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

Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technologies Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Thierry Li, CFO and Secretary of the Board. Mr. Li, please proceed.

Thank you, operator, and hello, everyone. Welcome to CBAK Energy's Third Quarter of 2023 Earnings Conference Call. Joining us today are Mr. Yunfei Li, Chief Executive Officer of CBAK Energy; myself, Chief Financial Officer and Secretary of the Board; and Jennifer, our interpreter. Our general engineer, Mr. Xiujun Tian will join us for the Q&A section. We released our results earlier today. The press release is available on the company's IR website at ir.seabank.com.cn as well as from Newswire services. A relay of this call will also 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 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 for joining our earnings conference call today. We are delighted to achieve another outstanding quarter of growth in our battery business. In the third quarter of 2023, our battery business generated revenues of 44.33 million, showing by 71.1% year-over-year. Compared to the operating loss recorded in the same period last year. During this quarter, we delivered an operating income of $7.58 million and a net income of $7.77 million, which was 6.3x that of the same period last year. Of these revenues, 42.81 million came from batteries used in energy storage applications, a surge of 73.5% year-over-year, while $0.4 million came from batteries used in electric vehicles, an increase of 19.5x year-over-year. Moreover, revenues from batteries used in light electric vehicles were $1.11 million, down 2.8% year-over-year. For the first 9 months of 2023, our Battery business generated revenues of $96.16 million, an increase of 44.43% year-over-year, while delivering an operating income of $6.15 million, along with a net income of $6.75 million. The growth across our financial metrics was primarily attributed to our strong foundation of key clients, particularly high-value clients from Europe and the U.S. Orders from these clients have demonstrated exceptional stability and sustainability. We are confident in sustaining robust performance and profit growth in the upcoming reporting periods. Today, the market still faces various external pressures and challenges, including the global economy slowdown. We are proud to stand out as one of the few Chinese Battery manufacturers achieving rapid growth and profitability amidst the current macroeconomic environment. Our remarkable performance has garnered substantial interest from private equity investors who have reached out to us regarding our latest developments. Let me share a more detailed update on our business initiatives during the third quarter with our increased visibility and enhanced reputation worldwide, our order volume continued to rise. As of November 1, 2023, we have recorded approximately RMB 900 million in the combined value of orders we have received but have yet to fulfill across our 2 main battery production facilities based in Dalian and Nanjing. Currently, orders for the Dalian facility have been scheduled towards the end of 2024, and our Nanjing facility is also overwhelmed. Incoming orders from new clients will be subject to further scheduling. In other words, both our revenue and profitability will maintain robust growth momentum over an extended horizon. Regarding client initiatives already announced, as of November 1, 2023, our collaboration with Power OAK, the world's leading portable power station manufacturer and the parent company of top-rated portable power supply brand Blue TTI has provided us with moving totaling around RMB 43.2 million. We also made great strides in our partnership with Gingko Group, the largest manufacturer of scooters and electric tricycles worldwide. Generating orders amounting to roughly RMB 559 million. In addition, I want to highlight our continued initiatives with Visma, a leading European manufacturer of heating and cooling systems. Our productive collaboration has translated into orders totaling up to EUR 116.5 million from the beginning of 2023 to November 1. Another major partner of ours is Anchor Innovations, one of the largest third-party accessory suppliers globally for APCo incorporated products. Following our sign in September, we have received orders from Anchor Innovations amounting to RMB 58.35 million. It is understood that Anchor Innovations will spur significant demand for our bakeries and is expected to place monthly orders on a continued basis. Furthermore, I want to highlight the fact that we have been in deep discussions regarding various corporations, including providing product samples with several major customers from Europe and the U.S. We will keep our investors informed of any significant updates. With a focus on meeting client plans with sale of our investment in production capacity and R&D. In the third quarter of 2023, both our Dalian and Nanjing facilities have reached a production capacity of 1 gigawatt hour. Our subsidiary down in CBK Power is currently engaged in the development of Model 46 115 and model 46.57 BM batteries, which are new to the market and larger than the current market favorite model 46A with higher energy density and an extended lifespan. These new models are due for large-scale energy storage scenarios. Our R&D team is diligently in driving these initiatives forward, and we expect to have the capacity to mass produce Model 46115 batteries next year. In the long-term plan, we will expand the production capacity for the Series 46 batteries to 15 gigawatt hours at the Dalian facility, achieving further supply ramp up. In the meantime, the construction of our Nanjing Phase 2 project has been in full swing. The factory rule has been completed, which enables 6 gigawatt hours of production capacity in the first stage. And we expect this production capability to be delivered fully equipped and operational soon. Hence, I wish to highlight that we will have greater fool capacity next year to address the current overwhelming client demand. We will elevate our production efficiency and further propel top line growth. Finally and importantly, let me walk you through our mass production of sodium in batteries. As the only company in China capable of mass producing sodium and batteries, we have engaged in extensive discussions with multiple investors on building a sodium battery plant. In the near future, we expect to finalize a substantial amount of private equity financing to expedite the development of our Sodium-ion Battery plant with a target production capacity of 10 gigawatt hours. With the accelerated industrial adoption of sodium and batteries, we believe it will become a pivotal focus across various subsectors such as elective scooters, low-speed vehicles, energy storage power stations and hospital energy storage solutions. Looking ahead, the company will be empowered by a twin engine growth model, an impressive 36 gigawatt hour production capacity of medium bakeries and a remarkable 10-gigawatt-hour production capacity of sodium in batteries. We look forward to collaborating with our investors and partners to advance the evolution of the new energy sector and environmental protection technologies with nonissue. Now let me turn the call over to our CFO, Mr. Li, who will provide details on our financial performance.

Thank you, Mr. Li, and thank you, everyone, for joining our call today. I will now go over our key financial results for the third quarter of 2023. For the full details of our financial results, please refer to our earnings press release. As the battery business returned to year-over-year growth in the third quarter, we also recorded on growing improvements in gross margin and operating profit margin. This was underpinned by a sharp increase in the contribution of our higher-margin battery business and a reduction in the course of revenues as we further leverage our technology to improve production efficiency. Alongside the growing number of orders for our battery products, we will continue to find the right balance between growth and profitability while investing in R&D and production capacity expansion to enhance our sustainable long-term competitiveness. Turning to our financial performance. Our net revenue for the third quarter was $63.4 million, representing an increase of 9.9% compared to $57.7 million in the same period of 2022. This increase was primarily attributable to the growth in the company's bakery business. In addition, our net revenue from batteries in the third quarter was $44.3 million, representing a strong growth of 71.5% from the same period in 2022. Our gross margin for the battery business in the third quarter was 26.4%, an increase of 17.7 percentage points from 8.7% in the same period of 2022. The cost of revenues in the third quarter was $51.2 million, representing a decrease of 5.7% from $54.3 million in the same period of 2022. The decrease in the cost of revenues corresponds to the company's higher gross profit from the Battery segment. Gross profit in the third quarter was $12.2 million, representing an increase of 264% from $3.5 million in the same period of 2022. Gross margin in the third quarter was 19.3% compared to 6% in the same period of 2022. Our total operating expenses in the third quarter rose by 40.8% to $7 million. Within that, our research and development expenses increased by 8.1% to $2.6 million in the third quarter. Sales and marketing expenses increased by 33.8% to $1.1 million in the third quarter. General and administration expenses increased by 73.7% to $3.2 million. Our operating income in the third quarter amounted to $5.3 million compared to an operating loss of $1.5 million in the same period of 2022. The change in the fair value of our warrants in the third quarter was 0.02 million compared to $0.94 million in the same period of 2022. As a result, net income attributable to shareholders of CBAK Energy in the third quarter was $6.3 million compared to net loss attributable to shareholders of CBAK Energy of 290 same period of 2022. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from Brian Lantier with Zacks Small-Cap Research.

I'm really impressive performance in light of a challenging operating environment. If I could drill down a little bit more on the power -- in uninterruptible power business. Do you feel like that was principally in the third quarter, driven by new customer wins or higher volumes with your existing customer base. And it sounds like going forward, some of the new customers are going to contribute a larger portion of that growth? And then I'll follow up with another question after that.

[Interpreted] So, in response to your first question, yes, indeed, the growth in our third season, third quarter, partly due to the existing customers that we have. For example, our customers value and managing have suspend increased their orders, and that also lead to the growth of our sales volume. And besides that, we also have developed some new customers who also contribute to the growth of our sales. So this is the situation that you can see in the third quarter. And because that, for example, for our model 32140 we have already passed the certification. So the -- in terms of our production, we have started from a small log production and gradually transformed into a fixes mass production, and we also believe that this will contribute to our further sales growth. And in the meantime, we are also expanding our production lines as well as our production capacity for the 26th [indiscernible] projects. So we also believe that this will bring in more sales volumes in the future.

Great. And if I could just ask a question about the raw material business. I know in the past, there's been some interest from outside investors. Is that something you're still exploring? Or I guess, just an overall general update on the raw material business and where that stands today.

Brian, I will respond to your questions. As you can see, the industry -- the raw material industry is experiencing a slowdown, almost all the raw material producers are suffering a decline in sales volume, same at to heighten our raw material units. But Hiten actually has a very, very decent and good client structure subsidies from CATL is also their clients. So we believe that once the industry recovers, hires will improve their financial performance shortly. And moreover, we did actually integrate Hiten's business into our battery business. We act on the financial investors. Their team is completely independent from our team. That's why in our in our Form 10-Q and in our press release, we always separate the financial performance from Hiten from our bakery business. That's much more reasonable. So as you can -- as you say, there are a lot of investors getting interested in high trends, and we believe that an industry recoveries, they will be good. So we encourage a lot of the private equity investors. We will also refer a lot of the private equity investors to hires for the purpose of funding them to expand their capacity and also to see if we will be able to get a good deal from -- with those investors.

[Operator Instructions] Our next question comes from Heiko [indiscernible] with TPG.

Okay. So I would like to pose a question concerning the sodium. I'd like to know, you just in your speech, you mentioned that you have been engaged in the preparation and the construction of sodium ion battery. I plan now, if you can give you more update about the technology that the company has with the sodium ion battery. If we talk about the project investing in dementation stage, at what stage is this project getting progress? Could you give me also another update?

[Interpreted] So, in response to your first question, well, for sodium ion battery, in June this year, we released the first sodium ion battery products. And this is -- we can say that in China, we are the first company to realize the net production of sodium ion battery. And although in the market, some of the competitors also announced that they are doing the research or production of these sodium ion battery products. However, we are the company that really can realize a mass production. And this year, we also achieved the installation of this sold in ion battery in the vehicle and effect turned out to be really satisfactory. And for our battery products, it can realize 2,000 to even more than 3,000 runs. So we can say we have already have a stable product system in place. And talking about the production line construction, well, we can say our company and our product is very popular. In the market, there were some other competitors, but they are only at the very early stage. For example, they only have the start-up teams or they only have some samples. However, for us, for our company, feedback have managed to come up with a product with 0.5 gigawatts and the production capacity will be expanded in the future. So at present, for 4 partners has approached this, and we are trying to select one place. What we can say for local governments have approached this, we are trying to select one place for the construction of the production line, and we're trying to select the best from the 4. And then in the next year, we are even going to expand our production capacity to be as high as 10 gigawatts. And in that case, it will put us in a better position to cater to the demand of our customers.

And in your introduction, you mentioned about -- I mentioned that CBAK has become a business partner of Anchor Innovation. And I'd like to know how big the order volume of Anchor will be? And can you also share with us your expectation for your partnership with Anchor.

[Interpreted] So at present, Anchor has already finished the opening of models here with our fact 3 and 7 to 8 projects of Anchor will use our battery. And actually, they started their pilot production here and the results turned out to be great. That is why they decided to export products to Europe in the state, Japan and India. And we already have been in-depth communication with Anchor talking about future cooperation and talking about deepening our future cooperation. And because that, if we have a look at the expectation for the order volume, at present is about 500,000 items with order value of about RMB 20 million. And in the future, it will be increased to -- it is expected to be increased to 800,000 to 1.2 million items, and that is with gains order value of about RMB 40 million.

Thank you. Seeing no more 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.]