Toyo Co - H1 2024

Transcript

Operator (participant)

Good morning, everyone, and welcome to today's TOYO Co., Ltd. First Half 2024 financial results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Today's call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Crocker Coulson, Investor Relations for TOYO. Please go ahead.

Crocker Coulson (External Investor Relations Contact)

Thank you, Operator. Hello, everyone. Thank you for joining us to review Toyo's 2024 first half results. This morning, Toyo posted both the earnings release and related investor presentation to its website, which you can find at investors.toyo-solar.com. With us on the call today are Mr. Junsei Ryu, Toyo's Founder and Chief Executive Officer, and Mr. Raymond Chung, Toyo's Chief Financial Officer. The senior management team is in New York today in advance of Toyo's market ceremony at the Nasdaq MarketSite tomorrow. After the prepared remarks are concluded, we'll open up this call to your questions. But before we begin, some statements in this teleconference are forward-looking within the meaning of the federal securities laws. Although we believe these statements are reasonable, we can provide no assurance that they will prove to be accurate, because they are prospective in nature.

Actual results could differ materially from those we discuss today. In addition, we encourage you to review the most recent Form F-4, Form 20-F, and subsequent filings for risk factors that could materially impact our results. As I mentioned, the earnings release is available today on our website. With that, it's now my pleasure to turn the call over to Mr. Junsei Ryu, Chief Executive Officer. Ryu-san, please go ahead.

Junsei Ryu (CEO)

Thank you, Crocker. Good morning, everyone. We're glad you have joined us. It's a great honor to address our first earnings call as Nasdaq-listed company, and we look forward to our market ceremony tomorrow afternoon at the Nasdaq Stock Market. We started the year with solid momentum, and our new solar cell manufacturing facility in Vietnam has delivered strong results since it went into mass production in October 2023. To date, we have delivered 1.3 GW in solar cells. Our team's ability to get a brand-new solar cell factory up and running with world-class automation is a huge testament to Toyo's talent.

I'm glad, I'm pleased to note that Toyo has been profitable since commencing production, and profits continued to expand in the first six months of 2024. Despite the uncertainity, thanks to U.S. policy headwinds and have disrupted market conditions. We are confident that we have the right team and standard touch to serve the growth, growth US solar market. I will now hand the sale over to our Chief Financial Officer, Raymond Chung.

Raymond Chung (CFO)

Thank you, Ryu-san. Good morning, everyone. I will review our first half operational update and the financial highlights before taking any questions.

So, on Toyo's updates, as Ryu-san mentioned, we are extremely pleased with the operational achievements of Toyo's team during our first nine months of manufacturing and with the potential shown by our six-month results for this year. We are confident that the underlying N-type TOPCon technology and production quality are at high level, and the perfect feedback from our customer has validated this. We believe we have the right approach and the right team to meet the needs of the utility scale market in US, USA. Despite the market uncertainties, we believe solar will supply a large portion of the growing energy demand in the US, and that Toyo can deliver the products the market demands. Our product efficiency has also improved significantly. A-grade yield has risen from around 85% last year to current 95%.

The finished product efficiency has increased to over 26.4% in June this year. Additionally, our unit cost has decreased from $0.158 per watt last year, to $0.1156 per watt in the first half of this year. So, in February this year, Toyo, we signed a global cooperation agreement with OCI Company Ltd., a major Korean silicon material supplier, to offer our customers trustworthy and verifiable, PV products. Manufacturing products using non-Chinese silicon materials results in a cost increase of approximately 50% compared to Chinese silicon products. However, due to supply chain compliance and transparency, these products have gained recognition from our customers.

Moving into the second half of this year, we see challenges ahead as the U.S. Department of Commerce will decide if it has the ground to initiate anti-dumping and countervailing duties, AD/CVD, on solar products coming from Southeast Asia, namely Thailand, Malaysia, Cambodia, and Vietnam, before the end of this year. The U.S. government's decision to suspend the tariff exemption for the bifacial solar products and initiate the investigation, followed the extensive lobbying by companies with a U.S. manufacturing base, who claimed that Chinese solar manufacturers were using Southeast Asian assembly plants to evade tariffs on Chinese solar products. While Toyo's parent company is a Japanese, and Toyo has no manufacturing assets in China, we have unfortunately been swept up in this probe now.

Prior to the government's action, our products were very sought after by American utility-scale solar companies due to our advanced technologies, quality, and brand reputation of our affiliated company, VSUN. During the agency's investigation, our end customers are reluctant to place volume orders until the full impact of any tariffs and duties become clear. While we work through this period, we are focused on adjusting cost structures, optimizing production capacity, and aligning customer focus and proportion to ensure positive cash flow. To mitigate the risks from government policy uncertainty, we are accelerating our pre-existing plan to establish a reliable PV supply chain in the U.S. We aim to expedite the establishment of a 2 GW PV module facility in the U.S. by integrating our technology with local R&D and supply chains.

In the long run, we plan to build a made in the U.S.A. solar products supply chain with inherent economic competitiveness, rather than relying solely on subsidies. In the coming month, we plan to announce the groundbreaking of our 2 GW solar module factory, followed by another 2 GW solar cell factory in the coming quarters. Our solar module and cell facilities are expected to continue the business foundation established by our affiliate, VSUN, that has been serving prestigious U.S. clients for years. The initial 2GW factory will be leased, and we are finalizing commercial terms with the local government and owners. We currently estimate that the cost of outfitting the facility and initial working capital requirements for the module facility will be $100 million. We expect to be able to commence production in the middle of next year, 2025.

We aim to make further announcements as soon as we have finalized negotiations with the site owner, and local and state governments. On the research and development front, we are actively negotiating cooperation opportunities with major owners of N-type TOPCon cell patent. Globally renowned industry scientists lead our R&D team, and we intend to establish a technology research center in the US. Now, in terms of financials, in the first six months of this year, we have delivered 985 megawatts of solar cells, up from 327 megawatts last year, since the trial production in August 2023. In terms of revenue, we generated $138.1 million in the first half of this year compared to zero revenue in the first half of last year.

Our cost of revenue in the first half was $111.4 million, in line with revenue growth, and total operating expenses increased to $4.2 million for the first six months of 2024, from $1.8 million for the same period of the last year, mainly due to the ramping up of our production. Net income was $19.6 million for the first six months of this year, compared to a net loss of $1.9 million in the first half of the last year. Turning to our balance sheet, we had $44.4 million in cash and then restricted cash in total as of June thirtieth this year, 2024.

Due to the potential impact of the U.S. imposing AD/CVD duties, we and our significant clients have decided to reduce shipment volumes until the preliminary investigation results are announced in between September to November 2024. As a result, we expect to deliver over 1.9 GW in orders during the full year of 2024. We plan to provide more detailed guidance as the impact of the trade investigation becomes clearer. In the long run, our technological and operational strategy aims to achieve an economic balance in which renewable energy prices from solar, including battery storage, are cost competitive with conventional energy prices. With that, we'll be happy to address your questions.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And once again, that is star one for questions. And at this time, we have no questions in the queue. I will now turn the program back over to your presenters for any additional or closing remarks.

Crocker Coulson (External Investor Relations Contact)

Great. Well, we wanna thank everybody for joining the call, and if you have any follow-up questions, please feel free to email us, and we look forward to coming back to you in future quarters. Thanks so much.

Operator (participant)

And this concludes today's conference. We thank you for your participation. You may disconnect at any time.