Active Power Inc. Q3 2009 Earnings Call Transcript

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Active Power Inc. (ACPW)

Q3 2009 Earnings Call

October 23, 2009; 11:00 am ET

Executives

John Penver - Chief Financial Officer

Jim Clishem - President & Chief Executive officer

Analysts

Walter Nasdeo - Ardour Capital

Tushar Shah - Unidentified Company

Presentation

Operator

Welcome to Active Power’s third quarter 2009 earnings conference call with your host John Penver, Chief Financial Officer; and Jim President and CEO. Today’s conference will begin with the presentation followed by a question-and-answer session. Instructions on that feature will follow later in the program.

I would now like to call over to Mr. Penver, please go ahead.

John Penver

Thank you. Good morning and welcome to Active Power’s third quarter 2009 conference call. I’m John Penver, Chief Financial Officer for Active Power. We issued a press release this morning announcing our third quarter 2009 results. If you do not have copy of this release it can be found on our website at www.activepower.com.

Jim Clishem, President and Chief Executive Officer of Active Power will lead today’s call. After Jim’s presentation I will briefly discuss financial details, after which point we will be happy to answer your questions during the question and answer session of the call.

Before we begin, let me remind everybody that any forward looking statements we may make are based on our current views and expectations. Although we believe our expectations and views are based on reasonable assumptions we can give no assurance they will be attained.

Factors and risks that could cause these to differ materially from expectation include but are not limited an inability to accurately predict revenue and budget for expenses for future periods, fluctuations in revenue and operating results, dependence on our relationship with Caterpillar, Hewlett-Packard and other Microsystems, inability to successfully manage and integrate new direct sales efforts or channel partners, competition, overall economic and market performance, and the other risk factors as set forth in our most recent SEC filings.

I will now hand it over to Jim.

Jim Clishem

Thanks John. Good morning everyone. I’ll first detail some of the business highlights from the quarter and then our current outlook for the remainder of 2009. After I conclude, John will detail our financial results. Looking at highlights revenue for the quarter was $8.5 million a 29% increase from the previous quarter, but a decrease of 31% from $12.4 million in the same period last year.

For the nine month period ended September 30, 2009 revenue decreased 2% to $26.3 million from the same period last year. Gross margin this quarter remained unchanged from the previous quarter at 22%. This compares to a gross profit margin of 9% in the third quarter of 2008.

Net loss was reduced to $3 million or $0.04 per share for the quarter compared to the net loss of $3.5 million or $0.06 per share in the previous quarter and a net less of $4.1 million or $0.07 per share in the same period a year ago. Cash and investments totaled $8 million as of September 30 compared to $11.7 million at June 30, 2009.

The decrease of $3.7 million from the prior quarter includes $1.4 million of increased inventory levels to support future customer orders. We shipped 56 flywheels to 21 countries this quarter. This resulted in revenues from the Americas of 40% and international revenues of 60%.

Service and other revenues increased 12% compared to the second quarter of 2009. We are pleased with our revenue improvement this quarter and remain cautiously optimistic. As we conveyed during our earnings call last quarter customers have been slow to commit to capital spending due to a tight credit market and the overall global economic climate.

However we’re now beginning to see customers secure funding and dedicating it to investments in power and infrastructure projects, which is obviously a very positive sign. We do see positive trending for Active Power in the market overall and I’d like to highlight some of these items now and take a look at the business ahead.

Our sales pipeline continues to grow and in fact has grown 32% over recorded levels for the same period in 2008. In addition order of volume has increased we have received more than $15 million in new booking since July of 2009, which includes additional orders from our strategic IT partners from PowerHouse systems. Some of these orders will be shipped this quarter and others will be shipped in early 2010.

Our direct sales initiative also yielded positive results up 87% compared to the prior quarter with a higher mix of European sales. Our direct sales strategy and the solution sales inherent with it have enabled us to build and grow our service business along with it. Our service revenue in the third quarter of 2009 increased by 12% compared to the second quarter of 2009.

With respect to our OEM partner Caterpillar, it is unfortunate but Active Power revenue from cat was down this quarter about 63% from the previous quarter. Caterpillars overall business at the momentum is exhibiting some global challenges, but we remain encouraged for the road ahead for this key Active Power sales channel as the economy continues to improve.

That said and as a result of our multi channel sales strategy we set into motion a few years back to mitigate these types of risks. We continue to focus our efforts on the following. First diversifying our sales channel and geographic markets so, we can ride out markets or channel fluctuations without significant impact to our overall business.

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