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UQM Technologies (NYSEMKT:UQM)

Q3 2014 Earnings Call

January 30, 2014 4:30 pm ET

Executives

Annie Leschin

Eric R. Ridenour - Chief Executive Officer, President and Director

David I. Rosenthal - Chief Financial Officer, Principal Accounting Officer, Treasurer and Secretary

Analysts

Randall Hough

Walter Christopher Ramsley - Walrus Partners, LLC

Gerry Levine

Operator

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the UQM Fiscal Year 2014 Third Quarter Earnings Conference Call. Today's speakers, on behalf of UQM, are President and CEO, Eric Ridenour; and the CFO, David Rosenthal. [Operator Instructions] As a reminder, this conference call is being recorded today, January 30, 2014.

I would now like to turn the conference over to UQM's Investor Relations Officer, Annie Leschin. Please go ahead.

Annie Leschin

Thank you, operator. Welcome, everyone, and thank you for joining us today for UQM's quarterly earnings conference call.

Before we begin, we just want to mention that this conference call may contain statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. These statements include comments regarding our plans, beliefs or current expectations, including those plans, beliefs and expectations of our management with respect to, among other things, new product development, future orders to be received from our customers, sales of products from inventory, future financial results, liquidity and the continued growth of the electric powered vehicle industry. Important risk factors that could cause actual result to differ from these contained in the forward-looking statements are contained in our Form 10-Q filed today and our annual report on Form 10-K for the last fiscal year ended March 31, 2013, both of which are available through our website at www.uqm.com or at www.sec.gov.

With that, I'd like to turn it over to CEO, Eric Ridenour for more comments. Eric?

Eric R. Ridenour

Thanks, Amy. Well, we had a good third quarter. Product sales are up 8%, $1.8 million versus $1.7 million last year. And total revenue was up 6% to $2 million versus $1.9 million last year. We've significantly reduced our net loss to $66,000 this quarter versus the $4.6 million loss last year. The improvement this quarter was due to the continued positive impact of last year's cost-reduction efforts, as well as a onetime $727,000 adjustment for a favorable ruling on import duties that we received this quarter. We ended the quarter with a strong $6.3 million in cash.

This quarter, we continued to execute on our strategy to develop industry-leading products for the full electric and hybrid car, bus and truck markets; expand our presence with existing customers; and develop new customers.

Let me begin with a couple of important government actions that took place in the third quarter. First, the DOE approved our resubmitted plan under the ARRA grant for the program spending required between now and the January 2015 completion date. Not unexpectedly, the 5-month review by DOE was quite rigorous, and we're pleased to report that they were very encouraged by our progress to date as well as our plans for the future. They confirmed their support for the continuation of the program consistent with our current spending level. This is a very positive step in the critical endorsement of our plans and our execution. We've also -- working for more than a year with the Commerce Department to reduce duties on some of the components that we had imported. This too was a very long and complicated process, but one that successfully led to a reduction in duties, which I mentioned we recognized this quarter.

We filed a new $30 million shelf registration to replace our previously expired one to provide flexibility for changing market conditions. While some misunderstood this is as $30 million capital raise, we are simply replacing our old shelf to ensure that we have the financial flexibility to meet the needs of our customers and approach new opportunities.

While we believe we currently have sufficient cash, we may choose to raise additional capital in the future to fund our portion of the reapproved DOE grant, provide the flexibility, pursue expansion opportunities, partnership through JVs and provide ongoing working capital.

Now turning to customer updates. We announced a new customer in a brand new region for us, and we're very excited about it. PT Sarimas Ahmadi Pratama is a diverse manufacturer in Indonesia, who among other things, has started the production of electric buses. They're utilizing our PowerPhase Pro 135 model for these buses, and I'm pleased to report they have already placed follow-on orders. These orders are also used in the inventory that was previously purchased for CODA, which is also a good thing. The Indonesian market is a new market for us, and this opportunity has the potential position as well for future growth. We've already begun discussing other potential applications for this customer.

One of our other important bus customers, Proterra, has announced that it raised $35 million in Series C fundraise, which based in part on the strong 2013 performance and aggressive sales. Proterra has also recently announced that they sold 10 buses to the Transit Authority of River City at Louisville, Kentucky. Utilizing our PowerPhase HD product, the buses are slated to be built to Proterra's manufacturing facility in Greenville, South Carolina early 2014 with delivery expected later in the year.

In China, we've seen an increased level of urgency in China for new energy vehicles with the political pressure to get more vehicles on the road due to the major pollution issues going on there. A lot of this focus is centered on electric buses, which we have been targeting as our first point of entry into this market. The Chinese Premier was quoted this week saying that the government should take a leading role in promoting alternative energy-powered vehicles in that new energy vehicles, especially buses, can help improve urban problems of pollution and noise, and therefore, everyone should be encouraged to use them. He also reaffirmed China's goal to have $5 million alternative energy-powered automobiles on the road by 2020.

These words have been echoed in our ongoing discussions with multiple potential Chinese customers. I'm excited to announce that we recently shipped our first PowerPhase HD units to a Chinese customer. These units will be used as part of the new fully electric bus test fleet. The customer is finalizing the designs and specifications for this new bus, and we'll begin assembling them with our Powertrain shortly.

Once commissioned, they will begin the test and evaluation process. This is the first critical step needed to evaluate real-world performance, efficiency and functionality. These test leads will serve to gauge potential and serve as a gateway to future production programs. We continue to make progress in our discussions with other potential Chinese customers as well and are encouraged by the country's renewed focus on new energy vehicles.

In Europe, NEVS, the former SAAB, is continuing to move forward. They have begun to ship their first cars, currently with gasoline engines. It's important to note that this is a huge step for SAAB to reenter the marketplace and shows the determination and efforts by the new management and owners to quickly to make this a successful venture.

They have announced that they will begin building electric vehicles in 2014, and they announced also that they received an order for 200 vehicles from China. We have provided all of the technical information they require and are now waiting for them to issue a final RFQ to submit our documentation, which should be filed by their final sourcing decision.

Also in Europe, Audi continues to test the A1 e-tron and has generated many miles of real world testing and evaluation in these vehicles distributed all around Europe. We have provided all the data they requested in this program, and we'll continue to support the program as it evolves. Talks to with other potential customers in Europe, as well as North America, continue as they begin to accelerate their electric vehicle initiatives.

Finally, we made significant process in our TS-16949 certification program. We have completed the process of mapping the tests [ph] and deliverables and moved on to the data collection phase, where we are doing internal audits to make sure the system is robust and capable enough to meet all the certification requirements. With the confidence from that work, we brought in an expert, outside auditor, to do a preliminary audit on our paperwork and give us insight what might be needed to pass the official audit. We did very well, and we only have a few things to update in order to be ready for the official 5-day audit, which we will schedule shortly.

So overall, a good quarter and good progress across many initiatives. With that, I'll turn it over to David to update you on the financials.

David I. Rosenthal

Thank you, Eric, and good afternoon, everyone. I'm going to share with you the financial highlights of our third quarter results.

Total revenue for the third quarter increased 6% year-over-year to just over $2 million from $1.9 million in the comparable quarter last year. Year-to-date, our total revenue is up about 9% over the same period last year. Gross profit margins for the quarter were 41% versus 14% in the third quarter last year, reflecting a change in product mix and improved efficiencies in the production of our PowerPhase 220 systems.

Selling, general and administrative expenses for the third quarter were $1.2 million, a 15% reduction versus the same quarter last year. This decrease was the result of a lower cost structure that we put in place in the third and fourth quarters of last fiscal year. Since the end of last fiscal year, March 31, we have been reporting that our SG&A expenses are substantially down versus the prior quarters -- prior year quarters because of numerous cost-reduction actions we began implementing in the third and fourth quarters last year. With our expense run rate now established at this lower level, we will continue to see the benefits, but the year-over-year variances will phase down and disappear as we complete the full year reporting through the rest of this fiscal year.

It is important to note that we have lowered our overall cost structure, while maintaining our commitment to R&D and targeted sales. We will, of course, continue to monitor our spending levels and look for efficiencies as we move forward.

Also in the third quarter, we recorded a onetime decrease in expense of $727,000 to reflect the positive ruling from the Department of Commerce regarding import duties that Eric spoke about earlier. Net loss for the quarter was $66,000 or $0.00 per common share, compared with a net loss of $4.6 million or $0.12 per common share for the comparable quarter last year. Last year, of course, we took a charge of $3.8 million or $0.10 per share related to the CODA business.

The company continues to be in a strong financial position and remains well capitalized. We ended the third quarter with $6.3 million of cash and working capital of $15.7 million. We believe that our current cash balances will be sufficient to fund our operations for at least the next 2 years.

We continue to reduce our inventory as we actively manage this asset and continue to sell PowerPhase Pro units from inventory. The reduction this quarter was $273,000. And for the first 9 months of the fiscal year, inventories are down $743,000.

Overall we're very pleased with the results for the quarter. We continue to look for ways to become more cost efficient and identify new sales opportunities to move us closer to our financial goals of positive cash flow and profitability.

At this point, I'd like to turn the call back to the operator for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Thurman Willis [ph] with UQM Technologies.

Unknown Attendee

I would just comment that if you factor in the pickup of $700,000 and you were to delete the reimbursement from the government, it truly is a breakeven quarter. I have one question and then a follow-up. My first question with -- can the technologies a -- EV manufacture in China haven't seen such success, their stock having gone from about $4 to $13. I was just wondering, if going back to an old subject with the investment in CODA that was provided by other individuals, if there possibly wouldn't be somebody out there that might choose to reignite CODA and come forward considering the vast interest of the Chinese government in ridding themselves of pollution?

Eric R. Ridenour

Well, it's hard to speak for CODA. Obviously, they're going through their bankruptcy and what may or may not happen to the assets. And the potential within there, we're not aware they have closed that -- from the court proceedings, they, just in the last day or 2, approved the final liquidation plan, so we moved to the next phase. So again, we're not privy to those discussions, and so I really have nothing I can comment on from that. Obviously, if something like that happened, it'd be very good.

Unknown Attendee

But there is a chance somebody may pick it up and reignite the manufacturing?

Eric R. Ridenour

Never say never.

Unknown Attendee

My follow-up question pertains to China and Indonesia. You gave us -- and I know you're very conservative relative to information, I don't blame you for that, I respect that. But at the same time, I think the market should have given more credence to Indonesia and China. And could you give us a little more flavor of Indonesia, and what the possibilities could be considering that this could be a real strong market for us?

Eric R. Ridenour

Well, what we're seeing is globally, in each and every market, an increase in interest driven by a number of factors. And we've hit them several times in our presentation between -- certainly in China, the emissions issues, but also mobile emissions, pollution in just about every major city around the globe, a lot of action from a global warming standpoint and other factors all going into having government taking strong position. So we've seen intense amount of activity all across Europe and the previous Eastern Europe and other areas of the globe. Certainly Indonesia now is a new hub [ph] and these guys are taking advantage. China will be first movers in there. And we like them. They're very good customer with us, and we're very pleased to do that. We've talked before about having Hino buses in Japan and certainly the buses in China. People that we're talking to about trying to get there engaging those first sales. So again, we see these things going across. And again, the part we really like is that for a small company in Colorado, we have a very strong brand name, and we're able to get into these markets and be part of that emerging segment. So again, as these markets grow, we'd expect to grow with them. And that's why we're in and why our sales team spend so much money on airplanes.

Operator

Our next question comes from the line of Randy Hough with ProEquities.

Randall Hough

Eric, you made a comment about shipping initial units to a Chinese bus company, if I understood it.

Eric R. Ridenour

Yes.

Randall Hough

And you were pleased about that, I am as well. Was this particular shipment to the company with which you announced the MOU nearly 2 years ago?

Eric R. Ridenour

What we can say is we're talking to that company, the MOU company and intensive discussions along with a couple of others. And because of their request for privacy and all that, at this point, all we can say is it went to one of those companies, but it's more than one that we're talking with. And we're seeing the same kind of urgency that I mentioned that, again, you saw with the Premier just this week, and a meeting out of China, again, affirmed their goals, reaffirmed the need to get units in. Last conference call I reported that the city's now had a minimum volume number they needed to hit of new energy vehicles. And again, a portion of those -- we think a significant portion is buses. I like the fact that he pointed out buses specifically in his comments as one of the best ways to demonstrate to the public that they're doing and taking action. And so we're seeing that kind of response over the last, I'd say, 4, 5 months, we've seen a very strong increase in interest and a much better sense of urgency to get something out there. And that's why we're happy to now deliver the first units, which will go into the test vehicles, which begin the real process to actualize the production. So for that, we're -- again, that's why we're pleased. This is a great start. Again, we're happy that we're not just talking on one front, but on several fronts. And conversations move along well.

Randall Hough

Okay, good. And to follow-up on that, given your statement about our brand recognition over there and the high regard the Chinese have for it, could you characterize the competition with these customers? Are we up against some big names over there? Are we the -- or let me end it there. How would you characterize our competitive position with the several people we're working with -- or several entities?

Eric R. Ridenour

Yes, and again, we only hear from a hearsay kind of standpoint rather than a true benchmark because I know they don't reveal who else they're talking to. But in side comments or other things, what we know is that there are several players there from all over the world, some out of Europe, some out of the U.S. here and also the Chinese market itself. What we hear consistently is that the Chinese, the current state of Chinese technology is not adequate for the long term. So a lot of them are using it today, but they know they need to move on to higher technology, more efficiency, better motors and controllers. And we hear -- and again, we like to hear what we hear, but we hear from them that our technology is seen very well and certainly among the top. And so far, it appears that we're in pretty good competition from a pricing level. And certainly, there's a lot of discrepancy potentially or a gap between somebody already in China, a Chinese, a local Chinese and ours. But currently, with the technology advantage, we're not seeing that as a major problem. But over time certainly we will address those things in order to get our cost down. And we're already studying and looking at all those things, working on a variety of actions. So with volume, we'll be able to very competitive, so we feel pretty good.

Randall Hough

Good, good. Then a question on the filing on the Q. Typically, you -- on your footnote that speaks to large customers, typically in the past when it's over 10% of the revenue, you named the company like you did last time. I think I mentioned a new name that was there. This time you have them denoted with an A, B and C. Could you explain that to us, one of you guys?

Eric R. Ridenour

Yes, I shifted, I guess, [ph] into the certain customers not wanting and noticing we did that. And we thought we had to, and it turned out we don't have to specify them specifically. We just have to say that they're large specific customers and here is the amount of revenue. So in that challenge to us that people didn't want to see their stuff in press yet and that they wanted to control their own media, we were kind of told that they didn't want to see that. We checked with the auditors and all that and found out they were correct, so we've adapted the new format.

Randall Hough

Wow, that seems to break with precedents, not only here but generally the case with manufacturers, but then again, live and learn.

Eric R. Ridenour

Yes, again, it was new for me. So I started with, well, we have to. And they said, "No, you don't. All you have to do is list them." And we said, "Well, let's go check." Then we found out, it's okay.

Randall Hough

All right. Then lastly, if not this quarter, perhaps next quarter, when we face the new fiscal year, would you be in a position given the increasing array of new relationships that you have around the globe, including the ones that you mentioned today. I speak generally about EVI and Boulder and Proterra, the Indonesian company you mentioned. I know you haven't put out a release officially yet, but the Canadian company did talk about the -- I think it was 220 kW motor that they had made it with one of their transmissions. So you're broadening your kind of core business. Would it be reasonable to expect with that base that we should be able to do -- to give guidance from quarter-to-quarter on what that core base business, if that's properly the way to describe it, might be able to grow at over time?

Eric R. Ridenour

I think certainly we understand the need to be as transparent as we can and to be credible and to be able to project into the future and to be able to help the investment community understand how we see things. And I think as things start to settle down and as we start getting more capability in that forward projections, we certainly will start doing that. I'm not sure whether next quarter's going to be the quarter, but we certainly understand the desire for that. And again, what we want to do is to be able to have -- when we say things, we very much want to make sure that we're able to achieve the things we say and we can give good, crisp guidance that can be relied on. And certainly, as the market is certainly in its current phase, we're not at that point yet. And again, I would love to be at that point sooner rather than later. So again, I can assure you that as soon as we feel comfortable that we can do that and have it mean something for the investor, we will.

Randall Hough

Okay, fair enough. And if you happen to forget, rest assured, I'll there be to remind you.

Operator

Our next question comes from the line of Walter Ramsley with Walrus Partners.

Walter Christopher Ramsley - Walrus Partners, LLC

David, I was wondering about the duties. The $726,000 apparently had been -- wasn't received as cash. What did you credit -- what was your offsetting accounting entries on that one?

David I. Rosenthal

So we booked an accrual a year or so ago in anticipation of paying certain amount of duties that were -- would have been imposed by the Department of Commerce. We appealed to the Department over the last year or so, as Eric mentioned, and got a ruling this past December that the amount of duties that we would owe would be significantly less. So basically, what we did was we reversed our accrual. And we took a credit to the income statement as a result. That was the offsetting entry.

Walter Christopher Ramsley - Walrus Partners, LLC

So basically, you were just accruing in anticipation of future cost, and now you don't have to pay them?

David I. Rosenthal

We were accruing for what we believe we owed at the time. And now the Department of Commerce has ruled on our petition. We have adjusted that accrual to now what is currently owned.

Walter Christopher Ramsley - Walrus Partners, LLC

So there's no refund though?

David I. Rosenthal

There's no cash impact on this, no.

Walter Christopher Ramsley - Walrus Partners, LLC

Okay. And then the other one, the DOE reimbursement, that one is delivered in cash, correct?

Eric R. Ridenour

DOE reimbursement is delivered in cash, yes.

Operator

Our next question comes from the line of Gerry Levine with Oppenheimer & Co.

Gerry Levine

Look, I wanted to just check on a company called green Dolphin has filed a 13G for about 8% of UQM. Do you know them? Do you have any comments on them?

Eric R. Ridenour

Yes. I mean, again, we know who they are. Again, because it's in there as Green Dolphin, I don't want to add more. I think there's names in there, but I didn't read the entire -- they've been a big shareholder for us for a significant amount of time. This was about a 300,000 or 400,000 share increase. So they were in before a little over 7 and this put them at the high end of 7, if I remember the numbers right.

Gerry Levine

Okay. About -- is anything happening with EVI or the Boulder Company on trucks?

Eric R. Ridenour

They continue to shop for business. We were just at the voucher program. One of the things that's going on is the vouchers are -- they were getting in line for the vouchers. But the voucher program hasn't kickstarted yet in California. So when they do, then everything -- kind of the dam opens up. And so we're waiting on that. So there was a conference in California just this week to have all those people there and talk through all the issues. So again, we should expect all that to start.

Operator

Our next question comes from the line of Robert Bassi [ph], a private investor.

Unknown Attendee

I'm going back to the CODA system. When CODA filed for bankruptcy, they held a lot of UQM motors, not paid for, but in their warehouse or wherever. And you were going to try or somebody's going to try to get those motors back, even if you had a pace of [ph] small fees to get those motors back, that is -- did anything like that ever come back to us at all? Any of those motors that we were able to retrieve?

David I. Rosenthal

Because it's still in this phase, now that we're getting out of this phase into the next phase, hopefully we'll be able to start having those conversations. There's been nobody to talk to at this point because everything's been tied up waiting for the liquidation plan and the final. And again, that just went literally, I think, either this morning or yesterday. So they'll now enter the next phase of the bankruptcy. And at that point, we'll be where they go out. And the various sundry, different sources of funding, one of them could be the selling out of accumulated inventory as it's available, along with D&O and other kinds of things. So that's the next phase. And so again, we're watching all that, making sure we're staying involved. But it's just not yet ripe to go out and actually even have a discussion about it yet.

Unknown Attendee

How much money was there involved in the entire sale of that -- but you never collected it. But I mean what is the value of those motors today roughly?

David I. Rosenthal

Because we don't have a good accounting yet for what they have and where they're at and all that, it's hard for us to do that. And then I would have to go back through from the accounting team on what the proper way to announce that publicly, so I don't want to do that yet until we're -- we have that capability. It's just I'm not sure the proper way.

Operator

Our next question comes from the line of Bruce Kureski [ph], private investor.

Unknown Attendee

My question was about that, the fees for import duties. Is that the lower rate apply to future of Chinese imports as well?

Eric R. Ridenour

Yes, yes. So what they did was that we had a specific rate that we were using, and then as a result of solar panel dumping, they put some extra antidumping tariffs. And they put it very broadly and affected many industries that weren't the intent of the ruling. But typical government, it took almost a year to go through, I don't know how many different phases we had to go through, of proving that this wasn't what they were talking about. And in the end, we prevailed. But it was really intended to affect the different industry altogether and really should have never included us. But again, took a very long time to finally get them to put that in writing, and that happened in very, very late December.

Operator

Our next question comes from the line of John Stuper [ph], private investor.

Unknown Attendee

Could you provide a little bit color for the continued business that you're doing with Roush Manufacturing? They are -- when Mr. Shelby was still with us, he looked at the -- Mr. Roush was one of his main competitors. And to have him accept the motors and controllers that you folks produce is quite a testament for the quality of the manufacturing that you're doing as well as the capabilities of those pieces of equipment.

Eric R. Ridenour

Yes, actually in my past life, we had a lot of dealings with Roush. Obviously, they're a little more Ford-based than Chrysler-based. But certainly we still use them for a number of different actions. And the one thing we can tell is they're top notch, high-quality place. And so we're happy now to be working with them. We're doing fuel cell parts for them. And we're -- they're new into the business and going crazy to be typical Jack Roush fashion to try and grow that business and really expand it. And we're very happy to see the actions they're taking. We're in discussions with them on what else we could do to be helpful, and those discussions continues. So again, I think Jack and Carroll did a little bit more in the racetrack than in the corporate world. Certainly we're happy to be associated with Roush.

Unknown Attendee

I certainly do appreciate that information. And has there been any discussions at this point yet for a follow-on order? I know that they have certain equipment already in stock? Have they given you any idea yet beyond fuel cell with what they might be using that for? Because you and I grew up in the same sandbox, so I'm very close to Livonia, Michigan [ph].

Eric R. Ridenour

Yes, very good. They haven't -- again, they're just really getting started again. They're looking for new customers. We're part of -- they're regular customers. This has been a business for us for quite some time. But again, with the new excitement around fuel cells and other things, they're being anxious, and that's why they got into the business. And obviously what's good for them is good for us.

Operator

[Operator Instructions] Our next question is a follow-up question from the line of Thurman Willis [ph], private investor.

Unknown Shareholder

[indiscernible] as I always do, trying to look at which one of these companies are going to hit big for us to begin with. We haven't mentioned much about PG&E. We have to dig -- find out that the PG&E, of course, a major utility company, is replacing all of their either 500 or 1,000 electrical vehicles -- excuse me, their gas-powered vehicles with electric. And it's my understanding that the EVI is and would be playing a part with PG&E, and that could offer a major opportunity for us.

Eric R. Ridenour

Yes, that's the REEV program, range extended electric vehicle program, with PG&E and EVI. And again, the customer, EVI's customer, which is one of the issues we have a little bit, we talked about it certainly, but it's one step removed from us. Certainly the fleet had -- I think it was a fleet we had that went public with the discussion about -- in the long term that they definitely wanted to have a substantial presence. And I think he went as far as saying that one day they would like to have the entire fleet, but they didn't. I don't think it went so crisp as to make out a specific announcement, but rather an intent. We certainly know they've bought a number of units from EVI that are -- obviously our units are inside of them. And those are running test programs and other things. And I think there's certainly a good chance of hopefully some significant follow-on orders as those things go. So again, we're -- we love those kinds of things, and there's some of those that have made the press, and some of them that we're working on, on our own that we're not able yet to talk about. But those are the kinds of things when we look forward and say we can see growth in this marketplace.

Unknown Shareholder

And a follow-up on SAAB. SAAB is, as you said, to start delivering electrical vehicles in 2014. I have not read or seen anywhere that SAAB has used any other motors other than our UQM motor. Can you comment on that?

Eric R. Ridenour

And again, I'd say that's consistent with what we know. But again, we don't know everything that goes on. But we are aware that the units that they were testing when we were happened to have our motor in them. They are in the process of sorting out who will be their production source. And we expect that they will be putting out the next phase as they request for quote officially, which will then start getting into this very specifics of volumes and numbers over time. And we definitely will be participating in that. We would fully expect to have other competitors participating in that. And because of the work we've done, because the motor clearly packages and clearly meets their requirements and the fact that we're in production and have capability ramping up very quickly, we think we have a good inside track on that. And it's up to us to then go win that. And when -- unfortunately on SAAB's timeframe, not ours. So we're anxious for them to move onto that next phase.

Unknown Shareholder

And then lastly, with Kinetics, there have not been much comments since they released about using our motors with their transmissions. Are we getting any player -- can we comment about how Kinetics may or may not be helping our sales program?

Eric R. Ridenour

As we said before, they were a little premature on the release. We certainly are talking with them around a significant number of potential things. And we hope to finalize those talks shortly. But not yet ready to have any further discussion on them at this moment.

Unknown Shareholder

I do have one other quick question. Of course, all of this appears to be coming fairly soon, whether it be SAAB or EVI or the UPS, FedEx, the Indonesia Kinetics, so somebody may be picking up CODA, Proterra. You, I know, at the Annual Meeting commented that you thought it would be soon and big. Can I push you a little forward to -- I know you can't give a date, but it's got to be getting closer. And we surely are recognized, as one of the previous callers commented, as being, if not the best motor, at least one of the best motors. Do you think, say by year end, which our year end, of course, is in March here, that we could have heard from one or more of these, again, whether it be China, EVI, SAAB -- there just seems to be so much potential. And I know how confidential they are, but you have to be extremely excited, you and David and the team have to be extremely excited where we're positioned to pick up one of these major players.

Eric R. Ridenour

First, I will clarify, I'm pretty sure I didn't make the commitment at the Annual Meeting on timing or amount. So just for the record.

Unknown Shareholder

No, you did not.

Eric R. Ridenour

I'm pretty good about not doing that. Same thing though. Obviously, like I said, we loved for it to happen sooner rather than later. It is on our customers' timeline, not ours. And what we can do and have done is to continue to support each of those initiatives, provide all the technical details, all the business details. Everything they request they need, we act on very quickly. We're in regular conversation. And again, the market and the customer will decide ultimately their timeline and how they go forward. So at this point, I can't comment any further other than back up what I said earlier with Randy is that as soon as we feel comfortable doing things, we will pass along information because again, it's not our intent to stay behind and not announce, but rather to make sure we have good credible announcements. And that when we say things, that people know that they're factual and highly likely. And it's just the way I like to do business.

Unknown Shareholder

But you wouldn't disagree with my conclusion that some of these companies have to be soon in making a decision, whether it's UQM or another motor. And when I say, well, obviously soon, that you don't disagree with my conclusion that some decisions are going to have to be made sooner here...

Operator

Excuse me, sir. That is all the time we have for your question. [Operator Instructions]

Eric R. Ridenour

Let me just finish that, to answer it and then we can close off the -- again, the customer will decide when exactly we'll be able to announce it. I certainly can agree that for some of these programs to hit the milestones that they're talking about, action is in the more near feature from a standpoint of making decisions. And then execution obviously follows decisions. But each of those are based on the customers themselves. And again, we'd rather have it sooner than later, but they'll us know.

Operator

Our next question comes from the line of Alex Kuschner [ph] with Baird.

Unknown Analyst

I own just under 5% of the shares outstanding at this point, have been a shareholder for a while and definitely note progress to date. I was hoping you could put some brackets around sort of the SAAB opportunity. When CODA was in the queue, they were talking about sort of 12,000 vehicles. When you think about SAAB, do you think it's sort of in that area code, less than that, more than that, just sort of broad stroke?

Eric R. Ridenour

Again, because they haven't gone public yet, I really can't be the one. We're aware of where they're thinking. And certainly they're very serious about what they plan to do. And they're going to be in many regions. So I think you can -- one tip that we can give is obviously they've announced that they intend to sell into China. That was something CODA could not do. And certainly it's a very big market over there. So I think that's about all I can really say without running risk of -- I never want a customer mad at me, especially before we make decisions.

Unknown Analyst

And in terms of timing of SAAB not -- obviously, they're going to make the decision themselves. But has that timeline moved a little -- a little out, or has it remained fairly constant over the last couple of quarters?

Eric R. Ridenour

They have -- I mean, again, we've -- they've had their public statements out there for some time that they intend to be in the market in 2014 with electric vehicles. We haven't seen big changes in our discussions. But again, they're the ones that have to announce when they're going to be ready and how they're going to be ready. Again, I think -- I'll be honest with you that when this thing started, they had a huge hill to climb to get back in production because you have to think about every single supplier has got to re-sign up to be able to build a car. Not just some of them or most of them. And they're building and selling cars. So I'm very impressed that they pulled together a team, and it's a solid team. And the fact that they're actually building vehicles that I'm told are being sold. I saw some announcements on their board that said the first units had been shipped. And so even for sure, I know I saw a prototype car roll off the line. And that's a huge task. So again, I give them a lot of credit, they're very serious about this. And the whole thing was set up as National Electric Vehicles Sweden. And so therefore, even in their title, they show that the desire to get to the electric portion of this vehicle, even if they do or don't continue the internal combustion, is certainly where their focus is, and everything we've seen matches that.

Unknown Analyst

On Audi, obviously, it's been a sort of -- they've had the tests wait [ph] here for a while. You've sold quite a few motors into them in the past. They've from time to time released a vehicle at an auto show. At this point, we've never seen the A1 potentially come to more of a mass market distribution. You've given some comments. I'm hoping you can kind of give me some additional clarity on what you think that opportunity is.

Eric R. Ridenour

That one is exactly where we said it before. They're one of the ones who are very strict on what we can say or not say. So the only thing I can repeat is that the cars are testing. They did release the report, talking about how many kilometers of testing they've already accomplished. I didn't know specifically whether it was for some specific fleet, but I don't have the details in front of me. But that was a recent update. And again, we know that we're -- been in conversations with them. We provided the technical data on a number of different things, and we continue to wait for them to make a decision of what they want to do.

Unknown Analyst

As far as you've disclosed, are we "only" in the A1 or are there others?

Eric R. Ridenour

The only thing we've disclosed is the A1.

Operator

Our next question comes from the line of Randy Hough with ProEquities.

Randall Hough

Eric, on the last call, you reported that you went to [indiscernible]. I think it was in Chicago. And that during a general session, one of our customers, on an unsolicited basis, singled out UQM and gave a significant commentary on how worthwhile your propulsion systems are and design, et cetera, et cetera. And you were quite happy to hear them do that, especially on an unsolicited basis. And that resulted in a number of contacts, unexpected contacts that were made over the next 28 -- 24, 48 hours. Can you give us an update on what kind of follow through, if any, was experienced as a result of that? And who was the client that mentioned us?

Eric R. Ridenour

Yes. It was UPS. So a pretty substantial guy to say that our quality's good because those guys are like the bulletproof of transportation for maintenance and on-road expectations and other things. And so that was really good. And what I think it was -- we had just cut back from it at the last reporting. And so we talked about a number of people who came up and approached us. I can say, since that time, a number of them have come back further and some we have quoted. So it's definitely a very, very helpful -- for him to come through. And again, we continue to talk with them, including as recently as last week, to make sure on how our performance has been and where they are. And again, they are still very, very positive on us.

Randall Hough

Good. And so those comments were fruitful. You say you did get a number of follow-up comments and even quoted a few?

Eric R. Ridenour

Yes. Absolutely.

Operator

Our next question comes from the line of Walter Ramsley with Walrus Partners.

Walter Christopher Ramsley - Walrus Partners, LLC

The rare-earth replacement project, if that thing succeeds, can you give us a general idea of what the hope for performance and benefits would be and the cost impact might be?

Eric R. Ridenour

Again, the biggest part is clearly the volatility on the rare earths. As we witnessed, they're kind of back to where they were. But certainly over time, things can change again. And what it does, it gives us another option to provide the kinds of motors and controllers that our customers want, but potentially without rare earth elements and certainly just having options is a good thing all by itself as we go out and have to price things and do things. Just knowing that we can do something different, it does give us some leverage. And then if we saw another significant change as the programs finish and it bears fruit, we'd be able to then switch over to those productions over time and be able to react. So it gives us flexibility. The program's going well. It's in the second year now. It's a 3-year program, so still lots of hurdles, lots of things you have to do. But we've been -- we're very happy with our conclusion of the first year. We're into the second year where we're actually building test motors and starting to do -- begin shortly the test programs on those. And then the final phase is kind of the productionizing of all the things we need to do. And that's when we'll truly know the cost positions and some of the other things. It's a little early for that, but so far, everything is going well.

Walter Christopher Ramsley - Walrus Partners, LLC

Okay. And the military, is there anything going on with them?

Eric R. Ridenour

There's always a lot of things. They tend to come in spurts. At this point, they're kind of -- there's a lot of stuff going down on the basis that I'd call, conventional vehicles, where they want to have a reduced CO2 emissions per base. And so therefore, different bases, they're looking at different hybrids or fully electric vehicles to do the more normal task of moving people and equipment around. There has been and probably will continue from time to time to have some of the more military side weapons and theater [ph] ready kind of things. There'es still always this need for an extensive amount of power at the specific attachment area, engagement area and those kinds of things. So we see that kind of come and go. But at this particular moment, I'm not aware of anything active that's new that we haven't talked about in the past.

Walter Christopher Ramsley - Walrus Partners, LLC

So is that -- [indiscernible] even conventional vehicles, I mean is that a big potential or is that just kind of a...

Eric R. Ridenour

Yes, actually there's a lot of DoD vehicles bought every day because you think about how many people and how much goods and supplies, and especially with a lot of these things, both for the clean air of the base, but also CO2 and global warming. We would expect that to help. Again, we keep hearing a lot of things from our customers, obviously with the budgets and all that stuff, not a lot of new awards, but certainly we see potential for some of our current customers and others to get into some of those kinds of things.

Operator

Our last question comes from the line of John Gould [ph], private investor.

Unknown Attendee

Good to hear the words of encouragement that relates to the profitability on the horizon. I'm looking over the 10-Q, and I see the comment about the marine market. I was wondering if you could elaborate a little more other than what I can read there. And are the numbers sufficient there in the marine markets that people could get excited about potential new electric boats or hybrid tug boats?

Eric R. Ridenour

Yes, I think that it's a very interesting market. And I think, like electric vehicles were maybe 5 or 10 years ago where everyone just thought of them as golf carts and never really thought of them as real cars until now that they have a chance to actually drive them and see that they're quite excellent in performance. We have the same kind of thing going on in the marine market, which is a lot of people think they're those 1 quarter horsepower or 1 horsepower electric trolling motors hooked up to a 12 volt lead acid battery, and that's all there is. And so Regenautic and others had some really exciting products with high performance, outboards, inboards, hybrids and others. And I think the performance of them, the quietness is going to be really beneficial. We know and certainly I think a lot of our listeners here are aware of lakes that have quiet times and other things. I can really envision that once people start seeing that you could have quiet motors out there and others, that you might start seeing restrictions in other things. So for all the reasons that electric vehicles have [indiscernible], so do electric boats. And the same challenges of battery size and pricing and other things are also out there. But for a lot of applications, they're quite exciting. So I think, it's certainly one we're interested in and working with our customers on. And as time goes on, I think you're going to see that market grow.

Unknown Attendee

Just kind of our curiosity, [indiscernible] your question -- we all see the count of automobiles, the number of automobiles that are built every year. Do you have any idea how many boats are built every year in the world?

Eric R. Ridenour

No, I really don't. I've seen that from time to time kind of a state-to-state competition, who registers more boats every year, whether it's -- Florida normally wins. They got a lot of coast line. But Michigan, where I was from, also had a lot of coast line and some fairly good-sized lakes. But I don't know off the top of my head what that number would be, John. You may be interested enough to go try and find it, but I don't know it off the top of my head.

Operator

There are no more questions. Mr. Ridenour, would you like to make any closing remarks?

Eric R. Ridenour

Yes, I think just on closing, we're encouraged by what we see from both our existing customers and also the activity we see on developing new customers. We like the fact that we're talking to people all over the world in the various regions. We can see, I mentioned a little bit earlier, the momentum building worldwide, coming in pockets here and there everywhere. And I mentioned some of those in my talk. I think with our new products that we have out there, they're very competitive. The fact that we have the reapproval of the DOE, we have our cost management and other things, I think it puts us very well positioned to take advantage of the opportunities that are out there for us in order to grow our business. And so for that, we look forward to executing in some of those and turning potential into kinetic.

Thank you for joining us, and we look forward to speaking with you next quarter.

Operator

Thank you. Ladies and gentlemen, this concludes the UQM fiscal year 2014 third quarter earnings conference call. We thank you for your participation. You may now disconnect.

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