AXION International Holdings' CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: Axion International (AXIHQ)

Start Time: 12:00

End Time: 12:44

AXION International Holdings, Inc. (AXIH.OB)

Q2 2013 Earnings Conference Call

August 16, 2013, 12:00 PM ET

Executives

Andrew Haag - Managing Partner, IRTH Communications

Steven L. Silverman - President and CEO

Analysts

Chip Richardson - Wedbush Securities

Operator

Greetings and welcome to the AXION International Holdings Inc. 2013 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Andrew Haag, Managing Partner of IRTH Communications. Thank you, Mr. Haag. You may now begin.

Andrew Haag

Thank you, Shea. I'd like to welcome everyone to the AXION International's second quarter 2013 conference call. With us today is AXION's CEO, Steve Silverman. Don Fallon, the company's CFO is now available today, so Steve will present the financials as well. After management's statements, we will open up the call to a question-and-answer session. A replay of this conference call is available at the phone number provided on the earnings release issued on Wednesday.

Now before we get started, I'd like to take a moment to read the Safe Harbor statement regarding today's conference call. The conference call will contain forward-looking statements within the meaning of the U.S. Federal Securities laws concerning AXION International Holdings, Inc. The forward-looking statements are subject to a number of significant risks and uncertainties and actual results may differ materially. Please refer to the company's filings with the SEC which contain and identify important risks and other factors that may cause AXION's actual results to differ from those contained in these forward-looking statements. All forward-looking statements are made as of today, August 16, 2013, and AXION expressly disclaims any obligation to revise and update any forward-looking statements after the date of this conference call.

Now, I would like to turn over the call to AXION's President and CEO, Steve Silverman. Steve?

Steven L. Silverman

Thank you, Andrew. On Wednesday, we issued an earnings release announcing our results and filed our 10-Q. So listeners who may not have already done so may wish to look at those documents as we provide a summary of the results on this call.

At the end of the second quarter, we are achieving our 2013 business plan in all key areas of the business, inclusive of growing our sales pipeline and completing critical tasks that will reduce manufacturing costs as we grow our top line revenue numbers.

We reiterate our statement from the last quarter that achieving higher sales volumes coupled with being a vertically integrated manufacturer puts us on a foundation that will allow us to achieve positive earnings. And it's one thing to grow revenues but we must put the company in a position to grow revenues profitability.

During the second quarter, we made huge strides on both of these fronts. Our revenue plan was backend loaded for 2013 with major sales initiatives in our pipeline on schedule and our current backlog and sales opportunities give us a high degree of confidence that we can expect to double AXION's sales in calendar 2013 over 2012 revenues of 5.3 million. We diversified our revenue mix in the first half of 2013 and we reduced the concentration of our largest customer to 43% of sales, another goal we had set at the end of 2012.

We've made advancements towards our goal of achieving a cost basis for our rail ties that allows for an acceptable price point relative to traditional materials. This price point will drive higher unit sales volume at an acceptable margin. We are very encouraged about our direction as we anticipate reaping the benefits of our vertical integration strategy, normalized margins and the increase in market adoption of our proprietary products.

Now, I'd like to get into the specifics of our financial results and then come back to talk about market adoption of our products and our strategic direction. Revenues for the quarter ended June 30, 2013 were 1.5 million, a 16% decline from revenues of 1.8 million in the second quarter of 2012. Sales of our ECOTRAX rail ties contributed 1.2 million while STRUXURE building products accounted for the balance of the second quarter 2013 revenues.

Gross margins in the quarter of 2013 were 67,000 or 4.4% of revenues with 66% of revenues coming from sales to our Class I customer. In the second quarter of 2012, gross margins were 40,000 or 2.2% of revenues with 47% of our ECOTRAX revenues coming from our Class I customer.

Margins improved in the second quarter of 2013 as compared to same period last year, despite a heavier concentration of sales being attributable to the Class I railroad customer. Our three-year contract with this Class I rail customer gave them favorable pricing and therefore puts heavy pressure on our margins at this time.

Product development, quality management and access production capacity expenses were 351,000 and 328,000 in the second quarter of 2013 and 2012, respectively. Marketing and sales expenses increased to 256,000 in the second quarter of 2013 from 248,000 in the prior year.

General and administrative expenses declined to 766,000 in the second quarter of 2013 from 1 million in the second quarter of 2012. Loss from operations also narrowed 16% to 1.3 million in the second quarter of 2013 from 1.6 million in the same period during 2012.

We reported a net income attributable to common shareholders for the second quarter of 2013 of 3.1 million or $0.11 per basic and $0.06 per diluted share. This net income is the result of a non-cash gain of 5.1 million from the change in the fair value of derivative liabilities associated with the company's 80% convertible notes. This compares to a net loss of 2.2 million or $0.08 per basic diluted share in the second quarter of 2012.

At June 30, 2013, AXION had a cash balance of $3 million. During the second quarter of 2013, the company received 3.1 million from the conclusion of a lawsuit and these funds are being used as non-dilutive capital to fund AXION's operations and growth. For the six months period ended June 30, 2013, we had revenues of 3.3 million, a 20% decline from 4.1 million for the same period in 2012.

Revenue from the sale of our ECOTRAX rail ties was approximately 2.9 million with the remainder resulting from the sale of STRUXURE composite building products. The decline in the six-month period was due to our Class I rail customer moving more of its scheduled shipments into the second half of 2013 and this was partially offset by increased sales of ECOTRAX and STRUXURE to new customers which diversified our revenue mix.

We reduced our revenue concentration with our largest customer to 43% as compared to 63% the prior-year period. Gross margin increased to 304,000 or 9.3% of the revenues in the first six months of 2013 as compared to 51,000 or 1.1% of revenues in the same period of 2012. Higher gross margins for the six-month period of 2013 as compared to the same period in 2012 reflect the normalized revenue mix.

Product development, quality management and access production capacity expenses were 569,000 and 564,000 in the first two quarters of 2013 and 2012, respectively. Marketing and sales expenses increased to 501,000 for the first two quarters of 2013 compared to 387,000 in the corresponding period in 2012.

General and administrative expenses declined to 1.5 million in the first six months of 2013 from 1.9 million in the same period of 2012. Loss from operations narrowed 18% to 2.3 million in six months ended June 30, 2013 from 2.8 million in the first six months of 2012.

Net loss attributable to common shareholders was 4.2 million or $0.14 per basic and diluted share for the six months ended June 30, 2013 compared to a net loss attributable to common shareholders of 4 million or $0.15 per basic diluted share for the same period in 2012.

Having gone through the specific numbers, let's look at the trending in revenues and then margins. As I stated earlier, we expect to double 2013 sales over 2012 sales which were 5.3 million. In the first half of 2013, we had 3.3 million in sales. For the second half of 2013, we have 3.8 million backlog that we are scheduled to ship to our Class I customer under a three-year purchase agreement. That would put us at a $7 million revenue number for 2013 without any other sales, which would be a record number for AXION.

Our sales opportunities have increased over the quarter. Through 2015, we have sales opportunities in our pipeline totaling 71 million consisting of 79 active opportunities with 56 potential customers; 32 million of this is for ECOTRAX representing 32 sales opportunities and 39 million is for STRUXURE with 46 sales opportunities.

In the second quarter we shipped products to 17 new customers including Williamstown Mining, Superior Energy Resources, Max Environmental, and Market Solutions International. These companies are distributors who sold our STRUXURE products into the energy industry to numerous large oil and gas and mining companies in the U.S. and Canada. End users are pleased with the performance of our products compared to traditional materials and we expect to do more business with these distributors.

We also sold to five existing customers including Edmonton Light Rail Transit in Canada. We've expanded the market segments addressed by our STRUXURE building products. We continue to sell into markets for bridges, boardwalks, decking and marine systems.

In the second quarter some key infrastructure building projects were completed using STRUXURE building products including St. Lawrence County in New York for repair and restoration of the Dean Road Bridge in Clare, New York using our STRUXURE tongue and groove boards, as well as the completion of the longest 100% recycled bridge on a U.S. public highway in Logan, Ohio.

Our first Construction Mat customer, Northeast Remsco recently completed a 10-month trial of our Mat in parallel with the traditional wood mats and that performance of our product was phenomenal. After 10 months of use, our mats are ready to ship to the next construction location for further use while 80% of the traditional wood mats used in parallel were chewed up by the heavy machinery that was driving over them and they needed to be disposed of.

We've made our first sales of structure mining supports into the mining industry through Williamstown Mining and our initial customer feedback is very favorable. Our ECOTRAX market adoption continues to be strong. To-date, ECOTRAX has been purchased by three of the largest transit lines in Canada, including Edmonton, Toronto and Calgary.

In the U.S., in the second quarter, our Class I rail customer has expressed that their new higher performance ECOTRAX ties [gains] fall in the first quarter are performing extremely well while a second Class I railroad now has ECOTRAX in track testing. Globally, our rail ties continue to be tested in track or are undergoing purchase approval for leading transit systems in Australia, Brazil, Chile, Mexico, New Zealand, Russia, Singapore and throughout Europe. We expect these trials will lead to very meaningful sales contracts in the future.

Moving forward, it is important that we control our own manufacturing facilities from a quality and cost perspective. The second quarter was the first full quarter in which we had complete control over a manufacturing facility in Waco, Texas. In the past we had subcontracted to this facility. In the second quarter, we also purchased the second extrusion line that is on schedule to go live September 1 in Waco. This will allow us to run more pounds of plastic through a fixed overhead model, thus lowering our costs.

With our own facility operating two full production modules, we have the ability to backwards integrate our material supply reducing participants in the supply chain. We are carefully evaluating various other backward integration strategies that can further improve our margins and provide us more consistent pricing and supply of raw materials. We see some clear opportunities in this area that can have a very meaningful impact on our business economics and we'll keep you posted on developments on that front.

In addition to cost benefits, operating our own facility provides us with further opportunities to continually advance our quality standards. We have tightened our quality standards in metrics again this past quarter. It is a primary focus to show the marketplace that our company produces a consistent quality composite product. Extended use and testing by our customers and third party labs proves the consistency and quality of our products.

During the second quarter, we hosted numerous customers at our Waco facility inclusive of our Class I rail customer who all left very impressed with our quality standards and performance of our staff in the area. For both our ECOTRAX and STRUXURE products across industries from rail to energy to construction and building, customers are looking for products that offer reliability and strong economics as always. However, what has changed more recently is that customers across the industries we serve are favoring products that support a sustainable environment more than ever before.

At this point in time, we believe AXION is creating economics within our business through volume and vertical integration which make our products a very viable and attractive alternative to traditional materials from an economic and product performance standpoint. So we're very optimistic about our company's future.

Thank you for your time today. Now, I'd be happy to answer any questions you may have. Andrew?

Andrew Haag

Yeah, that wraps up the formal discussion with Steve. Operator, will you now open the call for Q&A. After the Q&A, we'll provide some closing comments. Operator, would you like to give the Q&A instructions again.

Question-and-Answer Session

Operator

Yes. (Operator Instructions). Our first question comes from Aaron Nelson from ROTH Capital. Please pose your question. Mr. Nelson, your line is live to ask a question. We will go to our next question. Our next question comes from Chip Richardson from Wedbush Securities.

Chip Richardson - Wedbush Securities

Hello. It sounds like you folks are making good progress. My question is, is on the wood mats versus your mats, you said 80% of those wooden mats were worn out. How does that relate to the cost differential between your product and the wood product?

Steven L. Silverman

It's a good question, Chip. Thanks for the comment. The wood mat to our product at first cost is we're in probably the two times range from an upfront cost standpoint. But when you look at a mat that was in service for 10 months and is completely destroyed, there's disposal cost involved, our products were often – they're getting transported to another job site where the contractor can reuse those mats. So, the longevity and the total lifecycle value will clearly outlast the initial upfront cost difference in the two times value. The other thing that we're looking at in the mat business and we're in conversation with some customers now about is actually a rental model and you may have noticed in our financials that our inventory levels have built a little bit during the second quarter. And most of that is around having mat inventory available for a rental pool and the rental model could be a pretty lucrative opportunity for us. Today in the heavy construction mat industry with wood that rental model doesn't exists in great extent out in the industry just because the mats typically don't last past one of the job cycles that's out there. So, we see a lot of great opportunity in this heavy duty mat industry that's out there both with pipeline contractors and just general heavy crane operators and equipment. We clearly outlast wood, we clearly offset the upfront cost difference between our product. And the other thing is our product's lighter in weight, so in transporting these things we can get more mats on a truck compared to what they do for wood. So it seems to be a pretty good market. We were pretty excited when these mats first came out, out of the ground on the first trial. They went through a heavy freefall cycle over the winter. They were in some pretty rough environment and the product came out of the ground just absolutely perfect. So, it was a good run for us there and that business continues to grow. And we shipped a few more trucks this past quarter, in the second quarter for trials up in Canada and various other regions in the country. So I think it's a very promising market for us.

Chip Richardson - Wedbush Securities

It's a fairly big market up here in Oregon given the moisture we have here in the western part of the state. Can you help me understand how your product can be so structural? I mean, I've looked at replacing my deck with plastic lumber stuff and you have to use or they suggest you use treated lumber for all the support material. Why does your material have such structural strength versus something like these things for decks?

Steven L. Silverman

Yeah. It's a great question. So there's a couple of points in the answer. The first one is, is that a traditional plastic lumber product that's used in a deck board, for example, that you find at Home Depot, Loews, et cetera, are typically made out of a, what they call a wood composite, so there is an element of wood dust or wood fiber inside the composite plastic lumber deck. Those also make for – those products are also constructed and developed for residential use, low weight applications. You won't find cars or trucks driving over that stuff.

Chip Richardson - Wedbush Securities

Which they have pointed out.

Steven L. Silverman

Our technology – what was really developed was a polymer, so we take two plastic – plastic and a plastic composite and they're combined and through the manufacturing process we're able to align fibers and do different things with temperature control that bring structural integrity, if you will, to the final product. So one of the benefits we have, Dr. Nosker, our inventor not only is a polymer chemist and scientist but he's also a mechanical engineer. So he was able to not only build a polymer composite but he was also able to do that through the manufacturing process which is really the core component that gives us the structural strength that we have in our products. So, it's a component of the materials and it's a component of the manufacturing process that gives us that structural strength. I think the other key thing is, is that our product is a 100% plastic. There are no fillers, there's no additive, there's no minerals, it's a 100% plastic composite formulation which does not allow for absorption. So even though the retail decking that you see at retail, plastic lumber, there is still an element of wood in that product. So that product ultimately over time – they've done some things to encapsulate it and do different things but ultimately that product will absorb fluids, okay, water and whatever else is spilled on it but our product won't just because it's a 100% plastic product. I hope that answers your questions.

Chip Richardson - Wedbush Securities

Yeah, it's certainly a tremendous deal up here with all the environmental awareness here it ought to really takeoff I would think.

Steven L. Silverman

Yeah.

Chip Richardson - Wedbush Securities

It's very encouraging.

Steven L. Silverman

Thank you.

Chip Richardson - Wedbush Securities

Thank you.

Operator

(Operator Instructions). Our next question comes from [Howard Shipman] who's a private investor.

Unidentified Analyst

Good morning. Thank you for the opportunity. I'm very enthusiastic about this product and I've been looking at it and watching it for a long time. Would you explain first of all why does it take these people so long to say yes when it comes to you presenting the product to newer customers? And also how do you expect to double the sales in second quarter or this second half?

Steven L. Silverman

First of all, thanks for the question and thanks for your continued support. We feel the same frustration on time. It seems to be such kind of a no-brainer product. I think the real answer to the question, what takes so long, is really there's two parts to it. One, we compete every day against wood, concrete and steel and these building products have been around for a really long time and people are very comfortable with those products, especially in the engineering world where people tend to be very, very conservative. That's number one. So, we have kind of a new technology, if you will, something revolutionary that is breaking into a very conservative type of market and I think that's reason number one. And number two, the hard fact is, is that we play in the infrastructure market unlike I think to Chip's question earlier about composite decking. That's a retail type product. We're in the infrastructure world. There's been a lot written recently unfortunately about train derailments and some of the accidents that have taken place recently and when our product fails, there's loss of life potentially. It's just a world we play in. It's an infrastructure business and it's a slow moving business. But once you get specified and standards are written about your product, it's a very lucrative, very profitable, very good business. So that's the first part of your question. The second part on the revenue side, if you reference back to my comments, today we sit at a little over 3 million in revenue through the first half. Our sales plan for 2013 unlike 2012 was very backend loaded for the reason being that as you move through time and the evolution of a company, you get better awareness and better control of your sales pipeline. So we feel very, very comfortable with the opportunities in our pipeline, the projects that are on schedule to close this year before the end of the year. That's number one. Number two, we're still on our commitment to our Class I rail customer this year. We still have almost $4 million, $3.8 million worth of revenue just to ship to that customer alone. So when you couple that with what we've already shipped, you're already at like a $7 million number for this year. And based on opportunities and – projects and opportunities that are getting ready to close before the end of the year, we feel very, very comfortable that we should be able to get to that double revenue number which takes us a little over $10 million in revenue for this year and that's kind of how we backed into the math. And when you look at the expansion of the Waco facility with the second extrusion line coming on in September 1st that will give us the horsepower that we need, if you will, down there to generate the finished goods that we need to fill those orders. So, we feel like we're in pretty good shape and being able to hit that number.

Unidentified Analyst

I appreciate it, but just one another question. The Waco facility is now your facility?

Steven L. Silverman

Yeah, we are in control and operating that facility. It's not under contract anymore. It's our employees, our quality management. We are in full operation at that facility. The beauty of that facility is that it's on a large rail spur with the major Class I railroad. It's got a slabbed, concrete 17 acre yard that gives us plenty of outside storage and the facility has plenty of electric and power in it for us to continue to turn up more extrusion lines as our demand grows. So, we're in a good position down there and obviously starting to see the benefits of that in our margins. And as we move forward, we will have a very good base down there to also vertically integrate our material supply which will improve our margins as we continue to move through time.

Unidentified Analyst

Thank you.

Steven L. Silverman

Thank you.

Operator

Thank you. Our next question comes from [Lenard Cooper] who's a private investor.

Unidentified Analyst

Thank you for this opportunity. If I was an engineer retired, I was just wondering about your material. Is it possible when it's used as flooring as you speak of and it's finished the job that AXION could take some material back and recycle it into a new product?

Steven L. Silverman

Yes, that's a big selling advantage to our product. Because our product has no fillers in it or no additives or no chemicals, we have the ability to actually buyback or take back the material and reprocess it and put it back into new finished goods. And that's becoming a bit part of our sales strategy. We're actually in conversation with some customers on potential buyback programs. When you look at the railroads, for example, they spend an exorbitant amount of money disposing of chemically treated wood of rail ties that come out of service and also concrete is very expensive to dispose of. And in our product there is no disposal cost. Actually in some cases we could actually turn that into a revenue stream for the customers. So, yes, that is a big advantage of our product.

Unidentified Analyst

Well it sounds good. Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from [Scott Powell].

Unidentified Analyst

Hi, Steve.

Steven L. Silverman

Hi, Scott. How are you?

Unidentified Analyst

Very good. How are you? Previously you have mentioned opportunities for vertical integration. Could you please comment on any current opportunities for vertical integration and also the associated benefits to AXION of such integration?

Steven L. Silverman

Yeah. It's a good question. I did mention that during the call in my comments. When you look at the financial makeup of the business, the largest percentage of our cost of goods is in raw material. And in order to get our products to a selling price level where we can make acceptable margin, it's imperative that we backwards or vertically integrate our material supply streams. The recycled industry in the United States specifically and it's different in other parts of the world that we're engaged in, but in the United States the supply chain is kind of what I would call a bit fragmented, so the material passes through numerous components in the supply chain to get it to a user like AXION whether it's through brokers, sales agents, through processors that turn it into a usable format for us. What we're working on is how do we vertically integrate that material stream where we remove components of the supply chain. And we are in various conversations today with potential partners, various other types of relationships that – I won't give a whole lot of detail on right now, but there will be hopefully some new news to follow in this area that will allow us to backwards vertically integrate our material stream where we can get it from what I call (inaudible), get it as close as we can from the curb and get it into our product without – and trying to do that under one roof and that's really the opportunity that we're working on. And sales growth and vertical integration strategies really need to move hand in hand. Look, we can grow the top line revenue in the business and we can do it tomorrow. The question is, is can we do that and do it in a profitable manner? And that's where this vertical integration piece comes into play. And we're making some big strides in that area. There's some real good opportunities there right in front of us right now that we're evaluating and we're going to make some even bigger strides going forward in this area which will align our costs and allow us to go out and sell our products, specifically our railroad type product at a competitive price to traditional materials that will significantly increase the volume opportunities that are available to us. So there is a threshold of price value relationship to, let's stay with the railroad tie for a second, that is important which means that if we can hit a certain price point, we can significantly increase the sales revenue. But as management of the company, we need to be able to do that in a profitable way. And in order to get into a profitable way, we need to work on strategies that vertically integrate our material supply. So, there's a lot of moving parts here but we need to be able to execute on both fronts and I think, at least I hope what the investor community sees at this point is that the company is making strides on both of those fronts. And to an earlier investor's comment, it's never fast enough but it is moving hand in hand and it's kind of go systematically too. We're finally getting our volume sales opportunities and revenue opportunities to a level where it made sense for us to control our own operating facility in Waco. That's was kind of step number one. Now that we've got that facility up and running, we'll have our second extruder up and running in September. Now it makes sense to start looking at how do we process our own material and again removing components of the supply chain. And then once we get that done and we get our cost basis to a comfortable level and a consistent level, of course while maintaining the quality, that will allow us to go to the marketplace and really ramp up sales opportunities because we'll be able to hit a certain price point and acceptable margin. So I hope that answers your question. I know it was a little longwinded, but I think very, very important.

Unidentified Analyst

Great. Thanks, Steve. It does. It's really exciting and interesting, so thank you very much.

Steven L. Silverman

Thank you.

Operator

Thank you. Our next question comes from Steve Kaiser who's a private investor.

Unidentified Analyst

Hi. Good morning, Steve. Congratulations to the company again on yet another great quarter. Unfortunately the CFO isn't here so I hope this will still be an easy question to fill though. Looking at your cash flow, it looks like you guys were burning just under about $2 million a quarter and you got just under $3 million of cash left on hand and that's after the $3 million in the lawsuit that you got. Just running the numbers out that it looks like you got enough cash for two more quarters. From your point of view, how does your cash flow and cash management look like and do you foresee any need to raise additional capital? And if you do, how would you do that?

Steven L. Silverman

Yeah, it's a good question. I may not have all the specific details like Don would have but I'll try and do my best. First, you got to look at it obviously on a cash basis, so I think we're running – I think there's some non-cash expense that's in that number that you're referring to on a quarterly basis. But we feel pretty good about where we are. Obviously we need some of the larger sales opportunities that we're working against to come through on schedule and that would kind of flip the company right side up, if you will. We're at that kind of critical point now where we need some of these larger contracts and the positive gross margin stuff that we're working at to come through which will obviously increase – get us to a positive cash flow situation. There's still, in addition to the 3 million that we brought in on the lawsuit, there's roughly 1.2 million, 1.3 million that's still out there from the $10 million financing that we did in 2012. So that's still left to be funded. And we started to talk a little bit about what the next steps will be assuming that the business plan continues to evolve on the capital front. So we haven't made any hard decisions there yet. I think as we get into the beginning part of next year, the end of this year, we'll start kind of taking a look at that and seeing where we need to go. But I think there's some exciting things on the business front here that's going to fix the cash flow situation and get us to a cash flow positive situation, at least on a run rate basis as we move through the back half of this year.

Operator

Thank you. Our next question comes from [David Helms] who's a private investor.

Unidentified Analyst

Hello. I was wondering how long will it take to finish out this contract with the number one railroad?

Steven L. Silverman

There's ongoing conversations with the Class I railroad but the three-year contract will fulfill the last part of it this year and heading into the beginning part of next year. And then we're in constant dialogue with them about what's kind of next. I think one of the big steps was if you remember from last quarter, we talked about the increase in performance standards, internal performance standards that we worked on in conjunction with the Class I railroad – on the railroad tie that took our mechanical properties 40% above the current [arena] standard today. We just recently finished an observation track walk that showed that those ties are performing exceptionally well in track which is a great sign for the product and the advancement of the technology. So we're very positive that there will be some expansions there, but this is something that we're working on now with the Class I railroads. So we'll hopefully have some more information to share with everybody about where we are with them in the coming quarters.

Unidentified Analyst

Thank you.

Steven L. Silverman

Thank you.

Operator

Thank you. At this time, we have no further questions. I'll turn the call back to our speakers for closing comments.

Andrew Haag

All right. Thanks a lot everyone. And Steve just one more question regarding the Class I customer. You didn't mention it in the conference call. The decrease substantially during the past six months and the revenue concentration there, do you have any comments on that and just how significant you feel that is?

Steven L. Silverman

Yeah, I think it's a big step. I mean looking at the company from the outside or from an investor perspective, one of the goals that we talked about early on was reducing our concentration with this customer and we were able to accomplish that. We got it below a 50% number. We anticipate that it will stay there. I think the bright spot about that is, is that you never want to have a big customer concentration in any business. We would tell you that even though below 50%, it's still significantly above where we want it to be. But with that said, that Class I rail contract was really the launching pad for the company and it's served us well here early on when you look at 17 new customers in the second quarter, that's a huge uptake in customer adoption. Now the next step is, is opportunities and expansion with those new customers into long-term supply agreements or annualized purchase orders similar to what we have with the TRE down in Dallas with their annual time maintenance. So when you look at the number of customers that were increasing every quarter from quarter to quarter, that's a very promising sign on number one, the quality of our product, the consistency of our product and the customer adoption of our product. Class I railroad is called the Class I railroad because no matter what we do in the railroad industry, the Class Is are the biggest and the baddest organizations there is in the railroad industry. They buy a lot of product. So their volume numbers will always be significantly higher than a transit line, let's say. But we have multiple large sales opportunities in our pipeline today that we're working against. I mean one of the other questions that came over was the length of time to close a major contract like a Class I contract. I mean it takes – the Class I contract was a 1.5, 2 years in the making and we're getting to that point now with some of these other opportunities. The other significant thing is we're in trial and testing with a second Class I railroad here in the U.S. and that's looking very promising. So there's a lot of great things that are happening and coming and I think the reduction of that concentration is a critical sign, it's a critical milestone because it shows that we've been able to add new business and new customers albeit not at the volume levels that are equal to that Class I railroad yet but we're clearly heading in that direction. And for me and I hope for everybody else, that's a real critical milestone and indicator that we're executing on what we said we were going to execute on. So, I think it's a very significant milestone.

Andrew Haag

Great. Well, congratulations with that and congratulations with better performing ties that you've delivered to that customer as well as to the industry and all the work that you and AXION are doing to deliver high quality, 100% recycled products to the infrastructure market. That wraps up our call for today. Thank you, everyone, for your participation in today's call. Any closing comments from you, Steve?

Steven L. Silverman

No. Thank you all for your time today. I know there was a little delay in having the conference call from when we put out the earnings release, but I was travelling on important company business. So I appreciate everyone's patience with that and joining us on a Friday afternoon here in the summer and we appreciate everyone's support. I mean obviously without our investors, we would not have the ability to continue down this path. So thank you very much for your time and your support.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Steven L. Silverman

Thank you.

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