NeoVolta Inc. (NEOV) Earnings Call Transcript

Good day, and welcome to the NeoVolta First Quarter 2027 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ardes Johnson, Chief Executive Officer. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to NeoVolta's first quarter fiscal 2027 earnings conference call. I'm Ardes Johnson, Chief Executive Officer of NeoVolta, and I'm joined today by our Chief Financial Officer, Jing Nealis. Thank you. Before we begin, I would like to remind everyone that our remarks today will include forward-looking statements within the meaning of federal securities laws. These statements are subject to risk and uncertainties that could cause actual results to differ materially from what we discuss today. Please refer to the safe harbor statements in today's earnings release, as well as the risk factors included in our most recent annual report on Form 10-K and other filings with the SEC. We undertake no obligation to update forward-looking statements except as required by law. The central message today is straightforward. NeoVolta has moved from construction to production. Now it's about execution of our manufacturing platforms against customer commitments. Demand continues to be strong across all verticals, residential, C&I, and utility scale. This past quarter, we had a grand opening of our Georgia facility, which is now online and producing, and we are lining up several commercial opportunities supporting the ramp-up schedule. We formally launched our third-party ownership, TPO, finance platform for residential and C&I, along with our NV Wave residential product, and are ramping up projects under that platform. We announced our domestic battery supply agreement and strategy and began taking orders for C&I and utility scale products. Last quarter, we talked about the building blocks we put in place, the factory, the team, the product capabilities, and the strategic relationships. That's exactly what we've done. We will continue to build out the infrastructure to support our growth in line with ramping of our factories. But let me turn to the first quarter. Revenue was approximately $2.8 million. Residential rebounded as we expected after a difficult fourth quarter due to the slip in timing of our TPO launch. Jing will cover the financials in more detail momentarily. Residential remains an important part of our business. With NV Wave available and our third-party ownership financing platform now live, we have both the product and the financing our installer partners need to reach more customers. We continue to build on that momentum created last quarter and are looking to grow this quarter and into the future. Our TPO platform is designed to lower the upfront cost of ownership and support growth across residential and commercial applications. This combination, product availability plus financing access, uniquely positions us to drive continued residential growth through fiscal 2027 and beyond. We announced our strategic supply and manufacturing collaboration with SK On for up to 18 gigawatt-hours of domestic-made cells to support pack and BESS manufacturing. We also formalized a $53 million commercial commitment under our utility scale framework with Infinite Grid Capital. And we officially opened Pendergrass following a well-attended grand opening event. While it was an active quarter, we know we are just getting started. Let's spend a few minutes on the factory. Pendergrass is officially online and producing. The immediate focus now is building a consistent production rhythm, holding the line on quality, and getting products ready for customers as we ramp. Opening the facility was the accomplishment. Operating it well is the job now. That means having the materials, people, processes, and working capital in place to meet customer requirements. It means staying disciplined as volume increases, and it means turning the commitments we've already secured into shipments and revenue. The grant remains on track, and the recent agreements give us a stronger foundation for planning production and allocating capital. We are not building capacity on hope. We're building it around specific customer commitments. As we look ahead, our priorities are clear. First, execute the Pendergrass ramp without sacrificing quality or delivery discipline. Second, convert our committed business into shipments and revenue. Third, keep building the pipeline across commercial and utility scale markets while supporting the residential recovery. Fourth, align capital spending and working capital with the production schedule and customer commitments. The commercial progress is real, but orders aren't the finish line. We still have to manufacture the product, deliver it, and get paid. That's where our attention is now. We entered calendar year 2027 with an operating factory, a recovering residential business, an initial commercial customer base, and meaningful contracted manufacturing activity behind our growth plans. We're proud of what the team has built. Now it's time to deliver on it. With that, I'll turn it over to Jing to walk through our financial results, balance sheet, and capital priorities.

Thank you, Ardes. For the quarter ended September 30, 2026, our revenue was $2.8 million, compared with $13,000 in the previous quarter ended June 30, 2026. This sequential increase is the first financial result of the residential reset we described on our last call. Last quarter, our revenue was held back by the sharp slowdown in traditional installer channel demand after changes in the federal incentive environment. We responded to the changing residential market by advancing the NV Wave modular residential product design and setting up the TPO structure. This quarter, the revenue rebound came from our TPO platform. We recognized revenue on our first batch of residential energy storage projects that reached substantial completion and sold to the third-party-owned platform supported by tax equity partners. The purpose of the TPO platform is to enable us to establish a business model and customer base to leverage our FEOC-compliant residential energy storage product, state and federal tax incentives, while capturing higher revenue and margin at the project level. Gross margin was 36.5%, which reflects the higher value of fully installed project sales compared with a product sale-only business model. We expect residential volumes to continue building as we scale the TPO platform and deploy our next-generation residential energy storage product, NV Wave. Net loss was $7.7 million, or $0.13 loss per share, compared with $11.7 million, or $0.24 loss per share, in the previous quarter. Adjusted EBITDA was negative $5.5 million, compared with negative $8 million in the previous quarter. Just a reminder, we use adjusted EBITDA as a supplemental non-GAAP measure as we believe it is useful to help investors evaluate our operating performance across periods by excluding items such as interest, taxes, depreciation, and amortization, stock-based and non-GAAP compensation, and certain non-operating items. A full written reconciliation to the most directly comparable GAAP measure is included in today's earnings release. Cash used in operating activities was $6.6 million in the quarter, which is in line with our expectation as we start production ramp at the Pendergrass, Georgia facility. Capital expenditures were $7.3 million, mainly for production equipment and leasehold improvements at Pendergrass. Net property and equipment on our balance sheet nearly doubled during the quarter from $9.9 million at June 30 to $18 million at September 30. We ended the quarter with cash and cash equivalents of $26 million and restricted cash of $2.8 million, for total cash, restricted cash, and cash equivalents of $28.8 million. That compares with $25.4 million at June 30. As we previewed on our last call, in September, we closed a $20 million senior secured term loan with the potential for up to an additional $10 million subject to lender agreement. This facility is part of our capital formation strategy. Fiscal 2026 was funded primarily with equity. As our Pendergrass facility moves from commissioning into production, and as we convert pipeline to orders, we expect to have more financing tools available, including customer prepayments, working capital, and asset-backed line of credit facilities, alongside cash on hand and equity markets. Before I turn to our priorities, I want to highlight an administrative change. We're changing NeoVolta's fiscal year end from June 30 to December 31, effective December 31, 2026. Going forward, our fiscal year will match the calendar year. This aligns our reporting with most of our industry peers and with the budgeting and procurement cycles of our C&I and utility-scale customers. It also aligns our tax year with the calendar year, which positions us to be able to more efficiently monetize the 45X tax credits we expect to generate from our U.S. manufacturing facility, since most tax credit buyers operate on a calendar tax year. It also simplifies comparison for our investors and shareholders as we begin our high-growth journey. As a result, the six months from July 1 through December 31, 2026, will be a transition period. We will report that period in a transition report on Form 10-K, which will include audited financial statements for the six months. Our next fiscal year will then run from January 1 to December 31, 2027. We will provide recast historical quarterly information to help investors compare periods on a calendar year basis. As we look ahead, our strategy and focus remain unchanged. We are committed to delivering energy storage products to residential, C&I, and utility-scale markets. We're continuing to execute against our production ramp roadmap. We're well-positioned to fulfill customer demand that we expect to generate as we move into 2027. We continue to see strong momentum in customer engagements. Our priority remains moving these engagements from pipeline to committed backlog to shipments. To sum up, the first quarter showed a clear sequential improvement. Revenue recovered with the launch of the TPO platform. Our net loss and adjusted EBITDA both improved from the previous quarter, and we increased our liquidity. Our spending is focused on bringing Pendergrass into production to support revenue growth in the coming year. We will continue to weigh the cost of capital, shareholder dilution, financing flexibility, and execution certainty when we choose how to fund our rapid growth. With that, I will turn the call back to the operator to open up for questions.

[Operator Instructions] Your first question comes from Sean Milligan from Needham & Company. Please go ahead.

Hey, Ardes and Jing, thank you for taking the questions. I guess the press release mentions a $116 million master purchase agreement for products with deliveries this year. Is that incremental to the IGC, the $53 million IGC award you had? Just trying to understand where the current backlog is for this year now for the plant.

Yes, thanks, Sean, for that question. That is backlog, it would be in calendar year 2027. We just received that. We just closed that essentially today. And it's a big opportunity for us, and we are going to start delivering on that beginning in Q1 of calendar year 2027. So just so we're all aligned, that's our goal, and you know, it's 2027, but actually we're going to try to get as much of that in the first half as we can, the opportunity to pull that through to the first half of calendar year 2027. So it's a big step for us, a big growth, and it's brand new. We weren't really able to talk about it in the pre-recorded remarks, but here we are to discuss it today, locked in. So just so you know, it's not part of anything that we've had before. It's brand new.

Okay, so now you have that plus the IGC award. I guess the IGC award still needs to convert to orders?

Yes, yes, that's what we've already got, right? And it's a commitment from them going to be over a series of projects in 2027 as it gets deployed. But yeah, that commitment was for one larger project with several POs within that project that will come over a period of time next year.

Okay, and you mentioned prepayments as potential financing vehicles for some of the sale purchases as you build inventory. Can you talk about the structure of the new award? Did that include any prepayments? If it didn't, what conversations are you having with additional customers around prepayments?

Yes, while we can't go into too much detail about the commercial side of it, you could imagine that for each project we're working on, particularly with the amount of demand and the ability for us to service it here in the U.S., there are a series of prepayments or commitments for the overall project to get done. And yeah, we're negotiating those with customers, but also utilizing these commitments to go for certain financing to support the raw materials and the growth of these projects, as well as working with our vendors for favorable terms on supply as well. We're doing those combinations, but yeah, our expectation is that we will get prepayments for products that we are delivering out of the Georgia facility.

Great, and then I know, I think you originally were talking about maybe 10 systems or something like that between the end of September and the end of December. And I guess can you talk us through what kind of activities are going on at the plant this quarter? Do you have cell inventory today? Are you starting to run cells? Kind of how many initial early systems do you expect to deliver?

Yes, we procured enough material for the first 10 units. Some of that material is still in transit or hasn't arrived, but we expect it to be arriving. Our deliveries for that are not just dependent on our ability to produce, but also tied to when the customers need it. So the timing doesn't always align. Our goal is to try to get some units built. If you went there today, you'd see some units that are built now, still doing certain tests on them. It doesn't stop our production or our building. We've got to get through those final tests, and they're check-the-box tests, so to speak. We get those final tests done, which are imminent, and that'll give us the ability to then be able to ship. We plan on having the ability to even ship the units that we're going through on the test as our expectation. But we're pushing to have as many of those, a few of those at least, shipped this calendar year, the remaining of this calendar year, to get that done. We've got it lined out with who we'd be working with on those. It's just going to come down to timing of when the customers actually want them and our ability to ship them as soon as we possibly can, but also based on their schedule as well.

Great, and then one last one, if I can, on the SK On agreement, I think you've been pretty optimistic on having final docs before year-end. Is that still sort of the cadence that we're on for seeing final documents on SK On?

Yes, I would tell you that we're down to the very, very end of that, what I'd call negotiation, if you want to call it that. It's really more technical than anything else. And a lot of that's tied to the design of what the pack line will be that we've talked about that'll come online in the second half of next year. Both parties are actively wanting to get the deal done, but we're also being very conscientious of making sure that we get everything done now versus having to go back into the contract and make changes on the technical side. So the teams are working really hard on that to get it done, and the expectation is imminent that we get that contract done. Like I said, both parties are very active and have a desire to get it done. We knew that earnings announcement was coming today, and we're pushing very hard for that. Ultimately, we have a couple of big trade shows coming up, and we all want to be there as partners and have those conversations and be able to talk to customers as partners. But at the same time, we both recognize that we want to do it the right way. In terms of commercial and everything else, we're really aligned with them right now. It's more on the technical side, but the expectation is we get it done in very short order.

Great. Thank you for all the color, Ardes, and it's exciting to continue to watch this thing ramp up. Seems like the next quarter or two is going to bring a lot of news and results that we'll be able to see in the financials.

Yeah, thank you, Sean. Appreciate that.

Thank you.

[Operator Instructions] Our next question comes from Robert Brown from Lake Street Capital Markets. Please go ahead.

Good afternoon. I just want to follow up a little more on the expected order cadence as you get into next year. As you look at your pipeline, how do you sort of think the order cadence plays out? Do you need to sort of get these tests and certifications done before you get orders, or is it a matter of just customer need and timing?

Yeah, I wouldn't say that it's more aligned with the testing. What we're doing is nothing that our customers view as unexpected; they realize what we're doing and they understand it. It's really going to come down to aligning with projects that are being done and how we can secure that with where their needs are. Some customers, again, when we talk about testing and other things, they will want to come in with some third-party folks to look at it. I wouldn't say that it's stopping any of our activities or opportunities. We're quite frankly looking at some of the stuff that we're getting lined up now to understand our ability to serve above and beyond our ramp schedule, which hasn't changed, and that expectation. So right now it's more aligned with some of our customers and the timing of when they need product and when we're going to be able to deliver that product. Some of that is also aligned coming into the second half with some of the U.S. supply with the SK On agreement that we have and the combination of those two. But we expect to start getting that backlog as soon as possible, even going into the second half of next calendar year. We really feel that it's going to be more aligned with customers' needs and the timing for what they need the product and when they need the product. We're working really diligently with those partners to try to make that align with our needs on a quarterly basis and our growth plans as well so that we build smartly and are stewards of cash flow in a way that makes sure that we are doing what we need to do from a financial perspective to keep the company moving in the right direction. But it is around customers' timing of demand and how we're working with them with some of their projects. As you guys are probably well aware, our industry is one tied to projects that get caught up along the way very often in certain phases of the delivery status. But we're working with really tied-in deals that are being done now and looking to get that executed in a timely manner. We feel very good about the pipeline itself, along with that pipeline on the utility scale, which is our large DC blocks. We're also feeling very highly bullish on the C&I side, and we'll be able to start delivering that product in the second quarter of next year out of the Georgia facility. We're lining up a lot of opportunities there for multiple units across different—not only opportunities more view in the platform, some larger installers who are looking at larger MSA-type agreements for multiple units. So both of those are kind of tying in, and we're aligning those with our production as well as our certifications, but it's around, long story short, Rob, it's around customers' demand.

Okay, great. Thank you. Very helpful for all the color there. And then just sort of following up on SK On, is the agreement you're discussing on both sides of that agreement, both the supply and the production sales side of it as well?

Right now, from the sales side, from our capacity and what we're going to be taking from them, we've pretty much locked that down. It is tied into the design of the pack, the pack design tools that we will be procuring and installing in the first half of next year for delivery in the second half of next year of product. But most of it right now is the technical aspects of not only the cell design, which is a little bit different than their existing cell right now—it's a little bit newer cell design—and our pack design, we're working really closely together on what that's going to look like from the form, function, and features of those packs. So that's what we're securing that second half, which includes the pack portion that we've been talking about earlier on for SK On. As we've said, that product in and of itself back to SK On is likely going to be a 2028 calendar year delivery, which is kind of what we've had planned all along. So the rush of what we're trying to do to get the signatures done doesn't really impact any of that. Nothing is being impacted by any delay in signing of documents. We're all working really well together. We're just making sure that we have everything aligned as we secure the agreement on both sides. But the cell agreement is done, and we are now moving on to the pack side.

Great, thank you. I'll turn it over.