Twin Vee Powercats Co. (VEEE) Earnings Call Transcript & Summary

Welcome to the Twin Vee Powercats Company First Quarter 2023 Investor Call. As a reminder, this call is being recorded[Operator Instructions]. Your speakers for today's program are Joseph Visconti, President and CEO of Twin Vee Powercats Company; Jim Leffew, President and CEO of Forza X1, Inc; and Carrie Gunnerson, CFO of Twin Vee Powercats Company. Before I turn the call over to Joseph, please remember that certain statements made during this investor call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements on this call, other than statements of historical facts, including statements regarding the company's future operations and financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements can be identified by terminologies such as believe, may, estimate, continue, anticipate, intend, should, plan, expect, predict, prudential or the negative of these terms or other similar expressions. The company has based these forward-looking statements largely on our current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks and uncertainties and assumptions described, including those set forth in our filings with the Securities and Exchange Commission, which are available on our website at www.twinvee.com. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that these events and circumstances reflected in the forward-looking statements will be achieved or occur. Finally, this conference call is being webcast. The webcast will be available in the Investor Relations section of our website at ir.twinvee.com for at least 90 days. Audio cast quality is subject to your equipment, available bandwidth and Internet traffic. If you experience unsatisfactory audio quality please leave the telephone dial-in option. [Operator Instructions]. I will now turn the call over to Joseph Visconti.

Hello, everyone. I'm Joseph Visconti, President and CEO of Twin Vee Powercats. I'm joined on the call with Carrie Gunnerson, Twin Vee's CFO; and Jim Leffew is also joining us, the President and CEO of Forza X1, Inc, our electric boat company that Twin Vee is a majority shareholder. Good afternoon, and thank you for joining our Q1 2023 financial call. Twin Vee designs, manufactures and sells a range of catamaran sport boats from our factory located in Fort Pierce, Florida. For nearly 30 years, the Twin Vee brand has been synonymous with offshore catamaran boats and is considered by many to be the best ready boats on the water. In Q1 2023, Twin Vee continued the momentum gained through 2022. We achieved our sales and production goals for the quarter, including the design, manufacturing and launch of additional new models. We opened new dealers, launched a new monohull boat brand named LFG Marine, with a 22-foot center console. In the initial launch of this product, we received a large initial order from Freedom Boat Club. We are now in production on the second LFG model, our 22-foot dual console. Both of these LFG boats will now be built and branded on -- as Aquasport boats, but we will discuss that later in the presentation. We received site plan approval for our nearly 30,000 square foot expansion. We continue to move ahead on connecting the back end building and the front building. We've transitioned our lamination department 100% to the infusion process for hulls and decks. Infusion is a state-of-the-art lamination process that increases the quality of our build while refining the cost and controls. We have finalized OEM agreements with 3 leading outboard motor companies. Twin Vee can now offer Suzuki, Mercury and Yamaha motors as we continue expanding our dealer footprint and target regions of the country where these motor companies have regional brand strength. We are approximately a month away from another new model entering production, our 280 GFX dual console. The 28-foot model is a new and exciting product for us. I believe we will expand our market share dramatically. Our biggest competitor does extremely well in the dual console cat market. Center consoles are traditionally for fishing and offshore design and dual consoles are more of a day boat and appeal to regions such as the great lakes, bays and inland waterways. Historically, Twin Vee center consoles have been 95% of our production sales. We feel good that our new 28 GFX DC (sic) [ 280 GFX DC ] will be a strong contender and begin to broaden our sales in the dual console catamaran sector. Our biggest dealer OneWater Marine, who currently represents 7 of our dealer locations, mostly in Florida, we're lucky to have OneWater. They're a great partner as they continue marketing and selling our boats. If you follow Twin Vee's social media, you would have seen 2 weeks ago, OneWater and Twin Vee cohosted an open house at our Fort Pierce factory. We held an owner appreciation and sales event. Essentially, we had a mini boat show with 7 Twin Vees being showcased from our 24 footer to our 400 GFX. We had approximately 200 guests throughout the day. We offered test rides at a local marina with a transport bringing guests back and forth. We had barbecue food, music, raffles, factory tours. We showcased our lamination process. The weather was perfect. The event was a great success. OneWater sold 4 Twin Vee's, possibly 8 boats from that event. I'm highlighting this to shine a light on just some of the outreach that we are doing in the face of some of the financial headwinds. We are very close to finalizing the implementation of our new comprehensive ERP system that will provide better controls, including ordering, stocking, tracking, inventory levels, detailed build materials, which in turn provides tighter costing for our folks. Carrie Gunnerson, our CFO, and our team have been working around the clock to bring the system online. I want to thank Carrie and the team. We understand that the current state of the economy and steadily increasing interest rates has slowed the demand from most recreational-based products. However, our top line revenues for Q1 remained relatively strong due to restocking dealer inventory, stocking new dealers as they were brought online and the launch of our LFG brand with the production of our 22-foot center console monohull. We remain vigilant with field inventory levels while we continue to push and drive our top line revenue growth. Now let's discuss the big news. We entered into an agreement with Ebbtide Corporation to acquire Aquasport boats and their manufacturing facility. The acquisition will include the Aquasport trademarks, a 150,000 square foot manufacturing facility situated on 18.5 acres of land in White Bluff, Tennessee, hull-related tooling, equipment and molds to initially build 5 Aquasport models ranging in size in 21 to 25 feet. Twin Vee and Ebbtide Corporation signed a lease option where Twin Vee funded $300,000 against the $3.1 million purchase price. We have the option to pay $22,000 per month in lease payments for 5 years with $16,000 of the 22 are going directly attributed to reducing the outstanding balance of the purchase price or we can simply purchase the Aquasport assets outright at any time over the next 5 years. We will take physical control of this property, June 1, 2023. The factory produced and sold the Aquasport boats until November of 2022 before manufacturing was halted at that facility. Aquasport boats is an iconic brand in the monohull market. Aquasport has a rich history dating back to the 1960s. The brand was known for top quality, rugged, versatile family-friendly boats. Monohull boats are popular with many boaters who prefer the traditional looking field of a single hull design. As we discussed on previous calls, we felt confident the industry acquisitions will present themselves as financial headwinds strengthened and boat manufacturers with strong brand recognition would not make it. When we located this opportunity, we saw this as a huge opportunity or win for our team. And led by Jim Leffew, they worked around the clock to make his happen. With Jim's production background at Maverick Boat Group, where he was producing 1,700 boats a year, Jim offered to step in and initially launched Aquasport. Jim is on this call today for any related questions. There's also some synergies with Forza, specifically leveraging the size and location of this factory in Tennessee, and we discussed this on the Forza Q1 call a week ago. As we transition the 2 LFG models, the 22 center console. And are just entering production, our 22 dual console to Aquasports, we will relaunch Aquasport with 7 models. We feel confident with less than $2 million, we will have Aquasports up and running. This will include staffing, inventory, marketing, production, materials. But we're just -- this happened a week ago. So we're just continuing to get our arms around the transaction. We are excited about the opportunities with this Aquasport transaction. While markets are a bit choppy, our continued business objective is to not burn cash, remain prudent with our balance sheet and continue to grow our business and, of course, deliver value to our shareholders. I want to thank you, and I'd like to turn it over to Carrie Gunnerson, our CFO.

Thank you, Joseph. Good morning, everyone. Our net revenue for the 3 months ended March 31, 2023, was up 51% to approximately $8,877,000. We are pleased with the consistent growth that we've been able to achieve and maintain over the last year. Our gross profit for the 3 months ended March 31, 2023, were up 32% to $3,222,000. We continue to monitor the cost of our revenue and our purchase components, along with the dealer inventory and adjust our sales prices and our discount structures accordingly. Our operating expenses for the 3 months ended March 31, 2023, increased approximately $2,109,000 to $5,591,000. Our operating expenses as a percent of sales for the year -- for the 3 months ended March 31, 2023 were 63% compared to 59% in the prior year. However, when you look at just the gas-powered segment, our operating expenses as a percent of sales for the 3 months ended March 31, 2023, were 40% compared to 51% in the same period in 2022. So we're pleased to see the improvement of 11% year-on-year for the first quarter. Our net loss for the 3 months ended March 31, 2023, were approximately $1,828,000. Forza, our electric boat segment, portion of that loss was $2,005,000. Forza spend considerable resources in the first quarter, putting electric motors on several different boat models as part of our R&D efforts. So we do anticipate that their loss will decrease in the second quarter. Our core business, gas-powered boats recorded net income of approximately $182,000 for the 3 months ended March 31, 2023, compared to a loss of approximately $626,000 in the same period of 2022. Further, when we look at our adjusted net income for the period, which excludes noncash charges, our adjusted net income for our core business, the gas-powered boats, was approximately $265,000. And our EBITDA income was $364,000. So the net loss that we experienced is definitely a reflection of the company's continued efforts into the electrical boat division, Forza. As we turn to the balance sheet, we had cash, cash equivalents, restricted cash and marketable securities of approximately $21,023,000 at March 31, 2023. Our inventory value at that date was approximately $4,797,000 compared to $3,200,000 in the prior year. Our increased product offerings has definitely put upward pressure on our inventory levels. However, we're going to work to unlock some of that value as we move forward. And we think that our ERP system will lead to that end. And we're also seeing lead times decrease for our component parts. So we do have some tools that we can use to unlock some of that inventory value. At this time, we believe our cash, cash equivalents, restricted cash and marketable securities and cash produced in operations will provide sufficient cash to finance ongoing operations. And with that, I'll turn the call back over to Joseph.

Thank you, Carrie. At this time, I'd like to open it up for questions.

[Operator Instructions]. Our first question come from the line of Paul Johnston.

Yes. Can you remind us what percentage of Forza Twin Vee owns at this point?

Thank you, Paul. Twin Vee owns approximately 69% of the outstanding shares of Forza, F-R-Z-A.

Okay. And I think in the Forza release, you've said that the cash burn is roughly $300,000 a month, so about $3.5 million annually. Is that roughly correct?

That is correct. So Jim, you're on the line or Carrie, if you want to get into that in detail. But I think -- so that's broken out with -- we've got kind of prototyping -- that $300,000-plus is with prototyping. And as we kind of like transition from prototype into production, that number will change, but I'm going to let Jim get into more detail on that.

Can I just jump in before Jim says anything? So we did use over $2 million in cash for Forza in the first quarter. And that's because of the actual boats and the motors that we were producing. So it was a very heavy R&D quarter in the first quarter. So I think the message we want you to go away with is that we do not anticipate those expenses to be at that same level for the rest of the year. Jim?

Okay. No, I -- go ahead. Sorry.

I was just going to say, I agree with Carrie wholeheartedly there, and that's what I was going to add. So I don't think we are at $3.5 million on an annual basis on a burn rate to get back to your original question or assertion.

Right. Well, I guess what I was trying to understand is that Forza has a little over $10 million in cash. So even if it were $3.5 million a year, which it sounds like it won't be, at 3 years' worth of cash, I guess I'm just trying to understand what the disconnect here is because I think -- I apologize, I'm in a car right now, but from memory, there's about 10 million shares of Twin Vee outstanding and at the current price of roughly $1.50. That's about $15 million market cap, but there's $13 million of cash just with Twin Vee not accounting Forza. So the enterprise value is like $2 million not counting Forza. Am I missing something here?

You're 100% correct. We are doing non-deal road shows. I think we're doing a great job getting the message out. We're doing press -- getting press out, updates. I mean, social media marketing. I mean I am like incredibly impressed with our team, what we accomplished over the past year, speaking about Forza for a second, getting a boat motor, propulsion, control up and operational. If you've seen the monohull. So if you took the components of Twin Vee, the cash in the bank, $12 million plus, a $36 million of your profitable business, plus a 69% ownership in Forza and you added those 3 components together, and Twin Vee is trading at cash value, it does not make sense.

Well, all right. Or another way to look at it is that, obviously, Forza has a lot of promise ahead of it, but even if you completely didn't count that and took it away, you've got Twin Vee doing whatever it is $30 million in sales and the enterprise value is $2 million. I just want to make sure why has someone not come in and bought a giant chunk of this, I don't get it.

I mean, I'll leave that up to the professionals that -- our stock pickers. We're in a rough choppy market. A lot of the small stocks that you see gets oversold. So we are speaking to investors that are out there accumulating and buying our stock. We're seeing the volume of both stocks, Forza and Twin Vee, pick up. I mean it's just an opportunity for someone to get in. If you're paying attention and listening and watching to what we're doing at both companies, I think we're meeting and exceeding every expectation, every goal that we've set, we've accomplished for lasted through during our IPO at Twin Vee, everything we stated we accomplished. We brought every new model to the market. We opened dealers far exceeding what we stated we would do over a year. We're up to 30-plus dealers. We grew the company over 100% in 2022. Again, in Q1, we grew 51% in a market that's -- it's a bit choppy. We have a tight management team. We're pushing forward. So the lower stock prices is simply just an opportunity for someone to get in.

No, I appreciate that. And so I just want to make sure there isn't anything we're missing. And just on Twin Vee, what is -- have you or have any analysts made any kind of rough projections as to what kind of earnings per share there might be for 2023 or 2024?

So our bank, ThinkEquity, has a report out. I do not have it in front of me, so I don't want to state something that I don't have up in front of me at this time. But I'm sure you can go on Bloomberg and look at it. Or I can send it to you if you want to give me your...

Sure. But are they projecting that you're going to make money or that you're going to lose money for '23 and '24?

We are making money, are you -- at Twin Vee, we're profitable.

Right. On an annual basis, including the consolidation of the Forza, I guess.

I don't understand the question, Paul.

The question is, do they project that you will be profitable including the losses through your ownership of Forza?

So if you give me your e-mail, I will -- I don't have that report in front of me, and I will grab it after the call. And then -- because we've got other people that might want to answer questions, and I will shoot it over to you. What's your e-mail?

I'll write you offline. That's fine.

Our next questions come from the line of Mike Powell.

The prior caller asked some of the questions I was going to ask about Forza. But on the Aquasport transaction you just announced, can you -- any financial economics you can disclose regarding what that means for Twin Vee in terms of revenue, EBITDA, incremental EBITDA, et cetera?

We don't have any projections on that. We just completed the transaction about a week ago. We're just getting our arms around the asset, it's a 150,000 square foot facility, there's probably upwards of a couple of hundred molds inside of the facility. I can have Jim elaborate on kind of a relaunch strategy, if you'd like to hear that. But we can't talk about any financial projections at this time.

Or maybe what the business was doing prior to that. It sounds like it shut down in November or something like that, I don't know the history of it. But what was it doing in revenues or whatever you can disclose?

I don't know revenues. I believe, and Jim, correct me if I'm wrong, I think 2 years ago, they produced like 150 units out of the facility.

Yes. It's hard to say exactly because they were wrapped up with The Limestone Boat Company and also the Boca Bay brands. So when we start back up, we will exclusively focus on the Aquasport brands. And we have some internal targets for revenue to rebuild that brand over the next 5 years. And I can suggest those to you. It's a shutdown plant right now. So we have to go in there and hire from the ground up and start over. So those projections are simply that, just projections, but I can give those to you if you'd like to hear.

Yes, that would be great.

We're targeting between $10 million and $12 million in revenue after the first year of start-up, and we expect to get started sometime in July of this year, so about 2 months from now. A lot of that depends on the workforce we can put together in the Nashville area. It's a good plant. It's been a high production rate plan in the past. I believe back in the heyday of its boat building years, it produced 17 boats a day. We obviously will have to upgrade some of the tooling for Aquasport. As many of you may know, Aquasport's a legacy brand that's been around for 60 years, but it's had a bad decade or 2 and is in need of a facelift, but the product is well received out there. And we feel confident that we'll be able to rebuild the brand over the next several years. We're expecting to incrementally add about $10 million to $12 million every year from now until the fifth year. That's what our target is.

Does it -- will the customer know that Twin Vee owns Aquasport? Is there like any kind of synergy between the 2 companies? Or it will be viewed as like 2 completely separate independent brands?

I think it will be looked at as 2 separate brands. I think some of the operators of the Aquasport brand over the last 10 years or so have not done it justice. I think we are a known saltwater brand entity in Twin Vee. And I think the market will view favorably with our acquisition of Aquasport and Aquasport brand, and we'll be able to rebuild that -- it's rightful place in the marketplace given time.

You said $10 million to $12 million revs per year increasing every year for 5 years. Is that -- did I hear you right?

Yes.

And then do you know...

Yes. You did hear me right.

Okay. Sounds pretty substantial.

It sounds aggressive, but we feel like the brand can handle that, and that will be our target. And we've got a lot of boat building experience, and we have a lot of good people behind us. It's a matter of executing on our plans.

And what revenue level does it become profitable, roughly?

Yes. I think we should look at 1.5 years into it, $18 million or so. I think that is sort of the escape velocity point right there. And I think we'll be self-sufficient after that rate, and we should be able to really add to profitability at Twin Vee after that. Again, these are generalizations, and we still have a lot of work to do to vet this out.

There are no further questions at this time. I would like to hand the call back over to Joseph Visconti for any closing remarks.

I want to thank everybody for joining the call today. And we're excited about the future, specifically with relaunching this Aquasport brand. Thank you for your support, everyone. If you have any other questions, you can ping me at Joseph at Twin Vee, and we will follow up and get in touch with you. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.