Greenland Technologies Holding Corporation Q3 FY2023 earnings call

Management Statement and Operational Highlights:

• Financial Results: Revenue was $21.8 million, up 0.2% year-over-year; on constant currency basis, revenue increased ~4.6%. Gross profit was $6.3 million, up 30.3% year-over-year. Gross margin was 28.7% vs 22.1% in Q3 2022. Cash and cash equivalents were $21.5 million, up 32.2% year-over-year.
• Product Innovation: Developed and distributed new drivetrain product line with industry-leading margins. Expanded into new markets like outdoor heavy machinery and military applications.
• Heavy Business: Won Port of Baltimore bid; formed Heavy Energy for power solutions. Explored sales strategies for electric heavy machinery and the authorized service provider model shows promise but is aligned with sales progression.

Segment Performance:

• Transmission and Drivetrain: Product deliveries up 10% year-over-year with margins up 30% year-over-year. New product line of drivetrains has a 40% to 45% profit margin. Cumulative transmission units for the past nine months are 112,414 sets, an increase from 102,000 last year. This segment generates most of the financial performance.
• Heavy: Won the Port of Baltimore Bid for the GEL-5000 all-electric front loader, scheduled for delivery in February. Accounts receivable for Heavy is $20.8 million, up 45% year-over-year. Formed Heavy Energy for power solutions. The heavy authorized service provider model shows promise but is aligned with sales progression.

Guidance:

• Projected positive earnings outlook for the remainder of 2023.
• Optimistic about sustained financial growth and continued success in core transmission/drivetrain business.
• Expect progress in the heavy business, including delivery of Port of Baltimore equipment and development of Heavy Energy.

Risks:

• Geopolitical volatility and potential tariffs/restrictions that could impact the supply chain.
• Weakening yen to dollar, which has fallen 8% year-to-date but the company is still on track for over $90 million revenue for the year.
• Long sales process for heavy machinery products, such as the extended time from procurement to winning the Port of Baltimore bid.

Q: Could you give an idea what the revenue would be in a constant currency basis and the impact of currency as a percent in the quarter?

A: The currency impact from this year alone was 8%. Constant currency revenue for the past nine months would be roughly 8% higher.

Q: Are there milestones we should be looking for on the Port of Baltimore project?

A: Delivery for our unit is scheduled for February, so it will hit the balance sheet for heavy in the first quarter.

Q: Can you update on transmission units and supply chain issues?

A: Overall transmissions for the past nine months is 112,414 sets, an increase from 102,000 last year, up ~10% year-over-year. Geopolitical environment is a risk, but the company has priority with raw material suppliers though geopolitical volatility could be an issue if it exacerbates.

Q: What's driving the gross margins?

A: It's a combination of more efficient operation and innovative product lines. Focus on manufacturing efficiency and developing products that benefit clientele while using state-of-the-art tech to increase margins.

Q: Any update on the heavy ASP model and demo programs?

A: The ASP model shows promise but is aligned with sales progression. Demo programs with rental companies are active but long sales process; some related announcements possible in 2024 but impact to balance sheet might be in 2025.

Q: Market outlook for the core transmission business?

A: Strong global demand for drivetrains and transmissions, particularly in the forklift industry, with an anticipated ~8%-10% compound annual growth rate for the next two to four years.

Q: Clarification on higher shipping fees?

A: Shipping rates have normalized, but short-term cost increase due to air shipping components for heavy business at White Marsh facility, which will normalize once manufacturing scales with sales.