CBAK Energy Technology, Inc. (CBAT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time. Now I will turn the call over to Jiewei Li, Investor Relations Director on CBAK Energy. Mr. Li, please proceed.

Thank you, operator, and hello, everyone. Welcome to CBAK Energy Third Quarter 2022 Earnings Conference Call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer; Mr. Xiangyu Pei, our Interim Chief Financial Officer; Mr. Guo Wang, our Vice President; and Mr. Xiujun Tian, our General Engineer; and Mrs. Yang, our interpreter. We released early results earlier today. The press release is available on the company's IR website at ir.cbank.com.cn as well as from newsprint services. A relay of this call will be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company doesn't assume any obligations to update any forward-looking statements, except as required under applicable laws. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese, and I will translate his comments into English. Go ahead Mr. Li.

[Interpreted] Thank you, and hello, everyone. Thank you for joining our earnings conference call today. In the third quarter, we managed to maintain a strong momentum in the growth of revenues. In Q3, our revenues grew by over 5x to approximately $37.7 million. In the first 9 months of this year, our revenues had reached approximately $200 million, representing an increase of about 7x compared to that in the same period of last year. Significant increase of revenues was fairly attributed to the astonishing growth of our battery business in a booming market. In the third quarter, revenues from our battery business reached about $25.8 million, up by roughly 117%. In the first 9 months, revenues from the battery sector surprisingly increased by 167.7% to approximately $66.6 million. In addition to our dedication to stabilizing and increasing revenues from the energy storage segment without to have explored the EV and LEV markets. A few months earlier, we announced to enter into an agreement with JinPeng Group one of the biggest EV manufacturers in China and its EV manufacturing unit, Jemmell. Such corporations brings our synergical lithium batteries on an increasing number of EVs. Meanwhile, we are still actively developing larger synergical batteries in an attempt to increase our shares in the EV, LEV and energy storage markets. In this conference call, I will introduce our progress in both business development and product research and development to our shareholders and investors. First, I will present the progress we have made with respect to business development. As of September 30, our 3 major manufacturing centers, respectively, in Dalian, Nanjing and Shaoxing received orders with approximately $100 million the awaited delivery. Such orders will support rapid growth of our revenues in the coming reporting periods and approved that our target market is extremely hot right now. As of now, the capacity of parts of our production line can no longer satisfy the increasing demand for our products. In the third quarter, we announced that we have obtained an order with approximately $29.3 million from a leading European provider of heating, cooling and renewable energy systems. This is not the first time we received an order from this client. As of the date of this conference call, this European client had ordered about EUR 60 million of our battery products. In fact, we started approaching this client in 2018 after lengthy negotiations, several rounds of talks and completion of supply chain due diligence works. Our partnership eventually brings us high-value orders this year. It actually demonstrates that our product quality is trusted and testable and that as long as we keep patients on our marketing efforts, it will eventually pay off. In addition to the rapid growth in our energy storage business, we have been dedicated to developing much more clients from the EV and LEV markets. As of September 30, our cooperation with JinPeng Group and Jemmell has already brought us orders worth about $4.3 million. We are very glad to see our 32140 batteries being applied in the electric vehicles manufactured by JinPeng Group. We have confidence that we will be taking much more orders from them. Besides with respect to our cooperation with [indiscernible] model. We have supplied battery pack products worth about CNY 2.7 million in the third quarter, up by 80% compared to the number disclosed in the last quarter. We expect to see the number continue growing in the near future. This year, we also announced a strategic partnership with Welson Power, a China-based company that has a broad global sales network to develop the Indian market. With the Indian government publishing subsidy program, the Indian market is believed to have the potential to grow into one of the biggest LEV markets. Welson Power has a huge global network with a focus on India market. Our partnership with them will introduce our 32140 batteries to that country. As of September 30, Welson Power had order batteries with about CYN 380,000 from us, considering that we have been entering into the partnership for only one month and that we are in a new market for business development, taking orders from the substantially grow our confidence. Overall, we achieved a satisfactory progress in business development. We managed to maintain a good partnership with our major European clients in the energy storage market and reached cooperation with big brands in the EV and LEV market. We never stopped our endeavor to explore new market opportunities and expect to bring more exciting news regarding new partnerships and orders to our investors and shareholders in it. In terms of our efforts in product research and development, we have been investing resources and capital in developing larger sized synergical batteries. Furthermore, we made significant progress in the development of sodium-ion batteries. In the third quarter, we completed the pilot production of 2670 and 32140 sodium-ion batteries. We are now in the process of testing and optimization in an attempt to increase the energy density. As we said in previous conference calls, the sodium-ion in battery market has a great potential with an estimated market size worth about billions of dollars. We expect to take a lead in the market to become one of the first groups of companies that could mass produce sodium-ion batteries. We hope that this could help us occupy more market shares. To sum up, we successfully made satisfactory progress in both business development and product research and development, we invested to develop sodium-ion batteries and larger sized electrical batteries in hope to increase our competitiveness, the fact that raw material price is still inflated and that we need continuous capital investments to expand our capacity caused by increasing demand has actually resulted in a small net loss. However, we still firmly believe that our profits will be significantly increased as raw materials price drops to a reasonable level caused by increasing capacities from raw materials producers. Also, our capacity expansion will gradually generate more profits. Our focus in the near future will still be on ramping up our marketing efforts, continuing our capacity expansion plan and promoting the research and development of sodium-ion batteries and larger size electrical batteries. Now let me turn the call over to our interim CFO, Xiangyu Pei, who will provide details on our financial performance.

Thank you, Mr. Yunfei Li and thank you, everyone, for joining our call today. I will now go over our key financial results for the third quarter of 2022. For the full details of our financial results, please refer to our earnings press release. We managed to maintain a strong momentum in the increase of sales of our battery and battery material products. The high cost of raw materials and the need to invest in and expand our capacity, however, reduced our profits. As Mr. Li mentioned, we remain confident in the future growth of our profits as long as more raw material producers of [indiscernible] bigger capacity and our capacity expansion plan is completed. We also increased significantly our investments in research and development and sales and marketing efforts to develop new largest cylindrical leasing products and to develop clients in the market. Moving on to our results. In the third quarter, our net revenues surged by 500% to USD 57.7 million from the same period of 2021, primarily due to growing sales in our battery products and battery materials. Specifically net revenues from our battery business grew by about 170% from the same period of 2021. Cost of revenues was USD 54.3 million in the third quarter at by [indiscernible] from the same period in the prior year. Our gross profit was USD 3.5 million in the third quarter, representing an increase of 26% from the prior year. Gross margin was 6% compared with 12% in the same period of 2021 as raw material cost low. As noted earlier, we signed a long-term contract with certain suppliers expanded into raw material business and [indiscernible] negotiation with our clients to tackle the product, and we expected the price of raw materials to decrease while new capacity is being added by the industry. Our operating expenses rose by of 14.8% to USD 4.9 million, primarily due to growing head count in our new Nanjing facility and the acquisition of our battery material business. Within that, our research and development expenses increased by 31% to USD 2.4 million. Sales and marketing expenses increased by 64-person to USD 0.8 million. And the general and administration expenses decreased by 14% to USD 1.9 million. Even with these increases, our operating expenses were held only 8.6% relative to our revenues in the third quarter compared with 45% in the same period of 2021. Our change in fair value of warrants was USD 0.9 million compared to USD 23 million in the prior year. Thus, we recorded a net loss attributable to shareholders of CBAK Energy of USD 290 during the third quarter compared to net income attributable to shareholders of USD 12 million in the same period of 2021. However, if we deducted the item of change in fair value, we had a net loss attributable to shareholders of CBAK Energy of USD 0.9 million reduced by 68.6% from USD 3 million last year. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

[Operator Instructions] We have one question. The next question is from [indiscernible].

[Interpreted] Okay. I have the first question. I am glad to hear that the company has received orders worth nearly EUR 60 million from a major European clients in the past 9 months, but the specific name of this company was not disclosed. Could you tell me the reason behind it? And will the stay of cooperation with this company to further expanded in the future?

[Interpreted] Okay. Well, first of all, this is a client -- this client is a famous company in Europe that witnessed rapid growth in the past few years. And we, as the major supplier for battery products in order to help the clients to maintain stability in their supply chain, we need to ensure that this cooperation is a confidentiality and we -- this is also a very good way for us to ensure our competitive edge in the whole market. So please understand that we cannot disclose the name of this company. And talking about the future cooperation potential with this company, I can tell you that we have written agreement, and we are going to continuously expand our future cooperation in the coming years, and we believe that the orders that they place at our company will see a big increase.

[Interpreted] I noticed that most of the company's revenue still comes from energy storage. In comparison, although the revenue of EV and LEV is growing rapidly, the total amount is still relatively small. How do you see the future revenue composition of the company? Do you think the energy store reach segment will still occupy a vast majority of the income? Or do you expect the proportion of LEV and EV to grow and even one day possibly surpass that of the energy storage?

[Interpreted] Okay. This question is concerning the revenue and the proportion of EV and LEV. Well, as Mr. Li just mentioned, we already obtained big orders from EV and LEV manufacturers, and this is a very good signal. And we believe that the orders that we receive from them will continuously grow in the future. And at the same time, we are also making unremitting efforts to develop new customers, and we believe we're going to see big progress next year. And then for next year, we have confidence that we will see the increase of the amount of orders that we get from the car manufacturers and the proportion of EV and LEV, the proportion of revenue from EV and LEV will also see big growth. And then, yes, of course, the business of our energy storage will also be on the rise in the future, too. So we believe that the prospects for both energy storage and for EV and LEV will be both promising. And at the same time, we will see the growth of the proportion of EV and EV in the future steadily.

[Interpreted] And I still have a third question. The company is developing sodium-ion batteries. We believe that the target market of Sodium-ion battery kind of overlap with the existing target markets of lithium iron phosphate. So how does the company plan to tap the potential of sodium-ion battery in the future? And what is your strategic plan? Can you share with us?

[Interpreted] Okay. So Mr. Tian will answer this question.

[Interpreted] Yes, it is true that the application of sodium-ion battery and the lithium iron phosphate are similar in some cases. However, according to our experience, the generation of new products or a new system will not fully replace the old one that is the lithium iron phosphate in our case. And let me share with you our strategic plan for sodium-ion batteries, as we know, it enjoys some strength that is incomparable by other similar products. For example, it enjoys that it can have very good effects in the low-temperature conviction, and it is more easier to assess the sodium elements and then the cost for sodium is also lower. That is why we plan to use the sodium-ion battery or these products in the storage market as well as the passenger vehicles, especially those LEVs for short discipline trip or in the modern area where the temperature is relatively low. So we're going to develop this sodium-ion battery as a good supplement to lithium-ion battery. It will become a new product line for our company. But it doesn't mean we are going to replace the lithium-ion battery by the sodium battery or in another way or in the other case, we are not going to give up the research of sodium-ion battery just because lithium-ion battery has its own advantages. That is to say we're going to give importance to both kind of batteries, and we are going to develop sodium-ion battery to expand our product portfolio and also to increase the product coverage.

[Interpreted] Okay. We have -- I have the last question, the final question. Well, I am very glad to share that the company's revenue has increased tremendously, although the adjusted net profit attributable to the parent company is still in a loss, but the size of loss has been greatly reduced. We understand that the price of the raw materials this year is still high. But according to your judgment, do you think the price of raw materials will fall down next year? And what kind of impact will it bring to the profitability of your company? And is the company's adjusted net loss attributable to the parent company expected to decline further or even term loss into profit?

[Interpreted] Okay. As you can see from the financial performance of the third quarter of this year, the profitability is on the rise. However, as we know, this year, we are still greatly impacted -- affected, I mean, by the increase of the raw material. And although some of the raw materials have witnessed a decline in the price. However, the main raw material for us, that is the lithium carbonate for the [indiscernible] sold hasn't declined. And in contrast, it even increased a little bit. That is why we have increased the sale price of our product with an aim to offset the increase of the price of the raw material. So for those orders that is going to be shipped in the future, I mean, in the rest of this year and in the next year, we'll see an increase in terms of its price, it will be higher than the price that we offer to the customers in the past several months. So we believe that for next year, the profit of our company will have increased.

[Operator Instructions] There are no further questions in the queue. Let me turn the call back to Mr. Yunfei Li for closing remarks.

[Interpreted] Thank you, operator, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you all again. This concludes the call. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]