Greenland Technologies Holding Corporation (NASDAQ:GTEC) Q2 2023 Earnings Call Transcript

Greenland Technologies Holding Corporation (NASDAQ:GTEC) Q2 2023 Earnings Call Transcript August 21, 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by, and we warmly welcome you all to the Greenland Technologies Second Quarter Earnings Conference Call. Currently, all participants’ are in listen-only mode. Later, we will conduct the 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’ll turn the call over to Josh Centanni, Investor Relations Director of Greenland. Mr. Centanni, please proceed.

Josh Centanni: Thank you, operator, and hello, everyone. Welcome to Greenland Technologies’ second quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer; and Mr. Jing Jin, Chief Financial Officer. We released results earlier today. The press release is available on the company’s IR website at gtech-tech.com 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 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. 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. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Raymond Wang: Thanks, Josh. Good afternoon, everyone, and thank you for joining us today. I’d like to start by thanking our global team for their dedication, persistence and passion to stay focused in a volatile global market and continue to drive the business forward to success. Our results emphasize my position that our industry has recovered and normalized from the global pandemic with OEMs ramping up production to meet pent-up demand. We posted $24 million in revenue with over 38,000 drivetrain units delivered which represents a year-over-year increase of 14% and 32%, respectively. Further, our efforts towards a more efficient operation continues to bear fruit as our gross margins improved by 590 basis points year-over-year, resulting in a 29.4% gross margin, generating $2.9 million in net income.

I anticipate this trend will continue with strong results in our component business through the second-half and remainder of 2023. If not for the weakening Chinese yen, our results would have been even stronger. The Chinese market has been very volatile, and we have been actively monitoring and engaging. It is worth noting that our component sales in China represents over 98% as we report sales in the region that we deliver. However, an increasing number of our clients are exporting our components overseas as they begin to shift operation to regions such as Europe, South America, and North America, particularly in Mexico. As a result, the growth of our component business is not reliant solely on the performance of the Chinese economy, but global demand as a whole.

HEVI continues to make progress as we pioneer the electric heavy machinery market in the United States. The sales process has proved longer than anticipated. But I am confident that we are on the right path based on the demand and feedback we continue to see. We have been executing on our strategy to educate the heavy machinery industry on the opportunities and advantages that electric machinery offer through product demos, trade shows and conferences. Our sales team has been progressing well through existing leads while actively pursuing new opportunities. This is strengthened by our efforts to lobby consumer incentives for off-highway electric heavy equipment. We passed the nation’s first off-highway electric heavy machinery incentives last year in Maryland, and other states have quickly begun embracing similar policies.

Currently, over a dozen different states provide consumer incentives for off-highway heavy machinery that will heavily support our sales efforts with incentives that range from 20% all the way up to 75%. Interest remains strong with new brand names exploring our product line, and I’m confident that HEVI will post meaningful revenue this year. One hurdle we solved in 2022 was the development of our mobile DC chargers for our electric heavy machinery that open the door to allow our products to be usable on any job site in the United States. Reception for these chargers have far exceeded our expectations, not just for our heavy machinery, but for other applications as well that we did not originally anticipate. Most new electric products and EVs are relying more on DC power.

But traditional DC charging stations are very expensive and can take months to deploy. Our clients are turning to our mobile chargers as a solution to meet their needs. And to appropriately meet this demand, Greenland Technologies will be creating a new business unit called HEVI Energy. The mission of HEVI Energy is to address the needs of the growing DC-powered electrified product industry with HEVI Energy’s unique offering of power solutions. Now you can expect more details about HEVI Energy through our press releases that will be released in the very near future. I am extremely proud of the work that the GTEC team has accomplished. We still have much to do and milestones to achieve, but I believe we are on the right track to hit these goals and succeed for the company and for our shareholders.

Now let’s dive into the details of our financial performance. I will hand the call over to my CFO, JJ. JJ, go ahead. We might have some mic issues. JJ, still there?

Jing Jin: Can you hear me?

Raymond Wang: Yes, we can hear you now.

Jing Jin: Okay. Sorry.

Raymond Wang: Actually, I apologize everyone. It seems we may be having some technical difficulties. Just for the sake of everyone’s time, Josh, would you read through the financial performance for HEVI? And then when JJ gets back, we can bring him back on mic.

Josh Centanni: Sure. For the full details of our financial results, including the first-half 2023 results, please refer to our earnings release that was issued today. For the second quarter, our revenue was $23.6 million, up 14% from $20.6 million a year ago. The increase was driven by a 32% increase in our sales volume. In Q2, we shipped 38,256 units of transmission products compared to 28,939 a year earlier. On a constant currency basis, excluding the negative foreign exchange impact from a stronger dollar, revenue increased by about 19% from the previous year. Further, as Ray mentioned, our strategic focus on higher-value transmission products, such as hydraulics continues to pay off. In Q2, our gross margin improved by 590 basis points marking a record high in the last three years.

The stellar performance demonstrates our leadership in the industry and the effectiveness of our business strategies. Total operating expenses rose 34% to $3.5 million. The increase was primarily due to the company’s focus on R&D investment as well as advertising, marketing, general and administrative activities related to the expansion of our HEVI division. The combination of these results drove strong profitability throughout the quarter. Our Q2 income from operations was $3.4 million, up 54% from the same quarter last year. Net income was $2.9 million, up 24% year-over-year from $2.4 million a year ago. Moving on to our balance sheet. We ended the quarter with cash and cash equivalents of $15.2 million, which is up over fourfold from $3.2 million last year.

This strong cash position gives significant flexibility in our operations and enables us to continue to invest in our HEVI business. Looking into the remainder of 2023. We anticipate demand for our transmission products to remain strong. Our goal remains on leveraging on our industry leadership in our transmission products business while continuing to advance first-mover advantage of our HEVI division in commercial all electric, industrial heavy equipment vehicles. That concludes our prepared remarks. I’d now like to open the call for any questions. Operator, please go ahead.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Theodore O’Neill of Hill Research. Your line is open.

Theodore O’Neill: Thank you very much and congratulations on the good quarter.

Raymond Wang: Thank you, Theo.

Theodore O’Neill: So in your prepared remarks, you talked about how gross profit margin was improved, was better on improved product mix, and you cite here higher-value products. Can you give us a sort of range of — range of what these higher-value products are that helped margins in the quarter?

Raymond Wang: Absolutely. So the increase in margin is actually part of a multiyear strategy for our onetime machinery or component business, to simplify our product offering and focus more on higher-margin newer product lines in our series. So in 2019, just to put that into context, we had over 70 series of different drivetrain units each with — at that time, almost a dozen-plus models amongst them. To meet the demands of our clientele who are mostly Tier 1 operators, we’re making many custom solutions. But this, as we scale further complicated our manufacturing process and aid into our margins. So for the past near five years now, we’ve actually been simplifying our product offering. Now we only offer about 40 different series of transmissions and drivetrains, each probably only about six to nine different models and we’re focusing on and pushing more higher-margin products such as our integrated drivetrain and some newer components as well.

Theodore O’Neill: Okay. And on the — can you give us an update on the HEVI division in terms of product demos, number of demos, length of demos and training customers on your equipment?

Raymond Wang: Absolutely, absolutely. So we’ve dedicated our entire HEVI inventory right now to support the demand for demos. Since last quarter, we’ve actually added on another 5 units, three of our larger front loaders, two of our smaller loaders to try to meet the demand that we’ve been getting. Plus we’ve also shortened our demo time. Before, we were deploying our product to job sites for a week to two weeks to give a client a good feel for our products. But just based on the demand, we’ve actually brought that down to one to three days max. And our products are continuing to go from job site to job site, driving up a lot of interest. And this is part of our strategy to really address and demystify a lot of the assumptions about electrification and get first-hand experience to operators that will eventually become clients.

Theodore O’Neill: And my last question is on the mobile DC chargers. I’m on the website now. I see that you’ve got two different products. One is a portable and once for single phase, once for three phase. And I’m wondering as you think about expanding that business, will there be more products? Will you sell them, rent them, lease them? What’s the thought here?

Raymond Wang: Great question. So at a very high level, we will be selling our new mobile DC chargers. We will be creating new chargers specifically catered towards the market demand that we’ve been identifying. The ones that we have were originally designed just for our product use but for our demos when we’re setting them out, folks couldn’t help them, sell us, plug that into everything electric that they had. And they’ve been loving it, enjoying it and trying not to give them back to us. So we’ve actually been very aggressively doing some product R&D on a mobile DC charger, specifically catered to the needs for this market demand. And I can’t get into too many details just yet, don’t want to spill the secrets too soon. But I can say that the mission for these chargers is they will be — they are being fully R&D designed here in the United States.

They will have U.S. IP. They will satisfy all U.S. certifications from UL to the appropriate ISO certifications, and they will be made in the USA, starting off in our Maryland facility.

Theodore O’Neill: That sounds pretty good. Thanks very much.

Unidentified Company Representative: Of course.

Operator: Thank you. One moment, please. Thank you. Our next question comes from the line of Rommel Dionisio of Aegis Capital. Your line is open.

Rommel Dionisio: Thank you. Good afternoon. During the economic downturn — during the COVID period, as a result of the lockdowns, obviously, there was a downturn in that segment of the industry, but I know you guys were capturing market share very successfully. And I wondered if you could just characterize this year, as the sector overall comes back, are you still able to — were you able to maintain and unlock in those market share gains. I wonder if you could comment on that. Thank you.

Raymond Wang: Yes, absolutely. It has been a very volatile field. We have been able to expand our market share with new clientele, a few Tier 1 brands actually that wish to remain unannounced, but we actually have been expanding our client portfolio, which we’re extremely proud of. However, the volatile environment that I alluded to earlier is right now on a global scale, there is a massive challenge, massive redefinition for supply chains and logistics that we’re keeping a very close eye on. Primarily countries are looking to try to nationalize their supplies chains as much as possible. But depending on markets, depending on countries and depending on presence, it’s easier said than done for others. So this is actually one of the things that I mentioned in my remarks, where we actually are seeing a larger — a significantly larger amount of components being shipped overseas to manufacturing facilities that they’re looking — that they have been actively opening up overseas.