Active Power, Inc. (

ACPW

)

Q2 2011 Earnings Call

July 26, 2011 4:30 pm ET

Executives

James Clishem - President and CEO

John Penver – CFO

Analysts

Dilip Warrier – Stifel Nicolaus

Carter Driscoll – Capstone Investments

Matthew Crews – Noble Financial Group

Peter Holman [ph]

Eyad Shamieh [ph]

Presentation

Operator

Compare to:
Previous Statements by ACPW
» Active Power's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Active Power CEO Discusses Q4 2011 Results - Earnings Call Transcript
» Active Power CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Active Power, Inc. Q2 2010 Earnings Call Transcript

Good afternoon everyone. Thank you for participating in today’s conference call to discuss Active Power’s Financial Results for the Second Quarter 2011 ended June 30, 2011.

With us today is, Mr. Jim Clishem, President and Chief Executive Officer of Active Power and Mr. John Penver, the Company’s Chief Financial Officer. Following their remarks, we will open the call for any questions.

Before I continue, I would like to take a moment to read the Company’s Safe Harbor statement. The company’s management on this call may make forward-looking statements that involve risks and uncertainties, including statements relating to Active Power’s current expectations of operating results for the third quarter of 2011, its future operating results and its customers’ current intentions.

Any forward-looking statements and all other statements that may be made during this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. Factors that could cause the actual results to differ materially from the results predicted include, among others, the deferral or collection of sales commitments, as a result of general economic conditions or uncertainty, risks related to our international operations and production performance and quality issue.

For more information on the risk factors that could cause actual results to differ from these forward-looking statements, please refer to Active Power’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010 and its current reports on Form 8-K filed since then.

Active Power assumes no obligation to update any forward-looking statements or information, which are in effect as of their respective dates. I would now like to remind everyone that this call will be available for replay online through August 9, 2011, via Active Power’s website at www.activepower.com.

I would now like to turn the call over to the President and Chief Executive Officer of Active Power, Mr. Jim Clishem. Sir, please go ahead.

Ja

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es

Clishem

Great, thank you. Good afternoon, and thank you everyone for joining us today. Earlier today we issued a press release announcing our second quarter 2011 results.

Our revenue for the quarter of $19.2 million continues our trend of increasing quarterly revenue for Active Power. We achieved year-over-year growth and sequential growth on a year-to-date basis. Our first half year revenue of $36.5 million was up 35% to the same period in 2010. What’s exciting is that this growth is occurring on a global scale.

For example, sales revenue increased substantially this quarter in the Asia-Pacific region, with the majority of these sales for our PowerHouse product. We’ll be delivering PowerHouse systems to a Japanese-based pharmaceutical and chemical company for deployment in Thailand later this year.

Most recently, we delivered two systems to a large China-based utility. The success in this particular region is due in large part to the talent and infrastructure investments that we’ve made in China and Japan over the last few years, which has led to the this uptick in sales. This quarter’s revenue growth masks several underlying changes in the business.

As a positive, our Solutions business with our continuous power and infrastructure products continue to grow and gain market acceptance. We received large orders for our PowerHouse product in particular in all geographies. In fact, our Solutions business represented 62% of our total revenue for the quarter, compared to 44% of total revenue a year ago.

At the same time, our UPS business this quarter was down 16% compared to the prior-year quarter on lower OEM sales. Sales have been flat year-to-date compared to the prior-year largely due to lower sales from our direct channel. We believe this is more a function of order timing rather than any underlying channel issues.

As our pipeline of opportunities for our UPS business and our OEM channel have grown by approximately 50% since December of 2010. Our internal forecasts suggest our UPS business should improve in the second half of 2011. This change in sales mix towards products with typically lower margins resulted in an aggregate decrease in our overall gross profit margin for this quarter, compared to the prior-year.

That said and as previously mentioned, one of our main operational challenges in 2011 is to manage the balance between making the investments needed to position the company for future growth and achieving quarterly and annual operating profitability. I’ll provide more insight into investments we’ve made in the second quarter later in the call.

However, we have not lost our sight on the importance of achieving and sustaining profitability for the business. The substantial increase in our Solutions business has resulted in some large changes in our balance sheet. Most of these increases are due to the timing of orders and value of orders received and where we happen to be in fulfillment of those orders at the end of the quarter. The amounts involved are getting larger as our order sizes grow and as we fund specific orders to build products and solutions for future delivery.

I believe that we are managing our working capital very effectively and that we have sufficient liquidity to continue growing our business for the foreseeable future. To provide additional insight, I’d like to share with you a few highlights from the quarter.

Our business in Asia was up substantially compared to the prior-year quarter, due in large part to PowerHouse sales in both Japan and China. Our sales channel showed mixed growth compared to the prior-year with our direct business and IT channel business up substantially, but offset by a decline in OEM sales, albeit with we believe temporary.

Strategic solution selling generated revenues from PowerHouse and continuous infrastructure solutions that represented more than half of our revenues this quarter and more than doubled from the second quarter of 2010.

Now, I’d like to turn the call over to our Chief Financial Officer, John Penver, who will take us through the financial details for the quarter. I’ll then come back to discuss the key market trends for leveraging and meet our financial and strategic objectives, why we continue to win in the marketplace and to provide a little more insight into our long-term strategy. We’ll then open the call up to your questions. So John?

John Penver

Okay, thank you, Jim. Good afternoon everyone and thank you for joining the call today. As Jim indicated, our revenue for the second quarter of 2011 was $19.2 million, increasing sequentially by 11% and up by 20% compared to the second quarter of 2010. For the first six months of 2011, our revenue totaled $36.5 million or up by 35% from the $27.2 million we reported in the first half of 2010.

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