Greenland Technologies Holding Corporation's (GTEC) CEO Raymond Wang On Q4 2021 Results - Earnings Call Transcript

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Greenland Technologies Holding Corporation (NASDAQ:GTEC) Q4 2021 Earnings Conference Call March 28, 2022 8:00 AM ET

Company Participants

Julia Qian - Managing Director of Blueshirt Group Asia

Raymond Wang - Chief Executive Officer

Jing Jin - Chief Financial Officer

Conference Call Participants

Rommel Dionisio - Aegis Capital

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:04 Good day, ladies and gentlemen. Thank you for standing by and welcome to the Greenland Technologies Fourth Quarter and Full-Year 2021 Earnings Conference Call. Currently, all participants are in 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.

00:27 Now, I will turn the call over to Julia Qian, Managing Director of the Blueshirt Group Asia. Ms. Qian, please go ahead.

Julia Qian

00:27 Thank you, operator, and hello, everyone. Welcome to Greenland Technologies fourth quarter and the full-year 2021 earnings conference call. Joining us today are Mr. Raymond Wang, Chief Executive Officer; and Mr. Jing Jin, Chief Financial Officer.

00:48 We released the result earlier today. The press release is available on the company's IR website at ir.gtec-tech.com, as well as on Newswire Services. A replay of this call will be also available in a few hours on our IR website.

01:06 Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.

01:23 As such, the company's actual result may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's corporate filing 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 the figures mentioned during the conference call are in U.S. dollars.

01:54 With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Go ahead, Mr. Wang.

Raymond Wang

02:02 Thank you, Julia and good morning, everyone. Thank you for joining us today. As I have started every earnings call up to this point. I want to begin by recognizing my team here at Greenland for their hard work and dedication in delivering results for the company, our clients, and our shareholders. Their efforts have led Greenland Technologies to the best year in terms of revenue and sales in the history of our company.

02:29 I’m extremely proud of their efforts and the leadership of our management team that have helped us navigate and overcome the many challenges present in today’s global environment.

02:39 Despite these challenges, we were able to meet and nearly surpass the top line of my revenue guidance with $98.8 million and 141,000 transmission units delivered, which represents a tremendous growth of 48% and 30% year-over-year growth, respectively. This demonstrates that the global material handling industry continues to grow and we, at Greenland Technologies, have the capability to meet and capture this opportunity.

03:13 And this growth has been motivated by the significant increase in global demand for forklift trucks and material handling equipment as business sales models transition to e-commerce platforms, which require a rapid expansion of logistical infrastructure. We would have surpassed my topline guidance of $100 million in revenue for the year [where not] [ph] for the continuation of global supply chain constraints.

03:13 Now, on the other hand, our earnings were lower than we expected due to two primary reasons. First, despite global demand for forklift trucks increasing, the Chinese forklift market has begun slowing down and it reflects the 2022 forecasted GDP of roughly 5.5% for the country.

04:03 We will see improvement as more forklift OEMs in China expand their business to the global markets and we will be ready to capture that opportunity. Secondly, raw material and component costs have remained high longer than anticipated. Materials such as steel have peaked over 200% in 2021.

04:25 We have implemented price increases to offset this trend and are optimistic as we have witnessed a correction of this material pricing in the fourth quarter, which will serve as the headwind in the first half of 2022. Another contributing factor is our increased investment in our new Electric Industrial Heavy Equipment division and expansion into the U.S. market.

04:49 Now, these expenses are in line with forecast and contributed to the overall increase in 2021 operating expenses. Now, focusing on the Electrical Industrial Heavy Equipment division, I am proud that we have achieved all of our targeted milestones for 2021. We were able to launch our initial equipment product line in the United States, which includes our GEF series, lithium powered electric forklifts and the all-electric lithium powered GEL-1800, which is a 1.8 ton rated load wheeled front loader.

05:24 As of November 2021, these vehicles are available for sale in the mid-Atlantic region of the United States. We have since followed up with the launch of our all electric lithium powered GEX-8000 in February, which is an 8 ton rated load wheeled excavator and our upcoming GEL-5000, a 5 ton rated load wheeled front loader arriving in the second quarter of this year.

05:51 As I stated prior, our goal is to shift assembly of our electric industrial equipment to the United States to better serve the region. I have announced the selection of Maryland as the home for our first assembly site and we are on track to open the doors in the second or third quarter of this year.

06:09 We selected Maryland for its impressive infrastructure to service the mid-Atlantic region by road, rail, sea, or air. They're educated and trained workforce, commitment to sustainability and their willingness and support to do business. This initial site will be modest in size at about 60,000 square feet with an annual production of about 500 to 750 vehicles when fully operational. We will deploy additional sites as we expand our target regions.

06:41 We are also developing experience centers that will provide education, sales, and local service to our prospects and clientele. As we are pioneering new technology, these sites will be integral in expediting the sales process as interested users get an opportunity get behind the wheel and operate the equipment firsthand.

07:01 The target location for the first center will be in New Jersey due to the abundant opportunity across the logistic, municipal, agriculture, and construction industries. The design process is near complete for our experience centers, but due to limited site inventories and high traffic areas, the launch date for our first center is delayed to the end of this year in 2022. Potentially into next year, should we have to build to suit our needs. It is important to note that this delay does not prevent our ability to sell our equipment.

07:36 We have been attending in-person trade shows with our vehicles and have a grown sales team operating out of our offices in New Jersey promoting our products. Interest has been very strong for our products, particularly in the municipal and agriculture industries, but we are discovering the sales process to be longer than anticipated.

07:56 I'm extremely optimistic that with patience and persistence this product line will quickly bear fruit and add significant value to the company and our shareholders. Part of our strategy to penetrate the U.S. market is to establish partnerships with local companies that share our vision and commitment to sustainability.

08:18 We have recently announced strategic partnerships with great companies such as Cyngn to develop on-site autonomous solutions with our product and Princeton NuEnergy to adapt their innovative plasma assisted lithium battery recycling process to further reduce the carbon footprint of our products.

08:37 I will focus more on these partnerships during our Q1 2022 earnings call, but just wanted to highlight that these collaborations help to illustrate our long-term strategy and vision for our electric product lines.

08:54 Now, let's discuss guidance. For 2022, I will not be issuing an annual guidance for revenue or earnings due to the volatile and unprecedented environment, but let me share our outlook on the upcoming quarters. As I mentioned earlier, I anticipate the first quarter to deliver strong sales results with headwinds throughout the year that will contribute to modest growth of our core transmission and drivetrain business in 2022. Plus, we expect our price increases to offset higher manufacturing and transportation costs that will further preserve and improve our margins.

09:36 With respect to our electric industrial equipment division, we have the products ready to go and are building out the infrastructure to drive sales and penetrate the market. For 2022, we expect to deliver between 100 and 150 electric vehicles. As our U.S. Assembly and Experience center network expands, we anticipate delivering between 1,750 to 2,000 electric vehicles by 2024. At that scale, the EV division will rival our core transmission and drivetrain business for the company.

10:13 The demand is there as organizations are ready to embrace cleaner and more sustainable alternatives and we are the only available product in this industry in the United States. This demand will further be expanded as new legislation drives more sustainable business operations, greater expansion in the charging infrastructure throughout the nation, and the introduction of consumer incentives that include adoption of electric industrial equipment to qualify.

10:46 And with that, let me turn the call over to our CFO, Jing Jin, who will provide details on our financial performance. JJ, go ahead.

Jing Jin

10:55 Thank you, Raymond, and thank you everyone for joining our call today. I will now go over our key financial results for the fourth quarter and the full-year 2021. For the full details of our financial results, please refer to our earnings press release. As Ray noted, we continue to drive record revenue growth and the gross margin expansion led by higher transmission sales while increasing investment in our infrastructure to support the [investor face] [ph] of our growth.

11:25 We are working closely with our supply chain partners to try to offset the higher cost impacting areas from raw materials and in components to the shipping. The important takeaway is we see continued growth in 2022, and are investing in support of that with higher revenue generating sales accounted, and the R&D investments that were issued, we have the value-added EV vehicles and the transmission products to our [customer wanted] [ph].

11:59 Turning to our results, we achieved record revenue of $98.8 million for the full-year. This is up 48% over 2021, led by growth in sales of our transmission products. We sold 141,431 units of transmission products in 2021, up almost 30% from the previous years. Compared to 2020, our cost of goods sold rose 47% to $79.8 million in 2021, primarily due to the increase in sales volume and the increasing raw material price.

12:43 We generated gross profit of $19.6 million, an increasing of 53% from $12.8 million in 2020 led by the ongoing strategy shift in our product needs towards the higher value most [indiscernible] products, notably, our gross margin was up to 7 basis points year-over-year to 19.8%.

13:13 Meanwhile, total operating expenses increased 86% to $11.3 million as we continue to invest in support of higher revenue level and the target long-term growth with an expansion of its revenue generating headcount and more than doubling of its R&D for the full-year of 2021, compared to the full-year of 2020.

13:39 Despite the increase, we held operating expenses at 11.5 of total revenue, which was only up 2.3 percent points from 2020. Within that, selling expenses increased 18% to $1.9 million. General and administrative expenses increased 85% to $3.9 million, and research and development expense increased 132% to $5.5 million in 2021.

14:16 Especially the R&D investment is already paying off, which we launched 3 new electric industrial vehicle lines in 2021, which we expanded will drive increased revenue over the coming quarters. As a result of our strong sales and efficient operation and expense management, which achieved a record income of $7.3 million in 2021, up 14% from the prior year.

14:46 Next, let me briefly walk you through our financial results for the fourth quarter of 2021. Total revenue were $22.9 million, compared with $23.9 million in the same period of 2020. The slight decline was due to the recognition of our orders that accumulated during the pandemic, but were not fulfilled until the fourth quarter of 2020 compile with the impact of the fourth quarter of 2021 of the ongoing supply chain constraint that the limited availability of the necessary materials and components.

15:28 The member of transmission products sold was 31,349 units, compared with 37,164 units in the fourth quarter of 2020. Gross profit was $3.7 million, compared to $4.6 million in the fourth quarter of 2020. Total operating expenses were $3.8 million, as the company expanded its operation compared to $1.9 million in the fourth quarter of 2020.

16:01 Net income was $0.4 million, compared with $2.2 million in the same period of 2020. Importantly, we took the [opportunities to strengthen] [ph] our balance sheet in 2021 in the pursuit of our long-term growth strategy. As of the end of December 2021, our cash, restricted cash, and cash equivalents was $17.8 million, nearly doubled 9.4 million a year earlier.

16:36 As we enter into 2022, we are very optimistic and remain committed to driving increased revenue and the profitability as we work to build a greater value for our shareholders.

16:49 That conclude our prepared remarks. Let's now open for the call questions. Operator, please go ahead.

Question-and-Answer Session

Operator

16:57 Thank you. [Operator Instructions] Our first question comes from Rommel Dionisio with Aegis Capital. Your line is open.

Rommel Dionisio

17:22 Thank you, and good morning. I just wanted to touch based on the core China business. Raymond, certainly appreciate your commentary on the deceleration in the economy. You've been generating some strong market share gains there, over the last several quarters. I just wonder if you could touch on – are those trends continuing? And the opportunity also you mentioned to expand that business to rest of world, what are some of the particular geographic markets that you see as being a low hanging fruit in terms of opportunity there? Thank you.

Raymond Wang

17:55 Good morning, Rommel. And thank you for your question. So, for the core business of drivetrains and transmissions, we have been very proud of our position as market leader in our space. For providing those drivetrain and transmissions to the forklift market. For those on the call, China right now is the market leader – is the global leader in forklift sales and OEM manufacturing.

18:23 China itself consumes about 700,000 forklifts per year. Whereas the United States right now in number two, consumes about 400,000, but rapidly rising, especially with the shift towards e-commerce and warehouse logistics.

18:39 Now, with that said, as China slows down, we still maintain our position as market leader working with the OEMs. The slowdown that we're seeing is with some of the smaller OEMs that we support. They are rapidly trying to adapt their business to be able to support more of a global presence, whether it be to markets such as Europe, Africa, and South America as well, that are continuing to rise faster to account and make up for the slowdown that's going on in the Chinese market.

19:14 For these smaller operations, their transition is going to take us a little bit of time, but we're extremely optimistic that we will still maintain our market share and partnerships with these key clients.

19:29 As for the business expansion to global market, this is one of the key strategies for Greenland, especially in the launch of our EV business, because it diversifies, the EV product line diversify the offering here at Greenland, especially outside the borders of China were a majority of our core business of transmissions and drivetrains are sold. So, by targeting the EV industrial markets in a space that is completely untapped at this stage in markets such as the United States will really help in the long-term continue to diversify the company and protect us and mitigate risk from various, let's say, regulatory environments or political environments as well. It helps us to mitigate our risk.

20:26 So, this supports our long-term strategy for the company in expanding through the EV business line, plus the opportunity is significant and I feel very strong it's going to add a lot of value to our shareholders. And since we are the first one with the product here commercially available in the United States, this is a very, I don't want to call it a low hanging fruit, but it's a very attractive and very large fruit and opportunity for our business.

21:01 The front loader and excavator markets combined are about $70 billion and not a single other player in the United States is electric. So, for us to penetrate this market, captures some market share, that's going to be a significant opportunity for us. And then once we penetrate the U.S. market, then it will allow us to expand very rapidly to the rest of the world from South America to Europe to Africa. And the demand is so strong in those markets that we couldn't turn away from it.

21:39 So, we announced the deal that we made, a strategic partnership with [E.Life] [ph] based out of Morocco. That's going to be between a $5 million to $9 million minimum deal across five years and onward, and that we're extremely excited about those prospects, but our focus for our company is going to be on penetrating the U.S. market.

Operator

22:05 Thank you. Our next question comes from [indiscernible]. Your line is open.

Unidentified Analyst

22:13 Yeah, hi, Ray. How's it going?

Raymond Wang

22:17 Doing well, doing well. Hello, [Cory] [ph].

Unidentified Analyst

22:20 Hey. How's going with the institutional investor base? I know you were trying to basically get some interest going there. How things been going? How are they receiving you when you've been able to interact with them?

Raymond Wang

22:43 I've been doing a lot of conferences, NDR road shows and one-on-one conversations with the institutional base. And the interest in Greenland has been very strong. They are all extremely supportive and understand our vision on what we're trying to do tapping into the industrial vehicle market. And they absolutely agree that the timing is there, the markets are ready for it, and for us coming in with a very strong manufacturing background as our bread and butter, they're 100% on board from that standpoint.

22:43 One of the challenges that we have is from a stock standpoint, we trade at a very low volume and our market cap is right around $60 million. It’s probably about 63 last I checked, $63 million, whereas we've posted almost $100 million in revenue. So, though we are significantly undervalued from a market standpoint, from an institutional side, we typically tend to be smaller than the guidelines for them to really get involved with Greenland. But I've had conversations with many different analysts and investment banks and they’re so interested in us that they've told me that they've opened up personal positions just to follow our company for that level that we will get there.

24:17 So, the interest has been there, but the commitment has been low just because of our current market cap and trading volume. At this stage per our last pole, we have as about – 95% of our shareholders are retail.

Operator

24:45 Thank. [Operator Instructions] Thank you. Seeing no more questions in the queue. Let me turn the call back to Mr. Wang for closing remarks.

Raymond Wang

25:05 Thank you very much, operator, and thank you everyone for participating in today's call and for your support. We really appreciate your interest into Greenland and look forward to reporting to you again next quarter on our progress. And with that, I hope everyone has a fantastic day.

Operator

25:23 Thank you all again. This concludes the call. You may now disconnect.

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