Altairnano Q4 2011 Financial Results

Conference Call Transcript

March 28 2012

Time code: 2: 16

Frank Gibbard (FG):  Good-morning everybody and thank-you for finding us today.  It’s my pleasure to welcome you to our conference call to discuss our recently released 2011 financial results along with a quick overview of our plan going forward.  

At last quarter’s call there were a couple of priorities we communicated and I would like to report our progress in those areas.  One of those priorities we mentioned is being more transparent and communicative with you, our shareholders.  I haven’t been able to deliver on that promise and I’d like to explain why. 

Two major activities for the management have been the preparation of a comprehensive business plan for the five year period 2012-2016, and secondly, planning for expansion into China. 

First it required 5 months, many hours of management time, and four iterations of the business plan before it was acceptable to both management and the board of directors.  Now I’m pleased to say that task has been completed and our business plan was approved unanimously by the board on February 1st 2012. 

With the plan approved we’re moving forward with a precise focus and a great sense of urgency. 

Next, the executive management, the sales team, and the financial group all spent a large amount of time in Asia preparing for our entry of Altair into China.  Personally I visited China 4 times since last October with the last visit lasting 3 weeks. These visits didn’t yield results that could be recorded publicly at this time but I will comment on the kinds of ground-laying activities that were carried out there during the Q&A session if there are questions on it.   

Now the hard groundwork of the past 6 months has begun to produce results. And we believe we will be able to improve the recent scarcity of information in the first half of 2012 and beyond as our plans begin to come to actionable reportable events and we look forward to starting to bring in some key business news this year. 

As a reminder the three target markets for our battery system technologies are first, the electric grid, second, transportation, and third, industrial.   

Another of our top priorities was to achieve financial stability.  As you will see when we file our 10K in the next day or two, we plan on further reducing staff and closing our Reno Nevada manufacturing facility by the end of 2012. 

On the other hand, to meet new and existing customer orders we will be adding staff to our Anderson Indiana operation.  This facility is the core of our activities in complete customer solutions.  It houses our team of experts who are responsible for cell design, battery control systems, and the design testing and assembly of complete products and systems some of these large enough to generate megawatts of power. 

The planned concentration in Anderson will allow us to meet customer orders and execute prototyping programs directed at initial commercialization. 

Now I’ll turn the call over to Steven Wong, Chief Financial Officer of Altair, for his review of our financials.  Steven? 

Steven Wong (SW):  Thanks Frank, and good-morning to everyone. 

For the year ended December 31st 2011, revenues were $5.2 million compared to 2010 revenues of $7.8 million. Gross loss was $571K in 2011 compared to gross profit of $2 million in 2010.  Operating expenses were $20.5 million in 2011 compared to $22.5 million in 2010. The 2011 net loss was $19.9 million, or 43 cents per share compared to a net loss of $22.3 million or 84 cents per share in 2010.  The basic and diluted weighted average shares outstanding for 2011 were $46.9 million compared to $26.6 million for 2010.  Gross profit was lower by $2.6 million in 2011 primarily as the result of reduced sales volume associated with the elimination of our military sales in 2011, a loss on the sale of product to a Chinese entity that we anticipate will assist in facilitating our entry into the China market and charges to inventory reserves related to quality problems with a battery cell supplier.  Operating expenses were down $2 million, or 9 percent during 2011compared to 2010. This reduction is the result of reductions in product development expenses and include increased efficiencies in the marketing area. Altair’s cash and cash equivalents increased by $41.8 million from $4.7 million at December 31st 2010 to $46.5 million at December 31st 2011.  This is primarily due to two capital raises net of issuance costs totaling $57.8 million in 2011 reduced by cash used in operations of approximately $14.7 million.  The bulk of the cash used in operations went to cover normal compensation in non-labor expenses and a $900K decrease in deferred revenue offset by a $3 million increase in accounts payable related to financing related to legal liability accruals. 

With that I’d like to turn it back over to Frank Gibbard. 

FG: Thanks Steven.  Before we open the call to your questions I’d like to provide an update on several items as well as discuss our future growth strategy. 

On January 11th we issued a news release that we received a bid product deficiency notice from NASDAQ.  This is because our stock price fell below a dollar per share during the time period from November 21st 2011 to January 5th 2012.  We have until July the 5th of this year to have the stock price trade above the dollar price range for 10 days to retain our listing.  If we’re unable to achieve this there are a couple of action steps that we could institute to try to retain our listing.  Those steps include applying for a six month extension and the possibility of a reverse stock split.  As you can imagine maintaining our NASDAQ listing is extremely important to us and we will take the necessary steps to do that. We believe that between now and July 5th we will have sufficient good news of orders in hand to help drive our valuation.  We continue our work with INE in El Salvador to establish the regulatory framework necessary to enable energy storage in that market.  This is the equivalent of work done in the US over the last several years and we remain confident that we’re close finalizing the regulations that will allow us to proceed with our existing contract with INE for a 10 megawatt turnkey system.  We believe that Honduras and Guatemala will become viable markets in 2012 once the regulations in El Salvador are completed, and we’re actively talking to customers in both countries.  The cost of heavy fuel power generation in these countries, along with the higher grid instability, makes our energy storage solution very attractive there. 

In 2011 we also accepted orders from ESH a subsidiary of Nextera for a demonstration that will go into service in the next few months and from a global wind turbine manufacturer.  This unit is also scheduled to enter production in mid summer along with the previously announced units in Hawaii.

Combined, these demonstration projects will allow Altairnano to demonstrate its capability for frequency regulation and the integration of solar and wind renewable energy. 

2011 marked a year of executing our new market strategy to include both commercial vehicles in the transportation segment and industrial applications to help diversify company growth away from complete dependency on the grid market.  While Altairnano has developed perhaps the strongest available application engineering and grid knowledge in the energy storage market, we recognize that the slow adoption of energy storage in the United States requires that we focus on additional markets. 

During 2011 we also began working with a number of customers in the transportation and industrial segments to provide prototypes for applications that leverage our unique characteristics of long cycle life, safety, wide operating temperature range, and the ability to charge faster than any other technology.

The majority of transportation and industrial customers are Original Equipment Manufacturers, or OEMs.  These customers typically purchase our product first to prototype in their equipment and then launch into production over several quarters. As a result it takes some time to achieve significant revenue traction.  We’ve been successful in selling prototypes to several multi-billion dollar transportation and industrial OEMs.  Each of these OEMs is evaluating the capabilities of our technology and we believe that they will be a major source of growth for our company.

These customers typically require battery technology that can accept very fast charging, can operate over a wide operating temperature range, and will last a long time, and, more and more important these days, is inherently safe. 

Before we close let me reiterate that we’re enthusiastic as ever about the potential opportunities that lie ahead for Altair. We have a lot of work ahead as a management team but we’re supported by a group of dedicated employees who are totally committed to maximizing the opportunities and delivering shareholder value. 

Now we’re ready to take your questions so I’ll turn it over to the operator to facilitate the Q&A session. 

13:44  Q&A  Session 

Operator (Op): Our first question comes from Eliot Hinman, with S&H Finance. 

Eliot Hinman (EH):  Hi. Can you hear me? 

FG:  I can. 

EH:  Yeah, listen, I got on a little bit late. I represent a company called S&H Finance and we’ve been involved with Altairnano almost since the inception.  I want to get you to clarify something for me that you said regarding the NASDAQ listing because, and please do not get me wrong about what I’m going to say next, because everybody on this conference call will understand what I’m saying.  You sounded to me very Terry Copeland-like with one statement which was about the NASDAQ listing.  Are you talking about another reverse stock split… again?  Once again?  Another…  Reverse stock splits do not work 90 percent of the time in the marketplace.  Everybody that’s market savvy, every Wall Street analyst will tell you that the chances are 1 in 10 of a reverse stock split working.  We saw what happened last time with a reverse stock split – OK?  Number…Another point I’d just like to make here:  When you reverse stock split you have to have a continual stream of excellent news, orders, and revenues in order to keep the short sellers from totally degenerating the value of your stock.  Okay?  We’ve already seen this with this company so my question to you is;  Are you SERIOUSLY considering yet another reverse stock split? 

TC:  That’s a very (dutiful?) and well-balanced question.  Let me answer that question.  I’ve given you two opportunities.  Two ways and, uh, you’re still not listening.  The first one is to get a stream of good news is related to new orders and business opportunity is by far the preferred solution. I only mention a reverse stock split because that’s the last resort to maintaining our NASDAQ listing.  So, from the standpoint of what we intend to do, our strategy is to release good news consistently in a stream over the next several months and hopefully going beyond that.  We have good news to release, I believe, and the problem with that is that when you deal with large companies, these multi-billion dollar companies that I was talking about, they hesitate to allow their names to be used when they’re dealing with a small company.  And we’re making every effort to write into our agreements, our Memorandums of Understanding, and our contracts, that, the right to announce our deals with them shall not be unreasonably withheld. So, good news is our first preferred solution to retaining our NASDAQ listing.  The possibility of a reverse stock split is remote, in my mind, and is the last resort. 

Op:  Our next line is from the line Russell Atwater, private investor.

(pause)  Russell your line is open.

Russel Atwater (RA):  Yes, hello.  My question is, a couple of quarters back, you mentioned to be involved with the forklift industry.  To have a quick charge battery is an awesome thing for that industry because it takes 8 hours to recharge a lead battery. Do you still have that connection?

TC: We still are working in that area, yes.

OK.  That’s all I wanted to know. Thank-you. 

Op: Our next question comes from the line of Patrick Assard, private investor. 

Patrick Assard (PA): Good-morning, Frank. I was wondering… Did you guys prerelease when your were giving out your earnings out today?  Because today was the first time that I noticed any news that I noticed that you guys were having an earnings conference call today.

TC:  Yes, we did prerelease it.

PA: OK, because, I never did see it in any of the headlines anywhere out there.  Also, can you elaborate a little bit more on these multi-billion dollar companies as to whether or not they’re in the U.S., Europe, or in China?  Because you also mention that you look forward with our investments with Canon there that that’s gonna give us some income from China there, so can you elaborate more where these multi-billion dollar companies are located?

TC:  You hit it right on the head when you said the U.S. and Europe. At this point we are having discussions also in China but nothing has matured in China.  Things are moving right along with the kinds of demonstrations, product demonstrations, at the module level and the pack level with those companies, that’s US and European companies, and the initial results have been uniformly positive. I’ll tell you a little bit more about that; What we’re finding, and this is a very optimistic statement but I believe it from the very bottom of my heart. What we’re finding is that the people to whom we are shipping prototypes are finding that we are unique in the energy storage universe of products available in the characteristic attributes that they need for their applications particularly in the areas of high rate charge acceptance, safety and wide operating temperature range.  So I think that probably answers the question that you asked.  We’re very optimistic about that and we’re pushing with all of the people that we’re dealing with, as I’ve said before, to allow us to use their names in connection with orders from them.

PA: Also, the good news that you’re expecting to share with us in the next couple of months that will expected to boost our share price here. Is that gonna be coming from the US, or Europe?  Do you have anything… what’s your general feeling on that?

TC:  My feeling is that the U.S., Europe, and China can all contribute to that good news scenario that you just described.

PA: OK, thank-you very much.

Op:  Our next question comes from the line of Frank Cho who’s a private investor.

Frank Cho (FC):  Hello.  I have two questions.  The first, I thought, domestication. After the vote we got the 8K filing noting the board will decide whether and when implement domestication. So can you talking little bit more about that?  Your consideration?  That’s the first question. The second is about kind of industry extension so. We found lots of news in Chinese, you know, mention about that. So, can you talking about a little more?  Why you keep silent here? No any English published about that progress.  Thank-you.

FG:  I think that Steven Wong will address that and I can follow up.

SW:  I’ll address the domestication.  I do remember you Frank, attending the shareholder meeting.

FC:  Yes.

SW:  So the shareholders have approved it.  The board of directors have approved it and we moving along with the process.  We expect to have the process completed within April.

SW: OK.

FC:  And I’ll let Frank answer the next part of the question.  If you don’t mind to repeat the question again – the second part?

FC:  Yeah, the second part is about the China business expansion. You know, we read lot of news about the progress talking about the Altairnano China, you know. The problems they maybe founding the new company there.  In English we did not see any report or any upgrade for that.. yeah.. can you explain that, little bit, detail?

FG:  Actually, now that I hear your question again, Steven has been intimately involved in the business discussions that are taking place in China and I think he is the best one to answer that point also. 

SW:  Frank, so, I’ve been assigned as the authorized representative to go over to China and expand operations in China.  So we looking to the China market and we were in the process of establishing a wholly foreign-owned enterprise over there.  And we actually have various different discussions with various different levels of Chinese government officials over there.  So if you have seen certain articles or press in Chinese I think may be reasonable, you know, that we have something out there given how it operates in China. 

FG:  Let me expand on, the subject of China has come up.  I did say, in my initial remarks, that I might say more about what we found in China when we visit there.  We have, the management team, and the sales team, and the financial people have all been involved in going various places and visiting various institutions in China. And these include potential vendors who can source products that are less expensive, and (muffled) to use in a China operation. We have talked to government institutions at the municipal level, at the um, um, what I would call County level, which is an assembly of, they call it a metacity but, it also would be in the US, considered a product consisting of, perhaps, 10 or 15 smaller cities assembled into one political unit, and also at the provincial level.  And what we have found is quite remarkable in my experience and that is an overwhelming enthusiasm for American battery energy storage technology in general and Altairnano’s particular unique technology in particular.  So, um, while I think that we were received well. We were met by officials from the lowest levels to the provincial government of one province. And we, after we gave our presentations, we typically got the comments: “Don’t tell us too much about the technology. We understand that you, in the United States, and Altairnano in particular, have superior battery energy storage technology. Tell us about your needs. What do you need to relocate part of your operations in China? How can we help you, with incentives, to achieve those goals? So we came home from those kinds of meetings quite enthusiastic about the possibility of  doing business operations in China.  I can’t be more particular at this moment but we do expect to talk much more about that in the not very distant future. 

Frank Cho:  Very good.  Thank-you. 

Op: Next on the line we have Brian Hatch, who’s a private investor.

Brian Hatch (BH):  Hello.  I have two questions.  One is why isn’t there news here in the United states. It seems like this organization has been unable to find any kind of news at all.  And the other question is that as you approach the market in China, what safeguards are you using to protect your intellectual property?

FG:  Could you repeat the first question? There’s a little distortion in our speaker system. 

BH:  The first question was relating to investor news.  I’ve not seen, over 6 months, any news stories at all about your company’s activities in the usual outlets that I follow. 

FG:  OK.  I kind of alluded to that.  With respect to things that are going in the United States we have grid-related activities with which we are dealing, and some of which are in advanced discussions, and which we are unable to talk about that because of a lack of ability to do that to our memorandums of understanding.  I addressed this question, perhaps not adequately, but all of the big companies that we’re dealing with, without exception, have told us that they do not want us to use their name without their explicit permission and we don’t have their explicit permission so far. The question is do we (indiscernible)? But that explains to you, I believe, to you why we haven’t been able to talk about them. We have a specific activity relating to a large industrial application, the one with a Fortune 100 company for unusual applications relating to power needs within business buildings.  Another application that we’re unable to talk about right now but we are evaluating with one of the world’s leading electrical and electronics companies has to do with offroad (offload?) vehicles that need the ability to yield power in large bursts and again, although we have supplied equipment prototypes to them, to that company, we are not able to talk about them in detail at this time.  So, there’s good news which we have in-hand and would like to talk about but have been unable to at this time. We continue to push United States and European companies that we’re dealing with to be able to be allowed to present those materials and as soon as we’re able to we’ll certainly do so.

The second question related to safeguards to intellectual property in China.  And this has been a major issue for various different companies.  What I can say is that we are acutely aware of the problems of losing intellectual property.  Many of the aspects of IP that we’re most concerned about are, fall in the area of trade secrets and so we are putting up safeguards in any China operation to maintain that kind of information by not allowing venders to have more information than they need to supply a particular part that they need for application.

Steven, do you want to say anything more about intellectual property?

SW: Um… so… there are a laws protecting intellectual property in China. We had discussions with intellectual property attorneys on that.  So, as I mentioned, we are in the process of expanding into China and looking into that and make sure that our intellectual properties are protected.

FG:  To paraphrase what Steven just said we are aware of the problem and we are taking steps to that we can with our own internal knowledge, and we have some very knowledgeable people working on our staff.  In addition to this we are working with intellectual property lawyers to ask them their expert opinion about how best to protect our intellectual property.

Brian Hatch:  Can I follow up on that?

FG: OK.

BH:  I think, several months ago, there was some discussion that you would keep certain processes to be done here in the United States to avoid intellectual property loss in that regard.  Is that still the plan or you figure out a different way to approach it?

FG:  I’m sorry I’m not aware of what initially what you’re speaking about.

Has that been since last September because I can’t really speak to what happened before then.

(silence)

Op:  Our next question comes from the line of Tim Butler who’s a private investor.

Tim Butler (TB):  Yeah, right, thanks for taking the call.  Can you talk more about your domestication strategy and also talk about the LTO production strategy in China?

FG: Let’s get Steven to the first part and I’ll handle the second part

SW:  I’m sorry would you like to repeat your question.

The strategy with related to domestication.  So as I mentioned earlier, the board of directors and shareholders have approved the domestication.  Our strategy is to basically domesticate from Canada into the U.S. to become a Delaware company.  There are differences in terms of the law and regulations and so forth and so it will allow us to be more flexible in terms of how we operate.  That will also reduce the cost because, you know, instead of having also lawyers and CPA’s and other professionals involved we should be able to save a substantial amount. And, you know, it will also allow us to operate more effectively and efficiently from a timeline standpoint, you know, whatever we need to do in terms of a transactions.  And there are a lot more benefits to that and I hope that answers your question.

FG:  Could you repeat the second half?  We didn’t capture it.

Tim Butler:  Yeah the LTO Production strategy in China. Do you know how much you’ll be producing?  When you’ll be producing it?  What you think you’ll sell it for?

FG: All of those things have been planned.  I don’t think I can speak to them in detail at this time.  Let me put it this way; We do expect to be able to produce all of our needs for all of the products that me make by making, transferring technology, and perhaps, equipment to China for LTO production and that’s associated with our closing down of Reno operations where our LTO is made today.

TB:  Thank-you.

Op:  Our next question comes from the line of Richard Gianinni, with private investor

Richard Gianinni (RG):  Good-morning.  Thank-you, gentlemen. I guess we all know that sales heals everything and that’s the most precious news. What everybody, I think, is hoping for more than production capacity in China. Obviously it fails to dictate that I think we all encourage this from.  My question is more to the domestic market and to your competitors, and I’m sure that there are many more than I know of, but Extreme Power is one impressive, who seems to be plugging in successfully to the grid. What particular barriers are unique to Altair that someone like Extreme seems to not be dealing with?  What encouraging signs have you to tell me why you’re going to be a valid domestic competitor in the grid business?

FG:  OK.  Let me say first of all what is, in the grid business, that is uniquely an advantage to our company.  I already mentioned that our LTO technology, the chemistry of LTO, exceeds, when there are huge demands for power, and some of our competitors can address that to some extent, but also when it’s possible to, and necessary to, achieve very high charge rates.  In that area there is no technology in the world that exceeds ours in the ability to do both. That is to accept charge, and deliver charge in very short periods of time.  We’re talking about response times in the order of milliseconds.  And, in considerably less that one second, is able to go from charging at the rate of one megawatt to discharging at the rate of one megawatt and that gives us a unique capability in, for example, frequency regulation.  Not a terribly large niche but a very important one in terms of profitability in the United States.  I will also say with respect to the role of energy storage in regulated applications in the United States is taking off very slowly because the customers are electric utilities and there is hardly an industry that you could mention that is more conservative, and careful and long-planning, and requires long life on its equipment than the utility industry.  And so, based on my conversations with people in the utility industry and organizations that serve the utility industry I would say that it’s unlikely that there’s going to be any large scale grid implementation of energy storage technology for grid applications for the next 2 to 3 years.  We’re talking about people trying to sort out why energy storage is necessary, how it is useful in integrating renewables into grid applications, how many grids can use this kind of technology, and so forth.  I will tell you that we are playing a key role there.  We are talking with technology people with very well-received products into that industry. We continue to perceive that as something that we can do better than others in particular applications.

Now I’ll give you another part of it which is that it is not particularly at this time our sweet spot to be doing bulk energy storage and bulk energy storage is a strong interest of many utility companies for the future. Particularly for off-selling time of day operations so that if there’s a big difference in electricity costs at a particular time then you can store energy and then return it to the grid.  That is not a sweet spot for our technology. We specialize in the ability to be agile and fast and safe.  Also those applications where customers are demanding very long lives because you can project using critical methodologies that are widely accepted, you can project a 16 to 20 year life for our product and that begins to look particularly attractive for a long view company (indiscernible) or market segment such as the electric grid.  So, in the near term, we won’t compete strongly in bulk energy storage.  That’s not our prime business.  We do, however, have initiatives that are looking at the possibility of hybrid systems in which our capabilities for extremely fast rapidly charged can be combined with bulk energy storage from other systems and hybridized into a single system.  We have done studies on this we have (indiscernible) from a standpoint of initial provability and it’s looking promising for some applications which I would hope to be able to talk to you more about more later. That would allow us a wider lane of market activity. We still find lots of interest in the U.S., we find lots of interest in Hawaii, where they’re looking at wind power and solar power and I’m bullish and optimistic about that. It just takes a long time for that market to develop and as I mentioned in my initial remarks.  That’s why we’re bringing along transportation and industrial markets to get near-term sales.

RG: Thank-you.  I appreciate that.

Op:  We do have a follow-up question from Frank Cho who’s a private investor.

Frank Cho (FC):  Yeah, yeah.  Hello?  (pause)… Hello… (pause)

FG:  Yes.

FC:  I have another two questions.  The first one is about inventor suicide.  So, how do you think that will impact the company?  That’s the first question.  The second is did YTE already use our (indiscernible) product

If they not use in their production what is the problem?

SW:  I’m sorry. Due to the speaker I’m sorry we couldn’t hear the first part of the question.

FC:  The first part of the question is about our inventor. I heard that he already suicide. Can you comment how that will impact the company?  (long pause)

Hello?  (Pause)  Hello? (Pause)

Op: Pardon me, Tom, it looks like the other speakers have maybe disconnected.

Tom:  Yeah.

FC:  So you hear my question? (Pause)

Op:  Ladies and gentlemen, please stand by.

Tom: Are they dialing in?

Op: Um, I’m dialing out to them now.

Tom:  OK.

(long pause)

Op: Ladies and gentlemen please stand by your conference call will begin again momentarily.

Tom:  Frank are you there?  (long pause)

(Indiscernible words and muffled whispering)

Op: The speakers are back on the line.

FG: OK, sorry for the interruption.  I believe that the first question was relating to an employee of ours who had passed on?

FC:  I think so.  The inventor of our dust production.

FG: What I can say about that is that we were very…(truncated)

(long pause)

FC:  Hello?

Tom:  I think we lost the connection.

Op: We may have lost them again.

FC: Oh, O.K. (laughs)

Tom: I think he was in mid sentence there.

Op: I’ll try dialing out to them again.  They’re still connected it shows.

(long pause) Ladies and gentlemen please remain on your lines by your conference call will begin again momentarily.  (long Pause)

Ladies and gentlemen thank-you for your participation in today’s conference.  You may all disconnect now.  Everyone have a great day. 

END

 

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