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Edited Transcript of UQM earnings conference call or presentation 27-Oct-15 12:00pm GMT

Q3 2015 UQM Technologies Inc Earnings Call

Frederick Oct 29, 2015 (Thomson StreetEvents) -- Edited Transcript of UQM Technologies Inc earnings conference call or presentation Tuesday, October 27, 2015 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Rosenthal

UQM Technologies, Inc. - CFO

* Joe Mitchell

UQM Technologies, Inc. - COO, Interim President and CEO

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Conference Call Participants

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* Bruce Kravinsky

- Private Investor

* Thurman Willis

- Private Investor

* Amit Dayal

H.C. Wainwright - Analyst

* Craig Irwin

Roth Capital Partners - Analyst

* Eric Goldstein

First New York - Analyst

* Patrick Catard

- Private Investor

* Keith Brown

- Private Investor

* Randy Hough

ProEquities - Analyst

* Harold Weber

Wells Fargo Advisors - Analyst

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Presentation

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Operator [1]

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Good morning. My name is [Shawn], and I'll be your conference operator today. At this time, I'd like to welcome everyone to the UQM Investor Conference Call. (Operator instructions.) Thank you. Chief Financial Officer, Mr. David Rosenthal, you may begin your conference.

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David Rosenthal, UQM Technologies, Inc. - CFO [2]

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Thank you. Hello, everyone, and thank you for joining us on our conference call this morning to talk about the announcement we made yesterday regarding a new supply agreement with our customer in China. With me today is Joe Mitchell, our Chief Operating Officer and interim President and CEO.

I'd like to begin this morning by telling you that this conference call may contain statements that constitute forward-looking statements within the meaning of Section 27(a) of the Securities Act and Section 21(e) of the Securities Exchange Act. These may include statements regarding our plans, beliefs, or current expectations, including those plans, beliefs, and expectations of our management with respect to, among other things, the amount of revenue that could potentially be generated over the term of this new agreement, the timing and success of completing necessary tests and certification processes for ITL, our new customer, to order UQM products, the number of units ordered by ITL under the supply agreement, the timing of beginning manufacturing operations in China, the success of ITL in introducing its electric drive systems, including UQM products, into the vehicles produced by itself and its affiliates, and the continued growth of the electric powered vehicle industry in the Chinese market. Important factors that could cause actual results to differ from those contained in the forward-looking statements include the ability to timely resolve any technical challenges of integrating UQM products into ITL electric drive systems, the responsiveness of customers to ITL's products, the timing and quantity at which ITL issues binding purchase orders under the long-term supply agreement, and other factors described in our Form 10-K and Form 10-Qs under the heading, "Risk Factors," all of which are available through our website at www.uqm.com, or at www.sec.gov.

With that, I'd like to turn the call over to Joe.

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [3]

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Okay. Thank you, David. Yes, we'll have some opening statements, and then we will open up the line for some questions. But, we really first want to start by saying good morning and thank you all for joining us today. I'm excited to talk to you about our just-announced major supply agreement with ITL Efficiency Energy Technologies, in China. ITL will exclusively purchase electric drive systems from us to support their parent company, Eastlake New Energy, which owns three bus companies and already has fleets of shuttle buses, light- to medium-duty delivery trucks, and transit buses in service today.

We've publicly stated many times that our strategy for long-term success requires our presence in China, which is by far the largest market in the world for our product portfolio. We've been working very hard over the last few years to establish that presence. With this agreement in place, we now have a solid customer base and partner to enable us to execute on this strategy in a systematic and pragmatic fashion.

This supplier agreement is a 10-year deal, with us having the exclusive rights to supply the ITL Eastlake portfolio vehicle applications. Based on the projected unit volumes, the value of this contract could generate revenues in excess of $400 million over the term of the agreement with the ITL Eastlake portfolio alone.

ITL will be an integrator of the electric vehicles for the entire China market, so our joint longer-term goal is further expansion of this market. ITL has identified the six- to eight-meter shuttle buses utilizing our PowerPhase 135 system as their lead program, which will be followed shortly after by the 10- to 12-meter transit buses utilizing our PowerPhase HD systems. We are very pleased with the approach to address this market as we have implemented with ITL.

Starting in early 2016, we will have a number of certification systems running on their vehicles in China, with the goal of volume production starting in early 2017. The first year's production with a minimum volume threshold will come from our Colorado facility, and ITL has already issued a purchase order for 3,000 systems to cover the Colorado volume for initial production.

There are numerous benefits to this approach. First, we'd be able to utilize our existing small-frame motor inventory originally purchased to support the CODA program. This will obviously enhance our liquidity position. And secondly, this agreement allows for the appropriate time to finalize and implement our China manufacturing footprint, which is targeted for launch in early of 2018.

It's important for everyone to understand the strength and depth of the Eastlake ITL organization and why we are so pleased to have Eastlake and ITL as our partner. Eastlake New Energy Company was set up by Eastlake Industrial Investment Management in September of 2013 to support expansion into the new energy market. Our goal going into China was to find the right partner that had access to the market, the appropriate structure, and funding to legitimately support the volume forecasts. Eastlake ITL brings all of that with our ownership structure, but also the independence of ITL allows the potential for greater market expansion beyond their control portfolio.

In our discussions with Eastlake ITL, both in China and here in Colorado, it is clear they are very familiar with UQM's demonstrated performance for electric vehicle fleets in North America, such as Proterra and Zenith. Their vision is to bring this best-in-class performance to the China market and be the powertrain of choice for this entire market. Obviously that fully aligns with our vision and objectives. Once again, we are extremely pleased with our agreement with Eastlake ITL and the positive future potential this brings for UQM.

With that being said, I'd now like to open up the line for questions.

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Questions and Answers

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Operator [1]

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Thank you. (Operator instructions.) [Bruce Kravinsky], Private Investor.

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [2]

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How are you, Bruce?

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Bruce Kravinsky, - Private Investor [3]

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Good morning. Wonderful news. Given if things go according to plan, the most likely plan, when do you envisage that UQM will become profitable?

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [4]

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I'll let David answer that one, looking at the finances.

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David Rosenthal, UQM Technologies, Inc. - CFO [5]

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Bruce, this contract is going to take time to implement and to execute. There's going to be a period, mostly through in 2016, where ITL will be doing testing and certification of the new vehicles. And we will be selling them a small volume of product during 2016, and then the plan is to begin launch in 2017. So, as those volumes continue to ramp, we would expect the revenue to start generating cash for us, and ultimately getting us to profitability.

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Bruce Kravinsky, - Private Investor [6]

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And is there enough cash available to endure during the 2016 testing, or will you need to raise additional funds?

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David Rosenthal, UQM Technologies, Inc. - CFO [7]

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As we've been saying for some time, we are looking at numerous alternatives in terms of funding the Company. We certainly expect over time that we're going to need additional working capital to support the significant launch that this contract will provide to us. But, we're looking at all alternatives, and assure all our shareholders that we'll have adequate cash to do what we need to do.

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Bruce Kravinsky, - Private Investor [8]

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Thank you.

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Operator [9]

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[Thurman Willis], Private Investor.

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Thurman Willis, - Private Investor [10]

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Congratulations, gentlemen. Joe, I had a question. This is great, great news. I just wondered if it could be followed up. We had mentioned that we have several partners we're working with in China, and if there's other potential with China partners, with Proterra, and this maybe could just be the start or the foundation that causes us to really become a dynamic company. So, could you speak to the other possibilities that we may have, and could they be as broad as this, whether it be Mullen or EVI or Proterra, et cetera? Thank you.

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [11]

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Yes, thank you, Thurman. Obviously this is our first -- and it is a major deal in China. As we mentioned before, it was key to -- we already have the one deal in China with Keshi on the mining vehicles, and that is -- got some volume, again, kicking into production next year that will be in the hundreds, and potentially go to the thousands.

With the Eastlake ITL, that obviously has the potential, much higher volume. I mean, the Eastlake ITL portfolio of bus companies today supply probably over 10% of the China market alone. So, huge opportunities there.

And as I mentioned, I think one of the key points is the independence of ITL, and their vision is they do not just want to be the exclusive supplier to the Eastlake family of bus companies. They want to take this throughout all of China, and even beyond as we're able to execute. But, it also does not -- would mean we're going to stop there. There are other applications on the vehicle side that we continue to talk with many customers.

Our current base, you mentioned Proterra, EVI, and so on. They don't have a presence in China today. And we're going to continue to grow with them here in North America. As they grow, we will grow with them. As I have said in previous discussions and at the annual meeting, for every vehicle they sell, that's good for us, because it's going to have an eDrive in them. And as they move forward, we will move forward with them. But, really nothing is off the table, and we are looking to continue to expand our growth.

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Thurman Willis, - Private Investor [12]

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If I could follow that up with also we have the association with Ballard on the fuel cells. I know it only plays about a 10% role in the total China bus market, but could I ask you about are there other opportunities out there equal to this? Where might the fuel cells be? And with the 135 being sold we have as inventory, it appears that this could rid us of our inventory situation, thus helping us with our cash flow and bringing that to the bottom line without any [call] spaces.

So, it's really a threefold question. Again, briefly repeated, are there other exciting situations out there? I know we had a MOU with somebody in China. Will this use a lot of the inventory of the 135? And lastly, about the fuel cells with Ballard? And I thank you.

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [13]

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Okay. Okay. Probably starting with Ballard, on the fuel cells, again, as Ballard grows and we continue to put our product into their portfolio, that's only good news for us. But, we also continue to talk to many other customers with that fuel cell compressor business, and the other benefit that's come from the Ballard and being in a fuel cell relationship portion of that is these fuel cells are obviously all electric vehicles that need traction drives. So, it's opened up new opportunities. And the volumes are not huge on the fuel cell side compared to the pure battery side right now in China, but again a good opportunity for us that we're going to continue to pursue.

And then, on the inventory side, I mean, this will obviously utilize by far the vast majority of what's here for the (inaudible), would require us to continue to bring new products in to support that. I mean, the inventory that's here is nowhere near enough to support this entire forecast. So, we will utilize all that, and start to bring in new product, and turn the supply chain back on, which is very positive for everyone involved with this entire process here.

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Operator [14]

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Amit Dayal, H.C. Wainwright.

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Amit Dayal, H.C. Wainwright - Analyst [15]

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Thank you. Congratulations, guys.

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [16]

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Hi, Amit.

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Amit Dayal, H.C. Wainwright - Analyst [17]

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Sorry, I've been juggling a few calls in the morning, so sorry to be on a little late. The $400 million opportunity, is this limited to the Eastlake family of companies, or does this potentially include other opportunities that go beyond Eastlake?

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [18]

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I mean, they have taken what I would say is -- they view as a conservative approach, but looking at their family of companies, what they directly control. But, as I mentioned earlier -- I'm not sure you were on the line -- what we're so excited about is this vision that ITL has with their independence from Eastlake, is they want to be the provider of choice for electric powertrains throughout the entire China market and beyond.

So, by ensuring that those lines are drawn, and then having the captive market with the Eastlake portfolio of products, we definitely want to take this beyond. They've been in discussions with many other bus companies. The feedback from us is a lot of the powertrains that are over there right now with domestic content have struggled. The very large motors, induction motors, nowhere near to the technology that we're going to be bringing to them.

The thing that impressed them when we met with them in China the most was that we have the real-world experience with Proterra and Zenith, and all the records that have been set, the press that's come out, the Altoona testing, the validation. That's what really brought them to choose UQM to be their supplier. And again, they see a huge potential for this marketing, and their vision is to go above and beyond that, but obviously that's just pure speculation at this point. But, I think the upside is very, very good.

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Amit Dayal, H.C. Wainwright - Analyst [19]

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Thank you. And in terms of any immediate milestones in relation to this agreement, should we be looking at anything that is needed to be done on either side to continue--?

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Joe Mitchell, UQM Technologies, Inc. - COO, Interim President and CEO [20]

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--Well, there's a couple things from -- mainly from their end, is they need to get their buses certified for the China market. So, we need to get them, I mean, a number of systems as fast as we possibly can, which from...


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