Microvast Holdings (MVST), a leader in battery technology for electric vehicles, reported a record second quarter revenue of $83.7 million in Q2 2024, marking a 12% year-over-year growth. The company also saw a significant improvement in gross margin, reaching 32.5%. This performance was driven by a substantial 401% increase in sales in the EMEA region. Despite these gains, Microvast faced challenges such as delayed customer deliveries and a strategic shift towards LFP technology in the U.S., resulting in a net loss of $78.4 million, largely due to impairment losses. Looking ahead, Microvast forecasts Q3 revenue between $85 million to $90 million and maintains a target gross margin of 25%.
Key Takeaways
- Record Q2 revenue of $83.7 million, up 12% year-over-year.
- Gross margin improved to 32.5%, a 17.2% increase from the previous year.
- EMEA sales grew by 401%, significantly contributing to revenue.
- Operating expenses rose to $103.6 million due to impairment losses.
- Net loss of $78.4 million, with adjusted net loss at $64.7 million.
- Q3 revenue projected to be $85 million to $90 million, with a target gross margin of 25%.
Company Outlook
- Anticipated Q3 revenue growth of 9% at the midpoint compared to the previous year.
- Focus on operational efficiencies and maintaining a target gross margin of 25%.
- Continued expansion in the APAC and EMEA regions, with an emphasis on commercial vehicle customers.
- Introduction of the new 565 amp-hour LFP cell and ME6 energy storage solution.
Bearish Highlights
- Significant impairment losses of $64.9 million, primarily in the U.S.
- Delayed customer deliveries in the commercial vehicle segment.
- Strategic shift towards LFP technology resulting in ceased use of certain U.S. facilities.
Bullish Highlights
- Strong sales demand in the EMEA market, particularly for commercial vehicles.
- Expansion into new markets, including a strategic partnership with Evoy and a $40 million order from a Korean e-Bus customer.
- Launch of new battery technologies catering to renewable energy customers.
Misses
- Despite revenue growth, the company reported a substantial net loss due to impairment losses.
- Operating expenses increased significantly year-over-year.
Q&A Highlights
Unfortunately, the Q&A session highlights were not provided in the transcript summary. Therefore, this section cannot be completed as per the instructions given. However, investors and analysts typically use the Q&A session to seek clarifications on financial results, strategic initiatives, and management's outlook, which can provide additional insights into the company's performance and future plans.
InvestingPro Insights
Microvast Holdings (MVST) has shown some interesting dynamics in its financial performance recently. According to InvestingPro data, the company's market capitalization stands at a modest $108.09 million, which may reflect investor concerns about the company's significant debt and its ability to service that debt. The Price / Book ratio, as of the last twelve months leading up to Q1 2024, is 0.23, suggesting that the stock could be undervalued relative to the company's book value. This is particularly relevant as the company is trading at a low Price / Book multiple, which is often a metric used by value investors to identify potential investment opportunities.
On the profitability front, the P/E Ratio (Adjusted) for the same period is -1.22, highlighting that Microvast is not currently profitable. This aligns with an InvestingPro Tip that analysts do not anticipate the company will be profitable this year. The lack of profitability is further underscored by the Operating Income Margin, which sits at a negative 29.61%. Moreover, the company's Revenue Growth for the last twelve months up to Q1 2024 is 58.75%, showcasing a strong increase that may be of interest to investors looking for growth potential in the electric vehicle sector.
Investors should note that Microvast's stock price has experienced significant volatility, with a 1 Year Price Total Return of -83.59%, indicating that the stock has faced downward pressure over the past year. This is consistent with an InvestingPro Tip that the stock generally trades with high price volatility.
For those interested in a deeper analysis of Microvast's financial health and future prospects, InvestingPro provides additional tips, with a total of 15 InvestingPro Tips available, offering a comprehensive look at the factors influencing the company's stock performance.
For more detailed insights and additional tips, investors can visit InvestingPro at: https://www.investing.com/pro/MVST.
Full transcript - Microvast Holdings Inc (NASDAQ:MVST) Q2 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to the Microvast Second Quarter 2024 Earnings Call. As a reminder, all participants are in listen-only mode. And the conference is being recorded. I would now like to turn the conference over to Mr. Yaser Ali, Chief Financial Officer of Microvast Holdings. Please go ahead.
Yaser Ali: Thank you, operator, and thank you, everyone, for joining us today. Joining me on today's call is Mr. Yang Wu, Founder, Chairman and CEO of Microvast Holdings. Mr. Wu will start off with a high-level overview of the quarter before providing some operational updates. I will then discuss our financials in more detail before handing it back to Mr. Wu to wrap up with our second quarter 2024 outlook. Ahead of this call, Microvast issued its second quarter earnings press release, which can be found on the Investor Relations section of the company's website, ir.microvast.com. In addition, we have posted a slide presentation to the company's website to accompany management's prepared remarks. As a reminder, please note that statements made in this call may include forward-looking statements and based on current expectations and assumptions. They should not be relied upon as representative of views for subsequent dates, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements due to new information or future events. Actual results may differ materially from expectations due to a variety of risks and uncertainties. For more information on material risks and other important factors that could affect our financial results, please refer to our filings with the SEC. We may also discuss non-GAAP financial measures during this call. These measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metrics in the tables included at the end of our press release. After the conclusion of this call, a webcast replay will be available on the Investor Relations section of Microvast website. And now, I will turn the call over to Mr. Wu for opening remarks.
Yang Wu: Thank you, and thank you, everyone, for joining today's call. Please turn to Slide 3 as I cover a few highlights from the second quarter. The business posted a record second quarter revenue with 12% growth year-over-year in Q2, 2024, delivering revenue of $83.7 million. We achieved this growth while maintaining a gross margin of 32.5%, and at 17.2% improvement year-over-year. This incredible growth comes largely from sales increases in EMEA business year-over-year. We saw triple-digit percentage growth of 401% for EMEA. Please join me on Slide 5. The company was successful in further expanding its commercial vehicle footprint. We have entered into a strategic partnership with Evoy, a Norwegian pioneer in electric boat motor system. We have begun to tap into the Korean market, and have secured a $40 million order from a Korean e-Bus customer. We closed the second quarter with a backlog of $278.6 million and continue to strive for operational efficiency. The company posted significant improvements to adjusted gross margin at 34.3%, a 17 percentage point increase year-over-year. The company posted yet another banner quarter, and we expect continued growth and successes. So this also come with challenges. In addition to decelerate the rollout of light commercial vehicle platforms in European market, we experienced delay in CV customer deliveries pushed into second half of this year. Turning to Slide 6. We have some exciting new customers globally in various commercial vehicle segments. These customers will utilize Gen 4 packs and MV-I pack with our 53-point amp-hour and 48 amp-hour power cell technology. While we aren't quite ready to announce the project publicly, we have made significant progress with the customers on product ramp-up and prototype development. Additionally, we are excited to be working with Evoy on e-Boat motor systems. I would now like to turn the call over to Mr. Ali, to discuss our financials in more detail.
Yaser Ali: Thank you, Mr. Wu, and thank you, everyone, for tuning in. I'll spend the next few minutes discussing our Q2, 2024 financial results. Please turn to Slide 8, and I will summarize the main line items from our Q2, P&L. We booked a record second quarter with Q2 revenue of $83.7 million, an increase of 12% from $75 million in Q2, 2023. This growth was driven primarily by strong sales demand in EMEA markets, for commercial vehicles as OEMs continue to adopt our technologies. Our gross margin improved to 32.5% in Q2, 2024, compared to 15.3% in Q2, 2023, after adjusting for non-cash settled share-based compensation expense, and cost of sales adjusted gross margin increased to 34.3% in Q2, 2024, compared to 17.3% in Q2, 2023. That's a 17 percentage point improvement. This increase in gross margin was due to a combination of factors, including better economies of scale through improving utilization, more favorable product mix and lower raw material prices. Operating expenses were $103.6 million in Q2, 2024, compared to $39 million in Q2, 2023, an increase of 166% from the prior year period. This increase in operating expense is mainly due to the impairment loss, of the long-lived assets of $64.9 million, $64.8 million of which was for impairment losses in the U.S., as we decided to seize use of certain buildings and facilities, under our strategic shift towards LFP technology in the U.S. Without adjustments for impairment loss, our operating expense would have been $38.7 million in Q2, 2024. After adjusting for non-cash SBC expense in SG&A, our adjusted operating expense in Q2, 2024 were $92.9 million, compared to $22.7 million in Q2, 2023, an increase of $70.2 million, mainly due to the impairment loss mentioned just now. GAAP net loss was $78.4 million in Q2, 2024, compared to net loss of $26.1 million in Q2, 2023. After adjusting for non-cash SBC expense and changes in fair value, of our warrant liability and convertible loan with shareholder, adjusted net loss was $64.7 million in Q2, 2024, compared to an adjusted net loss of $8.3 million in Q2, 2023. The impact of these adjustments is shown in Slide 9, and reconciliations of these non-GAAP metrics to the most comparable GAAP metrics, are included in the tables at the end of our earnings press release. Slide 10 shows the geographic breakdown of our revenue for Q2, 2024, compared to the prior year period. As you can see, we booked outstanding sales increases. Our EMEA business was up by 401% year-over-year and accounted for 55% of our revenue, up from 13% a year ago as key customers began their vehicle ramps. And with that, I will turn it back over to Mr. Wu, to briefly go over our outlook for the third quarter.
Yang Wu: Thank you. Please turn to Slide 12, which provides a summary outlook for upcoming months. For the third quarter, we expect revenue to be in the range of $85 million to $90 million, up 9% from Q3 a year ago at the midpoint. This anticipated growth is primarily expected to be generated through, increased deliveries to our APAC and EMEA commercial vehicle customers. We continue to strive for operational efficiencies, and we are maintaining our target gross margin of 25%. For APAC, we will be delivering 21 amp-hour cells from our Huzhou facility. We plan to do this while we also targeting growth in Southeast Asia, and the continuing R&D progress on new upcoming products. In EMEA, we anticipated Q3, 2024 revenue to grow more than 100% year-over-year, and expect to ramp up the series deliveries to the European commercial vehicle OEMs. For the Americas, we continue to focus on financing solutions to complete Clarksville, while exploring new commercial vehicle markets in the Americas. Turning to Slide 13. We are excited to launch our new battery technology, the 565 amp-hour LFP cell. This is the newest product line in our extensive battery portfolio. This 565 amp-hour LFP cell provides a host of specifications, designed to meet the needs of renewable energy customers, including lower cost, enhanced reliability and a longer lifespan. Our domestically-produced LFP batteries are expected to qualify for IRA Section 45X, enhancing their economic attractiveness for Microvast and our customers. Please join me on Slide 14, where you can see our new LFP-based ME6 energy storage solution. This new product offers a compelling combination of benefits, including up to 30-year lifespan with Microvast's new overhaulable battery design, boasting a high-energy density offering a six megawatt hour in a compact 21-foot container, high efficiency and optimize the total cost of ownership, with a robust design. We are excited to work to bring this product to market. Thank you all for joining us today. We look forward to updating you on our progress again next quarter.
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