CBAK Energy Technology, Inc. (NASDAQ:CBAT) Q3 2023 Earnings Call Transcript

CBAK Energy Technology, Inc. (NASDAQ:CBAT) Q3 2023 Earnings Call Transcript November 9, 2023

CBAK Energy Technology, Inc. beats earnings expectations. Reported EPS is $0.07046, expectations were $-0.03.

Operator: Good day, ladies and gentlemen. Thank you for standing by. And welcome to CBAT Energy Technology’s Third Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. 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.

Thierry Li: Thank you, operator. And hello, everyone. Welcome to CBAT Energy’s third quarter of 2023 earnings conference call. Joining us today are Mr. Yunfei Li, Chief Executive Officer of CBAT 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.cbat.com.cn, as well as from newswire services. A replay 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 US 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 US 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.

Yunfei Li: [Foreign Language] Thank you. And hello, everyone. Thank you for joining our earnings conference call today. [Foreign Language] 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, soaring by 71.51% year-over-year. Compared to the operating loss recorded in the same period last year during this quarter, we delivered on operating income of $7.58 million, a net income of $7.77 million, which was 6.3 times that of the same period last year. Of these revenues $42.81 million came from batteries using energy storge applications, a surge of 73.5% year-over-year , while $0.4 million came from batteries used in electric vehicles, an increase of 19.5 times year-over-year.

Moreover, revenues from batteries using light electric vehicles were $1.11 million, down 2.8% year-over-year. For the first nine 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 US. 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 record growth and profitability amidst the current macro economy environment. Our remarkable performance have garnered substantial interest from equity investors who have reached out to us regarding our latest developments. [Foreign Language] 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 RMB900 million in the combined value of orders we have received but have yet to fulfill across our two main battery production facilities based in Dalian and Nanjing. Currently, orders for the Dalian facility have been scheduled toward 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. [Foreign Language] Regarding client initiatives already announced, as of November the 1st, 2023, our collaboration with PowerOak, the world’s leading portable power station manufacturer and parent company of top rated portable power supply brand, BlueTTI, has provided us more than totaling around RMB43.2 million. We also made great strides in our partnership with JinPeng Group, the largest manufacturer of scooters and electric tricycles worldwide generating orders amounting to roughly RMB63.59 million. In addition, I want to highlight our continued initiatives with Viessmann Group, a leading European manufacturer of heating and cooling systems.

Our productive collaborations has translated into orders totaling up to EUR116.5 million from the beginning of 2023 to November the 1st. Another major partner of ours is Anker Innovations, one of the largest third-party accessory suppliers globally for Apple Incorporated’s products. Following our signing in September, we have received orders from Anker Innovations amounting to RMB58.35 million. It is understood that Anker Innovations will spur significant demand for our batteries and is expected to place monthly orders on a continued basis. Furthermore, I want to highlight the fact that we have been into discussions regarding various operations including providing products and posts with several major customers from Europe and the US. We will keep our investors informed of any significant updates.

A close up image of a technician changing a battery cell in a lithium-based battery.

[Foreign Language] With a focus on meeting prime clients with scale about 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 one gigawatt hour. Our subsidiary Dalian CBAK power is currently engaged in the development of model 46115 and model 46157 lithium batteries, which are new to the market and larger than the current market favorite model 46800 with higher energy density and an extended lifespan, these new models are ideal for large-scale energy storage scenarios. Our R&D team is diligently driving these initiatives forward and we expect to have the capacity to mass produce the model 46115 batteries next year. In the long-term plans, 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 six gigawatt hours of production capacity in the first stage. And we expect this production to have ability to be delivered fully equipped and operational soon. Hence I wish to highlight that we will have great to offer long capacity next year to address the current overwhelming current demand. We will elevate our production expectancy and further propel top line growth. [Foreign Language] Finally, and importantly, let me walk you through our mass production of sodium ion batteries. As the only company in China capable of mass producing sodium ion batteries, we have engaged in extensive discussions with multiple investors on building a sodium ion battery plant.

In the near future, we expect to finalize a substantial amount of private equity financing to expertise the development of our sodium ion battery plant with the target production capacity of 10 gigawatt hours with the accelerated industrial adoption of sodium ion batteries, we believe it will become a pivotal focus across various sub-sectors such as electric scooters, low speed vehicles, energy storage power stations and household energy storage solutions. Looking ahead, the company will be empowered by a twin engine growth model, an impressive 36 gigawatt hour production capacity of lithium batteries and a remarkable 10 gigawatt hour production capacity of sodium ion batteries matrix. We look forward to collaborating with our investors and partners to advance the evolution of the new energy structure and environmental protection technologies.

[Foreign Language] Now, let me turn the call over to our CFO, Thierry Li who will provide details on our financial performance.

Thierry Li: 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 ongoing 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 cost of revenues as we further leveraged our technology to improve production efficiency. Alongside 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 battery 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 were $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 million for the same period of 2022. That concludes our prepared remarks. Let’s now open the call for questions. Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Brian Lantier with Zacks. Small Cap Research. You may proceed.

Brian Lantier : Good afternoon, gentlemen. Really impressive performance in light of a challenging operating environment. If I could drill down a little bit more on the power in the – on 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 another question after that.

Yunfei Li: [Foreign Language] Okay. 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 of Dalian and Nanjing have substantially increased their orders. And that also lead to the growth of our sales volume and because 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 models 321400, that 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 big show mass production.

And we also believe that this will all 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 26 series of products. So we also believe that this will bring in more sales volumes in the future.

Brian Lantier : Great. Thank you so much for all of that. And could I, 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’s something you’re still exploring? Or I guess, just an overall general update on the raw material business and where that stands today?

Yunfei Li: [Foreign Language] Okay, 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 declines in sales volume same adheres to Hitrans solid raw material units, but Hitrans actually has a very, very decent and good kind of structure subsidiaries from CHL is also their kind. So we believe that once the industry recovers, Hitrans will improve their financial performance sharply. And moreover, we didn’t actually integrate Hitrans business into our battery business. We act on the as a financial investors. Their team is completely independent from our team. That’s why in our Form 10-Q and in our press release, we always separate the financial performance from Hitrans from our battery business.

That’s much more reasonable. So, as you can say, as you can say there are a lot of investors getting interested in Hitrans and we believe that once industry recovers, 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 Hitrans for the purpose of funding them and to expand their capacity and also to see we’ll be able to get with you from more of those investors. Great. Thank you so much.

Operator: Thank you. [Operator Instructions] Our next question comes from [Indiscernible] with TPG. You may proceed.

Unidentified Analyst: [Foreign Language] Okay. So I would like to pose a question concerning the sodium ion batteries. I’d like you know just in your speech, you mentioned that you have all have been engaged in the preparation and the construction of sodium ion battery. And I’d like to know if you can give us more update about the technology that the company has with the sodium ion battery. And if we talk about the project investment in segmentation stage, at what stage is this project getting progressed? Could you give me also another update?

Yunfei Li: [Foreign Language] Okay. Okay. So, in response to first question we aim for sodium ion battery in June this year, we released the first sodium ion battery product. And this is, we can say that in China, we are the first company to realize the mass production of the sodium ion battery. And although in the markets, 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 – we also achieved installation of this sodium iron battery in the vehicle. And in fact, to not to be really satisfactory and for our battery products, it can realize 2000 to even more than 3,000 rounds.

So we can say, we have already have a stable product system in place. And talking about the production line construction, where we can say our company and our products is very popular in the markets, there were some other competitors. But they are only at the very early stage. For example, they only have startup teams or they only have some samples. However, for us, for our company CBAK have managed to come up with product with 0.5 gigawatts and the production capacity will be extended in the future. So at present, four partners have approached us and we are trying to select one – one place, what we can say for local governments have approached this is – we are going to select one place for the construction of the production line and we’re trying to select the best from the four.

And then in the next year, we have even going to expand our production capacity to be as high as 10 gigawats. And in that case, it will put us in a better position to cater to the demand of our customers. [Foreign Language]

Unidentified Analyst: And in your introduction, you mentioned about – you mentioned that CBAK has become a business partner of Anker Innovation and we’d like to know how big of the order volume of Anker will be? And could you also share with us your expectation for your partnership with Anker?

Yunfei Li: [Foreign Language] So at present Anker has already finished the opening of models here with our factory and seven to eight products of Anker will use our battery. And actually they started their pilot production here and the results turned out to be great. That is why we are excited to export further to Europe, United States, Japan and India. And we already have been in depth communication with Anker talking about future cooperation and talking about deepen our future of cooperation. And because that, if we have a look at the exception for the order volumes, at present it’s about 500,000 items with a order value of about RMB20 million. And in the future, it will be increased to – it’s expected to be increased to 800,000 to 1.2 million items. And that is with an order value of about RMB14 million.

Operator: Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Yunfei Li for closing remarks.

Yunfei Li : [Foreign Language] 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.

Operator: Thank you all again. This concludes the call. You may now disconnect.