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H. Ravi Brar - Chief Executive Officer, President and Director

Susie Herrmann - Chief Financial Officer and Vice President of Finance


Philip Shen - Roth Capital Partners, LLC, Research Division

Ross Silver - Vista Partners LLC

ECOtality (ECTY) Q4 2012 Earnings Call April 15, 2013 4:30 PM ET


Good afternoon, ladies and gentlemen, and welcome to ECOtality's conference call to discuss its results for the fourth quarter and fiscal year ending December 31, 2012. Joining us today are Ravi Brar, the President and CEO of ECOtality and Susie Hermann, the company's CFO. Following management's remarks, we will open up the call for your questions.

Before we begin today's call, I would like to provide the company's Safe Harbor statement with important cautions regarding forward-looking statements made during this call. Remarks made on this call may have contained forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended in Section 21A of the Securities Exchange Act of 1934. All forward-looking statements are inherently uncertain as they are based on certain expectations and assumptions concerning future events or future performance of the company. Listeners are cautioned not to place undue reliance on the forward-looking statements which are only predictions and speaks only of the date hereof. In evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in the conference call and the matters stated in the company's SEC filings. These risks and uncertainties could cause the company's actual results to differ materially from those indicated in the forward-looking statements.

I would like to remind everyone that this call is being recorded and will be available for replay through April 22, 2013 starting later this evening via the link provided in today's press release, as well as the company's website at

Now, I would like to turn the call over to the President and CEO of ECOtality, Mr. Ravi Brar. Sir, please proceed.

H. Ravi Brar

Thank you, Gaya. Good afternoon, everyone, and thanks for joining the call. On today's call, we're going to talk about the strong operational progress we've made during the fourth quarter with the rollout of our nationwide Blink electric vehicle charging network. However, we'll start off by turning the call over to our CFO, Susie Hermann, who will briefly take us through the financial results. I'll then return to talk about our strategic initiatives, including some of the progress around our various lines of business and cost containment. Following my remarks, we'll open the call for your questions.

So for now, Susie, the financial results?

Susie Herrmann

Thank you, Ravi. Our revenue in the fourth quarter of 2012 increased 60% to $13.6 million from $8.5 million in the fourth quarter of 2011. For the full year 2012, revenue was a record $54.7 million, which was up 93% from $28.4 million in 2011. Approximately 72% or $39.6 million of our 2012 revenue was attributable to work performed under the EV Project. The increases in fourth quarter and full year 2012 revenue were largely attributable to the continued rollout of our Blink network of charging stations for the EV Project.

At December 31, 2012, we have received $84.8 million of the total $100.2 million grant funding for the EV Project. $63.7 million has been recognized in revenues project to date through December 31, 2012, up from $24.2 million recognized through December 31, 2011.

As reported on our last call, during the third quarter of 2012, the EV Project agreement was definitized, resulting in final approved total estimated cost and cost share amounts under the agreement. Through a separate amendment also received in Q3, the performance period of the contract was extended to December 2013. While the grant accounting for these amendments is complex, the primary impact in 2012 of the definitization and extension was a $4 million net decrease in loss from operations.

To continue, gross margin in Q4 2012 was 32% compared to a gross margin of negative 4% in the fourth quarter of 2011. For the full year 2012, gross margin was 34% compared to 2% in 2011. The Q4 2011 margin was negatively impacted by the recording of an adjustment to revenue relating to the EV Project. Excluding that adjustment, full year 2011 margins would have been 12%. The overall year-over-year gross margin improvement is largely attributable to an increased percentage of DOE contract revenues related to recording of cost share for incoming costs. These incoming costs include allowable cost of ownership incurred by the owners of vehicles in the program, which results in reportable cost share and revenue to us under the program for which we incur minimal cost.

Margins were also affected year-over-year by our recording of $2.6 million in license revenue during the first quarter of 2012, from which we incurred no direct cost. Total operating expenses for the year were $30.6 million compared to $22.7 million in 2011. Sales and marketing increased $1.3 million to $4.6 million in 2012. The increase is primarily due to marketing efforts related to increased volumes under the EV Project, as well as consulting and other professional services related to website design and maintenance and conceptual design initiatives of our next generation of fast chargers. In addition, we have expanded our sales and field operations organization to focus on the sale, installation and servicing of EVSE and to promote and secure membership in our Blink network after the EV Project's completion.

R&D expenses increased $1.5 million to $2.2 million in 2012, reflecting expenses incurred in connection with development projects related to our next generation of chargers and EVSE connectivity enhancement activities. G&A expenses increased $3.3 million to $20.3 million in 2012. This increase was attributable to a number of causes: First, payroll and related benefits increased by $0.7 million due to increased headcount, which was partially offset by increased staff utilization on projects which leads to classification of the related payroll as cost of goods sold rather than G&A. Severance increased by $0.6 million resulting from employee terminations; and professional services increased $0.6 million, attributable to expenses incurred in IT systems maintenance.

2012 operating expenses also include a $3.5 million goodwill impairment loss. Due to a sustained decline in our market capitalization, we determined that an interim test of goodwill for possible impairment was necessary in the third quarter. Based on the results of that test, we concluded that all $3.5 million of our ECOtality North America goodwill was impaired and we recorded a non-cash goodwill impairment charge. Following that adjustment, we are not carrying any goodwill in any of our reporting segments. The remaining G&A variances were attributable to various expense categories individually amounting to $300,000 or less. Other income of $2.4 million in 2012 reflects the value attributable to certain terms provided for in a licensing agreement we entered into with ABB. Net loss for the year was $9.6 million compared to a net loss of $22.5 million in 2011.

During the year, we focused on controlling operating cost to keep them in line with the lower-than-anticipated rate of adoption of EVs and PHEVs by consumers today. However, we also maintain the ability to take advantage of a potential uptick in the market as certain events transpire like record monthly EV sales, which Volt had in October 2012, as well as several new EVs and PHEVs coming to market.

In terms of liquidity, we ended the year with $6.6 million in cash and cash equivalents and restricted cash. This compares to $2.1 million at September 30, 2012, and $10.2 million at the end of 2011. We continue to actively manage cash and expenses while ensuring the organization is properly positioned to deliver the strong growth of our commercial business as needed to allow us to successfully transition away from the EV Project at the end of 2013.

This completes my summary report on our results for the year. Now, I'd like to turn the call back over to our Chief Executive Officer. Ravi?

H. Ravi Brar

Thank you, Susie. We'll spend the rest of the call providing an update on 2012 and then move the discussion into the direction of the company going forward in our 3 distinct lines of business: Blink, Minit-Charger and eTec Labs.

The Blink network has seen a steady growth of charger installations through the course of 2012. We installed over 1,800 Blink chargers during the fourth quarter alone, bringing the total number of charging stations to approximately 10,000 by year-end. Included in this number are Blink DC Fast Charger of which we installed 55, making us the largest fast-charge network in North America.

Q4 was an important milestone with regards to fulfilling our EV Project requirements. It was essentially the final quarter in which we accepted participants into the program. We are now fully subscribed for our level 2 residential and public deployments and are working to install these systems by early summer. In addition, we are focused on final placements of our 200 DC Fast Chargers. We believe that we are well on our way to completing the EV Project by summer of 2013 and achieving our goal of over 13,000 chargers deployed by the middle of the year.

As reported on our last call, in late Q3, we began charging for usage on our installed base of public level 2 charging infrastructure. We've already seen the first signs of success, as customers have shown a willingness to pay for charging in the public domain. In Q4, our run rate for usage revenue was nearly $40,000 per month in usage fees. This segment of our revenue will see accelerated growth as more EVs hit the road, more Blink network chargers are deployed, utilization levels increase, and in certain geographies, higher price points are established. We are still in the early stages of building out a nationwide network but are very encouraged by our early success and are well-positioned to monetize the growth trajectory of the EV industry.

At a macro level, the early adopters of the EV technology typically fit the general early adopter demographic of being well educated, well off and willing to pay a premium for a new technology. Accordingly, first adopters of EVs typically have the wherewithal to install chargers in their homes. As we move towards more mainstream customer demographics, many EV analysts anticipate substantial growth in the segment of EV drivers that do not have a home charger, because they reside in a multi-dwelling unit, are renters, or simply do not have a dedicated residential parking space. As a result, these new drivers may be completely dependent upon workplace or commercial or public charging networks. These are areas of our core competence and we are well-positioned to capture the growth in public charging that will accompany the growth in EV sales.

From a vehicle standpoint, nearly every major automotive manufacturer will have a plug-in EV in their portfolio this year. In 2013, there are more EV choices for consumers than ever and more diverse platforms that appeal to more mainstream demographics. In addition, we are already seeing dramatic price reductions in EVs, as the new 2013 Nissan Leaf has trimmed over $6,000 off its sales price and has achieved a baseline MSRP of $28,800.

After applicable state and federal tax incentives, drivers in California and other states are able to purchase the LEAF for as little as $18,800. This is a sub $20,000 vehicle that really competes for the mass market segment. In fact, I leased one earlier this month and have already put nearly 1,000 miles on it, recharging often with Blink and our competitors in northern California. While the lease range is sufficient for most of my needs, the growing fabric of public charging infrastructure gives me and other drivers the ability to build range confidence, knowing that I can travel several hundred miles in a day if necessary.

Clearly, these lower price points translate to increased vehicle adoption, as Nissan recently announced that they achieved record sales of Nissan LEAF, the 2013 LEAF, in March, selling over 2,200 units in March alone. Combine this with Tesla's recent news that nearly 5,000 new Model Ss were sold in Q1, and you can see that there has begun a public embrace of electric vehicle technologies. It's a clear trend in the market, and one that we intend to benefit from.

Our sales team's focus on national accounts continues to be an area of success for us with many recent national account agreements in place. We have deployed charging stations at numerous locations with large retail partners, including companies like Walmart, Kroger, IKEA, Kohl's, Sears, and McDonald's and many, many others. We have chargers located at multiple major entertainment venues on the West Coast, at marquee locations such as the Rose Garden in Portland, CenturyLink Stadium in Seattle and the STAPLES center in LA. We are expanding many of these programs with our national accounts as initial results have been extremely positive, indicating that Blink charger installations have significantly increased a customer's stay at a retail venue and nearly triple their annual visits to that location. We are continuing to work with our national accounts on ways to diversify and engage EV drivers at stores for longer stays and more frequent visits, and have already begun limited advertising trials at select locations.

Next, let's talk about our Minit-Charger business. In Q4, we received a $1 million order from Southwest Airlines for ground service equipment chargers which we began shipping in Q1 and we'll continue throughout 2013. We believe we have one of the strongest fast charging products for the GSE market, the ground support equipment market, and strong customers like Southwest continue to validate the quality and value of our product with repeat orders.

In January, we expanded our product offering by unveiling the Minit-Charger 12, our next generation of industrial fast charger. We'll begin deliveries of the Minit-Charger 12 by Q3 of this year and we have already established a healthy pipeline of interest in this new product. The launch of the 12 is representative of our renewed focus on our industrial Minit-Charger segment.

The economy is gradually turning the corner and as a result, many companies that have been saving their cash are now spending it on facility and equipment upgrades that mirror the gradual shift in the country's manufacturing industrial sectors. We are seeing substantial trends in the marketplace to go electric when it comes to material handling applications and we believe we are primed to see substantial growth in our Minit-Charger division as we launch new hardware and software offerings this year.

Finally, now let's turn to our eTec Labs division. As we discussed last quarter, we are in the process of reorganizing all of our testing, consulting, data analysis business activities into one organization headed by a couple of our most talented the leaders. With more than 79 million miles of driver data and over 2 million charge events, our data for the EV Project alone continues to become increasingly robust, enabling ECOtality, and the industry as a whole, to develop a seamless EV driving experience regardless of geographic location. In addition to the EV Project, eTec Labs continues to consult and manage projects for the DOE and perform battery testing and advanced vehicle testing on a regular basis. Our ongoing eTec Labs business has a backlog of contracts, all beyond the -- above and beyond the EV Project, valued at over $25 million with approximately $7 million of deliverables this year.

Finally, we recently achieved a major industry milestone with the formation of Collaboratev, an interoperability partnership with ChargePoint, that seeks to establish seamless charging for EV drivers on any affiliated network. We are equal 50% owners with ChargePoint in this venture and believe this company has tremendous potential. A good way to think about it is that it's basically similar to MasterCard Star or a Sears network for EV charging as it allows for interoperability, data exchange and financial reconciliation amongst public charging networks. This means the driver needs just one card and one account to access all EV charging stations. We anticipate charging an annual fee for companies that want to utilize the interoperability services of Collaboratev and we'll likely charge a small processing fee for all roaming transactions.

The other aspect of Collaboratev is that it seeks to become the primary database clearinghouse for all EV charging location data. This allows third parties, including government agencies, telematics providers, app developers and mapping companies to be able to tie into one source of comprehensive and definitive mapping and point information for all charging stations. With various data layers surrounding these locations, we plan to offer both static location data and dynamic realtime data, such as availability and reservations capabilities at competitive price points.

ChargePoint and our network combined, currently operate the overwhelming majority of charging ports throughout the country, approximately 90% of public chargers in the U.S. collectively. We anticipate this network to grow as the new affiliates join Collaboratev, and we have already received membership interest from other EVSE networks. As both companies are considered to be waterfall companies in the EV value chain, it made little sense to go on separate paths for these interoperability services, so coming together on this venture is a natural market evolution and a signal of market maturity for our industry that will help drive strong growth in the adoption of electric vehicles.

Overall, our fourth quarter and annual results were largely driven by the continued successful rollout of the nationwide Blink network and our ability to successfully execute upon the deliverables of the EV Project. Moving forward in 2013, we'll continue to build upon our multiple lines of business as we launch our Blink Network in new markets and are ramping up our sales organization for life beyond the EV Project. With our interoperability JV and our strategies for building out and monetizing this growing industry, we believe ECOtality remains at the forefront of the evolving EVSE market. With our footprint of over 10,000 installed chargers, our loyal and growing membership base and the strength of the Blink network and brand, we are well-positioned to continue to grow in 2013.

Now, before turning the call over to questions, I obviously want to take a moment to thank all of our 150-plus people, our well over 10,000 Blink network customers and hundreds of other customers in our other lines of business, for supporting us throughout the course of 2012. It was a great year of growth for the company, great turnaround year for the company, especially in the last half. We look forward to a great 2013. And I just want to thank all of those folks for their outstanding, extraordinary efforts.

Now, I'd like to turn the call back to the operator and we'll take any questions that you may have.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Philip Shen with Roth Capital.

Philip Shen - Roth Capital Partners, LLC, Research Division

So I'd like to start off with the network revenue expectations for 2013. I think you guys talked about on last call, targeting $2.5 million in '13 and you were talking about good progress and success, seeing about $40,000 a month with growth ahead as well. Is $2.5 million achievable for the year? Can you give us a sense for what your Q1 data looks like? And what's the overall rate structure that you guys have in place for the consumers?

H. Ravi Brar

Yes, why don't I start -- I'll start backwards. The current rate structure for consumers, essentially, is $1 an hour for charging on our level 2 chargers, and we have not yet begun charging on our -- for usage on our DC Fast Chargers. So when we begin charging for the DC Fast Chargers, which will be some time in the next couple of months, and when we adjust some of those price points, as I mentioned in my talk track for regional differences, I mean, $1 an hour just doesn't make sense everywhere. We'll have some natural increase just from the usage that we see today. In addition, the March numbers for EV sales were just very encouraging. I mean, they point to the potential of an annual run rate this year of approximately 100,000 EVs, and that's if you include everything from the Tesla to plug-ins like the Volt and everything in between. So there'll be a lot more drivers out there with cars charging them on a public domain in the public infrastructure. Our run rate currently, Phil, is about $500,000 a year of usage and I know that we'll grow that and we'll grow that substantially. I would say that $2.5 million in aggregate revenue by the end of the year will be a bit of a stretch. I think it's reasonable that we could go into next year with that as a run rate. But just based on the number of vehicles that are out there today and the size of the charging network, I don't know that we'll hit $2.5 million by the end of this year.

Philip Shen - Roth Capital Partners, LLC, Research Division

Okay. That's helpful. And then on Collaboratev, have you guys agreed upon the details of the revenue share? I think that was probably still at works, and if you have, can you share what they are? And then, perhaps you can talk to us about what the annual fee for being a member of Collaboratev might be, as well?

H. Ravi Brar

Yes, we're very much in the process of standing up Collaboratev as we speak. So really, none of that has been fully nailed down. The operational, I guess, our timeline for Collaboratev is that by the -- we're committed that by the end of this year, we will be interoperating and aggregating data and Collaboratev will be up and running, but it's very much a work in progress at this point.

Philip Shen - Roth Capital Partners, LLC, Research Division

Okay. And in terms of commercial charger sales, independent sales, if you will. Any -- do you have any in Q4? And then talk to us about your plan for selling units independent of the EV Project in 2013.

H. Ravi Brar

Sure. Nothing meaningful in Q4. Q4 really was all about trying to get the EV Project placements into the rearview mirror so that we can focus on selling product going forward, and I think we were successful in doing that. In Q1, we made huge strides in reorganizing and really, rebuilding the entire sales organization and beginning the process of building out an indirect channel, which I think we've mentioned in the past, is going to be the way to distribute this product. We simply cannot afford a large 50- or 25-person national sales force, so we're very aggressive about building out the indirect channel and that's what we focused on in Q1, and I think we'll see success in the balance of the year with this approach. But the focus, up until the end of last year, really had been on making sure the 13,000 plus chargers under the EV Project had a home and an install location.

Philip Shen - Roth Capital Partners, LLC, Research Division

Okay, great. And a couple of housekeeping questions, and frankly, expectations for '13. Can you talk to us about how you expect gross margins evolving in 2013, and especially as the EV Project winds down? And then secondarily, you did a good job of reducing OpEx, what do you expect -- how do you expect operating expenses to play out as we go forward? Are there more reductions or should we expect to flat line from here on out?

H. Ravi Brar

Again, kind of going backwards in answering the questions. We continue to reduce OpEx in -- as we rolled into 2013. We absolutely realize that this is a balancing act where we are balancing the wind down of the EV Project, and the cash flows that come from that project would be the wind up and the expansion and literally building another company on the foundation of the EV Project that sells Blink and Minit-Charger and eTec Labs for a living. So we are extremely mindful of OpEx. We have continued to reduce expenses. There's been some reasonable, significant overall reductions in force, so you've probably seen the Exec team, for example, coming into this year has essentially has been cut by 1/3 overall, and that kind of carries through a slightly lesser extent to the rest of the company, but we're not anywhere near as top-heavy as we were in the past. As far as expectations in '13, the goal is for some degree of year-over-year growth. But more important than that, it's really to execute changing of the mix. As those of you who follow the company know, a significant portion, 80%-plus of the company's revenue, comes from the EV Project. And this year is a pivot year where that mix is going to change dramatically, and we need it to change even more next year. In fact, by next year, it should, by '14, it should flip entirely the other way where only 20% is from the residual of the EV Project plus other ongoing government revenue activities. So we're dramatically changing the quality of the revenue in terms of concentration and at the same time, you should expect us to significantly narrow -- continue to significantly narrow the net loss that you saw that's due from '11 to '12. That trend will continue into '13, with a goal of attaining overall profitability, either by the end of '13 or the beginning of '14.

Philip Shen - Roth Capital Partners, LLC, Research Division

Great. And I asked about gross margins as well and how do you expect them to trend by quarter in 2013?

H. Ravi Brar

I don't have it by quarter for you in '13, Phil. I mean, we expect the trend -- we certainly don't expect to go back to some of the crazy negative gross margins of the past that you saw. The current level of gross margin is a reasonable one that we'll try to maintain through the course of the year and perhaps, even improve. But it is very much a balancing act. A lot of the gross margin is driven by the EV Project rolling into this year, I mean, it's sort of on a -- like a freight train. I mean, it's going to happen regardless. It's pretty much on autopilot completion at this point. So there won't be a lot of movement in gross margin in '13 from '12.


[Operator Instructions] And our next question comes from the line of Ross Silver with Vista Partners.

Ross Silver - Vista Partners LLC

Just 2 questions for you. The first is, could you just refresh what the backlog is, ex EV Project, going forward? And I think you said you anticipate $7 million in revenues for 2013. Could you give us a little more color about that, of what that backlog looks like, specifically?

H. Ravi Brar

Sure. I was speaking specifically to eTec Labs, which has various contracts that have an aggregate backlog of about $25 million. It's slightly in excess of $25 million coming into this year. That is comprised of various, essentially, vehicle and battery and other test contracts and consulting contracts, primarily with the DOE. Through the course of 2013, we expect to generate roughly $7 million, slightly north of $7 million, in revenue that is driven primarily by that backlog, as well as a couple of other projects we'll pick up through the course of the year.

Ross Silver - Vista Partners LLC

Okay. And then the second question is relating to the competitive matrix, I'm just sort of understanding kind of how you're positioned within sort of the competitive landscape. Could you talk a little bit about that, sort of from a macro level and maybe drilling down a little bit sort of the differentiators between you and some of your other competitors?

H. Ravi Brar

Yes. I mean, the primary -- first of all, I think we all know, and having followed this space for a while, that there's been a significant shakeout. I mean, there where tens of legitimate companies in the U.S. in this space and probably hundred plus sort of intenders in the space, and there's been a significant shakeout of both the little guys and the big guys over the last 2 years or so. We're obviously still here and have come out the other end of this thing successfully, and we think we'll take advantage of the uptick in EVs that we see, coming EVs and PHEVs coming as a result, and we've diversified ourselves well to insulate us from being exposed just to EVs. With that said, the other competitors that are out there and our differentiation from them, some have networks, some don't; we obviously have a network. Some offer DC Fast Charging and some don't; we offer DC Fast Charging and have a benchmark DC Fast Charging product. There are various degrees of quality, of locations, we call them A, Bs and Cs. A C is behind a big-box store in an alley that no one can ever find or see. An A is right out in front of a Walmart or a Sears or a Kroger location where everyone can see, it's prime parking, prime location, prime for advertising, really prime for everything. And we think we have a very, very high -- we know we have a very high percentage of prime real estate. And our focus, we'll forego installing something in a C, versus waiting for an A and continuing to work hard for an A. So I think we have some great locations where we placed our infrastructure and our equipment.

Ross Silver - Vista Partners LLC

And then just one other kind of follow-up question as it relates to sort of the placements of the stations themselves, or the units themself. What's sort of the mindset of a potential advertiser? Is it something where, hey, you just built this, I see [Audio Gap] and now, I need to better understand it, and then I'm going to start to spend advertising dollars? Or where do you think they are in sort of their decision-making process? I mean, I'm guessing, it's now very real to them, right? And maybe initially, they didn't think it was going to be too real but now, it's -- I mean, I'm just sort of speculating here, but just be curious to hear your thoughts.

H. Ravi Brar

Yes, advertising is very much in the proof of concept phase. So we have a couple of excellent pilots and we'll share those and we'll share the images of those because in advertising, obviously, the image or the picture is worth more than anything. So we'll share those as they come about. But it's very much in the formative experimental stages. What we need to prove, and what we are in the process of approving -- of proving, 2 retailers in general, whether it's with advertising, whether it's with the amount of time customers spend at their location and the amount of money customers spend at their location, we need to show an ROI. I mean, this is all about, at the end of the day, the ROI from attracting the customer, the ROI from the advertising, the ROI from the charge session and so forth. So the proof of concept on advertising is to get some of it out there and then measure it. Advertising is completely measurable. So then, measure it in conjunction with the host of that advertising and determine whether it was effective and determine whether it generated a return by increased awareness and increased spending by the consumer.


[Operator Instructions] And I'm showing no further questions at this time. Please continue.

H. Ravi Brar

Okay. Thanks, everyone, for joining the call. We look forward to talking to you again soon about our progress going into 2013. Thank you.


I would like, again, to remind everyone that today's call will be available for replay through April 22 starting later this evening via the link provided in today's press release, as well as available on the Investors section of the company's website. This concludes ECOtality's conference call. Thank you for your participation. You may now disconnect.

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