Altair Nanotechnologies Inc. (NASDAQ:ALTI)
Q3 2012 Earnings call
October 08, 2012 11:00 am ET
Alexander Lee – Interim Chief Executive Officer
Stephen B. Huang – Chief Financial Officer and Corporate Secretary
Patrick Utter – Private Investor
Michael Yesendo – Private Investor
Good day ladies and gentlemen and welcome to the Altair Nanotechnologies, Inc. Q3 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Mr. [Paul Niemann]. Sir, you may begin.
I’ve been asked to make the following statements. The statements in this conference call that relate to future results, markets, growth plans and performance are forward-looking and involve certain risks and uncertainties including those associated with uncertain demand for our products and services, the early stage of development of many of our products and services, and related markets and other risks identified in the company’s SEC filings, including its most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q. Actual results, events and performance may differ materially.
Conference call participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Altairnano undertakes no obligation to update these forward-looking statements to reflect events or circumstances after today’s date or to reflect the occurrence of unanticipated events.
At this time, I’d like to turn the call over to Altairnano CEO, Alex Lee. Alex?
Thank you, Paul. Good morning, everyone, and welcome to our third quarter earnings call. The third quarter represents the second actual quarter of Albert Zou and my employment with the company. The two best known for the entire team has truly been a busy two quarters and as I say time flies. Upon joining the company, our mission was fairly straightforward.
First and foremost, we want to close the economic development deal, I’m sorry, in China. This deal was a cornerstone for our new business strategy. Second, we wanted to stabilize the U.S. operations. Third, we want to focus our sales efforts and generate near-term revenue. Fourth, we wanted to reduce our cost.
So here is what we did to meet those goals. First, we merely turned our focus to China. The company is focused on the closure of the economic development deals in cities of Wu’an and Hangzhou in the Hubei province on China. We quickly closed the deal with the two cities back in April, which called for the provision of land, product orders, and other benefits.
Under the economic development deal, Altair plans to build the lithium titanate manufacturing plant along with an energy storage system assembly plant and the newly formed technology park in Wu’an. Those factories will help to aggregate key portions of our supply chain, which in turn will help to reduce our costs, especially for the products that will specifically target the local China market.
As you may recall, our current supply chain is quite cumbersome. We produce lithium titanate materials in Reno, shift them and other materials to film manufacturers in Asia, where third parties build cells to our design specifications. And then we shift ourselves back to Anderson, Indiana, where we build modules, packs and large energy storage systems.
As you can see, there are significant opportunities to streamline our supply chain, especially for our future deliveries in Asia. Just moving our materials production closer to cell suppliers can save us a significant amount of lead time, as well as costs related to shipping. Given this plan, we nearly commence work on the design for our plant facilities in China and on the plant transfer for LTO equipment.
We also focused on the former land transfer to the company and ramped up the sales organization to target those China-based customers. On the sales front in China, we had positive discussions with several leading utility, energy, and transportation companies in China.
In August, we entered into an MOU, a major coal and utility company and in early August we received a $1.89 million down payment from the city of Wu’an for their initial order for 50 electric buses. Although that payment cannot be recognized as revenue during the third quarter under GAAP rules, it is reflected in our financials deferred revenue, which by the way totaled $5.3 million for the quarter.
With respect to the land transfer in Wu’an we entered into an agreement to acquire approximately 66 acres of land in a planned technology park. As you can see, this is a sizeable land grant, the value of which will go directly to our consolidated balance sheet. The property will be appraised and its access value will be reported at a later date.
Moving on to the second area of focus, we work quickly to stabilize the company’s operations. Changes in the executive ranks could be quite disruptive for any company and in this regard Altair had its fair share of challenges over the past year and a half.
Accordingly, we worked hard to clear the air about the company’s plans, especially in relation to China and we work hard to ensure that the U.S. China teams were all in the limelight. We then set key milestones for the team, especially in relation to all of our customers deliverables each of which have contractual milestone payments attached to them. At a minimum, we knew that the quickest paths to bring in revenue is to quickly and profitably execute our fourth major energy storage projects along with our other customer deliverables. To do this, we made sure that our program management team was empowered to act and supported by the rest of the team.
Another area to focus particularly in the third quarter was to get the U.S. operations adequately funded through inter company transfers and/or bank loans that were either funded our backed by our Altair subsidiary in China. As a result of our teams’ efforts, we build more ESS systems in 2012 and ever before.
Despite the relatively small size of our team, especially after our reduction in force, we successfully worked on five large ESS systems this year and installed two of those systems in Hawaii and Europe. We are running a third system for installation and will be shipping units to Puerto Rico.
Our clear focus on project deliverables over this past two quarters translated as I mentioned before to $5.3 million in deferred revenue in the third quarter. Although, our recognizable revenue for the quarter is relatively low, I do believe our deferred showed strong progress from the company.
With respect to funding the U.S. operations, we put a plan in place to use a combination of loans in inter company transfers, for example, we entered into $2 million loan agreement with the Bank of China in October, which is back with restricted capital by one of our China-based entities.
We also set up two inter company agreements with our China subsidiary Northern Altair and Nanotechnologies Company Limited in October as well. Under these inter company agreements, we plan to transfer our nLTO manufacturing equipment and nLTO materials and exchange repayments of up to $2.86 million. In addition, we recently entered into an agreement to sell our Reno facility for $2.2 million, which is contingent up on the environmental inspection.
In summary, we quickly focused on the need to stabilize our operations to get a clear path to either repatriate capital from China to the company and/or find additional sources of capital. On all fronts, our team did a great job executing against those deliverables.
Turning to the third area of focus, we knew that we had to sharpen our focus on revenue generation. Not only did we have to sharpen our focus on near-term opportunities, but we saw opportunities to refine ourselves positive. In addition, we had to pivot our efforts quickly towards the China market, which frankly was not an easy task. As we know, the China market is a complicated one, and our U.S. team including me had a steep learning curve. Fortunately, Albert Zou and affiliates [Kennan and Macy] had a lot of experience in the China market and they were instrumental in guiding us around the obstacles.
Over the past two quarters, we took a strong process oriented approach and improved our sales and proposal processes to ensure that the proper cross functional reviews we’re taking place that we’re taking the proper due diligence steps when reviewing these opportunities and then adequate resources were attached to our proposal efforts when we decided to bid. While this all may sound rather obvious, many companies get this important step wrong and suffer all the worse for it. We view our proposal efforts as investments and in such we worked harder to target our investments in capital and engineering resources appropriately over the past two quarters.
On the marketing front, we continue to focus on the same three market segments, namely grid, transportation, and industrial and we pushed the ball forward in each of these segments. In the grid segment, we made definite progress on our existing grid contracts. We received a number of contractual milestone payments in the third quarter and as I noted before, our deferred revenue grew to $5.3 million.
In October, we sold our new two megawatt ALTI ESS advantage system to TSK Solar and received $343,000 down payment for that system. This was a nice win for us to demonstrate the strength of our new product offering and our ability to move very quickly. Under the contract the company showed commissioning system in Puerto Rico by the end of this year.
By the way, due to recent regulatory changes in Puerto Rico, we believe that there will be increased activity in this particular market for battery based frequency regulation. The work that we did in El Salvador of HNEI, especially on the system modeling side should play a key role in demonstrating the value of our system to perspective customers in Puerto Rico.
In transportation, we continued our work with Proterra, which is a leading manufacturer of al electric buses. As you may refer, Proterra’s buses passed our Altairnano bus durability testing with flying colors. This is a great achievement for them as the Altairnano tests are very rigorous. Under our agreement with Proterra, we will begin to ship modules to them starting in the first quarter of next year. We are aggressively pursuing other transportation opportunities with customers, you can see the high value of our technology in all electric or hybrid vehicle applications.
As for the industrial segment, we are working with several leading companies who are currently testing our modules for using a variety of applications, all of which require a high power rapid charging battery. We see similar opportunities within the industrial segment in the China market and have already started discussions with these companies. One example of our progress, there is a recent MIU of the leading Chinese coal company, which was signed in September to partner on a potential energy storage system application linked to wind farm.
To better target all the markets above, we entered into an MIU, entered on September. The two companies have customary technologies and a joint sales MIU will allow both companies to cost effectively increase, not only our respective product offerings, but our collective sales foot print as well. We continue to look for ways to strategically partner with companies in order to help us sell our products into our three market segments.
Moving on to the last area of focus, we actively sought ways to reduce cost. I am keenly aware of Altair’s burn rate and the need to right size the company’s spending. This issues has been a challenging one because we need to balance our existing contractual commitments, while also providing critical support to our newly launched China operations.
We also have to acknowledge some very basic facts namely that people are the company’s key asset. That being said, we had to take hard and realistic look at the business and resulting reduction in force is reflective of our new business plan, which will certainly place elements of our supply chain in China.
I want to note that this is not a simple out sourcing strategic, but rather one, which reflects the realities of the battery supply chain in general and ours in particular. Accordingly, total U.S. head count has dropped from approximately 90 employees to just over 60. The bulk of these head count changes differed in the second quarter.
With respect to China, we clearly view our plan there is a key driver for cost reduction in long term. I believe that the largest cost reductions will be supply chain related. Our China plan will help to rationalize our supply chain and clearly, our China plan will help us to reduce cost and time significantly, especially for the products we will sell in China, which is the market where we see the largest near to mid-term opportunities.
Accordingly, our team in China led by Albert Zou focused heavily on the completion of Wu’an land deal. In October, we signed a land contract with Wu’an to acquire the six acres of land that I mentioned previously and we anticipate receiving land certificate in the near future, once the land is in our procession we will start the process to transfer our LTO manufacturing equipment and LTO materials as per our new inter company agreements.
By the way the details of agreement will be disclosed in an upcoming 8-K report. Lastly, on the issue cost reduction, we recently entered into a deal to sell our Reno facility for $2.2 million.
The transaction if completed shall allow us to reduce our debt. We currently have $1 million mortgage on the property and it provides cash that can be used to fund the decommissioning and shipping of our LTO equipment to our planned facility in Wu’an, along with funding some other operating expenses. Under the agreements, we will also rent space in the building for a 10 month period. After we relocate our equipment, we will then have an opportunity to down size our foot print in Reno as needed. Please note that this transactions is conditioned upon a positive third party environmental report which will be completed in about two weeks time.
Now a note about Reno, earlier this year, the prior management team announced that the company will be shutting the Reno facility down immediately, while a move to consolidate our U.S. operations on its phase is many obvious merits. There are a number of practical considerations that make decision a bit more nuance than it might appear. As such, we will continue to occupy the Reno space as mentioned and keep all options on the table. Of course cost reduction will remain a key consideration by keeping our team in tact as a key in consideration as well.
In summary, there was a flurry of activity this past quarter, we made great strides in China, which executed well on our customer deliverables and even launched a great new product the ALTI-ESS advantage. Our deferred revenues have seen higher this quarter then the same period last year, which has certainly moved in the right direction. I probably have taken a bit more time than planned, so I will turn it over to Stephen and we will be both happy to take your questions after the discussion. Thank you.
Stephen B. Huang
Thanks Alex. And good morning to everyone. For the third quarter ended September 30, 2012, revenues were $360,000 compared to the third quarter of 2011 revenues of $855,000. Deferred revenues grew to $5.3 million as of September 30, 2012. Gross loss was $428,000 this quarter compared to gross profit of $323,000 in the third quarter of last year.
Operating expenses were $4 million in the third quarter of 2012, compared to $5.4 million in the third quarter of 2011. The net loss for the period was $4.7 million or $0.07 per share, compared to a net loss of $5.9 million or $0.10 per share in the third quarter of 2011. The basic and diluted weighted average shares outstanding for the quarter were $69.5 million, compared to $60.2 million for the same period in 2011. Revenues were decreased by $495,000 in the third quarter of 2012, while gross loss was $428,000 in the third quarter of 2012, primarily due to cost increases of $337,000 associated with the launch of new electric grid product.
Operating expenses were decreased by $1.4 million during the three-months ending September 30, 2012 compared to the three months ending September 30, 2011. This decrease was due to achieving planned reductions of approximately $500,000 in research and development, sales and marketing, and general and administrative expenses in the third quarter of 2012 and recording severance expenses of approximately $900,000 in the third quarter of 2011.
Net loss was decreased by $1.2 million, primarily due to overall decreases in operating expenses and the change in the market value of previously issue warrants. Altair’s cash and cash equivalents decreased by $14.3 million from $46.5 million as of December 31, 2011 to $32.2 million as of September 30, 2012. This is primarily due to the $14.6 million of cash used in operating activities during the nine months ending September 30, 2012. The bulk of the cash used in operations went to cover our net loss of $14.4 million, offset by $1 million in proceeds from a short-term note payable used toward a $4.7 million increase in work-in-process inventory required for the fulfillment of customer orders.
With that, I would like to turn it back over to Alex Lee.
Thank you, Steven. We will be very happy to take your questions at this time.
(Operator instructions) Our first question comes from (inaudible). Your line is open.
Hi, I am a long term investor in Altairnano, I guess since Alan Gotcher was there and before and my question is quite simple, when do you foresee the company having positive earnings and going?
Unidentified Company Representative
Well. As I mentioned in, I guess the last earnings call, there are a number of things that we are looking at and certainly the China piece is a huge portion of our business plan. Admittedly that’s a new market for Altair’s so it is not only a competitive one, but certainly one that we have a lot of and are a large learning curve to address there. Now, clearly the goal for the company is to become cash flow positive as soon as possible. I mean that’s clearly a goal of the entire management team. It is a clear focus for the company and it is something that needs to happen.
I mean for the company to be sustained more it has to at least achieve that then certainly ramp up revenues so that way we could reduce cost through volume. That’s been another challenge of the company since we are typically producing systems in low volume, producing cells in low volume and as anyone in either the battery or EV industry will tell you that doesn’t need to low cost.
So that’s been a fundamental issue for the company and certainly like you, I have been working with Altair since that period that you’re talking about, so I am very familiar with the challenge that the company has gone through and so that’s why the new team working with the existing team is clearly focused on cost reduction, clearly focused on ramping up revenue, and clearly focused on the China market were we do see a lot the Greentech or renewable energy activity. So, long story short, I’m clearly aware of the issue and I think we’ve been making good progress on the cost reduction side and we are definitely evaluating the China market to see how we could best play there in order to get the level of revenue that’s needed to turn as cash flow positive and profitable in the future.
Do you have a ball park kind of expectation a year, two year, six months, can you be more specific?
Unidentified Company Representative
I would say that certainly as soon as possible is what the desired goal is, but I will say that and dealing with any international market and I think you can see this prior little bit too clearly with our El Salvador deal. In any International there is always going to be new and different regulatory challenges, certainly customer expectations are different in China, how business works is different and all of those things, which basically take time to work through, take time to address and certainly take time to get your arms around. So, I know people often refer to China as been listing a quick and easy market as a huge market.
I would much rather be conservative and say to you that yes it is a great market for the company, but we are also going in there with our eyes wide open and ready to address those challenges. The good news is that with Albert Zou, with our CFO and Stephen Huang, who have China side experience then certainly with our affiliates, our investors who are based in China that will help us to direct these opportunities in a way that we couldn’t have in the past because as a U.S based company that had no former business in China to really speak off having those assets in place will help us address those in various regulatory and costumer challenges. Now that being said, we do see favorable trends. There is some positive policies coming out related to nLTO. We see increased interest in energy storage systems in China.
And then certainly with the addition of a new renewable sources of energy in China that were clearly (inaudible) big efforts out there. In our view the more you add those types of sources of energy, you are creating challenges for the grid and this is where we believe our battery comes in. So, despite some of the challenges I mentioned, I do think there are some key market drivers that will allow us to really push into the China market.
Well but we’ve seen A123 to make some deal with the Chinese and we’ve seen a couple of months, when peoples expectations were high with this. They went bankrupt, so A123 and Altairnano have traditionally been kind of the two players in the Nanotecnology may constitute badly and of course when A123 go under we have to be concerned about Altairnano and what can you tell us that can we assure the investors that you do not contemplate bankruptcy in the near or short-term future.
Unidentified Company Representative
Yeah, with respect to, I mean that’s a good question and I think if you look at the U.S. battery market as a whole, certainly a lot of pain has been felt. There is no doubt that there are challenging issues for the battery industry. Now what’s interesting about Altairnano and again this goes back to the early days that I got – I was actually working as a customer of Altairnano’s.
Altair’s core challenge back then was not its technology, right, it had a great nLTO based technology and that technology sounded, it works fantastic it’s very safe and so forth, but Altair’s challenge back then was that it did not own cell supply. It was not a cell manufacturer. Now if you look at the battery industries today, what is the core challenge for cell manufactures, it’s the high infrastructure costs associated with all that plant and equipment. You also have a lot of over capacity initiative in the industry, so as a result A123 companies like that – in safe significant challenges and the easy market for example didn’t materialize in the way that we had all hoped and as a result cell manufacturers held a lot of pressures.
So, what was formally Altair Nano’s, I would say key weakness, has actually turned out to be a blessing in disguise, since we don’t have cell manufacturing in-house, we don’t have that costs, we don’t have that infrastructure to feed and as a result we can also take advantage of the over capacity in the market. So, this allows us to be a little bit more nimble then let’s say some of our competitors and that I think is a key difference between us and some of the other typical or leading cell manufacturers that we all know that are on the market today.
So you’re seeing the company being valuable in the next three, four quarters or will you be running out of funds, out of money to sustain the company growth?
I think I have to be very careful about saying things about the future. But certainly our expectation is that we will continue to have good news to report. I think from an investor standpoint perhaps two quarters of activity is a long enough time for certain things to happen.
Certainly Albert and I have been working very hard in those two quarters to produce some good news for our investors. Certainly given my background and who I’ve worked for in the past, including one of the investors to help for Nano. I am keenly aware of the need to produce results in a short period of time.
I think if you look to the Wu’an deal, there are a lot of benefits attached to that, not only does it produce some revenue for us in the short-term through the orders such as the EV buses. That land-grant will have value. That value will drop down to our consolidated balance sheet and that will help us access capital in some cost efficient way. So, clearly the China deal plays a number of different roles that I think will make our company more successful in the near-term.
Thank you very much for you (Inaudible) that kind of giving a better perspective on the company?
No problem, those are great question and I appreciate. The fact that you’ve been an investor enough and we do view our investors as being critical for our success and we appreciate your support.
Thank you. (Operator Instructions) Our next question comes from Patrick Utter, Private Investor.
Patrick Utter – Private Investor
Two questions, I was wondering what are you going to be doing or what’s going to happen if the price or the stock doesn’t get up above $1? Are we still going have to be concerned about being delisted? And also can you go on to a little more detail with the agreement that you made with EnerDel? Thank you.
Okay, sure. With respect to the first question, we will be having an annual shareholders meeting at the end of this month. And on the agenda is an item to basically approve reverse stock split if needed. It’s basically just to give us that option if needed.
Clearly, our goal is to continue executing and we do have somethings that we would like to or we do plan to announce in the near-term and certainly aspects of the Wu’an deal are a big piece of that, the land transfer. So, certainly we will be working hard to make the public more aware of some of the good things happening to the company.
On that note, we have been a bit quite here at the company. Personally speaking, I do know that Altair had a bit of a creditability issue and as a result my goal was to make sure that we have tangible things to report versus things that could be considered as high even if they were true or good news, right.
So one of the things that will be putting into place is immediate towards to start reengaging with the press and investors and so forth to help public sights and all the good things that are happening here at the company. And that of course will be taking place in the very near-term.
So in the worst case, we won’t get de-listed, but certainly again as a representative of a shareholder, I would prefer not to do the reverse stock split, but in the worst case that mechanism if approved at the shareholders meeting will be available to us to avoid the NASDAQ de-listing.
With respect to EnerDel, EnerDel is a neighbor of ours in Indiana. And one side I joined the company as CEO, I was introduced to their CEO, Dave Roberts, actually at the time he wasn’t the CEO, but he had become CEO shortly thereafter. And we struck with a nice relationship, our teams and their teams have interactive in the past and so forth. And then when we took a hard look at the technology, it really made no sense to view each other as a competitor given the challenges in the market and it really make them – for our people to partner up, because that way you can leverage each others sales teams, it’s much cost effective and it really gives you a much bigger footprint on the ground.
If you look at the deals that Altair and EnerDel are chasing, these are not deals that are just in one state or one country, they are all over the place. So as a result, it made a huge amount of sense for us to partner and leverage with our respective sales teams. So after the MOU is signed, our sales teams met up and got in-depth introduction to each others products. We believe that these products are complimentary. And then as we move forward, we hope that we could leverage the technologies to build perhaps hybrid systems where you are not using just Altairnano or just some chemistry, but rather you can incorporate both chemistries into the same energy storage system.
So that’s a long-term term, but certainly in the short-term both companies are very focused on the short-term revenue generation issue and certainly both – I think both sides have great sales teams and the working relationship is very positive.
Patrick Utter – Private Investor
Thank you very much.
Thank you. Our next question comes from [Robert Cousins], a Private Investor. Your line is open.
Yes, good morning. My question was answered regarding the NASDAQ listing. So I do appreciate that information.
You’re welcome. Certainly, that has been a very clear target of ours to direct that issue. Frankly speaking, we’re hopeful that certain things in China would more quickly. But at the same time to be frank with you, I will say that things are actually moving out at a pace that people wouldn’t have expected. A land transfer in China typically takes a lot longer than it has for us. But in many events, we have very good support there. And I think that those deals out there in China will be supportive or at least help drive our stock price and value. So we are continuing to focus very heavily on that issue.
Okay. Well, thank you very much.
Thank you. (Operator Instructions) And our next question is a follow-up from [Ivash]. Your line is open.
I have to ask a follow-up question. There is so much synergy with EnerDel, the economic climate within and we have the President been reelected and we know for sure that alternative energy, we will receive some additional funding, so at least it’s not going to be as – and reliable, if it were to be a Republican President. So let’s say that there is such synergy between EnerDel and Altair Nano, do you see the in future a room for merger or some kind of more formal arrangement?
I think with respect to EnerDel, certainly, we are open to all kinds of things, but I think both sides are taking a very common centrical approach, which is basically to walk before we run to focus on the sales efforts first. And then certainly, as we both address these market opportunities, I think various product opportunities will pop up. And that’s where I think there maybe some opportunities to, let’s say, create these hybrid systems and so forth. I think the goal here is collectively, we really want to identify what those market opportunities before we get into let’s say engineering projects that end up nowhere.
Now, given if you are reporting about let’s say the government funding environment, certainly that’s the task that we are taking in China, but to, directly to directly to your point with respect to United States, in my former life, I did a lot of government contracts or government proposals and so forth. And what we’re doing is ramping up our R&D group internally here to start focusing very heavily on government proposals. Those could range from unsolicited proposals that basically will be sent over to research labs, universities, DOE, all those typical government entities that basically fund these types of activities.
Certainly for RFPs that come out and I do agree that the climate for government funding towards these types of things probably would be more positive. So in that case we stand ready to submit proposal with any relevant partner. And on that note, our R&D team is looking for collaborations with different strategic partners to help advance whether it’s our cell technology, our module technology or our ESS system technology. And there are many opportunities I think to sort of attack that proposal market.
That being said, I don’t think we want to repeat the mistakes of the past, of the recent past. We can’t rely just on government funding to create the business. I think we need to create a valid business proposition on our own and that’s were our cost reduction strategies are – certainly, the improvements in our product technology, like if you take our newest ALTI ESS Advantage system, what we’ve done there is we’ve packed in more energy capacity into that battery, it’s now 2 megawatts as compared to our old system, which is 1.2 megawatts.
We did that 2 megawatts inside of a 40-foot standard cargo container versus 53 feet for the old system. That enables us to cost effectively address customer needs. Our footprint is smaller. It allows us to build these systems quicker, which helps reduce cost and lead time. And then certainly, our company is focused on continuing to make those improvements and this is how we hope to create the valid business proposition. Now if we can get R&D supplemented with funding from other sources, all the better, and R&D group will look at that.
Thank you. Our next question comes from Michael Yesendo – Private Investor. Your line is open.
Michael Yesendo – Private Investor
Okay, thank you. I’m actually a very long time investor. I get a way back several managements before back to the Phoenix Motor Days. Several question for you, I recently drove the Nissan LEAF and I love the car.
Do you like the new car?
Michael Yesendo – Private Investor
Yeah, quite, wonderful, inches away from buying it. But the one thing its short on range and its very short on the ability to recharge, which – as I’ve been following your technology two strings with a quick recharge and you have a 24 kilowatt hour battery. Have you guys – and way back you kind of left the auto market. Are you guys thinking about that again, because (inaudible) with a 48 watt battery for those guys, so I can go buy that car, so where you are sort of in that auto industry?
Yeah, I mean transportation it’s been the factor that for instance, Altair in early days focused heavily on and specifically the light duty or passenger car market, that is the space that Altair back in those days, dating back let’s say five years ago, was heavily focused on. Then it switched and basically we focus more on the energy storage and grid market. And now over the past, let’s say two years, it’s been returning to transportation. I’m a big believer in lots of vehicles, I mean, I’ve spend five years at Phoenix Motorcars. So I’m a very big believer in EV from the role that they could play in the future. So I would love to see Altair play in the transportation market.
That being said, I think as a company, we are more focused on let’s say the larger vehicle segment. So this would include buses or larger trucks because what we see there is that these are vehicles that have high duty cycles or high usage rates, then very high uptime requirements. But in reality, they don’t actually travel very long distances. And so that’s an ideal application for an electric vehicle because that addresses the EV infrastructure problem, the charging problem and all that stuff.
And then if you look at those vehicles they have very poor fuel consumption. In a typical diesel transit buses, we’ve got 3.8 miles per gallon, which is just playing awful. So from that perspective, and this is why Proterra, we are huge champions of their technology, because on a miles per gallon basis that bus is getting significantly more than 3.8 miles per gallon. I believe their average were something like 24 miles per gallon if they compared what their range and charging and all that stuff of course it is the diesel fuel.
So we see some clear applications there. And when you look at what Proterra is doing, when you like Phoenix Motorcars, they are a big believers in the rapid charging, so they are implementing a driving cycle that basically has those buses charging in six to 10 minutes. So that application is ideal for us.
Similarly, we’re seeing opportunities to get into let’s say rail applications. Because we have a lot of trains going around, very heavy, they require a lot of power and they’re breaking all the time. So you have an opportunity to take advantage of that region on breaking. And to do that effectively, given how much energy is going to be flowing off, again, the Altair battery because of its ability to charge and discharge rapidly, is ideally suited we believe for that type of application.
Now with respect to the passenger car market, I think one of the challenges of automotive is that they have very long, let’s say, evaluation periods. They have a very long testing periods. It’s just the automotive approach, which basically if you are the supplier to let’s say Nissan or GM or whoever, it is a challenging project to engage in. It’s time consuming, it’s expensive and so forth.
So from the company’s standpoint, we would like to address those types of opportunities, but we are trying to be strategic about which of those we take. And certainly, our preference would be for the larger size vehicles. And then if we move to smaller once, whatever they might be light duty segment, we were prepared to play in this, that’s our hybrid space, where we can clearly distinguish our technology because of, again, it’s charge and discharge capabilities and I think there we can definitely cost competitive.
On the full EVs, let’s say, small car size that will be part of the highest hanging fruit for the company. So I think that’s why we’ve had a general reluctance to dive directly into that particular market. I hope that reference your question?
Michael Yesendo – Private Investor
Yeah. I was just wondering, because – I think what you need there is a 48 kilowatt hour battery in 600 pound packets, which is kind of as you look at what – they need to double their mileage to make that a competitive car.
Michael Yesendo – Private Investor
They hit 80. They say 100, but they are really only hit 80 when you actually drive it. So you need to at least double that. Okay, I – you guys are still the primary supplier to Proterra?
Yeah, we have a contract with them that was signed earlier this year.
Michael Yesendo – Private Investor
Back in May, if I remember it correctly, and our diluted earnings will commence in the first quarter of next year.
Michael Yesendo – Private Investor
Yeah, thank you.
Michael Yesendo – Private Investor
Thank you. I’d like to turn the conference back to Mr. Alex Lee for closing remarks.
Well, thank you, everyone. And it’s great to have this opportunity for both Steve and myself to address all of our shareholders and certainly those who attended the call and to address your questions. As you can see the company continues to have some challenge ahead of it with no doubt that issues such as profitability are key issues for the company in cost. But we are very aware of those challenges and we’re definitely taking actions to address them through cost reduction programs and certainly to address the market and ramp up sales.
I will say that the new team have gotten a lot of things in place and I will say that the entire Altair team has really, really focused on execution. If you see the progress that we made on all our customer contracts with Hawaii Natural Energy Institute, with a renewable energy company based in Europe and so forth.
We really executed as a team in a way that we haven’t before. I mean we built more systems, we developed a new product this past year. I would say that the overall team’s performance is definitely to be complemented. And really it is a testament to the team and the technology that we have.
And at this point, our goal is to leverage all that. And we’ve been in the market for a while, we’ve certainly had some challenges. But I think now the recent awareness of LTO and we are seeing automotive companies enter into the earlier questions about automotive, but they are recognizing that LTO can play a very important place in transportation and that certainly was a challenge earlier in Altair’s history, but automotive companies are reaching out to us and that shows the awareness that LTO has some unique properties mainly its ability to charge and discharge very rapidly with high power capabilities and one of the most important things is, it’s very high cycle life.
And the good news is that China, as I mentioned earlier, there is some favorable policies coming out related to LTO and we certainly look to take advantage of all that. So, thank you once again for the opportunity to speak to all of you. Please do not hesitate to contact us if you have any additional questions and we look forward to talking to you in the future. Thank you.
Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect at this time.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!