UQM Technologies' (UQM) CEO Eric Ridenour on Q4 2014 Results - Earnings Call Transcript

May.29.14 | About: UQM Technologies, (UQM)

UQM Technologies, Inc. (NYSEMKT:UQM)

Q4 2014 Results Earnings Conference Call

May 29, 2014 4:30 PM ET

Executives

Annie Leschin - IR, StreetSmart Investor Relations

Eric Ridenour - President and CEO

David Rosenthal - Chief Financial Officer

Analysts

Randy Hough - ProEquities

Glenn Primack - PEAK6

Harold Weber - Wells Fargo

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the UQM Fiscal Year 2014 and Fourth Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, May 29, 2014. I would now like to turn the conference over to Ms. Annie Leschin. Please go ahead.

Annie Leschin

Thank you, Operator. Welcome everyone to UQM’s fiscal fourth quarter 2014 earnings conference call. With me on today’s call are Eric Ridenour and David Rosenthal. Just as a note management will be attending the Ardour Capital Energy, Technology and Sustainability Conference in New York on June 5th. As other events come up we will make additional announcements.

Now let me turn to the Safe Harbor. 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 could be statements regarding our plans, beliefs or current expectations, including those plans, beliefs and expectations of our officers and directors 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 results to differ from those contained in the forward-looking statements are contained in our Form 10-K which is available through our website at www.uqm.com or at www.sec.gov.

And with that, let me turn it over to Eric.

Eric Ridenour

Thanks, Annie. And welcome to the UQM 2014 Q4 and fiscal year end conference call. In total fiscal 2014 was a good year for UQM. We executed on our strategic priorities and made progress on several fronts, all the while overcoming some significant challenges. Despite the fourth quarter slowdown due to the market dynamics we were still able to achieve a 4% increase in product sales for the year. We expanded our global customer base with the addition of new customers and the renewal of existing ones.

We added to our industry leading product portfolio with the introduction of two new products, directly targeted to growing commercial bus and truck markets. We narrowed our losses by implementing operational excellence throughout our organization and both reducing our operating expenses and our product costs. And finally, we solidified our future through our excellent cash management and recent capital raise which added to our strong balance sheet.

In the fourth quarter, our revenue was impacted by the delayed start of the 2014 California Voucher program due to state government budget issues. However, our loss for the quarter improved significantly to $1.4 million from $2.3 million last year and this is due to lower fixed cost and higher margins, as well as the one-time impairment charge taken last year.

Now this voucher program is very important to our commercial truck customers and to their end customers who use this incentive as it reduces the initial investment required to buy these efficient vehicles.

Our various customers qualified for incentives that range between $30,000 and $45,000 per vehicle. With no incentives offered during the quarter and further uncertainty [crowning] [ph] an official start date for the calendar year program, new purchase were essentially put on hold throughout the entire industry. Now while the program is now up and running, sales are just beginning to resume with many customers, impacting not only the fourth quarter but also the fiscal first quarter sales as well. We anticipate a pickup in sales as the year progresses.

As part of our strategy to expand our global customer base, we announced two new customers this quarter. The addition of PT Sarimas Ahmadi Pratama, a manufacturer of special purpose machines and vehicles is expanding our geographic presence to include Jakarta, Indonesia. They are using our PowerPhase Pro 135 for their all-electric 17 passenger bus.

And then more recently we announced the new customer in Turkey, a very diversified company called DMA, who also use our PowerPhase Pro 135 in their light commercial vehicle offering. Now these are just two examples of our many business development activities currently underway across the world.

One of the questions I get when we make this type of announcements are what’s the path to volume production. Typically they begin with a technical discussion our product, their vehicles and then the proposed usage. This is normally followed by a preliminary order for a small group system for testing and evaluation.

After the completion of the successful test program the length of which can vary significantly, customers place follow-on orders with volumes usually increasing over time into the 100s and potentially 1000s. Now we typically do not announce these customers until we see these follow-on orders and the potential for growth.

Now we are always talking with many more parties who are in these earlier stages. Particularly encouraging for us is that both these new customers are purchasing inventory previously done for CODA, thereby even more so improving our cash position.

One of our existing customers, Proterra, just announced their second-generations 40-foot all-electric bus and although they have not yet released all the details the second-generation bus provides the competitive features and pricing to lead to much higher volumes. They are currently the only all-electric bus in revenue service and have completed more than 340,000 revenue miles to date.

And in one of our most important territories, China, we continue to make good progress. During the quarter we began shifting PowerPhase HD units to two different customers. One customer has already installed this product in a fully electric bus and I’m very happy to report that the bus is up and running as of last week with our team there in China and now moves into the testing and evaluation, where they’ll take it around to the different municipalities who are the ultimate purchaser of these electric buses.

The second customer is our previously announced MOU partner. The system is at our dock waiting for their pick up and they [inaudible] first [inaudible] and then also installed an electric bus for testing.

Now this customer already sells electric buses and has committed to us that if the new system meets the goal, they will convert to our system and will be placing orders after the testing is completed. And so this customer plans to market this product to additional provinces and municipalities and to grow the significant volume.

Also this quarter we announced the collaboration with Kinetics Drive Solutions, a subsidiary of ST Engineering which is a 1.5 billion revenue company within the aerospace, electronics, land systems and marine sectors.

KDS and UQM have working together to optimize KDS multi-speed transmission to work with our PowerPhase HD line-up of products. This gives both partners the ability to offer their customers an optimized full powertrain systems solutions proven to work well together, reduce the time to market and lower development costs.

Additionally, both partners should benefit by tapping into each other’s customer bases and developing joint marketing activities and customer list which will expand each partner’s marketing reach.

KDS just announced a new agreement with Efacec Electric Mobility for a systems solution with UQM Motors for a new all-electric bus. KDS has also announced an agreement with Woxin Power in China which provides more marketing muscle and China based production for those transmissions. Now this arrangement is non-exclusive which will allow UQM to continue to sell standalone electric propulsion systems to those customers who do not need the transmission solution.

This quarter we also achieved a major milestone with our TS 16949 certification. As we mentioned previously, this is the highest level of quality certification in the automobile supplier community and a requirement for many tier 1 and 2 customers.

I’m extremely proud of all the hard work that our team has put in to achieve this milestone, on time and on the first try which is a real accomplishment. This certification has already paid dividends in furthering some of our current business development conversations with both new and existing clients.

And then finally, [inaudible] TS certification, the addition of 5.3 million raised during the quarter, provides flexibility to continue negotiations with several global customers while also funding working capital and enabling the potential addition of operations in other regions.

Now while we have sufficient cash to continue operations previously this capital raise puts us in a stronger position with potential and existing customers and enables us to simultaneously execute on multiple aspects of our growth strategy. Now we had hoped to complete and announce this financing prior to last earnings call but the exact timing is always difficult to predict and therefore we’re happy we’re able to announce that the very next morning ensuring full disclosure before the markets open.

While the quarter had much progress in strategic objectives, the revenue is not where we hoped due largely to outside forces which have since been resolved. Nonetheless the year itself is still solid and prospects are even stronger going into the next fiscal year.

So with that, I’ll turn it over to David for the financials.

David Rosenthal

Thank you Eric and good afternoon everyone. I’m going to share with you the financial highlights of our fourth quarter and year end results. As Eric mentioned, the fourth quarter was impacted by the late start of the California Hybrid Electric Vehicle Voucher program and the timing of certain customer orders.

The voucher program has since been approved as of April 8th and is now getting underway for calendar year 2014. As a result of this delay, total revenue for the fourth quarter came in at $1 million versus $1.7 million in the same quarter last year.

Gross profit margin for the quarter performed well, reaching nearly 35% versus 28% in the fourth quarter of last year. This strong performance was the result of changes in product mix and increased average selling prices.

So despite the almost $700,000 shortfall on revenue in absolute dollars, gross profit decreased only about $100,000. Selling, general and administrative expenses for the fourth quarter were $1.1 million, a reduction of 18% versus the same quarter last year. This improvement demonstrates the effectiveness of our strategy to maintain the lower cost structure that we put in place in the third and fourth quarters of last year.

We have and continue to maintain our overall commitment to R&D and targeted sales efforts in order to execute on our strategy. With our lower cost structure now probably in place, we expect our expenses to remain at roughly the current run rate. Our commitment to maintaining a streamlined infrastructure continues as we monitor our spending level and look for other efficiencies as we move forward. Net loss for the quarter was $1.4 million or $0.04 per common share, compared with a net loss of $2.3 million or $0.06 per common share for the comparable quarter last year.

As a reminder last year we took a charge of $1.1 million related to the CODA business. For the full fiscal year, our performance was very solid. Despite the slower than anticipated fourth quarter, product revenues still increased 4% to $6.1 million versus $5.9 million in fiscal 2013 and total revenue decreased just a $133,000 or 2% compared to last year.

Gross profit margins were higher than last year at nearly 38% versus 30% last year. The higher margin product sold generated a $553,000 increase in absolute dollars for this year compared to last year.

Total operating expenses during the year were $6.4 million compared with $7.8 million last year, a reduction of 19%, again, the result of the lower cost structure that we put in place from the third and fourth quarters of last fiscal year. Operating loss before any CODA related adjustments improved 36% or $2.1 million to $3.65 million this year versus $5.7 million last year.

Clearly, these results reflect our continuing focus on driving increased margins and efficiencies throughout our organization and operations. Net loss for the year was $2.8 million or $0.07 per common share, compared with a net loss of $10.7 million or $0.29 per common share last year, which included a $5 million charge related to the CODA business.

This company continues to be in a strong financial position and remains well capitalized. We ended the year with $10.3 million of cash and short-term investments and working capital of $20 million, including the $4.9 million net we raised in February. Even before the capital raise, we generated $800,000 in cash during the year due to a combination of lower operating losses, the sale of our old buildings, higher collection of receivables and lower inventory of approximately $940,000.

While some of these were one-time events, our current balance sheet positions us to develop future partnerships and prospective customers and accelerate shipments as our customers demand leading us to future growth and profitability.

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

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of [Robert Bache] (ph) who is a Private Investor. Please go ahead.

Unidentified Participant

Yes. I’m glad things are improving and we all like to [inaudible] possible. A couple of quick questions. When CODA went bankrupt, you were holding a lot of our motors and whatever it was that they were holding in inventory. And I was wondering if you are ever able to get those back one-way or another, or is that a total loss?

Eric Ridenour

From that standpoint, the bankruptcy has essentially run through the courts now, the final plan and all that has been put in. Now it goes in more to the execution phase and gets turned over to the trustees for the remaining trust and they are the ones who will go through that. So up to this point, there has been no activity. So it’s on our tracking list to find out what they have and what the best method for handling each of those kinds of issues are. So at this point, there has been no action by anyone because it’s been locked up as they’ve gone through the resolution and now that they’re through that, they will go through it and then the unsecured creditors and all those kind of things. So, again, definitely on my watch-list but at this point no update.

Unidentified Participant

Thank you. The other quick question is what are you doing about rare-earth, your experimentations? You’re looking into that for bringing down the cost of battery, batteries and charging batteries. Are you still in that program or is that over with?

Eric Ridenour

No. We’re still in with the DOE non-rare-earth motor and system, so the idea is to design in a proprietary way a motor [that would] [ph] not require rare-earth magnets.

Unidentified Participant

Okay.

Eric Ridenour

…for its powering and for that we’ve been working again with DOE. We’re just getting ready and in the middle of June we’re going to give an update at the DOE conference on where we stand, but so far everything’s [inaudible] very well, the motor is built. We’re just beginning testing on it as per the plan.

And so far everything is - the first year was concept phase, and second year is building the physical part and then beginning the rigorous testing of that and then the final phase is looking at production possibilities for it. Again, DOE has been very pleased with the progress and so are we, and it’s nice to see the motors in the new concept and new design, getting ready to be on the [inaudible].

Unidentified Participant

Well, good luck on that and keep going. I’m glad to see the improvement. Thank you very much.

Eric Ridenour

Thank you, Robert.

Operator

Our next question is from the line of [Ruth Crosby] [ph], private investor. Please go ahead.

Unidentified Participant

Hi. Thanks for the opportunity. We haven’t well, saw the [NEVs] [ph], they didn’t go with the UQM motor. What is your feeling about that? Do you know what their rationale was?

Eric Ridenour

Well, at this point, they’re on hold. I don’t -- it’s really been in the, I think just in this last week that they’ve put out an announcement that because of cash issues they have gone into a hold mode, the second major investor. We aren’t clear on exactly what the issue is, but so far hasn’t put in their fair share and so the main investor is basically done cash conservation actions. But as a result of that kind of everything went on hold.

We weren’t sure in the beginning what exactly was happening, we were - some things were getting very sluggish for getting responses to anything and now we understand from our position we’re in with no risk for us from the standpoint of having any direct receivables. But we’re not aware of whether they have built any of the electric vehicles or not and exactly what the plans are for that.

The note out of them was they are going to go through this internal reorganization or rethinking and then when they come back out, hopefully be able to restart, but it looks like everything got delayed.

So that’s all we really know, very scant actual amount of information from the company. We’ve looked around for other sources of information, but again whenever you go through this unfortunately that’s what happens.

Unidentified Participant

Thank you. What is the status with Audi, anything doing there?

Eric Ridenour

We know that the vehicles are still running well. They’re intending to be running four, I think, the balance of this year, collecting the data and we keep monitoring with them, how they are doing and getting reports back from them on those and so far everything has been good that way.

From the standpoint -- on the more official standpoint of what they’re doing has been in the same mode of telling us that they are evaluating and we haven’t heard much else at this point in time.

Unidentified Participant

I see. Thank you.

Eric Ridenour

All right. Thank you.

Operator

Our next question is from the line of Randy Hough with ProEquities. Please go ahead.

Randy Hough - ProEquities

Hey guys. How are you doing?

Eric Ridenour

Hey, Randy. How are you?

David Rosenthal

Hi, Randy

Randy Hough - ProEquities

Good. Couple of questions, you mentioned KDS and the relationship you have both directly with the Canadian company and applying if you will to the parent in Singapore. My question goes specifically to the transmission itself, the next drive transmission? Could you -- I’d like to think that that was some great breakthrough technology that would enable multiple applications on different platforms with some kind of, again a breakthrough that would aid adoption of the electrification of medium-duty and heavy-duty vehicles? Could you tell us a little bit about that technology that makes it different from other transmission systems?

Eric Ridenour

Well, I think there is two or three things, I mean, to go way back, when we’re first in, principally, China, but we’ve also seen it in other places. There was a lot of direct drive buses because there really wasn’t what they considered a high quality step transmission available for the kinds of speed and loads and duty cycles. And so that was sort of - a problem for some it is they are asking us who should they go to because they didn’t know within China, we did our own search and worked with several people and still continue to work with several, because again obviously each customer has their own needs and own desires. But in that search KDS and ST Engineering who we are familiar with came up, we went and met with them and went through and realized that they were hearing similar things but from the other side is that as people bought transmissions, they wanted very good motors and controllers for their electric vehicles.

So we began a conversation. And as you remember, I think you are the one who asked me when they [showed] [ph] what was supposed to be an inside press release out ahead of time before we got it all done and unfortunately took a while to finally nail down all the collaboration stuff, but now we are all on the same page. And if you go on their website, you will see our motor and controller is one of their options; they are obviously working with somebody else before and that was part of the difficulties in their history. And so therefore it’s a nonexclusive arrangement. We both can do things by ourselves or things together, but what we see is that working together is very helpful. And it’s a very nice 3-speed transmission. We have done all the work optimizing the shifts for our motor. Customers were extremely pleased with the smoothness and how it works.

And so we’ve introduced them to a couple of customers that they weren’t previously talking to and they just announced the Efacec which we had talked to before and sold some parts but one of the issues was again for them I think getting the same thing, a high quality 3-speed really make this thing work well. And so they contacted KDS and then through that we are selling more parts and that’s where we see really the benefit is that for a whole lot of the - especially in the bus markets and that this is new business. The trucks, commercial trucks tend to buy their transmissions and engines and steering knuckles and rear axles from a variety of vendors. There is not a ton of internal capability within those OEMs. And so the bigger system approach we’re finding to be very beneficial. And again, we never make anyone. It’s not a requirement that they have to use KDS, they can use whoever they are using. We have other people we sometimes recommend from time to time, but we know it’s a good system and we work together and obviously we like the fact that while KDS itself is small, they have ties into a much bigger company with ST Engineering and they also have Woxin Power who they have announced an agreement, who will build the transmissions for them in China and also have some of its own internal sales and marketing within China that we think will be beneficial.

So that’s kind of why we really like the deal, we like it because it’s all plus, it’s no negatives because if things need to [inaudible] they can or whatever we tend to work together and so we offer the ability to work on their transmission, they offer the ability to work with our motor and controller, and there is a handful of people already with those systems together putting them into vehicles. So again, [inaudible] it’s a pretty slick transmission. So again whether it’s from other transmissions in the world that they have consistent but that’s unique in this commercial bus and truck.

Randy Hough - ProEquities

Okay. You mentioned that – sorry, you are going to give me chance for third question. You mentioned the Woxin Power deal which I ran across in my research, is that - so that’s basically a combined entity between Woxin Power and the parent of KDS, and do you have any sense for the strategy there and potential to the Chinese market through that channel using this technology?

Eric Ridenour

Yes, I want to be careful only because I really don’t know the agreement specifically. Again I only know what we’ve been told. So I’m going to purposely be a little vague but I do know that Woxin Power already been selling in China for some amount of time different things. Along the way, KDS has had a subsidiary in China and what I don’t know is exactly who signed with who within that chain of command. So I don’t know that. I’m not -- I believe it’s down at that level but again I’ve never seen the actual agreement.

But the whole idea was both had China builds because we’re seeing that requirement is gaining access ultimately, we’ll probably ultimately end up with doing some building in China for the same reason. And also that they have some sales and marketing already there which is again helpful. But the particulars, other than the way I just described is kind of the way it was described to us. But I haven’t seen specific agreements so I just can’t count or I don’t want to [inaudible] fear of saying the wrong thing.

Randy Hough - ProEquities

Okay. We’ll keep that in focus from quarter-to-quarter and see how it develops. But I have saved the best question for last in my mind. When you announced the DMA relationship, the Turkish company, I did a little research and I found a news release from Remy dated June 2012 in which the headline is Remy International signed long-term supply agreement with DMA. And the release went on to talk about the relationship using a certain Remy motor or system and had comments from the DMA CEO Önder Yol that what a great thing it’s going to be for them.

And then you come out with your release almost two years later and CEO Önder Yol is speaking to what a great relationship he is going to have with UQM, and knowing that we have far superior equipment and systems than does Remy, it seemed to me that the reasonable question would be, did we replace Remy on their relationship with DMA?

Eric Ridenour

I think probably the best way to characterize it is they did have a relationship with Remy. It may still continue in some form or fashion but due to -- I never want to speak bad of a competitor. But I should say due to some performance and other issues as they were looking to expand their line-up into additional vehicles they came to us. And we have provided units to them. Again, this is one of those that we’ve been working with for quite some time sending units.

But again we wait until they turn into something much more significant rather than just announce every time we sell off a couple of units to somebody. But they’ve put them in vehicles. They have tested them. They know they work. They like the full system approach. They really like the fact that the controller and the motor know each other and that they can talk to one person. And if there is an issue they can answer it rather than point a finger in a different direction.

And for all those reasons, they are going to use us in this new platform and that’s the one we announced. And then we’re certainly talking to them about other applications and then over in the long scheme of things we’d like them to be [OU] [ph].

Randy Hough - ProEquities

Yes, so both systems, just to be clear is, motor controller combination made it from the factory floor instead of Remy just supplying a motor and they have to go somewhere else for the controller, right?

Eric Ridenour

Right. And what they’ve learnt is that interface challenge is much bigger than they originally would like to believe or thought to make it really work slick.

Randy Hough - ProEquities

Okay. Great.

Eric Ridenour

We’ve get to save them some time by telling them at the beginning but it’s much more impactful after they do some learnings.

Randy Hough - ProEquities

Sure. They become a believer. Okay. Well, I’ll sign off and you guys got this company running about as streamlined as I can imagine. Just get the top line to $10 million a quarter be a nice start and we -- I think we’ll make some real money. So thank you for the job you’re doing.

Eric Ridenour

Well, thank you and we agree.

Operator

Our next question is from the line of [Patrick Adert] [ph], private investor. Please go ahead.

Unidentified Participant

Yes, my questions have been answered already. Thank you very much.

Eric Ridenour

All right. Thank you.

Operator

Our next question is from the line of Glenn Primack with PEAK6. Please go ahead.

Glenn Primack - PEAK6

Hi. Good afternoon. I was wondering how long it takes you to convert an order to revenue?

Eric Ridenour

We can convert orders of revenue in a matter of a few weeks. But normally, I guess, again it takes that longer path as I try to describe a little bit, is that it depends -- there is a huge number of variables. One of them is the sophistication and the experience of who we are dealing with, so whether this is a very first application and therefore there is a lot of learning or whether this is an add-on application, or are they a big company with lots of engineering resources or a smaller company. So all of those things but the pattern still remains and that is essentially that we have a discussion about what it is they would desire, what are the operating characteristics and performance characteristics they are looking for.

We look to our current range and our coming range and also in some cases we’ll probably build our custom applications. And in that period of time we spend quite a bit of meetings going through to make sure that we really understand what it is they desire, not just what they think they want because in some cases they are applying [IC] [ph] engine algorithms rather than electric motor algorithms to their thinking and forgetting what happened with almost instantaneous torque and some of the other damages that come with electric motors.

And so once we have that, normally then comes an order for one or two or three units in which they then put them in the specific vehicles and then make sure that they see all the performance they expect, then it moves on. Normally, the follow-on orders is they are growing and now starting to ship and then what we call the throughput action ramp-up phase which is where they are ready, they have got the price points and the volume commitments and they move on. And so that’s sort of the phase and again they can be as short as in some cases six months and in some cases it can be a couple of years depending on exactly what needs to happen in each of those cases before you can start seeing significant - But I’d say that the six months of the year you can definitely see those few sales. And again for more sophisticated, you might get into volume and then certainly the volume normally comes because that company, if it’s a smaller company also has to build its volume and all the other infrastructures that go with it, the batteries, BMS units and other things. So everything has to kind of come up at the same speed. We tend not to be the limiting gate on that. It tends to be some of the other systems and all the testing that’s required to make sure that customer gets an A-1 kind of product.

Glenn Primack - PEAK6

Okay. And so I guess for something like the California State Voucher program that one I suspect is mature enough whoever the provider is that you can -- the orders are placed, you can get that…?

Eric Ridenour

Absolutely. That’s like what we’re saying at the beginning is that [inaudible] the customers we are already working with, they have already sold them products. Once they get an order, it’s just a question what our material flow is all about and it can be as short as three or four weeks. If we have to, it would be at a point in our inventory cycle where we have the parts here or no more than 12-weeks if we had order new parts depending on size of the order.

Glenn Primack - PEAK6

How much capacity do you have today, like how many units could you bring out in a given month about, any…?

Eric Ridenour

We have a mix model capacity line. It has more than sufficient capacity. We are currently in the 50,000 plus capacity because we have, as we announced a few conference calls ago, we took the high production stuff from CODA and repurposed it so it can build either the small or the larger motors, so because of that and what we had in place with larger motors, we now build either/or to pretty high volumes. So the ramp-up really is not going to be an issue from a capacity standpoint until it gets significant in which case we will all be smiling.

Glenn Primack - PEAK6

It’s a good [inaudible].

Eric Ridenour

Right.

Glenn Primack - PEAK6

It’s taking me to my next question, the China opportunity, as I talk to electric steel manufacturers and then they think that potentially this is the year where in Asia, I think probably mainly China was it that it’s going to be, I guess there is more content of electric steel on the EV vehicle versus non and what they are hearing that that’s a breakout type for your profile again more of these vehicles are on the road whether it’s a bus or a car.

Eric Ridenour

Everything we see points in that direction. I mean, again, China, in my viewings over many years you tend to run into what is called phases of China which is intense discussion, big pronouncements and then a low laughter and this was back 10-15 years. And then you see -- no, we’re serious and then you see there’s new energy and enthusiasm that comes in and then things move very rapidly whether it was the Beijing Olympics.

What we see now is the new premier and certainly with unbelievable amounts of smog this year and in this last 12 month period, along with [world stage] [ph] each mayor, I mean, we’re seeing in multiple venues between hearing it from some of the people we do business with, seeing it from people who are on the ground in China that individual mayors and the different provinces have some very now real and tough goals with specific numbers of vehicles that they have to get on the road if they want to be graded high when they to that big meeting every year with the thousands and thousands of tables that are in the Great Hall. And they want to sit near the top in the front, well they better meet their goals. And we’re seeing it and like I said, the biggest thing right now is moving forward and get everything else and making sure it’s done well.

I think, one other things for us that the very big proof is we’ve been talking about progress each time. And I know sometimes people wonder whether this is real progress or whether we just saying it. But the physicality of having a bus running and having our team over there and knowing that there is a bus manufacturer who we can look at and see their capacity and know that they can more than hit the numbers they’re talking about because we can see how many they’re building per hour right now.

And we go over there and we see the work they’ve done to adapt and retrofit the motors and batteries to be in that full systems; we work with them for a few weeks on this very intensely and find that in that period of time, we move from putting the parts into and now the bus is driving around town. We just got to report this morning that after now just a few days, they’re hitting all their efficiency targets and we actually have very nice letter from the customer saying you guys have done, you hit everything you said you’re going to hit. Our bus is hitting the kind of range and performance that we expected. We’re very happy. Just want to thank you. So again, it moves from there. It’s now going to go the provincial customer. He’ll drive it around for a while, do his own testing because again, obviously, nobody wants to put a new bus on the road and have a problem, when you have customers inside that.

So that process will happen but we’re at that inflection point that in these next six months I think we’ll see the beginnings. And again it’ll be just a question of how fast the entire infrastructure can move. I know, we will move more than fast enough or whether everything else will move as quickly but again the driving force is there.

Glenn Primack - PEAK6

Okay. Has that -- have you seen anything else that that cleans that country up, whether it’s solar or natural gas? The response and monies been spent relative to like what you read in the paper about just the economy itself being somewhat sluggish when it comes to anything that [inaudible] clean?

Eric Ridenour

We are not seeing any issues with money and I’m hearing that from investment bankers and others, not just people that are selling but the people that are cutting the deals. We had some people that we’re in contact with, that are doing business there live all the time. And the consistent message we hear is that cash will not be the issue. It’s more doing it right and making sure because nobody wants to stumble. But again we see the thing and we normally like buses, as again, we said it before is that the government wants cleaner air, everyone sees the buses come and go.

The few municipalities buy the buses, the government wants the buses, the government will incentivize the buses and it’s a nice deal. You don’t have to wait to talk somebody else into it because the rider doesn’t care as long as the bus gets them where he is going but he doesn’t have to have a clouded smoke when it takes off or while he is waiting for it.

Operator

Thank you. Our next question is from the line of Harold Weber with Wells Fargo. Please go ahead.

Harold Weber - Wells Fargo

Yes. Hi, guys, how are you doing? I was hoping you could elaborate maybe a little bit on some let’s say potential timeline of what’s type of a customer base potential might be, let’s say ramping up sooner versus later like [inaudible] other buses down the road six months, five months. I’ve been here for almost 30 years and seen product and product and good stuff, and I am waiting to hear when I am going to have an actual commercialized contract with customers that have been testing our product for years already. There are different levels of that, but I was hoping you could put some light onto that?

Eric Ridenour

Well, the light I can put is that the effort that we are putting into it and what we’re seeing we like. We’re definitely making progress toward those goals.

Obviously, I think, we all share in the desire to have seen them already and to see them as quickly as possible. But, I think, again, what I really like is that I think we are in the right spot, talking to the right people. We are talking to people here in North America, we are talking to people in Europe, and we are talking to people in Asia, which includes Japan and not just China, obviously we talked about Malaysia, Turkey, but there is others. And again that we have not talked about yet publicly, but are back out there also.

So, no one in this business has made a correct prediction yet. I am not going to add to the long chain of those that make a guess and either it says too late or too early, but we are doing everything we can to have that happen as quickly as possible, with the right people doing the right thing at the right time. And again patience has been one of my virtues rather, but we keep doing right thing. The TS really helped because it gives us credibility, because again as I mentioned nobody wants to start a program and have an issue. One of the issues we face as I told you guys when I first got here was that as a small company there is always those concerns. But we are now one of the few companies that are TS; we have seen many who are now trying to be TS. They get a lot of work in front of them, but we’ve already got it, and that has helped in some of our discussions moved the marker along and we quit talking about those issues and now I just assume that we will deliver quality product on time.

Harold Weber - Wells Fargo

All of that stuff is great. I am just wondering if you could put any kind of light on, let’s say, I mean you have customers even dealing with multiple years, they have used your products sufficiently. They know everything there is to know. They don’t need to test them anymore. So what is really the issue, either they don’t want to do it or they want to go forward with somebody else? Or what is really the issue, I mean the R&D part of your stuff is done, the product is ready to be booked and delivered, why is there no real forward movement yet, I only [Unclear] mean in general what is the real issue here that’s holding all this back?

Eric Ridenour

Yes. We’ve said the whole vehicle, the batteries, the cost, the incentives, the government, as you saw today I think it was today or might have been yesterday but the news today was the different mandates dates coming together to try and help other incentives. We certainly see I think I just saw, I forget the stores, but the 26% increase year-over-year in plug-in hybrid plus electric vehicle sales versus year prior same period. So it’s building, but it’s building and again it’s certainly taking longer than people thought. And again what I am happy about is that we are making the progress on real fronts with real customers and the only choice I have when a customer continues to wait is to tell him goodbye or keep working with him. So unfortunately we don’t have the leverage to make them do things quicker other than to make sure we answer all their questions as fast as possible and we provide them the technical data they need to make the decisions and keep working on our cost positions, so we can give the very best quotes as they come in. We’ve made a lot of great progress in those areas and we will continue to wait, but again I think we are hitting this point that we should start seeing some much more solid things in these next few months, but I am never going to do the projection, I did that once and I was wrong.

Harold Weber - Wells Fargo

I am not asking you to do that. I am just trying to understand on R&D on this side of the table what do you feel has been, if you couldn’t focus on something - restraining this from going forward at this point, I mean on some levels it’s the same places we have been for the past 3 or 4 years. And I am trying to understand what is really stopping this from jumping. Quite obviously somebody has to say, yes, I want to buy it, but it’s -- why is it that what’s the issue, is there some particular issue, is it just generally the issue of who is going to be first in the auto space from our end, what I mean, what, is there something you could say to quantify why they still hasn’t made it to the next phase yet?

Eric Ridenour

Yeah. I think, again, I mean, what we are seeing is a tremendous number of new entries. So I think, there is a lot more action then the comment. Certainly, we have got a lot of new entries over this last year and into this year, still more coming over the next couple of years. The volumes are still at the low end. They are still coming through, but all the stuff is percolating and it is moving.

So, again, I think, we are now finally seeing the year-over-year growth and I think we are finally seeing the increase in activity and the changing of what I call PR rhetoric to real actions as each competitor and certainly as people like to test [inaudible] do what they do, while certainly it drives other behaviors which drive other behaviors and it all starts building.

So I think we are at a good point. I think the issue is always same one is that, it takes volume to get the cost down and as the cost comes down the volume will increase and everyone is wrestling with those different factors. So with that we look forward to the future and I know you would like it sooner and so would I. Next caller I think.

Operator

Our next question is from the line of [Keith Brown] [ph], private investor. Please go ahead.

Unidentified Participant

Thank you for your report for a good year and I encourage the forward movements. Recently published figures says there is 170 domestic automobile manufacturers within China? (NYSE:A) how many are you working with and (NYSE:B) how many bus companies are in China, manufacturers, and how many are you working with?

Eric Ridenour

There is -- it's very hard to get that exact number, but I would say four bus companies. They range from very small, very local to big. I would say the total is in that 100 to 150 range. I think the majors are around a dozen.

They are very regionally based and in our conversations we are talking to people that either are directly tied to (A) bus manufacturers and others that are tied through many. And so between that we have reached the ability that I think we have a pretty good graph, over time we have talked to most of the figures and some have interest and some are still trying to decide what they are going to do.

And I think that whole thing will shake out. But the key is always, the way I think you are going to see it rollout much more on a provincial basis that company x within province y will take the lead and even though there might be eight or 10 bus companies in that province, one will be the one that everyone uses for their EVs or maybe it will be two and then they will pick a sub-supplier for the component and all that.

So that is one of the challenges of China and it is one of things we address way back when we first went out and that’s why we did checker board how many could we identify and what was the propensity and who are they tied to already and all that.

But I think we feel like we have a pretty good handle on a representative number and we think the other part is that once we get firmly established with one or two, that’s going to greatly help us as we move on because one of the other issues that we run into is with each company we work with it becomes an entire agreement, it becomes an entire provincial approval, national approval, lots of stuff for a small company to do. And so on purpose we have been selective to go with those that we think have the highest yield and it’s improving out there.

We have had great discussions and I think we have picked some of the right players that certainly have the wherewithal and the inner-workings and again, we will have in this next few months, two of them with buses running and that will be a great start.

Unidentified Participant

Okay. In domestic market, where are you on heavy-duty trucks, the U.S. market?

Eric Ridenour

Again, we have talked to a lot of players, there is not again in - the heavy-duties there is not much going in hybrid and electric as over the road, the range is just too important. But certainly, in the medium duty, the step van and the package carrier and that kind of thing, as you know we’re in, UPS, and we get accolades from them no matter who they’re going to work with. They said they want UQM motors in their vehicles. They already work with some of our customers and they’re reaching a broader group of people.

And so those are the ones, obviously we’ve announced EVI and Boulder EV. We’ve announced Zenith, who is doing the hotel side market, and Proterra on the bus side. There’s others that we talk to and there’s others who are not yet ready to get into it but when they do we’ve had discussions with them.

Unidentified Participant

Thank you for your courtesy.

Eric Ridenour

All right. Thank you.

Operator

We have a follow-up question from the line of Randy Hough. Please go ahead.

Randy Hough – ProEquities

Okay. Eric, let me take you back to and I know this is been exhaustive for you. But I think your answers to your questions were very uplifting. But anyway go back to NexDrive, is it sized that it will only take a UQM motor of 220 KW or higher? Or can that be, which would imply larger buses, 60 person or 40 person buses or heavy-duty trucks, can it be sized smaller, so that it would use a, let’s say at 200 KW or 150 KW UQM motor for lighter buses, let’s say a 25 person bus?

Eric Ridenour

Yeah. I mean, I think it definitely has a pretty wide range. Again, they started with someone else. We’re working with them. The one that we have is the one that’s tied into our HD line-up. Obviously, we already have three different motors in that family with the 220, the high-torque 950 and the high-voltage 250. And all three of those can work. And then certainly we have talked with customers who either need higher torque but not so much continuous power or other things.

And I think it could do the job. I think if you go lighten up, you might want a different transmission but again KDS could decide on that. But certainly, it’s very useful through wider range. It’s just again, eventually get to a question of, do you pay too much or have it too heavy or too heavy-duty, but that’s our much longer term. I think, in the short term, a whole lot of people can use it.

I think there are people that are in that smaller capacity numbers then there is also a single speed that they have that can be use when you don’t need extra torque multiplications, so you can pick a fixed gear and again use that for other applications. So I think that leaves it open. Again, we are talking to other guys for the same reason to make sure that we can give our customer the maximum choices.

We have worked with some of our other customers on some transmission issues in order to get through their problems using some of our background, some of our contacts. But we feel pretty good. It’s certainly a very positive win-win kind of relationship that we have with them and again, we have the flexibility to go wherever the customer wants, whether it’s with them or with somebody else.

Randy Hough – ProEquities

Would you say then just to wrap it up that the promotion ball, if you will, is really more in their court than it is at UQM, or because of their cross [pollination] [ph] that you both bear an equal load in terms of getting customers interested in the combined technology?

Eric Ridenour

Well, I think we both have a vested interest and that’s why we are working together is because we see the benefits of that and because it’s the customer ultimately to size, we also see the benefits of not having to mandate that one has to by picking one, has to pick the others. So that’s why we chose to go to non-exclusive route because again sometimes the manufacturer may actually manufacture their own parts.

So we don’t want to always be tied that it has to be their transmission. But certainly we have been a boost with them. We do put our two products together, so when somebody sees one, they want to ask a question about the other and I think it’s in all of us that interest to have as many different customer touch points and contact points as possible at this stage of the program.

Randy Hough – ProEquities

And their capacity per annum would be -- you have any idea of what their manufacturing capacity for the NexDrive transmission is on a yearly basis?

Eric Ridenour

We are aware of their things but I don’t know that they have announced it and I don’t want to announce this for them. They get pretty picky about what things we can talk about regarding those things. So they do -- they have shared with us. We are aware and again, we think it’s a good match but I don’t want to be the front piece for them.

Randy Hough – ProEquities

Okay. Thanks you very much, Eric.

Eric Ridenour

Thanks Randy.

Operator

Our final question is from the line of [William Henthorn] [ph], private investor. Please go ahead.

Unidentified Participant

Hi. Just a quick question about the potential of the Pacific Gas and Electric, PG&E, in California, they have just, their fleet guy, the guy that buys the fleet vehicles has talked about replacing all of their vehicles with vehicles that have UQM motors, controllers, et cetera, at least that’s my understanding?

Eric Ridenour

Yeah.

Unidentified Participant

Could you comment on that and if there is any progress?

Eric Ridenour

Again, definitely that, two pieces is that, he said that in the public venue and we like it. The question he did not address was the exact timeline for how quickly the fleet would get replaced, but he said he would like to.

The other one is, I know they are working through as is typical of California, there is certification requirements and others once to get beyond the couple and they are just going through those things and I think once they are through all that then we will see additional orders, but they have not told us or publicly said what that ramp plan is other then that the desire is definitely to ramp and change at least a significant and if we believe this whole comment, the entire fleet over, which we like a lot.

Unidentified Participant

Thank you

Eric Ridenour

All right. Thank you.

Operator

Thank you. And that does conclude the question-and-answer session. And now I’d like to turn the call back over to Mr. Ridenour for closing remarks.

Eric Ridenour

Again, I would like to thank everyone for the questions and for listening in. Again, I think we did a really good job on getting through our strategic objectives for the year and adding new customers, expanding our product offerings, the work we have done on a global basis, they both retained and grow with our current customers and get new customers, obviously we want to go faster and get more.

Our final goal is cash flow positive and to be profitable. We cross the cash flow positive due to some favorable factors, but still for the point certainly versus prior years for all those reasons that David elaborated on, we feel pretty good.

And again, we understand the charge going forward is to go get the business and bring the volumes. And we intend to keep on doing that. I’m very pleased that you know the TS Certifications we did projected 18 months in advance and we did it on the day and the months that we originally promised.

And the fact that we did it on the first try was just really not [inaudible] because as I told you, almost every auditor almost feels like they have to find something wrong to justify and our guy actually walked away saying that he was going to take some of our systems and processes as benchmark [inaudible] other companies our size and have them help and learn from what we have done. So, again, I really appreciate what the team was able to do and we look forward to fiscal year ’15.

Operator

Ladies and gentlemen, this concludes the UQM Fiscal Year 2014 and Fourth Quarter Earnings Conference Call. If you like to listen to a replay of today’s conference, please dial 1 (800) 406-7325 or (303) 590-3030 with the access code of 4684827. We’d like to thank you for your participation. You may now disconnect.

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