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Altair Nanotechnologies (NASDAQ:ALTI)

Q1 2013 Earnings Call

May 15, 2013 11:00 am ET

Executives

Thomas Laughran

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, Inc., Q1 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Mr. Tom Laughran. Please go ahead.

Thomas Laughran

Thank you. Good morning, everyone. I have 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 is the company's Chief Executive Officer, Mr. Alex Lee; and the company's Chief Financial Officer, Stephen Huang.

I'll now turn the call over to Alex Lee. Sir?

Alexander S. Lee

Thanks, Tom, and welcome to the call. We just had our year end call about 1.5 months ago, so before I begin with the first quarter results, I'd like to go over a few points from our last call.

As many of you know, 2012 was, in many respects, a foundational year for us. Albert Zou and I joined the management team back in April 2012, and of course, there were many transition issues related to that.

We launched our operations in China and entered into an economic development deal with the cities of Wu'an and Handan, and we did this as a company because we felt that would provide a significant measure of financial stability for us. As everyone knows, any company that's dealing with early-stage technologies often faces what they call the chasm, that's very difficult for many technology companies to cross and we felt it important to try to secure an insurance policy for ourselves. And the land deals that we ended up entering into in 2012 were very helpful in providing that financial stability for us.

Under the deal that we signed back in April, we acquired land-use rights for over 60 acres of land, which has an appraised value of approximately $32 million. We also struck a deal worth over $6 million for EV buses with the city of Wu'an. And very importantly, we demonstrated our commitment to the U.S. operations by allocating nearly 1/3 of the funds originally allocated to our China plan back to the U.S. This means that more than half of the Canon investment of $57.5 million was actually allocated to the U.S. operations. And this is a key point that often gets lost in the shuffle.

Many investors have asked me about the China plan and often think that, that plan is to replace the U.S. operations and so forth. Please make no mistake, the U.S. operation is critical to our success and I think the funding commitments that we've made as a company to the U.S. operations demonstrates that.

Of course, we also took the opportunity last year to address some real challenges here in the U.S. Our historic spending was very high and we implemented measures to reduce costs across the board. We implemented measures to rightsize our organization in the U.S. and it's important to note that, irrespective of the China plan, we would have implemented these cost-reduction measures, simply put, because we had to.

We also focused on our customer deliverables to generate much-needed revenue and built 5 grid-scale energy storage systems last year for customers in Hawaii, which was for the Hawai'i Natural Energy Institute; also in Denmark, for a company called Vestas; in Puerto Rico, for TSK Solar; and a system in New Jersey for Energy Storage Holdings.

3 of the 5 systems that were built in 2012 are now in operation. Of course, we advanced our discussions over the year with key customers and, lastly, worked very hard to commercialize our technology. Our success with the 2-megawatt ALTI Advantage is proof positive of that.

Now with that foundation in place, we believe that 2013 will be a pivotal year. During the first quarter of this year, we had $1.9 million in revenue. In addition, we had approximately $7.0 [ph] million in deferred revenue on our books as of March 31, a meaningful portion of which we hope to recognize this year. We commenced deliveries to Proterra under our May 2012 contract and we have deliveries scheduled through the end of this year.

As I mentioned before, we have a 4 million -- sorry, we have a EV bus order, which I mentioned before, but we have a $4 million balance due under that order, which we anticipate being paid some time in late Q2 or the beginning of Q3.

We have a new HNEI order, which is our third order from the Hawai'i Natural Energy Institute, which we hope to deliver at the end of this year. However, this may be a 2014 installation. This is something that we're currently in discussions with our customer.

We continue to gain traction with some of our largest industrial customers and have commenced deliveries of the PowerRack and other systems for commercial review.

All in all, if we add just a few of these items together, 2013 may be our best year-to-date from a revenue perspective, and I haven't even discussed some of the new opportunities that we are working on, which we're making some great progress on.

Turning to the cost side of things. During the first quarter of this year, we reduced our monthly operating expenses by 33% as compared to the same period last year. Our average monthly operating expense this first quarter was about $1 million versus $1.6 million per month during the same period last year.

In March, we implemented additional cost-reduction measures, which will save approximately $200,000 per month once the measures are fully implemented. And we continue to look for ways to reduce costs while allowing our company to operate efficiently.

We also prepared for the transfer of our LTO manufacturing equipment to our subsidiary, Northern Altair, which is actually scheduled for shipment today. And as you know, our goal is to aggregate our cell manufacturing with some of our ESS assembly in China in order to reduce our costs and delivery times, which would end up in a more competitive pricing to our customers. So cost reduction is not only in our operating expenses but also in the cost of our products.

We continue our efforts to sell our Reno facility in order to reduce our footprint and have several interested parties. On that note, our plan is to lease back a much smaller portion of building in Reno and basically reduce cost through that fashion.

Lastly, on the technology side of things for 2013, it's very clear that our new 2-megawatt ESS Advantage product is something that the team is very proud of. It's working great and not only reduces our cost but it reduces the cost and footprint of our multi-megawatt systems for our customers.

As you may recall, our original product was contained in a 53-foot cargo container. It is now housed within a 40-foot container. And the old system was approximately 1.2 megawatts, the new system is 2 megawatts. So we've definitely reduced cost and footprint and made it a much more competitive product.

With respect to our LTO technologies, our R&D and cell engineering teams have continued to make advances in our cell chemistry and cell designs. We are working on 2 different next-gen products, which will further boost our energy density, cycle life and high-temperature performance, which in turn will further differentiate us from our competitors.

And with our key customers, we are developing some unique commercial product applications that really can only work with a battery like ours. Although the market is largely focused on high-energy density batteries because of the EV market, we firmly believe that high-powered batteries will have their day and the key for us right now is to unlock and harvest that value.

In summary, 2012 was a foundational year. We layered in a lot of the groundwork to position ourselves and survive in what is otherwise a very difficult market. We're expanding into the China market and made significant progress in ramping up our operations. And on the business development front, we've made great progress as well. In fact, we are now engaged in the process to develop some interesting products out there. And given the size of the customers and the size of the opportunity, any one of these customers could help us generate the much-needed volume that we need not only to ramp up revenue, but to reduce our costs across the board.

We have shown our commitment to the U.S. operation through this past year. As I mentioned earlier, over half of the Canon investment has already been allocated to fund the U.S. operations and that's a pretty meaningful statement.

2013 is shaping up to be a banner year for the company from both a cost and revenue perspective and we remain very optimistic despite some very challenging -- very large challenges in a difficult market here. The battery industry, as you know, is facing a lot of difficulty but a key differentiating point is that we are not a cell manufacturer like other companies such as A123. This allows us to have a much different cost footprint than those companies and we are definitely leveraging our system and integration capabilities to access new market opportunities.

So with that said, I'd like to turn the discussion over to Stephen Huang, who will report the financial results for the first quarter.

Stephen B. Huang

Thanks, Alex, and good morning to everyone. For the first quarter ended March 31, 2013, revenues were $1.9 million compared to the first quarter of 2012 revenues of $257,000. Gross loss was $313,000 in the first quarter of 2013 compared to $163,000 in the first quarter of 2012.

Operating expenses were $3.2 million in the first quarter of 2013 compared to $4.8 million for the same period in 2012. The net loss for the first quarter of 2013 was $3.4 million or $0.29 per share compared to a net loss of $4.9 million or $0.42 per share for the same period in 2012.

The basic and diluted weighted average shares outstanding for the first quarter of 2013 remained constant at 11.6 million compared to the same period in 2012.

Revenues were increased by $1.6 million in the first quarter of 2013, primarily due to revenue recognized for the sale of 1 ALTI-ESS Advantage system sold to Vestas Wind Systems.

Gross loss was increased by $150,000 in the first quarter of 2013, primarily due to inventory cost adjustments and the launching of our new electric grid product.

Operating expenses were decreased by $1.6 million during the 3 months ending March 31, 2013, compared to the 3 months ending March 31, 2012. This decrease was primarily due to planned reductions achieved and accounted for in research and development, sales and marketing and general and administrative departments in the first quarter of 2013.

Net loss was decreased by $1.4 million in the first quarter of 2013, primarily due to overall decreases in operating expenses.

Altair's cash and cash equivalents decreased by $1.4 million from $12.4 million as of December 31, 2012, to $10.9 million as of March 31, 2013. The net decrease of $1.4 million resulted from the net loss of $3.4 million, mainly offset by a reduction in deferred contract costs of $1.7 million due to completing 2 projects.

Changes to cash included receipts related to closing 2 projects during the quarter for our ALTI-ESS Advantage product. The closed project included a completed contract with Vestas Wind Systems and a leased system to Energy Storage Systems. Altair received $2.7 million in customer receipts during the quarter ended March 31, 2013.

Our overall cash position, including restricted and long-term restricted classifications, was $28.8 million as of March 31, 2013.

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

Alexander S. Lee

Thanks, Stephen. Well given that we had a call not too long ago, I'd like to just turn it over to questions pretty quickly, so that way we have enough time to address the investors' questions and comments. Tom?

Thomas Laughran

Ellie, we're ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Patrick Lassard [ph], a private investor.

Unknown Shareholder

I was wondering, if you guys were to receive a large contract from one of these companies that you're doing business with right now, how long would it take to ramp up production and at what volume?

Alexander S. Lee

Well in terms of -- there are a couple of different pieces to the ramp-up issue. One is cell production. So certainly, we work with cell suppliers because we're not a cell manufacturer. So the constant balancing act that we have to do is work with our internal sales team to really measure their pipeline and what the probabilities are -- of orders are. We don't want to necessarily buy too many cells to put into inventory and increase our cost. So we have to make some educated judgments about that. With respect to the cell manufacturing side, we have significant capacity there. The issue, fundamentally, though, is just a timing issue. There's just a lead time with orders. With respect to the assembly of modules, we maintain our manufacturing capability in Anderson, Indiana. That was important for us, not only to have that capacity in general but also because it's going to be an important feature to a lot of our U.S.-based customers. Then, with respect to moving up to the ESS large energy systems -- storage systems level, we also have that capacity in the U.S. And what we're in parallel doing is bringing online manufacturing capabilities in China to basically deal with the module level and also the ESS-assembly level. A lot of that production we anticipate will be focused on the China market, although there may be opportunities to utilize those products that are built in China for international consumption. With respect to -- I skipped a step here. And with respect to the LTO manufacturing, that is the base ingredient that we use to build the anode of our battery cells. It's where our core IP is. The lithium titanate production is in process with respect to moving to China. So I'm sitting here in the Reno facility and, as we speak, we're packing up the equipment and it's actually shipping out the door today. We have a lot of inventory of LTO. So with respect to our anticipated sales for the foreseeable future, we have plenty of LTO to cover that. So during the transition and ramping up of the facility, we're okay. Long story short, we are constantly managing that issue with respect to what our sales pipeline is and then the capacity issue. And ultimately, we have to manage it very well in order not to increase our costs because cost is a very big issue for us right now. So we are, in our sales discussions, always teeing things up in a way that gives us adequate lead time to address those capacity issues, if any. And so far we've been managing it effectively.

Unknown Shareholder

Could you also touch on your relationship with EnerDel? Has there been any more updates with them? Has there been any fruits from their -- your relationship with them?

Alexander S. Lee

Well to-date, there's been business development activity. There's been certainly a number of meetings between our teams. We've been trying to feed each other opportunities. The basic concept of that relationship was that our technologies are quite different. They have products that are focused more on the energy density side of the equation and higher energy density batteries are typically best used for applications such as longer-term energy storage or for electric vehicles, where range is important. On our side, we have the high-powered battery, which is great for situations where you need rapid charging or for the grid, where you need the fast charge-discharge capabilities. So we're kind of pursuing different market segments and our technologies reflect that. So the goal was really to act as each others' sales forces. So if we saw an opportunity that fit their technology better, that we would feed that opportunity over and vice versa. To-date, we haven't closed any deals under that agreement but we continue to stay in touch with them and feed each other opportunities as they come up.

Operator

[Operator Instructions]

Alexander S. Lee

And just to follow up on that last question about EnerDel, certainly for a company of our size, one of the important features is to partner up with companies in order to help feed our sales pipeline. So increasingly we'll be working with strategic partners. That helps us to reduce our costs but it also gives us a greater leverage into the market. Certainly larger companies would be able to open some doors better than we could. And in large part, that's why the Shenhua, which is a very large mining company in China, why the Shenhua relationship was very important to us. It's one of the larger companies in the industry. It's a state-owned company in China. They clearly have broad access to a market that we would otherwise not have. So a key part of our strategy is to identify more partnerships like that and to work through those companies in order to increase our sales.

Operator

Our next question comes from Robert Cousins [ph], a private investor.

Unknown Shareholder

I'm a long-time investor with this company and I'd like to maybe speak about press releases and information that is put out by Altair. When I first bought into this company it seemed like they had press releases about every day or every week or something like that. A lot. And then it went to, after all the turmoil and everything, it went -- press releases really went to 0, which they seem to be still 0 for the most part. So the stock price just languishes. And with all the nice things that you're saying today about progress, I was wondering if you are considering maybe making more press releases, of course, of significance? And I'm just wondering why the company is so quiet now? And if you really want the stock price to go forward here, I really think you need to let the stockholders have a little more information and the markets. Could you address that, please?

Alexander S. Lee

Sure. That's a great question and it's certainly a fundamental issue for the company. I think like you, I'm a -- I've been involved with the company for quite sometime. I was actually -- as you probably know, I started my relationship with Altair as a customer back in the 2007 timeframe. The investor in the company I was working at, at the time also was an investor in Altair. That company, Al Yousuf, LLC, has invested $50 million into Altair. So I've experienced a lot of the ups and downs in the company over the years. So coming into the situation back in April 2012, when I joined the company as an employee, one of the biggest things that I was worried about was the credibility issue. I knew that the company at one point in time had issued a lot of press releases and certainly, back then, there was a lot of, I guess, frothiness or excitement in the industry because that's back when the EV industry was being viewed as the next big thing and certainly, batteries were going to be a huge part of that. There was a lot of excitement. And then with the financial crisis, certainly a lot of things stumbled. And as we've seen, the EV industry and also the battery industry have had a lot of setbacks. If we look back -- and of course, hindsight is 20/20, we see a lot of companies that certainly made a lot of noise but didn't necessarily delivered during that period. So coming into the company in April, I wanted to make sure that we as a company rebuilt that credibility. So it was very important to me that our team really kind of hunker down and focus on the various deliverables that we have with our customers. We had a number of great deals that we were working on and the good news is that the company executed on those orders and basically delivered things, made customers very happy. A number of customers were actually quite surprised with the performance of our system because they didn't expect it to do as much as it actually did. So certainly going into 2013, one of the things that we want to do is become a lot more noisy and certainly beat on our chest a little bit and show all the good things that we've done. One of the challenges though, that we do have is that, unfortunately, as we step into some of these different deals -- and certainly this was the case with a number of our contracts last year, they have these non-disclosure portions of the contract, which preclude us from issuing a lot of press releases and doing certain things without the consent of our customer or partner. As a result that certainly made 2012 challenging from a PR perspective. But as we are entering into new agreements with different customers the key component that we're focused on is the ability to at least issue some press releases about the relationship and/or the project that we're working on. So to your point, we are very focused on working with new customers and developing methods to allow us to talk about them publicly, to do joint press releases, to maybe work at conferences together and so forth. Then separate from all that, from an investor relations standpoint, there's no doubt that we've been way too quiet as a company and there's no point in us doing a lot of great things if nobody knows about it. So with Tom, who's on the call right now -- he works at FleishmanHillard, which is one of the top PR firms and IR firms in the country, we will be engaging in activities to ramp up our investor relations. We started that process back in December, where we started a -- basically had our first investor/media tour. It was probably the first one that we had in a long, long time. So our intention is to do that on a quarterly basis and certainly talk about the great things that we're doing and show people that we can execute. We can make things happen, we have been delivering and our technology really is something unique and it's not just an idea on a napkin or in some business plan, it's -- this is actually in commercial operation and it really can change the dynamics in, for instance, wind integration, solar integration and, certainly, it works great for frequency regulation. So yes, to everything you said. We will make a lot more noise and let the public know what's happening.

Unknown Shareholder

Yes, I just like the information in your introduction on this call. If some of that would have been put out a little bit ahead of time, I think the -- and of course, if you talk about it, it's apparently okay to talk about it. But some of that information, I think should have been put out in press releases. I'd hate to see the stock reverse split again and I think the very best thing you guys can do is be a little bit more -- with your information, bring it out on press releases.

Alexander S. Lee

You raise great points and they're well-taken on our part. We will definitely take you up on that.

Operator

[Operator Instructions] And I'm showing a question from Hua Yev [ph], private investor.

Unknown Shareholder

I am also a long-term investor in Altair Nano, I believe, from 2006, 2007, approximately. Following up on the need, I was wondering if the principles at Altair Nano would be focusing more on anode safer battery? As what is the core value of the company is, is the nanotechnology. And also, the name Altair has some connotations with alternative, which is alternative energy. So along the line of PR and trying to get the company in the front -- forefront of media, press release and stuff like that, I wonder, if I made those names available to the company, nanosaferbattery.com [ph] and alternative.com [ph], would the company be willing to do that, to take those names? Because I own those -- those are very good possibilities to PR the company, to expose the company on the Internet. So I would be willing to make those names available if the company was willing to pick them up.

Alexander S. Lee

I mean, that's certainly something we can discuss off-line. We're certainly open to new marketing approaches and so forth because that's going to be critical for the company. So certainly, after the call, we'd be happy to talk to you about your ideas for marketing.

Operator

I'd now like to turn the conference back over to Alex for any closing remarks.

Alexander S. Lee

Okay, well thank you very much. Just in summary, I do understand the investors' perspective here. I've certainly worked with one of the investors in this company for quite sometime. This company does have a unique technology and our critical goal here is to unlock the value there. The company has worked very hard over the years to develop a lot of commercial applications for the product. We're seeing great success with companies like Proterra, who have been using our batteries for quite a few years with no issues whatsoever and they're gaining traction in the market. They've been rapid charging these batteries and using these on a daily basis in transit buses, which are a very heavy-duty application. We've built systems for AES, and now for HNEI, Vestas, a number of interesting companies and are moving increasingly into the renewable energy space, which is a very important part of our future.

One of the interesting things that we're seeing with our technology is not only that it's great for frequency regulation but that this battery, placed onto a weak grid, for example, could have interesting multiplier effects and really contribute to grid stability. So as we launch into the China market and other markets, we think the whole notion of integration from the renewables and this grid stability piece is going to be an important part of our growth.

So all in all, the company has been doing a very good job under some difficult circumstances because the market is not helping us here. The battery industry in the U.S. has been attacked from a lot of different directions but we've retained our focus. We've been expanding into new markets. We've been opening up new opportunities and, as I said before, 2013, I think, really, will be a banner year for the company and I think it will be a great step-up from our performance in the past from a financial perspective and, certainly, will position us very well into the future.

So I thank you for all of your support and certainly, for you long-time investors, I really do appreciate your persistence and we will do everything we can to grow the company, grow our revenues and certainly boost the performance of the stock because we do have value here that we need to demonstrate to the public and harvest something out of it.

So thanks again to everyone. And certainly, please do contact us if you have any questions or concerns in the future and we do appreciate your support. Thank you.

Operator

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.

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