GTEC

Good day, and thank you for standing by. Welcome to the Greenland Technologies Reports Third Quarter 2023 Unaudited Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Josh Centanni, Investor Relations Director. Please go ahead.

Thank you, operator. And hello, everyone. Welcome to Greenland Technologies’ third quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer; and Mr. Jing Jin, Chief Financial Officer. We released results earlier today. The press release is available on the company's IR website at gtec-tech.com, as well as from Newswire services. A replay of this call will 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 the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statement except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Thank you, Josh. Good morning, everyone, and thank you for joining us today. We've achieved another outstanding quarter here at Greenland, and we could not have done it without the dedication of our global team. Greenland delivered on our mission to increase efficiency and operational excellence in the business as evident by our growth in sales, margins, and balance sheets. Product deliveries are up 10% with margins up 30% year-over-year. We are extremely proud of our success in developing and driving innovative products for our clients that generate industry-leading margins for the business. As expected, most of the financial performance is generated by our transmission and drivetrain business. One of the core drivers of our increased margins is the development and distribution of our new product line of industry-leading drivetrains that award us with a 40% to 45% profit margin. Our margins will continue to grow as this product line ramps across our client portfolio. In addition, we have expanded our product line with drivetrains to support equipment in new markets, such as outdoor heavy machinery and military applications, and has led to our $20.8 million in accounts receivable, which is up 45% year-over-year. Greenland has been able to successfully navigate the volatile geopolitical environment due to our global clientele of OEM equipment companies. We have seen an increased demand for products to replace lost equipment and increased inventories by brands able to operate in areas of conflict. Now the primary risk for us for the remainder of the year at Greenland is the weakening yen to the dollar. Year-to-date, the yen to dollar has fallen 8% from 6.7 to 7.3. That's a lot. However, even with the haircut off the top, we are still on track to generate over $90 million in revenue for the year. And this truly showcases the strength and growth of our core business that will continue into the new year. Heavy continues to make process -- progress as we pioneer electric heavy machinery market here in the United States. We are very proud to win the Port of Baltimore Bid to support their efforts to electrify their port equipment with our GEL-5000 all-electric front loader. We have a solid pipeline of opportunities generated through our sales process with additional leads nearing closing which we will report when signed. Now as a pioneer in this industry of electric heavy machinery, it is our responsibility to discover the right sales strategy to win adoption. And there's no other player to reference in our market. Heavy continues to stay nimble by exploring new strategies to accelerate the sales process. And I am confident that with our culture of discovery and innovation, we will lead to successful market penetration and expansion. The heavy authorized service provider model continues to show promise in adoption and positive feedback from companies interested in joining our network given its unique structure. The ASP model requires no inventory or financial investment and creates a new revenue stream for member companies with the equipment and capability to support our heavy machinery. We will appropriately align expansion of the heavy ASP network with the progression of our sales activity to ensure that our clients have access to top tier service and support. Now, last quarter, I announced the formation of Heavy Energy, a new business line dedicated to providing power solutions to the growing network of DC powered products across America. Heavy Energy will solve the challenge of adopting DC powered equipment such as electric school buses, garbage trucks, and recent passenger cars and vehicles without having to install traditional DC charging stations that is very expensive and can take months to deploy. We're not yet ready to share additional details at this stage. However, I can say that Heavy Energy shares the same vision as Heavy Corp in delivering a US-made and certified product to the US market. Now, it is no secret that I feel Greenland is significantly undervalued given our operational performance. Our sales performance and market share continues to grow with new product lines creating significant growth opportunities for the business. We have amassed over $21 million in cash, up 32% year-over-year, and have many tailwinds to propel us to success in the following quarters. Unfortunately, our efforts have not appropriately reflected in our valuation. And the GTEC board and I will continue to explore opportunities to address this disparity, to realize the proper share price for our company and long-term shareholders. Now, I am proud of the work that the GTEC team has accomplished. We still have much to do and milestones to achieve, but I believe we're on the right track to succeed for the company and their shareholders. Now with that, let's dive into the details of our financial performance. JJ, if you can take it away.

Thank you, Raymond. Thank you, everyone, for joining our call today. I will now go over our financial results for the third quarter. For the full details of our financial results, please refer to our earnings release that was issued today. For the third quarter, our revenue was $21.8 million, up 0.2% from $21.7 million a year ago. The increase in revenue was primarily an increase in the company's sales volume driven by increasing market demand. On a constant currency basis, excluding the negative foreign exchange impact from a stronger dollar, revenue increased by approximately 4.6% as compared to the year prior. The total cost of goods sold was approximately $57 million representing a decrease by approximately $1.4 million due to the decrease in production cost. Greenland gross profit was approximately $6.3 million, representing an increase by 30.3% as compared to quarter three last year. Further, as Ray mentioned, our strategic focus on higher value products and efficient manufacturing continues to pay off. In Q3, our gross margin increased 28.7% compared to 22.1% in Q3 [2022] (ph). Our outstanding performance underscores our industry leadership and the success of our business strategy. Total operating expenses rose 26.5% to $3.4 million as compared to the three months ended September 30, 2022. This was primarily due to the increase in the shipping fee, the company's R&D investment in higher value and more sophisticated products and investment into our heavy line of business. The combination of those results drove strong profitability during the quarter. Our Q3 income from operation was $2.8 million, up 35% from the same quarter last year. Our balance sheet remains strong as we end up the quarter -- the cash and the cash equivalents of $21.5 million, up 32.2% from $16.2 million for the same quarter last year. Our robust cash position provides us the substantial operational flexibility and empowers us to sustain investment in our heavy line business. As we look forward, we project a positive earnings outlook for the remainder of 2023. We are optimistic about achieving sustained financial growth and delivering value to our shareholders. Our unwavering commitment to implementing efficient business strategy, ensuring operational efficiency, and addressing the dynamic needs for our customers reinforce our confidence. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you. [Operator Instructions] First question is from a line of Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Thank you very much. You mentioned the currency issue in your prepared remarks. Could you give us an idea what the revenue would be in a constant currency basis? And would you repeat what the impact was on currency as percent in the quarter?

Absolutely. Good morning, Theo. The currency impact from this year alone was 8%. So we've generated in the past nine months right now a little over $67 million. So we would be about 8% higher, roughly.

Okay. In the Port of Baltimore business you've got here, are there milestones we should be looking for on that project?

Delivery for our unit is scheduled for February, so we will see that hit our balance sheet for heavy in the first quarter.

Okay. And last quarter you said that you had done 38,256 transmission units and I was wondering if you could give a comparable number for Q3? And also you talked about having some supply chain disruption impacting that business, and I was wondering if you could update us on that.

Yep. So actually the overall transmissions right now for the past nine months is 112,414 sets, which actually is an increase from 102,000 that we did last year. So as it stands, we're roughly about 10% year-over-year increased. And this is a trend that we will continue to see throughout the remainder of the year as global demand continues to pick back up. And this is reflected as well in our accounts receivable for the company that's already topped off right now at right around -- oh, what was the number off the top of my head? Sorry, I apologize. Right around $23 million. So from a transmission unit delivery standpoint, that continues to rise, which we're very proud of.

And I think you mentioned there were supply chain issues in that last quarter. So you have any update on that?

Yes, it's more of a risk standpoint in geopolitical environment. Right now, we've been very fortunate in our market leading position to have priority with a lot of our raw material suppliers like steel foundries and what have you. So, though there's been impact, it hasn't been drastic enough to significantly impact the business. However, the warning that I put in Q2 is, should the geopolitical volatility continue to exacerbate and there's increased tariffs or restrictions between countries, then that can be something that we would need to be able to address for, such as, if, let's say the US were to drastically ban the exportation of raw steel overseas to China or something of that nature.

Okay. Thanks very much.

Thank you. We'll now move to the next question. Please stand by. The next question is from the line of Graham Mattison from Water Tower Research. Please go ahead.

Hi, good morning everyone.

Good morning.

Good morning. So congratulations on the gross margins in the quarter. Can you talk a little bit more about what's really driving that? I mean, is that better efficiency on your part or just the market demanding a higher tech product or a combination of both?

It's a combination of both. It really starts with a more efficient operation. That's something that I've been harping on for the past 18 months, because with our market leading presence right now in our transmission and drivetrain industry, where we would see growth is not just the expansion and increasing our market share, but in maximizing our returns for the sales that we're doing. So that was a big focus, both from a manufacturing efficiency standpoint and from a product line standpoint that we were able to achieve by developing innovative products that benefit our clientele, yet also utilized state-of-the-art technology to -- and manufacturing processes to increase our margins for those products. And then once that was developed, then it was our sales process to distribute that to our clientele for adoption, and that's been extremely successful. So if you look at our numbers for the past three quarters, there is a steady creep up of our gross margins. Last quarter is about 29%. This quarter we topped over 30%. And this is just showcasing the efforts of our work towards that operational excellence.

Got it. Great. How much runway is there on margins? As you look into next year, is there -- if you -- is there potential to expand that further with a shift in product mix or do you see more of it just the -- would it be more -- as we look towards 2024, do you see the bigger driver being more on the margin side or the revenue side?

So I see from our core transmission and drivetrain business, the runway is going to be more on the margin standpoint and conservatively I would put that right around the 34% to 35% level. However, for our heavy line of business, I do anticipate that we will begin to deliver some meaningful results and performance out of that line of business next year. And that's going to be more of a revenue top line impact.

Got you. That makes sense. Question on the heavy side. Have you seen any impact from your service center, the ASP model so far now that you've announced that?

From an establishment standpoint, that has been very reassuring for our overall model. So we have the confidence that we are pursuing the right approach from a service need standpoint. So not to discredit that, that's been phenomenal. However, that entire model is still predicated around the sales, the product being out in the field to generate that service volume for those ASPs to make it rewarding on both sides. And right now since we are still solving, cracking that nuts on the sales side and adoption, we are not going out there and just signing up as many ASPs as possible. We're doing it appropriately to ensure coverage for our clientele in anticipation for the sales that comes through. And as sales begins to ramp up, then we're extremely confident we can rapidly ramp our ASP network as well.

Got it. Great. And then last question, any update on the partnerships with -- or the demo part -- the demo programs that you had running with some of the big rental companies?

Yes. I can't share too much at this stage, however, I can say that particularly with some of the rental companies that I've named in prior earnings calls, those are still active and developing. I'm extremely pleased with the progress that we're making. Those relationships definitely take some time to execute into a large fleet deal, let's say, but they're still active, they're still progressing, we're still in active projects and communication, and I'm extremely pleased with the outcome so far.

Is that a potential -- I mean, given the timing of how that process works, is that something to look for in 2024?

That one is a little harder to say. Our optimistic target is to have some related announcements for it in 2024, but from an actual impact to the balance sheet, that might take until 2025.

Got it.

Our product lines on the heavy side, they have a six month runway from order to delivery. So it would have to realize itself by June of next year for delivery to hit. So if it's a national brand rental company worth a drop of 100 or 150 unit order on our desk, then we'd really see in 2025.

Got it. That makes sense. Alright. Great. I'll jump back in queue. Thank you.

Thank you.

Thank you. [Operator Instructions] We will now take the next question. Next question is from a line of Rommel Dionisio from Aegis Capital. Please go ahead.

Good morning. I wanted to see you just talk about the overall market outlook in the core transmission business in China, obviously, in the wake of the Chinese Premiers visit to the United States and it does seem like you've definitely demonstrated strong market share gains and the markets come back. I wonder if you could just talk a little bit about the outlook going into 2024 on a macro level for that market. Thanks.

Of course, at a macro level we still continue to see strong global demand for drivetrains and transmissions, particularly on the forklift industry itself. Though the geopolitical environment has been very volatile and challenging and though economies across the world have struggled with the right balance to promote growth in their company -- in their countries, we still see at an operational level this significant demand to satisfy the shift towards e-commerce and delivery. That behaviorism to catch up with technology has just taken such a strong foothold across the globe. And it's really that transition to rely on the logistics to power that, it's really driving that, that increase in demand for forklifts overall, and that'll continue to drive our component business. And that's a little agnostic right now at this stage to the global affairs. If we were to drill down to the macro level, which brands are going to do better or which countries are going to do better. I can talk about that for a little while. But at the macro sense, we still anticipate it’s going to go strong at most likely a 8% to 10% annual -- compound annual growth rate for the next two to four years.

Okay. That's very helpful. And maybe one follow-up question if I could. Congratulations first of all on the landmark win with the Port of Baltimore. I wonder, Raymond, if you could just share with us, kind of how that -- to the extent that you can, how that kind of played out? What pushed them over the edge to make that order? Just -- yes, if you could characterize what really pushed them over the edge to make that decision? Thanks.

Yes, it was -- what pushed that over was our guiding principle for our sales process, which is getting people behind the wheel. Because this is brand new technology, and it's been diesel power since -- for the past century, we knew that despite all the benefits and cost savings that we can talk about, the best way to get people to feel comfortable is to get them behind the wheel. So that's what we did. With the Port of Baltimore, we invited them to our site in White Marsh for their operators, and they brought a small school bus full of their operators to try out our equipment. And once they got to operate it firsthand, they saw the quality, they saw the power, they understood the advantages. And at that point in time, they were extremely comfortable to be the first company to pioneer our technology. And that process did take some time. I will say that the process we won it, let's say, we improp to won it back -- or rather -- sorry, the demand for it was entered into procurement in February. However, it took until August of this year before it entered bid and then we were able to officially win that deal. So I called that out because for the asset values of our equipment and for the clientele, it's a very long sales process, longer than we initially anticipated. Even when we achieved soft victories, just the purchasing process itself can take quarters. So that was a learning lesson and one that I just wanted to share on the call.

Okay. One last housekeeping question if I could. I noticed you cited higher shipping fees in the quarter. Was that just because of higher units or I thought shipping rates is kind of stabilized? I wonder if you could just clarify that please. Thanks.

Of course. So the shipping rates have normalized around the world which is fantastic. Until we get up to manufacturing scale with our heavy line of business, for all the assembly process that we're performing in the United States at our White Marsh facility, many of the component needs, many of the tooling and equipment that we've required has been air shipped over to meet our timelines for our clientele. So this is a short-term cost increase from a shipping standpoint for the business that will be moved away from once we start manufacturing at scale with a steady line of sales to support them. And on the component side of the business, we are seeing increased shipping costs to meet some of our clients' needs to be able to support their infrastructure on a global scale. So, I have to be careful now as I say this, we're not doing this for all of our clients, but to meet the demand of some of our top tier clients, we have onset some of these shipping.

Perfect, thanks very much.

Of course.

Thank you. And there were no further questions at this time. So I will now hand the conference back to Raymond Wang for any closing remarks. Thank you.

Wonderful. So everyone I just want to thank you all for joining us today as we reported our Q3 2023 earnings. It's been a very strong quarter and we are consistently delivering upon the milestones and expectations that we're setting. Our component business is extremely stable, profit generating, and continues to deliver quarter after quarter with no signs of stopping. And our heavy line of business as an industry first, as an industry first player to pioneer this industry, once we establish, once we penetrate the market and convert adoption from diesel over to electric, this is going to generate some significant growth opportunities for the company, for our shareholders, and also most importantly, it'll lead to a cleaner environment for our local communities for tomorrow. And that's something that we're extremely proud of. We are extremely dedicated to achieving and we wanted to thank you all for joining us along for this journey and we're extremely optimistic for what the next few quarters will bring. But thank you very much everyone for joining and I hope you have a wonderful day.

Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect. Speakers please stand by.

Good day, ladies and gentlemen. Thank you for standing by, and we warmly welcome you all to the Greenland Technologies Second Quarter Earnings Conference Call. Currently, all participants’ are in listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Josh Centanni, Investor Relations Director of Greenland. Mr. Centanni, please proceed.

Thank you, operator, and hello, everyone. Welcome to Greenland Technologies' second quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer; and Mr. Jing Jin, Chief Financial Officer. We released results earlier today. The press release is available on the company's IR website at gtech-tech.com as well as from Newswire services. A replay of this call will 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 the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public 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 that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Thanks, Josh. Good afternoon, everyone, and thank you for joining us today. I'd like to start by thanking our global team for their dedication, persistence and passion to stay focused in a volatile global market and continue to drive the business forward to success. Our results emphasize my position that our industry has recovered and normalized from the global pandemic with OEMs ramping up production to meet pent-up demand. We posted $24 million in revenue with over 38,000 drivetrain units delivered which represents a year-over-year increase of 14% and 32%, respectively. Further, our efforts towards a more efficient operation continues to bear fruit as our gross margins improved by 590 basis points year-over-year, resulting in a 29.4% gross margin, generating $2.9 million in net income. I anticipate this trend will continue with strong results in our component business through the second-half and remainder of 2023. If not for the weakening Chinese yen, our results would have been even stronger. The Chinese market has been very volatile, and we have been actively monitoring and engaging. It is worth noting that our component sales in China represents over 98% as we report sales in the region that we deliver. However, an increasing number of our clients are exporting our components overseas as they begin to shift operation to regions such as Europe, South America, and North America, particularly in Mexico. As a result, the growth of our component business is not reliant solely on the performance of the Chinese economy, but global demand as a whole. HEVI continues to make progress as we pioneer the electric heavy machinery market in the United States. The sales process has proved longer than anticipated. But I am confident that we are on the right path based on the demand and feedback we continue to see. We have been executing on our strategy to educate the heavy machinery industry on the opportunities and advantages that electric machinery offer through product demos, trade shows and conferences. Our sales team has been progressing well through existing leads while actively pursuing new opportunities. This is strengthened by our efforts to lobby consumer incentives for off-highway electric heavy equipment. We passed the nation's first off-highway electric heavy machinery incentives last year in Maryland, and other states have quickly begun embracing similar policies. Currently, over a dozen different states provide consumer incentives for off-highway heavy machinery that will heavily support our sales efforts with incentives that range from 20% all the way up to 75%. Interest remains strong with new brand names exploring our product line, and I'm confident that HEVI will post meaningful revenue this year. One hurdle we solved in 2022 was the development of our mobile DC chargers for our electric heavy machinery that open the door to allow our products to be usable on any job site in the United States. Reception for these chargers have far exceeded our expectations, not just for our heavy machinery, but for other applications as well that we did not originally anticipate. Most new electric products and EVs are relying more on DC power. But traditional DC charging stations are very expensive and can take months to deploy. Our clients are turning to our mobile chargers as a solution to meet their needs. And to appropriately meet this demand, Greenland Technologies will be creating a new business unit called HEVI Energy. The mission of HEVI Energy is to address the needs of the growing DC-powered electrified product industry with HEVI Energy's unique offering of power solutions. Now you can expect more details about HEVI Energy through our press releases that will be released in the very near future. I am extremely proud of the work that the GTEC team has accomplished. We still have much to do and milestones to achieve, but I believe we are on the right track to hit these goals and succeed for the company and for our shareholders. Now let's dive into the details of our financial performance. I will hand the call over to my CFO, JJ. JJ, go ahead. We might have some mic issues. JJ, still there?

Can you hear me?

Yes, we can hear you now.

Okay. Sorry.

Actually, I apologize everyone. It seems we may be having some technical difficulties. Just for the sake of everyone's time, Josh, would you read through the financial performance for HEVI? And then when JJ gets back, we can bring him back on mic.

Sure. For the full details of our financial results, including the first-half 2023 results, please refer to our earnings release that was issued today. For the second quarter, our revenue was $23.6 million, up 14% from $20.6 million a year ago. The increase was driven by a 32% increase in our sales volume. In Q2, we shipped 38,256 units of transmission products compared to 28,939 a year earlier. On a constant currency basis, excluding the negative foreign exchange impact from a stronger dollar, revenue increased by about 19% from the previous year. Further, as Ray mentioned, our strategic focus on higher-value transmission products, such as hydraulics continues to pay off. In Q2, our gross margin improved by 590 basis points marking a record high in the last three years. The stellar performance demonstrates our leadership in the industry and the effectiveness of our business strategies. Total operating expenses rose 34% to $3.5 million. The increase was primarily due to the company's focus on R&D investment as well as advertising, marketing, general and administrative activities related to the expansion of our HEVI division. The combination of these results drove strong profitability throughout the quarter. Our Q2 income from operations was $3.4 million, up 54% from the same quarter last year. Net income was $2.9 million, up 24% year-over-year from $2.4 million a year ago. Moving on to our balance sheet. We ended the quarter with cash and cash equivalents of $15.2 million, which is up over fourfold from $3.2 million last year. This strong cash position gives significant flexibility in our operations and enables us to continue to invest in our HEVI business. Looking into the remainder of 2023. We anticipate demand for our transmission products to remain strong. Our goal remains on leveraging on our industry leadership in our transmission products business while continuing to advance first-mover advantage of our HEVI division in commercial all electric, industrial heavy equipment vehicles. That concludes our prepared remarks. I'd now like to open the call for any questions. Operator, please go ahead.

Thank you. [Operator Instructions] Our first question comes from the line of Theodore O'Neill of Hill Research. Your line is open.

Thank you very much and congratulations on the good quarter.

Thank you, Theo.

So in your prepared remarks, you talked about how gross profit margin was improved, was better on improved product mix, and you cite here higher-value products. Can you give us a sort of range of -- range of what these higher-value products are that helped margins in the quarter?

Absolutely. So the increase in margin is actually part of a multiyear strategy for our onetime machinery or component business, to simplify our product offering and focus more on higher-margin newer product lines in our series. So in 2019, just to put that into context, we had over 70 series of different drivetrain units each with -- at that time, almost a dozen-plus models amongst them. To meet the demands of our clientele who are mostly Tier 1 operators, we're making many custom solutions. But this, as we scale further complicated our manufacturing process and aid into our margins. So for the past near five years now, we've actually been simplifying our product offering. Now we only offer about 40 different series of transmissions and drivetrains, each probably only about six to nine different models and we're focusing on and pushing more higher-margin products such as our integrated drivetrain and some newer components as well.

Okay. And on the -- can you give us an update on the HEVI division in terms of product demos, number of demos, length of demos and training customers on your equipment?

Absolutely, absolutely. So we've dedicated our entire HEVI inventory right now to support the demand for demos. Since last quarter, we've actually added on another 5 units, three of our larger front loaders, two of our smaller loaders to try to meet the demand that we've been getting. Plus we've also shortened our demo time. Before, we were deploying our product to job sites for a week to two weeks to give a client a good feel for our products. But just based on the demand, we've actually brought that down to one to three days max. And our products are continuing to go from job site to job site, driving up a lot of interest. And this is part of our strategy to really address and demystify a lot of the assumptions about electrification and get first-hand experience to operators that will eventually become clients.

And my last question is on the mobile DC chargers. I'm on the website now. I see that you've got two different products. One is a portable and once for single phase, once for three phase. And I'm wondering as you think about expanding that business, will there be more products? Will you sell them, rent them, lease them? What's the thought here?

Great question. So at a very high level, we will be selling our new mobile DC chargers. We will be creating new chargers specifically catered towards the market demand that we've been identifying. The ones that we have were originally designed just for our product use but for our demos when we're setting them out, folks couldn't help them, sell us, plug that into everything electric that they had. And they've been loving it, enjoying it and trying not to give them back to us. So we've actually been very aggressively doing some product R&D on a mobile DC charger, specifically catered to the needs for this market demand. And I can't get into too many details just yet, don't want to spill the secrets too soon. But I can say that the mission for these chargers is they will be -- they are being fully R&D designed here in the United States. They will have U.S. IP. They will satisfy all U.S. certifications from UL to the appropriate ISO certifications, and they will be made in the USA, starting off in our Maryland facility.

That sounds pretty good. Thanks very much.

Of course.

Thank you. One moment, please. Thank you. Our next question comes from the line of Rommel Dionisio of Aegis Capital. Your line is open.

Thank you. Good afternoon. During the economic downturn -- during the COVID period, as a result of the lockdowns, obviously, there was a downturn in that segment of the industry, but I know you guys were capturing market share very successfully. And I wondered if you could just characterize this year, as the sector overall comes back, are you still able to -- were you able to maintain and unlock in those market share gains. I wonder if you could comment on that. Thank you.

Yes, absolutely. It has been a very volatile field. We have been able to expand our market share with new clientele, a few Tier 1 brands actually that wish to remain unannounced, but we actually have been expanding our client portfolio, which we're extremely proud of. However, the volatile environment that I alluded to earlier is right now on a global scale, there is a massive challenge, massive redefinition for supply chains and logistics that we're keeping a very close eye on. Primarily countries are looking to try to nationalize their supplies chains as much as possible. But depending on markets, depending on countries and depending on presence, it's easier said than done for others. So this is actually one of the things that I mentioned in my remarks, where we actually are seeing a larger -- a significantly larger amount of components being shipped overseas to manufacturing facilities that they're looking -- that they have been actively opening up overseas. And it's something that we're keeping a close eye on because we saw something similar during the pandemic. This is when our sales went from about 95%-plus China-based to about 90%. So even in just a year or two, we saw a decrease. But we saw a reversal of that because though the aspirations were optimistic, it was -- countries found it very challenging to ramp up manufacturing so quickly and the quality impact were very devastating to some companies, and they reverted back to us or adopted us new. So yes, we have been expanding our clientele. We have been expanding our market share but it's still something that we are keeping a close eye on, exactly how that shapes out.

Okay. That's very helpful. Just as a follow-up question, I wonder if you could just share with us an update on the Maryland facility. Any lessons you may have learned, any unforeseen challenges and how the -- it's been up and running a little while, what -- how it's all going? Thank you.

Absolutely. The Maryland site itself is coming along extremely well, and it's ready to go for production right now, both for our heavy equipment and we're expanding on manufacturing for mobile DC chargers as well to support HEVI energy. We have the full capability right now to be able to assemble the heavy equipment at the Maryland site. And from a capability standpoint, we are still on target and on track to deliver that first unit assembled in beginning of Q3. However, our production is -- our production goals and plans were predicated on a sales model that may have been a little too aggressive from a time standpoint. As I mentioned, we did underestimate the overall sales cycle for brand-new electric heavy equipment. When we compared to our air-quoted peers in the industry, trying to pioneer electric school buses, electric garbage trucks and tractor trailers, non-incentive-based purchases was over a 14-month sales cycle for them. Our original estimates were nine. So this does present a challenge for us. This is why we moved our first assembled products from Q2 to Q3 because we didn't want to ramp up that site just to turn it down if the sales weren't there. So we have the capabilities, the site is ready to go. We just need the sales to drive it.

Great. Okay. Congratulations on the quarter. Thanks.

Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Graham Mattison of Water Tower Research. Your line is open.

Hi, good afternoon, everyone A question -- it's great because there's more progress going with the demonstration and you've got more out there. Would you say that -- the second quarter versus the first quarter and maybe even where that is today?

I'm sorry, Graham, you might have cut out there. I heard would you say and then it cut out from there. I apologize.

No, I'm sorry. I apologize. I don't know. I was actually just asking -- is this better?

Much better, yes.

Okay. Great. Sorry about that. In terms of the demos that you're doing, how is the pace of that compared to the prior quarters? Are you seeing an acceleration of that? Or is it leveling off? Or is there room to even push it further?

The demand is actually growing, especially as we conduct more proactive sales campaigns and more incentives are introduced into the field. So the demand has been growing. Our pace has been ramping significantly. We're doing three demos where in the past few quarters, it would have been one, just because of the duration of our demos. And the room to grow is significant. We would anticipate -- we would need probably another 6 to 10 more units to be able to meet the needs of the demand as we receive them. So that's been extremely strong. The chargers and the incentives are expanding our sales process for the next steps from those demos, which we were extremely happy to see. A lot of times with the demos, the interest was there. However, getting them to pursue a sales agreement was met with some hesitation as they wanted to conduct further research to look at other options for sustainability in the sector and really just validating our statements, efforts in terms of is there any other players in the field, things of that nature. And we still keep good contacts, it just extended this time frame. Now with our mobile DC chargers solving that infrastructure problem, with incentives addressing the financial concerns with deadlines as well, that's actually been changing the game for us, and we are having very meaningful post demo conversations as well.

Great. And then do you still plan on using the authorized service centers? Are you still looking to develop those? And has that helped anything on the sales front?

Yes, we have. We actually have already signed. Right now, it's about four -- it's about -- I'm sorry, it's about three companies right now that are officially signed on board with the authorized service provider network, primarily in New Jersey, but it's something that we continue to expand on as well. And once we actually have a solid footprint, we were going to do an announcement along that. But it is no secret, we actually already have signed on board some companies that range from truck repair and rental sites all the way towards heavy equipment rental companies.

Great. And then last question, is there any update -- last quarter, you spoke about the United Rentals program you had, and then I think you were talking with some other sort of fleet management or large rental companies. Any updates you can give us there?

Yes. The United Rental pilot demo is still ongoing. We completed a demo for our larger unit, the GEL-5000 and now we're about to initiate a new demo with the smaller loader, the GEL-1800 and they want to go through our product line just to get a better comfortability with the product line and to better understand the marketability as well through their sales team. So that's still active and progressing very nicely. In addition to that, both on a large fleet standpoint, we are making significant process and demos with other national rental organizations and brands, port operations, agriculture, waste management and public work yards as well. However, at this stage, they actually prefer to remain unnamed. But I can assure you that we are making some significant progress there, and we're very optimistic that, that will bear fruit.

All right. And just in terms of how those programs typically work, you start with sort of a demo and then they shift to a pilot before making an order. Is that the right way to think about it?

Yes, that's correct. It typically goes with the product demo over to a purchased pilot phase. And then if the product performs to their expectations from both a performance maintenance and financial standpoint, then they'll pick up larger adoption.

Got it. Alright, great I’ll jump back in queue. Thank you very much.

Thank you, Graham.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Wang for any closing remarks.

Well, everyone, thank you so much for attending our second quarter earnings call. It is a very exciting time for us here at Greenland. And I am having trouble keeping my mouth quiet for everything that we have working on here, but I do appreciate everyone's support in the company, your patience as a shareholder. And I truly honestly believe that our hard work will pay off, and we will be able to provide some very, very exciting news in the very near future. But I hope everyone has a fantastic evening and a wonderful rest of your week.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

Good day, ladies and gentlemen. Thank you for standing by, and we warmly welcome you all to the Greenland Technologies First Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Joston Sami [ph], Investor Relations Director of Greenland. Mr. Sami, please proceed.

Thank you, operator, and hello, everyone. Welcome to Greenland Technologies first quarter 2023 earnings conference call. Joining us today is Mr. Raymond Wang, Chief Executive Officer. We released results earlier today. The press release is available on the company's IR website at ir.gtec-tech.com as well as from Newswire services. A replay of this call will 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 the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public 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 that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Raymond Wang. Please go ahead, Mr. Wang.

Thank you, Josh, and good morning, everyone, and thank you for joining us today. I'll be handling a majority of this call as my CFO, Jing Jin, has lost his voice and is in no condition to contribute to today's call. I'd like to start by thanking our global team for continuing to drive the business during a difficult global market and continuing to develop a more efficient operation. As expected and stated during our last earnings call, our component business continues to recover from global market conditions in the first quarter. Again, this is due to the current market conditions and the material handling and manufacturing industry in China as OEMs recover and ramp up from the country's zero-tolerance policy. Now China's manufacturing PMI has fallen to 49.5% this year, which is below estimates of 50.3%, showing a slower recovery on the fears of a global slowdown. However, based on feedback from our clients in the component business and our internal estimates, we still stand by our forecast that our business will normalize and grow, especially in the second half of this year. The material handling industry continues to grow with demand reaching all-time highs. Grand View Research recently increased their forecast of the global forklift market to a compound annual growth rate of 13.2% through 2030 with a greater shift towards electric forklifts due to increased emission regulations around the world. As a market leader in the forklift drivetrain and transmission industry, this market growth will reflect on our own metrics and results. And as we are ready to capitalize on this demand with our advanced components for all forklift and material handling systems. As displayed in our results, we continue to improve our margins through product innovation, lower costs, and operational efficiencies. Gross margins are up 320 basis points to 24.9% compared to last year. These improvements will further contribute to a success of 2023 as the market recovers and accelerates later this year. Switching to HEVI electric industrial HEVI machinery business, we continue to make strides laying the foundation for the company. We recently recruited a new Chief Operating Officer, Dana Hopkins, who has really hit the ground running and is developing the infrastructure we need to succeed. It has always been our responsibility as a pioneer to educate the HEVI machinery industry on the advantages of electric compared to traditional fossil fuel systems, and we continue to see great success in this area. We have more and more organizations signing up for pilots and demos of our product. HEVI participated in three industry trade shows this quarter alone where we were met with tremendous interest at each one. Speaking with attendees and learning how our products can improve their operations always fuels my perspective that the demand for electric HEVI equipment is there and HEVI is on the right path to capture this opportunity. But I understand that HEVI needs to move and advance faster toward their milestones, so we will adapt our strategy accordingly. As we develop and deploy our network of authorized service providers, we will incorporate a new referral incentive to leverage their network to uncover and close new opportunities. This will increase the effectiveness of our sales personnel with warm leads and open new doors. HEVI will explore new markets for our product line that can benefit from clean operations, industries such as property maintenance, landscaping, and utility companies to name a few. This also lends itself to exploring new market territories, both domestically and internationally that possess significant opportunity. And we will be doing so in a prudent and calculated manner as to not take us away from our focus on establishing our presence in the Mid-Atlantic region of the United States. We have received interest in our products from companies in these industries at various trade shows, and we will begin to expand our marketing to target them accordingly. HEVI has also received a lot of feedback expressing interest in other heavy machinery that would benefit greatly from electrification. These opportunities are worth further research and market study and may lead to an expansion of our product line sooner than we originally planned. I am proud of the work that the GTEC team has accomplished. There is still more work to be done and milestones to be achieved, and I believe we are on the right track to reach those goals. And with that, let me dive into the financial results for the first quarter of 2023. As always, please refer to our earnings filings for full details of our financial results. So, for the first quarter of 2023, total revenue was $22.1 million, a decrease of 24% from 29.3% a year ago largely due to logistical and supply chain challenges resulting from the initial wave of COVID cases following the end of China's zero COVID policies and significant pent-up travel demand during this year's Chinese New Year holiday. In addition, revenue was impacted by a stronger dollar relative to the Chinese yen on an RMB basis. Excluding the impact of the foreign exchange, total revenue decreased by about 18% from the previous year. And we sold 36,841 transmission product units, sorry, compared with 41,902 units in the first quarter of 2022. Our cost of goods sold fell 28% to $16.6 million in Q1 2023, primarily due to lower sales volume. Gross profit was $5.5 million compared with $6.4 million in Q1 2022. However, driven by a strategic transition in Greenland's product mix towards a higher value component and more sophisticated products like hydraulic transmissions, our gross margin rose 320 basis points to 24.9% from 21.7% a year ago. Meanwhile, total operating expenses increased 5% year-over-year to $3.1 million. The company has focused on significantly streamlining costs over the past year, which has mostly offset increases in research and development investment and marketing activities related to the company's expansion. Our income from operations was $2.4 million compared with $3.4 million in Q1 2022. Net income was $2.5 million compared with $2.9 million in Q1 2022. As of the end of March, our balance sheet remained strong with $15.4 million cash on hand, an increase of 125% from a year earlier. With solid financials and sound growth strategies, we are confident in our ability to grow both the core transmission business as well as HEVI division as we deliver significant value for our shareholders. And with that, that concludes our prepared remarks. I'm going to open the call up for questions. So, operator, please, you may go ahead.

Thank you. [Operator Instructions]. First question comes from the line of Theodore O'Neill from Litchfield Hills Research. Please go ahead.

Good morning. Congratulations on the good quarter.

Thank you.

Yes. And so, I think you were saying this on the call, but as you experienced slower growth in China, can you pivot your resources -- more resources towards HEVI?

Yes, we can. And we actually have been part of our focus right now is expanding the team, accelerating the expansion of our team and talent to be able to execute on our vision. This is very important for us to be able to properly capitalize on the opportunities that we've been uncovering. So, we have been investing further in that aspect of it. And we anticipate further investment as well, also a little sooner than we had initially planned in both our marketing efforts -- our sales and marketing efforts and on our territory and expansion.

And you mentioned gross margin improvement here from product mix. Does that reflect on anything permanent? And related to that, do you have any pricing pressure in that channel?

Great question. So, a big portion of the product switch over towards our higher margin is actually based on the shift in the market towards lithium, how forklifts in particular. Our highest margin, yet most expensive transmission that we offer, is our drivetrain unit specifically cater towards lithium-powered forklifts. And because on a global scale, OEMs in the market is switching over to lithium, that's been really driving our product. And right now, it's actually a premier product still, just like with our traditional, both hydraulic and transmissions, to support fossil fuel. Forklifts, we've always been the premier product from a cost standpoint, but that has not driven away our clientele.

Thank you, very much.

The next question comes from the line of Rommel Dionisio from Aegis Capital. Please go ahead.

Good morning, thank you. Raymond, I know you were involved on the HEVI side with some pilot programs, United Rentals and so forth. And you also presented at, I believe, the trade show in New York recently. I wonder if you could just share with us so, the initial feedback to the extent that you can on some of these pilot programs as well as the trade shows you've been attending. Thank you.

Absolutely. So, with our United Rentals pilot, they have truly been enjoying the equipment. They've been getting a lot of positive feedback. And their sales teams have always been excited to travel over to the location where it's stored to learn more about it and see how they can introduce that to their clientele. And it's gone so well that the company United Rentals has both requested an extension of our pilot and additional products as well to demo. Right now, they have our GEL-5000, on our largest and most popular unit. But our GEL-5000, we've been getting so much demand for our product line for both product demos and pilots that we actually are shuffling around our inventory to be able to properly meet that demand. It's been a little more of a challenge than we anticipated logistically to support this influx of requests for our products across both New Jersey, Maryland, and Delaware and New York, and Pennsylvania, just to name a few. But what we're doing now is instead of catering towards individual single demos, we are actually looking to initiate a campaign where we do more product demo days to invite multiple organizations at once with an opportunity to be able to drive experience our equipment, utilize it to move the material, truly feel it out and couple that with a stronger and smoother sales operation and process. We hope that will be a more effective use of our equipment to generate sales.

Okay. And maybe just a quick follow-up. I know your 54,000-square-foot facility in Baltimore was supposed to eventually produce over 500 units annually. I think you were targeting first units to roll off in the second quarter, the assembly line of the assembly line. Is that still on track?

We are still on track for that. The first units will be a GEX-8000, which is our electric excavator and a GEL-5,000, our largest and most popular front loader.

Great. Thank you, Raymond. And by the way, I want to wish J.J. quick recovery. Thank you.

Thank you very much. He will be glad to hear that.

The next question comes from the line of Graham Mattison from Water Tower Research. Please go ahead.

Hi, good morning, Raymond. A quick question on the quarter. So, I mean the first quarter financial results and certainly the best quarter you guys have had in the last three. So, it looks like things are recovering in the Chinese market. Are you still seeing quarter three and quarter four to be the banner quarters that you had thought before? And what gives you the confidence?

Yes. I do still see the third and fourth quarter being the strongest of the year for us. And I still am optimistic that 2023 will be a banner year for our core component business. That is primarily due to the trend that I outlined last earnings call, where the zero COVID policy lifting in China was truly devastating to the entire region, but particularly in the manufacturing sense and it caused a big gap in the production cycle for a lot of the OEMs that at that time, we were even just trying to come back from shutdowns and aggressive policies to try to control the pandemic. So, the majority of our clients were -- has been overcoming a lot of bumps and bruises in their operations at the end of 2022, but the demand is there stronger than ever. They are still revving up and ready to go, and it's just part of the ramp-up cycle. So, because of that, it's not a fast process for them to get everything up and running so quickly. But the flow is beginning to normalize as we're seeing in our results. And as they ramp up, then our deliveries will execute. And we've been ready to go.

Great. And then coming out of the COVID lockdowns, do you see any changes in the competitive position and the competitive landscape of the market for the transmission business?

Initially, we did, so during, I'd say, end of 2021 through mostly 2022, we started to see a shift of our sales start to move outside of China. Still, a majority was in China. We're talking a switch from a few percent, let's say, from about 96% at the beginning of 2022 to about 91%, 92% towards the middle. So, we were seeing some trends that a lot of OEMs are trying to shift their manufacturing outside of the country of China. However, now that the manufacturers are starting to rev up and I think that because of challenges that they experienced in the international markets, who still needed more time, investment, and expertise to ramp up their manufacturing opportunities. We're actually seeing it come right back. So right now, again, a majority of our sales are entirely to Chinese OEMs right around the 97%, 98% again.

All right. Great. And then one last question, and that's great. With the feedback that you're getting at the trade shows as you're talking to people. Can you just walk us through the sort of process there? When you get a potential customer coming in and saying they're really interested in it, what's the next step? Is it they come and do a demo or do you get a product on their site? And can you just give some sense around how long the sales cycle typically is in the industry?

Yes. So, these -- it's difficult to compare to industry average sales cycle because for the HEVI industrial machinery industry, it's actually just led by a very small handful of players with very strong brand recognition. So besides, let's say, it's almost similar to politics for certain classes of machinery, you either go one brand or another brand. That's a -- so because of that, they have a much faster sales process and it's focused more on delivery and service. Now for our side, we have to overcome the big challenge of educating and getting people comfortable with the brand-new technology. But that actually is driving a lot of the interest that we see in the trade shows because people will double take every time when they see our machinery and then learned that it's electric. And they get a buzz with questions. How long does it last? How you charge it? How much does it cost? And these are the questions that really showcase the advantages and benefits of our product line. So, it gets them very excited. Now our traditional sales process that we were pursuing is from the interest that we received. We would schedule a demo on the client's site to provide them with an opportunity to be able to utilize the vehicle, see the power, really envision how we can support their operations, and go from there. But the challenge was from a logistical standpoint, this was expensive and slow. We were doing multi-day demos. So, in many cases, an asset would be at that prospect site for a week plus while we have others waiting in the line. For example, just last week, we were at the NYC Fleet Show in Queens, New York. And from that show, we actually walked away with over two dozen requests for demos and pilots from organizations around the New York City area. So, if we were to do it one by one, we're finding it resist too slow. So, we are changing it up. And now we're actually looking to do more of a group demo in pilot for just a few hours or on-site demos for no longer than a day.

Got it. And then as the one question to add in, as you're starting to roll more [ph] Quinn off the line beginning in 2Q, will that help that demo process?

Yes. it will. As it stands right now, our entire fleet is just dedicated to demos, and we still have a pipeline right now of over 100 different organizations that are waiting for their turn for the vehicle with their machines, I'm sorry.

Got it. All right. Great. I'll jump back in queue. Thank you, very much.

Thank you, for the questions.

Seeing no more questions in the queue. Let me turn the call back to Mr. Wang for closing remarks.

So, everyone, I just wanted to thank everyone again for participating in our call, and continuing to follow the progress of our company. We are on the path for great things, and though it may not reflect in our stock value, I still strongly believe that our company purposes significant value for our shareholders, and the opportunity and the timing where that will become recognized is surely coming down the line. So, I just want to thank everyone again for participating on our call. I want to thank my team for continuing to work so hard every day to deliver this value to our shareholders. And I hope everyone has a fantastic rest of your day.

Thank you again. This concludes the call. You may now disconnect.