VLNC Conference Call - August 23, 2001
New business strategy and last Qtr results
For a summary of business strategy -
siliconinvestor.com
slides -
www03.activate.net
Fiscal performance - First Quarter 2002 Results
"HENDERSON, Nev., Aug 2, 2001 (BUSINESS WIRE) -- Valence Technology Inc. (Nasdaq: VLNC chart, msgs), a leader in the development and commercialization of lithium-ion polymer rechargeable batteries, today reported financial results for the first quarter of fiscal year 2002 ended June 30, 2001.
Revenue for the first quarter of fiscal year 2002 was $2.9 million, representing an increase of 7.4% from $2.7 million in the fourth quarter of 2001 and an increase of 45% from $2.0 million in the first quarter of fiscal year 2001. Licensing revenue represented $2.1 million in the first quarter of 2002.
For the first quarter of 2002, the company reported a net loss of $9.1 million, or $0.20 per basic and diluted share, compared with a net loss of $14.9 million, or $0.35 per basic and diluted share, in the fourth quarter of 2001 and a net loss of $9.3 million, or $0.25 per basic and diluted share in the first quarter of 2001.
Kevin glad to be part of the team. Rev 2.9 Million, up 7.2%. ..."
Next 2 qtrs, lower revenues and then ramp up. After the acquisition of Telcordia IP last November, battery sales declined relative to licensing and royalty. The new strategy will increase system sales. 2002 fiscal year revenue expectations: $500K 2Q, 1-2Mil 3Q, 3-5Mil 4Q, total of 8-10Mil for 2002 fiscal year. Operating expenses benefits: saving of 8-10Mil /year expected. Expect to report EPS 0.20-0.25 loss per qtr for the next 2 qtrs.
Expects to achieve revenues in excess of $50 million and to approach breakeven by the end of fiscal year 2003.
Business plan (Stephan) -
The plan is now complete, as promised two months ago. The phosphate battery is powering the notebook PC that I am using now. The phosphate is here and real. The battery meets the specs for the marketing program. Three reasons.
First reason -
Cost, safety, and environmental advantages for the phosphate. Energy similar to NiMH but much longer life and life cycling capability, etc. It may turn out to be the "No compromise solution" for the rechargeable battery industry.
Second reason -
polymer and phosphate gives low cost, good power, can replace NiMH and cobalt batteries.
Third reason -
market is far greater than current market of $8Billion. Estimate $13billion market. Example: Electric vehicle and UPS sectors. Has several advantages for electric vehicle cars relative to the lead acid battery. Initial cost of lead acid is low but long-term cost of ownership is high. Phosphate battery has far greater energy density, far less space required on vehicles. Estimate a $40billion market (what?).
VLNC can compete in today's market with the phosphate battery technology.
Three options considered when he took over -
(1) to become everything to everyone - not realistic, can not afford
(2) solely licensing
(3) after in-depth analysis and datamining, chose combination of tech licensing and system sales (not impressed that data mining was needed to arrive at this conclusion?)
Next 10 years -
Materials production worldwide. Revenue stream from licensing and materials, focusing on target segments for VLNC batteries, core competencies, and non-commodity markets for higher profit margins
How VLNC will execute the strategy in three main areas -
(1) be recognized as energy experts in years-to-come in the energy solutions market
(2) distribution and branding of VLNC technology to end-customers
(3) higher value-added products
Production Goal for 1Q 2003 -
1 million units per yr in mid year with the German machine
Funding and new management team available to execute -
Carl Berg 20Mil plus shelf registration 30Mil
Product sales from licensees -
VLNC will announce only when licensees ship the product. After the announcement VLNC will track the market penetration of the production and report sales.
Investors' questions -
compiled a summary of questions from long term investors. Will address them now.
logistics of the conf call - why the date of call did not coincide with earnings announcement.
His plan was not ready. It was not appropriate for him to have a call without the final plan to share with investors.
Status of Manufacturing -
He is satisfied with plant performance. Before taking the job, Terry wanted to visit the plant in NI. Terry and he spent a week at the plant. After the week, Terry decided to join VLNC. All factories have issues, NI plant is no exception.
Inability to ship from NI plant, lack of commercial capability -
current lack of capability is due to the neglect of battery sales from NI plant in preference to licensing sales after the Telcordia IP acquisition last year. It'll take 1-2 qtrs for strengthening the sales and marketing engine since most OEM design-evaluation takes 6-9 months. They are currently sampling phosphate batteries and making initial contacts with OEMs. ( throughout this presentation, Stephan was talking only about the phosphate battery technology production, sales, market penetration, and licensing, etc. Royalties from cobalt technology from Telcordia license and cobalt materials sales/royalty are not included in his revenue estimates. Ram)
Questions:
Dale Pfau - house keeping question. Plan for cobalt and manganese licensing revenues? Are your revenue forecasts discounting revenue from Co and Mn royalties/materials?
Stephan: Yes, I'm discounting. We are not abandoning any of the old technologies (Co and Mn). VLNC will continue to get royalty for Co and Mn. We are not taking Co and Mn royalty into revenue projection of $50Mill in 2003.
Will VLNC help licensees in manufacturing?
Stephan: Yes, VLNC is willing to replace NiMH and even cannibalize Co and Mn market. However, VLNC want licensees to be successful in their original Co markets. (This sounded like Lev talking.)
Stephan: Market opportunity is so huge that VLNC can not do it all alone.
Market segments VLNC is focusing?
Stephan: VLNC will target 2 or 3 market segments and take leadership in those markets. VLNC will help others in other markets and provide help to licensees on whatever formats they want - polymer, prismatic cylinders, etc.
Which 2 or 3 segments?
Stephan: (laughs) I know the answers. For competitive reasons, no comment. We want the "first to market" advantage for VLNC. Wait for the announcements.
How much materials sales relative to systems sales and licensing?
Stephan: Revenue from royalty and licensing sales will be important in the short term. It will shift to system sales since profit from system sales will be much greater.
What will be the split in the $50Million revenue projected for next year (2003)?
Stephan: 40-60 split. The split will change to higher toward the system sales in the next few years.
Royalty rate?
Stephan: Expect to sign one licensee before Jan, 2002. There will be a press release.
Any graphs on energy density?
Stephan: $/kg? Not yet. We'll have these graphs and specs on the web site. Approximately pure cost of materials basis alone - phosphate at $4/kg or 17-18 cents/whr, Co at $30/kg or 32-33 cents/whr.
Competition, patent position - how defensible are your phosphate patents? When will be the first commercial phosphate battery available?
Stephan: Extensive research of patent position confirmed (by attorneys) a strong patent position for VLNC. VLNC patents do not infringe anyone according to attorneys. In addition, VLNC holds hold strong patent positions on materials and "products from materials".
Stephan: Will ship commercial phosphate battery soon. Already sampled. Customer contacts are about to get the prodcution samples. Commercial production - Q1 next year (2003).
Clarification of Korean battery samples, approval by the Chinese govt., deferred revenue from Hanil, etc. According to Industry resources, Hanil is now shutdown. What revenue is expected from Hanil?
Stephan: Hanil J/V was terminated and converted to licensing because it was in the best interest of VLNC. $1.2 mil revenue last qtr from Hanil j/v termination. No business from Hanil immediately at this time. Do not know what their plan is.
shelf registration and Berg financing -
Stephan: We do not need to draw from the $20Million line from Berg until later in the year.
VLNC already signed agreement with some Belcore licensees - one very large licensee, and Lev alluded to another potential licensee. What happened? Did they put you off, waiting for the phosphate battery production?
Stephan: OK to tell their names. You can tell me their names.
Samsung and Panasonic - huge opportunity?
Stephan: Panasonic - We have a long-term relationship. They are debating phosphate vs. polymer technology. They are in the waiting mode.
In your $50Mill fiscal 2003 revenue projection how many design wins are required?
Stephan: The projected revenue is absolutely achievable. Details will start coming in the next two qtrs.
Four licensees announced so far. Any of them shipping products?
Stephan: 12 licensees were acquired as part of the Telcordia IP purchase. 3 converted except Shanghai Optical. Received some royalty payments. No comments on commercial production by licensees. Starting to see products from licensees.
Why NI plant production ramp up has been slow?
Stephan: When Telcordia was singed, VLNC immediately shifted focus away from sales and turned to licensing. It takes 6-9 months to implement a sales pipeline since customers need to evaluate the battery, redesign their product and test it. Brand new product designs take even longer - like one year. System sales pipeline was diminishing when I took over. It needed to change. It takes at least 2 qtrs to implement the change. Next 2 qtrs, we'll have a moderate revenue, then ramp up. VLNC has a great technology. We want to see the great technology converted to a great business in the next several years.
In the 10K filing, 200 whr/liter was one of the requirements for the Berg line of credit. Were you able to achieve this?
Stephan: The spec is lower than our current technology. Berg wanted to be sure that VLNC met the key milestone as the minimum requirement for the credit line. At this point, samples exceed 200whr/liter.
Other than GlobalStar phones, where else one can see VLNC battery?
Stephan: Sell products to OEMs, secondary vertical markets. Company was a great technology, sales and marketing were defective. In 2 qtrs, VLNC will be a very different company from what it is today.
Hydrid battery - how soon can one commercially produce a phosphate battery - cylindrical, prismatic, polymer? For PDA's?
Stephan: Mass production in Q1 2003. (no answer.) |
