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Active Power, Inc. (NASDAQ:ACPW)

Q4 2011 Earnings Call

February 14, 2012 4:30 am ET

Executives

Jan H. Lindelow – Interim President and Chief Executive Officer

John K. Penver – Chief Financial Officer and Vice President, Finance

Analysts

Walter Nasdeo – Ardour Capital Investments LLC

Shawn E. Lockman – Piper Jaffray, Inc.

Operator

Good afternoon, everyone. Thank you, for participating in today’s conference call to discuss Active Power’s Financial Results for the Fourth Quarter and our Year Ended December 31, 2011.

With us today is Mr. Jan Lindelow, Interim President and Chief Executive Officer of Active Power and Mr. John Penver, the Company’s Chief Financial Officer. Following their remarks, we will open up the call for questions.

Before I continue, I’d like to take a moment to read the Company’s Safe Harbor statement. The company’s management on this call may make forward-looking statements that involve risks and uncertainties, including statements relating to Active Power’s current expectations of operating results for the first quarter of 2012, its future operating results, and its customers’ current intentions.

Any forward-looking statements and all other statements that may be made during this call are not historical facts are subject to a matter of risks and uncertainties and actual results may differ materially. Factors that could cause the actual results to differ materially from the results predicted include, among others; the deferral or cancellation of sales commitments as a result of general economic conditions or uncertainty, risks related to our international operations, and product performance and quality issues.

For more information on the risk factors that could cause actual results to differ from these forward-looking statements, please refer to Active Power’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010 and its current reports on Form 8-K filed since then.

Active Power assumes no obligation to update forward-looking statements or information, which are in effect as of their respective dates. I’d like to remind everyone that this call will be available for replay via Active Power’s website at www.activepower.com.

I would now like to turn the call over to the Interim President and Chief Executive Officer of Active Power, Mr. Jan Lindelow. Sir, please go ahead.

Jan H. Lindelow

Thank you. Good afternoon and thank you for joining us today. A moment ago, we issued a press release announcing our fourth quarter and full year results for 2011.

Before we discuss these results, I will share some observations of the business in the market and why I’m optimistic about 2012. Active Power has a passionate executive team and a dedicated employee base that demonstrates whatever it takes out to meet customer needs and to propel the business forward.

In 2011, we saw a global demand for our products and solutions as evidenced by the revenue increases we recorded across all regions and all channels, particularly our IT channels.

We see this momentum continuing in 2012, having already received orders from more than a 140 flywheels for delivery this year. This is very positive for our UPS business. We can contribute much of this demand to the growth we are seeing in the data center and power infrastructure markets, which makes me optimistic for the foreseeable future.

The inherent benefits of our products and solutions continued to resonate with clients. Most also agreed that energy is the fastest growing cost in the data center, including Gartner, who forecasted energy cost would be more than 20% of all data center expenses in five years compared to 12% at present.

From a global perspective, the U.K. data center market for example is anticipated to be one of the world’s largest 25% growth in data center investments to $3 billion during 2011 and’12. These investments would be made in new construction and facility expansion projects according to a recent report from Datacenter Dynamics research. This trend aligns well with what we are seeing and reflected in the 47% increase in sales we achieved in 2011.

Datacenter growth isn’t limited to the U.K. In China, for example, the government plans to invest more than $300 billion in IT and associated infrastructure over the next five years. In fact, the [country’s] cloud computing market is anticipated to grow 30% in 2012 according to IDC.

In Europe, research firm BroadGroup suggested in a recent report that [key seven] markets in Central and Eastern Europe are now perceived as growth areas for datacenters. With the dedicated sales resources in this region, we anticipate increased sales activity and order generation for Active Power.

And in the U.S., we continue to see an increase in demand for both our UPS and continuous power solutions, as reflected in several large orders deriving from co-location customers, one of our key market segments. In fact, the market for co-location datacenters is anticipated to increase nearly 70% between now and 2015 according to a recent report from the [Maritz Research].

And containerized datacenter market is also anticipated to grow according to IDC. The research firm estimates a 50% increase in number of modular units deployed from 2011 to 2012. This is consistent with that we are seeing from HP, a strong increase in containerized datacenter product sales, which in turn drives sales of our continuous power and infrastructure solutions.

In summary, we believe Active Power is well positioned in the market. We will continue to take market share with our consultative approach and a set of products and solutions directly addressing the business and IT challenges that mission critical operators face on a daily basis.

Now, I would like to turn the call over to our Chief Financial Officer, John Penver, who will take us through the financial details for the quarter and the year. I will then come back to discuss the operational changes we’ve made to address the near-term priorities we discussed last quarter and why I believe we’re on a target to achieve consistent predictable profitability. We’ll then open the call to your questions. John?

John K. Penver

Thank you, Jan. Good afternoon, everyone. Happy Valentine’s Day. Thank you for joining us on our call today.

Our revenue for the fourth quarter of 2011 was $18.3 million, increasing sequentially by 11% and by 5% compared to the fourth quarter of 2010. For the year, our revenue totaled $75.5 million, up by 16% from the $65 million we reported in 2010.

Revenue in the fourth quarter included $10.6 million of PowerHouse and continuous infrastructure solutions and services, which was 58% of our revenues. This does demonstrates acceptance of our solutions and technologies in the critical power and infrastructure market.

I’m now going to provide a breakdown of the revenue by product category, by geography and then by sales channel, providing fourth quarter 2011 and full-year revenues, and provide some analysis and color behind these revenue numbers.

So, looking at the fourth quarter product revenues of $14.8 million, that was split as follows; UPS systems $5.6 million, continuous power solutions $2.1 million, continuous infrastructure solutions $7 million.

While the general trend over many quarters has been positive, the split of product revenue between these categories has and will continue to fluctuate on a quarterly basis, due to the variable size and timing of the actual orders. Orders, particularly for continuous power solutions like PowerHouse and our infrastructure solutions can be large and therefore cause significant fluctuations in the quarterly sales mix and revenues.

Looking at the two year split of revenue by product type provides a clearer picture of the trend in product revenue for the company. So for the full year, our product revenues of $62.7 million was split as follows, UPS systems $26.4 million, continuous power solutions $22.2 million, and continuous infrastructure solutions $14 million.

Our UPS systems business has been the slowest growing part of our business over the last several quarters. This quarter we shipped 69 flywheels in UPS systems compared to 91 wheels in the previous quarter. This was also up from the 117 wheels we shipped in the same year ago quarter. Some of these UPS systems in fact, six wheels are shipped in our continuous power solutions such as PowerHouse and we report the sale of those products as part of our continuous power solutions revenue.

When you look at stand-alone sales of our UPS systems, there was a 43% decrease in UPS systems revenue compared to the same year ago quarter. This decline was largely attributable to a decrease this quarter in large UPS orders from our OEM channel in U.S. compared to one year ago. In fact the revenue from our OEM channels in the fourth quarter were down by 64% compared to the prior year.

On a year-to-date basis, our OEM sales which are predominantly UPS systems were 4% lower than in 2010. And then although essentially flat for the year, the last three quarters have seen significant year-over-year declines in performance from our OEM channels.

For the year, our UPS systems revenue declined by 20% or $6.6 million due to the absence of large orders from extreme scale IT customers that we lost in 2010 and the overall decrease in large orders from our OEM channel particularly in the U.S.

The majority of growth in our business compared to a year ago is from the sale of continuous power solutions, including our PowerHouse products. Revenue from our continuous power solutions were up by 92% or by $10.6 million compared to the prior year. But as an example of the lumpiness of this business due to the small volume, but high value transactions, revenue in the fourth quarter was down by $3.8 million or 64% compared to the fourth quarter of 2010, attributable to timing of customer projects.

Since our last call, we have seen an increase in demand for our infrastructure products, as demand for modular data center products appear to be accelerating. We still have a relatively small number of orders and the order size can vary greatly, resulting in large changes in revenue on a quarterly basis from sales of infrastructure products.

In the fourth quarter, infrastructure products provided 48% of our revenues, or approximately $7 million. This compares to $1.2 million of revenue in the fourth quarter of 2010. And for the year, our infrastructure product revenues of $14 million was 27% or $3 million increase compared to 2010.

And if I look at our revenue by geography, on fairly small numbers, our revenues from Asia this quarter of $2.2 million were up by $1.8 million or 450% from the same year-ago quarter, and were up by $1 million or 88% from preceding quarter. For the year, our revenues from Asia were $7.8 million, which was an increase of 76% compared to 2010. This reflects growth in our China operations and from a number of PowerHouse orders in Southeast Asia.

Revenues from Asia comprised 10% of our revenue for the year, compared to 7% of revenue in the previous year. Our revenues from Europe were 23% of total revenue in the fourth quarter, compared to 12% in the previous quarter, and 24% in the same year ago quarter.

For the year, our revenues from Europe of $19 million were up by $6.1 million or 47% Our European revenues comprised 25% of revenue for the year, versus 20% in 2010. This increase has been driven from our UPS and continuous power solutions business with some large customer wins in the U.K. and the Netherlands.

Revenues from the Americas were 65% of our total revenue this quarter, compared to 83% in the prior quarter and 74% in the same year ago quarter. In absolute dollar terms, our fourth quarter sales from the Americas were down by $2.4 million or 17% from a year ago, primarily due to the weakness of the UPS business.

For the year, the revenues from the Americas of $48.7 million or 2% higher than the $47.5 million that we had in 2010.

International sales were 35% of our revenue in the fourth quarter, as compared to 20% in the previous quarter, 34% in the fourth quarter of 2010. For the year, international sales were 38% of revenue, compared to 29% of revenue in 2010.

If I look at our revenues by sales channel, we had mixed results this quarter compared to a year ago from the different channels. The strong growth in our continuous power and infrastructure business drove a 58% or $3.3 million increase in revenues from our IT channel compared to the fourth quarter of 2010. IT channel revenues were 49% of revenue this quarter, compared to 52% in the prior quarter and 30% in the fourth quarter of 2010. For the year, our IT channel contributed 36% of our total revenue, compared to 26% of revenue in 2010.

Our direct sales, which includes sales made by Active Power directly or through its network of manufacturer representatives and distributors, represented 42% of revenue this quarter. This compared to 36% of revenue in the previous quarter and 51% of revenue in the same quarter a year ago. And for the year, direct sales represented 48% of revenue in 2011, compared to 55% of revenue in 2010.

Sales from our OEM business, which does include sales to Caterpillar were 8% of our revenue in the quarter, compared to 12% in the previous quarter and 19% a year ago. Like the last several quarters, we also experienced an absence of large orders from our OEM channel this quarter. I’ve mentioned before, this level can fluctuate substantially from quarter-to-quarter based on the size and timing of the orders. On a year-to-date basis, the effects of this quarterly volatility aren’t as apparent, as the OEM business represented 16% of revenue for the year compared to 19% of revenue in 2010.

Service and other revenues this quarter improved by 17% compared to the fourth quarter of 2010; mainly reflecting professional services associated with the high level of PowerHouse and continuous power solutions sales generated over the last several quarters that we’ve been doing installation and commissioning work on.

Our service revenues associated with these large projects will fluctuate along with the level of product revenues and can cause our quarterly level of service and other revenue to fluctuate accordingly. In total, service revenues were 19% of revenue in the fourth quarter, compared to 16% of revenue in the same year ago quarter. And for the full year, our service and other revenue of $12.8 million was an increase of $3.5 million or 38% compared to 2010.

Now that I’ve discussed revenue let me talk to some of the overall financial performance. Our gross margin this quarter was 20% compared to 24% margin we had in the prior quarter, and 28% in the fourth quarter of 2010. Decrease in margin is primarily due to the change in product mix, and a proportionally higher sales of continuous power and infrastructure solutions, we had this quarter. We typically generate lower margins on these products than our UPS systems so we expect the higher proportion of continuous power and infrastructure solutions revenue to contribute to an overall lower gross profit margin.

The absolute decrease in UPS revenues will also exacerbate the situation, as the lower volume of UPS revenue this quarter results in less efficient utilization of our manufacturing facility, higher unabsorbed overhead costs further negatively impacting our margins.

The situation was the same as we’ve experienced over the last several quarters, and will take a combination of higher absolute UPS systems revenues, lower absolute manufacturing overhead, improved margins on our continuous power and infrastructure products, for our margins to continue to improve and to return to historically higher levels. We believe improving UPS systems’ revenue will have the most immediate impact on our margins.

For the full year, our gross profit margin of 24% compared to 28% margin in 2010. And the lower UPS system’s revenue, less than expected profits from our infrastructure solutions are the primary reasons for this decrease in annual margins.

We continue to have lower than expected margins in our professional services revenues associated with the continuous power solutions installations, although we have improved our margins in each of the last two quarters. As we mature and develop more experience and expertise in the deployment of these solutions, we anticipate our margins will improve. Overall, our service margins improved to 28% this quarter from 25% in the same year ago quarter.

Our research and development expenses for the quarter were approximately $1.5 million, which were $565,000 or 63% higher than the fourth quarter of 2010 and 15% higher than the previous quarter. For the year, our research and development expenses of $4.7 million increased by 39% or $1.3 million compared to 2010. This increase in spending reflects development efforts on our next generation UPS products, higher developmental activities on containerized infrastructure solutions and increased head count. We anticipate our R&D expenses will remain at these higher levels and increase slightly as we add head count and increase our product development efforts.

Our selling and marketing expenses at $3.4 million were 3% lower than the previous quarter and were higher by $650,000 or 23% compared to the fourth quarter of 2010. For the full year, selling and marketing expenses of $13.8 million were 5% higher than 2010. This was attributable to higher head count costs as we expand our sales capabilities offset by lower variable sales compensation.

Also, included in our selling and marketing costs were approximately $500,000 of expenses associated with the closure of our sales operations in Japan during the fourth quarter.

For the fourth quarter, our general and administrative expenses of $2.1 million increased by 68% or $870,000 from the prior quarter; and that was $650,000 or 44% higher compared to the same year-ago quarter. This increase reflects approximately $900,000 of expenses associated with the change in CEO that we announced in October of 2011. So for the year, our general and administrative costs of $6.2 million was $900,000 or 17% higher than 2010.

Our operating loss for the period was $3.3 million or $0.04 a share. This includes approximately $1.4 million in costs or $0.02 a share attributable to the change in CEO, costs associated with the closure of Japan and the scaling back of our manufacturing capabilities in the U.K. This loss compares to an operating profit of $170,000 or $0.00 a share in the fourth quarter last year, and was a deterioration compared to an operating loss of $1.2 million or $0.02 a share we had in the third quarter.

For the year, our net loss of $7.1 million or $0.09 a share compared to a loss of $3.9 million or $0.05 a share we had in 2010. Since the last quarter, the changes in our balance sheet have been heavily influenced by the timing and value of our continuous power and infrastructure orders and related customer and vendor payments.

During the quarter, we actually generated net cash from operations of $880,000 despite the operating loss. In fact, our receivables decreased by approximately $5.5 million during the quarter, inventories decreased by approximately $1.3 million, offset by a decrease in payables of $1.3 million and a $2.2 million decrease in deferred revenues.

These changes masked the frequent changes in our working capital that can result in very large fluctuations in inventory payables and receivables [even weekly] based on the large size of some of our orders.

We put in place a revolving credit facility last year in anticipation to this business trend to help provide sufficient liquidity for such changes. We continue to monitor this trend and are currently working with our credit providers to evaluate if we need further increases in the credit facility or modify further to enable more inventory borrowings and generally to provide more financial flexibility.

To our credit management, obtaining deposit and interim payments from our customers, negotiating our payment terms with vendors on how we will continue to manage this process along with these with our credit facilities. We believe we have adequate liquidities to support our quarterly revenue and continue to take the steps necessary to support more revenue growth and to react quickly to large orders or sudden increase in sales orders.

Our capital expenditures this quarter were primarily from the building of PowerHouse systems for marketing use in China and Germany. We anticipate the level of capital expenditure will change significantly.

This completes the financial portion of the presentation. I’ll now turn the call back over to Jan for some further comments about the business and our priorities moving ahead. Thank you, Jan.

Jan H. Lindelow

Thank you, John. Since our last call, we’ve made a number of operational changes to align our resources to execute on our priorities for the year being achieved, not surely the operational profitability that we’ve talked to you about.

One key to achieving this profitabilities are, focus on the growth of our core UPS business. To that end, we are recruiting talents and investing in resources to grow our sales and distribution channels. We announced earlier this year, the renewal of our global agreement with our OEM partner, Caterpillar and we are still on track to launch our next generation flywheel UPS products late this year. This product will enable us to compete in the larger power applications market, expanding our opportunities in this segment.

We believe these efforts along with a solid focus on execution will all contribute to the growth of our UPS business in 2012. This work is already showing positive results as I indicated earlier in the call, having already received orders for more than 140 flywheels for delivery this year.

We remain focused on improving margins on our continuous power and infrastructure solutions business, putting in place more structured disciplined processes to improve day-to-day operations and execution. We made pricing adjustments where appropriate and continue to optimize our manufacturing operations and supply chain.

Our relationship with HP has also grown, as our business together has expanded. We recently became a member of their AllianceONE partner program, enabling closer marketing collaboration between our two companies.

It is also worth noting here that we closed our Tokyo, Japan operations effective December 31, 2011. This was primarily due to the low number of quality sales opportunities available to us and the high cost in the Japanese market. We believe we can grow and expand the business in Southeast Asia without a physical presence in Japan.

As an update on the CEO search, we’re actively working with our executive search forum and have several strong qualified candidates we’re evaluating.

In summary, while we’re building positive momentum in the business, the result of this may not be realized in our financial statements until the second quarter of 2012, but we do believe a deliberate consistent focus on growing our UPS business and improving margins on our solutions business will put Active Power on the path in 2012 to consistent predictable profitability.

Now looking at the first quarter of 2012, for our guidance we usually provide a range of expected revenues as unforeseen customer events can impact the timing and amount of revenue recognized for a particular quarter. Based on orders we have on hand and our current forecast, we’re providing revenue guidance of $17 million to $21 million for the first quarter of 2012, reflecting traditional seasonality when compared to the previous quarter. First quarter earnings per share, is expected to be a loss of $0.01 to $0.03 per share.

Excluding the one-off expenses we had in the fourth quarter, our operating expenses should be fairly consistent with the previous quarter. Cash used in operations will largely be driven by our working capital requirements during the quarter. This will be affected by the timing and size of orders we receive and fulfill. We’re working closely with our credit provider to determine if modifications need to be made to our existing credit facility, but also to manage customer and vendor cash flows appropriately in order to mitigate cash requirements, wherever possible.

With that, John and I would be happy to open up the call to your questions. Back to the operator.

Question-and-Answer Session

Operator

(Operator Instructions) Now, it looks like our first question is going to be from Walter Nasdeo. Walter, your line is now open.

Walter Nasdeo – Ardour Capital Investments LLC

Thank you, good afternoon guys.

Jan H. Lindelow

Hi, Walter.

Walter Nasdeo – Ardour Capital Investments LLC

Hi, with a little bit of struggle that you're seeing right now and then looking forward and I know you kind of talked about driving the margins, but what are you looking for these margins to start climbing to over the course of the next couple of quarters?

John K. Penver

On a blended basis, we would hope that we’d get the margins back into the high 20s over the next several quarters. It’s going to take a combination of driving more volume into the UPS business where traditionally we’ve made our best margins, but we think that’s probably going to drive it as much as everything else, because we’ve already taken steps to improve the margins on our non-UPS products. And so I think we’d be looking at high 20% on the gross margin level.

Walter Nasdeo – Ardour Capital Investments LLC

Okay. Are you seeing any challenges or issues on the supply side as far as cost goes and commodities and things like that?

John K. Penver

We’ve not really had a direct – I mean, the short answer is really no, we really haven’t seen that much of an impact from commodity prices.

Walter Nasdeo – Ardour Capital Investments LLC

Okay. So the supplier chain is still strong for you?

John K. Penver

Yes, honestly the challenges are probably more around the ability to react quickly to sudden changes in volume from some of the supply chain.

Jan H. Lindelow

Especially in the infrastructure business, some of the long lead time items are a gauging factor on the lead times, but we haven’t seen – the pricing changes that we made have actually taking effect early in the year. So either we have a positive impact on margins (inaudible).

Walter Nasdeo – Ardour Capital Investments LLC

Okay. So there is no inventory issues related to your supply chain then?

John K. Penver

Not today.

Walter Nasdeo – Ardour Capital Investments LLC

Okay, all right. Okay, thank you.

John K. Penver

Thanks, Walter.

Operator

All right. Our next question comes from Ahmar Zaman. Ahmar, your line is now open.

Shawn E. Lockman – Piper Jaffray, Inc.

Yeah, this is Shawn for Ahmar. Just a real quick, I mean, John, as we look at the revenue per megawatt in 4Q, it dropped up significantly. Should we be looking for that to improve in 1Q and into 2012?

Jan H. Lindelow

Yes, in fact we’re struggling internally here with what’s an appropriate metric to use, because we used to provide number of flywheels and I understand the flywheels in fact that works fairly well for UPS revenues, and then as we went to this metric of critical power delivered that encompass the continuous power solutions and the UPS systems so it really excludes the infrastructure solutions, which has also been a significant part of the business. And so I think the use of a single metric to try and approximate the whole thing might be something we have to look at, but you would expect the number as the UPS business improves that the amount of critical power to go up and I think you would expect that number to increase.

Shawn E. Lockman – Piper Jaffray, Inc.

Thanks and as far as, as we look sort of getting to this goal of profitability, can you give us a sense of whether you guys think that you can kind of hit sort of sustained profitability in 2012 or if that’s something that’s probably more achievable in 2013?

Jan H. Lindelow

Clearly, what we’re saying is that as you have heard on expenses Q1 was pretty much like Q4. You heard our revenue guidance enough to figure out roughly what Q1 might be like. Clearly, we will see the rest of the year and the 140 flywheels that I mentioned will be shippable between late this quarter and through 2Q, 3Q and on. The margins will continue to come up, and we should do better quarter by quarter and show positive profits on before the year certainly.

John K. Penver

Yeah, I think that’s the right point that Jan shown, I think we have a goal of achieving annual profitability.

Shawn E. Lockman – Piper Jaffray, Inc.

Okay. And just one final one, as we – I know you guys are always away from this a bit, but as far as the listing concern and might be [implied] with the NASDAQ, any kind of strategies that you guys might employed to sort of do that in terms of reverse splits or any that kind of thing.

John K. Penver

I don’t think those kind of conversations would have been discussed by anybody. I think that the best way of avoiding, this is an improving – the operating results, and I think that, in the short-term, we believe we can demonstrate the improving the financial results in the business demonstrates, continued revenue growth with new orders and substantial growth in the business that people will understand [is a mobile data make] many of this and we will see the underlying value. At this point that’s not something that’s been considered.

Shawn E. Lockman – Piper Jaffray, Inc.

Okay, great. Thanks, gentlemen.

John K. Penver

All right. Thank you, Shawn.

Operator

All right. Our next question comes from [Tom Daniels]. Tom, your line is now open.

Unidentified Analyst

Hi, thanks for taking my question. I guess, I was just wondering, to me, there seems to be a little bit of conflict, you guys opened up with some pretty positive outlook on the overall market, and then, yet, you’re shutting down your Japan operations and your U.K. operations, everything we are seeing on the network power side and seems like everything is going good. Yeah, your UPS business is really struggling. So I mean, could you guys just explain specifically, what is going on with UPS? What is your guy’s true outlook for 2012? And then, how do you grow this business and achieved profitability; I know that’s a goal, but maybe just some more details around how you do that?

Jan H. Lindelow

Well, I can start on and I’ll handover to John, I mean, it clearly depends with shutdown, because we were expanding somewhere between $500,000 and $1 million a year, with almost no positive result for the company, much better spending that on other places in Asia and we are, in particular in China. In the UK, we’re not shutting down; we have streamlined the operations. So if you think we’ve closed the UK, we have not. We have misstated what we’re doing. We’re growing well and we’re doing really well, it’s just that we’re streamlining our manufacturing business and as part of that we have reduced the activity in the UK. I’ll let John comment on the UPS business and I’ll come back and round that off.

John K. Penver

Yeah, I mean I think overall, Tom, there is strong growth in the UPS business. I think we’ve struggled with the consistent performance on our direct business and throughout our OEM channel on that, but we’ve seen evidence in certain parts of the world where customers have signed up for some very large orders. And we announced our largest order ever here just recently, which was a large UPS order out of Europe. So we definitely see evidence that the market exists, that the market has been willing to accept the product, I think we probably need to do a better job in terms of how we execute and how we performed on the sales side.

We certainly engaged in a number of activities with our OEM partner to engage them into help them win some better, larger opportunities and Jan alluded to the fact that we’ve seen, over the last couple of months, a big uptick in orders for our UPS business. And the pipeline for that product continues to grow and if we maintain the same kind of success rate as we’ve had, I’d expect to see a fairly substantial increase in our UPS business in 2012.

Jan H. Lindelow

And the problem has been in particular in the U.S. as I think many of you guys have figured out and we haven’t been hiding that. And I think we’re now taking steps and we filled most of the vacant positions we had. And as a matter of fact, the 140 flywheels on order that I mentioned, it’s actually one big order out of Europe; it’s one big order out of China; and its one big order out of the U.S. So those are split down between the three major geographic markets. And we’re seeing evidence already now in our pipeline and activities that shows us that we will come back in the UPS market.

Unidentified Analyst

Thanks for that. So the 140 flywheel pipeline, how does that compare to last year when you guys exited 2010 and how confident are you guys that you grow revenues year-over-year in 2012?

John K. Penver

I don’t have the exact number in front of me, but my understanding is that that number was probably close to double what we came into 2011 with. So directionally, it’s certainly much higher. When I look at the pipeline, the UPS business, I see that has continued to increase. Jan alluded to the fact we almost rebuilt our sales organization in the Americas over the last 12 months, and the number of opportunities, besides those opportunities give us a lot of confidence that we actually think we can grow our UPS business.

We’ve also seen indications outside of the United States, in places where we’ve traditionally sold other products such as PowerHouse and China is a good example where we’re seeing a lot more interest in the UPS portion of our products. And so we’d anticipate actually selling single UPS systems, out standalone UPS systems rather in China, which historically we haven’t done. So I think there is multiple metrics like that that suggest that the UPS business will rebound for us in 2012. [I hope I answered it].

Unidentified Analyst

Yeah, that was great. That’s it for me, guys. Thank you.

John K. Penver

All right. Thank you.

Operator

All right, our last question comes from Scott [Rutter]. Scott, your line is now open. At this time, we have no further questions.

Jan H. Lindelow

So, okay. Thank you, operator. Let me thank everyone for being on our call this afternoon. And on behalf of the entire the entire Active Power team and our employees and our Board of Directors, I would like to express our appreciation for your interest in Active Power. We do appreciate your continuous support and we look forward to speaking with you again next quarter. Thank you very much.

Operator

That concludes today’s conference. Thank you for your participation. You may now disconnect.

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