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Zoltek Companies Inc (ZOLT)

F1Q08 Earnings Call

February 11, 2008 11:00 am ET

Executives

Zsolt Rumy – President, CEO

Kevin Schott – CFO

Analysts

Stephanie Wang – Merrill Lynch

Michael Lew – Think Equity

Stuart Bush – RBC Capital Markets

Nic Capuano – Imperial Capital

Joan Lappin – Gramercy Capital

Michael Carboy – Signal Hill

[Herb Bubender] – Wachovia

[Bill Brigadeski] - Capstone Financial

Presentation

Operator

Good day and welcome to Zoltek’s first quarter 2008 earnings results conference call. Just as a reminder today’s call is being recorded, now for an introductions and opening remarks, I would like to turn to Mr. Zsolt Rumy, President and Chief Executive Officer for Zoltek, please go ahead sir.

Zsolt Rumy

Thank you, good morning welcome to our first quarter conference call. Excuse my voice I’m under the weather, probably looking for a little sympathy from you guys. Obviously our last quarter was somewhat of a disappointment, and against a great quarter we have fourth quarter last year. Just want to make one thing clear is that this is no reflection of any changes in the market or any future [infestation].

Basically our revenue for Carbon Fiber was more or less the same as the fourth quarter we missed several significant orders due to some of our customers reducing their inventory as they became more confident they were able to supply them on a continuous basis. One single customer reduced their purchase last year, last month by 100 plus tons.

Other sales were affected by a small customers, [andre season] and so on, so there’s nothing structural, nothing long term that is indicated by our shortfall or disappointing revenue. [Technical] fiber, some of our great customer over built inventory last year, primarily because of bankruptcy of the supplier, the precursor that we use to use and they reserved some material for qualification of our [modolyn] based product and so that cause some catching up and in general arms so I can say nothing that I would consider to be a long term.

Gross margin certainly got affect when the sales aren’t there but at the same time we’re building inventory, the tendency is for the gross margin on sales to go down and of course we recapture that on the sale of the next product. So that basic overview let me turn the call over to Kevin, Kevin Schott our CFO for giving you the disclaimer and then followed by some detailed financial information, then I’ll come back with some comments and reserve a lot of time for questions and answers at the end.

Kevin Schott

Thanks Zsolt, real quickly as usual go through our disclaimer, this conference call contains statements that are based on the current expectations of our company, you’re cautioned at any such forward looking statements are not guaranteed future performance and all risk and uncertainties. Of these factors, includes things as successfully resolving our pending litigation, continuing to improve the efficiency of our manufacturing facilities, continued investing application market development, manufacture carbon fiber and properly market them and then successfully recommending a recently acquired Mexican facility manufacturing carbon fiber precursor and carbon fiber production line.

There are other risk factors if you would like to go to our 10K and read them you are more than welcome to. I think Zsolt basically covered the revenue and margin side. You know a couple of other areas our SG&A was up a little bit over the entire fourth quarter. So of that is a little cyclical that our first does get impacted somewhat from professional fees related our auditors [serving doc this week], so you will see that come down a little bit.

Also we did have about a $200,000 increase in our non cash costs related to FAS 123R due to some options that were issued as of October 1st going forth so that $200,000 will be an additional cost but it is a non cash cost. During the quarter we had about $3 million worth of debt that converted out and that basically ended up at about $2.1 million worth of cost related to convertible debt expense which is down from both the fourth quarter and for the prior 1st quarter of last year.

Related to that, on the cash flow side, nothing real significant there, we continue to spend on expansion we spend about $13 million on cap ex building the new four carbon fiber lines over in our Hungarian operation and started to see some cap ex down in Mexico operation as we start to retrofit them there. During the quarter we have acquired the Mexican facility that for approximately $35 million that all shows up in the since it was an asset acquisition shows up in our property equipment line item in our financial statement and you know the capital related to those expansions is obviously going to continue at fairly higher rate of $13 - $14 million a quarter going forward.

With that being said, that’s about all I have for the quarter and still kind of cover the revenue and the margin issues and I’ll throw it back to Zsolt.

Zsolt Rumy

Okay, thanks Kevin, I want to cover a little bit about, say a few comments about sales. Our current long term contracts cover approximately 50+% of our capacity. We continue to negotiate new annual and long term contracts. As we have said in the past, we like to bring that up to 70+%. We expect to meet our sales goals for 2008 and 9 and 10 which nothing then has changed for long term outlook. We’re making significant effort in Asia and we are ready booked 700 tons of business and we’re continuing to our activity and establish a personnel in Asia which we do not have at the moment.

Read the rest of this transcript for free on seekingalpha.com