AlTi Global, Inc.
Q2 2013 Earnings Call Transcript

Published: 9 Aug 2013

[Executives:]

Tom Laughran – IR Alex Lee – CEO Stephen Huang – CFO and Corporate Secretary

[Analysts:]

Patrick Utter – Private Investor

[Operator:]

Good day, ladies and gentlemen, and welcome to the Altair Nanotechnologies Second Quarter 2013 Financial Results. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session. Instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded. Now I’ll turn the conference over to your host, Mr. Tom Laughran. Please begin.

[Tom Laughran:]

Thank you, Terrain. Good morning everyone and welcome to today’s call. I have been asked to make the following statement. The statements in this conference call that relate to future results, markets, growth plans or performance are forward-looking and involve certain risks and uncertainties, including those associated with uncertain demand for our products and services, the early stage 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. Altair Nano 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. Joining us on today’s call is the company’s Chief Officer, Mr. Alex Lee; and the company’s Chief Financial Officer, Mr. Stephen Huang. I’d now like to turn the call over to Alex Lee. Sir?

[Alex Lee:]

Thanks, Tom. Good morning everyone and welcome to Altair Nano’s second quarter conference call. Roughly 16 months ago, we put together a new business plan that will position the company for growth, reduce our costs and drive our revenue opportunities. As you know, we are focused heavily on the execution of our deliverables to achieve these goals. Today our teams in the U.S. and China act as one and we now have an economic development agreement with the Cites of Wu’an and Handan in China. We now have the land use rights for roughly 106 acres of land and we are now nearing the completion of our new nano lithium titanate and energy storage system plants. These plants will help us aggregate our suppliers many of whom are already based in Asia. Turning to the cost issue, we have now reduced our operating expenses by nearly 40% as compared to the quarter immediately preceding my first day at the company and we hit this target while we ramping up our China team from just a handful of employees 16 months ago to nearly 80 employees today. With respect to revenue, we have successfully delivered systems to customers that include the Hawaii Natural Energy Institute (inaudible) and ESH. In the process the performance has improved significantly. We recognized $3.2 million in revenue this quarter, which brings our mid-year revenue total to about $5 million. Given that we currently have $5.5 million in deferred revenue I think one can quickly see that we are in track to have one of the best years in the record. 2013 should truly be a milestone year for Altair. Here are some additional highlights from the past quarter. As you may recall, our subsidiary in China, Northern Altair acquired land use rights to roughly 66 acres of land in November of last year. While we paid roughly $13.7 million to acquire these rights the sum included the payment of roughly$1.9 million of land transfer taxes and fees. In April, Northern Altair received $1.9 million in cash incentives from the City of Wu’an as part of our economic development agreement with them. This now brings the total cash incentives fees received to-date on this transaction to roughly $13.7 million back to the company. In April, Altair completed a contract with the Hawaiian Electric Light Company, HELCO and then Hawaii Natural Energy Institute, which is also known as HNEI for a 1 megawatt ALTI-ESS system. The system was commissioned at the Hawi Wind Farm on Hawaii’s Big Island and we currently have two additional orders for our ALTI-ESS systems from HNEI. And based on our discussions with our customer there, these two systems were likely to be installed and commissioned early next year. In May of this year, Northern Altair acquired land use rights to an additional 40 acres of industrial land in Wu’an, China and the acquisition price for that transaction was roughly $8.6 million. That fee included various land transfer taxes that were about equal to $1.2 million and the closing occurred on May, 27, 2013. In turn, we have applied for and expected to receive roughly $8.6 million in cash incentives later this year as part of our economic development deal. It is important to note that these various land use spreads can be used as collateral for loans, which could be used to fund our operations. Our Northern Altair team is currently looking to these options as we speak. In May, we decommissioned our nano lithium titanate manufacturing equipment in Reno and we shipped it to our subsidiary Northern Altair. This equipment is currently being installed by our team in our new nano lithium titanate manufacturing facility in Wu’an. We are also completing the construction of our energy storage system production so where we’ll build battery modules and energy (storage) systems. As an aside, it is important to note that our facility in Anderson, Indiana will continue to produce battery (inaudible) and our new storage systems for our customers. However as you can see, we have seized production of nano lithium titanate in Reno, Nevada. In June of this year, we entered into a memorandum of understanding with Tauron Dystrybucja S.A. to jointly investigate the use of stationary energy storage systems based on nano lithium titanate batteries. TAURON is a subsidiary of TAURON Polska Energia, which is Poland’s second largest energy company. Like us they see great potential in the use of battery based energy storage to help integrate renewables onto the grid. We are currently working with TAURON to identify joint project in Poland. We continue to have various discussions with the transportation and industrial customers in the U.S. Europe and Asia, who are interested in using our battery systems in a variety of applications, where the high-power attributes of our battery are a key consideration. Several customers are now testing our application kits, modules and PowerRack systems for various commercial applications. We are continuing to make good progress on that front and we hope to have some good news for you in the future there. We continue to address potential U.S. military opportunities. In fact, we get increase from time to time and this is an important market opportunity for us. As you may recall, however we exited this business due to the acquisition of 53% of our company by a Chinese entity. However, we’ll now receive guidance that it would be possible to react to the business provided us certain controls were in place. Given this, we will continue our efforts to reenter the segment as it is definitely one that could utilize the unique attributes of our battery. We continue to make good progress on the R&D font as well. We are focused on development of our nano lithium titanate sales and they found ways to increase the energy density and our high temperature performance. We have also designed the new cell, which will be easier to manufacture, which in turn should reduce our costs. We are also investigating other next gen battery chemistries with a specific eye towards technologies that can be commercialized within a five year timeframe. The key part of our strategy here is the partner with entities that have key technologies, who in turn can leverage our R&D and commercialization capabilities. We have also involved in a very interesting battery testing program, which is showing very promising results for our nano lithium titanate cells. We hope to make some announcements about this in the near future. In addition, there is some indications that the market is beginning to warm up again. Although the EV market remains challenging in the U.S. there are signs of growth in China especially in the EV bus market. With respect to the grid, we are seeing growing number of potential opportunities in U.S. now that FERC has issued order number 755 and 784, which not only seek across the competition in the ancillary services market but pays premiums on fast response regulation, which battery-based ESS systems like ours are very well qualified to provide while there is still some regulatory work to do at the local level. These new regulations are helping to drive change and states like California have announced their intentions to implement large scale energy storage systems over the next seven years. For example, California plans to implement about 1.2 gigawatts of ESS in that timeframe. In conclusion, we continue to focus on improving our overall financial performance and have implemented additional cost reduction measures this past quarter that should further reduce our U.S. monthly operating expenses by approximately $200,000 when fully implemented. Interestingly if you were to strip out the work that Altair U.S. does to support Altair China. Our true U.S. operating expenses are now running closer to $700,000 per month which is a significant decree from where we were at 16 months ago. We have truly taken a lesser more approach and despite these cost reductions we continue to build a stronger healthier Altair. That being said, I would like to, now, I’d like to turn it over to our CFO, Stephen Huang will now go over our financials. Stephen?

[Stephen Huang:]

Thanks, Alex and good morning. Thanks to everyone. For the second quarter ended June 30, 2013, revenues were $3.2 million compared to the second quarter of 2012 revenues of $454,000. Gross loss was $61,000 in the second quarter of 2013 compared to $620,000 in the second quarter of 2012. Operating expenses were $3 million in the second quarter of 2013 compared to $4 million for the same period in 2012. The net loss for the second quarter of 2013 was $3 million or $0.26 per share compared to a net loss of $4.9 million or $0.42 per share for the same period in 2012. The basic and diluted weighted average share outstanding for the second quarter of 2013 remained constant at 11.6 million compared to the same period in 2012. Revenues were increased by $2.7 million in the second quarter of 2013, primarily due to the revenue recognized for the sale of one ALTI-ESS system sold to Hawaiian Electric Light Company and Hawaii Natural Energy Institute for their Hawi Wind Farm on the Big Island of Hawaii. Gross loss was decreased by $559,000 in the second quarter of 2013, primarily due to inventory cost adjustment and the launching of new electric grid products. Operating expenses were decreased by $1.4 million during the three months ending June 30, 2013, compared to the three months ending June 30, 2012. This decrease was primarily due to the planned reductions achieved and accounted for in research and development and sales and marketing departments, which offset with increases in general and administrative departments primarily due to the ramp up of our China operations in the second quarter of 2013. Net loss was decreased by $1.9 million in the second quarter of 2013, primarily due to overall decreases in operating expenses. Altair’s cash and cash equivalents decreased by $3.7 million from $12.4 million as of December 31, 2012, to $8.7 million as of June 30, 2013. The net decrease of $3.7 million resulted from the net decrease in operating activities of $4.2 million. The net decrease is investing activities of $1.6 million and the net increase in financing activities of $24 million. The investing activities included the acquisition of the second land use right from the Government of Wu’an, China, which was paid for by using restricted cash, and the purchase of fixed assets by Northern Altair. The financing activity included the increase of deferred income due to receiving $1.9 million in cash incentives from the purchase of the first land use right. Our overall cash position, including restricted and long-term restricted classifications was $17.8 million as of June 30, 2013. We had submitted an application for cash incentives from the Government of Wu’an amount approximately equal to the amount of the second land use and related taxes. And we expect to receive $8.6 million in cash incentives from the Government of Wu’an in the second half of 2013. With that, I would like to turn this back over to Alex Lee.

[Alex Lee:]

Thanks, Stephen. At this point and time, as you can see revenues are up, operating expenses are down. We continue to make these improvements in the company and certainly building this platform out in China to help expand our market opportunities that’s something that we made significant progress on over the especially over the past six months. And these plants have been under construction our U.S. and China teams have been very busy working on the various projects associated with those plants. The buildings are actually now completed and we just installed one equipment so a lot of good news to report there. Now with respect to the company, as a whole, we are continuing to chase a number of different opportunities. We do see some increased pickup with respect to inquiries on our fees and so forth which we take as a very promising sign. So, with that said at a very high level, we would certainly like to turn it over for questions at this point and time.

[Operator:]

Thank you. (Operator Instructions) First question is from (Remy Gravy) of Private Investor. Your line is open.

[Unidentified Analyst:]

Yes, good day. I have a few questions.

[Alex Lee:]

Yes, please.

[Unidentified Analyst:]

So, the first question was the – what is the status of the Puerto Rico bus commissioning?

[Alex Lee:]

We – that’s the TSK’s Solar project. We basically had shipped that system, it was our first ALTI-ESS Advantage system that’s the 2 megawatt product. We shipped that system now at the end of last year and commenced installation and so forth but we are waiting for the actual solar facility which is a – we have a 24 megawatt facility to be completed by TSK Solar. So that there is some final commissioning fees that we have to do at that point but the installation for the most part is completed it’s just not running until the solar installation is done.

[Unidentified Analyst:]

Okay. Thank you. Second question, what is the status of the buses that were procured by the Wu’an city?

[Alex Lee:]

Great question. Under our economic development here we were supposed to sell and deliver buses to the city of Wu’an. And as you know we are not bus manufacturers so we entered into a deal with one of our affiliates to sell their buses their electric buses and this is a Yintong Energy which is related to our investor. Under the contracts our deal allows Altair Nano to supply any bus that needs a certain specification. And we were originally scheduled to deliver 50 buses by the end of last year. The original buses that we had sold however were – they don’t really sell in the U.S. but they’re smaller than a normal transit bus. So, that was the original order but then the city had asked for a slightly larger bus something more tend to a U.S. transit bus. And then we entered into some discussions at the end of last year and through the early part of this year. So, the order was changed, so now we are delivering 50 larger buses and those buses are in production and it will be delivered sometime this year. We hope in the third quarter but in May that pushed out into the fourth quarter just to be safe. But in any event upon delivery, we will be paid roughly $4.2 million $4.3 million. We’ve already been paid $1.9 million deposit on these buses. And so upon delivery we would be able to recognize in total roughly $6.2 million to $6.3 million. So, that would contribute to a good amount of top-line revenue to the company for this year.

[Unidentified Analyst:]

Okay, great. Now, for these buses, will that be with the nLTO sales or will that be – the YTE sales the…

[Alex Lee:]

Initially, that will be with YTE short sales, then over time what we are doing is working with YTE and potentially other companies to incorporate Altair’s batteries into those buses that we would deliver to Wu’an, yes. So, over time it would be – the revenue mix would shift and more revenue will come to Altair because of the battery supply as well.

[Unidentified Analyst:]

Okay, great. Maybe, two more. Can you talk about any follow-ups with the delivery of the – for Vestas in Europe?

[Alex Lee:]

Okay. That system is up and running, basically it was completed in the early part of this year, I believe in January so that system has now entered into commercial operation. Vestas is using it to do help integrates wind power at wind farm in Denmark, they’re also using it to provide frequency regulation services and I’m very happy to report that Vestas is pleased with the system and everything is going very well there. So, it’s definitely a nice success for our team because as you can imagine we’re a U.S. based company and delivering systems to power plant locations in places like Denmark, Hawaii, Puerto Rico and so forth that one creates logistics challenges. And despite and a smaller footprint of our team we were able to successfully deliver that system and keep our customers happy.

[Unidentified Analyst:]

Okay. But do you expect any follow-up purchase or work with the Vestas this year or next year?

[Alex Lee:]

Well, we like all of our customers we would love to see follow-up projects. And so that’s certainly something we’d like to see happens but as you may know the wind power industry or at least I would say some of the western companies that are in the wind power industry do face some headwinds in new market and I guess in that case the fund was intended. So, it does make a selling into some of these customers little bit more challenging. That being said, we’ve already sold three systems to HNEI. So, clearly we do have opportunities for weepy customers and so forth. We continue to engage with Vestas and as any opportunities pop up we’d surely like to get on that work.

[Unidentified Analyst:]

Okay. Thank you. Last question.

[Alex Lee:]

Sure.

[Unidentified Analyst:]

So, with the nLTO plant getting ready in China, do you expect your license from YTE to come back into play like do you expect YTE now to come back with some purchase of nLTO for them?

[Alex Lee:]

Yes, certainly that’s something that I would very much like to see happen. I think – I will say that there is no doubt that there is a lot of interactions between the companies but as CEO of Altair I have only limited insight into YTE’s overall business plan because they are a separate company, they probably know more about us just because of the investment situation but I do know that LTO does play a picture or a big picture in YTE’s plants with respect to especially to – I think their electric bus strategy. So, certainly sale of either batteries or materials I think figure commonly in the future as between the two companies.

[Unidentified Analyst:]

Okay. Thanks very much. And have a good day.

[Alex Lee:]

Thank you, very much.

[Unidentified Analyst:]

Okay.

[Operator:]

And your next question is from (James Berry) of Portfolio Management. Your line is open.

[Unidentified Analyst:]

I was wondering if you are willing to provide any financial guidance for the third quarter or for the year.

[Alex Lee:]

Well, I think what I can safely say is that as we just reported that we’re at about the $5 million market here the mid-year point for the first three quarters. We do have $5.5 million in deferred revenue and as I mentioned there is this Chinese bus order Wu’an bus order which represents roughly $6.3 million. So, if you were to assume that we can recognize some portion of deferred revenue on our books, if we were to deliver those buses within this calendar year, you would see that the revenue growth could be quite healthy. I will hint at the fact that based on our projections that we will have a very good year if not a record year in 2013. And then there are some things I’d say in our pipeline there are still looming that could help us out to this year or it might fall into 2014, the net event I would say 2013’s revenue has shifted dramatically and that along the cost reductions that we put into place of the series going to quite controlled company.

[Unidentified Analyst:]

Okay. Thank you. And good luck.

[Alex Lee:]

Thank you, very much.

[Operator:]

(Operator Instructions) Next question is from Patrick Utter at Private Investor. Your line is open.

[Patrick Utter – Private Investor:]

Thank you. Good morning.

[Alex Lee:]

Good morning.

[Patrick Utter – Private Investor:]

I was wondering what are your plans to get larger investors interested in a company and to make aware of the stock to into your daily trade volume because the trade volume we’ve been having has been very, very minimal. And also on the deferred revenue that you’re expecting to get this year in the second half, do you think that will become profitable then?

[Alex Lee:]

Well, okay. In terms of the profitability that’s I think there are couple of things happening, we are bumping revenue up which is good, operating expenses are coming down certainly in the U.S. that come down significantly. But I do think that we are at a bit of an inflection point where operating expenses rolled out start to increase in China because we do have now roughly 80 employees in China. Of course the cost structure is extremely different than it is in the U.S. but in many events what you will see is some operating expense increases over the remainder of the year coming out of China. Meanwhile, there are some operating expense reductions that we could achieve here in the U.S. But that being said I think for this calendar year profitability we’re not going to hit that point unfortunately that’s going to take additional time. I do think we will continue the overall trend of getting more revenue and I think the key challenge for the company at this point on the revenue front in addition to just getting the sellers to increase their margins, certainly that’s going to help to deal with the profitability issue. Now, we are putting plans in place to do various types of Road Shows to address the financial issue or financing issue. Certainly, one of the great things about this China land deal is that it does provide a quite a bit of economic stability for the company and that’s really what the original intention was. There are many economic incentives that are provided in China. And in our case, land was a big part of it and that land could be used as collateral in China to get loans. We are in discussions not only with banks in China to basically get loans booking for this purpose that we’re also talking to the cities at Wu’an and down to see what kind of loan guarantees and or interest subsidies to – and incentives could be provided. So, the loans that we receive might actually be quite low in cost from an interest perspective. So, that maybe an efficient source of capital that doesn’t requires us to sell equity, it could be used as working capital. And so the key concern there would be just simply to manage the debt load and make sure it fits with our financial plan it fits. But that all being said with respect to the China market we do intend to do various Road Shows here in the U.S. as well. I think the kind of the battery companies as you know here in the U.S. is challenging so it is going to be harder to raise capital here in a conventional ways. But we do think that Altair is quite differentiated from its competitors, if you look at that companies like A123 who are cell manufacturers, they had many cost attached to their business when we do we don’t manufacture cells we design cells, we design materials and we actually outsource the cell production. And as you know there are many, many cell manufacturers out in the world today, there is excess capacity and our objective is to continue to identify the best cell manufacturers, reduce cost and keep cost footprints low as possible. So, when you take all those things put together, then – where we can provide a road map to get to the point of becoming cash flow positive and so forth. And again it’s a challenge, it certainly even more challenging in the current market. And there are signs of the market picking up. But then you also have competition to deal with and Altair despite its many technical benefits but there is still it does take some work to get customers to understand why a battery that last so much longer than its competition is worth about it is a sales process that sometimes gets complicated because the market for a whole host of reasons focused on energy density larger because of EVs sector and then focus on power batteries which is what Altair has. So, these things have made life challenging for Altair over the past few years but as you can see from the basic of financial results, things are improving and I think we can continue this improvements going to the future.

[Patrick Utter – Private Investor:]

Thank you, very much.

[Alex Lee:]

Sorry for the long wended answer.

[Patrick Utter – Private Investor:]

That’s it. Thank you, very much.

[Alex Lee:]

Thank you.

[Operator:]

Thank you. (Operator Instructions) I’m showing no further question. I’d like to turn the call over to management for any closing remarks.

[Alex Lee:]

Thank you, very much for joining our call today. And as you can see we’ve been making steady progress certainly over this past 16 months and reducing our cost that is definitely been a big challenge for us as a company historically. Certainly, the battery business is not a cheap to be in. And so, the development costs that went into our various products no doubt increased our operating expenses over time. But the good news is that we’ve turned the time there, that definitely brought operating expenses down significantly. From the sales perspective, we are very focused on leveraging existing products and creating new applications for these products. We’re seeing interesting opportunities in taking our PowerRack system which is our smaller ESS system and putting it into some different industrial applications and our hope is that we can take one of those opportunities and really turn it into volume product that we’ve been looking for, for quite sometime. In the grid sector, as you know HNEI has been a weepy customer of ours so I think that’s – that shows the steady progress that we’ve been making with respect to providing professional engineering services, deliveries, commissioning, integration work. I think it’s a very good sign of the technology as well. HNEI is that well known in the battery industry and certainly there is a lot of attention being focused on renewable energy in State of Hawaii by the utilities by the Department of Energy and state. So, we see a continued growth in Hawaii not only with HNEI but with other potential customers out there. And as we shift from frequency regulation, markets which was our core application in the grid sector we see increasing opportunities in the area of renewables integration so projects like the Vestas project and TSK Solar where you have situations where people want to put more renewable energy on to the grid. Actually, what ends up happening is that we tend to de-segwise grid if you put too much renewable energy on. So, in this case the battery can serve as a buffer. So, we see some nice trends in markets like Puerto Rico, and certainly Hawaii and certainly in Europe where our batteries can be used for that purpose and that’s something we’re very much focused on chasing up to. And lastly, as I mentioned before, things are continue to go well in China, there is no doubt that the China market can be quite complicated and difficult at times but we have a very good team out in China that understands that market. We have strong engagement with that team, with our investors and we continue to make a very rapid process – progress in that country. 16 months ago we didn’t have any land, now we have 106 acres of land two buildings we’re actually three buildings now and these plants are almost completed. So, that will help us address the product cost issues, it will help us address the supply chain issues. Previously we were shipping LTO from Reno, Nevada out to Asia to build the cell, the cell was coming back to the states. And at least we’ve taking one piece out of that in a lengthy supply chain and aggregated suppliers in such a way that it should help us with our lead times and ultimately with the cost as well. So, all in all, I think we continue to make steady progress. I’d like to thank to our team, our team has been working extremely hard in both the U.S. and China, none of this would be possible without them. And we’ve all been very, very focused on improving the performance of the company and I think the facts speak for themselves. There is steady improvement. And we’re going in the right direction. So, I think that’s good news for our team and certainly a lot of thanks for them. So, with that said, thank you very much for joining our call. And I look forward to speaking with you next quarter. Thank you, very much.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may disconnect. Have a wonderful day.