SCON

Superconductor Technologies Inc. (SCON)

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Superconductor Technologies (SCON)

Q1 2013 Earnings Call

May 08, 2013 11:00 am ET

Executives

Kirsten F. Chapman - Managing Director and Principal

Jeffrey A. Quiram - Chief Executive Officer, President, Director and Member of Stock Option Committee

William J. Buchanan - Chief Financial Officer, Principal Accounting Officer, Vice President, Controller and Assistant Secretary

Presentation

Operator

Welcome to the STI First Quarter 2013 conference call on the 8th of May 2013. [Operator Instructions] I will now hand the conference over to Kirsten Chapman of LHA. Please go ahead.

Kirsten F. Chapman

Thank you, Julie. Good morning, everyone, and thank you for joining us for STI's first quarter conference call. By now, you should have received a copy of the press release. If you have not, please feel free to contact LHA at (415) 433-3777, and we we'll get that out to you right away.

With us from management today are Jeff Quiram, President and Chief Executive Officer; and Bill Buchanan, Chief Financial Officer. I will review the Safe Harbor provisions of this conference call, and then I will turn the call over to Jeff.

Various comments regarding management's beliefs, expectations and plans for the future are forward-looking statements and are made in reliance upon the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and are subject to various risks and uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ from those expressed in the forward-looking statements, and those differences could be material. Forward-looking statements may -- can be affected by many other factors, including those described in the Risk Factors in the MD&A sections of STI's 2012 annual report on Form 10-K. These documents are available online at STI's website, www.suptech.com, or through the SEC's website, www.sec.gov. Forward-looking statements are based on information presently available to senior management and STI, and may not be assumed any duty to update any forward-looking statements.

And now it is my pleasure to turn to Jeff -- the call over to Jeff. Please go ahead, Jeff.

Jeffrey A. Quiram

Thank you, Kirsten, and thank you all for joining us today. I'll provide an update on our Conductus wire program and then Bill will review the financials.

We are excited to be shipping qualification wire samples. A lot has happened to get us through this milestone. We have demonstrated the technical performance required for our target applications. We completed the acceptance and installation of our Conductus wire production equipment at our Advanced Manufacturing Center of Excellence in Austin, and we entered 2013 with the planned power production capability to address a variety of markets with superconducting needs.

Having clearly demonstrated the technical advantage of Conductus wire, and with that pilot production capability in place, our primary focus at this point is securing relationships with the customers that will consume our production in 2014 and beyond. The majority of our customers are leading multinational industrial companies that are currently selling or developing superconducting devices or emerging smart grid applications. In most instances, their products and technologies are already embedded in the existing electrical utility networks. This incumbent supplier status clearly positions them to effectively address the needs of electric utilities as they develop the emerging smart grid on a global scale. All of these electrical device manufacturers need cost-effective, high-performance superconducting wire for their products. As we have stated a number of times in the past, the demand for HTS wire far exceeds the current supply, and we believe this will remain the case for the remainder of the decade, at least. This high-demand, low-supply environment has encouraged our customers to place purchase orders to secure supplies of STI's Conductus wire in order to qualify it in their new product designs. After they validate that Conductus' performance as required, we believe that we are positioned to secure preferred supplier status as companies manufacture the next generation products.

As we have discussed, the majority of our customers progressed through 3 stages to select their long-term wire supplies. First, they evaluate the performance of several short lengths of wire. Second, they fully qualify the wire for their specific power device or application, which usually results in standardization for our wire supplier. For this purpose, they require wire in specific lengths and with detailed performance specifications. And then, third, once customers complete full qualification, they enter into commercial relationships that result in the placement of purchase orders for wire in lengths of hundreds of thousands of meters, depending on the application. Our goal is for Conductus wire to be selected in this third stage by one or more customers.

Last month, we announced that multiple industry-leading companies had placed purchase orders for Conductus wire to complete their product evaluations. Most of those customers have already performed the initial testing and are in the second stage of the wire selection process. Since that announcement, our backlog has continued to grow. In addition, we are pleased that this customer interest provides STI exposure across several very attractive applications, which also illustrates the diversity and uses, and capabilities of our wire. Our strategy has been to target applications that are ongoing and nearing preparation for a market launch in the near term. As a result, we have aligned our 2013 production output to fulfill purchase orders for customers actively participating or preparing to enter the market shortly. For example, several companies could begin commercial deployment on Superconducting Fault Current Limiters, providing the utility with a higher level of protection from disruptive electrical surges as compared to the existing conventional technology.

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