Valence Technology, Inc. F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

Valence Technology, Inc. (VLNC)

F2Q09 (Qtr End 09/30/08) Earnings Call Transcript

November 10, 2008, 4:30 PM ET

Executives

Pierre Dubois - Director, IR

Robert Kanode - President and Chief Executive Officer

Don Gottschalk - Corporate Controller

Analysts

Phil Kats - United Equities Company

Bob Ecinder - Garden State Securities

Walter Winnitzki - Nicusa Capital

Randy Howitz - Pro Equities

Patrick Metcalf - CIG

Ed Einboden - Wm Smith & Company

Mike Helson - Smith Barney

Robin Gauthier - UBS

Ron Stewards

Presentation

Good day, everyone, and thank you for joining today’s Second Quarter Fiscal Year 2009 Financial Conference Call. Today’s conference is being recorded.

For opening remarks and introductions, I’d like to turn the call over to Mr. Pierre Dubois, Director of Investor Relations. Please go ahead, sir.

Pierre Dubois

Thanks Carla. Well, good afternoon, and thank you to everyone for joining us today for the second quarter fiscal 2009 conference call to discuss the reported results. With me today are Robert Kanode, President and Chief Executive Officer, and Don Gottschalk, Corporate Controller. The conference call is being recoded and will be available for replay at the Investor Relations section of our website at www.valence.com.

Just a reminder to everyone that during this conference call Valence’s management may make comments that will reflect their intentions, beliefs and expectations for the future. As a result, some of the information disclosed on this call will include forward-looking statements and such statements are subject to a number of factors which could cause actual results to differ materially from those statements. For a discussion of those factors, please refer to Valence’s annual report on Form 10-K and other periodic reports and documents filed with the SEC.

After opening remarks, the operator will provide instructions on how to ask questions. Today, we would ask that you limit yourselves to one question along with a related follow-up, if needed, and then re-queue. This will enable other callers to also ask questions within the roughly one hour we have allotted today.

So with that, I’d like to turn the call over to Bob.

Robert Kanode

Thanks, Pierre, and I also would like to welcome everyone to the call today. First of all I would like to talk about our financial results and then move on to general discussion of the business and conclude as we always do with questions and answers.

However, before I start, I would like to welcome on Board K.C. Lim our new CTO and Ross Goolsby, our new CFO. K.C. has joined the company and Ross will be on Board to 17th of this month. Both of these gentlemen offer superior capabilities and notable accomplishments within the technology sector which we certainly are looking forward to.

Today, we reported results for our second quarter of fiscal 2009. I will provide some brief comments and would also like to refer you to our 10-Q being filed today for additional information.

As you can see, total revenues were up slightly to $5.8 million during the quarter compared to $5.6 million for the same period last year. Slightly lower battery and system revenue was somewhat offset with higher licensing and royalty revenue.

Licensing and royalty revenue increased in the current fiscal quarter, primarily due to concluding a license amendment with Varta AG as well as our existing license agreement with Amperex Technology Ltd, which makes ongoing royalty payments as sales are made using our technology.

The recent quarter, again, included some inventory adjustments, which reduced our gross margin, including amounts related to our decision to end of life our N-Charge product. And for the benefit of those who are new to story, we previously announced our decision to end of life N-Charge, so that we can focus on the higher margin large format energy sector.

For the six-month period, we have recorded a total of about $2 million in N-Charge related inventory adjustments. This action removes all N-Charge inventory from our books. Excluding these N-Charge inventory adjustments our gross margin for the six-month period would have been around $1.8 million or 11% compared with $1.2 million or 12% for the same period last year.

Although our operating expenses including marketing, research and product development costs are up year-to-date to support growth, these expenses have declined as a percentage of sales. The inventory adjustment and increased operating expenses during the recent quarter contributed to a higher reported operating loss of $5 million compared to $3.4 million last year as well as a net loss of $0.05 per share compared to $0.04 per share last year. In terms of our outlook for the third fiscal quarter we are expecting total revenue of $4 million to $6 million.

Having said that, I would like now move on to a general discussion of our business. And I must tell you I am very excited about the future. Our performance to-date has been both promising and disappointing. From a promising standpoint with new alliances forming and potential customers moving to volume manufacturing of hybrids, EVs and other energy storage devices. Disappointing because higher fuel cost and the weakening economy have driven early adopters of hybrid and EV technologies to differ some equipment purchases to 2009. However, 2009 promises to be a very active year. I have just returned from the Euro Bus Show in Europe and I can tell you the activity in hybrid and EV sector is notable. We are talking to now 205 companies with 75 of those companies have purchased qualifications systems and our evaluating end product.

We are driving legitimate customers to supply agreements before we release any press. However, you may notice some early potential customers are already issuing early press releases indicating they are working with us. It's very important to look into what is happening in the market, the market trends and our focus. And I am very happy that our focus is on-track. We have been talking to you for quite a while about the activity in Europe and the progress that is been made Europe. And it really relates to four specific stages; public, transit, hybrid and EV buses are accelerating in growth. Our government subsidies are accelerating in the UK and I think you will notice in other parts of the world including the United States. New alliances are forming you heard me often talk about our alliance with Wright Bus and Siemens and ourselves along with Volvo who is supplying their chassis. And now even Volvo and other OEMs are noticing the progress of Wright Bus and others.

Lithium phosphate is replacing older technology. Wright Bus for example has approximately 50 electric or I should say hybrid trolleys in Las Vegas that are inflowing incremental hydride and they are ready to transition this bus line to our lithium, lithium phosphate.

Back to base delivery solutions and delivery van and truck solutions are little slower because most of the delivery are packaging corporations in the world have been suffering from high fuel prices and the weak economies associated with those fuel prices and some are differing purchases of equipment to 2009. However, I am convinced that the movement to alternative energy solution is permanent and accelerating.

Consumer automotive is moving beyond hybrids to the EV solutions and this is important because this is absolutely are sweet spot. Many of the major automotive companies are convinced that the life of hybrids will be very short and we will move very quickly to all EVs given the performance of our lithium phosphate chemistry.

Utilities are interesting. They are noting the progress in the automotive sector and are accelerating their evaluation of lithium phosphate. They are faced with lithium -- just today, I should say they are employing a lot of asset and are very concerned about the performance of lead acid over time and back up battery and power generation stagger applications. From a readiness standpoint, we have moved on to high-value manufacturing. We have proven our manufacturing techniques are viable and we also ran our position, we can easily scale what we bring forth in future.

My comments have been brief because I usually like to allow a maximum of time for questions, and just in summary I would tell you that we are -- we were hoping that there would be more progress on early adaptors this year, but we still expect to have a number of supply agreements completed by the end of this year and we look forward to what we believe will be a very, very active 2009.

Having said that, I would like to move on and open the call up to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we will take our first question from Ron Sanchez with Spencer Edward.

Pierre Dubois

Hi Ron.

Ron Sanchez - Spencer Edward

Hi Pierre. I just wondered if you could just say something about your cash position, your burn rate, and whether or not you think you have to enter the debt or equity market.

Pierre Dubois

Sure. I will refer that to our controller, Don who can basically take you through that, Don you want to comment on that?

Don Gottschalk

Thank you very much Ron. This is Don. The -- our cash position as of September 30 is at [$3] million and we have been able to raise our funds or maintain our position through both equity -- through both equity loans from our benefactor and the issuance of stock.

Ron Sanchez - Spencer Edward

Okay. And just one other general question, do you think is it the high price of batteries that has been a difference, I mean, your sales or is it just the economy and the high price of fuels or is it just a weakness of the customers at this particular stage?

Pierre Dubois

Well, I think it is a little bit of all of those. Certainly the economy has caused all of us to take pause, that’s one. Number two, I think the players that have come together are not what they are they once were. We are getting used to each other; we are now working on multiple projects together. We are referring opportunities to each other, and perhaps that has taken longer than we expected to mature, but it certainly has and we are enjoying those relationships as we speak.

I think it is also interesting to note that most of the progress that is happing in Europe is happing around our different group of people that are putting the motors the batteries and integrating the systems and the chassis together and then we ever knew before. So, there is a maturing process but I would tell you that there are some very, very nice designs we are getting great reports back performance in the fuel testing a number of our customers are complete with our qualification and we now are working on supply agreements and the by the way we intend to complete those supply agreements and make sure that these are credible customers before we bring forth stress which would explain a little bit about why you maybe seeing impressed from our customers are not us yet. But that will rectify itself over time.

Ron Sanchez - Spencer Edward

Okay, gentlemen, good luck, and let’s hope some exciting time as Valence connect.

Robert Kanode

Thank you.

Ron Sanchez - Spencer Edward

Thank you.

Operator

And now we’ll hear from [Phil Kats] with United Equities Company.

Phil Kats - United Equities Company

Hi good afternoon, I was just wondering if you could update us on the 10 field group for electric contract.

Robert Kanode

Sure, since we last talked, we’ve not received any further orders from them, however, they do want to talk to us a matter of fact our Vice President of Marketing and Sales will be with them this week. So they have indicated to us that by the end of this year they will completely utilize all the batteries we shipped them months earlier. So, that is honesty all I can tell you, we do not have any further orders at this moment from them.

Phil Kats - United Equities Company

So, your -- the projections of revenues for next quarter than obviously don’t include any revenue from –

Robert Kanode

No, obviously we’ve chosen to take the conservative route and report our business as we see.

Phil Kats - United Equities Company

Thank you.

Operator

And we will take our next question from [Bob Ecinder] with [Garden State Securities].

Robert Kanode

Hi, Bob.

Pierre Dubois

Bob?

Operator

Mr. [Ecinder] your line is open.

Bob Ecinder - Garden State Securities

Yes, I am sorry. Good afternoon. Bob, if you could -- could you comment on how you see the turmoil that we are currently witnessing within the automotive space having an impact on potential business for Valence and also with recent obviously election of Obama and his desire to move forward the usage of electric vehicles in the United States, how that may play a role in the development of hybrid electric vehicles and electric vehicles within the United States and are you playing a role in that anyway in that arena?

Robert Kanode

Yes, there is a couple of different cuts to that. First of all, if you think through this, the public transit buses and just about every country but specifically we’ll focus on the U.K. since the Euro Bus Show was there last week. That is -- if you look at the infrastructure most of these public bus entities are owned by the governments whether there are local or state or national and they will receive immediate infusions of cash to rebuild if you will the infrastructure of public transportation. So, we are seeing that sectors as very active and it's driven Europe interestingly enough by a number of things, one is the attempt to put money immediately where it will make a difference and there is not any party between the government and the public bus companies. Two, they, obviously are concerned about lowering their overall operating cost, but in Europe in particular they are also extremely concerned about controlling their carbon footprint and lowering it with some very steep laws.

There were a total of 12 new hybrid buses at this show and last year there was only one. So the progress is notable. So I think that's important to understand number one. Number two in contrast if you look at back to base package delivery EV vans and truck. This is all will be a second tier recipient if you will of any government funding meaning that there will be an incentive for example to someone like UPS to buy an EV vehicle.

So, you will see that not coming perhaps this fast as a public bus systems, but it's coming. And again because of the carbon footprint in addition to their economic goals to reduce their cost it's coming equally as fast but maybe not first in line if you will. So those are the two drivers and then behind that number three you are seeing the incentives that would reach any purchasers of EV car, motorcycle, or anything else we will benefit in the long run. And of course when you look at EV or hybrid cars you are looking at most of the announced dates or two to three year's out. So, if you will that’s kind of the packing order of release order that we were seeing but the work, the advancement of designs is really notable.

Now, from a U.S. government standpoint looking at our new President, he has stated a number of times that he would support infrastructure development and he would support any thing that would improve our clean air, our environment overall. So, I don’t -- none of us in the battery business anticipate that he will step away from any support. We expect he will step towards further support for our industry.

And I can just close by telling you when you look at the activity within the automotive groups whether they are big or small, everything is focused on hybrids and EVs looking to the future.

Bob Ecinder - Garden State Securities

Okay. And then just one short follow-up. Could you comment on competitors and what you see out there in terms of competitive landscape, just keeping an eye on the industry as a whole? [A123] which was accounted for past couple of years. I’ve noticed that they were suppose to be providing the batteries for the Chevy Vault and recently I have read that those batteries would be provided by LG and not [A123]. So, just as a comment on the overall industry, could you comment on your competitors?

Robert Kanode

Well, I don’t typically say much about my competitors. I usually will leave that to you to conduct a thorough research on -- having said that, I will focus for moment on if you consider the fact that the Chevy Vault is 2-3 years out and most other EVs are 2-3 years out. We again deliberately, year and half or two years ago, focused on Europe, number one, because they’re moving forward first. Focused on commercial vehicles again because they are moving forward first and we did that because that was the first market that would offer us the opportunity to sell N volume products we already had but the secondary benefit that are coming forward from that are now notable being that in Europe we have full support for our customers including not only sales, not only a fulfillment center already operational in Amsterdam but we also have application engineers that are on the ground in Europe that will serve anyone that hopes to adopt and advance energy storage system and our competitors do not.

And when you are about to start shipping a product that is very, very important, you have to consider not only the product, not only the performance that product offers to consumer but you must offer consider how to service that product should the consumer have a problem. We are there, we have an high value manufacturing, we have the sales support service and fulfillment function on the ground in Europe and in the US and it's functioning.

So, for any potential competitor, the question you should ask them is what do they truly offer and cut through to what customers truly need and then I think you will find the truth.

Bob Ecinder - Garden State Securities

Very good, thank you very much. Look forward to the next call.

Robert Kanode

Thank you.

Operator

And we will take our next question from Walter Winnitzki with Nicusa Capital.

Robert Kanode

Hi Walter.

Walter Winnitzki - Nicusa Capital

Yes, hi. Let me ask three questions please. May be if you can a talk a little bit about your other customer Segway. How was sales relative to last quarter and any thoughts on how that relationship is going? That’s the first question.

Robert Kanode

Well, the first of all, as far as Segway is concerned their purchases from us had been fairly stable, however, we may see some slow, we expect we may see some slowdown with them next year. As far as how they are doing as a company, again, you have to have them because other than what I just gave you, we have no knowledge of what their future growth are -- relationship they will have to this economy will be. So to be fair, I would just -- I cannot offer you anything else.

Walter Winnitzki - Nicusa Capital

When you say they may see some slowing is that because of the overall economy or is there some other issues?

Don Gottschalk

There could be, I mean, if you think about what people are doing in this economy today, they are basically pulling away from purchases of certain items. I don’t know if that’s what one or not, it could be. This is another reason, by the way, we believe we are well positioned to move into public transportation and other sectors that urgently meet the growth.

Walter Winnitzki - Nicusa Capital

Okay. And just looking through the queue, it looks like inventories were up both sequentially and pretty decently from relative to last year, can you talk a little bit about what’s in there, what’s happening?

Don Gottschalk

Yes, our inventories are too high, number one. Number two, they are high because we had a misstart or couple years ago with Smith, that’s the bad news. The good news is everything that -- just about everything that’s in our inventory, will -- can be and will be used for our standard U-Charge products going forward. So, one, our inventories are too higher. Two, they need to be cleaned up. Three, they can be cleaned up and we intend to do so.

Walter Winnitzki - Nicusa Capital

Finally, just the previously -- you had talked about some expansion plans, and in light of both the Smith order and some others, how are you looking at that and the use of CapEx in the second half of the year, right now?

Don Gottschalk

We basically have expanded to a point that we have powder production of about 90 to 100 metric tons per month, and we have the capacity in our pack line of around $30 million per quarter. We will hold at that point until we make some fundamental decisions on where we are going next year. We are in a very good position because we don’t require long lead times to expand our capacity. We are at a point now that we can expand our capacity easily because our -- you’ve heard me say before, our processes are proven, we have been doing this for a while.

Both in our powder or our material manufacturing, and also in our pack manufacturing our equipment is known. Our people are experienced. Our supervision has experience. So, it's fairly easy for us to scale. We don’t have to end there everything as we expand. And the second point is, if there is ever an opportunity to put a satellite plant anywhere, that would also be fairly easy for us or if we bring on a manufacturing partner beside us to move some of our technology -- manufacturing technology to them it would also be easy, and we are still looking at those opportunities.

Walter Winnitzki - Nicusa Capital

Okay, great. Last question just has to do with Tanfield, if around on the receivable side if they are clean in light of paying all their bills?

Don Gottschalk

I am happy to report they are clean and paid up.

Walter Winnitzki - Nicusa Capital

Good. Alright, thank you.

Operator

And now we will hear from Randy (Howitz) with Pro Equities.

Robert Kanode

Hi, Randy.

Randy Howitz - Pro Equities

Rob, thank you very much. My question was answered almost in total, good -- compliments on a good quarter. But, just, perhaps with a little more specificity on the issue of our product in the competitive market would be much appreciated. I missed the last call and I regret that, but can you give us just little more color around how you see our total value propositions backing up against competitors. To speak about us and we will let the chips fall as you said before with respect to the competitors, tell us maybe three or four of the competitive advantages?

Robert Kanode

Well, first of all we offered today an energy storage system that is being used by EV and Hybrid manufacturers of up to 700 volts. The Wright bus system is 700 volt. Some of the EV delivery systems are 300 to 400 volts. Now, we are capable and are shipping this in high volume and as a matter fact when we had call started with Smith I think we -- we shipped them thousands of completed packs in a just a few short weeks, and we are capable of doing that again. As a matter of fact when we are talking of new customers we often ship them a complete test system in a less than a week. And I say a complete test systems, I am talking about numerous packs contained in our tray, if you will, or our total storage system. With all of the battery management system are controllers provided to them.

So, if we are talking to a new customer, say an automotive manufacturer that intends to manufacture an EV in Europe, in one week we can have them in a storage system, and should they make decision to go to market with a product within a reasonable lead time to just ramp up supply materials coming into them, we have no limitations on supplying them products. So, what I just described from start of powder to installing a complete system in a van truck, bus etcetera, with our engineers there to make sure the integration with their own bullet system is flawless and the post sales support simply does not exist with our competitors especially in Europe. So, I think that is our true age.

Now, do I expect that to continue? Absolutely, not. We’ve got to continue to move on to new materials, to new technologies, to new form factors and we have to continue to lead. But the point is with the patent as state the size of our patent state, we are uniquely qualified with the right materials and products to lead this sector and we intend to do so.

Randy Howitz - Pro Equities

All right. That’s more than I expected. Thank you very much.

Robert Kanode

Thank you.

Operator

And now we will open it for Patrick Metcalf, CIG.

Patrick Metcalf - CIG

Hi Bob.

Robert Kanode

Hi Patrick.

Patrick Metcalf - CIG

How are you?

Robert Kanode

Good.

Patrick Metcalf - CIG

Good. I wanted to talk to you about Modec. Is Modec a customer of Valence’s?

Robert Kanode

We have supplying two systems to Modec which they have in vans. They are testing them and they are problem free.

Patrick Metcalf - CIG

Okay. Did you see the news today for Modec?

Robert Kanode

I did not.

Patrick Metcalf - CIG

Okay. It’s been reported that UPS ordered 12 trucks from them for delivery for February 2009.

Robert Kanode

That doesn’t surprise me, because they’ve had one van in service in London for months without a problem.

Patrick Metcalf - CIG

Okay. Were they using our batteries?

Robert Kanode

Not at first time. No.

Patrick Metcalf - CIG

No. They have mentioned in the article that they are using Axion, which is used in a lithium phosphate battery.

Robert Kanode

Right.

Patrick Metcalf - CIG

Is that a violation of our patent?

Robert Kanode

No. That’s an early – that’s our solution as it stands today. What they would actually like to do is have us prepare the total battery system and ship it to them, fully assembled in China. Meaning, we just slide trays, if you will, into containers. They slid them out of containers, buckle them into the frames and drive off. That’s what we are working on.

Patrick Metcalf - CIG

Okay. Do you think you close them in the near term or is this a further our type of customer?

Robert Kanode

That I cannot tell you.

Patrick Metcalf - CIG

Okay. Thank you.

Robert Kanode

You’re welcome.

Operator

And now, we’ll hear from Ed Einboden from Wm Smith & Company.

Robert Kanode

Hi Ed.

Ed Einboden - Wm Smith & Company

Hi. How are you?

Robert Kanode

Good.

Ed Einboden - Wm Smith & Company

Wm Smith & Company. I was just hoping you could talk a little bit more about Dr. Lim. I know the press release gave him quite a bit of the -- quite a few accolades and his research career. Can you talk a little bit more about what he brings to your firm and what kind of opportunities that you guys will have with him there in China?

Robert Kanode

Well, K.C. is the well known expert in the battery world, and first of all, we are very fortunate to have him. Second, he is very accomplished with the extensive work at the Los Alamos Lab at [Huse] Engineering, and in advanced, not only, battery materials, but also design of cells and design of specific equipment to manufacture cells. He is a leader, a true leader. And he – as we move into next generation of batteries, we could not have a better guy on our side. Not only is he a leader in technology, he is an excellent organizer of advanced engineers and scientists in this sector. He is known and respected.

So, I’m very happy to have K.C. with us. I personally have known him for two years, and he was just with me, by the way, in Europe. And he – K.C. not only, as they say, talk so talks, he walk so walk. And he has the unusual gift that he can sit down with the customer trying to understand the dark secrets or shadows in the corners that batteries often offer development teams and he can easily put that in perspective for design team and help them.

So, very gifted guy that actually once designed the 50 amp hour single cell that was launched into orbit in a spy satellite and a humorous remark. I ask him, I said, well how did they do? He said, we never knew, it was classified and they couldn’t tell us if it work or didn’t work. So, no, but back on the serious side for a moment, I am extremely happy to happy to have K.C. on Board. I am extremely happy to have Ross on Board. They both offer tremendous experience and will help us move forward. I am very comfortable with these selections.

Ed Einboden - Wm Smith & Company

And then I guess softer news out of Enova that we talked about up there the second largest bus manufacturer in the UK and premiering hybrid and electric buses. Can you guys comment on sort of how you view that market? I know you guys are in life bus pass and so my assumption you guys are also in out there according to (inaudible). Is this still an exiting opportunity that – is it near term which you see, or is it some thing for the longer term as well.

Robert Kanode

No, both buses. There are single deck is an all electric. It’s designed around our batteries, our batteries are in it. And their double decker is a hybrid, a very large hybrid business, and again, our batteries are designed into it. We are looking towards that to have a very long-term relationship with them. At the Europe Bus Show, by the way, I guess, when I walked up and I saw 60 guys with cameras there and curtains about to be pulled back and music playing, they really had a spectacular announcement of those new buses. So, I am not surprised that they didn’t leak press out on those or others.

So, we are happy to be working with them, and their designs are beautiful. I never thought you could take something like a bus which to me is a box and make it look so attractive.

Ed Einboden - Wm Smith & Company

And I guess lastly, I just thought some comments that Fred Smith from FedEx, talk about the short duration electric vehicles and their ability to serve FedEx and UPS and the like, do you feel that’s the direction that these companies are going in the United States and that’s something that any more exiting that it has been or has that kind of slowdown with some of their capital expenditures drawing up?

Robert Kanode

No, I really, I look forward to more deliberate launches or let me say it this way, I look forward to individual corporations like FedEx and UPS to adopt this technology next year. I don’t know how much, when etcetera. But I do expect we will see these in the United States they are perfect solution for us. These vans typically have over 100 million of a range but the maximum that’s ever used even in rural areas by these deliveries services is usually under a 100 miles.

So it's still a very good fit and in some areas like the New York City environment for example, they only need about 25 miles per day, because they just park them and walk out of the vans and drive back to the depot. So it's a perfect solution again for an EV and if you are looking at automotive the reason European automotive manufactures are kind of skipping high routes and moving straight to EVs such as (inaudible) such as you will see BMW moving to EV, you will see Renault moving to EVs they are doing that because they now know that 80% of the developed countries in Europe and a majority of families in the United States own two cars and one is principally for commuting to work and the other is a family type vehicle of some sort that is used in extended range vacations which are rare during the year.

So that being said they expect that there will be a delivery of purchase of one commuter car and the most efficient solutions for that purchase will be an electric vehicle. So again I think we are positioned in a right place to call EV or absolutely a sweet spot for our technology.

Ed Einboden - Wm Smith & Company

Great. I appreciate and keep up the hard work guy.

Robert Kanode

Thank you.

Operator

And now we will go to Mike Helson with Smith Barney.

Mike Helson - Smith Barney

Hi, Bob. How you are, sir?

Robert Kanode

Good, nice.

Mike Helson - Smith Barney

I just wanted to clarify something I thought you heard early. You are saying that you are hoping for one to possibly two supply agreement by the end of this year and by that I mean like next month that's what you said?

Robert Kanode

I am expecting a Christmas present, Mike for my people.

Mike Helson - Smith Barney

And at that point that will be something that we will be able to be released?

Robert Kanode

Yes, we are adopting almost the standard protocol if you will that even those some of these early are our new customers I should say, may have already given us POs we are not going to announce present to supply agreement so I am place that totally define our relationship for the benefit of all you, ourselves, and those customers.

Mike Helson - Smith Barney

Hey, Bob, that's all I needed to know. Thank you very much, sir.

Operator

Now we will go to Robin Gauthier with UBS.

Robin Gauthier - UBS

Thanks for taking my call guys. You talked a lot about Wright Bus and how they are developing in Europe? Am I correct that a counterpart to Wright Bus in United States might be international corp. They seem to be early on quite a bit of publicity or hoopla about the hybrid school buses that were being developed. I guess I have two questions here is that -- are the districts getting together and actually being able to put orders into these buses, and is International liable to expand their use of hybrid or electric technology into some of the other vehicles?

Robert Kanode

Well. First of all, I can -- I will comment on International Corporation. I think at last count about 24 buses are out on the road in the United States. These, as I have commented before, being used for demonstration and Proof of Concept, if you will, with local school boards and some of the early adopters, California, is reporting that they have improved their carbon footprints 60% to 70% and they have improved their fuel economy around 30% to 40%. So, don’t remember those exact numbers, but they have been passing that around different local governments freely, and I expect there is a lot of interest there.

Having said that, we don’t see -- we don’t yet have huge orders in that business, but we do have a growing close relationship again with the Enova Systems, and Enova Systems provides the drive train for Wright bus and many others. And this, Enova, ourselves, and a number of other bus companies are working together on another solution, including International.

So, again, our used Wright bus is an example because it’s kind of easy at times. But there are other examples that probably I should be using in other different sectors with other manufacturers we’ve joined with.

Robin Gauthier - UBS

Thanks a lot.

Operator

We will now go to Ron Stewards.

Robert Kanode

Hi, Ron.

Ron Stewards

Hi. What is the biggest issue facing Valence at the present time?

Robert Kanode

The biggest issue facing us at the present time is probably understanding what our true demand will be over the next year, and I don’t say that in term and sheet. We have got a lot of people that are now making very legitimate starts with volume -- mainline products, and with turmoil and both looking at a new product, looking at emerging government support of those products, and looking at improved customer acceptance of those products, there are a lot of different variables on the table

That is one dynamic that concerns me. Another one is, we have numerous requests for licensing to purchase our powder and partner with others given our patent of state and these are great concerns to have, but these are the things that we’ve spend a lot of time trying to make sure we call this right.

We want to support our end user customers as we move forward. and we also want to support the sector for the benefit of all and make sure that we can bring to the lithium phosphate sector high volume dual source of critical components to offset any continuity of supply concerns, and just simply take good care of our first adopters. So, this is one reasons, by the way, that we insisting upon supply agreements to make sure that we thoroughly understand we have a creditable customer one, and number two as we understand that we can take very good care of them, and we can work closer with them.

So, that may be was a long winded answer, but if you ask me what bothers me, that’s it we are in an emerging market that has numerous dynamics we have to entertain and basically call the ball on.

Ron Stewards

One follow-up. Have you had any conversation with our benefactor and has he been impacted by this mess that the economy is in?

Robert Kanode

No, I haven’t. If you’re talking about Carl Berg, he certainly can speak for himself. But, no, Carl remains a very strong part of the corporation, and as Chairman of our Board, he is – we are very lucky to have him. He is very passionate about this company and that has not changed.

Ron Stewards

Alright. I love hearing that. Thank you very much. Good quarter.

Robert Kanode

Thank you. Good quarter, but a lot of work to be done.

Operator

And that does conclude our question-and-answer session. And Mr. Kanode, I’ll turn it back to you for any closing or additional remarks.

Robert Kanode

Well, I would just like to thank everyone, again, for your participation. I further would like to encourage you to go over to Europe and take a look, because as every day passes, their progress is accelerating, and it is, I would tell you, notable and fun to watch. And it certainly is where we should be.

So, thank you for your participation and let me wish everyone a great day.

Operator

And that does conclude our conference for today. Thank you for your participation. Have a pleasant day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha.

However, we view them as an important resource for bloggers and journalists,

and are excited to contribute to the democratization of financial information on

the Internet. (Until now investors have had to pay thousands of dollars in

subscription fees for transcripts.) So our reproduction policy is as follows: You

may quote up to 400 words of any transcript on the condition that you

attribute the transcript to Seeking Alpha and either link to the original

transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION

OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE

PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS

ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE

MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING

OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES

SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT

OR OTHER DECISIONS MADE BASED UPON THE INFORMATION

PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE

ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO

PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS

BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact

us at: [e-mail]. Thank you!