Ener1 CEO Discusses Q3 2010 Results - Earnings Call Transcript

Ener1, Inc. (

HEV

)

Q3 2010 Earnings Call Transcript

November 4, 2010 5:00 pm ET

Executives

Rachel Carroll – VP, IR

Charles Gassenheimer – Chairman and CEO

Jeff Seidel – CFO

Bruce Curtis – President, Grid Energy Storage

Tom Goesch – President, Transportation

Analysts

Dan Galves – Deutsche Bank

Steven Milunovich – Bank of America

Mark Wienkes – Goldman Sachs

Jake Greenblatt – Barclays Capital

Dilip Warrier – Stifel Nicolaus

Matthew Crews – Noble Financial

Bryce Dille – JMP Securities

Jaimie Levin – AC Transit

Presentation

Operator

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» Ener1, Inc. Q3 2009 Earnings Call Transcript

Good evening and welcome to Ener1's 2010 third earnings conference call. Today’s call is being recorded. (Operator instructions) I would now like to turn the call over to Rachel Carroll, V.P. of Investor Relations for Ener1 Incorporated.

Rachel Carroll

Great. Thank you. Good afternoon and welcome to the Ener1 management call to discuss third quarter results for 2010. Participants on the call today will be Chairman and CEO, Charles Gassenheimer; Chief Financial Officer, Jeff Seidel; President of Grid Energy Storage, Bruce Curtis and President of Transportation, Tom Goesch.

Prior to the call, I would briefly like to remind listeners that certain statements made on this call constitute forward-looking statements that are based on management's expectations, estimates, projections and assumptions. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Therefore, actually future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors. I will now turn the call over to Charles Gassenheimer, Chairman and CEO of Ener1, for opening remarks.

Charles Gassenheimer

Thanks, Rachel. Good afternoon. It's great to be able to speak to so many of you again on Ener1's third quarter earnings conference call. Let me start by giving some highlights of Ener1's achievements since our last quarterly earnings call.

On November 1, Ener1 announced the signing of its first material supply agreement in the grid energy storage space with MGTES, a wholly owned subsidiary of the Federal Grid Company, one of the largest electricity transmission companies in the world. The contract is for $40 million. Approximately $36 million of the revenue for this project will be recognized in the first half of 2011, $4 million in 2012.

This new bolt energy storage contract is in addition to the work we are already doing with Portland General Electric for a frequency regulation application. These pilots also allow us to field test our technology and rapidly develop two different energy storage products in parallel to potentially sell the new customers in North America, Russia and other emerging markets.

Ener1 is segmenting its business into three verticals, transportation, grid energy storage and small format pack products which includes consumer and military. This allows us greater flexibility to aggressively pursue the high-growth opportunities while the market potential for volumes and profitability in each vertical evolved.

In this quarter, Ener1 delivered its fifth consecutive quarter of revenue growth and has now successfully launched commercial product in each vertical. Ener1's growth has received industry recognition. And this quarter ranks as the number one in the northeast region for Deloitte's Fast 500 program, an award that ranks fast growing technology companies in North America and Canada based on their five-year revenue growth and innovation in commercializing new technologies.

Ener1 continues to ramp its manufacturing facilities in Korea and the U.S. We anticipate a fourfold increase in manufacturing throughput in our Korea operations from the third to the fourth quarter of 2010. Ener1 is able to transfer Ener1 Korea's 10 years of experience in producing prismatic lithium ion cells to rapidly ramp its U.S. facilities. Since start of production in May of 2010, Ener1 has produced and shipped over 572 packs for THINK and Volvo. All products have met or exceeded industry quality standards.

Having a portfolio of manufacturing assets also allows Ener1 to centralize purchasing and aggressively pursue cost down targets as well as strategically allocate capacity utilization. This allows us to produce one of the highest quality prismatic solutions in the industry at a highly competitive price.

We continue to emphasize the importance of research and development and our technology leadership in the industry. Demand for high power and robust long life applications in both grid with frequency regulation and transportation with PHEV and EV – PHEV, HEV and heavy duty applications has pulled for the time-table for commercialization of Ener1's lithium titanate chemistry.

As we have previously discussed, this chemistry is showing excellent potential through a rigorous evaluation by one of our potential automotive customers. We have achieved more than 10,000 cycles with 100% depth of discharge at 25 degrees Celsius and one C discharge rate with only 10% loss in capacity. This outpaced one of our competitor's cells by over 5% under precisely the same conditions.

In our view, the ability to work with multiple chemistries and develop complete turnkey solutions remains unique to Ener1 versus our peer group. In 2010, Ener1 successfully raised north of $160 million in a combination of private and strategic investments. These funds allow Ener1 to expand its global manufacturing footprint to 260 megawatt hours of capacity for which it has solid demand visibility. As a consequence, we were able to give our customers a high degree of comfort that we can meet their requirements. We continue to believe in a step-by-step approach to adding incremental capacity and in making prudent capacity allocation decisions.

Our next step, which we expect to complete by the end of 2011, will take us from 260 megawatt hours to 360 megawatt hours. We estimate this step will require between 15 and 20 million of additional CapEx, of which some portion will be underwritten by the U.S. federal grant. We continue to be very excited about the growth prospects of the overall market and flatly disagree with some of the analysis that has been presented recently about EV [ph] penetration rates.

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