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BES: Mixed Q3 Financials; Long-Term Thesis Intact

What you need to know:
• Braille reported Q3/23 financial results that were mixed compared to our expectations. Revenue and adjusted EBITDA were in line with our estimates but gross margin missed our expectations.
• Braille Battery remains well positioned to expand internationally and return to its historical sales growth rate of ~15% while expanding gross margin in the process.

Yesterday, Braille Energy Systems (BES:TSXV) reported Q3/23 financial results for the quarter ending June 30th. The results were mixed relative to our expectations, being in line for revenue and adjusted EBITDA but missing on gross margin. We remain confident in the BES story as Braille Battery continues to steadily grow internationally and Electrafy prepares for its product launch in early 2024. We are maintaining our BUY rating and $0.15/share target price on BES.

Key Highlights
• For Q3, BES reported $1.14M in revenue compared to our estimate of $1.20M and $1.15M in Q3/22, representing +3% QoQ growth and -1% YoY growth. Braille Battery plans to expand into the motorcycle V-Twin, ATV/UTV, and personal watercrafts market in the coming quarters as well as expand internationally through its distribution partners.
• Gross margin for the quarter came in at 20% compared to our estimate of 31% and 28% last quarter. We were expecting stronger gross margin performance (closer to historical standards), a transition that appears to be taking longer than originally anticipated.
• Adj. EBITDA for the quarter came in at ($0.7M) vs. our estimate of ($0.6M) and ($0.6M) last quarter. The miss on gross margin was made up for with savings on professional fees and office expenses. We remind readers that Braille Battery is roughly breakeven.
• Braille ended the quarter with $0.6M in cash & equivalents and $0.6M in debt.


Corporate Updates
On July 27th, BES provided a corporate update for all three of its segments. This included that Braille Battery is expanding its product range into Motorcycle V-Twins, ATV/UTVs, and personal watercrafts and that it has begun outsourcing its e-commerce business so it can focus on large product runs. As for Electrafy, the team is nearing completion for its product development, and it has begun discussions with potential customers. Lastly, Firebulb is nearing completion of its commercial development with potential applications for 1) In-home charging with alarm notification, 2) Integrated charging disconnect systems, 3) Peak Shaving and solar-based Residential Lithium ESSs, and 4) Industrial Lithium ESS Systems.