. They've been involved in a number of these sorts of mergers. And that promotion of the transaction to those different stakeholders is well and truly underway, and that is part of the use of funds. And obviously, there's quite a lot more than just social media, and obviously, I won't go into detail about exactly how we're doing that. But given our customer base, a lot of them are being of our product is done as our customers take the product to market. We continue to see that. And we're confident that we'll see that again as this latest and first SUV program is launched in the coming period.

Thank you, Jake. Another question, are the current funding challenges affecting sales and the signing of new programs?

Pleasingly, no. I mean we've talked very openly in these updates about the fact that we are working with both suppliers and customers and other stakeholders in order to manage the period between announcing this transaction and the close. And very pleasingly, customers have been willing to do things that are not standard in order to support what we're doing and have continued to award us programs. You'll see from the table that in the course of this calendar year so far, we've added 3 new awarded programs, and that's the most we've ever done in the period -- in this sort of a period. So pleasingly, we've maintained those relationships. Probably built the relationships, in fact, on the strength of how we're managing this situation with our customers.

Thank you, Jake. There are no more open questions. So thank you, Jake and Gerard, for the update today, and thank you to all participants for dialing in. We will finish the webinar there. Have a good day.