CBAK Energy Technology Q4 2022 Earnings Call Transcript

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April 11, 2023

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Seabag Energy Technologies 4th Quarter and Full Year 2022 Earnings Conference Call. Currently, all participants are in listen only mode. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time.

Operator

Now I'll turn the call over to Terry Lee, Investor Relations Director of SeaVac Energy. Mr. Lee, please proceed.

Speaker 1

Thank you, operator, and hello, everyone. Welcome to CPAC Energy's 4th quarter and full year 2022 earnings conference call. Joining us today are Mr. Yun Fei Li, our Chief Executive Officer Mrs. Yuna Pei, our Interim Chief Financial Officer Mr.

Speaker 1

Xiujun Tian, our General Engineer and Jennifer, our interpreter. We released results earlier today. The press release is available on the company's IR website at ir. Cdebac.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.

Speaker 1

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.

Speaker 1

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 as a basis 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.

Speaker 1

With that, let me now turn the call over to our CEO, Mr. Yun Fei Li. Mr. Li will speak in Chinese, and I will translate his comments into English. Go ahead, Mr.

Speaker 1

Sedi. Please Thank you, and hello, everyone. Thank you for joining our earnings conference call today. We have just released the financial report for Q4 and the full year of 2022. We are proud to present to our shareholders and investors the tremendous growth we have achieved in sales revenues.

Speaker 1

The company's revenue has grown by 3.7x from $52,67,000,000 in 2021 to $249,000,000 in 2022, which is a remarkable achievement. Thanks to the continuous trust and support from our major clients as well as the success we have achieved in expanding our overseas markets, our Battery business has grown rapidly. In 2022, the annual revenue of our Battery segment reached approximately RMB94.72 million, a remarkable increase of 1.76 times year on year. In our previous announcements, we mentioned receiving orders from various important clients, some of whom we could not name due to confidentiality reasons. However, the fact that our revenue has increased by almost 4 times indicates the long term trust and satisfaction of these clients with our products and services.

Speaker 1

In fact, the order amount from these previously announced clients is still growing. In this conference call, I will provide an update on these clients. Currently, we are actively expanding our production capacity to meet the high demand in our industry. I will also update our shareholders and investors on the construction stages of our new factory in Nanjing. Firstly, let me update the total amount of orders awaiting delivery in our company.

Speaker 1

As of March 31 this year, the 3 main production bases located in Dalian, Nanjing and Shaoxing have received orders totaling approximately one $180,000,000 that are yet to be delivered. This backlog of orders will support the company's high revenue growth in the future. We have reasons to hold a highly optimistic forecast for the sales performance in 2023. In fact, due to the hot market demand, some of our products have been in short supply for a very long time. This is why we are actively expanding the company's production capacity.

Speaker 1

In May 2022, we announced that we received orders from a leading European provider of heating, cooling and renewable energy systems. With over a century of history and more than 14,000 employees globally, this client is currently our largest customer. As of December 31, 2022, their order amount has reached €72,410,000 equivalent to $78,850,000 We have been in talks with this client since 2018 and after an extensive period of negotiations and supply chain due diligence. They have placed high value orders since 2022 and agree on further collaboration with us in 2023. We anticipate that they will place even larger orders this year.

Speaker 1

In order to protect our key client information and due to the intense competition in the new energy market, we have chosen not to review their identity at this time. Nevertheless, the significant increase in our revenue is consistent with the order amount we announced from this client. We will disclose the name when the time is right in the future. In addition to the rapid growth in the energy storage sector, we are also actively developing customers in the EV and LEV fields. In 2022, we signed a framework agreement with the world's largest light electric vehicle manufacturer, Jinpeng Group, and its affiliated company, G Mail.

Speaker 1

As of December 31, 2022, Jinpeng Group and Gmail have placed orders worth of approximately $7,000,000 At the same time, our 32,140 batteries have also been applied to Jinkpeng Group's electric vehicles, which is very helpful to the company's future expansion in the electric vehicle market. Our cooperation with Kingpin Group is still continuing and it is expected that the total amount of orders received from this customer will continue to increase in the future. Besides, with respect to our cooperation with Diehut Motors, which is a subsidiary under Toyota, We had supply battery pack products worth of about RMB2.7 million in 2022. In February this year, the project team from Black Hat Motors paid a visit to our Nanjing factory to see our production line. Our management team communicated with the visitors about our future collaboration.

Speaker 1

We expect to see the order amount continue growing in the near future. The company has made significant progress in terms of customer development in addition to maintaining a stable partnership with our major European client in the energy storage business. We also managed to form partnerships with major players in the electric vehicle and light electric vehicle markets. Besides, the company is supplying products to several other internationally renowned clients, and we will announce this cooperation and corresponding order amounts to the capital market when it is appropriate. The company maintains an optimistic outlook for 2023.

Speaker 1

As mentioned earlier, the company's current production line is in high demand. In 2020, we partnered with the local government in Nanjing to launch our Nanjing project. By the end of 2021, the first phase of our Nanjing project was successfully put into operation. We are now adding more production lines to the first phase and expect to achieve a production capacity of 2 gigawatt hour by 2023. In 2022, we started the construction of the 2nd phase.

Speaker 1

Currently, the steel framework and infrastructure construction of the 2nd phase have been completed. We expect to complete the 1st stage construction and achieve a production capacity of approximately 6 gigawatt hour by 2023 to 2024 and then add another capacity of 6 gigawatt hour annually until the total production capacity of the second phase, which is 18 gigawatt hour. After the conviction of the second phase construction, the company will have a production capacity of up to 20 gigawatt hours in Nanjing. Together with our mature Darling base, we believe that the capacity by then is expected to meet the demands of the vast majority of customer orders. On our R and D efforts, we currently focus on sodium ion batteries.

Speaker 1

Sodium ion batteries have become a highly contested market in China, drawing interest from a variety of leading lithium battery producers. A few leading firms have released their own sodium ion battery products. Our company has recently completed their test production of 26,700 and 32,140 sodium ion batteries with expected formal product release and sales by the end of this year. By then, we will be among the earliest companies worldwide to mass produce sodium batteries, given the immense potential of sodium ion batteries to be widely applied in light electric vehicles, energy storage solutions and beyond, Sodium battery products are expected to quickly establish a market sizable of at least 100 of 1,000,000,000 of RMB or tens of 1,000,000,000 of dollars in the near future, thus becoming a supplement to the lithium battery market. We encourage our shareholders and investors to maintain your attention on our company and upcoming launch of our sodium ion battery product.

Speaker 1

In 2022, the company has made significant progress in both research and development and sales. Our sales revenue increased by 3.7 times and we will become one of the earliest companies in the market to achieve mass production of sodium batteries. Currently, the company has a huge amount of orders waiting to be delivered. We also manages to maintain a good relationship with our major European customer, and we are also supplying products to several internationally renowned clients. Relevant information will be released at an appropriate time.

Speaker 1

The price of lithium carbonate, a key raw material skyrocketed in the most of 2022 by about 300%, which affects our profitability. However, along with the new capacity put into use by each raw material producer, the price of lithium carbonate declines quickly. We believe that a quick decrease of raw material price will help us increase profits this year. The successful market development decline of raw materials price and unveiling of our sodium base foods together give us sufficient reasons to be optimistic about our financial performance in 2023. Now let me turn the call over to our interim CFO, Yuna Pei, who will provide details on our financial performance.

Speaker 2

Okay. Thank you, Mr. Li, and thank you everyone for joining our call today. I will now go over our key financial results for the Q4 and the full year of 2022. For the full details of our financial results, please refer to our earnings press release.

Speaker 2

We continued to maintain a strong momentum in the increase of sales of our battery and battery material products. As mentioned by the industry's high cost of raw materials and the need to invest in and expand our capacity in the profits. However, with big clients making orders and price of raw materials declining in this year, we are very confident in the future growth of our profits. In 2022, our revenues and the gross profits grew reflecting the successful of our marketing strategies. We increased significantly our investments in research and development to both develop new large cylindrical laser battery and the sodium battery products.

Speaker 2

Meanwhile, we managed to slightly reduce our sales and marketing expenses and the general and administrative expenses to increase our sales revenues, while to reduce our related expenses will be helpful in the long run to deliver a better financial result. Moving on to our results. In the 4th quarter, our net revenue surged by 95.9 percent to $54,400,000 from the same period of 2021. In the full year, our net revenues grew by 372 percent to 2 100 and $48,700,000 The significant growth in our revenues was contributed by several factors. 1st, on the EV market, our product has improved features at higher quality, which become more attractive to EV manufacturers.

Speaker 2

Besides, the down speed market for electric vehicles continues to grow in 2022, leading to an increase in demand for EV battery products. On the LED market. Thanks to a huge increase in market demand. We successfully sell more batteries to LED manufacturers. More importantly, our large cylindrical lithium battery 32,140 batteries have gradually been accepted by key players in the EV and our EV markets, leading to the significant growth.

Speaker 2

On the energy storage market, the increase in sales of batteries for air interruptible supplies in 2022 can be attributed to a combination of factors, including growing demand for renewable energy sources and our development of reliable products. Additionally, our focus on research and development has allowed us to develop innovative and reliable energy storage products at a competitive pricing As we continue to invest in R and D and improve our product offerings, we expect it to remain later in the energy storage industry and see continued growth in sales. Cost of revenues was US50.7 million dollars in the 4th quarter, up by 89% from the same period in the previous year. Cost of revenues for 2022 was $230,600,000 up by 384.9 percent from 2021. The increase in our cost of revenues was in line with the increase of net revenues.

Speaker 2

Gross profit was US3.78 million dollars in the 4th quarter, representing an increase of 263% from the same period in the prior year. Gross profit for 2022 was US18.1 million dollars representing an increase of 254.1 percent from 2021. Gross margin was 6.7% from 4th quarter and 7.3% for 2022 compared with 3.75% 9.7% in the same period of 2021. Gross profit margins slightly decreased in 2022, largely due to increasing price of battery raw materials in the year. Along with the decline of raw material price from 2023, Our gross profit margin will recover and increase this year.

Speaker 2

Our operating expenses rose by 84.7 percent to $12,600,000 for 4th quarter and 75.9 percent to 29,000,000 dollars for 2022. The increase in operating expenses in 2022 was primarily due to our commitment to increase our investments in the research and development efforts and the impairment charge on hedges property, plant and equipment as well as goodwill. Within that, our research and development expenses increased by 36.7 percent to $2,600,000 for the Q4 and by 101.6 Percent TO $10,600,000 for 2022. Sales and marketing expenses decreased by 12.8 percent to US2 $1,000,000 for 2022. And the general and administration expenses decreased by 24 0.3% to $3,800,000 for the Q4 and by $2,900,000 to $9,700,000 for 2022.

Speaker 2

Even with the increase in R and D investments and the occurrence of impairment charges, our operating expenses were held only 11.9% relative to our revenues in 2022 compared with 31.9% in the same period of 2021. Our operating loss in the 4th quarter was $8,800,000 increased by 52.6 percent from the same period of 2021. Operating loss in 2022 was $11,500,000 reduced by 1 point 8% from $11,700,000 in 2021. Our change in fair value of warrants in 4th quarter was $1,000,000 decreased by 78% from the same period of 2021. The change in fair value of warrants for 2022 was $5,700,000 compared to $61,000,000 in the prior year.

Speaker 2

Thus we recorded a net loss attributable to shareholders of Freebak Energy of $10,700,000 for the 4th quarter compared to net income attributable to shareholders of Seabas Energy of 9.1 $6,000,000 The net loss attributable to shareholders of Free Bank Energy was RMB 9,450,000 for 2022 compared to net income attributable to shareholders of US61.49 million dollars in 2021. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. First question comes from the line of Tianxia from IBM. Please ask your question, Tian.

Speaker 3

So the first question is from IBM. I am glad to see the rapid growth of the company's revenue and I've also noticed that the company suffered from some losses in profits. Can you give us more details in this regard? The management also mentioned that there has been a significant decrease in raw material prices. And do you think the company will be able to control its production cost in 2023?

Speaker 2

So, thank you for

Speaker 3

your question. And according to our report we made just now, in 2022, due to the price fluctuation in lithium carbonate, that is one of the key raw materials of our products. The gross margin of our company witnessed a decline compared to the figure in 2021. And on the other hand, if we have a look at the operation expenses of our company, we can see that we increased a lot in our input in the R and D. In 2022, our investment in R and D amounted to 100 and $6,300,000 It's almost it's more than double that of the amount of 2021.

Speaker 3

And this sector also leads to a reduction in our profit. And in the future, we will still be committed to the continuous input in the R and D in our high quality battery products, so as to maintain a leading prediction in the industry. And on the other hand, we have been committed to the optimization of our production processes with an aim to reduce the production cost. And in addition, we also make our efforts in improving the management structure so as to improve the operation efficiency. So if you have a look at the specific figures of 2022, our revenue realized a 3.7 fold of increase.

Speaker 3

And if we have a look at the operations loss, actually it shrinks to some extent by 1.8%. So if we have a look at 2023 with the price of raw material returning to a normal level and also with the optimization of our management structure, we believe that our profitability will be further increased.

Speaker 2

That's it.

Speaker 3

Okay. Thank you for your question. And I have sorry, thank you for your answer. And I have another question. Just now the senior management spoke of sodium battery.

Speaker 3

Can you walk us through the application scenarios and the market size of sodium battery? In particular, can you give us an update on its popularity in the Chinese market? Is the company currently in a leading prediction in sodium batteries? Thank you. Okay.

Speaker 3

So this is a very good question. First of all, I'd like to answer the question about the popularity of sodium battery in the Chinese market. In the past 3 years, we all noticed that the price of lithium ion battery fluctuated a lot and the and it is mainly because of the fluctuation of the lithium carbonate. It increased multi folds in the past 3 years. And actually, this kind of fluctuation in price exerted a negative impact in the markets.

Speaker 3

However, if we have a look at sodium battery, on the one hand, it enjoys a more stable price and on the other hand, it is easier to assess. It has a better accessibility. In big sized that its performance in low temperature condition is also superior that will be that makes it a good product to be used in vehicles, especially in winter when the temperature is low. We can say that its performance is even better than the lithium battery in the low temperature condition. So given the low price and the stability in price, we believe that the popularity of sodium battery will even grow in the market in the future.

Speaker 3

So we expect a $1,000,000,000 market size for sodium battery. And in addition, the decline in the popularity of lithium battery will also, in another hand only another hand create a market opportunity for sodium battery and we expect the market to further expand in the future. And if you ask me about the development status of sodium battery in our company, while we have already finished 3 generation of development and we have sodium battery projects such as the 26,700 and 32,140. And for the latter one, we have already come up with products that is 130 watts per kilogram. And we have already cooperated with our parts now to put these products on the vehicle and in the coming future we're going to promote the mass production of these products and we'll use them more and more in the vehicles.

Speaker 3

That's it for the answer. Thank you for your question again.

Operator

All right. Thank you. We have a follow-up question from the line of Tian Xia. Please ask your question Tian.

Speaker 3

Okay. Thank you for answering Bastille. I have another two questions. The first one, the company has experienced significant revenue growth in both EV and LEV sector? And since most of the company's revenue still comes from the energy storage business, Will EB and LEB continue to grow rapidly in the future, especially after sodium battery is put into mass production.

Speaker 2

Okay. The question goes

Speaker 3

to Mr. Li. Okay. Yes. So yes, you're right.

Speaker 3

You mentioned that most of the revenue comes from energy storage. And what is the reason behind it? If you have a look at the products of a product that is manufactured in Dalian plant, that is our product 26,65026,700, yes, you're right. The sales in the sales revenue, the energy storage does pick up a large proportion. However, if we have a look at the Nanjing facility, it is the plant that mainly produced 3Q140 and this product has been mass produced until last year.

Speaker 3

A lot of OEM companies are still doing the certification at the moment. However, our sales have already amounted to US15 1,000,000 dollars already. So and after the vehicle manufacturers passed the certification and after the increase of our production capacity, let's say, at the second half of this year, we believe that our production capacity will better meet the demand of the customers, and they will place more order with us. So we will better supply our LEB and EV customers in the second half of the year. So we have the reason to believe the sales volume of LEB and EV in the LEB and EV markets will continue to grow.

Speaker 3

And if you talk about the impact of when not a sodium battery put into production, well, The priority of our business this year is to do R and D and production, and we will also send samples to our customer and help them to pass the certification. And then for next year, we believe that more of our projects will be put into mass production and they will be put in the vehicles. So that's the answer to question number 3. You said you have another question, right? Yes.

Speaker 3

In the previous several conference calls, the company mentioned that it is developing larger cylindrical batteries. Is there any information about the development progress that can be shared with investors? Yes, indeed. In the past 2 years, we have been doubling our efforts in the development of large cylindrical batteries, especially the 46 series. We have already finished the prototype A design and trial production and trial and shakedown test.

Speaker 3

And then the test results indicate that this prototype can reach the design objective. And then now we have finished the prototype B in terms of we have already finished the mold development and now we are in the process of developing the manufacturing process and we expect that it will be put into mass production in the near future. And we at the same time, we have been also developing other products under this 40 six series, for example, 120. And then for there were 2 other sites that is 50 volt and 100. I would believe that these 2 types of products will be a very suitable project for the household energy storage.

Speaker 3

This is seen to be the golden dimension, golden size for household energy storage and will also present a better price performance ratio, it is even more superior than those products with a big market share at present. So we believe that this product will enjoy a great a promising future. That's it for the answer. Thank you. Okay.

Speaker 3

Now I have finished all my questions. Thanks a lot for the answers.

Operator

Thank you. Our next question comes from the line of Steve Scholes from Aegis. Please ask your question, please.

Speaker 1

Congratulations to your immense revenue growth. Regarding the current liabilities and the negative cash flow in the past years, do you believe there will ever be serious liquidity issues in the near future, the cost of revenue does not come down?

Speaker 3

So thank you for your question. We can answer this question from two dimensions. First of all, if we have a look at the operation cash flow, actually the cash flow brought by our product with our production capacity is sufficient. Or we can say the cash brought by our existing business is sufficient. Both last year and this year, we have carried out the calculation And we according to the results of the calculation, the revenue booked by both the battery business and the material business can sufficiently support our cash flow.

Speaker 3

And then if and on the other hand, if we have a look at the expansion of our production capacity, we actually have some revenue of financial support coming from different sources. The first one is the local government where our production facilities are based in. Actually, we have gained great support from the local government. They give us some policy incentives to support us. And secondly, we also gained support from the banks in China.

Speaker 3

And thirdly, in the U. S. Capital markets, both the domestic investors and overseas investors expressed their great interest in our products. And now we are having a lot of talks with them and we believe they can also give us supplies in sorry, support in the financial in finance. That's it for the answer.

Speaker 3

Thank you for your question again.

Operator

Thank you, please. Do you have any follow-up question? All right. Seeing no further questions in the queue, let me turn the call back to Mr. Yun Fei Li for closing remarks.

Speaker 1

Thank you, operator, and thank you all for participating on 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.

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