Kandi Technologies Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Kandi Technologies Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kiwa Lau, Investor Relations Director.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator. Hello, everyone. Thank you all for joining us today on our conference call to discuss Kandi's results for the Q2 2023. Earlier today, we issued a press release covering the results. You can find the press release on the company's website as well as from newswire services.

Speaker 1

On the call with me today are Mr. Xiaoming Hu, Chairman of the Board Doctor. Xueqing Dong, Chief Executive Officer and Mr. Allen Lane, Chief Financial Officer. Mr.

Speaker 1

Dong will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q and A session. 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.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.

Speaker 1

S. Dollars. With that, let me now turn the call over to our CEO, Doctor. Dong. Please go ahead.

Speaker 1

Hello, everyone. I'm Xueqing Dong, CEO of Kandi Technologies. Welcome to our conference call today. I'm pleased to present the key results of our 2nd quarter. During this period, our sales revenue soared to US36 $1,000,000 showcasing an impressive growth rate of over 70% compared to the same period last year.

Speaker 1

This remarkable achievement is a direct result of our wavering efforts and dedication we have put into product transformation over the past few years. Our exciting journey led us to develop a series of cutting edge all electric off road all terrain vehicles from using auto technology, which played a pivotal role in driving continued sales growth. In the Q2, our net profit reached a significant US4.4 million dollars turning losses into gains, demonstrating that we have achieved significant success in overcoming the challenges of the past few years. The achievement is a result of our commitment to optimizing our product mix and targeting higher profit and fast growing categories, while keeping a close eye on our customers' changing demand. Furthermore, as of June 30, 2023, we had a robust cash balance of over US230 $1,000,000 giving us the confidence to tackle challenges and seize opportunity.

Speaker 1

Moving forward, we will continue to strive and innovate to meet customer demand, steadily advancing on the path of sustained success. I want to express my gratitude to all of you for your unwavering support and dedication to our shared vision. Thanks again. Now we will move on to the Q and A session. Chairman Hu Xiaoming and I will answer your questions and Ms.

Speaker 1

Kiwa and Mr. Allen will provide translation for English questions. Please go ahead and ask your questions. Operator, please go ahead.

Operator

At this time, we'll be conducting a question and answer session. Our first question comes from Frank Blatterman. Please proceed with your question.

Speaker 2

Yes. And good evening to those of you in China and a good morning to those of you in the United States and Europe. I actually have 2 very short questions. The last authorization to buy back shares expired at the end of December past. Has the company submitted the paperwork for another buyback?

Speaker 2

And if not, is it under active consideration? Go ahead,

Speaker 3

So thank you for your questions. The company currently has no further plan for the buyback transactions. Our goal ultimately is to strengthen the fundamental of the company and create the largest value for the shareholders. As for the stock price, we believe that once the company's performance improves financially, it will organically bring up the tension and attract the investments from the market.

Speaker 2

Thank you. My second question, and this is a little bit different than what I initially was going to submit. With Kandi's cash on hand apparently above the company's present market capitalization and a half dozen new products. I have been only 2 press releases this year. 1, 2 announced the CEO transition on January 11 and 1-two announced the acquisition of Northern Group on June 26 with none at all announcing the new products.

Speaker 2

Go ahead.

Speaker 1

What's your question?

Speaker 2

I'm sorry, I thought I was on. With Kandi's cash, my question is a little bit different than what I was initially going.

Speaker 1

Right, I got you. So that part and what's the second

Speaker 4

part? Okay.

Speaker 2

With Kandi's cash on hand, fairly above the company's market capitalization and a half dozen new products, there have only been 2 press releases this year. Is the company planning on having additional press releases since we are now a very good profit making company and is it time to start touting our newer products?

Speaker 3

So the company has been adjusting our product mix strategy in last few years. Indeed, we encounter certain difficulties from time to time and sometimes it may not go well as we expected. So we end up adopting the strategy of refining, optimizing our products before we disclose too much. Fortunately, the transformation for our production has achieved successful results and the company has turned losses into gains in the first half of this year. Ongoing, we will consider to refining our disclosure approach to the public.

Speaker 2

Thank you very much and congratulations on excellent results. Thank you, Peabody.

Speaker 1

Thank you, Frank.

Operator

Our next question comes from Joel Kramer. Please proceed with your question.

Speaker 2

Thank you. At the very quick, extremely quick pace, Kandi is now growing. How long does Mr. Hu feel it will take before Kandi catches up or beats Polaris at least in the EV sector of the off road vehicle space? And then I have a question after that.

Speaker 1

Thank you.

Speaker 3

We will strive to improve and strengthen our fundamental in the foreseeable future and we strive to build the company into one of the leading manufacturers in the pure electric ATVs field within the next 2 or 3 years.

Speaker 2

Thank you. What new off road vehicles of all types and sizes do Kandi expect to release this year? And is there 1 or 2 that Mr. Hu favors as particular winner? And secondly, also what percent of sales in this year's first half were sold outside the U.

Speaker 2

S. And what were the top three markets outside the U. S? Thank you.

Speaker 3

Thanks for your question. We have recently launched the model called 10 ks. It's a pure electric dual motor 4 wheel drive UTV in the U. S. Market.

Speaker 3

We believe this model will be favored by the customers in the U. S. Market. In the second half of this year, we will also launch a pure electric mini golf cart. We hope that this will be another popular model as well.

Speaker 3

At present, our products are mainly sold in the U. S. Market and then we also have some sales in Europe and Mexico region through our channel distributors. Thank you.

Speaker 1

Hello?

Operator

Our next question comes from Mark Cano. Please proceed with your question.

Speaker 5

Yes, hello. Good evening. Good morning to everybody here on the line. I have a question about Kandi's recently announced acquisition of the 20 year marketing and analytics company, Northern Group. Looking at Northern's website, it is easy to see why Kandi would embrace this company based on its blue chip existing clientele and business that have obviously connections to Kandi manufacturing expertise.

Speaker 5

Lowe's and Fleet Farm already carry KINDI golf carts, Home Depot, Manard's Tractor Supply and Midstates, while similar demographic of Lowe's. And now would with this acquisition have a straight line relationships too. Walmart, Target and Best Buy carry the Hoover One board and the scooter line. Even sharper image and Hammacher Schlemmer carry Hoover board e bikes and scooters. However, Hoover 1 connects to Kandi, its powertrain division, which has provided over $100,000,000 in batteries and electric motors in recent years.

Speaker 5

I can see all of the above using various products or having Kandi design custom or private label vehicles from Kandi conglomerate of various divisions that already manufacture parts in house for 95% of its complex golf carts and duty. However, Northern also has existing clients of the Walgreen, Ulta Beauty and Other Nation brand in unrelated industries. My questions are, Keira, would you go ahead with the introduction or should I

Speaker 1

take this question? 1.

Speaker 5

So my questions are, could this deal have been done for $30,000,000 cash? Or was it required to be done for stock by the seller? Does Northern, as a candy division, keep all the above out of the industry clients like Ultra, Walgreens, even in the revenues even if the revenues are derived from totally unrelated business? Also, will it its marketing team continue to solicit this unrelated business?

Speaker 3

So first of all, the acquisition transaction of Northland Group will be closed with Kandi's restricted shares with certain escrow restrictions. For specific agreement terms, please refer to the equity transfer agreement attached to this quarterly report of 10Q. As for the business and the goal of the company, of course, the main goal of the Northland Group is to promote and operate the company's products. That's our main focus. But definitely, they will keep those profitable operations and businesses.

Speaker 3

Thank you.

Speaker 5

Okay. I understand. And just a couple of more questions. The acquisition terms filed with the SEC seems unique, if not confusing. Please explain the earn out terms of for the 3,900,000 shares and under what circumstances the deal could be unwind?

Speaker 5

And second, for only less than 5% of Kandi, this deal looks excellent. Where does management see this taking Kandi in the future?

Speaker 3

So as for the questions about the agreement terms, kindly refer to the equity transfer agreement attached to the 10 Q for this period. And in the future, of course, we would like to utilize the sales resources to expand our sales channel and subsequently boost up the company's sales revenue. Thank you.

Speaker 5

Thank you for taking my questions and have a nice day.

Speaker 1

Thank you.

Operator

Our next question comes from Michael Pfeiffer with Oppenheimer. Please proceed with your question.

Speaker 6

Hi. I have 2 related questions requiring some context. The first concerns a Kandi long promise guidance trend. While not yet included in the company earnings press release, I'm happy to see the almost mandatory requirement to ever get Wall Street analyst coverage, guidance or forecast has now started to partially appear in each of the last 2 Kandi conference calls in response to investor questions. In the year end 2022 conference call, Mr.

Speaker 6

Hu forecasted 20,000 to 25,000 units for 23. On the Q1 'twenty three conference call, management reconfirmed the 25,000 full year unit sales and added 3 more forecasts including 6,000 to 7,000 unit sales forecast in Q2, up from 3,000 in Q1, full year revenues and gross margin forecast. The revenues forecast came as an affirmative response to a question of whether $150,000,000 to $200,000,000 was realistic for 2023 full year and was guided to the high end of $200,000,000 by this quote, so far our forecast we believe that there now will be roughly $150,000,000 even more the top line with the $200,000,000 of the USD sales for this year. I think we can achieve that goal. Maybe you can translate that and I'll get to the question, please.

Speaker 1

Okay. Thank you.

Speaker 6

Thanks. If achieved, this would be an impressive 80% year over year increase from 2022. Also from a management response to gross margin question for the entire year, the response was equal to excellent 35 percent achieved in Q1 or 16.6% in 2022. If achieved by putting those 2 together, we could see a gross profit of some $70,000,000 or more than $0.90 a share for $23,000,000 My first questions are, do you stand by these full year numbers higher or lower? And how about expectations for Q3?

Speaker 6

At the current pace, is it doubling to 400 plus 1,000,000 and 24 realistic? And if so, does Kandi have the current capacity to deliver?

Speaker 3

In the first half of this year, we sold more than 7,000 pieces of the period electric golf cart in the U. S. Market, excluding the 6,000 plus in the whole year of 2022. And of course, it comes with a higher and significant increase if the gross margin. For the details of our financial figures, please refer to the quarterly report.

Speaker 3

In the second half of this year, we believe that the sales revenue will decrease to a certain extent. As for next year, 2024, we are confident we can continue to grow based on the momentum of this year. Of course, it depends on the stability of the international market and then the user acceptance of our new products. As for our production capacity, we have been adjusting in the last few years. As long as there's a need and demand from the market, we believe that our production capacity should survive to meet the needs.

Speaker 3

Thank you.

Speaker 7

Thank you. Okay. On to

Speaker 6

my second related part. In hindsight, on May 10, right after the excellent last Q1 conference call, the stock price had been going up the prior week, but closed that day down around 3% to $3.08 The next day, it started moving up and over the following 25 trading days reached a 52 week high of $4.28 Noteworthy, during this period the overall market and China stocks were generally weak. Also there was no published news from Kandi to account for the rise. The only logical reason for the move up was the publication and circulation of the conference call transcript led by its 4 excellent guidance comments. My point is that guidance does make a huge difference.

Speaker 6

At the time of the conference call, there was no guidance in the actual earnings press release, only some mediocre numbers. The live conference call likely had a small audience of long time investors and due to only 5% fund ownership and no analysts, little if any Wall Street professionals attending. These likely the reason it initially dropped. However, once the 3rd party transcript started circulating the next day, the move up started. Maybe you can translate that and I have one question and then I'm done.

Speaker 6

Thank you.

Speaker 1

Okay. Go ahead please.

Speaker 6

Thank you. In my opinion, if the company would follow typical successful public company trends, which incorporate forecasts in the actual earnings release, which carries a much more extensive distribution, profile and stickiness than a transcript, this Kandi best kept secret will finally have a chance to be discovered by Wall Street, particularly now in light of Kandi having a few quarters track record with its new predictable market of products. So my last question is, in the future will management assure shareholders they will seriously consider making this necessary step to significantly increase investor awareness. Thank you.

Speaker 3

First of all, thank you for your great opinions. The company has been adjusting our product structures in recent years and indeed encounter some difficulties and sometimes it may not go at what we expected. So we end up adopting a strategy of feel worth and many deep. We try to strengthen our fundamentals. Fortunately, the strategic product transformation leads to turnaround in profitability.

Speaker 3

And that's why we have more income generated and net income generated in the first half of this year. Upcoming, we'll definitely take your opinion into consideration and try to explore and optimize our strategy of communication to the public. Thank you.

Operator

Our next question comes from Arthur Pokari with Corporate Strategies. Please proceed with your question.

Speaker 7

Hello, can you all hear me?

Speaker 1

Yes, please go ahead.

Speaker 7

Okay, good. Good. All right. Well, it was a very good quarter, excellent quarter, no matter how you cut it. But let me cover just an area.

Speaker 7

I won't take near as much time as I have in the past, because everybody appreciated me, I think, did an excellent job. But my question is a bit bizarre maybe, but the subject of my question is who is JASCAL XIXANG Cuckoo Sports Technology Company Limited and how does it relate to candy? But let me give you some background for these questions first. I was perusing the candy products on Alibaba. I discovered a very impressive marketing sub website on Alibaba for a company founded in 2,001 called Jazkol Zhejiang Cuckoo Sports Technology Company.

Speaker 7

At first glance, it looks like an international wholesaling site specializing in a lot of off road vehicles in several different variations. It has thumbnails showing some 246 different off road vehicles, both electric and ICE that can be bought in bulk at wholesale prices. Its impressive homepage features some very familiar looking vehicles, 6 to be sure. If you look closely, you see it at the front plate, which is candy on about 3 of those vehicles. But the rest of them all have letters that start with KD, which we all know that's been around for a while.

Speaker 7

KD is Kandi's designator. So interesting that this is a shows up almost as if we're a Kandi site. Go ahead and tell that to them first, then a little bit more and then I'll ask some questions.

Speaker 1

Okay.

Speaker 7

Okay. And at the bottom of this first page, it had pictures of a vast beautiful new manufacturing facility that looked exactly like Kami's new Haiku Henin 100,000 vehicle facility, but was missing just a few things. At the center guard gate, which normally would have a large ground sign and on that side it would show Kandi's name with a Shell logo on it. Instead, it had a brown redaction patch over those pictures. And in the upper levels, as I know that facility has also the Kandi name and this shield type of logo that we have is normally up there on the real estate well and it was also a retraction patch on the picture there.

Speaker 7

So got a little confusing. Go ahead and tell them that much right now and then I'll finish Okay. Moving on to the company's profile page, under company certification, to my surprise, they had a single document for download for the CE Mark, which we all know is the authorization to do business in Europe, which I have no idea they can't even have the CE Mark. Anyway, it went on to say the actual document that Zhejiang Candy Technologies was listed as the manufacturer on this certificate. Also on that page are some video and VR virtual reality clips of the same facility as the homepage, except this time the redactions were not there.

Speaker 7

And now the page clearly shows the Kandi and the Kandi logo in those two locations actually. So after further Internet search of their name, I found a second JessCol website with a beautiful aerial portrait of Kandi's old Jim Law facility on the banner. On that side, it broke down its international sales statistics with 70% to North America and the rest detailed out to some 15 additional countries. The pages actually had the feature to retranslate each page into some 80 different languages. This company at least currently appears to be an independent global wholesaler with long term very close ties to Kandi.

Speaker 7

Finding that CE mark, which is mandatory for Eurozone is also encouraging. So I'm going to have a few questions to follow. Read that to them with questions. Okay. First question, what is Kandi's current relationship with this company JazzCall?

Speaker 7

Or was it perhaps something like the Northern Group is a company that maybe Kandi is looking to buy because they seem to be very proud of the Kandi name?

Speaker 3

Zhejiang Kuo Ke is a long term customer of the company and now they would still purchase certain kinds of the ATV products from us according to the demands from the market. We have no plans to acquire Zhejiang Ke.

Speaker 7

Okay. Well, does Kandi have any other international wholesale relationships? And what percent of Kandi's business you expect will be done outside the U. S? And also, question for a friend, does Kandi have any dealerships in Canada?

Speaker 3

Currently, we do not have other wholesalers, although sometimes there are some small scale customers who will come to us directly and purchase certain items. As for the wholesale plant in Canada, we are currently working on it to set up the wholesale channel. Thank you.

Speaker 7

Okay. Just to follow-up there from what I've noticed. This particular company again seems to have changed from just over within the past year or so to really put a lot of stress on Kandi. Of those 2 40 odd various products, which by the way also includes lithium batteries, which could be bought there in bulk. So I guess my question is, is the lithium batteries candy batteries?

Speaker 7

And on the other hand is, why are they seem to be stressing the whole front page is Kandi? I mean, I'm very happy to see that, but are they just focusing a lot more on Kandi now than they have in the past, I guess is my question.

Operator

Our next question comes from Frances Forte. Please proceed with your question.

Speaker 4

Thank you. In May, the company entered into a consulting agreement on business growth and financial advisory services, a $1,100,000 contract. Is that a follow-up on the arrangement they had with CITIC before COVID for a possible spin off or listing on the Chinese exchange?

Speaker 1

Okay. Operator and Francis, can you hold on for a second? Management says they give me time to answer the previous question, then we'll come back to you, okay? Please hold on and wait on Okay. So right now, we're answering the last question of the previous caller.

Speaker 1

Then we'll go back to the question.

Speaker 3

Sorry, there are some interruption for our answer for the previous question. As for the question, so first of all, Zhejiang Kuke is one of our long term customers and they also would like to promote our products. That's why you will see such information on their website. Currently, we do not supply any lithium and sales to Zhejiang Kuke. Thank you.

Speaker 3

So, Kewa, we can resume the questions from

Operator

the past.

Speaker 1

Hi, Francis, you can proceed with your question one more time.

Speaker 4

Agreement on Business Growth and Financial Advisory Services for $1,100,000 Is this a follow-up with CITIC on the agreement they had before COVID to possibly do a spin off or take part of the list part of the company on the star exchange in

Speaker 1

China?

Speaker 3

So as for the consulting agreement, that is not related to our potential listing in China market with the CITIC. Indeed, it's for our separate plan to our U. S. Subsidiary FC Autosports to explore the possibility to be separately listed in the U. S.

Speaker 3

Main board.

Speaker 4

That's very interesting.

Speaker 3

Thank you for your observation.

Speaker 4

Okay. And another question for you Mr. Lim. When Kandi sold its Jinghua facilities a couple of years ago. As I recall, a large part of the compensation for that over $70,000,000 I think was a tax benefit, a potential tax benefit on our profits.

Speaker 4

And I think it was for 8 years. Have we ever been able to take advantage of that until now? And do now that we are profitable, could that tax benefit really come into play? And could we recoup a large part of that in the future?

Speaker 3

So thank you for your question. As for the tax benefit utilization, we believe we can utilize in the upcoming future. First of all, the golf carts are currently manufactured from our high NAND facilities. Ongoing, we will try to expand our production in Jinhua as well. But since we have those net loss going forward that we can able to utilize.

Speaker 3

So yes, as for your questions, we can utilize those tax benefit in the upcoming future. Thank you.

Speaker 4

Thank you very much. Thank you and congratulations.

Speaker 1

Thank you.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Kiwa

Speaker 1

We look forward to updating you on our next earnings call. This concludes our call for today. You may now all disconnect. Goodbye.

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Kandi Technologies Group Q2 2023
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