VivoPower Plc Q2 FY2022 earnings call

Management Statement and Operational Highlights

• Strategic progress made despite COVID disruptions, including expanding distribution partner network to six continents, establishing a subsidiary in the UAE, developing 72 kilowatt hour battery kits, achieving full control of the US solar joint, entering a LOI for a renewable powered digital asset mining business (Caret Decimal), and recertification as a B Corp.
• Post 1st January: Work ahead was up 72% year-on-year, cash flow improving, Tembo moving to an expanded facility in Eindhoven on 1st May, collaborations with TMCA and Artic Trucks ongoing, progress on non-dilutive funding in the UK (R&D tax offsets), EU (European Innovation Council grant), and global scale (working capital facilities), expansion of the GB Auto LOI, and Caret Decimal acquiring Decimal Digital to accelerate revenue generation.

Segment Performance

• Tembo electric vehicles: September revenues were $0.9 million, but impacted by operational disruption. Underlying EBITDA loss was $2.3 million.
• Critical power (Aevitas business): Recorded $18 million in revenue, down 14% year-on-year due to Australia lockdowns. Gross profit was $0.8 million, excluding a one-off $1.1 million COVID-driven loss on Bluegrass solar project, it would have been $1.9 million. Underlying EBITDA excluding Vivo was $1.3 million.
• SES: Revenues were immaterial, but working on feasibility studies for whole of facility electrification projects, including dialogue with major mining and board infrastructure companies.
• Caret Solar: Contributed 206.5 megawatts DC from its solar portfolio to Caret Decimal with an evaluation of $20 million, above the book value of $12.1 million for the entire portfolio.

Guidance

• The Aevitas business is expected to rebound, but will need to navigate supply chain issues.
• Caret Decimal has commenced fundraising and there is potential for it to spin off from VivoPower.
• Tembo is moving to an expanded facility and working on a micro factory strategy for global assembly of e-LV kits.

Risks

• Extended COVID lockdowns in key markets caused delays to scheduled works and curtailed kit deliveries, affecting revenue.
• One-off COVID-driven loss of $1.1 million on the Bluegrass solar project due to Queensland border closure and COVID outbreaks.
• Supply chain issues to navigate.
• Regulatory scrutiny on crypto, which could impact the economic viability of Caret Decimal's mining operations.

Question and Answer

• Q: Interest in Tembo facilities closer to Southeast Asia, Australia?

A: Definitely, with consideration of Thailand and the UAE for micro factory strategies to be close to key markets.

• Q: Other blockchain applications for Caret Decimal?

A: Beyond crypto mining, blockchain applications include content (NFTs, VR, AR, metaverse) and contracts (smart contracts), which are also high energy-intensive.

• Q: Backup uses for infrastructure if crypto becomes uneconomical?

A: Infrastructure is designed for blockchain and high energy-intensive computing applications, not solely dependent on crypto, with multiple use cases even without crypto mining.