Greenland Technologies Holding Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated financial statements. Comparisons are to the three months ended March 31, 2021, except balance-sheet comparisons, which are to December 31, 2021. Amounts are U.S. dollars.
Business context and reporting period
Greenland manufactures transmission products for forklifts and other material-handling equipment, primarily through its PRC subsidiaries. It is also developing and selling electric industrial vehicles in North America. The company sold 41,902 transmission-product sets in Q1 2022, versus 36,986 a year earlier. Almost all revenue was domestic to China: $29.13 million of $29.31 million.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $29.31 million | $24.61 million | +19.1% |
| Gross profit / margin | $6.37 million / 21.7% | $5.10 million / 20.7% | Profit +24.8%; margin +1.0 percentage point |
| Operating income | $3.37 million | $2.85 million | +17.9% |
| Net income, consolidated | $2.91 million | $2.44 million | +19.3% |
| Net income attributable to Greenland | $1.79 million | $2.13 million | Down about 16.0% |
| Basic and diluted EPS | $0.16 | $0.21 | Down $0.05 |
| Operating cash flow | $1.26 million | $(4.00) million | Improved by about $5.26 million |
Gross margin improvement was attributed primarily to a product-mix shift toward higher-value, more sophisticated products. Selling, general and administrative, and R&D expenses rose 68.7%, 40.5%, and 12.8%, respectively; management cited higher transportation costs, legal and consulting fees, after-sales service costs, and increased R&D activity. The share of consolidated earnings attributable to noncontrolling interests increased substantially, explaining why parent-attributable income and EPS fell despite higher consolidated net income.
At March 31, 2022, cash and cash equivalents were $6.85 million, restricted cash $6.33 million, and short-term investments $4.07 million. Cash, cash equivalents, and restricted cash totaled $13.18 million, down from $17.80 million at year-end. Working capital was reported at $57.03 million. Accounts receivable rose 55.3% to $24.72 million; notes receivable were $33.52 million and generally due within six months.
Current liabilities were $83.93 million and total liabilities $86.13 million. Short-term bank loans were $9.60 million and bank acceptance notes payable $37.07 million. The acceptance notes were interest-free but subject to bank charges and were secured by restricted cash, notes receivable, and land-use rights. Operating cash flow improved, but receivables growth was a major cash use. Financing activities used $5.96 million, mainly due to repayment of notes payable and related-party loans.
Material changes and significant items
- Revenue growth was attributed to stronger market demand and Greenland’s ability to supply products when some competitors faced material shortages. Revenue increased 16.1% on an RMB basis, according to management.
- Accounts receivable increased by $8.80 million from year-end. Management cited higher sales and slower collection efforts amid COVID-related disruption.
- The company reported $39.79 million due from related parties, principally $39.66 million owed by controlling shareholder Cenntro Holding Limited. Repayment was extended from April 27, 2022, with the final scheduled payment by June 30, 2024; repayment is not assured.
- Two customers represented 38.5% of Q1 revenue; the five largest represented 49.72%. The five-largest-customer share was 53.28% in Q1 2021.
- Greenland launched its GEX-8000 electric wheeled excavator in February 2022. Its electric forklifts, loader, and excavator were available for purchase in the U.S.; the company planned a U.S. assembly site and experience center during 2022.
Outlook, risks, and contingencies
Management said it expected sufficient capital for operations over the next 12 months and anticipated improved cash flow during 2022. It expects to fund operations through operating cash flow, bank-borrowing renewals, possible equity financing, and, if needed, support from shareholders and affiliates. No quantified revenue or earnings guidance was provided.
Management reported rising raw-material costs and expected them to continue increasing, while COVID-19 outbreaks and related restrictions in China could affect operations. Other prominent risks include collection of receivables, customer and supplier concentration, steel-price volatility, short-term borrowing renewals, and the execution and profitability of the newer electric-vehicle business. The company also disclosed PRC regulatory, currency-transfer, and U.S. listing risks. It stated that its auditor had been inspected by the PCAOB, while noting the potential for future HFCA Act-related trading restrictions if inspection access changes.
Disclosure controls and procedures were deemed ineffective as of March 31, 2022 because of a material weakness involving insufficient qualified financial-reporting and accounting personnel and inadequate supervisory review. Management described remediation efforts, including recruiting and training personnel and formalizing procedures. The filing states that the unaudited financial statements fairly present the company’s results despite the weakness.
The filing reports no pending legal proceedings known to management. It identifies potential employee-benefit underpayments in China, with anticipated maximum penalties of approximately $200,000; the company said it had not been ordered to pay contributions or penalties as of the report date. A prior shareholder action relating to the 2019 business combination was settled for $65,000 in 2021.
Most important facts for investors to verify
- Whether the $39.66 million receivable from the controlling shareholder is being repaid on schedule, and whether its terms and collectability remain supportable.
- Subsequent collection performance for the $24.72 million of accounts receivable and $33.52 million of notes receivable, including customer concentration and allowance adequacy.
- Whether operating cash flow remains positive as receivables grow, and how much cash is unrestricted and available for operations.
- Renewal, repayment, and collateral terms for bank loans and bank acceptance notes, including the effect of pledged assets and restricted cash.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- Whether rising material costs, COVID-related disruptions, and the planned U.S. electric-vehicle expansion affect margins, cash needs, or the company’s outlook.