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Executives

Robert Kanode - President & Chief Executive Officer

Ross Goolsby - Chief Financial Officer

Pierre Dubois - Investor Relations

Analysts

Ed Einboden - Wm Smith & Co.

Bob Ecinder - Garden State Securities

John Schroepfer - UBS Financial

Jon Hickman - MDB Capital

Robert McCourt - Unidentified Company

Peter Ottmar - Dover Capital Partners

Bern Schwartz - Unidentified Company

Brent Nicolasian - Unidentified Company

Valence Technology Inc. (VLNC) F3Q10 Earnings Call February 9, 2010 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the third quarter 2010Valence Technology earnings conference call. My name is Michelle and I will be your operator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s conference Mr. Pierre Dubois, Investor Relations; please proceed.

Pierre Dubois

Good afternoon and thank you for joining the Valence Technology third quarter fiscal year 2010 conference call, to discuss reported results. With me today are Robert L. Kanode, President and Chief Executive Officer; and Ross Goolsby, Chief Financial Officer.

This conference call is being recorded and it will be available for replay at the Investor Relations section of our website at www.valence.com. Just a reminder to everyone that during this conference call today, Valence Technology management may make comments that will reflect their intentions, beliefs and expectations for the future.

As a result, some of the information disclosed on this call will include forward-looking statements and such statements are subject to a number of factors which could cause actual results to differ materially from those statements. For a discussion of those factors, please refer to Valence’s Annual Report on Form 10-K and other periodic reports and documents filed with the SEC. After opening remarks, Michelle will provide instructions on how to ask questions.

I would now like to turn the call over to Bob.

Robert Kanode

Thanks Pierre. I would also like to thank everyone who has joined our call today. As you saw from our press release issued this afternoon, our revenues were inline with previous guidance and expectations are that revenue will in fact grow in 2010. We have all struggled with the worldwide economic crisis and are looking forward to a sustainable recovery.

I’ve reported in our last call, that we remain encourage, 2010 could emerge as a breakthrough year for Valence. So I am pleased to report, we believe our recovery has begun and could continue throughout 2010. We are seeing three distinctive customer recovery trends. Number one, existing customers releasing new orders, such as Segway and Smith Electric Vehicles in the U.S. and U.K.

Number two, new commercial product launches such as Beneteau hybrid Yachts and number three, a growing number of opportunities driven by competitors who have failed to fulfill their customers’ expectations. Aiding our recovery, our recently announced U.K. and U.S. incentives and a growing number of Valence customers that now have years and end use experience and freely communicate to other trust Valence, because they have the proven energy storage system you have been searching for.

Our market approach is simple. We align ourselves with customers, whose revolutionary products will most benefit from the performance and immediate availability of our dynamic energy storage systems.

Our early adopted customers include a broad base of global technology leader, such as Segway personal transporters, Oxygen, Postal EV scooters, Smith Electric Vehicles and right bus, hybrid buses and automotive; Tennant, floor cleaners; and Howard Medical cards in industrial; Beneteau and Siemens in Marine and the U.K. and Spanish National grids in stationary.

As a result, we are developing a customer base that offers life changing products enabled by Valence dynamic energy systems. Looking to the future, we believe these technology leading customers may also be early adaptors of our next generation of patented technologies such as Lithium Vanadium Phosphate energy systems.

Finally, as our engineers continue to work closely with our counterparts at these technology leading corporations. We believe their combined product output will become benchmarks for performance, quality, reliability, time to market, and long term customer value.

To future focus our market penetration, I previously reported that our search is underway for a worldwide VP of Marketing and Sales. After an extensive search evaluating numerous candidates, we have identified finalist and we hope to conclude this effort within the next few weeks.

In conclusion, Valence management is keenly aware that our investors are anxious to move forward, rest assured Valence’s management and our Board of Directors feel the same way, including our Chairman, Carl Berg, who remains committed to the success of Valence.

I believe, we have reached across roads, where we can begin to communicate specific milestone accomplishments and target customer wins that will faster not only a better understanding of our global mission and goals, but also validate the value of Valence, our technologies and key customer relationships.

In a sea of confusing storage claims, our goal is to grow Valence as a trusted source of dynamic energy storage systems. Final thought, join us at the Miami International Boat Show this week and next, because our revolution has begun in marine propulsion, energy generation, storage and management.

I’ll now going to hand the call to Ross Goolsby, to provide further financial information. Ross.

Ross Goolsby

Thank you, Bob. I would provide brief comments about our third quarter financial results. We will be filing our 10-Q later today, which provides detailed information about our company and business, so please refer to that document as well. We also post links to all our SEC filings on the Investor Relations section of our website for your convenience.

For the third quarter, we generated revenue of $4.1 million, which was slightly ahead of the guidance we provided, this compared to $4.7 million in the third quarter of last year. The decrease in revenue was primarily due to reduced sales to Oxygen and Segway. Segway continue to be impacted by the weakened economy and comprised roughly 18% of our revenue for the quarter, which as a percentage of total revenue was down from 34% in the third quarter of last year.

We were able to offset most of those decreases with increased sales to the U.S. division of Smith Electric Vehicles and Howard Medical. Howard Medical is a manufacturer of mobile medical cards. We were please to see our customer mix expand in the third quarter of this year with companies in both motive and industrial markets. In the future, we expect our customer base to continue to grow in these markets as well as the stationary and marine markets.

We continued to see current economic conditions damp in near term demand for our customers’ products and thus our energy stored solutions, but have recently seen an increase in customer orders for our fiscal 2011, which begins in April. Now, we expect this to translate into higher quarterly revenue beginning in our first fiscal quarter.

We began shipping product to the U.S. division of Smith Electric Vehicles in our third quarter, which will continue into the fourth quarter. We also receive the significant order from the U.K. division of Smith Electric Vehicles who will be taking initial quantities in our fourth quarter and increased quantities in the first quarter of fiscal 2011.

Segway’s business is expect to decrease in the fourth quarter compared to our third quarter, but we are tolled ship bounce back is early as the first quarter of fiscal 2011. As a percentage of revenue our gross margin was 12% for the third quarter of fiscal 2010 compared to 5% gross margin in the third quarter of last year.

The reason for the higher gross margin in the current quarter was due to shift in sales to more profitable products within our U-Charge family of products. In terms of margin we do expect our cost of sales as a percentage of sales to continue to decrease as production volumes increase, inventory level stabilize and manufacturing efficiencies improved.

Our operating expenses increased by about 700,000 in the recent quarter compared to the same period last year due to higher litigation and R&D expenses. Our operating loss for the quarter was $4.3 million compared to $3.8 million last year. Despite the lower revenues in the quarter we were able to keep our quarterly bottom line results on a per share basis flat with a comparable period last year at $0.04 per share.

Similarly for the nine month period the net loss was $0.14 per share for both periods. Looking to fiscal 2011, we believe our efficient manufacturing and support operations are well positioned to support increased customer demand. Our net cash used in operating activities for nine month period was $8.9 million compared to $10.9 million for the same period last year.

While cash provided by financing activities was $7.4 million and $19.3 million respectively. In terms of liquidity we finish the quarter with $2.3 million in cash and cash equivalents. Historically, we have relied upon the ability to periodically arrange for additional equity or debt financing to meet our liquidity requirements and we anticipate this to continue until our product sales increase.

During the third quarter, we completed in equity financing, which provides for by weekly sales of our common stock to Seaside 88, L.P. and investment limited partnership. Thus far we have raised $4.5 million from six completed closing under this financing agreement, but did not complete three of the schedule closings. This was due to the floor price as defined in agreement exceeding our current stock price at the time of the schedule closings.

We are continuing to explore alternatives, relative to raising capital to grow our business. We also expect to resolve our outstanding insurance claim during the fourth quarter including the receipt of proceeds. If you recall during our second quarter, we recorded an insurance proceed receivable at $3.5 million related to this claim.

We’ve remain in dialogue with the U.S. Department of Energy regarding our loan application under the advanced technology vehicles manufacturing incentive to build a new manufacturing facility in the United States and we’ll report any material news as this process moves forward. This should help accommodate increase U.S. demand of our products. Other options for expansion overtime could include strategic partnerships in other geographic locations.

Turning to revenue guidance, our outlook for the fourth quarter revenue is $3 million to $4 million. This is consistent with previous quarterly revenue, we’ve reported for fiscal 2010. As Bob and I’ve both mentioned, we are expecting our revenues to increase from these levels as early as the first quarter of 2011. As evidence of this, we already have over $4.4 million of orders in backlog that are scheduled to ship in our first quarter of fiscal 2011.

This concludes our prepared remarks, so now let’s open the call for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ed Einboden - Wm Smith & Co.

Ed Einboden - Wm Smith & Co.

I was just wondering I know you guys talked a little bit about the down tick in Oxygen and Segway. Can you guys give us an update on progress with Bramo and Smith, maybe the outlook, what they’re seeing in the channel?

Robert Kanode

Well, as far as Bramo is concerned, I know they’re in about six test stores, I think all of them are in California. They’re looking at early results to determine where they go next and how they expand, beyond that I think that will be a question for Bramo; and you ask about Smith, Ed?

Ed Einboden - Wm Smith & Co.

Yes, just the overall environment in U.K. and Europe?

Robert Kanode

Smith is expanding in their bus line to their standard single decker and double decker and as many may have seen recently, they won the contract from the British government for a new series of what I would call Retro double deck hybrid buses. So they are moving forward with our current products and with new products. They have an opportunity to move even further.

Ed Einboden - Wm Smith & Co.

Can you maybe give us I guess sequence of what you guys see in the marine market? You guys seem to be heading towards that direction and maybe the opportunity it’s there and the applications it may serve?

Robert Kanode

Well, yes I will be glad to. It started a number of years ago by being designed into all electric, maybe research submarines and about six months ago, we were designed into a 985 foot yacht, that’s being mega yacht, that’s been label to greenest mega yacht in the world. Bill Joy is yacht cofounder of Sun Microsystems.

So from that point, we have now move forward working with a number of peoples Siemens of course, Marine is one and then recently announced in Paris, that they’re brining a new series of hybrid sailing yacht, I should say from about 45 to 60 feet maybe beyond out.

That are really unique from standpoint of they can leave harbor all electric, when your under sale, the drive part automatically regenerates the batteries or recharges batteries and runs all onboard systems and when you return a harbor, you can basically return all electric and if you anchor out or you dark at a facility that has no sure power.

You can run the internal systems in the yacht for up to three days. So a normal condition its conceivable that’s you never ever will start the diesel motor that is onboard. So we are very happy with our progress in the Marine sector and it is truly leading the way in a different form of proposition and energy generation.

Ed Einboden - Wm Smith & Co.

I guess in the other channels, you guys as spoke about the S&C Electric agreement you have and maybe you kind of update from the progress there?

Robert Kanode

Yes, we continue to work with us and see on a number of opportunities and are looking forward to getting involved in the U.S. and both frequency modulation and mass energy storage.

Ed Einboden - Wm Smith & Co.

Other systemic products you guys are brought out and fewer testing at this time?

Robert Kanode

Well, we are basically selling our U-Charge family of products into a lot of these applications, but we also preparing the playing filed if you will for a new group of sales and products that will come out later this year.

Operator

Your next question comes from Bob Ecinder - Garden State Securities.

Bob Ecinder - Garden State Securities

My question is regarding the contract that you announced is quite long time ago with PVI, you had relationship with PVI and they were working with Renault. Can you comment on where that is at this point?

Robert Kanode

Yes, we felt PVI would go into production last year, but the economic crisis delayed that and they are definitely going into production this year. We’re not sure yet what their total volume will be, but they definitely are moving forward to full volume production and for others PVI is building the electric trucks and vans for Renault.

Bob Ecinder - Garden State Securities

How about Nova systems, or there were some recent announcements with the Nova regarding progress they are making with the United States government and being approved by GSA approved vendor along with Smith. Can you comment on where Valence is with Nova and IC Bus Corp.?

Robert Kanode

Well, as far as the yellow bus, we’re in the best position we could be in, because we’re not only designed in, but we have been on the road now for about a year a half and results are very good. So we’re very happy with our positioning there, we’re very happy that Nova is moving forward and as far as the balance of Navistar, we are looking at other opportunities there.

Operator

Your next question comes from John Schroepfer - UBS Financial.

John Schroepfer - UBS Financial

I’m kind of curious as you look at the potential for revenue ramp up. Is it automotive of the delivery truck, where do you anticipate volume coming from that could drive the revenue or reduce the cost per unit, because volume is picking up, I don’t mean in the testing type sales, but where would you anticipate seeing ones some industry converting to actual volume use of your product?

Robert Kanode

Well, let me say a couple of things first. I think we’re doing a very good job of going where we should be as the lithium industry matures. It’s always very important as technology is more expensive and volumes are very low that you put your products basically where they belong, where they will perform best and where they will enable our product that either has a true operating efficiency, or they simply cannot go to their next generation of products without us.

So it’s very important to go to them first now, what I’m talking about basically what I will call commercial automotive, EV vans, trucks, hybrid buses they’re growing like crazy in Europe and Asia. We don’t see as much of that growth here, that is one example.

The second example is, where you basically branch off if you will from that first step and that branch has led us to personal recommendations into Stationary in the U.K. national grid and the Spanish national grid and other places, it’s led us into other areas with Siemens for example, that I’ve said many times, we do the double decker bus in London with Siemens and Siemens simply call this up and said, we’re going in the marine and you’re the battery guys and here’s the other partners and let’s go.

So those relationships are not only very valuable, but our engineering teams are already to the point they know each other extremely well. So when you move from those two areas, if you will into other areas like industrial and into new products like floor scrubbers with those companies like Tennant, that has about 150 models from just about work behind all our way up to drive and half of them are electric and there emerging into lithium those of stepping the stones got to move into the first product and then you can move into others in the industry.

This is also true at Veneto. Veneto is growing to the point that they own 40% to 50% of the world market of the yachts. So moving forward with Veneto, positions us to do I think very well with others in the sector. So your question, where is the revenue going to come from? In automotive in the short term, it’s no questions, it’s going to continue to be commercial applications.

It’s going to take another two years to see any significant volumes of EVs and I think, we’re going to see a demand base for EVs that will be larger in Asia than Europe or the United States and there’s a number of reasons driving that, but though we can get into, but anyway, I think you’ll see EV growth in the next two years. If you look at stationary, I think you’re going to see growth of very large systems in the next couple of years as again new bid fellows come together like we did with Siemens to do a hybrid bus.

I think that will please result, because that stationary meets the test that we look forward, that is they have significant operational problems and inefficiencies. In frequency modulation, bringing up power plants in mass synergy storage and they need and can afford effective solutions and that’s why that’s going to be a nice sector for everyone in our business that has credible storage solutions that are ready to go and we do.

John Schroepfer - UBS Financial

The following up then, there was a release, just quite recently about Mercedes and vehicle they have that’s used in London cab industry I guess, when you look at something like that or you look at the Smith vehicles that have been delivered in the United States to the five or six different companies.

How readily would you expect, I mean the results look like they’re pretty good, the mileage will carry them around town for a day doing they’re then they charge up at night. How readily do you see that industry ramping up with today’s price on batteries?

Robert Kanode

Well, it’s a matter of fact. Yesterday there was a demonstration of the Mercedes, eVito. The eVito is selling two to one over in diesel form today is selling two to one over the black London taxi. The eVito that was demonstrated yesterday has our batteries in it. They meet all of the design specifications and it was demonstrated to all of the decision makers and London and number from the U.K.

There was a demonstration of plant 10 minute drive and I just heard from some of our people of that were acted the days have been that the drive lasted 25 minutes and people began to wonder that there was a problem and they simply went for an extended excursion. So we’re very happy a very telling difference by the way here and versus the U.K.

This hit all the major networks in the U.K., the press was all over this and I think they will lead in the taxi business with eVito, electric and diesel in the world and we don’t really know anything about it. So we’re very happy that we did this, because other production models that would be competitive with this are at least one to two years away.

John Schroepfer - UBS Financial

So, am I correct, or correct me if I’m wrong, because Valence, do we have competitors who are in as many different vehicle types as Valence has, or it’s obviously all are hear about are the Valence ones, but some of our competitors has widely used and test vehicle and emerging commercial usage as Valence?

Robert Kanode

Well, I’ll leave you to do that research, but I will tell you that I don’t believe so. We again are working in a very broad base, because we think it will basically service a wonderful foundation for feature growth and we already seeing a sign for that.

Operator

Your next question comes from Jon Hickman - MDB Capital.

Jon Hickman - MDB Capital

Can you update us on your move to prismatic sales?

Robert Kanode

We are working with prismatic sales, we speak we have not yet announced them. We have our prismatic in test at a major Tier 1 automotive supplier and they’re doing very well. I would offer an opinion, what I think one thing that differentiates us is, we will give sample sales to a potential customer to test and I don’t yet believe our competition is doing that, but that’s the question for our competition and that related test is going extremely well.

Jon Hickman - MDB Capital

So what’s going on with other test, if it’s not sample, so you mean, you give him free?

Ross Goolsby

No, I mean we agree that they can test our product.

Jon Hickman - MDB Capital

[Multiple Speakers] other battery competitors?

Robert Kanode

That’s really the asset test, isn’t it? If you ask for product and they won’t give it to you, but they weighted in the air. I would be suspect of the performance, that’s a point I’m trying to make.

Jon Hickman - MDB Capital

So you are saying, other people say, we have a battery, but you can’t test it?

Ross Goolsby

That’s the feedback we’re getting.

Jon Hickman - MDB Capital

So I guess, well, I do want to, so I won’t like. So just to be a specific as you can as when we as investors might see an up tick and ramp in revenues now? Can you just reiterate what you said before and maybe even elaborate?

Robert Kanode

Well, I’m going to let Ross comment in a second. I simply want to tell you that I think we are going to have early indicators of where we are positioning ourselves of customers this year and I think you will began to appreciate that we may have taken the right path and selecting the customers that we did and being patient enough to drive our products send to them and honestly being at the point, we have stuff on the road for two to three years.

People are starting to notice that, as they are starting to launch new products. They are looking for reliability. They simply are looking for system that work and are available in volume, having said that, Ross further comment.

Ross Goolsby

Sure. If you look at last quarter, we reported $3.3 million in revenue. We’re doing $4.1 million in this quarter, we’re talking about now. Next quarter that’s about the same level then I expect to see an up tick although somewhat modest in Q1 of fiscal 2011 and that’s all with our existing product line today the U-Charge family and the Segway custom part.

I think when you start to see a bigger ramp is both with the existing products as well as some of the new products that should come out towards the end of our fiscal 2011 and I think that’s when you’ll start to see a bigger revenue ramp.

Jon Hickman - MDB Capital

I have one other weather sensitive comment here. It just seems to me like at least with some recent deals that car manufacturers are actually kind of twisting the arms of the battery makers make equity investments in their car company to get the battery business allow the recent thing with car mainly A123 of Interdel and think. So can you comment on that?

Robert Kanode

Well, that’s really something you have to address to our competition. I simply would tell you it’s nice to be in a position with someone like Smith Electric United States that we are designed in. Smith is counting heavily on the functionality of our batteries and the capability of our logic to control their systems within their trucks.

We are just a great fit with them and going forward we bring the stability they are looking for. So we’re currently on the other side of the coin I guess. We’re in the very good position that we can demonstrate on the road what we’ve got and we’re trying to take advantage of that.

Jon Hickman - MDB Capital

You don’t think of comparative disadvantage, you don’t have $200 million in the bank and get to car companies’ show their usual batteries?

Robert Kanode

I think you have to put in perspective where we believe EVs will be developed and I think if you ask me who I’ll think will aggressively move forward, I would tell you in actuators in China such a solution, BYD, Chery and others for a number of reasons. So one of that is, they’re sitting on top of the market that has had a electric transportation for 30 years and electric bikes, scooters and even three wheel cargo carts that are electric.

They are accustomed to a high degree of electric transportation. So it’s not a market that you have to make a mark with before you can bring electric transportation into it, and the second thing is these se manufacturers in China. They don’t have any baggage, they don’t have internal combustion engine plants, but they have to deal with that they’re heavily invested for example. So they have a market, they are determined, they have the resources and they don’t have that baggage.

So, while they’re accepting an EV, we’re still simply talking about them and Europe thinks it’s a good idea, but if I had the rank GOs if you will, as far as growth and acceptance of EVs, it would be Asia first, Europe second, United States last. So there are major manufacturers also in India like Tata Motors that on this Jaguar Land Rover, I would think these guys are going to move forward quickly also. They’re motivated, they don’t have the baggage.

Operator

Your next question comes from Robert McCourt – Unidentified Company.

Robert McCourt – Unidentified Company

I’ve been investor here since 1992, so I’ve been through the second time, and more than just a small investor, I’m staying with 477 shares. I’ve got about four or five questions if you don’t mind I would like to ask you.

Robert Kanode

Go ahead.

Robert McCourt – Unidentified Company

S&C recently selected, or had a press release with International Battery, which I believe it is a Lithium Phosphate Licensee with as license from UT. I was just curious with our relationship that we had established six months ago with S&C, to that put as a disadvantage with S&C?

Robert Kanode

Well, that’s simple to answer, the press release is wrong. We are looking at that opportunity now with S&C and I don’t know how that happened that with the business has not yet been awarded and I’m sorry to say. Or happy to say, it’s a truth so, I’ll say it.

Robert McCourt – Unidentified Company

The next question is around, and I don’t know you’ll be able to comment on the litigation. So I know that the mark I’m hearing with or the second part was recently completed and I don’t know if you have any comments on that and the management still believe that we have the ability to have to the freedom to practice more a wide.

Robert Kanode

A couple of things, the only thing I can say about the litigation at this point, is I’m still very, very pleased with our position to strengthen our position going forward; and our legal team is doing a wonderful job with our litigation here and in Canada. Second, when you talk about freedom to practice, I would remind you that the extensive pattern portfolio that we have on our lithium iron magnesium batteries, we don’t just make lithium iron phosphate, we make lithium iron magnesium phosphate.

We have roughly 34 patterns in roughly 20 countries. There is no litigation against any of that pattern portfolio and further I would tell you that the way we make our capital material with our Carbothermal Reduction process, again has about 30 patterns in 20 countries worldwide and again as free and clear.

So we don’t really have anything standing in our way quite contrary. We can offer customers that are interested in licensing from us a free path to use of superior material manufactured with a lower cost process and we do have people interested in our licensing. It is clean, ready to go and I’ll add one more thing, as people are doing their due diligence on our launching products that require lithium solutions, they are noticing that our position is very strong.

Robert McCourt – Unidentified Company

This maybe a question for Ross, with our share price below $1 and financing with Seaside 88, I guess on whole for now, what’s our burn rate and how much cashes that we get the insurance proceeds? Do we have to operate and so if you can comment on the liquidity of the company?

Ross Goolsby

Sure, as we finish the quarter with $2.3 million in cash, subsequently did one closely after the year ended with Seaside. So we’re looking another options first of all in both equity and debt markets and there’s interest there. So I’ll start by saying that, the burn rate last quarter was between $3.5 million and $4 million, which is down.

So we manage the burn rate down, because of the ramp that we talk about in revenues that we expect during calendar 2010, we will be investing in working capital again, so as far of use of cash you will see at not only for our operating expenses, but also for working capital increases that will need.

I guess the nice things is we have invested in infrastructure in our manufacturing plan, so that we cannot only get the breakeven, but probably twice that we think our breakeven is about $75 million to $80 million in revenue, which I think if you start consup because other competitors is much lower in the competition.

We don’t need a lot of capital investment to get the breakeven and quite frankly to get the full capacity in our plans, which is probably about $150 million in revenue. We got a lot of options. The Chairman, Carl Berg is still committed to the company as we referenced and we’re looking a lot of different opportunities to get capital into the company.

Robert Kanode

Let me just add that, we see very well at Mike, knowing we don’t have to rush to build plants to have available capacity to breakeven, that’s quite in advantage, not only that, but they’ve been in operation for over four years now.

We know what we’re doing and we have fully qualified process is on the ground that are running and that paves the way to basically cookie-cutter transfer that technology in those processes to any location of our choosing such as a plant in United States.

Robert McCourt – Unidentified Company

Two more quick questions, I appreciate the answers is here. I know its comment on the share price and balance is one of the most heavily shorter stock pricing, am I clear. In December, there appear to be a significant amount of institutional companies selling the shares were 40 million shares fairly in the month of December and it just appears that a lot of folks were dumping.

I’m just trying to figure out what is our strategy to try and maintaining the share price and get the massage out, because institutions appear to be selling balance shares at this point?

Robert Kanode

I’ll say one think, I’ll let Ross comment if he likes. I think that one overwriting factor here is we need to not just talk about breaking into markets and penetrating markets. We need to bring more solid examples that we’re doing it, and that’s what we’re excited about. We believe when we say, we’re going to breakout this year we believe we’re going to start bringing the first examples of breaking into the markets and what it means.

Once we do that and once you better understand that, I think that will from a top class level address a question. Until we do that, I think they will remain some doubt, some question about that not in our minds, but perhaps in others. So that’s our approach I think we’re well position to do exactly that.

Ross you want to add anything?

Ross Goolsby

I would concur I think putting revenue growth in more design wins in markets we talk about in the view of your mirror, is going to lead to better evaluation of the company. As far as getting specific about what’s going on in the markets in the short period of time, it’s very difficult to speculate what some of those dynamics can be.

Robert McCourt – Unidentified Company

Last question, and this maybe a simple question too, you folks can answer how you wish, I’m sure you will. Mr. Berg has been in great supporter and there’s one other Board member that is after buying shares along away yet, I don’t see the senior management team making inside or purchases of this securities.

So what’s the anticipated ramp up? I think it may give confidence to the long term investors that they had seen, or they see management making the same type of investment in purchasing the stock, especially at the current levels of about $0.80 of share, so if you would like to comment on that?

Robert Kanode

Well, this is personal choice of everyone is in our company, what I look for in our senior management is absolute commitment to what it is, we’re doing in Valence and I can assure you, we have that and that’s about all I want to say about. Ross, you want to add anything to that?

Ross Goolsby

Yes, I would concur and I thing that does it.

Operator

Your next question comes from Peter Ottmar - Dover Capital Partners.

Peter Ottmar - Dover Capital Partners

You just talked a few minutes ago about Asia and often times you talked about how Europe is well ahead of United States and first time I heard to you talk a lot about Asia and I just curious you are very clearly over the years that we have very strong position in a very competitive position in Europe. How about Asia? How strongly we positioned in Asia to take advantage of what you view as a number one continent for EV.

Robert Kanode

We are already beginning to talk to most of those manufactures in China, also the larger manufacture in India and a lot of those guys came to us and that’s without many names, which we want to do at this point. We are very happy with our positioning in Asia. If you look at their products has we have, begun to look at their products, you can expect them to bringing very credible EV’s.

Now I don’t want to diminish what we see going on in Europe. Again, there are some very credible designs coming out of Europe and I am sorry to say, you don’t see the focus in the United States. So yes, we have talked a lot about Europe, because we started in Europe. We deliberately went to Europe, because we had a product to sell and we knew we could sell it into early commercial automotive products like the buses and the vans.

Now that we also seeing a high degree of activity in China, we are extremely well position to respond of that, given our manufacturing presence in China, we’re well known in China and there’s quite a bit of vertical integration between the battery companies and EVs such as BYD. So that helps that’s currently where we are at.

Peter Ottmar - Dover Capital

Yes, I mean, what you’ve accomplished in Europe and I grew it was embarrassing for the United States, but it is fair to say that based on your saying that you’re trying to get us into equally competitive position in Asia that you enjoy in Europe?

Robert Kanode

Yes.

Operator

Your next question comes from Bern Schwartz - Unidentified Company.

Bern Schwartz - Unidentified Company

I have about three questions, one is BC Transit is sending 20 fuel sale buses two decker or two whistler, gains and I understand, we furnished that at the restore. The first blended, did we get alter all 20 of them?

Robert Kanode

You need to assure everyone else on the call that I didn’t pay you as that question. I think the correct number is, approximately 30 day are all powered by us.

Bern Schwartz - Unidentified Company

We have details on them all?

Robert Kanode

Yes.

Bern Schwartz - Unidentified Company

You said, no.

Robert Kanode

Yes, by the way, they’re fuel so driven, they are unique design, but of course, I’m sure, you’ll understand that a fuel so cannot function without a battery backup.

Bern Schwartz - Unidentified Company

Second question, what happened to the government rank? Was that a political way site type deal?

Robert Kanode

Well, in the first situation of the basic grants and then of course the second is the low interest loans that we still are in the running forward. The only thing I can say about the grant is we though we had a very good position with very matured manufacturing that would offer a low risk to put a plant in the United States and basically, yield manufacturing output faster than some. However, we picked a location in Texas, we were considered a leading candidate in the state of Texas, but not $1 came to Texas; and now leaves to trigger that out.

Bern Schwartz - Unidentified Company

Yes, I know the answer. I was curious with the chemical availability?

Robert Kanode

Very secured, if you look at our base materials, we expect there will be stability in pricing and we expect availability will continue to grow especially as this market matures, because you will see the large corporations are enter the exploration and extraction of these materials, they’re not yet fully in it and there are a number of reports from the U.S. geological team that will shed a lot light on that you can probably grab without too much difficultly.

Bern Schwartz - Unidentified Company

One last question, I haven’t heard very much about lithium vanadium phosphate fluoride and also can you comment a little bit on future chemical mixes?

Robert Kanode

Yes, lithium vanadium phosphate is a family of materials that we have 243 core international patterns covering this. The significant of this, I’ll just give you one example, lithium vanadium phosphate we have already been testing in commercial sales for quite a while, the material was made by U.S. chemical company with our processes.

We are achieving a significant results from a stand point of you can drive these sales at about five volts versus about three volts for everything on the market today and even more significant than that we have been driving these had a sea rate of 50C and that means 50 times rated capacity of the sale for just short versus power that you would won. I would regenitive braking and things like that.

In that area of 50C, you basically have moved beyond the capabilities of any battery we know into supercapacitor territory and it is really a breakaway material that others recognize and others want to be with us, for example, people that are making or developing non-flammable electrolytes. They want to put that in our vanadium material because they can optimize their performance and value, and we want them there, because on the other hand, we’ll optimize our performance and value.

So it’s a very exciting family of lithium vanadium phosphate and lithium vanadium fluorophosphates that we have been working very hard, and in fact this company has been working very hard on this for years and I think you are going to see it now in very short order and its going to deliver some breath taking performance.

Bern Schwartz - Unidentified Company

Good combination with the larger sales.

Robert Kanode

Yes

Operator

Your next question comes from Brent Nicolasian – Unidentified Company.

Brent Nicolasian – Unidentified Company

Very timely actually, because the previous caller just stole some of my stuff there, but I was just also calling to talk a little both the vanadium, lithium phosphate and fluorophosphates because your Dr. Lim, your CTO on your website speaks to it about being one of the safest battery chemistries.

Also you noted BYD in the call already, but they’ve already currently employed the vanadium lithium iron phosphate battery in their E6, Subarus employing the technology in there, concept cards, which do a 2011 and it’s very, I guess appropriate you’re getting into the stationary batteries, because it seems to be a lot of information lately about how vanadium, I guess if the redox battery.

Correct me if I’m wrong in that, I seem to have the monopoly and the advantage when it comes to stationary applications for the power grid. So you did say you were looking and getting into this in short order, is vanadium both being employed in a motive and a stationary type of application?

Robert Kanode

It can be and of course as you probably know, batteries all have different characteristics and you balance the capabilities of the batteries to a specific application. We’re very happy that number one, vanadium will compliment what we have today in our Lithium Iron Magnesium Phosphate. Lithium Iron Magnesium Phosphate will not go away.

The other thing I would say about Lithium Iron Magnesium Phosphate is it will offer much better performance when applications move from consumer grade like phones and laptops into more professional grade demanding applications. So we look forward to that, but looking at the vanadium it will a compliment in certain applications such as frequency modulation in stationary.

The floor I will probably be better in other applications such as mass synergy storage and again you’re looking at what you need more boost of power or do you need longer run time in energy. So we feel like, we’ve not only got a good blend of packaging with around sales and prismatics coming forward, but we also have a good blend of materials coming online that can be mixed and matched not only in sales, but we further are working on flexi packs and given our advanced to experience in logic. We think we’re very well positioned there also.

Brent Nicolasian – Unidentified Company

So if I look to summarize, vanadium then would be in essential, I guess you said component in the current battery chemistry, or what it wouldn’t place to magnesium, but it would be a compliment to it?

Robert Kanode

It’s a totally different material and all of these materials will have some slightly different application operating attributes, since others will have more significant different performance attributes that will very nicely fit with very different technologies. For example, if you got a hybrid bus, you want to capture a high degree of breaking a regenitive braking if you will.

In an EV, that is less. In an EV, you want more onetime, more energy. You don’t want a Power Cell application, high sea rate applications that’s you do want in high rate. So we simply believe we’re going to be extremely well positioned to basically bring a number of solutions that are very closed to what would optimize the performance of those specific applications to market. We have to prove that and we have to do that, that’s what we’re doing about doing.

Brent Nicolasian – Unidentified Company

I’m very encouraging by hearing the previous caller and you answered him by saying that you have always patterns and it seems that you’re working for your heard to bring this online and in the very near future or maybe it’s not the near future, but is vanadium imploding your battery technology around the corner or is it further down your timeline?

Robert Kanode

We’ll only tell you at this point, we have been testing commercial grade sales made with commercial grade materials by U.S. chemical company with our processes, that’s pretty far down the line and I also will tell you that we’re very happy that Dr. K.C. Lim with us, because K.C. is not only a pioneer in high capacity prismatics. He is a very gifted to understand as a broad base a material signs and electro chemistry and has very deep knowledge of customer equipment that is required, that in many case as you cannot buy to assemble these products, which he is developed.

Operator

Your final question comes from Ed Einboden - Wm Smith & Co.

Ed Einboden - Wm Smith & Co.

Just wonder, if I know Ross, maybe if you could talk about the push and pull on the income statement with regards to the cost, like operating cost and things as you start to ramp, our production maybe CapEx expenditures next year?

Ross Goolsby

As I mentioned, we’re expecting significant CapEx requirements in the near term. From a manufacturing perspective, we think we’ve got mechanical capacity to take $250 million of revenue.

So we’ve got quite a ramp to achieve before significant CapEx requirements. As far as OpEx goes, obviously we think we’ve got infrastructure in place from an R&D marketing and SG&A perspectives that can take us probably breakeven and beyond. So the growth you will see from a labor perspective, from a manufacturing overhead perspective will be absorb few cost of sales as we ramp revenue.

Ed Einboden - Wm Smith & Co.

Would expect to increase the expense associated with litigation well into next year? Or could you give us a kind of a timeline for that?

Ross Goolsby

Well, that’s really difficult, because these cases can kind of take a life of their own if you will. I’m not going to be able to pinpoint when we’ll see that come down. We’re proud of our IP, we protect our position just be able to sell our products worldwide and we’re willing to invest significant amounts of money to do that. It’s very hard to predict what those will look like from a quarter-to-quarter or a year-to-year perspective.

Ed Einboden - Wm Smith & Co.

I guess, maybe you guys could give just a little bit of a snapshot to touch, you guys are seeing the VPO sales and we’ll kind of specific things you’re actually, which you’re looking for in the next person?

Robert Kanode

I would say we have looked at an extensive base of candidates with very deep experience in the battery and related markets that would service very well. We’re happy about that and we’ve really have worked very hard through an extensive list of candidates to select our finalist. So there’s a lot of people out there, that have a lot to offer and we’re trying to pick the best of the best.

Operator

There are no further questions at this time.

Robert Kanode

I would just like thank everyone for joining our call today and wish everyone a good evening. Thank you.

Ross Goolsby

Thank you.

Operator

Ladies and gentlemen that concludes today’s presentation. You may now disconnect. Have a great day.

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Source: Valence Technology Inc. F3Q10 (Qtr End 31/12/2009) Earnings Call Transcript
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