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Kandi Technologies Group, Inc. (NASDAQ:KNDI)Q4 2018 Earnings Conference CallMarch 15, 2019, 8:00 a.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Ladies and gentlemen, good day, and welcome to the Kandi Technologies Full-Year 2018 Financial Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kewa Luo, IR Manager. Please go ahead.
Kewa Luo -- Investor Relations Manager
Thank you, operator. Hello, everyone, and welcome to Kandi Technologies Group Inc's full-year 2018 earnings conference call. The company distributed its earnings press release earlier today, and you can find a copy on Kandi's website at www.kandivehicle.com. With us today are Kandi's Founder, Chairman and Chief Executive Officer, Mr. Hu Xiaoming; and Interim Chief Financial Officer, Ms. Zhu Xiaoying. Mr. Hu and Ms. Zhu will deliver prepared remarks, followed by a question-and-answer session.
Before we get started, I'm going to review the Safe Harbor statement regarding today's conference call. Please note that discussions today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may differ materially from the views expressed today.
Further information regarding these and other risks and uncertainties are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31st 2018, and in other documents filed with US Securities Exchange Commission. Kandi does not assume any obligation to update any forward-looking statements except as required under applicable law.
As a reminder, this conference call is being recorded. In addition, a audio webcast of this conference will be available on Kandi's Investor Relations website.
I will now turn the call over to Kandi's Founder, Chairman and CEO, Mr. Hu Xiaoming.
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Hello, ladies and gentlemen and all friends, thank you for joining our full-year 2018 earnings conference call.
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Kandi has experienced challenges over the past few years due to the confusion surrounding the reusable battery exchange model. However, Kandi has been working diligently to overcome the downturn and obstacles to resolve these issues. Early on in 2018, we prepared a three-year plan for 2018 through 2020 based on our company's and the industry's situation. 2018 was to be the year of survival, 2019 of revival, and 2020 will be the year of prosperity. Through our hard work in 2018, we rebuilt and refined our practices, and as a result, we are very pleased with our financial performance. In 2018, our total revenue was up 9.4% to $112 million; while pre-tax income was $2.1 million compared to a loss of $31.6 million in 2017. In 2019, we plan to continue this upwards momentum, and further refine our business model and execution plan to forge new opportunities moving forward in the following ways.
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(Foreign language)
Kewa Luo -- Investor Relations Manager
First, the management team hopes the JV Company to achieve its projected goals of producing and selling 20,000 EVs in 2019. Second, the Company is expecting to obtain the approval of its application for a manufacturing license from the Ministry of Industry and Information Technology to become an official EV manufacturing enterprise with "dual production licenses." Third, following the US National Highway Traffic Safety Administration's approval of certain Kandi EV models for importation and registration in the US, Kandi EV models are now eligible for up to $7,500 in federal tax credits in 2019 and 2020. To capitalize on the opportunity presented by the NHTSA's approval, we are in the process of preparing a strategic sales plan for the debut of Kandi EV models in the American market later this year. Fourth, the car share program (or Micro Public Transportation) has been upgraded to an online ride-hailing business model in China, which is expected to open up a broader market for Kandi electric vehicles. Finally, the Company is evaluating for the optimal time to restructure the JV Company's equity in order to unlock the shareholder value of the JV Company. We are dedicated in taking full advantage of the milestones we have reached thus far, achieving stronger business results in 2019, as well as maximizing our long-term shareholders' investments.
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Now I will turn the call to our Chief Financial Officer, Ms. Zhu Xiaoying, to give you more details on our financial highlights. After that, I will take the questions. Thank you.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Hello, everyone, my name is Zhu Xiaoying. Now, I would like to provide a brief overview of our financial results for the full-year 2018. Please note that all numbers I will discuss today are in US dollars, unless otherwise noted.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
First, let me walk you through the full year financial results in 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Total net revenues in 2018 were $112.4 million, a increase of $9.6 million or 9.4% from $102.8 million in 2017. The increase in revenues was mainly due to a increase in sales of off-road vehicles during 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
EV parts sales were approximately $99.1 million in 2018, accounting for 88.1% of our total net revenues, a increase of $1.7 million or 1.8% from $97.4 million compared to 2017.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Revenue from sales of off-road vehicles was $13.2 million in 2018, a increase of $7.9 million or 144.8% compared with $5.4 million in 2017. The increase in revenue from off-road vehicles was largely due to the additional sales from SC Autosports, which became our wholly owned subsidiary in the US in July 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Our cost of goods sold in 2018 was $92.2 million, a increase of $3.7 million or 4.2% from $88.5 million in 2017. The change was primarily due to the corresponding increase in sales from 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Gross profit in 2018 was $20.2 million, a increase of $5.9 million or 41.2% from $14.3 million in 2017. Gross margin in 2018 increased to 18% from 14% in 2017. The increase of gross margin was due to the higher gross margin from off-road vehicles sales of SC Autosports as well as increased gross margin from sales of battery packs.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Total operating expenses in 2018 were $21.9 million, a decrease of 45.9% from $40.4 million during 2017. The decrease in total operating expenses was due to the largely decreased research and development expenses in 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
GAAP net loss in 2018 was $5.7 million or $0.11 loss per fully diluted share compared with GAAP net loss of $28.3 million or $0.59 loss per fully diluted share in 2017. The decreased in net loss was primarily attributable to the increased gross profit, the decrease in R&D expenses, and the increased government grants the Company received this year.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Income before income tax in 2018 was $2.1 million compared to loss of before income tax of $31.6 million in 2017. The increased income tax expense is many due to the $6.0 million valuation allowance of Hainan facility's deferred tax assets, because of three-year accumulated loss in its construction period. After other income tax adjustments, the income tax expense in 2018 was $7.8 million.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Non-GAAP net loss in 2018 was $8.8 million compared with non-GAAP net loss of $23.2 million in 2017. Non-GAAP loss per share was approximately $0.17 per fully diluted share for the full year of 2018 compared with non-GAAP adjusted loss per share of $0.48 per fully diluted share for the full year of 2017.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Let me touch on the JV's financials now.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
For the full-year 2018, the JV Company's net sales were $122.5 million, gross loss was $17.7 million and net loss was $36.3 million.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
During 2018, the JV Company sold a total of 10,259 units of EV products, as compared to a total of 11,437 units sold in 2017.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Kandi's investments in the JV Company are accounted for under the equity method of accounting, as Kandi has a 50% ownership interest in the JV Company. As a result, Kandi recorded 50% of the JV Company's loss for $18.2 million for the full-year 2018. After eliminating intra-entity profits and losses, Kandi's share of the after tax loss of the JV Company was $17.9 million for the full-year 2018.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Next, I will review the company's cash flow.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
In 2018, cash provided in operating activities was $13.6 million, as compared to cash used in operating activities of $3.2 million in 2017. The major operating activities that provided cash for 2018 are increase of accounts payable and increase of other payables and accrued liabilities. The major operating activities that used the cash for 2018 was a increase in receivables from the JV Company and a increase of accounts receivables.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Cash used in investing activities for 2018 was $0.95 million, as compared to cash derived from investing activities of $2.71 million for 2017. During the year of 2018, the major investing activity that used cash was the acquisition of Jinhua An Kao net of cash received in the amount of $3.56 million.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Cash used in financing activities for 2018 was $5.3 million as compared to cash used in financing activities of $9.81 million in 2017. The major financing activities that provided cash for 2018 were proceeds from notes payable of $54.35 million and proceeds from short-term bank loans of $32.50 million. The major financing activities that used cash for 2018 were $58.59 million of repayments of note payables and $33.26 million of repayments of short-term bank loans.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Operator, we are ready to take some questions.
Questions and Answers:Operator
Thank you. (Operator Instructions). We will now take our first question from Ted Schwartz. Please go ahead.
Ted Schwartz -- TAS Associates -- Analyst
I notice that you're having an income tax expense of $7.7 million, whereas both the Joint Venture and Kandi itself showed a loss. I don't understand where that $7.7 million income tax expense came in. Could you explain that?
Kewa Luo -- Investor Relations Manager
I'm sorry, can you just repeat one more time, your phone is a little skipping.
Ted Schwartz -- TAS Associates -- Analyst
Pardon me.
Kewa Luo -- Investor Relations Manager
Hello, would you please repeat your question one more time. Your phone is little skipping.
Ted Schwartz -- TAS Associates -- Analyst
I don't understand how there could be a $7.7 million income tax expense when both the Joint Venture and Kandi showed a loss.
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Zhu Xiaoying -- Interim Chief Financial Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Okay. This actually is not the income tax that we paid, but however, has to be accounted as expense in our financial statements. But most of the part is due to the $6 million valuation allowance of Hainan facility deferred tax asset because the Hainan facility's bringing accumulated loss in its construction period and the rest of $1.7 million is from other subsidiaries who is profitable, altogether $7.7 million was accounted for the income tax expenses.
Ted Schwartz -- TAS Associates -- Analyst
What models of cars are there presently -- are presently in production (multiple speakers) the 22s, the 27, the EX3, and what about the K23 in Hainan?
Kewa Luo -- Investor Relations Manager
(foreign language)
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
(foreign language) Okay, right now, there are K23, K22 and EX3 are presently in production and in March, we have plans of 300 K23 stacked up EV parts for the production in Hainan facility.
Ted Schwartz -- TAS Associates -- Analyst
Would you be producing and selling in Hainan in March?
Kewa Luo -- Investor Relations Manager
(foreign language)
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
Right now, since we still rely on Geely 's manufacturing license, so it's going to be sales of the EV part sets.
Hu Xiaoming -- Founder, Chairman and Chief Executive Officer
(foreign language)
Kewa Luo -- Investor Relations Manager
So if we plan to have these 300 sets of EV parts produced this month, so the sales probably will happen next month.
Ted Schwartz -- TAS Associates -- Analyst
All right, thank you very much. Not sure I understand it, but Kewa, thank you, take the next question.
Kewa Luo -- Investor Relations Manager
Thank you. Operator, we can take next question.
Operator
Thank you. Our next question comes from Frank Vladermann. Please go ahead.
Frank Vladermann -- -- Analyst
Yes, and good morning. Can you hear me OK?
Kewa Luo -- Investor Relations Manager
Yes, go ahead.
Frank Vladermann -- -- Analyst
Okay. I have a question involving carbon credits trading. I believe that carbon credit trading maybe an important source of revenue for t
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