Earnings call transcript Q2 2023

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Operator

Thank you for standing by. This is the conference operator. We welcome you to Microvast's Second Quarter 2023 Earnings Call.

As a reminder, all participants are in a listen-only-mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Rodney Worthen, Microvast’s Director of Investor Relations. ahead. go Please

Rodney Worthen

and operator, everyone, joining for Thank thank today. us you, you,

and Mr. today’s Sascha Founder, Officer; Chief on me Yang Officer. Kelterborn, Craig Financial call Revenue Mr. Joining CEO; are Wu, Webster, and Chairman, Chief Mr. President

second ir.microvast.com. of press XXXX on Investor release, Ahead the of found earnings Relations be quarter section issued can company’s call, Microvast the this its which website at

a we presentation to remarks. have prepared posted slide addition, In management’s accompany

statements note please views of on that we new based making to and light be expectations to statements we results These – uncertainties today. statements only materially could They our in or any reminder, information a will forward-looking this and should relied that forward-looking assumptions undertake statements call. these obligation views the of cause take revision not variety revise dates, a no these representative are for of to events. are or future from actual of reflect and These current on publicly be As and as risks expectations. subsequent subject upon differ of results to as release

results, a with refer filed For of risks financial material other to factors XX, XXXX, on March discussion on filed that our our today. affect our XX-Q the important filings annual including earlier the could XX-K SEC, and reports further please Form the and

not discuss substitute also comparable financial their of adjusted addition including or non-GAAP A website. included measures, the end tables measures our as company Relations and at non-GAAP metric may of should will measurements in be These adjusted release. have isolation non-GAAP and available adjusted results. we on from as call, we Investor been GAAP our section which for replay the call press of reconciled of this the considered to webcast EBITDA, and GAAP measures today’s believe net performance. most These a in profit, during loss addition, are to In Microvast’s be supplemental gross useful

With opening turn to call Wu the will I over Mr. for that, remarks.

Yang Wu

some I joining a wins the Webster, high-level Officer, for overview Thank will our Sascha off you, up you XXXX the today. Financial Rodney, before followed call for discuss in like then by detail. discuss and Revenue to quarter, some start I operational questions. to of full who the key our our will QX will providing Kelterborn, the all address over to our in the us Chief will quarter then call would who of Craig more Chief Officer, and before the highlights. I turn thank financials outlook opening year with

Please $XX customers of highlights turn came a demand the as QX XX.X%, X We second cover revenue the growth achieved again million. gross few XXXX, business, from This delivering in adjusted once I a percentage our to margin quarter. strong year-over-year. along X increase We Slide increase XX% double-digit posted in from with a margin with growth a point in of an from revenue European China. gross

of intake a hour second by technology demonstrates order vehicle cell across This vehicle backlog quarter our business. record with adoption growing million, backlog rapid $XXX.X a million commercial our $XXX.X We ESS driven ended of strong applications. amp XX.X of from and new the commercial the

Turning to Slide X.

from was trial to Huzhou customers. QX X.X cell. This production QX QX, now products in qualified hour our to cell Huzhou amp increased XX% from our has achievement operational for for of capacity from our hour in XX.X XX.X significant our to most through XXXX Since contract Our our has Phase amp shipping XX%. deliveries expansion transitioned

States deliveries and year the to United orders increase customer to expect progresses, the and deliveries for We as Europe. further especially

change to how Due like to provide X. part to will container is change see locate Act, in United as longer content assembly the to container decided ESS our this operations, expanded base in States. Because those We adversely as domestic operations all will from footprint have you related valued Slide operations Mexicali. any impacted assembly have Reduction our of our an could would also no of on the Colorado a update Inflation we and ESS customers, rule we

This has in containers Colorado Windsor, annually. assemble to the company-owned facility capacity X,XXX

We sites. or in containers customer are Windsor X.X to start and shipments to the hour expect begin preparing QX job ESS assembly to operations early finish megawatt

some revenues best originally The short-term position our had shipments put the assembly and our from bonus and our to claim business in pushout is on planned domestic We far expect recognizing ESS outweighed impact booking partners QX, this therefore, credit. to ensuring year. by content this facility customers year start we in the revenues in

the to Kelterborn, Revenue now turn achievements would like of Officer, over sales call Chief partnerships quarter. to key some who and the our our will I discuss in Sascha

Sascha Kelterborn

us Thank joining for you, and Mr. Wu, you today. all thank

First, would color a I like bit to backlog. provide little on our more

storage six energy expanding in U.S. year-over-year, both strong by Europe. increased vehicle times in Wu the Mr. our and As driven backlog business demand commercial the mentioned, rapidly

of Europe. XX.X XX% cell orders comprised customers is USD ampere-hour Over from backlog in our million of the for XXX.X record U.S. and

increasing also Korea successfully where and secured saw in India, we projects. several South We important demand

quarter. Now turn Slide as a few I highlights X please from cover second to the

commercial from received first U.S. the Clarksville we a During starting from order in OEM XXXX. quarter, leading vehicle deliveries the for purchase

a from further customers. vehicle order OEM received heavy-duty European footprint new serving we Both our an expand a for commercial vehicle application. leading port in port projects Additionally,

Group extends second X for signed Group. Gen leading to quarter conglomerate started countries, JBM main technology for JBM. and of more X,XXX delivery XX units also ampere-hour purchase a general XX Indian the supplier of lithium a in across for May bus OEM We locations our is Microvast The presently than pack with operations XX year. with the represents agreement global automotive JBM next in and

battery new and our substantially our bus an which Early for new of during ampere-hour Iveco increased customers, their announced We X. Slide XX.X quarter. platforms. for pack, backlog to Group, contract power year, intercity the low-entry will Turning one we this city crossway initial largest a

providing is a with equipment are strategies multinational fuel leading industrial focus for new hybrid truck Gen on our technologies. Weichai, the X globally and we battery a high-power operating such company, with energy platform. cell and vehicles their hybrid Furthermore, Weichai

Weichai fuel Microvast with advanced is hydrogen and support product company, their for fuel REFIRE, X.X-tonne both them Microvast partnership also Gen units focused technology we product X packs. of REFIRE supplier global major in offerings, XXX our on truck to for a energy. are and of proud leading to development transition of cell is the cell is hydrogen a clean long-term their systems. batteries hybrid and equip to to with ours R&D extending our and partner over REFIRE a

in here technology opportunities up applications, business. for and benefit for our strengthen that another positive fuel is we had development Another cell European excellent quarter future references We our which building partnerships. presents

This Our revenue year-over-year from XX% ago. a up revenue year by revenue, ramp-up X% second was European projects. the the quarter in and increased total customer continuously of of our driven for accounted of growth XX% several

Iveco to deliveries, Gaussin placed addition have entering REE customers multiyear Group, multiple several contracts. and In

both Looking for the next quarter, new we to European to to technologies. our contracts customers ahead expect dedicated backlog vehicle multiyear and add commercial existing significant to

financial Financial performance turn now Webster, review I in Chief quarter. Craig to our Officer, the our will over to call the

Craig Webster

the minutes with revenue turn We QX our was as sales and results. recorded increase QX in customers the million you, from XX% OEM Growth increasing Europe financial their volumes. main $XXX.X the an $XX was XXXX. XX% volume items up in discussing China QX led strong primarily up few next X-month quarter driven deliveries XXXX period. of in QX Sascha. P&L. $XX.X XX, On production our from prior in million, year-to-date year Please Slide of increase million, million sales Thank line basis, spend another to by will by a and our strong revenue I’ll from summarize an in I $XXX.X ramp

X.X expense Our cost for XX.X% QX in XXXX XXXX mix margin QX gross noncash combination raw and share-based to to margin margin in XXXX. in gross The of adjusting gross of improvement. improved was prices. increased lower economies scale, to in improved to settled compensation material compared more X.X% percentage increase compared adjusted QX XXXX, to XX.X% a sales, product in XX.X% favorable due point a of and QX After

XXXX. $XX.X million the in QX in past the $XX.X XXXX largest to decrease decline Operating totaled to compared the in the contributor expenses few in $XX.X in the compared was quarters, expenses QX were to which $XX operating million XXXX. with Consistent expense, QX our million quarter in compensation share-based million

SBC in QX we noncash expense to XXXX increase expand SG&A, for contributor. of an adjusting headcount with in largest the $X XXXX, After our as increasing were million expenses million business adjusted million operating being $XX.X QX costs $XX.X in compared our

XXXX. a year-to-date loss net QX net changes in to loss liability, loss XXXX adjusted an basis, On million in QX to $XX.X in adjusted QX GAAP our compared X compared million million of SBC period. QX $XX in of $XX.X expense $XX.X value loss noncash adjusted loss the an million $X.X and net compared adjusting was million adjusted was year of in prior After for million XXXX. of to loss fair net month was net warrant $XX.X net XXXX in

metrics to the You most impact GAAP XX, our press end the are Slide comparable and entered the reconciliations can these non-GAAP of of in see at these tables earnings the metrics of adjustments release. in

XX revenue XXXX year compared to geographic for the our QX shows period. the breakdown of prior Slide

from and just accounted XX% for business X% customers a year European our strong ago their see, up XX% can of ramp-up. you As vehicle revenue, increase key as showed begin our a year-over-year

throughout European vehicle in XX.X growth from We especially in our to half revenues plans second cell, build amp continue line customers. the expect hour our with the for

continue our to the in this half modest second X% our gigawatt-hour we a the ESS project year-over-year, year as to U.S. we on revenue deliveries begin increased Although year. expect revenue of U.S. X.X rise

there of mentioned, after term those make is revenues hub. As some assembly impact dedicated to the ESS Mr. near recognize decision when strategic Windsor, Wu Colorado our we making a to

to to U.S. in QX comes expect to accelerate Clarksville year we ahead, next Looking as and online. revenue continue pick growth up

We Net operating cash due in XX. restricted $XX.X Huzhou, ended this in fund majority and to quarter free working flow to and program. the cash, QX cash cash million. with operating $XXX.X cash was was expenditure expansion operating million, million. net of was of in to activities the capital during Negative totaled investments from capital Slide well in million which investment loss capital. Turning used which the this The cash short-term $XX.X quarter capacity resulted $XX.X as quarter and equivalents, Clarksville our of as primarily our outflow

facilities capital to existing improvements expenditures million totaling projects. relating to have also We our and ongoing R&D $X.X

Phase of we will for year estimate the primarily expansion. used range million capital $XXX $XXX be capacity ahead, remain will Clarksville Looking to the in that expenditures our XA million full and

As report production. a remains of on track mentioned, that facility Mr. Wu Clarksville trial our we start pleased to for are QX

Microvast. Slide to of Turning We financial show you the XX. resilience

modest, very that the to you $X.X is be million $XX million of outstanding and can in debt requires only total the Our repaid maturity profile see half. second

Looking to manageable Total are very million. debt December up repayments XX further out. XXXX a $XX.X

it is any China our structure debt and this or has operations, for of All none U.S. our recourse holding of asset. to

are the financing, debt U.S. Phase the on leverage, operations. of which to expansion. by be is Turning currently and making XA secured solid the progress remain to These free we likely

that expect be in We during place QX. facility to

on year-over-year. backlog we As projects in million, was quarter The second by an Europe. in driven $XXX.X six again $XXX.X our of vehicle times commercial Slide the closed growth and first in sequential XX, up increase backlog over outlined million the quarter from once record XX% with

hour adoption fast and of [ph] accelerating XX% hour accounts solid rapid projects. years amp the sales multiple our backlog. of for of cell of the commercial expectations backlog vehicles Currently, ESS our our XX.X cell total growth over for Our and amp underpins XX.X given

XA full we potential At Slide Phase $XX million in around backlog, Turning our XA, to high our an on utilization Clarksville. anticipate per expansion Clarksville Section XXX rates has Based year. utilization on XX. IRA Phase of for

customer ability its expand, credits. the only XA if golden IRA we equipment. the we no generates which Phase if these additional have expansions. fill Phase we would we additional need self-fund IRA Clarksville monetize has If credits That’s With spare credits. generates to rule. And has expand to obtained XA, to the it early, And then capacity capacity,

path we You Slide as over are see to years. to targeting gross adjusted profitability scale we XX X the can business that range X a next and next our in XX% on the putting from year margins us

this gross to already margin We’re see expansion year. that starting

achieve through to improvement relentless automation, our levers industrialization, and utilization continued We innovation. of key expect margin

will With back Wu review over our Mr. to it that, turn I to outlook.

Yang Wu

by Slide XX. shift are visibility to beyond. to of delay be very range Even with continued year-over-year full our the in encouraged near Windsor, Craig. Please XXXX our turn our revenue to to Thanks, XX%. $XXX for $XXX greatly Colorado, increased the maintained backlog to we which term of into the and growth, guidance XX% in million, We million revenue year representing growth

we For a $XX Asia million continued as be to expect midpoint, the as our million, XX% of the commercial orders up range from QX by quarter, in as to third well in revenue projects the the driven European ramp ago of Pacific. $XX a year from customers vehicle

As into storage and to of enhance position, vehicle our commercial the expansion we backlog of in business XXXX our we our clarity propelled continue States. segment substantial half the energy second retain United by

We anticipated momentum as year robust to see that next. the demand orders and trajectories carry across into for strong customer the battery and solutions forward growth the Microvast throughout and remain globe this

production to first cell. production of we proud the in half. are Huzhou year in our half XX.X the We qualify hour ramping amp far up thus X.X of will what second the with continue Its Phase up have ramping of successfully achieved

new in assembling complete across Colorado customers ESS in our Additionally, begin to facility U.S. the solution we the succeeded made company-owned for securing country.

as to our enter our look shift ground we hit QX, to we so second bringing running the XXXX. we can Clarksville half, focus in XA trial online beginning As and production operation Phase

and we by fulfill improvement margin are new around we gross While our growth, upcoming world. execute, and excitement the as the to backlog to begin must customer orders capacity encouraged expansions continue our

this personally Microvast thank I would take and work their to to and our team moment commitment for like tireless mission. the

Microvast. results on will be continue have ability focus a advantage competitive been our for Our and to execute to and

the start session. to And back now over to the call operator Q&A I the will turn

Operator

Instructions] Our [Operator is Oppenheimer. first you. from Rusch with Please Colin question proceed. Thank

Colin Rusch

speak much for supply of from cost savings line? the how evolves to margin so key balance improvement you the Can that at chain, the much utilization how the year? of Thanks driven much. drivers the likely gross and the And by how was

Craig Webster

one. that take I’ll Colin,

mix, hour. is it’s of just Some product amp coming from which XX.X definitely more

for expect well. ramps Certainly, that in benefits quarters. see in year, up there’s prices, been the the helped going like increase, to as throughout As has that is trajectory we can you some utilization and material raw future

it’s of that also More Europe. some revenue as recognized of being And in is well. sort geographic shift

Colin Rusch

terms little contracts awards And number, from? a give That’s Day, on an gotten. look you update incremental where when the talked the super bit we those Analyst may Could the at at of which you’ve some us helpful. end at backlog that you about order and then coming of in you’re markets be

Craig Webster

Sascha, yes? then and more I’ll deal I’ll with and of color terms in of want additional in bit do the to you the – first ’XX, then backlog bit give a terms

A - Sascha Kelterborn

Colin, Craig. Sure, will. question. the I Thanks, for

So generally here, truck the right? on section. It bus commercial purely increase section. on in will This means the means the speaking vehicle, we backlog dedicated our

able doing that we were we the backlog we So due now as increased and contracts, wins the contract XX.X ampere-hour this well. and to are And of production the their start-up is see a that, existing in upcoming dedicated couple We gain significant next quarters. in already for increased rollout. European fact OEMs further to the

Craig Webster

more add context a bit as well. I’ll Colin, just

XX% saw just of amp over ramp hour, starting we’re XX.X backlog you So is up. the that that to so

us one we As utilization. to going we do margin that’s expansion with that just hit because that, that’s higher gross help

we’re year, a then And know ’XX. terms It underpins two areas numbers they’re big backlog big to look year, the again to amp ’XX, That’s year for in can challenge, planning, bigger can. see as got XX% The much of backlog. We out that this of production got of a are for. already and is we not we home a all sales as we can going the produce that’s over there, to a And And got significantly hour. already in have we’ve has than produce we backlog really comfort. the is right? and for to sales XX.X a this just that Everything based have we then as QX. on

- Rusch Q Colin

the XX.X last really landscape well been received the detail, the are cells the vehicle And guys. competitive hour amp lead market. seeing to just or for a hour start that? commercial follow other your is lot OEMs – batteries? evolving Are seeing for by me have you for you Thanks then Excellent. how one the on Obviously,

Sascha Kelterborn

good question, a Colin. That’s

of important not OEMs XX.X, their future cost calculation. the products that total adopting of a leading producing these cell are ours, see this we So ownership only of clearly life are role and we one and fast-charging but is see They of the further advantage technologies. plays very cycle and the this for capability,

So most I vehicle and in on QX commercial XX.X especially side. will further some – very report on about the QX the updates next likely nice the in –

we So process you of these are in there, will getting the things that ahead. moved right now see

see Europe, can demand, see can on – up only the but as slides, in also XX.X in we that our with you And interesting rising not JBM also you have is India.

not only dedicated XX.X. are they but also So they are moving to ampere, toward XX

up So in commercial technology general. us role application. for major vehicle plays it’s the picking in a The

the But which on side, will a cell, same cell talked the we also also is same play LBC standard, we have about. which XX, role, the fuel especially big which

this increasing will the commercial also will So more – we demand topic vehicle side. see be a where will which on

Colin Rusch

take some have much, that, guys. Thanks but off-line. I’ll on I it so clarification

Sascha Kelterborn

Okay.

Operator

from Wainwright. H.C. Please Dayal Our with Amit proceed. question next is

Amit Dayal

like to XQ. everyone. Thank With margins? quarter next you performance of margin from impact afternoon, respect sort you. have that out looks Good some for been the pushed gross Will to outlook, margin guys, revenues it XQ

Craig Webster

what only we it because There’s lot of don’t Amit. we some revenue China is in or hour. amp little backlog for pushout an that for recover whether customer, XX.X strong ramping to see super up a energy it’s is And And going going include we’re China. a of commercial That what bit of always is next as make QX be Hi, a can that. storage quarters, up year. previous to It’s be vehicle you from could revenues. chance

to So little bit not impact going pushing a margins. out is

Amit Dayal

for of for that. this for Thank is operating execution continue side, to be good the come Craig, terms I QX? through. expense what then And the sort to total it’s mean the we see the Okay. OpEx, in of will you saw we on front where that of rest on year,

Craig Webster

so some probably increase happen to are going not sales I like on R&D you to the very around close we’re is we can that. doubling G&A manageable. where side, in will have significantly – What is, is throughout from we revenues as expense mean, going QX, to get expense particularly more year. sales today

that we’ve think before this and trying of target. sort manage XX it’s in still cash guided you I is where the year we’re OpEx, to to around XX

improve think the place that’s increasing to so focused we’ve all just we’ll in yields. on, And to going yields, we’ll see got I much What infrastructure deliver be improve of as impact just I we is QX, don’t these improving like really, margin. margins And QX revenue, impact.

Amit Dayal

Okay. Thank you.

Just side you one the that last separator offering? updates expectations maybe. time on with one Any for are respect for me how setting to line

Craig Webster

right was just start, out first the at What broke on? the You bit Amit.

Amit Dayal

for update to line separator bringing the Post the to Any the have product. quarter, see time commercialization. for changed. on product line market For wanted might time developments just the how last the

Yang Wu

China, right focusing factory production meter are a the in now, This Yang cell line. planning we and first, And still years. million to in we Wu. want build sample make the on XX [indiscernible] square later bigger small to is We separator are

Amit Dayal

Okay. That’s all. you. Thank

Operator

Please with Sean proceed. Milligan from Janney. next question Our is

Sean Milligan

guys. quarter was I for thanks Nice taking in. back to of my kind questions. and Hey, Craig, trying

gave million. total $XXX of backlog You a

think said XX.X and backlogs, having cells. contracted about $XXX of you hour talked China XX% the volumes, like amp You I then million

backlog Just at have Clarksville much like this you how point? can for you clarify like

Craig Webster

Okay.

you in – there’s have just misspoke, might might backlog have China very but – I the there. for got – little So

more So a short-term market. China much is

and this amp Europe XX.X the is backlog, of XX-XX the So is U.S. XX% over hour. it’s roughly is and right? Backlog – split then about China So with beauty market, the XX% is – for balance

we storage at like The the is is have U.S. But the Clarksville only for backlog from way now, an customer, look produce energy Huzhou. can production could whatever we we come right that for

is amp come available. that what’s coming So all your Does because Huzhou this hour XX.X from cell year question? that’s answer production

Sean Milligan

than just And helpful. output year Clarksville for per think. that’s a Phase assembly units talked Like trying you right? that that’s in I’m like so Yes, manufacturing because about the to you’ll or XB the above preparation of then X,XXX have, – is it’s facility. for container more

Craig Webster

Sean, easy IRA, XA excluding it good suppose about the Phase be to XB $X roughly XA Yes. the million. I way No, – Phase is about is would like a be is about think year be a another same, to would X,XXX million. going $XXX billion $XXX revenue. Phase question. containers in is

sized beauty XB. the Windsor, So for is that – about Phase XA and it’s the Phase is this the

Sean Milligan

it. scale content they’re clarity? in terms Okay. if orders in guess of question customers there? some That’s But really what are utility firm one the Like timing larger the in of helpful. And waiting can revision like then you projects, I for waiting on storage your domestic to put you of terms last you are telling additional take what

Yang Wu

waiting not we’re Actually, for.

are possible. to as right the so as what make, more a is to We problem capacity increase good have. than purchase working now, it’s can we much the and order And hard

Sean Milligan

you, Thank guys great. and quarter. nice Okay,

Yang Wu

Sean. Thanks a lot,

Operator

to come at turn Rodney There to that like have are more address over phone would the call I in back time. questions e-mail. to questions no this via

Rodney Worthen

take Thank for happening where growth, to the backlog the like more is and questions from can management color the the relation you, bit a backlog you from of onto just what We’d online you here? team. In see to operator. couple a going give

Craig Webster

both. It’s customers is strong. Well, Okay. vehicle commercial demand super from

Sascha, what we’ve soon which to to then utilization we it’s And then high commercial in Sascha be is can that bit customers, on as on a that. we and is fund got cash backlog – booked, take expectation expansion Clarksville the the is we’ve sales, XA already. to needed. early, orders, available ’XX running. that storage and energy prepayment. just ’XX think else got comes then customers mentioned, than to additional get our want based vehicle want use And capacity more can And capacity add have Wu Like as U.S., that anything as to that I a touch as on do of we super book you Yang like capacity out it’s growth? more going

Sascha Kelterborn

Yes.

Craig, Let me add thanks three a things. lot.

other general, Taiwan. like in in gaining Korea, are South volumes markets So we also further

backlog We’re India. in increasing our

increasing we projects, commercial further for So – are on onwards Europe. backlog side ’XX, dedicated are which ’XX to also in vehicle with

similar what we we the is into development that And prototype are and clearly the Europe, more more see getting to orders of U.S.

So also here, we will see over backlog ’XX, ’XX upcoming increases. for the further

side, customers, electrification are Also technology commercial we the they the on as the to moving vehicle today winning we XX.X. which Europe and they’re already U.S. using are that with have see European the projects, same what their using well

taking are to technology U.S. market. they So the also that

Rodney Worthen

right. the to that’s I’ll it over operator. And it. turn back All

Operator

the will question-and-answer you. the conclude Mr. I for would to to conference back Wu This turn session. Thank over like closing remarks.

Yang Wu

– Thank of all. for guys with everybody more I your Thank Microvast think hope And you time. Thank your you you you beautiful today. you. Thank all us joining dreams.

Operator

conference. today’s conclude will This you. Thank

lines You may and disconnect this time, your participation. for your at thank you

Microvast (MVST) 7 Aug 232023 Q2 Earnings call transcript