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Greetings, and welcome to Electrovaya's Second Quarter Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Richard Halka. Thank you. You may begin.
Thank you, operator. Good morning, everyone. First of all, I'd like to apologize for an inadvertent error in our press release. The U.S., Canada toll-free number was 877, and in the press release, the area code was 807. I apologize for that. It's correct on the replay number.Thank you for joining us on today's conference call to discuss Electrovaya's first quarter -- second quarter 2018 financial results. Today's call is being hosted by Dr. Sankar Das Gupta, CEO of Electrovaya; and myself, Richard Halka, Executive Vice President and CFO.Yesterday, Electrovaya issued a press release concerning our business highlights and financial results for the 3 months ended March 31, 2018. If you would like a copy of the release, you can access it on our website. If you would also like to view our financial statements and management discussion and analysis, you can access those documents on the SEDAR website at www.sedar.com.As with previous calls, our comments today are subject to the normal provisions relating to forward-looking information. We will provide information relating to our current views regarding trends in our markets, including their size and potential for growth and our competitive position in our target markets. Although we believe the expectations reflected in such forward-looking statements are reasonable, such statements involve risk and uncertainties, and actual results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the company's press release announcing the second quarter results and the most recent Annual Information Form and Management's Discussion and Analysis under risk and uncertainties as well as in other public disclosure documents filed with Canadian securities regulatory authorities. Also, please note that the numbers discussed on this call are in U.S. dollars unless otherwise noted.And now, let me turn the call over to Dr. Sankar Das Gupta, CEO of Electrovaya.
Thank you, Richard, and good morning, everyone. Thank you for taking the time to listen in on our fiscal second quarter results conference call. We had a number of positive milestones in Q2. We generated significantly higher revenues compared to the last couple of quarters.Our operating losses and cash burn were also reduced as a result of our decision to place Litarion into a structured insolvency process. Richard will discuss the financials in more detail shortly. I will just note that revenue from continuing operations was USD 3.3 million, a 1,000% or tenfold increase over Q2 last year. This was largely due to revenues from our CAD 4.3 million purchase order from Walmart and also others in the materials handling electric vehicle market.We are more certain than ever that our decision on our subsidiary, Litarion, was a correct one for Electrovaya's business, as we no longer see it as core to the company's future. As we had noted in the last quarter, it is not necessary to own unprofitable subsidiaries, which carries out component production of electrodes and separators when alternate customized supply chain is now available. We can -- our design can now be sent to contract manufacturers who can customize the product for us.Most tech companies move towards an asset-light strategy and focus on the profitable high value-added core products. We can continue to purchase ceramic separators from Litarion or others, and we are continuing to deliver our industry-leading Lithium Ion batteries to customers with no material disruptions.As many of you are aware, we have focused a great deal of our attention on the materials handling electric vehicles and making forklift battery systems. And I'm pleased to say that we are receiving good interest from large global companies. We have now received purchase orders from 6 U.S. Fortune 500 companies, including 2 new ones in this January to March quarter. Our customers continue with their long validation testing of our products. And we are confident that there will be increased sales momentum during the second half of this fiscal year.We are also very pleased that, after many months of intensive testing, we now have multiple material handling electric truck manufacturers approved our Elivate battery for a large number of their electric truck models. And we believe that Electrovaya is now the largest number of material handling electric vehicle makers who have approved Electrovaya's Lithium Ion ceramic battery for their trucks for the North American market. This is allowing us, in the North American market, we believe, to become the leader in Lithium Ion battery usage in the electric forklift or trucks.I will now turn the call over to Richard to review our fiscal second quarter financial highlights in greater detail. Richard?
Thank you, Sankar. As you saw in our news release yesterday, Litarion is included in our Q2 financial statements as discontinued operations, as it was in the first quarter. With regards to Litarion assets, an administrator has been appointed who's engaged a merger and acquisition specialist to conduct an orderly sales process. The net carrying amount was reflected as a liability on the balance sheet. The gain or loss will be recognized to profit once the sale process is completed. I'm going to discuss operating results this morning, which excludes Litarion.Revenue from continuing operations for the 3 months ended March 31, 2018, was approximately $3.3 million. That's a tenfold increase over the $300,000 we reported in the second quarter last year. As Sankar noted, the majority of the Q2 2018 revenue came from batteries for the material handling electric vehicles.The net loss for the second quarter was $2.7 million compared with $0.5 million on the same basis last year. The increased loss was primarily due to $2.4 million increase in the general and administrative expenses from Q2 2017 to Q2 2018, resulting from approximately $400,000 in legal and professional fees, primarily relating to the Litarion situation and a reimbursement of expenses without the corresponding inclusion of discontinued operation expenses in Q2 2017.I'll now briefly review our results for the 6 months ended March 30, 2018. Revenue was $4 million compared to $1.1 million the prior year. The net loss from continued operation was $5.3 million compared to $1.4 million last year. The net loss for the first half of fiscal 2018 increased over 2017, primarily due to the increase in G&A as discussed earlier as well as an increase in our financing costs.Inventory was $1.9 million as of December 31, 2017 -- I'm sorry, as compared to $4.1 million at September 30, 2017, which was our fiscal 2017 year-end. We drew down stocks during the first 6 months of the fiscal year for order fulfillment.We ended the second quarter with approximately $2 million of cash and cash equivalents. We used $900,000 of cash in operating activities during the 6 months ended March 31, 2018. We're continuing to manage our working capital very closely during this period of relative low revenue as we wait for battery sales to accelerate.I would now like to turn the call back to Sankar to wrap up.
Thank you, Richard. The question people had asked, "Why are we focused on the batteries for material handling electric vehicles?" A couple of reasons. First, the market size. The market for material handling electric trucks is large and growing as e-commerce and logistics and materials handling becomes more important.As we noted in our press release, the Industrial Truck Association is estimating that more than 280,000 new vehicles were sold in North America in 2016, of which more than 65% were electric vehicles, about 185,000 electric trucks -- forklift trucks were sold in 2016 in the USA. At the same time, in 2017, in the U.S., we believe just less than 200,000 electric cars are sold. And these are electric cars, which means battery electric plus the various plug-in hybrids, which has both battery and gasoline motors. So this includes all the cars, which are PATV or battery cars from people like Tesla, GM, Nissan, Toyota, BMW and all others. So the market size is comparable. Although, from the press accounts, you would think that the only electric car market exist, and they miss, as we believe, the larger or as large -- the materials handling electric vehicle market.The second interesting point of this market is of the battery for the material handling truck has to work, usually, for 20 to 24 hours a day. They must have fast-charging capabilities and must be able to carry out multiple charges every day. An electric car battery works for 1 hour or 2 a day, while the materials handling electric vehicle is working about 10x longer. Hence, our battery drives the vehicle on a normalized basis between 200,000 or 250,000 kilometers per year if an electric car battery drives for 20,000 to 25,000 kilometers per year. So the work even electric forklift does in 1 year, the car does in 7 to 10 years. So the value from the forklift truck battery is much higher to the industrial e-commerce logistics or the manufacturing user. So our battery gives this large value to the user: less maintenance, no battery charging, higher productivity, no pollution, acid discharges, no lead or acid fumes. So it's essentially a very large value creation for the user.The third interesting point is that Electrovaya battery, with its high cycle life and high safety, is ideally suited for this application. And there is really no rational comparison between our Lithium Ion and the incumbent lead acid battery. And now, after many extensive trials, we believe we are the leader in this emerging market in North America. We have the Fortune -- U.S. Fortune 1 company giving us purchase orders. We have now 5 more U.S. Fortune 500 companies ordering from us. We now have -- after months of testing, major U.S. truck manufacturers have approved our battery for many of their trucks. We are a natural partner to the electric truck makers as they do not have to modify their trucks to use our Lithium Ion batteries. And the trucks work much better and more uniformly with a battery whose voltage does not droop significantly during operation. We now have about 20 different battery models to fit various voltages, size and shapes of these trucks.Two weeks ago, we showed our product in MODEX, the largest materials handling and manufacturing logistics trade show in North America, and we were very pleased with the customer interest. This week at CeMAT trade show in Hannover, Germany, the largest logistics trade show in Europe, 1 global truck maker is showing multiple material handling electric trucks where the Electrovaya battery is integrated into their trucks. Hence, we are pleased that, at this early stage of our product introduction into the super hard-working electric vehicle market, the users like our products and we look forward growing quickly in this market.We continue to work on other markets in both electric vehicles or e-mobility as well as energy storage. And we have also started getting small early orders into the autonomous electric vehicle market. In all cases, we are in applications where an out of the ordinary Lithium Ion battery is needed.In conclusion, we have reduced our overhead expenses. We have reduced our ownership and exposure to loss-making subsidiaries who are not core to our operations. Our finances have stabilized. Our revenue is up 1,000% and sales momentum building. We have broken into a great market where we find we're giving the performance and more importantly the value this materials handling electric vehicles uses demand. We are now asset light. Our costs are low, and the market demand is growing quickly. And sophisticated U.S. Fortune 500 companies and major materials handling electric vehicle manufacturers also approved and like our products.That concludes our remarks this morning. Richard and I would now be pleased to answer any questions you may have. Cherry, please open the line to questions.
[Operator Instructions] Our first question is from Carter Driscoll with B. Reily FBR.
So the first question I had was, you'd mentioned some statistics, Sankar, about the level of electric material-handling units. Could you give a rough estimate in your mind the amount that are powered by batteries versus fuel cells that are in North America? And maybe, at a high level, compare and contrast what you see the advantages of using Lithium Ion versus fuel cell?
Carter, the industry was completely lead asset-driven because no other batteries could drive this industry until fuel cell came in. And fuel cell did a terrific job in opening up the market to this industry saying, "Hey, you should look at other alternatives, and also the market now is no longer that price-sensitive." I think fuel cell did a terrific job there. Going back -- so we believe that fuel cell is a pathfinder for us. It's opening up the market for us. And this has happened time and time again where fuel cell has opened up -- for example, 10, 15 years ago, fuel cells opened up the electric car market. And today, 99% of that car market is being run by Lithium Ion, and you don't see fuel cell cars. So we believe that the intrinsic advantages of our Lithium Ion battery in this market is going to replace, we believe, fuel cells and lead acid battery. The market still is -- 95% plus is running with lead acid batteries. So I don't want to be negative to fuel cells because they are terrific group. They really did the hard work of opening up the market for Lithium Ion. But Lithium Ion always, always takes over in a situation like this.
And could you talk about maybe just some more on the specific characteristics that give you confidence that will displace fuel cell? I mean is it weight? Is it cost? Is it form factor? I mean, you got a charging room.
Yes, it's all of the case. What we are finding is -- and we are now having users who have both used fuel cells and who are -- have used Lithium Ion. And there's absolutely no comparison. This whole -- the hydrogen infrastructure doesn't exist. You got to truck in hydrogen, you got to sell in hydrogen, the cost of the hydrogen is very high. The fuel cell module itself is not -- has to be replaced every 24 months or 36 months. While in a Lithium Ion battery, this whole industry, they just -- it's like your cellphone. Once you put the battery in, and you can do fast charging. You -- it operates all day. There's almost -- operationally, there is almost no comparison. In -- the user using the Lithium Ion batteries is running 24 hours a day, 7 days a week. He charges -- he does fast charging during your lunch breaks or coffee breaks, and electricity is everywhere. He doesn't have to change his infrastructure. He doesn't -- he's got plug points. He's got reliable electricity, energy delivery everywhere. He doesn't have to set up a new supply chain, new delivery chain. So we are seeing, from the operator side, a great interest in the Lithium Ion batteries.
Okay. And switching gears, so you got a significant bounce this quarter from revenue perspective, which is good to see Walmart Canada. Can you talk about how much of that order you have fulfilled? And then maybe just talk -- if you can't give a numerical number for your backlog, can you talk about other types, either quantitatively, of similar types of order sizes? You had mentioned several -- tens of Fortune 500 customers. I'm assuming [ they're ] taking initial prototype deliveries and still going through testing phases. But as much as you can, talk about your pipeline going forward to give you confidence you're going to grow significantly in the back half of fiscal '18.
Sure. Thank you, Carter. With regards to the fulfillment of the order, the stage we're at now is commissioning. It's in there. The trucks -- we have a couple of people on site that are assisting them. This, obviously, is a very important project for us. So essentially, the revenue related to it has been fully recognized by the end of this quarter. And what we have now is the commissioning side of it. We're commissioning probably about 5 trucks a day. So that's going well. So basically, that order has been successfully fulfilled. And what we're looking at now is the commissioning of the products. With regards to the pipeline. Obviously, I don't disclose the specifics there. But what we can say is that we are seeing a momentum. And I think I've talked before about how these -- our sales cycle sort of works where you get a -- essentially, you take a demonstration, then you move to a smaller order, let's say, about 20 batteries. And you test that and then you move to a full warehouse. And obviously where, again, we've had 1 full warehouse with the Walmart. And we have quite a number that are at that pilot stage. And so [ they're ] -- they range in value of POs from, let's say, if you -- around 200,000, 300,000, in that range. And so we're seeing good momentum in that. And we're pleased looking forward. We do have now some good visibility on the revenue side. And we're very pleased that we're starting to get traction in the industry.
And Carter, really, these are very large Fortune 500 companies. And they have started, as Richard said, getting our products in very many of their warehouses and manufacturing operations. So -- and that momentum is building. And we are very pleased that, really, there's 2 channels to the market now: one is the final users are coming and buying from us, and the second thing is the truck makers are now helping us in selling it to their market because the Lithium Ion battery is very compatible and has been approved and is compatible to their trucks. And this also helps them in selling their trucks to the users. So we are very pleased that 2 different channels are now pulling us into the market.
Okay. May I have -- maybe just one more from me. If you're talking about the autonomous vehicle side -- so there's been some high profile, at least, from the media perspective, setbacks that early adoption is the -- I'm assuming that it's a market that is going to be long time in developing simply because of a lot of the different hurdles. Can you characterize some of your engagements with some of these OEMs? Have they come up with a specific form factor? Are they [ trying ] different on-the-shelf products? Are you building new products for them, like, customizing a specific module for them? And then maybe your expectations of when and how that could ramp over the coming quarters. I'm assuming it's not going to really impact fiscal '18.
Yes. Carter, the way we see the market is the market which will move faster in the industrial market, where it will be autonomous robots who are moving around and who will be using the batteries as against -- in the electric vehicle in the road side, which has got a lot of safety and other things involved. With this is -- really, you're absolutely right. The press does focus on the electric car side. And what we are saying and what we are finding is that the industrial electric vehicles market is as big if not bigger today than -- in North America than the electric car market, which the press keeps vouching. So I think, on the autonomous side, it will be more the industrial side moving faster, the robots and the various vehicles which industry, and it needs both for warehousing as well as for manufacturing.
Oh, Carter, just to add a little bit to the autonomous. As Sankar says, it's in the industrial area. But what we're finding is we're getting traction there already. We've had multiple POs. Again, it's the sort of pilot size. They're not huge. But this is obviously a sector where there is a great deal of traction. And it tends to be in the -- it's in the industrial side, where, again, the heavy usage, not like passenger vehicle, really justifies looking at our batteries.
[Operator Instructions] Okay. There are no questions at this time. I'd like to turn the conference back over to management for closing remarks.
Well, thank you, all. That concludes our call. Thanks for listening in, and we look forward to speaking with you again following the release of our fiscal third quarter results in a few months' time. Have a great day. Thanks. Bye.
Thank you. Bye.
This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.