Ener1, Inc. Q2 2010 Earnings Call Transcript

Ener1, Inc. Q2 2010 Earnings Call Transcript
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Ener1, Inc. (HEV)

Q2 2010 Earnings Call

August 05, 2010 05:00 pm ET

Executives

Rachel Carroll - VP of CC

Charles Gassenheimer - Chairman and CEO

Bruce Curtis - President, Grid Energy Storage

Gerry Herlihy - CFO

Rick Stanley - President

Jeff Seidel - CSO

Analysts

Dan Galves - Deutsche Bank

Steve Milunovich - Bank of America Merrill Lynch

Mark Wienkes - Goldman Sachs

Vishal Shah - Barclays Capital

Michael Lew - Needham

Dilip Warrier - Stifel Nicolaus

Matthew Crews - Noble Financial

Presentation

Operator

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Good afternoon and welcome to Ener1's 2010 second quarter earnings conference call. Today's call is being recorded. If you have any objections, you may disconnect at this time. Your lines are being placed on listen-only mode until the question-and-answer segment of today's conference call. I would now like to turn the call over to Rachel Carroll, Vice President of Corporate Communications for Ener1 Inc.

Rachel Carroll

Thank you. Good afternoon and welcome to the Ener1 management call to discuss second quarter results for 2010. Participants on today's call will be Chairman and CEO, Charles Gassenheimer; President of Ener1's Grid Energy Storage Division, Bruce Curtis; President of EnerDel, Rick Stanley; and Chief Financial Officer, Gerry Herlihy.

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, actual future results and trends may differ materially from what is forecast in the 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. I would like to begin by addressing the rapidly changing dynamics on the demand side and how Ener1 is evolving as a company to respond aggressively to these new opportunities. This quarter we have made a number of new hirers in key positions, with a view to splitting the company into three product verticals, with profit and loss responsibility: The first, Transportation; the second, Grid Energy Storage; and the third, Small Cell & Consumer.

Small Cell represents the legacy business of Ener1 Korea, the business we previously referred to as Enertech International. That remains a solid contributor to the overall business with a positive contribution margin.

Transportation will comprise light and heavy duty vehicles, military and industrial, and continues to be our primary market.

Grid Energy Storage will be an increasing focus for Ener1, and we are encouraged by recent customer traction, notably signing a memorandum of understanding with Russia’s largest grid transmission company in June and believe this segment will experience rapid growth over the coming quarters. SS Car is the Grid Company in Russia and subsequently does not have the same regulatory burden as in other markets. They have identified and an immediate need to firm that on as part of the solution and put aside money to finance this project. We believe we can see revenues for this project as early as 2010.

The light duty passenger market remains at focus, but Ener1 is more aggressively pursuing higher margin opportunities in light duty fleet, heavy duty buses, military and grid energy storage. Target markets where Ener1 also has an edge either with existing technology or working alongside strategic partners.

Ener1’s strategy is therefore to build capacity in a way that is customer-agnostic. Shell capacity is the scarce resource and will be allocated to the different business units depending on a stringent assessment of the return on investment for each customer program. When assessing the attractiveness of a new program, Ener1 evaluates not only the headline pricing, but performs a comprehensive business assessment, including the implied engineering costs.

At this stage in the game, getting this right is absolutely critical to ensuring we prioritize the right programs. Programs where Ener1 can leverage an existing R&D spend are therefore particularly attractive. Ener1 is currently developing three different EV module configurations which can satisfy a number of different permutations at the PAC level.

We announced today a new industrial customer, Toro, that looks to be a significantly higher margin solution using the hard carbon mixed oxide, 17.5 Amp-hour developed for THINK. Under a new supply agreement, Ener1 will provide Toro with a complete turnkey solution to create the world’s first battery-powered (inaudible) mower. So what that means is coming soon to a golf course near you, earlier in tea time.

Ener1 was able to leverage an existing product solution and ship products at solid margins into what we perceive will be a rapidly growing for electrically driven equipment. As previously stated, Ener1 foresees the most lucrative and immediate opportunities in transportation to be light duty fleet trucks and heavy duty buses.

Ener1 continues to aggressively pursue contracts in these segments alongside strategic partners THINK and Wanxiang. The margins look to be materially better than we are currently seeing in the passenger vehicle segment. In heavy duty, everyone announced today that we will be supplying battery packs to Hyundai Heavy Industries in Korea. The packs for Hyundai are similar configurations as packs currently in operation in California with AC Transit.

To summarize, Ener1 has now publicly announced two programs in the light duty passenger vehicle market, THINK and Volvo, one light duty fleet market, Japan Post, three heavy duty programs with Hyundai, (inaudible) and AC Transit and two grid stores project with SS Car in Russia and PGE in the Portland, Oregon. And finally, two military industrial contracts with the TARDEC Humvee program and now with Toro.

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