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Zoltek Companies (NASDAQ:ZOLT)

Q4 2012 Earnings Call

November 28, 2012 11:00 am ET

Executives

Zsolt Rumy - Founder, Chairman, Chief Executive Officer and President

Andrew W. Whipple - Chief Financial Officer, Chief Accounting Officer and Vice President

Analysts

Avinash Kant - D.A. Davidson & Co., Research Division

Jay Steinhilber

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Herbert C. Buchbinder - George K. Baum & Company, Research Division

Charles DiBenedetto

Operator

Good day, and welcome to the Zoltek Fourth Quarter 2012 Earnings Conference Call. Today's call is being recorded. And now for introductions and opening remarks, I would like to turn the call over to Mr. Zsolt Rumy, President and Chief Executive Officer of Zoltek. Please go ahead, sir.

Zsolt Rumy

Good morning. Thank you, Brian. Welcome to our fourth quarter and fiscal year-end conference call. I can say that this has been the best year that we've had in many ways, certainly, financially. And so we'll talk about some of the details and define what we'd look forward to in the future. But first, let me introduce Andy Whipple, our CFO, and he's going to do his normal duties to read the forward-looking statement to make sure we don't get into trouble and then go through some of the -- add some color to the numbers that we have in our press release, and then I'll get back and talk about the business. Andy?

Andrew W. Whipple

Great. Thank you, Zsolt. During the next few minutes, I'll cover some highlights of our fourth quarter operating results. However, I first need to provide, as Zsolt noted, a comment regarding forward-looking statements and certain financial measures.

During today's call, we'll refer to certain financial measures and details to explain or add to the information provided in our earnings release. We will also be making certain forward-looking statements today. Please review our Safe Harbor language found in our press release and our SEC filings, which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.

So with regards to the fourth quarter and highlights, as Zsolt noted, with regard to the sales, we had our highest yearly sales ever in the history of the company at $186.3 million versus $185.6 million back in 2008. The year-over-year quarterly sales increased to -- from $43.1 million to $44.2 million, and the sales decreased from the prior quarter from $48.1 million to $44.2 million. On a high-level basis, I think it's worth noting year-over-year that the euro had weakened against the U.S. dollar by 7.2%, resulting in about a $5.9 million decrease in year-over-year's revenue.

So Zsolt will comment further about sales drivers in his section of the call. With regards to cost of goods sold, the year-over-year quarterly cost of goods sold decreased from $36.4 million to $34 million, and the gross profit percentage increased from 15.6% to 23.1%, reflecting increases in operating efficiencies as we continue to improve the productivity of our operating lines.

The cost of goods sold decreased from the prior quarter from $36.8 million to $34 million, and the gross profits percentage decreased slightly to 23.1% from 23.5%, reflecting a change in the product mix.

Again, on a year-over-year basis, it's worth noting that the HUF weakened by about 15.9% during fiscal 2012, decreasing our costs in Hungary. Again, Zsolt will comment further about cost of goods sold drivers in his section of the call.

With regards to application and development costs, we can see that we had $8.6 million in fiscal '11, and that was down to $7 million in fiscal '12. And the decrease was primarily due to reduced spending in our prepreg development, which is now into production.

In Q4 -- Q3 and Q4, we had $1.7 million in development costs. We continue to work [ph] in prepreg into the wind, auto and then in the PAN/lignin area, which is supported by our grant from the Department of Energy. So we have a lot of application development work that we continue to work on and progress on.

In the SG&A area, we see that in fiscal 2011, we had $13.9 million, and in '12, it went down to $13 million. The decrease was primarily due to a $0.5 million decrease in consulting costs and the strengthening of the U.S. dollar against the HUF, which resulted in about a $0.6 million decrease in our HUF-denominated costs. So we find that our SG&A costs, as the revenues go up, are very leverageable costs.

Below the line, we can see that we had a loss on foreign currencies of approximately $0.8 million in Q4, and this was primarily due to the HUF strengthening against both the euro and the U.S. dollar. This causes an offset against our euro and USD based receivables over in Hungary. It's important to note that our functional currency is the HUF over in Hungary, so currency movements of the HUF against the euro and USD tend to have that type of effect.

Again, below the line, we see that we had a gain on our fair value of liabilities. It was only $100,000 -- about $100,000, but it's worth noting that this relates to 828,000 warrants that we have outstanding, which expire in December 2012. These have a strike price of $28.06. So come December, those warrants will go away and that'll be the last of the warrants that we had outstanding associated with the convertible debt.

Looking at income taxes, we had about $100,000 expense in Q4 versus $300,000 in Q3. This expense is primarily driven by a 2% local revenue tax in Hungary. With regards to Hungary, it's important to note that we do have a 10% flat tax rate in Hungary, which is going to be applicable next year up to our first $2.3 million in taxable income. The rate then increases to 19% beyond that. While we do have an NOL that we will be able to offset against that taxable income in Hungary, but it's only applicable up to our first 50% of taxable income. It's important to note that we have 100% valuation allowance carried in the U.S., Mexico and Hungary. But the U.S. NOL, at this time, is approximately $63 million; in Mexico, it's about $33.5 million; and in Hungary, it's about $46.9 million. So as we generate taxable income, we'll use these NOLs to their maximum to offset any taxes that are due.

With regards to capital spending, we had $22.4 million of CapEx in fiscal 2012 versus about $8.2 million in 2011. So we saw a lot of increase in the current year. In Q4, we have $4.3 million versus about $5.8 million in Q3. So these investments primarily represent investments into our downstream operations, including prepreg, pultrusion and fabrics where we've made some great progress. And we also have invested in further operational efficiencies.

With regards to our balance sheet, we can see that the receivables decreased to $35.9 million in Q4 from $37.8 million in the prior quarter, reflecting the decrease in sales. Receivables paid on average in approximately 60 to 70 days, in line with our expectations and customer mix. We continue to monitor the receivables closely and pursue slow payers as appropriate. During all of 2012, we had approximately $200,000 of bad debt expense against $186 million in revenue. So as you can see, we have a very small amount of bad debt expense.

With regards to the inventories, they did increase to $67.9 million from $62.4 million in the prior quarter. The finished goods increased as we continue to build inventories against the anticipated sales increases to ensure we do not repeat the errors in the past, when we experienced some product shortages.

We continue to monitor the ACN market for opportunistic chances to buy, which can cause our raw material inventory to fluctuate significantly.

With regards to liquidity, our cash increased to $29.9 million from $17 million at the end of fiscal 2011. During fiscal 2012, we did enter into 3 different loan agreements, which I think are worth noting. One is that in the U.S., we now have a new $10 million loan over 7 years at 4.75%. In Hungary, we entered into a 5-year credit agreement, which included a $17.1 million term loan at 4.17% and a $4.8 million overdraft facility. And also, in the U.S., we've entered into a 3-year line of credit with $15 million available at LIBOR plus 2.5%. Thus, we have an excellent borrowing structure at very favorable rates and currently no draws on our credit lines. So our cash currently on hand, our cash flows from operations and our anticipated credit facilities equate to about $50 million in liquidity that we have today, which should be sufficient to fund identified liquidity needs during the next 12 months.

With regards to EBITDA, we have $43.5 million in EBITDA in fiscal 2012 versus only $13 million in fiscal 2011. So we continue to be very strong in the EBITDA area at $9.9 million in Q4. So we'll continue to work to keep ourselves in a positive EBITDA position through increasing sales and managing our production. Zsolt, back to you.

Zsolt Rumy

Very good, little long, but...

Andrew W. Whipple

Sorry.

Zsolt Rumy

Anyway, going back to our business, I'll talk about a little bit about the revenues. There was no real significant change in the fourth quarter. I think overall, for the year, we're close to 20% increase in our revenue from last year. I think we're taking little smaller steps that I'd like to see incrementally each year. We've had average about $30 million, and we went to about close to $40 million and now about $45 million average quarterly revenue. We're looking to increase that in the future. Again, our experience is that we're not looking for -- or we're not achieving incremental sales at this level of development of the commercial carbon fibers. What we're looking for is step changes when a new application or a very significant new customer comes on board.

Of course, still, our biggest business is the wind business. But we are spending much more significant effort in developing new applications, as well as new customers in the wind but a lot of new applications.

The -- we're in a good position to continue our growth in the wind business. We have -- there's a pontification over the future of the wind market in the United States, primarily because of the tax credit issues. And unfortunately, most people in the U.S. are consumed by the guessing and pontification over the U.S. market, and the global market does not have these issues. And so we're pursuing the markets in Europe and Asia, and now also South America is coming on. Vestas is still our major customer, and they have a big backlog. I think there's some questions about their financial viability, and I don't think they were well-founded questions because they have a tremendous amount of capabilities and backlog. However, they did lose control apparently of some long-term expenditures in R&D and other areas, while the turbine business got a lot more competitive. And so their expenses have gone up and their price on the wind turbine was going down, and I think they caught -- got caught in the middle. They made a lot of changes to correct the financial issues and just recently announced the completion of a financing through 2014, which pretty much eliminates the concern of their financial viability.

There are a lot of -- there's some discussions on how China has come to a screeching halt in their economic growth, and I think some of that discussion comes over to the wind turbine business. But I think it's exaggerated, and there is something -- there's one thing that goes up -- that's going on in China is that the central government has taken over the approval of wind farm development. And in this process, they slowed down volts [ph] , and they're reviewing their current situation before they continue to grow and more focused growth. So I think whatever pause there is in the wind turbine business in China is temporary. At the same time, Europe is doubling down and South America is coming on fairly strong, including Brazil.

So that's -- our other applications in the carbon fiber area, existing applications are doing fine. Nothing dramatic happened this year in those applications, but we're maintaining a fairly steady business. On the technical fibers, our traditional business, which is aircraft brakes and rocket nozzle materials, is going well. A lot of airlines cut back on the airplanes that are flying. But generally, the older airplanes are put on standby and the new airplanes all have carbon brakes. The 737 is now being slowly but surely converted from steel to carbon. So this business is very solid, and we have a very, very good position in it, and I'll talk a little bit about that later.

We have initiated some significant effort in the fire and flame resistance textile applications for our [indiscernible] fiber, our Pyron fibers, and I see some results coming in the coming year.

The new product introduction, I do want to make a comment on here because I think we have -- I personally have been guilty of being optimistic about the speed at which we can develop new applications, and many times, I get disappointed. But these disappointments are temporary and I think are not reflective of where carbon fiber, particularly the commercial carbon fiber, is heading in the future. So many of you are quite familiar with the Boeing 787 situation, and this project had a number of years of delay, I'm not sure. I think, if I remember correctly, over 3 years or 4 years of delays. And so -- but I think you need to also accept the fact that business success and also, I would be willing to make a statement that in the near [ph] future, airplanes developed with metal, with the exception, of course, of some Chinese and other newcomers into the market, but certainly Airbus and Boeing I don't think will -- I don't think will go back to designing with metal. So I think that while this delay was costly and embarrassing, to some extent, to Boeing, it has not deterred them from going forward with carbon fibers, and I think the rest of the industry is in a similar position. It sometimes takes longer to introduce a new product, and we'll talk a little bit about the auto. And -- but it doesn't say -- it doesn't mean that the interest and the effort is slowing down.

In the new market areas, of course, Andy talked about the investment we've made in the, call it, composite intermediates, which is a product group of downstream value-added products, including the pultruded profile prepregs. And those are in the U.S. and the fabric production in Hungary. And again, we're looking to not only to support our existing business like wind, but we're also looking for new markets with these products.

The automotive continues to be making progress, and we have completed this and seen development this year. We make the best product in the industry by a significant margin, and we'll start marketing the product jointly with Magna. We have many other projects in the auto industry, working with partners, working with OEMs and working with Tier 1 suppliers and also manufacturing equivalent suppliers.

And then this is -- takes a little longer sometimes than we hope, but we are making progress. We are a different company than we were in 19 -- or 2008, I'm sorry, when the last time we had close to the same revenue. And after that, of course, we entered the economic downturn, and we, like other companies, took a real setback. But interestingly enough, our prices in 2008 were -- between 2006 and '08, they were based on a carbon fiber shortage, and just round numbers, our prices were around $25 a kilogram. Now the same product is around $19 a kilogram. And so that's almost a 25% decrease in our pricing. At the same time, our utilization of our production has not increased, in other words, we made these production increases by improving our operations, and at the same time, not only improve the capacity and capabilities, improve the quality cost, which is why we're significantly more profitable this year than we were in 2008 at 25% higher prices.

ACN positives [ph] , there is -- a significant part of our cost was about the same in 2008 as it is today. So these changes were truly due to our operating performance, which, of course, also points out that we now have -- we're in the transition from purely a development company, developing products and applications to actually a producing company and therefore, we're concentrating operations more than we used to.

So with the new capacity utilization or the capacity increases and all that, we're able to support any new significant markets that will develop in certainly, automotive more than anyone else in the business, and so I think our -- and without doing any real further investment. We have also done more in the R&D area. We have built a facility that is dedicated to R&D. We do application R&D here in St. Louis, and the new carbon fiber and precursor R&D in Mexico. Some very interesting things that we're working on other than just the lignin, but -- which is also important, but a lot of interesting processes we're working on, and certainly, we're working on many new applications. We also have a global market reach, different from what it was in 2008. Our x U.S. market is significantly higher than our U.S. market, and so we're really a global company and certainly have shown some strength in the Asian market.

So this kind of leaves me -- we have many calls from shareholders, some of them pleasant, some of them are not so pleasant. Many of them deal with how come our stock is doing so poorly and what am I doing about it. I try to tell them that if I could figure out how to make that go up, I would, but other than -- I'm just trying to do our business and trying to perform. But it has gotten to be kind of a crazy up and down valuation that -- I want to touch on that on this call and try to talk about what I think the situation is, defining our business, come up with what I believe the valuation is based -- should be based on and then talk a little bit about our analyst coverage.

First of all, Zoltek is a materials company, probably best defined as carbon fiber is an enabling material for energy in all of the phases of energy, alternative energy equipment like wind turbines, exploration, deep-sea drilling, utilization of alternative energy like fuel cells and, I think, more up-and-coming applications, compressed natural gas for vehicles, weight reduction and the ability to utilize alternative energy of various kinds.

I might digress a little bit on the weight reduction. I think the auto business -- there's a significant change in attitude in auto. There's a lot of work on developing a high carbon content vehicle, and I think it proves to be a longer process and more costly process. And with the new regulations on fuel efficiency and so on, I think the whole auto industry now have shifted to a light-weighting process, which basically is bolt-on parts and components to reduce the weight of the automobile, which is great because actually it might not require as much carbon fiber per car, but it can be very quickly designed more cars and more platforms, whole platforms. A million car platforms, for instance, could take 2 pounds of carbon fibers for a certain application. So it's a light-weighting process that is now happening. I think it's going to speed up the utilization of carbon fibers in the automotive application. And so while wind turbine is the largest new application that commercial carbon fibers have come up with and probably the largest business for us for the next couple of years, it is by no means our defining business.

Having said that, we look at what kind of valuation that I think -- that I feel that Zoltek should be considered. First of all, our traditional aircraft brake and rocket nozzle business, these are very long-term qualifications, very expensive to change, no rationale for changing. But we have -- and we have a very large percent of the global market, and we see this continuing. Anytime you look at any projections for aircraft build going into the next 20 years, it's very, very significant. So by itself, this business, for the next 20 years, is going to average about $50 million revenue with essentially as much valuation as our total company's value at the moment. Another way of looking at our business is that we finally, this year, for the first time, we had all 4 quarters profitable. And so we have demonstrated some level of performance, obviously not multi-year, but at least some glimpse of what our business can be. And the normal valuation of just in a ho-hum public company, 15x earnings is not an unusual valuation. And at that point, even in today's, not next year's, but today's earnings demonstration, the share price would be in the $10 range. If we were considered to be a high-growth company with 20% growth like we had last year, that multiple usually is more like 20 to 25x earnings. So we're, even on the demonstrated performance this year, we're talking $15 plus per share.

Another way of looking at our value, again, this is my opinion, but we're talking about other -- versus other people's opinions, nobody knows the future. We have invested in capacity and technology, which has a tremendous replacement value. We invested close to $500 million of cash into this business and about 10 or 15 years of very significant effort. And to -- for somebody to replace what we have in place would be over $1 billion and a number of years to happen. Even though somebody might have a lot of money, it will still take them a long time to get there. And that would certainly result in a high valuation, somewhere in the $30 range.

Another approach that I look at is the revenue and profit based on existing development and the existing capacity in the plant. We could reach $400 million of revenue with no significant investment, and that would be about $2 a share of net profit at that point. Again, it could be considered in the neighborhood of $40 stock price.

So these are of course, like I said, my opinion, and now that goes against our analysts' opinions. And so I looked at the last 10 years our coverage, and other than occasional guys jumping in and jumping out and coverage doing an offering, we probably had about 5 or 6 companies that covered us. A couple of them dropped out primarily because they tried to understand our business and looked at the material aspect and looked at the kind of valuation that I was thinking, but the problem became that we're a one-off company and the amount of work it takes to do research on a company that's unique was too much trouble. And so to some -- couple of people that I talked that have the potential to represent our position, well, had to drop out.

Then, of course, we got some interesting stuff in the last 2 years, and I want to start off with early 2011, our stock jumped to about $16 a share. I think what ticked it off was that we looked like we had some real good potential business. And then we had one of our analysts, a guy by the name of Steve Dyer from Craig-Hallum, went on CNBC TV on a Squawk Box program. And I won't bore you with the funny episode that the whole thing was, but ultimately, was asked since he's covering our stock and signals to know about Zoltek, he essentially told the world that we make a carbon fiber, which is lightweight, and it prevents the wind turbines from tipping over. And so I asked him to drop the coverage for us, and he finally did in August. He went out in a flaming glory, downgraded our stock and put them out to us [ph] when 2 years included in [indiscernible] what the hell he was talking about.

So then, early 2012, we again recovered because a great first quarter earnings is unusually good, of course, and pipes up a guy from Needham, and he's been with us before and -- when he was at ThinkEquity. And Michael Lew, and he just knocked us for absolutely no reason, no knowledge, no anything except he just wanted to destroy our stock price, which he did. And it went from $14, and that's been a steady decline into the $6 range. And then he comes around for no apparent reason whatsoever, about a couple months ago came out with a report, go on about all of our other applications and everything, no -- again, no rationale, no facts, no nothing. But this time, he sends out a positive thing. But he believes, I guess, that he should or able to control the price. So when it goes down a little bit, he gives us a pat on the back; and if it goes up, then he knocks us down for no apparent reason.

So that leaves 3 companies that cover us. And I think they're doing the best that they can. But unfortunately, we're pigeonholed into the wind turbine business and the U.S. wind turbine business, and in general, all the wind turbine business, including glass blades, so probably misrepresenting our ability to grow and our future. And then we constantly get compared to Hexcel, which could not be any different, any more different than any company. They're supplying glass for the -- mostly for the airfoil portion of the wind turbine. That certainly, definitely goes up and down with the glass or general wind turbine market.

So I think, those are my opinions, and I throw them out. I'm sure all our existing analysts may have a different opinion, and I welcome the comments.

With that, I want to turn the call over to you, and we'll head then and start asking questions. So Brian, go ahead and take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Avinash Kant with D.A. Davidson & Company.

Avinash Kant - D.A. Davidson & Co., Research Division

I had some quick questions that I wanted to ask. The first one, Zsolt, is that you didn't give out this time around. Wind was what percentage of your overall revenues? Did you give that out?

Zsolt Rumy

It was lower 50%.

Avinash Kant - D.A. Davidson & Co., Research Division

Lower 50%? Okay. And you did talk about the technical fiber business, and I do see that, of course, most of the build rates in the commission aerospace side has been going up lately. While minor, your revenues in that segment have been declining for the past 3 quarters. Is there any subsegment, particularly, maybe the defense or something else in particular?

Zsolt Rumy

I don't know if it has been declining. I think, certainly, our aircraft brake businesses has not declined. As a matter of fact, I think it's growing, and we have fairly substantial growth projected for next year. But part of the technical fibers is a non-aircraft business, and that fluctuates a little more than the aircraft business.

Avinash Kant - D.A. Davidson & Co., Research Division

Right. So you would still say that the aircraft portion of that business has been growing, right?

Zsolt Rumy

Absolutely.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. And how much is aircraft and non-aircraft, roughly?

Zsolt Rumy

What's that?

Avinash Kant - D.A. Davidson & Co., Research Division

What's the mix of aircraft and non-aircraft business typically in the technical fiber subsegment?

Zsolt Rumy

I would say about better than 80% of it is the aircraft business and the aerospace business.

Avinash Kant - D.A. Davidson & Co., Research Division

So 80% is aircraft, right. And I have asked this one in the past also. Any idea that you could give us in terms of either volume or pricing? Anything in terms of how the carbon fiber usage goes up, if somebody goes from 3-megawatt turbine to a 6 megawatt or a 6-megawatt turbine to an 8-megawatt turbine. Any way you could give it out, that will be great help to us in terms of modeling.

Zsolt Rumy

Well, I don't -- I think we have given this a number of times, but when you guys don't like the answer, you keep asking it again. But it's about -- a 1 ton per megawatt is what we use today -- is an average, so to speak, estimate.

Avinash Kant - D.A. Davidson & Co., Research Division

1 ton per megawatt?

Zsolt Rumy

Right.

Avinash Kant - D.A. Davidson & Co., Research Division

So it goes linearly with the wattage as it goes up, basically?

Zsolt Rumy

Yes, with the megawatt, it feels much more exponentially with the length. But the generation is the square of the length, and so consequently, the usage per length is more than -- it's not linear. It follows the -- it follows the, how should I say, the area that the blade covers. It's more like a square rather than...

Operator

Our next question comes from Jay Steinhilber from Morgan Stanley.

Jay Steinhilber

A couple of questions, kind of following-up on the first question. Looking at the numbers, and I see an increase in revenues of -- this is fiscal year-over-year at $34 million overall. But yet Vestas was up $44 million fiscal year '11 versus '12. So it sounds to me like you're non-Vestas business is down $10 million year-over-year. Can you give me some idea what's going on in that part?

Zsolt Rumy

Well, again, I -- there's nothing -- how should I say this, there's nothing dramatic one way or another. We've had some decrease in some of our non-aircraft, technical fibers. We have a little bit of decrease in our buoyancy application. But none of that is, how would I say, permanent changes. It's just timing issues. So from our perspective, the term applications really didn't vary much. We had also last year, we had a lot of qualification work going on, which will result in sales going forward. And so that qualification, of course, is better than revenue generating. And some of these blades that we supply materials for, the year before last, are starting to -- being tested in the field. So a lot of noise in our non-wind applications, actually even in the wind applications. And so I don't see any -- I think that the one observation that is fair is that nothing, no major new application has developed in the last 1.5 years.

Jay Steinhilber

I don't recall where I read it, but it was mentioned that you're doing some type of partnership or joint venture in China. Could you elaborate on what's going on in China?

Zsolt Rumy

Well, this builds into the old adage, don't believe everything you read, good or bad. We need to deal with the Chinese market because there is a huge import duty on carbon fibers and prepregs. And so I've been around looking for ways to deal with that market. And one option is to start a Chinese company with local Chinese investors and so on. So on one of my trips, and I don't know if you've been to China on a business trip, the first thing you do is go to government officials and you get these crazy big chairs that are sitting in a circle, and everybody's making speeches, taking pictures. And God knows what comes out of the press later on. So somewhere along the way, one of these meetings afterwards, local press put out something that we had an agreement to build a plant. And then that got kind of -- killed it initially and then it came -- surfaced again. What's behind it actually is that we did have an agreement to examine the possibility of doing what I just said, build a Chinese company with local investors. And that still could be a possibility. We're also looking at going to some other Asian countries where they have duty-free import into China, such as Malaysia, for instance. And a lot of people are going to Malaysia. We're looking at Malaysia as well. So anyway, that's what's going on. Sooner or later, we do need to have -- to be able to compete with the local carbon fiber guys, if and when they finally break the code and start producing in China.

Jay Steinhilber

Just a couple of more questions. How much business are we doing with General Electric currently? And has this business been growing recently? And do we expect this business to accelerate? If I recall correctly, again, there's articles that they're are using your carbon fiber out there. Can you expound on that, please?

Zsolt Rumy

Well, we had worked with General Electric and with some limited success. They had produced some blades last year. We had very little part of that. And going forward, it's questionable whether they will maintain a commitment to the carbon fibers in their existing product line, so I can't predict what's going to happen. We continue to work with their supplier for blades and hope to get in, in a significant way, when and if they start building up the business.

Jay Steinhilber

So am I hearing you right, the business is going to the longer blades, but yet, I've just heard you kind of mention that General Electric has maybe looked to a different material than carbon? Is that what I'm hearing?

Zsolt Rumy

Well, this -- they're in that range of the blank where glass fiber configuration is an option. There are some design advantages to carbon fibers, especially in a high wind area. And there's some cost differences based on their manufacturing technique and so on. It's not -- like within a certain distance of length like 40 to 45, 46-meter long blades. It can go either way. And so right now, I would say, at least, half the people in that size blade are making glass and the other half, making it out of carbon. So once we get past that 46-meter length, it becomes much, much more tilted towards the carbon fiber usage. Although there are still some diehard companies that insist on trying to figure out how to use glass. But then it's a diminishing return because pretty soon they have to put so much glass in there that their weight goes out of whack. And so it's really -- there comes a point at which really, glass is not economical and not practical.

Jay Steinhilber

So they just haven't made a commitment to the longer blades, more than 46 meters, is...

Zsolt Rumy

That's the small length. I think that's their -- the primary turbine is selling is 1.5 to 1.6 megawatt and...

Jay Steinhilber

One last question and then I'll -- go ahead, I'm sorry.

Zsolt Rumy

That's -- they have not introduced any bigger blades at this moment.

Jay Steinhilber

One last question. How much business are we getting from natural gas fuel tanks and luggage compartments on planes currently?

Zsolt Rumy

We're getting some, not significant. We also sell equipment into the market. Most of the market today is in the large tanks, like buses and retrofits and fleet vehicles. But -- and it's very local. We do sell to some of the people who supply into that market, again, not very significant amount. And so the business is not that significant at the moment, except for one piece of business where we have not participated, but I think we're going to start participating. Because again, the price of the fibers and availability is now running out, and therefore, they'll look into actually -- go to commercial carbon fibers instead of using aerospace. But on the other hand, we are involved with several projects for OEMs, for actually OEM auto production, which really would be a -- that's where it'll be concentrated and be significant. So I think it makes a lot of sense, particularly, in the U.S. where gas is cheap, natural gas is cheap. So I think, I'm looking forward to some movement in the next -- this fiscal year on developing that market.

Jay Steinhilber

In luggage compartments on planes, that's been mentioned over the past year or 2. Any progress there, and where do we see this business looking out 1 year or 2? Do you see significant growth versus, I guess, anything would be significant versus what we're shipping out today in these areas?

Zsolt Rumy

Right. I think the commercial air guys, after the 787 delays and everything now, they're catching their breath and start looking for other ways to reduce the weight and reduce the cost. So they're definitely interested in looking at commercial carbon fibers again. Airbus is still going through the same situation as the 787 with their A350. And so -- but they're also very anxious to look at lower-cost fibers for secondary applications. So we're doing our best to push that forward, and I think it will -- and as when will it become significant in the sense that more than a couple million dollars, I don't want to predict, but I think it's going to, definitely going to happen.

Jay Steinhilber

And as far as happening, you're looking at 12 months, 24 months, or we're looking at 4 or 5 years here in your opinion? Obviously, you can't...

Zsolt Rumy

Somewhere in between.

Operator

And we'll go next to Joe Maxa with Dougherty & Company.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

A couple of questions. First, I wanted to ask on the -- just get some clarification on this Chinese customer that put up a 6-megawatt wind turbine. Is this a test case that, once successful, they'll look from more carbon fibers? And if so, is that why you're looking to or need to develop a local manufacturing presence?

Zsolt Rumy

Well, I think, again first of all, I think it's when the carbon fiber business will really take off in China, and then a number of customers, number of efforts, number of demonstration projects going on. A lot of it is offshore, which is all very big blades. And we have a premier position in China right now, because we've been there some time. So I think last time I checked, there was about 15 companies legitimately trying to make carbon fibers in China. Legitimately meaning they're truly trying to make it. None of them have been successful so far. There's some very small quantity and poor quality fibers around. But sooner or later, they'll break the code, and we'll have to compete with local suppliers. China in -- has absolutely nothing unique to offer to make carbon fibers. They don't have a lot of energy. They don't have -- they have labor and capital, and that's plentiful. But they don't have a good position on energy and/or the ACN raw materials. So I think we can very easily compete with them on a local market. However, that 17% import duty is a killer, and we really need to deal with that. And the other thing for practical purposes right now, the shift from U.S. to China prepreg that needs to be kept cool and inexpensive. We end up doing a lot of air shipments, they're very expensive for them. So we do need to add some local supply, and I think that's what it's all about. Nothing magical, but the China market, not only for wind turbines, but other applications are going to be very big, and we need to participate in that market.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

So is that holding back future investments in carbon fiber over there or in wind turbines because of the cost rate now?

Zsolt Rumy

No, I don't think it's holding back anything at the moment. But once it gets commercial, it will be a painful experience to pay a 17% duty. Now, we sell Vestas in China, and we need to deal with their requirement as well. But Vestas is still supplying 50% or more of their blades outside of China, although they make it in China. And as long as they are exported, they get the duty back. So only about half their usage right now is -- has a duty situation on it. But anyway, they're putting some pressure on us and to deal with that. And so, I think overall, we just have to deal with that situation best we can. The easiest thing would be to put $25 million, $30 million initial investment in Malaysia, and they've considered that and we still consider that. And so our customers that have built plants in Malaysia, and they're inviting us to join them and so I think, I think there are a lot of possibilities.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Let me ask you on just kind of the outlook and some, what I think is, perhaps, for me, a little bit of, I don't know, confusion on the press release and what you're talking about as far as next year. I mean, we're looking at perhaps a pause in China and some slowdown in the U.S. But also, you mentioned you're looking for a strong year in 2013. Can you give us a little color of -- maybe quantify that a little more for us?

Zsolt Rumy

Well, again, we're doing a lot of work and some of this is going to pay off, hopefully, sooner than later, of course. And so I don't see -- definitely Vestas has a -- projecting a decline in their certainly, the first half of next year in the U.S. business. And we're looking to make that up with other customers in China and in Europe. So I think the wind turbine business should be fairly stable for us, and I'm looking forward to getting some new applications in other areas to help us grow. And having said all of that, there's certainly some question over the global economy going forward, which I certainly have no crystal ball on. So it's not a -- we're looking at next year very positively, but as always, we don't project any revenue and results, so...

Joseph A. Maxa - Dougherty & Company LLC, Research Division

So you're looking for a good year, but it may not be as good as this year that you just finished. That's kind of the way I'm thinking of what you're saying?

Zsolt Rumy

Well, I don't know why you're thinking that, but again, that's your opinion. And I certainly don't have a crystal ball, and you seem to think you do. But anyway, we're doing, I think from our perspective, from our company perspective, we're doing a lot of work that should result in new business. And I certainly can't move the global economy, but I don't see any specific threat to us or anything like that.

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Right. And I want to ask in the inventories, too. They've been creeping up, in anticipation of larger orders. If revenue was to stay around current levels, do you anticipate continuing to run your factories at similar levels where inventories will continue to build?

Zsolt Rumy

Actually, there's one oversight on Andy's part in just describing our inventory. We have a lot of inventory that we hold because of safety stock for our contracted customers. And we are now beyond that amount. And so now, we are definitely taking steps to curtail some of the operation. And one of the reasons why inventory is high is because our productivity is so high. So we maintain the same number of lines producing, but we did produce a lot. And like I said, now we're ahead of our contracts or requirements, and so this is the time to start reducing our inventory or at least stabilize it.

Operator

And we'll go next to Graham Tanaka from Tanaka Capital Management.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Hoping to focus a little bit more on the end markets to help us, our crystal balls. What do you see as the outlook for the mix of end market demand for 2013 versus this year? I gather that the largest is probably going to be wind. Is that still going to be the case over 50% next year or not quite?

Zsolt Rumy

Well, I think wind is definitely going to be the -- by significant margin, our largest single application. Like I say, there's been a lot of work on our part on developing new applications, including things in the automotive. And if we had a contract, we would announce it, we don't have a new significant contract, obviously. But there's a lot of trials and a lot of qualification work going on. And we get more and more visibility as time goes on as to when they're going to develop. So we're anticipating some new customer base and new applications moving forward this year. But at this point, I'm not ready to make a prediction around that.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

So you believe automotive will be the second largest next year?

Zsolt Rumy

Probably not. It's not going to -- I mean, the aircraft brakes is still going to be the second largest. But I think we will have some significant sales in the auto area.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

That makes second, maybe auto, third. And then what would be the following that would be LNG tanks or the tethering materials or something else?

Zsolt Rumy

I think right now, the oil drilling is a close third to the aircraft brakes. I see that continuing also to be the -- maintain its position. So I don't think that any huge, new market will develop in the CNG by this year. But I think we'll be doing a lot of proposals and a lot of potential contracts for installation of equipment. So I think I'm seeing significant progress in the coming year, but not predict into what revenue and how.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

If you are able to have an up year, which it sounds like you'd like to have. If you're able to have an up year, would it be -- what would be providing the incremental demand? Would it be the auto, or would wind -- is it possible wind will be actually up in revenues next year?

Zsolt Rumy

Well, I think given the situation you asked [ph] , we're looking to maintain our revenue in wind at, more or less, the same level. And then, we're looking for growth on other applications.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

And how about on the cost side? I know that's been up and down a little bit in the last few years, the ACN. And I'm just wondering what the outlook is there for the ACN and other?

Zsolt Rumy

Well, if I knew what ACN's going to do, I probably wouldn't be sitting here. But it's -- we're dealing with that market. We're doing a hell of a lot better than we were before, primarily because we have money to take advantage of price movements, so we're doing a pretty good job controlling our cost there. But which direction it's going to go, I don't know. And if it moves significantly and stays there for a while, all our competition, everybody's going to be faced with the same issue. And the whole industry is going to have to deal with it. But I don't -- personally, I don't see any rationale for that moving significantly this year.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Gross margins were up a bit, actually about halfway to your prior-peak level in terms of gross margins, 24.5%. Your prior peak was 28.7% back in 2007 fiscal year. And then it came down to the sort of 19%, 20% range in 2010, 2011. What is -- what do you look at as a normal gross margin for your mix of business, and how will a changing mix maybe changing...

Zsolt Rumy

I don't know if you listened to what I was saying, is that we actually have a 25% lower cost than we did in 2008. And we still have 24.5% gross margin. So I think we did a hell of a good job of improving our gross margins, and we'll continue our effort to do that. And I think once the utilization of our capacity increases, then we'll see some significant changes in the gross margin.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

What is your capacity utilization approximately now?

Zsolt Rumy

About 50%.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Would it actually double the amount of revenues or would it actually double just units or revenues -- and from existing capacity?

Zsolt Rumy

Yes. Double the units, we double our revenues. I mean, they are...

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Capacity utilization, the incremental capacity utilization will come at assumingly higher margins you're covering out fixed cost -- spreading fixed cost over more units?

Zsolt Rumy

Right.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

So really, it's a matter of how quickly the new product areas come on-stream, and I guess, we can watch to see as you're turning on lines and things like that. The other question [indiscernible] will you have additional productivity gains from here or do you think you have achieved the bulk of those?

Zsolt Rumy

What was that? I didn't hear it.

Andrew W. Whipple

Additional productivity gain?

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Yes, additional productivity gains in 2013, 2014, can you have additional or you pretty much achieved what you can on productivity?

Zsolt Rumy

You never finish the job on cost improvement and production quality improvement. It's an ongoing process. You have our objectives which are improving our cost and quality and all that kinds of stuff. So this process just goes on.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

[indiscernible] productivity gains [indiscernible] going into your -- covering your fixed costs better, you can increase your margins as you grow from here, so it's really a question of end markets?

Zsolt Rumy

Right. Graham, I mean, that's our business. Again, I'll apologize for being more optimistic in the past than I should be and probably still haven't learned my lesson. I'm optimistic about the future and aspiring in the future. I don't think there's any question in my mind and at this point, there should be no question in anybody's mind that the carbon fiber business is going to be good and strong and a very important business in the future. And our job is to maintain our position in that market, assist in developing the new applications and be there to take advantage of the movement. And our -- it has not changed. So it's kind of a question of whether you believe in the future of carbon fibers. And if you don't, then obviously, you shouldn't be in the stock. But it's very important for us to have a confident investor base because there will come a time when we may need to make some investments to build up capabilities, not necessarily capacity side but other areas. And as long as our stock is in the dumper like it is our options are quite limited.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Well you have the capacity now to basically double your sales. And you have...

Zsolt Rumy

Yes. I think we have the capacity to double our sales but that's not what I'm talking about. I think we may need investment in value-added products and even go into some partial manufacturing of components. So a lot of possibilities and the industry is really moving around and thinking about making alliances and positions in -- and at the moment, we're just staying by on the sideline.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

[indiscernible] feel for the auto potential. How many projects you're working on now versus a year ago?

Zsolt Rumy

I don't obviously, we don't count how many projects we're working on. It's a continuous process. We work with customers and Tier 1 and equipment vendors who approve certain processes. We work with OEMs. I mean it's an ongoing process. We're not looking at how many projects can we piss away money on. That's not the way -- that's just not the way it goes.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Last question for me is the analysts have a better -- the analysts have now looked like they have upped revenues for next year, September '13 fiscal year, upped revenues on average [indiscernible] are they missing something or are they, I mean, shouldn't earnings be going up with revenues proportionately or maybe even higher?

Zsolt Rumy

I don't -- I made all the specific comments I'm going to make about our coverage. It is their coverage, their number, not ours.

Graham Yoshio Tanaka - Tanaka Capital Management, Inc.

Last one, sort of forgetting the analysts, if you grow your earnings in a given year, say, in the next year or 2, to, say, 10%, shouldn't earnings go up 10% also? I mean I know there's a lot of things that could change like your cost, your ACN cost, and anything like that, assuming...

Zsolt Rumy

I don't know, Graham. I think those things are not -- that's exactly what I'm saying is that, yes, when we start utilizing our capacity, we will have better earnings. And I don't know how many times I have to say that.

Operator

And we'll go next to Herbert Buchbinder with Wells Fargo.

Herbert C. Buchbinder - George K. Baum & Company, Research Division

Zsolt, I got 2 questions. One quick one, do you think technical fiber growth will exceed the growth rate of carbon fiber this year? It would seem like you would be in a better position to show growth in that market. And then the second thing is just that this inventory issue, to bring down inventories, how much you think it could hurt your efficiency if you don't get enough revenue growth to obviously keep production rates where they are? You see some risk of gross margins and efficiency falling off somewhat next year?

Zsolt Rumy

I'm not sure I'd call it a risk, but, yes, I think, those are the kind of operational decisions we have to make, is to minimize the impact and, certainly, we're going to be paying attention to it. So we also, if we sell our inventory we'll be generating cash and so. I mean it's all just managing our business, so I'm not sure.

Andrew W. Whipple

As far as the growth in technical versus carbon fibers?

Zsolt Rumy

Well, I'm not sure. But they're 2 totally different markets. So I'm not sure if there's any connection.

Herbert C. Buchbinder - George K. Baum & Company, Research Division

Which would have stronger growth do you think? I would think the technical fiber business should have stronger growth next year. I just want to see if you agree with that.

Zsolt Rumy

Well, I think we have some indications that it will have a pretty good growth. But again, it's a lot less sensitive to any economic changes or anything globally. And so I think it's, certainly, a less volatile business and a more steady growth business.

Operator

Next we'll go to Travis Henry with Western International Securities.

Unknown Analyst

I understand, it's great that you finally address your stock issue because, I mean there's online retailers out there right now that are trading at 2,700x earnings and have the same growth rate as you guys and actually you're showing negative earnings. So it's kind of interesting how The Street looks at certain companies. But that's another subject for another time. I wanted to elaborate on the last gentleman's comments about your technical fiber side of your business. I was very impressed with the growth from 16.5% to 35.7%. Do you expect that growth to continue at that pace, or is that going to be something that's going to level off a little?

Zsolt Rumy

No. First of all, the aircraft brake part of the business, more airplanes are out there, more initial revenue and more maintenance revenue. So I think the aircraft brake part of it is a very, very steady growth business. It's not going to be an out of the park growth, because it's just a steady 10% to 20% annual increase. And I think, over the past years, we've kind of demonstrated that. There are some times, some years, a little different but, generally, it's been a growth business. And certainly, the 737 conversion is very important because that's the -- the brakes are used when they stop, and 737s stop a lot more often than the 787 or 747. So I think that's a real good, long-term maintenance-type growth. So that is -- continues to grow. And once you're on an airplane, it's very difficult to be replaced. Because, again, in the aircraft brake business, they're not looking for any better brakes, they looking for the same brakes. So people are not willing to or able to make any material changes. So I think that's a very steady, solid business and has been ever since we've been in the carbon fiber business. And the other side of that business is more and more fiber carbon. We started in also automotive brake and automotive clutch applications that are very similar to the aircraft brakes business. So we see some activity which could definitely increase the usage of our carbon fibers, and depending on...

Unknown Analyst

It leads into my next question and that is, technical fiber is currently being used in racecars right now. And so that was going to be my question. When do you see yourself getting into the automotive side of that business?

Zsolt Rumy

Well, first of all, I'm not sure if you're talking about racecar brakes?

Unknown Analyst

Yes, racecar brakes.

Zsolt Rumy

All the racecar brakes are carbon. And the body components of racecars, we may very well be in certain parts, but we don't really concentrate on that. That's a very unique, more like a demo project than an ongoing business. But all, I think, all car brakes, our racecar brakes, are not carbon and that's some...

Unknown Analyst

Yes, I mean that would eventually lead to the mass side of the automotive. Like they experiment first with things like racecars and then eventually those applications find their way -- themselves into mainstream automobiles.

Zsolt Rumy

We've been on the Ferrari brakes for a long time. And now all Ferrari brakes are carbon and it's our carbon. But there's, a couple years ago, it's optional. It was a $20,000 option to have carbon brakes. So they still haven't reached that cost level where they can be used for a lot of low-cost cars.

Unknown Analyst

Exactly, that was my point. And eventually, you will be working yourselves into that industry?

Zsolt Rumy

Yes. That's our plan.

Unknown Analyst

And then let me ask you, how well does your carbon fiber work with liquid Kevlar? Or have you tried using that mix?

Zsolt Rumy

Liquid Kevlar, I don't know liquid Kevlar.

Unknown Analyst

Okay. It's currently being used as -- sorry, go ahead.

Zsolt Rumy

I'm not sure what you're asking.

Unknown Analyst

A lot of the fuel tanks on some of these custom airplanes, these experimental custom airplanes are now switching over to carbon fiber tanks and they're using carbon -- I mean, sorry, liquid Kevlar as a sealant on the inside of the carbon fiber.

Zsolt Rumy

There's no such thing, that I know of, of liquid Kevlar.

Unknown Analyst

It's being used in military applications.

Zsolt Rumy

I don't know liquid Kevlar.

Unknown Analyst

That's fine. I was just curious if that was something you were looking into.

Zsolt Rumy

Well, I mean, we -- there's a lot of applications that co-mingle carbon fibers with other fibers.

Unknown Analyst

Exactly.

Zsolt Rumy

So that happens in boats. It happens, for instance, Kevlar has a good impact resistance, much better than carbon. So a mixture of carbon and Kevlar fibers can give you the properties of carbon and still get to better impact with this [ph] .

Unknown Analyst

And then one last question. I also noticed in your 10-K that your offshore oil and gas drilling is one of your targeted industries. And you'd mentioned that, that's probably about your third-biggest source of revenue going forward?

Zsolt Rumy

Yes.

Unknown Analyst

Where -- so basically, explain to me, in what regards, where would you be using the carbon fiber for, like the tie down rods or steel cables, I guess, they use? Or would it be more along the lines of the platform?

Zsolt Rumy

That's along [ph] -- not the platforms but the tethers, as you call it, tie down rods. Any time the depth goes beyond, I don't know, maybe 1,500 meters or something like that, steel has a difficult time maintaining its own weight. And so that's where our carbon fiber starts coming in. Right now, a lot of buoyancy applications, what they do is put a lot of big life vests around sealed components, pull them up, and so that's an interim solution. And ultimately, they will be fabricating with carbon fibers.

Okay. It sounds like we're running out of steam here. So unless there's somebody who wants to really ask a question, maybe we should finish the call. Brian [ph] ?

Operator

Yes, we do still have 3 participants queued for questions. Next, we'll go to Steven Theill [ph] , a private investor.

Unknown Attendee

The question I have for you, what are your thoughts on the massive rise in short interest that you've seen against your stock and kind of the continuous set that you see against Zoltek, which is basically runs counter to the optimism that shareholders have had for many years and your ability to execute and grow the business?

Zsolt Rumy

I'm not quite sure whether I understood your question.

Unknown Attendee

The question is, what is your opinion of the large short interest against Zoltek, which is now at rather historic levels, with the stock price being close to historic lows?

Zsolt Rumy

Well, that's -- I don't think you want my opinion on that. But I have no idea. As I said many times before is that I understand there's some legitimate trading strategies that shorting stocks fall into somewhere into the mix. And so I don't know. I'm not into that kind of things [ph] . I don't really understand it. On the other hand, I think I also stated before, that back 5 or 6 years ago, if somebody -- or maybe even longer than that, maybe 7 or 8 years ago, if people were betting against us, that our strategy and/or our business is not going to survive the long term, that was maybe a reasonable bet. But I think that's long gone. I don't think there is -- I don't think there's any chance of something like that happening at this point. And also given where our stock is right now, I mean, somebody can attack and then destroy it like people have done that in the past. But certainly, the intrinsic value of the company is not going to diminish to the level that shorting the stock is a strategy and/or sort of has to be concerned about catastrophic problems happening to the company. So I don't understand it, and I think some of our prior analysts and maybe even some of the current ones, and one I suspect, may be involved in supporting that short seller market.

Operator

Our next question comes from Charles DiBenedetto with CCD Investment Company.

Charles DiBenedetto

Listen, Zsolt, never give up your optimism. We appreciate it, and you have been right. Quarter-after-quarter, the company is growing stronger and stronger. Earnings have grown. Growth has grown. Revenues have grown. And still the share prices keep going lower and lower. It has to be from naked shortselling which was outlawed since 1934. This SEC has tolerated and allowed it. And now, instead of borrowing shares from brokerage accounts, they can create shares out of thin air and just dump them on the market. It's an unfair trading practice. The SEC is...

Zsolt Rumy

I looked into that once, and I understand that some brokerage firms what they do is they pull the Zoltek shares that the brokerage firm has within accounts. And without authorization from the individual account holder, they go ahead and provide -- lend the shares out. Obviously, betting on the fact that, overall, nobody's going to move enough shares out of brokerage firm to affect their position, which is obviously counter to the rules on short trading and borrowing stocks. But greed drives this market, and God knows what people will come up with. I do -- I did move my shares out of a brokerage account because I was concerned that even my shares are being used, and they did not make an impact. So I was wrong on that.

Charles DiBenedetto

Well, it's being fueled by people like Needham who are spreading bad...

Zsolt Rumy

Well, I think he thinks he can manipulate our stock. I had to -- I told the story before, when he was at ThinkEquity, we were going to go out and make some investor calls. And about 3 days before we were supposed to make the trip, I got an email in the morning that he downgraded the expectation of the price. And so I called and I said, "What happened this morning when you were in the shower? What gave you this idea that you need to downgrade the expectations of our stock, the stock price?" And his response was that he thought that if he ruins our stock price before we go out and make calls, it's going to look good when the stock price comes back after the calls. I mean this is -- and people take this guy serious, which is beyond me. Obviously, I did not make that trip, but...

Charles DiBenedetto

And it certainly crushed -- and you see the company doing so well and seeing the share price being manipulated lower and lower. It seems to be an unfair [indiscernible] and that's what the SEC is supposed to prevent. Anyway...

Zsolt Rumy

Well I mean, don't let it get your hopes up high on SEC or the outside directors.

Charles DiBenedetto

Zsolt, all the best to you, and keep up the good work.

Operator

And our final question today comes from Brian Freckmann [ph] from LS Capital.

Unknown Analyst

I'll make it quick, it's been a long call. I just want to clarify a couple things. It sounds like in your comments you thought that wind would be flat year-over-year, roughly speaking. I know you don't have a crystal ball. I guess the impression I got was potentially that it would be weaker in the first half and then make it back up in the second half, is that about a fair assumption?

Zsolt Rumy

Well, I think the U.S. market is going to be weak in the first half of the year because, whether the investment tax rate comes back or not, it doesn't really matter. A lot of projects have been kind of delayed, waiting for the answer. Everybody's optimistic because we have Obama reelected. So I'm not sure one way or another whether that helps or doesn't help. So now, people are optimistic in the market that the investment tax credit is going to happen. On the other hand, the reality about the wind turbine business is that wind turbine is extremely competitive with fossil fuels in much of the rest of the world, other than in the U.S. In the U.S., now that we got cheap natural gas, which of course is not a permanent situation as the history has proven that. But for the moment, natural gas is very competitive. And so wind is not as nearly competitive in the U.S. as it is in the rest of the world, but that will change also. But again, U.S. will slow down. And I think unfortunately, a lot of our investors are looking at the U.S. market and not looking globally. But what we're saying is that whatever we think that will be a reduction in the U.S. market will be picked up by the rest of the world.

Unknown Analyst

Yes, that was a wrinkle I was going to add to that question. If you think about your shipments this year, the $86 million from Vestas, ballpark best guess, what percentage U.S -- is landing in the U.S., and what part is going into international markets?

Zsolt Rumy

Well, again, it's a misleading thing because Vestas has 2 big blade plants in the United States. And not all the blades manufactured at these plants are sold in the U.S., so there's a lot of movement around. But I think I would have to say that right now, maybe, what, 40% goes to U.S.

Unknown Analyst

40%? Okay and just lastly, just a real quick question, if I...

Zsolt Rumy

Maybe less than that, and we're looking at about probably 10% reduction in what we anticipate the usage for our Vestas is going to be in the U.S.

Unknown Analyst

So 10% reduction in the U.S., got it. Made up in international, flat for the year. Just that kind of -- the part of that question though, regarding in 2011, you guys had some unused capacity that you wisely kept on the books so that you could make it up this year and sort of build business. If I think about sort of a decline in revenues in the first half, should we sort of see that reversal of kind of that nonlinear incremental margin? So I mean, as a better way of saying it, kind of what is the revenue -- you guys had incremental better margin that you added around capacity on the Vestas side. I would assume that, that can go in the opposite direction for a period -- for a small period of time in maybe the first or second quarter? Or where you might have kind of unused capacity, unabsorbed again, is that fair to assume, or will that not happen?

Zsolt Rumy

Well, I think we need to report unused capacity cost, which was never really a very accurate number. It was somewhat of a reflection. And what we were trying to show at the time is that, if you would utilize the capacity, that would kind of give you an indication of what the margin would -- how the margin would change with the increased capacity utilization. So again, the number was misleading and inaccurate, and we decided to discontinue using that. It was an unconventional presentation anyway, and we just stopped using it. So we're not going to show that in the future.

Unknown Analyst

Okay. And then just so I'm clear on the numbers, revenue from Vestas, I think, was $22.5 million in the fourth quarter, is that correct?

Zsolt Rumy

What's that, Vestas?

Unknown Analyst

Vestas, if I sort of take it all together -- so if I take kind of the non-Vestas revenue of $21.7 million, that's actually the lowest revenue you guys had, and God, I'm going back to 2 years. I mean that kind of indicates that your non-Vestas business, to be fair, I mean was down 21%. I mean that doesn't fly in the face of the optimism that you guys...

Zsolt Rumy

First of all, I mean, again, you're using a disjointed number. I just finished saying that the carbon fiber revenue -- carbon fiber pricing is 25% less than it was 2 years ago. So I think we're selling a lot more carbon fibers in volume and it does not reflect -- the sales dollars don't necessarily reflect our activity and/or our carbon fiber sales.

Unknown Analyst

All right, well, I guess I'm not sure how I couldn't look at revenues, but you want me to look at volumes, I will take a second look.

Zsolt Rumy

No, I mean, you can look at the revenues, but if your revenue is 25% less than it was before for the same amount, then -- anyway.

Okay. So I guess, we don't have any more questions in our call. Thank you very much for participating.

Operator

And that does conclude today's presentation. We thank you again for your participation.

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