Greenland Technologies Holding Corporation (NASDAQ:GTEC) Q2 2022 Earnings Conference Call August 12, 2022 8:00 AM ET
Company Participants
Julia Qian – Managing Director, Blueshirt Group Asia
Raymond Wang – Chief Executive Officer
Jing Jin – Chief Financial Officer
Conference Call Participants
Operator
Thank you for standing by. And welcome to the Greenland Technologies Holding Corporation reports Second Quarter and First Half 2022 Unaudited Financial Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to turn the conference over to Julia Qian. Please go ahead.
Julia Qian
Thank you, operator, and hello, everyone. Welcome to Greenland Technologies second quarter and the first half 2022 earnings conference call. Joining us today are Mr. Raymond Wang, Chief Executive Officer and Mr. Jing Jin, Chief Financial Officer. We’ve released the results early 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 be available in a few hours on our IR website.
Before we continue, please note that today’s discussion will contain forward-looking statements made under Safe Harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. 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 filings 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 unless otherwise state, all the figures mentioned during this conference call are in US dollars.
With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.
Raymond Wang
Thank you, Julia. Good morning, everyone, and thank you for joining us today. We have a lot to talk about during this call. But before I jump into it, I just want to start by thanking my team for their hard work and dedication to our mission at Greenland Technologies to continue to deliver the best quality products and develop innovative solutions for our clients, shareholders and local communities.
Now Q2 has been a challenging quarter for the company with $20.6 million in revenue generated, representing the first quarter where we did not produce positive year-over-year growth since we became a publicly listed company on the NASDAQ in 2019. This decline is primarily attributed to the reinstated COVID restrictions and shutdowns in China that lasted in some cities for over a month.
Display agreement being lucky to avoid shutdown of our owned facilities, some of our key clients were not as lucky and had to close their operations for weeks and in some cases, for over a month. This resulted in orders being delayed by client request and ultimately a decline in our Q2 sales and revenue.
Now allow me to emphasize that this is a short-term disruption. And I adamantly believe the execution of our long-term strategy will continue to generate profitable growth and value for the company. If we take a step back and view our first half results, then you will see that the slight losing a month of sales opportunity due to these COVID restrictions, we are still on pace with last year’s performance with $49.9 million in revenue compared to $52.8 million in 2021 and $5.6 million in net income this year compared to $5.3 million in the last.
Should we have continued our trend — we would have continued our trend of positive business growth were it not for the COVID-related restrictions. And further, our gross margin has actually grown by 330 bps to 23.5%. This tells me that we remain on the right course, and we will continue to focus on our current strategy.
Now, our clients impacted by the closure have generated a significant backlog of orders for our drivetrains and components that will contribute towards a strong second half 2020 with full year 2022 results of our component business to be on par, if not higher than what we produced in 2021.
We continue to achieve key milestones in our heavy division, which is focused on the manufacture of electric industrial heavy equipment. This quarter, we launched the GEL-5000, which is a five-ton rated load 40,000 lithium-powered wheeled front loader. We launched that in July, and the unit is now available for demonstrations and sale.
The GEL-5000 actually receives the most interest on our website compared to our other products and we expect to open — and we’ve already scheduled multiple demonstration for the vehicle as part of our sales process.
In addition, this quarter, we secured our first assembly site located in Baltimore, Maryland, and expect to open the doors at the end of this month. We expect this facility to produce over 500 units per year when it is operating at full capacity. And our sales focus for a heavy division is on the Mid-Atlantic region of the United States, so we can provide the appropriate support to our future customers.
Now, we aren’t where we want to be in terms of sales, but it hasn’t been due to a lack of demand, but a lack of infrastructure. We found that initially we positioned our equipment along DCFC charging networks. However, we found that the deployment of new charging stations to be slow or too costly for local businesses to justify.
Accessible charging infrastructure is critical to the deployment and adoption of EVs and is currently in its infancy across our markets. So, to address this, we have been developing our own line of mobile chargers that will allow our customers to charge our products without requiring investment into an on-site charging station.
We will be offering multiple charging solutions that support sites with power ranging anywhere from 110 volts to 220 volts or even 480 volts. These units can fully charge our equipment in eight hours or less. Now, that’s a bit longer than our DCFC charges would, but it still aligns with most of our prospects who would simply let the units charge overnight to be ready for a full day of work in the morning.
And these charges are expected to enter production at the end of Q3 of this year and supports our strategy to drive equipment sales by making our products easier to integrate into an existing site operation.
Further, we closed a $10 million fund raise through a combination of a direct registration and private placement with Aegis Capital at the end of last month. With global markets at risk of recession with no strong tailwinds to correct course in the short-term, it is imperative for corporations to shore up cash reserves to be able to weather the storm.
And this fund raise strengthens our ability to weather the current market conditions, while providing and offering flexibility for us to be able to pursue any opportunities that should arise.
As such, a portion of these funds will be used to accelerate the expansion of our heavy division through talent acquisition, inventory growth and facility ramp up, while the remainder will be held and reserved for the right opportunities that can further develop our channels for both product and our service channel offerings.
Despite a challenging second quarter, Greenland continues to generate positive results and deliver value to our shareholders. Our components business remains on track for another successful year with a strong backlog and positive industry tailwinds. Our heavy division continues to achieve the milestones we set for our strategy, while remaining nimble to address industry challenges as we pioneer this new technology, and our balance sheet remains strong through business performance and recent fundraising activity. We, at Greenland remain focused on executing our strategy to produce long-term profitable growth for the company and our shareholders.
And with that, let me turn the call over to our CFO, Jing Jin, to provide greater detail into our financial performance. JJ, the call is yours.
Jing Jin
Thank you, Raymond, and thank you, everyone, for joining our call today. I will now go over our financial highlights for the second quarter and the first half of 2022. For the full details of our financial results, please refer to our earnings press release. Challenges from the first quarter continued into the second. Our team did a great job working with customers and our supply chain to reduce the impact of the China’s COVID-19 shutdowns and the global supply shortage.
We also had a ended headwinds of an unfavorable foreign exchange and the global inflation. For Greenland, we ended the quarter in a strong financial position. Demand remains robust for our industrial EV models, and we are executing our long-term growth strategy.
Even with the short-term challenges, we drove a 330 basis point expansion in our gross margin year-over-year to 23.5% during the period and further enhanced our balance sheet with $10 million in proceeds from Registered Direct and Private Placement Offerings in July. This will allow us to support the next phase of our growth without having to go back to the market over the near-term.
In terms of our results, revenue in the first half of 2022 was $49.9 million. The slight decrease from $52.8 million in the prior year reflect the impact of the China’s pandemic knockdowns. It was the case of the customer not being opened and able to place orders. That demand moves into the second half and led to our higher backlog reduced in Q2.
On an RMB basis, revenue decreased by about 5% from the first half of 2021. The number of the transmission products fell 10% to 17,841 units during the period. We continue to drive cost savings across our operations will prosper. As a result of our strong supply relations, combined with the lower sales volume, we were able to reduce our cost of goods sold by 8% to $38.7 million, and we generated gross profit of $11.2 million, up 4% from $10.8 million in the first half of 2021. We continue to benefit from our strategy to shift towards higher-value products with a 200 basis point expansion year-over-year in the first half gross margin to 2020, 20.5%.
The total operating expenses rose 25% to $5.6 million, primarily due to our investment in support of our growth strategy. Operating expense as a percentage of total revenues, however, was only up 2.8 percent-points to 11.3 percentage compared with 8.5 in the first half of 2021.
Within that, selling expenses increased 32% to $1.2 million. General and administrative expense increased 52% to $2.5 million, while research and development expense was related on the part of the prior year. We generated $5.6 million in income from operations, down 12% from the first half of 2021. Net income was $5.3 million, a decrease of 5% from $5.6 million in the prior year.
In summary, Greenland remains well positioned. We are excited — we are executing our product road map, expanding our production footprint and focus on profitable growth. Underlying cash remains firmly in place, which strengths our balance sheet and are exiting for the second half of 2022, as we continue to execute our long-term business strategy.
So that concludes our prepared remarks. Operator, we can now open the call for questions.
Question-and-Answer Session
Operator
Raymond Wang
Great. Thank you very much. So I want to thank everyone for joining the call and for your continued interest and support in Greenland and our mission here. We will continue to execute. That is our promise. We will continue to deliver and do the best that we can in this market to continue to generate growth and value for shareholders, for our clients, for our company and for our local communities. And for that, I just want to thank everyone for all of your continued support for the company.
Operator
Thank you all, again. This concludes today’s call. You may now disconnect, and have a wonderful day.
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