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

Greetings, and welcome to the Carbon Revolution Full Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ashish Gupta, Investor Relations. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call today are Carbon Revolution's CEO, Donald Hampton, Jr.; and CFO, Gerard Buckle. We'd like to remind everyone that this call contains forward-looking statements, including, but not limited to, Carbon Revolution's expectations or predictions of financial and business performance and conditions, competitive and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions, and they are not guarantees of performance. We encourage you to read the full annual report on Form 20-F filed with the SEC on May 14, 2025, and the accompanying presentation for a discussion of the risks that can affect Carbon Revolution's business. Carbon Revolution is under no obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the course of this call, we will refer to certain non-IFRS financial measures that we believe are useful to investors evaluating the company's performance. A reconciliation of non-IFRS terms and adjustments is included in the presentation. All amounts in the presentation are stated in U.S. dollars unless otherwise indicated. With that, let me turn the call over to Donnie.

Thank you, Ashish, and thank you all for joining us today. I'd like to begin today's call by saying how excited I am to have the opportunity to speak to you today in my role as CEO of Carbon Revolution. I am very impressed by what the team has been able to accomplish so far, and I believe that as the world's leading carbon fiber wheel manufacturer and the developer of globally unique technology, the company is poised to take its next step in disrupting the automotive wheel industry. Next, I'd like to dive into today's agenda. I will start off by highlighting some of the accomplishments achieved during and since fiscal year 2024. Following this, for those that are unfamiliar with Carbon Revolution's story, I will provide a short overview of the company's strategy and value proposition and then highlight the progress we've made in key areas. I'll then turn it over to Gerard, who will provide financial and operational highlights. Firstly, I would like to cover a number of highlights and developments that the team has achieved over the past year. We have seen the launch of our customers of some very exciting wheel programs. The reveal of the Corvette ZR1 is an exciting new halo program, growing our relationship with one of our key customers, General Motors. The reveal by Lamborghini of the Temerario represents a key milestone, not just as an exciting product with the Dynamic brand, but also as the first wheel program with the broader Volkswagen Group. The company also had the honor of being recognized with dual awards at the prestigious 2024 PACE Automotive Awards. These recognized automotive suppliers for superior innovation and technological advancement. We received a 2024 Automotive News PACE Innovation Partnership Award for our outstanding collaboration with General Motors. The company has also been strengthening its leadership and governance with the appointment of deep automotive expertise to both the Board and the executive leadership teams. As Gerard will talk about in more detail, we have received strong support from our secured lenders and capital partners throughout this period, most recently securing a funding package of approximately $33 million in December 2024 comprising $27 million of new funds across 5 tranches, 4 of which have been released plus PIK interest. We have a clear strategy that drives everything we do. With the sole focus on our unique carbon fiber wheel technology, we will continue to invest in the right products by focusing on product leadership and growth prospects. I've been meeting with existing and potential new customers, and I've been struck by the enthusiasm for our technology. We have spent over a decade developing this technology. We are first and remain the only company to produce and sell carbon fiber wheels at scale to top global automotive OEMs in North America and Europe. We continue to focus on investing in the right customers, growing our portfolio and diversifying our base. We have a strong focus on operational excellence with the aim of developing aggressive cost reduction. This is driven by productivity and process improvements and with scale, are expected to enhance our market offering. You will see evidence of this operational improvement with the growth that the company has achieved in fiscal year 2024. In time, to embed strategic advantage, we expect to invest in lower-cost geographies closer to our customer base. We have developed and manufactured a revolutionary product that is ready for industry disruption. Carbon Revolution is an established Tier 1 supplier disrupting the $38 billion automotive wheel market with our highly differentiated and unique lightweight carbon fiber composite wheel technology. Our carbon fiber wheels can deliver up to a 50% weight reduction compared to conventional aluminum wheels, providing significant benefits for all vehicle types. For an electric vehicle, this weight savings can result in a 5% to 10% extension of range if reinvested in battery mass and dependent on the level of integration into the overall vehicle design. Additionally, reducing mass from a vehicle's wheels reduces rotational unsprung mass and substantially improves the handling, acceleration and braking of the vehicle. We believe that our technology is many years ahead of our closest aspiring competitors and we have built and protected our competitive advantage in a number of important ways. First, after more than a decade of development, we have a strong IP portfolio of over 120 patents with 94 granted and an additional 28 pending. Supporting our patent portfolio is valuable know-how, which has been gained via years of research and development and learnings, gained the hard way through the design and manufacturing process. Second, we have established relationships with major global automotive OEMs such as Ford, General Motors, Jaguar Land Rover, Ferrari, Renault and now Lamborghini, a premium brand of the major Volkswagen Group, most of whom have awarded us multiple programs. As discussed earlier, we have made substantial progress in key areas. During the fiscal year, we have regenerated our Board, bringing on 6 U.S.-based directors, 4 of whom collectively bring decades of automotive OEM and supplier experience and 2 from our valued capital partner, OIC. Chaired by Bob Lutz, the expertise and experience of our Board supports the company in strengthening its governance in our expanded international environment. Our leadership has continued to evolve with a focus on strengthening end market experience and customer relationships. To this end, Alia Comai joined the service of the company as Chief Revenue Officer in June 2024, bringing over 25 years of extensive experience in the automotive sector, where she has held several pivotal leadership roles across product development, manufacturing, international business operations, program management, quality and sales. During the fiscal year, the company completed its NASDAQ listing and strengthened its relationship with its two key committed capital partners, OIC and the PIUS lenders. An additional funding package of approximately $33 million was secured with OIC and PIUS in December 2024, comprising $27 million of new funds plus PIK interest drawn in $5.4 million increments, $21.6 million of this has been drawn to date. Finally, after a significant effort by the team with the lodgment of these financial results, we are now up to date with NASDAQ requirements for our fiscal 2024 results. As I discussed earlier, we have had key product launches, including the Corvette ZR1 and Lamborghini Temerario. Also, on the launch front, these programs have entered production since July 2024 and a further four are expected to enter production in calendar year 2025. Australian plant capacity expansion plan is now materially complete for expected volumes for existing awarded programs. Significant operational improvements have been achieved. We worked with our customers to negotiate price increases and working capital improvements. These are now substantially in place. Key operational metrics made great strides in the year, including direct labor, cost and quality, both of which were key to increasing our revenue in the fiscal year. Major fixed cost reductions have also been implemented between November '24 and May 2025. This has been enabled by the maturing stages of our program development pipeline and the substantial completion of our capacity expansion program for existing awarded programs. We have had 18 programs awarded to date, and we are in discussions with both existing and potential new customers on the award of future programs. Of these 18 awarded programs, 7 programs are currently in production and 7 programs are in aftersales. That is they have completed the serial production stage, and we are now supplying aftersales or spare parts for vehicles currently in the market. We now have 4 awarded programs that are in development, meaning they have been formally awarded but are not yet in serial production. Activities during this preproduction phase include virtual engineering, physical prototyping and testing and then multiplying out production capacity ahead of serial production. Typically, the customer will reveal or launch the vehicle to customers during this phase, at which point it typically becomes known that the vehicle will be fitted with our carbon fiber wheels. By the end of fiscal year, we have recorded cumulative sales of nearly 100,000, and we have since surpassed this important company milestone. Now I'll hand it over to Gerard, who will review our financial results.

Thanks, Donnie. Turning to Slide 9, where the highlight is the $22 million or 87% revenue growth achieved in fiscal year 2024 as compared to 2023. In fiscal year 2024, we experienced strong demand from JLR for the Range Rover program wheels, and we had a full year of production for the Corvette Z06 E-Ray programs. As our wheels are currently in option on vehicle programs, our volumes are subject to variation year-on-year. The sale of our wheels depends on the consumer demand for the relevant vehicle, the success of the OEM's marketing of our wheels and consumer preference for the carbon fiber wheel option. During the year, we also introduced the Ford Mustang Dark Horse program into production. Unfortunately, this program has been concluded early and is now in after sales. On Slide 10, you will see our statement of financial performance. The key items in this slide are the revenue growth of 87%, which I've just covered on the previous slide. In accordance with International Accounting Standard 36, we have reviewed the carrying value of our assets and determined we needed to book an impairment of $80.5 million. Applying IAS 36, $68 million of this impairment relates to fixed assets and is recorded in gross loss. $12.5 million of the impairment relates to intangible assets and is recorded in research and development expenses. The impairment was required for two key reasons. Firstly, a medium-term sales outlook has reduced due to the outlook of reduced adoption rates for awarded EV programs in the U.S., the early conclusion of the Mustang Dark Horse wheel program and recent slowing of demand for carbon fiber wheels for the Range Rover Sport SV. And secondly, [indiscernible] rate has also increased due primarily to our revised assessment of the macroeconomic uncertainty driven by political and economic environment. With the impairment, our gross loss increased to $73.4 million. Excluding the impairment, the gross loss is $18 million for the 2024 fiscal year, which is 38% of sales. This is a slight improvement on the 2023 fiscal year where the gross loss was 44% of sales. In fiscal year 2024, we did also see a number of cost increases. They were SG&A increased 24% to $15.6 million due to training costs associated with onboarding of staff, higher D&O insurance costs and the increased cost of being listed in the U.S. R&D costs increased to $23.9 million due to the impairment of intangible assets discussed earlier and an increase related to the large number of wheel programs in development and launch, along with costs related to the capacity expansion program. The higher level of underlying SG&A and R&D costs were known and planned for fiscal 2024. This high level of cost is expected to reduce during the second half of the 2025 fiscal year as we complete program launches, continue to implement fixed cost reductions and finish the capacity expansion program. Transaction costs of $20.9 million. These costs are associated with the completion of the business combination, listing on NASDAQ and the cost of subsequent funding transactions. A large portion of these costs are one-off and this level of transaction costs is not expected to continue. Net financing costs of $13.9 million reflect the full year of borrowing costs related to the PIUS borrowing and the new cost related to the OIC borrowings. The net loss for the year is $146.4 million and the adjusted EBITDA is a $35 million loss. Turning to Slide 11. The key balance sheet and cash flow items are explained. On the balance sheet, there are 2 large movements. The reduction in noncurrent assets from the prior period is due to the impairment that was required under IAS 36. And total liabilities increased by 77% to $166.8 million, which is primarily from the increase in borrowings necessary to fund the capital expansion program and operations while the business is loss-making. In the cash flow, net cash used in operating activities increased $16.1 million to $50.9 million. Key movements are a reduction in government grant funds of $10 million. In 2023, the business was the recipient of funds from both state and federal grants, which helped fund the required jobs growth and capital expansion program. These grant programs did not contribute significantly to the 2024 fiscal year. There is a $12.5 million net outflow between customer receipts and supplier payments, which is driven by the increased volume of sales and production during the year. And there is a net $4.1 million reduction in outflows for borrowing and finance costs. Net cash used in investing activities reflects the investment during the year to deliver the capacity expansion program and the investment in real programs in development. Net cash from financing activities increased by 28% to $56.4 million, which primarily reflects funding received from OIC during the year. On Slide 12, we have detailed liquidity actions that are planned and underway. The key self-help actions the company has taken include: in the 2025 fiscal year, we have implemented a fixed cost reduction program. The program is underway with most actions now completed. Following the introduction of most of our new wheel programs and completion of the capacity expansion program for existing awarded programs, we have assessed our resource needs under a more steady-state operations, and we have downsized our indirect workforce to rightsize for the future. We have also reviewed all fixed cost items and taken actions to reduce costs wherever possible. The benefit of this cost-down program takes effect from the second half of fiscal 2025. Capital spend is reducing during 2025 as well. The capacity expansion program progressed very well during 2024 and the first half of 2025. This has allowed for a reduction in capital spend on plant and equipment in the second half of fiscal 2025. We have worked with and continue to work with customers and suppliers to improve our payment terms in order to improve our net working capital position of the company. The other key action is that we struck a new $33 million funding arrangement with OIC and PIUS in December 2024. This funding agreement allows the company to access up to $27 million in new funding, of which $21.6 million has been drawn to date and up to $6 million in PIK interest. Along with the self-help outlined above, we expect this new arrangement with OIC and PIUS to provide sufficient funds for the business for 2025. Of course, this requires the other areas of our forecast to remain on plan. I will now hand back to Donnie for the remaining slides.

Thanks, Gerard. Now turning to our business outlook. Looking ahead, we will be delivering a number of new program launches. Three programs have recently entered production and a further four awarded programs are currently in the development or launch phase, and we look forward to bringing these to market. As Gerard mentioned earlier, as an optional fitment, our sales volumes are in large part driven not only by the success of our customers' experience with their vehicle sales, but also on the consumer uptake achieved for our wheel options. In addition to program-specific considerations, we also see some macroeconomic uncertainties and growth headwinds, which are also reflected in the impairment Gerard described earlier. We have established a capability and cadence of program launches, which enables us to focus on our operational execution and cost reduction strategy. Our capacity expansion program required for expected volume from currently awarded programs is concluding and the plant is running well. From late 2025, there will be a significant reduction in investment in PP&E. We will continue to pursue improved gross margin with further efficiencies expected to come from new program launches, combined with reducing material and direct labor costs. Overheads are expected to continue to be reduced and aligned to the company's next stage of a more stable production. As a result of these continued initiatives, our cash burn is expected to reduce moving forward, enabling us to pursue our clear strategy of disrupting the automotive wheel industry. Our business development focus is on winning new programs for the Australian facility and a potential new overseas plant. Given the current uncertain macro environment and EV demand, it is prudent to continue to focus on program wins for the Australian plant. Beyond Australia, the business development activities will also focus on securing program awards that would underpin investment in one or more lower-cost territories closer to our customers. In summary, the operational progress made during a very challenging period adds to Carbon Revolution's position as the global leader in carbon fiber wheels and provides a strong foundation to pursue our growth strategy. This strategy is based on product and technology leadership, combined with focusing on the right customers and operational execution. I truly believe we have developed a product which has the capability to disrupt the enormous global wheel industry. We have a clear market-leading position. We have a growing customer base. We have a team, and we have laid the foundations to take this breakthrough technology to the wider market. Thank you again for joining us today. We look forward to updating you on our progress.

This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines.