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Altair Nanotechnologies (NASDAQ:ALTI)

Q4 2012 Earnings Call

March 28, 2013 11:00 am ET

Executives

Alexander S. Lee - Chief Executive Officer and Director

Stephen B. Huang - Chief Financial Officer, Principal Accounting Officer and Corporate Secretary

Operator

Good day, ladies and gentlemen, and welcome to the Altair Nanotechnologies Fourth Quarter and Full Year 2012 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call over to our host for today, Mr. Tom Loffman [ph]. Sir, please go ahead.

Unknown Executive

Thank you, and welcome, everyone to today's call. I've been asked to make the following statement. The statements in this conference call that relate to future results, markets, growth plans or performance are forward-looking and involve certain risks and uncertainties including those associated with uncertain demand for our products and services, the early stage of development of many of our products and services and related markets and other risks identified in the company's SEC filings, including its most recent annual report on Form 10-K and quarterly reports on Form 10-Q. Actual results, events and performance may differ materially.

Conference call participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Altair Nano undertakes no obligation to update these forward-looking statements to reflect events or circumstances after today's date or to reflect the occurrence of unanticipated events.

With us today on this call would be Alex Lee, Chief Executive Officer; and Stephen Huang, Vice President and Chief Financial Officer.

I would like to now turn the call over to the company's Chief Executive Officer, Mr. Alex Lee. Alex?

Alexander S. Lee

Thanks, Tom, and good morning to everyone who's just joined the call. It's really hard to believe that 1 year has passed since [indiscernible] and I joined the company. It's certainly been an interesting year, one of the many highs and lows and one that certainly brought many changes to the company. As you may have seen already in our earnings release this morning, we recognized about $1.5 million of revenue on about nearly $6 million in customer payments that we received in 2012.

I'd like to hit this issue head-on because the financial results really shouldn't overshadow all the good work that we actually did this year. Here's why: First, we built more systems this year than ever before, and we're able to accomplish this while working with a smaller, more focused team. Our team stands at about the end of December of 2012. It was about 35% smaller than the one roughly a year prior to that time. And all the while we were also launching a brand new business in China.

Second, we bought in $5.9 million in customer payments, which is on par with past years, if not a bit better. So let me recap the year for you and tell you a bit about what we tried to focus on.

Our 2012 goals were really quite simple. We basically could boil it down to four bullets and it's really to enhance our credibility; two, generate revenue; three, reduce cost and four, really focus on execution.

In terms of the credibility issue, we really focused on the need to make our story more clear, with employees, investors and customers. There's no doubt that Altair Nano in 2011 and going into 2012, due to a number of management changes, due to a change in the business plan, that did create confusion. And so we really focused on this issue and tried to clarify the China story, for example. We built a narrative that tracks to our business plan, and we made sure that we really clarified that for all our customers and investors.

For example, the moment that I became CEO of the company, I got a number of questions from some of our key customers and it really reflected a lot of confusion about some of these issues. So certainly, rebuilding the story and enhancing our credibility was a key goal for the year.

To really push that point, there are a number of things that we could have done last year to hype up aspects of our story. A lot of things were happening per instance in China that we certainly could have pitched to the market and really tried to push on a PR front. We deliberately chose not to do that because we really want to make sure that we were hitting milestones. We were doing things that were credible and on that note, we closed the economic development deal in China in April, got a $6 million EV bus order tied to that, a $1.9 million downpayment for that bus order, and over the course of the year, we negotiated the rights to use 66 acres of land, which was appraised for about $32 million. All of these things were credible, tangible milestones, which certainly enhanced the value of the company.

Second point. A key focus for us was to generate revenue. We really worked hard to gain traction in our 3 target markets. And on that note, we implemented a new sales process, that way we could really identify the right opportunities to chase after because each of these opportunities require significant investment on our part. A lot of engineering hours have to go in and some cases, actual cash investments in order to hire consultants and so forth, so we really have to be careful about which opportunities we'll pursue. So we really worked very hard to refine the sales process and go back to the nuts and bolts and make sure that the bid, no-bid process and so forth was functioning properly and really looking at all the key due diligence issues to refine and uncover the right opportunities to pursue.

Another thing we did last year on the revenue front was to revive our R&D proposal efforts. I think in the basically aftermath of the investment and our -- basically, pulling out of certain aspects of the military market, for example, a lot of our R&D proposal activities actually came to a stop. And we recognized in 2012 that, that was an important thing to pick up again, and we ramped that up and that's a key part of our sales efforts. We want to continue working in R&D, and we think that putting out these proposals to different government entities is a key way to get funding and certainly strategic partners on board to continue to advance our technology.

On the military front, we investigated ways to reenter that market, and that's something that we were doing quite well in, in prior years, but certainly after the investment from a company in China, that led to 53% stake in the company, we had initially pulled out of that market. We actually worked hard in 2012 to investigate that market opportunity again, and got favorable guidance that could show that we can reenter that market under certain conditions. So certainly, we did a lot of the due diligence and preparation work in 2012, which should position us to at least bid on some opportunities in 2013.

Also on the revenue front, we won new orders with TSK Solar, where we sold our brand new 2-megawatt ALTI-ESS Advantage. We signed a contract with Proterra back in May in 2012, and of course, the economic development deal brought some orders for us as well with the city of Wu'an. And by focusing on a -- the delivery of existing and new orders, we bought in, as I mentioned previously, $5.9 million in cash payments. And over the course of the year, the deferred revenue grew to about $7.2 million in 2012, a good portion of which we hope to recognize as revenue in 2013.

In terms of -- a third area of focus, cost reduction was clearly something that we were taking a very hard look at and taking action on. The moment that Albert and I started the company, we commissioned the cost reduction report from our finance department, and the plan identified some interesting issues across the company and certainly some opportunities to reduce cost. Despite the plan's merits, we deliberately chose not to adopt all of its recommendations, so certainly we could've taken more aggressive measures to cut costs, but because of our focus on our existing orders, we decided not to go as deeply on some of these cuts as we could have in order to focus on our customer deliverables.

Nevertheless, we did reduce our average monthly burn rate from nearly $2 million down to approximately $1.6 million on average over the year, and more recently we've begun a process of take another $2 million out of our cost on an annualized basis when that plan is fully implemented. Other cost reduction measures are also in the works and are clearly a big part of the 2013 plan.

In terms of our fourth goal, we really focused on the need to execute. We needed to focus on all of our customer projects and this was really a big measure of bringing in sales, measuring revenue and really enhanced our credibility within the market. In 2012, we built the most systems in the company's history and worked on system installations in really diverse locations such as Hawaii, Puerto Rico, Denmark and on the East Coast.

We also focused on our self-production issues and ramped-up another supplier to diversify our supply chain. We view that as a very critical element of our company's growth and are constantly on the hunt for good partners to make sure that we have the right sales supply and the right levels of quality. So that was a key focus for the team this past year.

We also focused very heavily on the rule on [ph] LTO and EES assembly plan, and during 2012, we completed the design for these new plants.

Some other highlights just across the year, certainly, the April economic development deal was a very big milestone for the company. In May, we completed the domestication of the Canadian company, the original Altair into Delaware, so we are now a U.S. corporation. We continued R&D work throughout the year on our Gen 3 products and also worked on some new LTO technologies.

In June, we shipped the 1.2-megawatt ESS into Vestas and you've probably seen the press release about that. One of the challenges for us just as a company is that many of the good projects that we're working on often are subject to confidentiality agreements and we can't really talk too much about them until the systems are commissioned. Now that system is in commercial operation and our customers are very happy.

In August, we received a $1.89 million downpayment against that $6 million Wu'an bus order. We also shipped the 1.2-megawatt ESS to the Hawaii Natural Energy Institute. In August, we also signed an MOU with Shenhua, a very large company in China, which is one of the leading mining companies who's very interested in working with energy storage systems.

In September, we signed an MOU with EnerDel to basically cross sell our products because we viewed our technology as being complementary.

In October, we won the $1.8 million, 2-megawatt order from TSK Solar and shipped that system. In November, we acquired the rights to 66 acres of land, which is the fundamental part of the economic development deal in China. That land was actually acquired for $13.9 million.

However, in December, we were able to receive $12 million in cash incentives by the city, which are part of the restricted cash numbers that you'll see in Stephen's report just a little bit later. But basically, that $12 million shall be applied to all the development activities in Wu'an. And so as you can see, the land was actually acquired at a very low cost to the company.

Back in November, we also shipped the system and a large ESS to an East Coast utility company. And lastly, we received the -- an appraisal for the land that we acquired in the land-use rights that we acquired in China for approximately $32 million back in December.

So 2012 had quite a few highlights, a lot of good things happened for the company, so I hope that the company is recognized for a lot of different things that it was able to accomplish in this past year.

So just in summary, we clearly focus on the execution issue, built more systems than ever before, 5 of them are builds, we validated 4 of them and shipped 3 of them so far. We launched the new ALTI-ESS Advantage product into the market, did sell one to TSK Solar and shortly thereafter, sold the system -- a third system to HNEI. We did receive the $5.9 million customer payments. Unfortunately, we could only recognize $1.5 million of that due to U.S. GAAP issues but our deferred revenues grew to $7.2 million, a good portion of which we hope to recognize in 2013.

We made considerable progress in the China market in a very short time, and we now have a credible track record to point to, which is very important in our market. Earlier in our company's development, certainly not having too many reference customers was an issue from the sales front. Now we have quite a few systems that are up and running, we have very high levels of customer satisfaction with companies like Vestas and HNEI, so that will certainly help us from a sales perspective.

So with that being said, what does 2013 hold for us? Well basically, I'd like to say that the goals are really the same, that we have a better platform to work from. On the credibility front, as I mentioned, we now have a portfolio of projects that we can point to. On the revenue front, I think we are very well positioned for 2013 sales plan that can be clearly executed within the same 3 target markets that we've always been working in, namely the electric grid, transportation and industrial.

We'll continue on the cost reduction front. Again, that was the third goal of last year and it's the same for this year to position the company so that we can continue to reduce costs, which is a must in the current economic environment.

Lastly, on the execution front, we've clearly demonstrated our ability to develop and deliver good skill systems, which should give our perspective customers greater confidence, whether they're in the transportation or industrial segments as well. So all in all, a good year, positions us well for 2013 and the goals remain the same.

So that being said, I'd like to turn it over to Stephen, who will provide a report in our financials. Thank you.

Stephen B. Huang

Thanks, Alex, and good morning to everyone. For the year ended December 31, 2012, revenues were $1.5 million compared to the year of 2011 revenue of $5.2 million. Deferred revenues grew to $7.2 million as of December 31, 2012, compared to $1.6 million as of December 31, 2011. Gross loss was $1.3 million in 2012, compared to $571,000 in 2011. The net loss for 2012 was $18 million or $1.55 per share compared to a net loss of $19.9 million or $2.55 per share for 2011.

For the fourth quarter ended December 31, 2012, revenues were $476,000 compared to the fourth quarter of 2011 revenues of $1.3 million. Gross loss was $114,000 in the fourth quarter of 2012, compared to $445,000 in the fourth quarter of 2011, primarily due to the reversal of inventory reserve previously recorded.

Operating expenses were $4.1 million in the fourth quarter of 2012 compared to $5.6 million for the same period in 2011, primarily due to the impairment of fixed asset in the fourth quarter of 2011. The net loss for the fourth quarter of 2012 was $3.6 million or $0.31 per share compared to a net loss of $5.1 million or $0.51 per share for the same period in 2011. The basic and diluted weighted average shares outstanding for the year of 2012 were $11.6 million compared to $7.8 million for the year of 2011.

Revenues were decreased by $3.7 million in 2012 while the deferred revenues were increased by $5.6 million in 2012, primarily due to timing of when we recognize revenue based on revenue recognition guidelines.

Gross loss was increased by $754,000 in 2012, primarily due to cost increases associated with the launch of new electric grid product. Operating expenses were decreased by $3.2 million in 2012 compared to 2011. This decrease was due to achieving planned reductions overall in research and development, sales and marketing, and general and administrative expenses in 2012. Recording impairment of fixed assets of approximately $900,000 in 2001 -- I'm sorry, 2011 and recording severance expenses of approximately $900,000 in 2011.

Net loss was decreased by $1.9 million in 2012, primarily due to overall decreases in operating expenses. Altair's cash and cash equivalents decreased by $34.1 million from $46.5 million as of December 31, 2011, to $12.4 million as of December 31, 2012. This was primarily due to the $20.6 million of cash used in operating activities during 2012. The bulk of the cash used in operations went to cover our net loss of $18 million, offset by $6.7 million in proceeds from 3 short-term note payable used for the $5.5 million through up of work-in-process inventory related to the fulfillment of customer sales backlog, of which $2.4 million is included in deferred contract cost.

Northern Altair also received cash grant incentive of $11.8 million from the Wu'an government and recorded it as restricted cash, which can be used subject to meeting certain guidelines agreed upon by the Wu'an government and the company. A summary of the cash position as of December 31, 2012, included cash and cash equivalents of $12.4 million. In addition, the company has $18 million in restricted cash, of which $6.2 million is classified as short-term. The remaining $11.8 million in restricted cash relates to the grant incentives, which is classified as long-term.

Our overall cash position, including restricted and long-term restricted classifications was $30.4 million as of December 31, 2012. As Alex mentioned earlier, some of the restricted cash is earmarked for our expansion plans in China.

We received $5.9 million in customer visits during 2012. The company is expecting an estimated $2 million in cash received during 2013, which relates to 3 large projects sitting in our deferred revenue as of December 31, 2012. Of this amount, $1 million has already been invoiced and is in the accounts receivable balance as of December 31, 2012, and the other $1 million is expected to be invoiced for these large projects in the first half of 2013.

With that, I'd like to turn it back over to Alex.

Alexander S. Lee

Thanks, Stephen. I can see that there are quite a few callers online today, so I'd like to just quickly turn it over to the Q&A period, if we can do that.

Question-and-Answer Session

Operator

[Operator Instructions]

Alexander S. Lee

It just looks like there aren't any questions at this point.

Operator

I see no questions in the queue.

Alexander S. Lee

Give them another minute.

Operator

[Operator Instructions]

Alexander S. Lee

While we're waiting, just perhaps in conclusion -- looks like a question is coming in.

Operator

We do have a question from the line of Robert Cousins [ph], a private investor.

Unknown Shareholder

Yes. I was wondering if you could reveal more information on the utility on the East Coast that you delivered an ESS system to?

Alexander S. Lee

Unfortunately, that one is -- again, we entered into agreements with the companies and what ends up happening is we're bound by mutual confidentiality provisions and basically, until we typically install or commission those systems, we abide by those restrictions. So the best I can say is that it's on the East Coast and that is with a utility company. So at this point, I can't disclose the name, unfortunately. I'd love to talk about it more, but I'm sorry about that.

Unknown Shareholder

All right. But you think that you might be able to in the future?

Alexander S. Lee

Oh sure, yes. That should be up and running very soon, so that's something that we can certainly talk about, once they've been commissioned. Yes.

Operator

And we have another question now from the line of Patrick Getard [ph], another private investor.

Unknown Shareholder

I was wondering with the Proterra Bus Company, how much how long is the contract you have with them to supply the batteries for their buses?

Alexander S. Lee

Basically, the orders that we have are basically for the 2013 time frame, at this point. The orders were placed or rather the contract was entered into back in May. There was some testing and validation work that we have to do in 2012, mostly because our cell size had changed over the years from a 50-amp power to the 60-amp power cells, so we -- what's common in the automotive industry is to go through a what's called the PPAP process, which is production parts acceptance procedures and essentially go through that with Proterra. So the orders kick in, in 2013 and basically, are pretty evenly spaced throughout the year.

Unknown Shareholder

Do you know how many batteries or how many buses they plan on producing this year?

Alexander S. Lee

Again, unfortunately, this is one of those things that falls under the NDA again, and I would certainly love to give guidance to the market as to how much revenue we can expect from Proterra and so forth, but due to the competitive state of the industry for Proterra and also the NDA provisions, we've typically not disclosed how many buses that we would be supplying batteries for. That NDA kind of works to our judgment here, but we do honor that request from our customer.

Unknown Shareholder

Okay. Is there any reason why you could not get at least a 3-year supply agreement with them as did UQM Motors that are supplying the motors for their buses?

Alexander S. Lee

Well, that order I did see in, I guess, there's some information in the press about that. Certainly, we would like to enter into long-term agreements with all of our customers and certainly that's something that our sales team will take a look into and see what we can do.

Operator

And I have no further questions at the moment.

Alexander S. Lee

Okay. Well, thank you very much to everyone who joined the call, and I would like to thank the Altair team. 2012 was certainly an interesting year for us, and I do think that the team performed very well under some difficult market conditions. Certainly, the battery industry is not in the best shape. To all our investors, I do want to make a very clear point, which is that Altair Nano is not a cell manufacturer. Many of the battery companies in the U.S. that are facing some difficulties basically are weighed down by issues related to having a lot of plants and equipment associated with cell manufacturing. That is something that Altair does not have.

In the past, that did provide some challenges for us because, let's say 5 years ago, there weren't many cell manufacturers out there in the market that could produce the types of cells that we needed. However, today, there's overcapacity in the market.

There are many high-quality cell manufacturers around the world, and we are working to identify more and more of them, and basically, we are not weighed by -- weighed down by that infrastructure, which allows us to basically survive these difficult market conditions.

That being said, we see good promise for our various products in the different market segments that we're operating in. And certainly, we view the China market as something that will expand our market opportunities, not contract them. There are a lot of favorable policies that are geared towards the electrification of transportation, for example. And we intend to work with a number of different companies there to attack that market opportunity. So with that said, thanks to everyone, and we appreciate your time.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.

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