Active Power's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.30.13 | About: Active Power, (ACPW)

Active Power, Inc. (NASDAQ:ACPW)

Q1 2013 Earnings Call

April 30, 2013 4:30 pm ET

Executives

J. Douglas Milner – President and Chief Executive Officer

Steven R. Fife – Chief Financial Officer and Vice President, Finance

Analysts

James McIlree – Dominick & Dominick

Carter W. Driscoll – Ascendiant Capital Markets LLC

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Operator

Good day, everyone. Thank you for participating in today’s conference call to discuss Active Power’s financial results for the First Quarter ended March 31, 2013. With us today is Mr. Doug Milner, President and Chief Executive Officer of Active Power and Steve Fife, CFO and Vice President of Finance.

Following their remarks, we will open up the call for questions. Then before the conclusion of today’s call, I’ll provide the necessary cautions regarding forward-looking statements made by management during this call. I would like to remind everyone that this call will be available for replay via Active Power’s website at www.activepower.com.

I would now like to turn the call over to President and Chief Executive Officer of Active Power; Mr. Doug Milner. Please go ahead.

J. Douglas Milner

Good afternoon everyone, and thank you for joining us today. We issued a press release earlier today announcing our results for the first quarter of 2013.

UPS sales in the first quarter increased by $7.4 million to $11.6 million compared to the first quarter of 2012, this represents 62% of total sales and it’s worth noting the magnitude of our shipments to China, which represented approximately 21% of overall sales.

Asia and in particular China is a key geography for the business and one where we will continue to make investments to leverage a rapidly expanding data center market. To that end, we announced in conjunction with today’s earnings press release that we’ve entered into a strategic distribution partnership with Digital China Information Service Company Limited, the largest IT solutions provider in China.

Before we go further I’d like to turn the call over to Steve to give us financial details about the quarter. I’ll then come back to provide more perspective on where we’re seeing positive momentum in the business and some comments on the market. Now the numbers, Steve.

Steven R. Fife

Thank you Doug, and good afternoon everyone and thanks for joining us today. Revenue totaled $18.6 million for the quarter, This was an increase of 22% sequentially and a decrease of 6% from the prior year quarter. This sequential increase came entirely from our UPS revenue, partially driven from a single fourth quarter 2012 order for which revenue was recognized in the first quarter of 2013. UPS revenue also benefited from increased shipments to China, which drove $2.3 million increase in revenue from Asia.

MIS revenue was down 14% sequentially and service revenue decreased 21% sequentially primarily due to the timing of our customers planned projects. Year-over-year UPS revenue increase $7.4 million and MIS revenue decreased $8.2 million reflecting our on-going effort to grow the core of our business. As Doug will mention later we’ve seen a near-term increase in demand across all of our MIS products and expect to see an increase in MIS revenue in the second quarter of 2013. Service revenue decreased $418,000 year-over-year due to lower professional fees associated with decreased MIS sales. We anticipate service revenue will grow with product revenue, as we expand our product portfolio and installed UPS base.

Now continuing down the income statement, gross margin this quarter was 29.6% compared to 26.8% in the first quarter of last year driven by improved margins in both products and services. The products margin benefited from the shift in our sales mix out of lower margin MIS products into higher margin UPS products.

We saw a decline in margin sequentially as fourth quarter 2012 margins of 39.5% benefited from unusually high margin deals in both UPS and MIS. The UPS margin this quarter was also adversely impacted by the geographic shift in our mix to multi tier distribution sales in Asia.

Additionally, the service margin decrease this quarter from the prior quarter due to higher material costs related to replacement parts. Looking forward, we expect our gross margin performance will be favorably supported by our continued focus on lean and continuous improvement initiatives internally and on growth of our service business externally.

Total operating expenses were $5.7 million for the quarter, down $628,000 sequentially and $677,000 versus the same quarter last year. The decrease from the fourth quarter of 2012 was due to lower bonus and sales compensation expenses and a benefit from the cancelation of stock options granted to former employees.

Additionally Q4 included $200,000 impairment charge associated with R&D and demo equipment that was no longer in service. The year-over-year decrease was primarily due to the lower payroll and benefits resulting from restructuring initiatives taken at the beginning of the third quarter of 2012, partially offset by investments in R&D related to next generation UPS product line.

Net loss for the first quarter of 2013 was $273,000 or $0.01 per share. This compares to a net loss of $418,000 or $0.02 per share in the prior quarter and a net loss of $1.1 million or $0.07 per share in the first quarter of 2012.

Adjusted EBITDA was positive $191,000 in the first quarter of 2013 compared to positive $487,000 in the fourth quarter of 2012 and negative $417,000 in the first quarter of 2012. The sequential quarterly decrease was due to the change in net loss, the impairment charge in Q4 and the lower stock compensation expenses in the first quarter that I mentioned in my operating expense remarks. The increase in adjusted EBITDA from the year-ago quarter was primarily due to a reduction in the year-over-year net loss.

We continue to be pleased with our ability to deliver positive adjusted EBITDA, which is reflective of the operating improvements we are making across the business. The press release contains details of how we calculate adjusted EBITDA.

Now turning to the balance sheet; looking at the first quarter of 2013 compared to the fourth quarter of 2012, free cash flow was positive $1.5 million compared to negative $1.6 million. This change was driven primarily by a $1.6 million decrease in inventory due to the recognition of revenue of the previously discussed larger order that moved from Q4 of 2012 to the first quarter of 2013.

Free cash flow was also positively impacted by $700, 000 decrease to deferred revenue related to the same order. These were partially offset by $900,000 increase in accounts payable. After the close of market today, we filed a universal shelf registration statement on Form S-3 with the SEC. You may recall our prior shelf registration statement expired late last year. Please refer to the associated press release we issued earlier today for further information about the shelf filing as we will not be taking any questions about it on today’s call.

I also want to remind everyone our 2013 Annual Shareholder Meeting is taking place on May 30 at 2:00 PM Central Time at Active Power’s headquarters in Austin, Texas. I encourage our shareholders to review and vote for those proposals set forth in the proxy statements.

This completes the final section of our presentation. I’d now like to turn the call back over to Doug.

J. Douglas Milner

Thank you, Steve. With the stronger operating platform now in place based on our work in 2012, we are executing against the 2013 priorities we discussed during our last call. These priorities are aimed at expanding and accelerating growth of our product line, growing our service revenue, and putting in place sales infrastructure where the greatest demand growth exists for our products.

First we expanded our market reach in Asia having signed a strategic distribution partnership with Digital China in the first quarter of 2013. Digital China Information Service Company Limited is Chinese number one IT solutions distribution and system integration firm. And, it’s a subsidiary of Digital China Holdings Limited, a $9.1 billion business in 2012. We’ve already began collaborating with Digital China on a number of key datacenter initiatives for which we expect to begin product deployments later this year. This move is part of our overall growth strategy and enables us to capitalize on a datacenter colocation market in China, forecasted to grow at a 40% compound annual growth rate through 2016 according to a March 2013 report from Datacenter Dynamics Intelligence. China is also expected to increase its national investment in cloud computing infrastructure 250%, $286 million in 2011 to $1 billion by 2016 according to IDC.

Second, we’ve seen a resurgence in demand for our modular infrastructure solutions. Orders currently in backlog include both modular IT and modular power infrastructure solutions for a variety of applications and end-users, including several large blue-chip clients.

To further strength this segment we recently announced the introduction of our redesign power house modular power system, which will deliver lower acquisition cost, faster time to deployment, and superior monitoring and analytics. This product will enable customers to better manage the physical infrastructure supporting their data centers. We believe this increase in demand coupled with the introduction of our new power house products will bring continued growth for this segment over the long-term.

Third, we increased our investment in research and development and product engineering 27% compared to the first quarter of 2012. This is consistent with our stated intend of increasing R&D spending by approximately 20% in 2013 compared to 2012. This investment reflects our drive to complete the introduction of our new CSHD 625 kVA and 750 kVA products and increase the number of new products and existing product upgrades in our engineering pipeline.

As we exit 2013, we expect to have introduced key performance upgrades to our existing products and will have another new UPS platform in development. We believe that increased investment in R&D is critical to further expanding our competitive advantage and delivering the high level of growth we expect for this business.

We continue to make steady progress on the final release of our CSHD 625 kVA and 750 kVA UPS product platform. However, we do not anticipate we will complete final system testing and regulatory certifications in time to make first commercial product shipments by the end of our second quarter as we had previously stated.

It is important to note that we do not anticipate this delay will adversely impact any scheduled customer deployments for our CSHD UPS products. Our CSHD products are in favorable media attention and industry recognition and continues to generate significant customer interest worldwide.

We are eager to see this new product perform in the field. However, we want to ensure the product is proven to meet the stringent reliability standards that we have established and that have been demonstrated through more than 150 million hours of highly reliable field run time for our existing clean source UPS platform.

We have previously stated a goal to make service at least 25% of our sales by 2015. To support this goal and effective the first of this year, we combined our field service and project management teams to create a single, global professional services group to better support our new and existing customers. Since early January we have introduced three field upgrade initiatives and are preparing to launch four new service offerings to increase our service sales.

As we have improved utilization, our service margins have improved, while we did see reduction in field project management revenue compared to the first quarter of 2012, we are confident these expansion efforts will continue to drive both top line growth and gross margin productivity gains throughout the year.

Lastly during the second quarter we made strategic organizational changes to better equip our product marketing team and to more closely align their efforts with quickly changing needs of our customers. We believe this new structure will allow us to more readily identify and capitalize on emerging market trends that can benefit from our unique value proposition of power density, reliability, and total cost of ownership. In conjunction with this move we are organizing key resources from across the organization to improve on our forecasting customer service and working capital management processes, which will become critical to us as we continue to grow into the future.

And now few comments on the market, data centers require two critical elements, power and space. Space is required not only for IT equipment, but for the power and cooling infrastructure to support that facilities, IT equipment. The constant creation and usage of data in the form of cloud computing, social and digital media, gaming, et cetera places demands on the data center that require even more power and more space to support this growth.

To address this, we expect organizations to continue to expand our datacenter facilities. To put numbers to this, nearly 98% of senior IT and finance leaders from large North American companies indicated that they plan to expand their datacenter in 2013 or 2014. 88% in Europe and 83% in the Asia-Pacific region stated the same. It’s no surprise power and space came up frequently as the reasons behind their expansion plans. This is according to results published earlier this year from an annual survey conducted by Campos Research & Analysis and commissioned by Digital Realty Trust.

As I’ve mentioned before, one of the most common challenges we hear from customers is the need to grow IT capacity while having to manage increasing power densities. To address this we deliver a value to customers that provide them with a competitive advantage they cannot get anywhere else, value that is unmatched in terms of power density, reliability and total cost of ownership.

In sum, our UPS and modular infrastructure solutions enable customers to achieve their most forward thinking datacenter designs that meet their availability, efficiency and budget goals.

Now turning to second quarter expectations, for our guidance we provide a range of expected revenue as many of our customer projects are large in dollar value and as such changes in customer needs and unforeseen customer events can affect the timing and amount of revenue recognized for a particular quarter. Based on orders we have on hand and our current PU of customer demand, we are providing revenue guidance of $19 million to $22 million for the second quarter of 2013.

Second quarter earnings per share is expected to be a loss of between $0.02 and a profit of $0.03 per share.

Now with that we’d be happy to open up the call to your questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Jim McIlree. Mr. McIlree your line is live.

James McIlree – Dominick & Dominick

Great, thank you and good afternoon.

J. Douglas Milner

Hi, Jim.

James McIlree – Dominick & Dominick

On the revenue, can you talk about what kind of mix you expect either relative to the quarter you just completed or last year, and by mix I mean, UPS versus MIS mostly, I’m just trying to get kind of a ballpark-ish, where you think that mixes going to be?

Steven R. Fife

No, this is where we try our best to make your life miserable. As I opened the call, I mentioned that 62% of our sales in Q1 were derived from UPS sales. Service is nominally running around 20% of our revenue generally speaking and so you very quickly get a feel for the magnitude of our MIS business. I would not be surprised to see that mix come close to reversing in Q2, and that’s just based on as the backlog moves through our system. I also said in my comments that we have seen resurgence in demand for our MIS products. And not just for our power products, but for the IT solutions that we build as well.

And so for modeling purposes, I would that we’re going to move around a little bit as we get through the year very heavily weighted in the first quarter to UPS, more heavily weighted in the second quarter to the modular infrastructure products.

James McIlree – Dominick & Dominick

And when you talk reverse, you were talking about reversing the UPS and MIS.

J. Douglas Milner

Yes.

James McIlree – Dominick & Dominick

Okay, what kind of gross margin implication does that have.

J. Douglas Milner

Hardly enough for this year because we have increased mix of UPS sales that go through multi tier distribution particularly international multi tier distribution. We don’t see as much of a difference in gross margins between the two segments moving forward, and so it really does just boil down to the size of the deals that we’re working on, and the timing of when they shift. We don’t expect a big adverse impact on gross margins in Q2 just because we’re having a mixed shift.

James McIlree – Dominick & Dominick

And, when you referred to an adverse gross margin impact you’re comparing the Q2 margins to the Q1 margins, I’m assuming.

J. Douglas Milner

Well, really what I am referring to historically when we had a quarter that was heavily dominated by modular products our gross margins had an adverse impact because we generally earned lower margins on those products. We’ve worked over the past year to improve the margins on those products, and so just because you have a mixed shift doesn’t necessarily lead you to the assumption that we’re going to have an adverse gross margin impact, and yes, compared to what we did in the last quarter.

James McIlree – Dominick & Dominick

Okay, on just one more then I get back in line, you referred to the new products not being ready for an end of Q2 release. Then you said that but that’s not going to affect deliveries I’m trying to reconcile how that can be.

Steven R. Fife

Well, because there is quite a delay between when you shift product and when its actually implemented on the customer side, when it’s installed and goes live on the customer site and just because we won’t be ready to make first commercial shipments on June 30, doesn’t mean we’re going to delay deployments of products that are scheduled to be installed and started up later in the year. So that’s what we mean by that. Hopefully that made sense.

James McIlree – Dominick & Dominick

Yeah, that made sense that made sense and so it’s sounds like you got enough of confidence level surrounding the product that, you’re just regarding it kind of, I call it a typical delays that we see with new products.

Steven R. Fife

Yes.

James McIlree – Dominick & Dominick

So major technological issue or customer issue or supply chain issue or regulatory issue, it’s just more along the lines of making sure, it’s perfect and beautiful before you ship it.

Steven R. Fife

That’s correct.

James McIlree – Dominick & Dominick

Okay, great thanks a lot.

Operator

Our next question comes from Carter Driscoll. Mr. Driscoll, your line is live.

Carter W. Driscoll – Ascendiant Capital Markets LLC

Good afternoon guys, some of you could just may be elaborate or given us your view point on the competitive situation in China where you stack up obviously, you signed a nice agreement with your partner, and just help us understand typically, you get a lot of domestic suppliers that on often the parents and those of us over here. So, any type of light you could shed on where you feel you stand currently with the Apple?

J. Douglas Milner

Yeah, that’s a great question and so I would break the competitors into three categories in China. Category number one; would be local companies that manufacture for local consumption. Category two; would be the big international UPS brands that manufacture their products in China and elsewhere in the world.

And then the third category would be that group of UPS suppliers plus the rest first quarter of 2013 the UPS market that manufacture their products outside of China and import them into China. We don’t generally compete with the first group, which are the locally manufactured products for local consumption. Our customers are top tier co-location providers that are providing really large scale hosting resources for multinational corporations that are doing business in China and in many cases part of either organically part of other companies or affiliated with other companies that are in the datacenter business elsewhere in the world. And the result of that is that they have standardized on a specification for a UPS product or even have arrived at a shortlist of approved suppliers for UPS products for those datacenters. And so the names that we compete within China are very similar to the names that we compete with elsewhere in the world, particularly in the U.S.

Because we manufacture our products present in Austin and import them into China we have a cost disadvantage associated with that and so we tend to be on a purchase price basis at a premium compared to manufacturers of UPS products that manufacture them in China. So for the big international UPS companies that have local manufacturing facilities in China and that versus those companies we tend to be at an initial purchase price premium. Interestingly enough when you put in, take into consideration the fact that our products are electrically more efficient, take up less physical space, which is very important in the Chinese market and also don’t require the replacement or maintenance or handling or cooling of batteries, our total cost of ownership, value proposition and our selling argument holds up even with those premiums. So I’d say we find ourselves in the same situation that we find ourselves in other parts of the world, perhaps a little bit more severe because we don’t have localized assembly of any portion of the UPS. But the success we’ve seen with our products is because our value proposition still holds up.

Carter W. Driscoll – Ascendiant Capital Markets LLC

Okay with that. Maybe talk about the deal size that you’re initially finding in China versus other geographies, is it larger and I’m assuming it is and then if so, what impact that has your margins there? Obviously you already have a bit of a margin impact of manufacturing in Austin, but you kind of trend to help us as we build our expectations in for growth in China, what that may or may not do your gross margins?

J. Douglas Milner

Yeah, the deal size really depends on the type of customer and we’ve encountered all types of customers. So we’ve sold just a couple of systems doing enterprise datacenter for one example and then the co-location data center deals tend to be about the same size as they are here and maybe a little bit bigger than they are in Europe. And so, the customers have similar scale. We are going to, since we are going through multi-tier distribution. In China, our margins are going to be somewhat lower, because there we’ve got basically provide margin for that channel. But we also are much more efficient on the back end of selling and support because we have such a large partner in China.

From overall net impact, I think there will be some, I don’t think it’s going to be remarkable, but our gross margins will be noticeably lower. I think our spending to support that market from an overhead perspective will also be noticeably lower because of the type of partner that we have there.

Carter W. Driscoll – Ascendiant Capital Markets LLC

And then…

J. Douglas Milner

We haven’t been selling through this multi tier distribution partner long enough to really what I would say reliably quantify with that, with the mix impact of that margin or price difference is going to be, but its’ going to be there.

Carter W. Driscoll – Ascendiant Capital Markets LLC

Just two questions on agreement itself, maybe I can see is, I think you mentioned that there is some opportunity for them to sell outside of the Chinese markets within other countries in APAC and maybe you can discuss where they had success in some of those countries, and then is just an exclusive agreement or could they potentially be a distributor for one of the competitors.

J. Douglas Milner

I think it’s not exclusive to us, they were well established IT system integrator and distributor and they do have access to and they have relationships with other UPS manufactures. So I think the difference is that we\re unique in our value propositions stands on its own. The answer to the question of do they have reached outside of China? Yeah, they’ve got very well established presence outside of China and, yes, we have seen early succession in Taiwan and in Thailand, and so we have seen the influence that their reseller network and their boots on-the-ground have on projects outside of China and we’ve already gotten some early traction within there.

Carter W. Driscoll – Ascendiant Capital Markets LLC

All right. Thanks Douglas. I’ll go back in the queue.

J. Douglas Milner

Thank you.

Operator

Next question comes from Jeff Osborne. Mr. Osborne, your line is live.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Great. Thank you. Most of my questions have been answered, but I just want to follow-up on the 625 kVA and 750 kVA product cycle. I know you’ve said it delayed past June 30. Is it fair to say that will come out in the third quarter at this point, and if so, can you categorize kind of what the pent-up demand is for that product given some of the press that you’ve received?

J. Douglas Milner

Yeah. When I said we can’t wait to see this product perform in the field, I probably, I can’t overstate that. Yeah, it will ship in the third quarter, I mean based on where we stand now we feel that we can ramp everything up that we need to and ship the product in the third quarter. We’ve quoted over 400 systems already in the field and interesting even though the early applications for the product are largely centered in China and the ones where we’re going to get the first traction are really already have the first orders are going to be in China. We’re still seeing 50% of the interest in the product and I measure interest by customers that have asked us to quote a system to them coming out of North America.

The other thing it’s interesting that we’ve seen as we have rolled this product out into the market, introduced with the customers is that the number of enterprise data centers or the percentage of customers that are enterprise data center in nature, the interest is much higher, a much higher percentage of the interest in this product than it is in our series 300. And so, we’re very excited about the fact that not only do we think it’s a great product and we’re getting lots of interest with colocation companies. It seems that we have opened some doors in the enterprise data center market as well. And no one wants their product out there shipping more than our tier right now.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Understand that, interest versus the 300 is that just really due to the cost, cost performance. The total cost of ownership value proposition versus the premium you will price that in the past for traditional solutions or is it nothing else.

J. Douglas Milner

I think it’s two things I think out-of-box price is more competitive when it’s compared to conventional legacy UPS systems. But the other ring I remember is that the benefit, one of the other benefits of the CSHD product is that there is an option to add batteries, if you want a built-in suspenders or liability solution and additional run time, and that’s very unique. And so I think it’s both of those. I think it’s an attractive out-of-the box price, coupled with the fact that you’ve got really all kinds of flexibility down the road in terms of energy storage strategy.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Understand. So some heavy weight obviously exciting about this new products it sounds like there was good chunk of it here in North America, which has a positive impact on margins.

J. Douglas Milner

Correct.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

So is it fair say to that, given that the, limited visibility you have for the second half. But you would think that the margin cadence trajectory would be better in the second half of the year as you get some of the leverage on the service organization, you get the new product cycle or as you introduce this product is there kind of some teething pains where you might have a margin hit. Initially I’m just trying to get a sense of, I know you’re not giving guidance for the third quarter, but how do we think about the back half of year given all the moving pieces with the new partner and new product cycle et cetera?

J. Douglas Milner

Yeah, that’s a tough one looking at the crystal ball and forecast right now. I can tell you that we do have birthing pains with the new product that are cost related, but I’ll also tell you that we have in hand a very detailed cost reduction roadmap that we’re executing on right now and I don’t know if I mentioned this on a previous call, but we established in the fourth quarter a sustaining engineering team who really 80% of their comeback mission is to reduce cost of existing products, the products we’re putting into the pipeline. So we’re going to see some cost issues which then margins will improve as we get closure to the end of the year because we’ll taking cost out of the 750 kVA product and taking cost out or the existing 300 kVA product. We think that margins will improve as we get into the latter part of the year because we’re going to grow service as well. So I think that’s the best I can do in terms of kind of looking into the crystal ball and telling you how margins are going to move around.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

I understand. I appreciate that. And just a few quick ones here for Steve, what was CapEx in the quarter and what would your expectation be for the year? And then I have one follow-up after that.

Steven R. Fife

So for the year we’re still expecting that to be less than $2 million and for the quarter it was just over $200,000.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

I know in your prepared remarks Steve you said you won’t talk about the shelf, but maybe just tangential to that, is there kind of a limited cash balance that some of your customers or your distributor partners want you to have as a company, obviously you have been kind of hovering around this kind of break-even point for a while here, and have a lot of promise looking forward with this product cycle, but I was just curious, if they kind of refilling of the shelf had anything to do with customer driven or is it just to give you kind of just standard flexibility that you might need future for working capital and other purposes.

Steven R. Fife

Yeah, it’s just really for the flexibility, we haven’t had any customer specific requirement and post on as we even frankly discuss with us, right now we are comfortable with our working capital and cash liquidity position. We still have capacity on our existing debt facility, and we think that coupled with the current liquidity that we have will be adequate here in the short term.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

That’s what I thought I just wanted to double check, thank you.

Steven R. Fife

You bet.

Operator

This concludes our question-and-answer session. I will now like to turn the call back to Mr. Milner.

J. Douglas Milner

Thank you for being on our call this afternoon on behalf of the entire senior management team, our employees, and our board, I would like to express our appreciation for your interest in Active Power. Thanks for your continued support and look forward to speaking with you again next quarter. Over to you, operator?

Operator

Before we end today's call, I would like to take a moment to read the Company's Safe Harbor statement. On this call the company’s management made forward-looking statements that involve risks and uncertainties including statements relating to anticipating field product deployment later this year, plans to leverage our products to build on the steady growth of our CleanSource UPS and CleanSource High Density UPS. Product lines accelerating the growth of our modular infrastructure solutions our belief that these highly differentiated product coupled with rapidly expanding data center market place us in a favorable position to compete and to grow the business profitably. Our revenue and earnings per share guidance for the second quarter of 2013 and our expected changes in cash and investments in the second the quarter.

Any forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Factors that could cause the actual results to differ materially from the results predicted include, among others, our dependence on our relationships with Hewlett-Packard, Caterpillar, and other original equipment manufacturers, OEM, other strategic IT partners, and our distributors including Digital China Information Service Company; our increased emphasis on larger and more complex system solutions; the success of our product deployment efforts and our ability to manufacture and deliver products in a timely manner; the level of acceptance of our current and future products in the market; the deferral or cancellation of sales commitments as a result of general economic conditions or uncertainty; risks related to our international operations; and product performance and quality issues.

For more information on the risk factors that could cause actual results to differ from these forward looking statements, please refer to Active Power filings with the Securities and Exchange Commission, including it’s annual report on Form 10-K for the year ended December 31, 2012, it’s quarterly reports on Form 10-Q, and its Current Reports on Form 8-K filed since then. Active Power assumes no obligation to update any forward-looking statements or information which are in effect as of their respective dates.

This now conclude today’s conference. Thank you for joining us. You may now disconnect.

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