UQM Technologies, Inc. (NYSEMKT:UQM) Q1 2019 Results Earnings Conference Call May 15, 2019 10:30 AM ET
Chris Witty - IR
Joe Mitchell - President & CEO
David Rosenthal - CFO
Conference Call Participants
Dick Sergeant - NTB Financial
Good morning, ladies and gentlemen, and welcome to the UQM Technologies, Inc. Conference Call. My name is Julie, and I will be your coordinator for today.
At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded for webcast replay purposes.
I would now like to turn the presentation over to Mr. Chris Witty, the moderator for today’s call. Please go ahead, sir.
Good morning and thank you for joining us for UQM's first quarter earnings conference call. On the call with me today is Joe Mitchell, President and CEO; and David Rosenthal, CFO.
Before getting started, I'd like to review our Safe Harbor statement. This conference call may contain forward-looking statements within the meaning of Federal Private Securities Litigation Reform Act of 1995. These may include statements regarding our plans, beliefs, current expectations or otherwise, including those of our officers and directors with respect to, among other things, gaining access to global markets, gaining required certifications, new product development, the merger with Danfoss, 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 materially from those contained in the forward-looking statements are contained in our Form 10-K and other filings which are available on our website at www.uqm.com or at www.sec.gov.
I'll now turn the call over to David Rosenthal to review the company’s fiscal first quarter financial results. David?
Thanks, Chris, and good morning, everyone. My comments will reflect results for the first quarter of 2019 unless otherwise stated. During the three months ended March 31, 2019, we saw nice growth year-over-year in terms of sales with UQM posting revenue of $3.7 million versus $1.6 million in the prior year period. Engineering service revenue grew even more sharply to $700,000 in the current quarter compared to $200,000 last year, reflecting continued development work with Meritor as well as several other customers.
Overall, we’re off to a great start in 2019 and look forward to additional growth momentum after the merger with Danfoss is complete.
Gross margin was 19.6% for the 2019 first quarter versus 19% last year reflecting product mix. We generally expect margins to expand going forward as we scale the business and benefit from operating leverage. Operating expenses for the quarter were $3.2 million compared to $2.2 million in the same period last year primarily reflecting higher SG&A costs due to merger related professional and administrative expenses.
Our net loss for the quarter was $2.6 million or $0.05 per common share compared with $1.9 million or $0.04 per common share last year reflecting the items I discussed. Our operating cash balance as of March 31, 2019 was $2.9 million versus $1.9 million at the start of the year and we had $1.6 million of accounts receivable outstanding.
At quarter end, we had $4.6 million borrowed under our bank line of credit and $1 million of remaining availability. As a reminder, in early March, we renegotiated the maturity date on the line of credit and the debt is now payable on or before September 15, 2019.
In summary, the first quarter was a solid start to fiscal 2019 and points to continued execution of our business plan as we prepare for the pending merger with Danfoss.
With that, I’ll turn the call over to Joe for an in-depth review of our current operations and outlook. Joe?
Great. And thank you, David, and good morning, everyone, and welcome to our first quarter conference call. On today’s call, I will provide you with an update on key developments and an overview of our business areas, propulsion systems, auxiliary products and engineering services.
First, as David just mentioned, we’re pleased with the company’s first quarter performance which illustrates that our business continues to improve from a macro perspective driven by positive demand trends industry-wide. And while our UQM revenue was down sequentially from the fourth quarter, this volatility is typical in a nascent and rapidly changing market such as ours. We expect that volatility will continue to be the norm at least for the near term as the sector develops and expands and customers move from discrete sample and low volume orders to serial production.
A major news during the quarter was clearly the overwhelming investor support shown for our pending merger with Danfoss. I am very grateful to our shareholders for their approval as we look to leverage our technology and Danfoss’ significant worldwide presence, the increased market acceptance and drive top-line growth.
The last step before merging remains the CFIUS approval which we anticipate receiving late in the second quarter and we will obviously keep you posted.
We continue to execute on order shipments during the quarter and our plant was indeed very busy. Revenue growth was driven mainly by the fuel cell compressor orders from China and funded development initiatives, along with steady deliveries to our regular propulsion customers.
Besides from shipping new fuel cell compressors for the growing Chinese market, we continue servicing Meritor through e-axle development and sample deliveries. We also posted revenue from Proterra and Lightning Systems during the period and as expected work towards the launch of our China Service Center in Shanghai, which is critical to support our growth in the region. Our first fuel cell compressor sample orders were delivered from our China Service Center in the quarter to a number of new customers in that region.
Now, I'd like to talk about some of the highlights of our propulsion systems and auxiliary product sector as well as our growing presence in engineering services. Let's start with propulsion systems, where we posted another solid quarter supporting our customers and growing the business.
With our key customer in India, Ashok Leyland, we continue to support the product launch as we await our next order. The company's first buses are still in the commissioning stage and once plans for this year are solidified, we will work with Danfoss on an appropriate localization strategy that is a requirement to serve the Indian market and volume production.
Turning to Meritor, the company continues to promote its Blue Horizon brand and has demonstration vehicles and further testing utilizing there E-axle drive systems with the UQM drive components. We are now delivering additional prototypes at the same time discussing other applications across various Meritor platforms. We remain very upbeat regarding the long-term potential of this customer.
Likewise, we continue to ship product to ongoing clients like Proterra and Lightning Systems, and as I mentioned earlier, are also in discussions with a number of potential new customers across the globe. The future looks very good for this part of our business even as the outlook for Sinotruk remains a bit uncertain. As discussed last quarter, due to their restructuring activities, as well as general China related economic issues, including current trade negotiations, are somewhat inhibiting our business and progress in those areas.
Now moving on to our auxiliary products sector. This sector continues to be a strong growth area for UQM and a key focus going forward getting the fuel cell compressor business and our unique integrated motor inverter customized for this application. We've been in discussions with a number of other customers outside of China, and are interesting in knowing more about this innovative system designed to meet an array of flexible operating requirements.
Our many options covering a variety of voltage and power requirements serve the vast majority of fuel cell applications from 30 kilowatt to 150 kilowatt stacks. Localization and cost reduction will be key for mass acceptance and significant growth going forward.
Finally, moving on to our engineering services sector. I’m pleased that we posted a good quarter this period, reflecting solid funding and engineering programs in support of Meritor along with some other customers. This remains a key part of our overall business with funded engineering and design work supporting development of innovative future applications and our general product roadmap. This is in addition to internally funded programs that are designed to drive cost and performance improvements within the inverter area along with our integrated fuel cell compressor system.
As with any technology based company, continuous R&D is necessary to stay world class with regards to the efficiency, scalability and price for applications.
Before turning the call over to questions, let me once again thank all of our investors for their passion and support these many years. We’re focused on completing the Danfoss merger in a timely manner and we’ll keep you updated with regards to CFIUS and ultimately the closing of this transformational deal.
We’ll also continue to work hard on execution of product launches, customer development, R&D and ongoing deliveries, all supporting our business today as well as our future with Danfoss.
With that, I’ll open it up to questions. Operator, please go ahead.
We will now begin the question-and-answer session. [Operator Instructions] [Stan Cummings], Private Investor. Please go ahead. Your line is open.
It sounds like you’re having a great quarter, it sounds like this is what I thought what happened a long time ago with this company. And I’m very unhappy that we’re not going to be -- that I am not going to be a part of it. But I wanted to know what the feeling is with CFIUS? They denied it last time and now that Danfoss is not a Chinese company but they are in China and probably a lot of the business is in China. Do you think that US will allow this merger to happen?
Yes. Our expectation is yes they will allow it to happen. I mean when we had discussions with CFIUS in the past, obviously the big concern was Chinese companies buying up US based companies and the transfer of the intellectual property. And Danfoss being a global company with thousands of employees here in the United States and as with most companies have businesses all over the world and this type of merger and alliance was exactly what CFIUS was encouraging to look for when they blocked the previous deal. So it’s our expectation that this should go through without major issues. And we’re in regular discussion with CFIUS and answering follow on questions, so we expect this process to continue and be successful in the end.
So, sometime before June then?
That’s what -- well, probably, it’s going to be in June, it would be our expectation by the end of the first quarter or second quarter, would be our expectation.
Okay. And if it doesn’t happen, what’s the company going to do then?
Well, obviously we’d work one, there’s always alternatives and we would go back to I guess our base plan. I mean one of the big challenges that everywhere is happening is you’re seeing a lot of consolidation in this industry and one of reasons we’re doing this is obviously the capital that's needed to expand globally, and all of our smaller competitors have been absorbed in the much larger companies and we're competing head-to-head. So we would have to raise the capital and continue on with the business as planned previously.
[Operator Instructions]. [Burdette Russ], shareholder. Please go ahead. Your line is open.
Listen, I've been at -- buzz is better off, it’s easier. I've been a stockholder for over -- almost 15 years. I took advantage of you guys when your first started coming out and I saw the growth potential, you guys were over some $7 a share and when you took a slip back I started buying in figuring it’s normal, a little split, here we got a new company. I've been very faithful watching everything going on. Now you’re going to sellout to Danfoss at $1.71. I have -- I am going to lose over 50% of my investment because I am up over $3 a share and you never pulled off the deck very hard. And now you're going to make this commitment, I'm going to look at losing $10,000 to $15,000 out of my 401. I just don’t know why you haven't been able to develop a better growth pattern than what you had in the past. You are constantly changing the Board of Directors people and stuff like this and I'm sure they don't do it for free. And I was wondering where are the investors that have been with you for so long, they’ve got more dollars into it than what they're going to sell for. What we're going to do, we're just going to take it on the chin, I guess?
Well, again, we've looked at all that and took the shareholders interest into this decision because we know what's happening with the market and when you bought at that point I don’t know how many dilutive offerings there's been since then and the challenges in the market were very significant. So by far I think this was the right decision and obviously with close to 93% voting in favor, I think most of the shareholders felt that way so.
Well, sure, they probably bought a ton of your stock before it went to -- before it started to go back and up and I bought in too try to bring my cost base down and I can only pull it down to about $3.50 somewhat a share and without constantly risking more and more capital in the subs that I'm not sure about it, it doesn't seem to be responding over the years. I mean I've been following you for over 15 years. I had a lot of faith in you in the beginning and I heard a lot of stories from the various different people when I called in and asked, I get all this rhetoric and talk that how great this is going blah, blah, blah, blah, blah, and now here 15 years later you guys are going to sellout to a concern, it’s a private concern. So I have no chance of selling my stock and getting into another company with the stock, right? They are a privately owned company, so there is no stock transition, there's no stock transfers, anything like that available for your shareholders. So I guess it’s just we kiss and say goodbye, right?
We've definitely moved in the best interest for the shareholders and the basic business environment that we're working in, so I appreciate your comments. Thanks.
[Operator Instructions]. [Patrick Addis], shareholder. Please go ahead. Your line is open.
Hi, Joe. How are you doing? A question I have is once and if CFIUS approves the deal, what will transpire for Danfoss to pay us our shares, I mean how will that be transpired?
Yes. I will actually turn that over to David for the mechanics of how that would work, because it’s going to be very straight forward process and they’ve got a banker on board to manage that, but I’ll let David give you the mechanics of how that will work.
Sure. So Danfoss is going to announce selection of a US based bank to coordinate the payments for all the shares. And basically shareholders who hold any certificates will need to contact that bank to prove ownership. And with that proof, the payments will be made. And if shares are held by brokers, the brokers will also inform the bank and payments will be done in that manner. And that’s really the mechanics as we understand it. When Danfoss makes the determination as to which bank will be used that of course will be publicised so that all the shareholders know who to contact.
I see. So then once that happens, would it be necessary for us to contact our brokerage to make sure that they are aware of all this or will they automatically know that this is transpiring?
They probably will know, but it would be advisable for shareholders to talk to their brokers and make sure that it’s all coordinated.
Dick Sergeant from NTB Financial. Please go ahead.
Yes, listen, I just listened to somebody else comment and on this one I am making some money, okay. But that’s all thing is all the deals that I’ve ever had and I’ve been in the business since ‘70, ‘62, and I don’t know I think I have a lot of more shares than the guy that just called. It’s always happened that I had an idea and the stock went down and I just bought more, I’ve got some $0.48 stock, I got some $0.50 stock, I am the last guy to buy $0.50 stock. I started at a buck. But the whole point is, this is a tough game and I don’t own any $7 stock, never did. It’s just a matter of where you come in. I want to commend you for what you have done, because the more as I reflect on this Joe, I think it’s going to turn out to be a godsend, I mean the world has changed, and I think you’ve recognized that and I just want to say, yes, we get all whine and cry but it’s a matter where were you when the stock was at $0.50. And the other side of that coin is, a loss is useful, I’m carrying forward, this is bailing out of a big tax loss carryforward I’ve had from another mistake I made. And it basically closes it out, $0.25 million. But the whole point is that this is a rough game and sometimes you win and sometimes you lose. But I want to be one that is supportive of you Joe and Dave. I think you’ve done the best you can with the situation and that's basically -- I'm just a guy down here in golden but I think you’ve done a hell of a good job and the like. But the other one is the whiners, you need to understand it's a game and you've got to learn how they average down but in the mean time if you got a loss, losses are useful and that's why this is going to be a tax free profit for me, why because I made a lot of the mistakes before. And -- but it's all in the game and as I say I’ve done this since 1962, and I think you did a hell of a good job. I am sorry that it wasn’t higher, we hope that we’d see it higher but it wasn’t, because I think under the circumstances Joe you did the best you could. I don’t know that I could possibly have done better. And so, anyway thanks a lot for what you're doing at this end of the telephone I appreciate everything you've done. And that's all I got say.
There are no further questions in queue. I will now turn the call back over to management for any closing remarks
Great. Thank you, Julie. And in summary, again I just want to thank everyone for their time today. And I said before, it's been great getting to know our many investors over the years and I'm happy to say that the company is very well positioned for the future, and we’re excited about next chapter of UQM, one in which our products and technology lead the industry and the support of electric vehicles worldwide. Thank you again and have a great day.
Thank you, Mr. Mitchell. A webcast audio replay will be available starting today, May 15, 2019 at 1:30 PM Eastern. The link can be found on the UQM website at www.uqm.com. Click on Investors, then on Earnings Webcast. This concludes today's conference call.