Tickerguy's 3rdQ CC transcript
Far easier to read than to transcribe, with thanks to tickerguy, here's his transciption and just reading it you realize what an incredibly huge effort it was... a very big thanks. Al
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Energy Conversion Devices --- 3Q/FY05
Ending 3-31-05
Reported May 11, 2005
Conference Call Date May 11th, 2005
SPEAKERS:
Bob Stempel
Stan Ovshinsky
Steve Zumsteg
Nancy Bacon
Roger Lesinski
Ghazaleh Koefod
Jim Metzger
I. General Report (Speaker Bob Stempel)
Introduction: In our prior conference calls we noted the good news happenings to ECD. And while we do not have another, one time, cash event like the $79.5 million in revenue from an intellectual property license to Cobasys, we do have many positive business items to report during this call. ECD recently raised $109 million dollars from the sale of its common stock and the exercise of warrants by two warrant holders. ECD/Ovonics sold 5,090,000 shares of common stock at a price of $17.25 a share to 65 institutional investors.
We are planning to exercise the Chevron/Texaco option to purchase 4,376,333 shares of ENER for $4.55 a share. Post exercise, shares outstanding will have increased by 700,013,367 shares for an increase of only 2.8%. We believe ECD shareholders appreciate the minimum dilution effects of these transactions. Before continuing with the business news, let us first take a look at the financial results.
A. 3Q/FY05 Losses and Revenues versus 2004
--1. $11.3 million loss versus $12.3 million loss in 3Q/FY04
--2. $17.9 million revenue versus $16.5million in revenue in 3Q/FY04
--3. $.39 loss/share versus $.49 loss/share in 04
B. Nine Months FY/05
--1. Net income of $57. 2 million versus loss of $40 million 9 months FY/04
--2. Revenue of 135.8 million versus $46.6 million 9 months FY/04
--3. Income/share $2.16 versus loss of $1.70/share 9 months FY/04
C. 3Q/FY05 changes
--1. United Solar product sales
…….(a) Increased 79% for the quarter
…….(b) Sales $12,495
…….(c) Backlog $34.7 million
--2. Product Development agreements
…….(a) Declined $3,346,000
…….(b) Lower revenues from Cobasys in FY/05
--3. ECD’s 100% ownership of Ovonic Hydrogen as of 12-02-04
D. Product Sales – 9 Months increased $13.8 million
--1. Due to $18.4 million sales increase at United Solar
--2. Offset by reduction in equipment sales
E. Net Gain 9 months
--1. $57.2 million gain 9 months/FY05
--2. $40.0 million loss 9 months/FY04
--3. Factors for change from loss to gain
…….(a) $8 million distribution from Cobasys for legal expensed re-imbursement
…….(b) $79.5 million realized by ECD for rights licensed to Cobasys
…….(c) $2,266,000 ECD received in December 2004 for Chevron Texaco technology transfer in Ovonic Hydrogen---booked as an extra-ordinary gain in March 2005
…….(d) $1.7 million expense related to Sarbanes compliance
F. United Solar Results
--1. $1,670,000 gross profit 9 months/FY05 versus loss of $3,857,000
--2. $1.3 million gross profit in 3Q/FY05
--3. Product sales increased 57% in 3Q/FY05 versus year ago
--4. Set new production records in March and April
--5. Early in year had problems with substrate supplier that slowed production
--6. Expect production rate to be 2 megawatts/month in the future
--7. Have begun construction of a second mfg line
…….(a) Using funds from sale of stock & warrants
…….(b) Will double production from 25-30MW to 50-60MW
--8. SIT (Solar Integrated Technology)
…….(a) GE Commercial Finance will finance roofs installed by SIT
…….(b) Use United Solar panels
…….(c) 2MW San Diego city school project
--9. Conerge AG (Germany)
…….(a) Two year distribution agreement
…….(b) 1.5 MW of PV
…….(c) Distribute in France, Greece, Spain and Switzerland
G. Cobasys Results
--1. ISE Corporation selected Cobasys NiMax battery
…….(a) For hybrid electric powertrain
…….(b) Used in Army’s medium tactical vehicles
--2. Sponsored “Challenge X”
…….(a) Students explore advanced vehicle solutions
…….(b) 17 Universities
…….(c) Goal to increase energy efficiency and reduce emissions
--3. When all manufacturing equipment is installed
…….(a) Cobasys can produce 1.2 million NiMH modules
…….(b) Series 1000 type
…….(2) Last quarter Cobasys investigated increasing capacity to 2 million
………..(1) Growing customer interest
………..(2) Increase in potential future orders
--4. Cobasys confirmed they will increase production
…….(a) Increasing capacity to 2 million modules
…….(b) Direct result of co-operative agreement with PEVE & Cobasys last July
H. Ovonyx
--1. Joint venture 41.7% owned by ECD (Tyler Lowery heads Ovonyx)
--2. Elpida Inc (largest DRAM supplier in Japan) licensed to use OUM in semi-conductors
…….(a) Ovonyx will actively support Elpida efforts to commercialize OUM products
…….(b) OUM can be used in DRAM replacements and imbedded applications as MOS logic and micro-contorllers
…….(c) 1 Billion in sales in FY04
I. Other Development Stage Ventures
--1. Ovonic Hydride Fuel Cell
…….(a) Functions as a battery and a fuel cell
…….(b) First applications in UPS and Emergency Power Applications
…….(c) Instant start
…….(d) Excellent temperature operating range
…….(e) Lower cost than PEM fuel cells (Has no noble metals)
…….(f) Can accept “braking energy” input
…….(G) Will deliver 2 to 20KW samples to interested military and commercial customers later this year.
--2. Ovonic Hydrogen Systems Teamed with the National Automotive Center
…….(a) NAC
…….(b) Arm of Army’s Warren Mich. Automotive Tank development center
…….(c) To construct a mobile hydrogen storage mobil unit
…….(d) A convenient way to refuel experimental vehicles
--3. Ovonic Battery Expanding battery license to BYD
…….(a)Peoples republic of China
…….(b) BYD is largest mainland NiMh battery producer
…….(c) License to all ECD NiMH technologies & patents
--4. Laboratory
……(a) In Feb 05 achieved ISO 9001/2000 certification
……(b) Available to all companies requiring ISO 9001 testing
I. Company is still committed to sustained profitability by July 2006
……(a) Will continue cost cutting
……(b) Will defer some projects
……(c) Need extra resource sources and funding partners for future development work
……(d) Our time is now, we are focused on delivering and expect to do so
II. QUESTIONS
1. Q: Read a report that STMicro had extended ovonyx’s license for development of ovonyx’s products. Could you tell us more about that? This is an article dated May 7th, 2005 in Electronics Engineering Magazine.
ANS: (B.S.) That is an article that I have not read but STMicro has extended their license with Ovonyx.
Q: Is it old news, or is it new news?
ANS: (B.S.) It was done before, so it is not recent.
2. Q: Analysts were looking for solar revenues to be considerable higher. How much did the product issues impacted revenues in the quarter. Also, ECD did a stock offering in the quarter (And theses problems happened in December and January) why were they not disclosed before yesterday?
ANS: (B.S.) First, on disclosure, I think the results of our December, January, February & March as we spoke to various investors we mentioned where we were in our production. As I mentioned in the comments we are now approaching the 2MW/month plus or minus which is the rated capacity of the machine. So it has come up through the year. I think that has been fairly well known and that is why I made a comment that both March and April were new production records. So that is higher than the prior months.
Q: What was the revenue impact of these problems during first quarter?
ANS: (SG) We have been ramping up, actively. And January and February and March. Half of the revenue reported here came from February and March and in April things are even getting better.
3. Q: The hybrid cars are seeing increasing demand and the tax credits are going to make it even more of a correct economic decision to buy one. So you have a pretty good demand growth outlook. It seems like the batter portion of the equation is supply constrained. Knowing that and that Toyota has announced they are going to start manufacturing hybrids in the United States, is there any reason to believe that not only is Cobasys going to get their “fair share” but a fairly substantial share of the hybrid battery market? And, that those announcements, given that you are already expanding capacity, those announcements are not to far in the future?
ANS: (B.S.) Well, that is the reason I mentioned the expansion of capacity. You do not do that if you are not expecting to share in the market growth and clearly Cobasys is. There will be announcements made by Cobasys, in the months ahead, and various car companies and vehicle companies as they announce their products.
Q: Is it reasonable to assume you are going to be talking to Toyota?
ANS: (B.S.)We have talked with Toyota several times. That is normal, in the business of being a supplier, talking to potential automotive customers.
4. Q: I am a little confused about the nature of our intellectual property. Is it correct that a nickel metal hydride battery is required for all hybrid cars and is it true that all nickel metal hydride batteries must pay a royalty to ECD? If so, are we getting revenue for that?
ANS: (B.S.) That is a pretty broad statement. Nickel metal hydride batteries are the “choice” on hybrid vehicles right now. There are other technologies that are occasionally mentioned, but certainly all hybrid vehicles now in use offer nickel metal hydride batteries.
Q: And do we get royalties on each of them?
ANS: (B.S.) No. It depends on where the batteries are produced. For example, the batteries in the Ford Escape are made by Sanyo, which is a licensee of ours, and they are supplying cylindrical batteries, so ECD does receive a royalty on those batteries. In the case of the Toyota product, those batteries are from PEVE and part of our settlement is that those batteries that are in that car are installed in Japan and sent over here and therefore there is no royalty on that. As other makers come out, some may decide to use the Sanyo product and we would receive royalties from that or if they use a Cobasys product, obviously that is our joint venture.
Q: Is any hybred vehicle using nickel metal exempt from our patent protection? In other words, I presume all hybrids made in the United States will have to pay ECD. How about if somebody makes them in Singapore or some place else.
ANS: You are making a lot of assumptions. The best thing to do is let them come one at a time and we do expect our licensees will be providing a royalty stream for us. But, it is going to depend, individually, on each case.
(S.O.) I think that you do realize that we are the inventors of the nickel metal hydride battery. There were none made before us and it is the enabling technology for not only hybrids but also for electrical and other kinds of vehicles. I think because we hold the basic patents, the growth of hybrids should be a very very positive factor for ECD. AS for any details about the companies involved, I don’t think that is anything we can really answer now.
Q: As I looked over the number you gave in your quarterly statement, I did not see a line item on revenue for royalties for nickel metal hydride batteries for hybrid cars. Is it a substantial part of ECD’s revenue? Or is it projected to be and if so when?
ANS: (J.M.) It is a growing part of ECD’s revenue. The reason it is not broken out is because our royalties includes both consumer and vehicle batteries. We are, as Bob mentioned, in addition to Ford, we are also getting royalties from Honda for two vehicle models they are selling. We are looking at growing royalties. Part of the issue is, the royalties are booked when we get reports from the licensees. One of the things we are trying to do is break out those numbers better. We will be tracking them closely, in the future, where you will be able to see the growth. As Bob mentioned, the difficulty is separating those out as opposed to, as what happens with the Cobasys royalties and or manufacturing. Those go directly to Cobasys not ECD. Our value out of Cobasys is through our equity interest.
5. Q: As I looked at the figures yesterday and I saw a 3 ½ point drop in the stock, I felt it was completely unwarranted. Thank you Bob for saying, “the time is now”, “the future is now”. That is very very positive and I greatly appreciate that. Two quick questions, can you give me a monthly cash burn figure? Is that possible?
ANS: (S.Z.) Our current cash burn is still in the neighborhood of $3 million/month. We are working very hard to ramp that down again. We had taken it down quite a bit but we have lost some revenues from our “hydrogen venture” and Cobasys. And we are working very hard to bring that burn rate back down again.
Q: I keep seeing General Motors running full page advertisements and two page ads in BARRONS about the hydrogen economy. And wonder if the “nay-sayers” tend to write articles that come out with “Everything is 10 to 30 years off”. It looks to like, to me, that General Motors would not be saying these things if it was not reasonably close. I will leave it at that.
ANS: (B.S.) I will leave you to make your own decision. However, we here at ECD believe the hydrogen economy is coming. When you are riding in a hybrid vehicle, lets face it the working medium in there is a hydride battery.
(J.M.) That is the interesting position here is that GM has been working with fuel cells and working with hydrogen but at the end of the day, as long as you are utilizing a nickel metal hydride battery you are participating in the “Hydrogen Economy”. It is just not the way people think of it yet but it will be. As our solar products get in more and more hands of the consumer, you are participating in the “Hydrogen Economy”.
(S.O.) As well as it being able to generate hydrogen from water, which is going to be increasingly popular, I think from the responses that we are getting is that the “Hydrogen Economy” has been initiated, is growing, and will reach a point where it will grow rapidly. We are the enablers of all that. We are the only company that has a complete hydrogen loop that covers all hydrogen activities, including the infrastructure.
6. Q: I was of the understanding that after the settlement of the Matsushita suite, anybody that manufactures an HEV in the North American hemisphere, that uses a nickel metal hydride battery, would have to buy it from Cobasys or pay ECD royalties for the batteries they buy from other sources. Am I correct in that assumption?
ANS: (J.M.) You are correct with the exception, that any royalties would be paid (assuming that is the model Cobasys would use) would go to Cobasys, not to ECD. But, ultimately the manufacture in the United States would need an expanded license versus what they have today.
(S.O.) All our agreements, as they stand, means that anybody that wants to build nickel metal hydride batteries in the United States have to deal with ECD in one financial form or another.
Q: Samsung announced they had and interest in utilizing OUM technology and have product our by 2006. They announced over a year ago. Is Samsung still interested in becoming a licensee of OUM?
ANS: (S.O.) As you know, I cannot report on what we are doing. All I can say is Samsung is a fine company and we feel very appreciative that they are involved with the OUM and you should just stay tuned for the news. They are the biggest competitor to our other licnesees, by the way.
Q: GE announced they are going to delve very heavily into alternative energy and renewable energy sources. Has ECD increased its involvement with GE? Because of this?
ANS: (B.S.) We have had a “strategic agreement” with GE for sometime now. We continue to work with that agreement, with them and that is about all we can say.
(S.O.) One of the things that is interesting is, that the SIT arrangement is that they are doing the financing. We are very much gratified that GE is becoming GE again. In a lot of ways it is a fine company in terms of energy and it helps out everybody. I think one of the things Bob did mentions was SIT received it financing from GE, showing that their recent announcements are just not empty statements but that they are really getting involved in the energy systems.
7. Q: A recent article, which indicated the Department of Energy had given General Motors a grant of $44 million dollars which was to be spent over five years and to produce 40 hydrogen cars. Does ECD have a role in this and if so what.
ANS: (B.S.) At the current time we do not.
(S.O.) I would like to remind you that we have it (and those of you who have seen it on television on Alan Alda’s show a month or two ago) that we did the unexpected of being the first. We received a lot of complements for it, because people had not considered that was going to be a way to go. But, we showed using the internal combustion engine in the Prius, with very minor modification, that our solid energy storage and our nickel metal hydride batteries, which meant that now you had a complete hydrogen car that was a hydrid. We were able to show that we could equal the mileage of gasoline hybrid without having to add any________ to it at all
Q: I am not sure my question was answered, about the grant that General Motors received for producing 40 hydrogen cars in the next five years. I asked if ECD has a role in that grant.
ANS: (B.S.) My answer to that question was, “No, not at the present.”
8. Q: Have you selected a site for the new solar plant?
ANS: No, not yet. We are getting close.
Q: Oh, you are. Because I am in Stow, outside of Akron, and our mayor and our group are interested in making a bid for this. Would it be worth their time to proceed with this?
ANS: That is something we should discuss off-line.
Q: So it is okay if they do contact you then?
ANS: We welcome any and all contacts.
Q: You were starting to build the storage tanks for hydrogen here in Akron, we have a laboratory and wonder if we might bid on the production unit?
ANS: (S.O.) What we are doing in Akron is very interesting and holds great promise. What we are doing right now is to work with them and put in a testing….. That is what we started as our initial step and what happens after that will be a matter of interest to all of us.
(B.S.) Stan mentioned the testing site. We do need a large testing site for our large storage vessels and since we no longer have facility in California, Richmond or Houston, we have been looking for a site.
Q: Electro Energy, they have developed a different configuration and they are also working with nickel hydride batteries. Seems like that would be a good company to join with because thay have a configuration that might be preferable to the current battery configuration. Has anybody considered contacting them?
ANS: (S.O.) We know them. The fellow who runs them is a very nice fellow. He has been doing it for many years. But, we do not want to comment on our own activities. What you are talking about is called a “Bi-polar” battery and it does have advantages in terms of configuration. However, its materials would be nickel metal hydride and we have our own approach to this subject.
9. Q: What was the total amount of megawatts produced in the quarter?
ANS: (S.G.) Approximately 3.9 to 4 MW
Q: Could you go into a little further detail on the specific production issues related to the steel supplier and how you resolved that and give us confidence that it is not going to recur in the future?
ANS: (S.G.) We get steel from two suppliers, and one supplier supplies with the majority of the steel. We have been working with them for many years. In January, we found the steel when it is processed through the various processes it did not remain flat after we cut it. Because it did not remain flat it was not compatible with the subsequent processes that we do. We started talking with the supplier to find out the reason and at the same time we started trying to figure out how to alleviate the problem, even with the supply cut off, to solve the problem. We came up with a solution and after February we did not have the problem. As you see in the press release, our production is growing and March and April were record months. That has happened because we have solved that problem.
Q: So the steel would not remain flat so you could not put the amorphous silicon on top of it. Is that correct?
ANS: (S.G.) That is quite correct. What happens during the processing the steel has a certain amount of stress, when you heat it the stress is relived and depending on how the steel is processed, after heating, it may not remain flat. We did not encounter the problem before. Subsequent to that we found out what the manufacturer did. The manufacturer had changed the situation and we are not having the problem very much. But, what we have done, is even if we have the problem we know how to solve it.
Q: Also on the solar side, there was a nice jump in the gross margin. Could you go into a little better detail. Was it due to better pricing? Or lower raw material costs? What accounted for the improvement in the gross margin?
ANS: Actually all of the above. Our pricing we have kept steady, and in fact in certain circumstances increasing the pricing. Our cost is going down, quite typical of increased productivity. Based on all these things we have a much better margin than in the quarter before.
(J.M.) I would like to add to that, if I could. We do have a very high fixed cost in our manufacturing process. As a result of that, we also have a very high contribution margin. So as the volumes continue to go up, you will see continued growth in the gross margin because of the high contribution that you get with additional volumes. That is the primary you are seeing as we hit March and April we had much higher volume and therefore a much higher gross margin. That is as planned and as you see us get up to 2 MW per month you will see considerable improvement.
(S.G.) As you may recall in previous conference calls, what is important is that as we get to 1.5 – 1.6 MW/month we can breakeven. And what our performance is showing is indeed at that level we can breakeven.
Q: I guess the disconnect is that in the first quarter you had somewhere around 4% to 5% gross margins but your actual megawatts produced in the first quarter were higher than what they were in this quarter, yet your gross margins were double this quarter what they were in the first quarter. I understand higher productivity and higher fixed costs absorption, however, you had lower production in 3Q than 1Q yet your gross margins improved. Can you resolve that for me?
(S.G.) I think the major reason is we have improved. We have lowered the production costs. Not all the reductions have come from increased volume. A lot has come from increased productivity and lower material costs.
(S.O.) From the figures you indicate, it shows we are the lowest cost manufacture.
10. Q: Did you have any 10% customers in the quarter?
ANS: (J.M.) Yes
Q: How many and what percentage for the quarter?
ANS: (S.G.) We have stated before, that our basic strategy is to concentrate on 8 to 10 large customers and that is how we are distributing our products today. Maybe I can mention the names because we have mentioned them before in our previous meetings. In the United States our major customer is SIT, in Europe- Alwitra and Thyssenkrupp and some others. We have six to eight major customers that account for 80% of our product.
Q: What was the revenue contribution by SIT in the quarter?
ANS: The revenue contribution, we can not talk about that.
Q: Last year you issued a press release in May that you were expecting to sell 5 MW to SIT during calendar 2004. I was wondering if you met that expectation?
ANS: I cannot go into detail what we have sold to SIT, if I did I would be saying that they have been buying the quantities that they promised to buy.
Q: I looked at the royalties and the battery assignments and by my calculations you shipped approximately 2000 packs. In other words batteries for 2000 hybrid vehicles. It seems to be low, relative to what Ford hybrid sales are, which looks like 4000 in the quarter. Can you explain it?
ANS: (J.M.) How did you come to that conclusion? Did you divide royalties by some number?
Q: Yes, I divided the increased royalties by the number that they actually used last quarter to come up with the number of packs.
ANS: (J.M.) To begin with that royalty number is both consumer and vehicle royalties. Because they do not come on an even flow basis, it is very difficult to make that calculation. That is why I mentioned earlier that we are going to start providing more detail in breaking out between consumer royalties and transportation royalties. Your assumption is not correct based on that analysis.
(S.Z.) Do keep in mind that we do just get semi-annual reports from our licensees. So we have to estimate the level of the royalties in the in-between quarters. And this is one of those quarters
Q: So there was no change in the vehicle royalties for the quarter, right?
ANS: Right, absolutely none.
11. Q: About five years ago we signed an agreement with STmicroElectroics and Intel and they were supposed to be coming out with a product within a couple of years. It has now been twice that long since they were going to come out with it. Do you hear anything from them on when they are going to start using our chip and go into production. Or when will it be out or is there any estimate or can you tell us anything about it?
ANS: (S.O.) ST is a very enthusiastic member of our team and of course Intel which holds portions of the Ovonyx company—is invested in it (Ovonyx) are very happy with the work that is being done. They are enthusiastic and quite satisfied so far. Nothing else that we can say would be in order except they are very good groups and of course we are in close contact with them.
(J.M.) If you go to British Aerospace’s web site that will give you an idea of what they are thinking in terms of time frame. If you listened to Tyler Lowery at our annual meeting, he talked specifically about this. He, obviously, has much more leeway to talk about this than we do. That is the best source, as opposed to coming from us, because there are some plans out there. You have to go find them.
12. Q: What did you say the MW production was for the quarter?
ANS: (S.G.) About 3.95 MW.
Q: Looking at backlog. Total backlog for this quarter ended at $36.0 million and almost all of it was Uni-Solar. The previous quarter was about $21.9 million, is that right?
ANS: (J.M.) Yes
Q: And the quarter before that it was about $5.5 million?
ANS: (J.M.) Yes
Q: So, knowing that PV makes up the majority of backlog and you have had over a 600% increase in backlog in 2 quarters, is that correct?
ANS: (B.S.) There has been a significant increase in backlog and one of the things we have to watch is how many orders we accept because of our limited capacity. That is why we started the second machine.
Q: So Subendhu if you could just give us some color. In two quarters you have over a 600% increase in backlog, how much of that is due to the through-put issues versus cyclicallity in the industry that could occur throughout the year versus outright demand increasing. Can you give us a little bit of color on that?
ANS: (S.G.) What it shows is our product is getting more and more acceptance. Our customers are getting more excited about our product and they are placing larger orders. But we are also being selective, as Bob stated, before we accept an order. We want to make sure we can deliver it. The increase in backlog is due to a combination of the market and our product and what we can deliver to the market.
(J.M.) It is also, is not cyclical any longer. The demand is there and it is instantaneous and it is not just for us, it is the industry as a whole is in a very positive situation that PV manufacturer’s can pretty much sell everything you can make.
Q: I am doing some back of the envelope calculations and even if you guys were producing at full capacity, you still had –at least half of the difference would have been demand increase, which is over 300%.
ANS: That is correct.
Q: You talk about Cobasys joint venture ramping up to 2 million modules. From the 10Q it appears you are still in a prototype phase. Do you have to have a specific certification to go into full production?
ANS: (B.S.) We are ready to produce the product right now.
13. Q: Can you talk about when the second solar line will begin production? You say you “started making the solar line” but when will it begin producing product?
ANS: (S.O.) In about 18 months you might see production. The machine division, of course, this is our 9th generation and our 2nd generation of the large machine, 25 to 30 MW. And we are considering building more machines outside of the United States.
Q: So 18 months would be the end of 2006. So the end of 06 is when we should expect that machine to be up and running.
ANS: (S.G.) We have disclosed that in the last quarter of next year we expect the machine will be up and running.
(J.M.) The clock has already started running on the 18 months.
Q: So the last calendar quarter of 06, is that right?
ANS: Yes
Q: When we say that there was 3.95 MW produced, it is really 3.95 MW that you shipped because I did see your inventory increased –so that (3.95) is what you shipped, not what you produced. Correct?
ANS: (S.G.) Whatever we produced, we shipped. So shipped and produced is about the same. We don’t keep anything. As we produce, we ship.
Q: I noticed your SG&A was up more than most people expected. Could you comment on that?
ANS: (S.Z.) the primary cause is the money we spent to comply to Sarbanes- Oxley. ECD spent $1.25 million to comply with Sarbanes-Oxley.
14. Q: When the company took over 100% of Solar-ovonic, you lost the “sale-lease-back” agreement. Now that volume is up and things are going pretty well if you are in a position to realistically contemplate that kind of financing for the existing machine and future machines?
ANS: (B.S.) We are certainly thinking about that kind of thing. We are in a lot better shape now and of course with a full order book and a good backlog it is a strategy we will look at again.
Q: Rare Earth, the first leg of that project was completed some time ago and when our deal with Rare Earth was announced I believe that several steps were contemplated. Could you comment why it has been so long since we have seen an announcement relating to them and how is the joint venture with them going?
ANS: (B.S.) The joint venture is proceeding. The first phase of the joint venture is in place. They are up with their ingot producing facility and their powder producing facility and they are doing very well with that operation. The “cylindrical battery” operation is now getting ready for validation testing and acceptance testing by them. The last remaining phase is the prismatic battery and we have not decided when that phase will kick in. The relationship is good. It is difficult to get everything worked out, given the travel time and so forth, it is proceeding pretty much as expected.
15. Q: Would like an up-date on automotive OEM, commercial scale agreements. How is that coming?
ANS: (B.S.) As we have said before, we cannot comment on agreements with automotive OEMs. We have announced those where we are able to, where the firm has agreed and Cobasys gets that permission, they release it right away. Most of the other arrangements are in confidence.
Q: Without naming specific names, I am not asking you to give away anything you are not supposed to give away, I meant more generally speaking. Is that still progressing as you had indicated previously?
ANS: (B.S.) I think you have to draw some conclusions from the mention I made of the capacity being increased.
Q: Could you tell me what is the capacity increase and what is the timing?
ANS: (B.S.) From 1.2 million modules to 2 million modules.
Q: You could produce at the 2 million rate now?
ANS: (B.S.) I did not say that. We are headed toward the 1.2 million with an increase up to 2 million. We will match that when the demand from the customers is there for that volume.
16. Q: Would you describe your major accomplishments in regard to cost cutting over the last several months. Also if you would describe or outline some of your objectives for the coming months.
ANS: (S.Z.) We have made a lot of progress in cost cutting. We are not done. Just to give you some idea of what we have done. We have saved over $17 million in payroll and benefit costs, alone. We have head count reductions at ECD, (145 people) about 35% of our workforce. We have a salary freeze that has been in place for more than two and one half years. Changes in our health care program saved another couple million dollars. We have had significant savings in that area and we have saved a lot other costs with our sub-contractors and so forth. We are continuing our restructuring program but we still but we still need to grow our revenues. We are working very diligently on our revenue opportunities and to achieve our goal of sustainable profitability by 2006.
17. Q: I have been a stockholder for 15, 17 years. I was a stockbroker for 43 years. I am just amused at some of these questions. I realize there are some analysts that are here asking the proper questions about margins but it just amuses me at the tone of some of these questions which are meant to embarrass the company, meant to enable the shorts and are not thinking of the best will of the company and are accepting at face value the lies made by others. Including yesterday in the New York Times when Toyota indicated by the tone of the article that they were the possessors of the technology and trying to muscle General Motors and the whole industry to a lie. I am an old guy, but they are talking out of both sides of their mouth and they are losing the battle and you are the catalysts and the future of this country. I would be embarrassed to be associated with some of the questions you have had to endure today. They indicate a distrust for you and they are not accepting you. They are not accepting the record and hope they are embarrassed, because as an American I am terribly proud of all of you. And I thank you for your time.
ANS: (B.S.) We thank you for your comments, we will let it stand at that.
18. Q: Regarding the second machine, can you expedite the tweaking process from 18 months to “whatever”? Also, what will be the cost of the second machine? Is ECD paying the whole costs, since the company has the money? What does it mean for the machine division as far as profitability and margins?
ANS: (B.S.) The machine division will make some money on this project. We think the 18 months is a good period of time. It is going to be a clone of the first machine, with the improvements we worked into the first machine. You referred to it as tweaking. We feel pretty good about it. We know the demand is there and that is the reason to do the second machine. It is not the gamble the first machine was when we were not sure about our market and our ability to handle it. We are very confident of this move.
(S.Z.) I want to clarify something, I want to make sure that everybody understands that the machine division and United Solar Ovonic are both wholly owned subsidiaries and as such the machine division builds the machines for United Solar Ovonic there will not be any profit recognized on ECD’s financial statement related to that sale. We will capitalize that machine at the cost the machine division has.
(S.O.) At the same time, because of the great response we have gotten on the 25 – 30 MW machine there is a lot of interest in Europe and Asia as well as in the United States. So it seems that the “Machine Division” that is one of our star performers will be a profitable addition to our entire strategy.
(B.S.) I think Steve’s point is a good one to remember. The inter-company profit does not show.
Q: At some point will ECD be able to cut down on the time to build the machine, the clones?
ANS: (B.S.) We believe so. We have not committed to anything yet. Once you do something well and get it right. The second is a little easier the second time.
(S.O.) Eventually there will be a production line building machines, continuously building the machines, that will come on line for various alliance partners and so on. It is going to be a change from the past where we were always concerned in building the machine what the response would be. Now we are thinking much more like a production line concept for machine building.
Q: As a Viet Nam Vet I concur with the WWII veteran believe that everything is coming into place and the time is now.
19. Q: Some clarification on the United Solar expansion on the 30 MW first generation. When I viewed that facility a few years back my impression was the physical size of the facility had room for a second production line. However, my impression listening to the call today is likely that this new machine will be a stand-alone production facility somewhere else. Or is there a possibility it will be included in the original site?
ANS: (B.S.) All of the above.
Q: Okay. So all options are open at this point
ANS: (B..S.) Yes
20. In the past discussions you have talked about improving the solar photovoltaic performance characteristics, though ECD’s PV panels get more KW hours in a day it does not get peak kilowatts as high as others. And, of course, that is very important in terms of distribution issues on the grid. Has ECD made those projected improvements or are they still in the offering? Are you optimistic or is ECD pretty much at the limit of the technology?
(S.O.) We have just begun. The fact that you mentioned that we get so many extra hours with our triple junction design that in terms of “watts” (which is what people buy) we are by far better than the conventional crystal silicon. And of course, we are always going to be instituting changes from time to time. And I can assure you it will be at higher efficiency, though that is not required because of our current watt production, but it will be. In the future we will be able in the same foot-print to get higher through-put.
21. Q: The efficiency of the current production, you mentioned you had 13% in the lab about 2 years ago and I am wondering what the current rated peak efficiency of the product you have coming out of the machine now. Are you over the magic 10% that helps the sales force? And in relation to that, SIT now has a business strategy to sell the power from the roof tops, with a big deal of $500 million dollars from General Electric.
Now you must know that every percentage that you increase the peak efficiency of your PV, with that 20% bonus on both ends, greatly enhances the chances to succeed with that business plan. Because, they are producing more power on the same space on the roof, like in San Diego. Are you working aggressively to up-grade that stuff you have in the lab?
That is one question and the other question concerns the ORFC, which may be your most important product. Are you working to partner that and have you considered if you put at the front end a twenty mile range, with an all EV plug-in you would have the absolute premier automotive fuel cell in the world?
ANS: (S.O.) The efficiency has been rising and in terms of product yield you will see it rose in terms----you want to give the figures Subendhu?
(S.G.) We started production our product was rated at 128 watt and we are now making the same product at 136 watt. We are continually trying to improve the efficiency and we expect some more improvement in the next six months or so.
(S.O.) In terms of hitting 10%, we will be hitting very close to that in the new machines, depending how we handle the machine production. For example, the back-reflector which can add a great deal of efficiency. So everything is looking very promising.
In terms of the fuel cell, America has to be a leader in terms of an industrial base and fuel cells are very important. We are very proud our fuel cell is the only new fuel cell since the originator (William Grove) in 1839. I think you will be hearing a lot more about it. It will be the cornerstone for fuel cells to reach their potential.
Q: Thank you very much, as I say if that was designed as a plug in fuel cell. You would have the same thing as a plug in car, hybrid, except it would be a fuel cell with a (plug-in) twenty mile range.
(S.O.) We cannot go into any detail, but I have got to tell you that you are on the right track. But we want to cover everybody’s prejudices, those that want to get plug-in will get plug-in and those who don’t will get something much better than they are being offered now.
No further questions.
III. Closing Remarks:
I thank everyone for being with us and I do thank them for their support.
Did not check the spelling or grammar but hope this helps those that follow this board to make their investment decisions about ECD..."Ahead Of The Crowd".....Tickerguy need to grow our revenues. We are working very diligently on our revenue opportunities and to achieve our goal of sustainable profitability by 2006. |
