David Schramm – President and Chief Executive Officer
Thank you, Mike and good afternoon everybody. We are pleased to report that Maxwell recorded total revenue of $38.5 million for the second quarter ended June 30, 2011. That’s up 30% from the $29.6 million reported in the same period a year ago. That growth was driven mainly by strong ultracapacitor sales of $24.4 million. That’s up 54% from the $15.9 million recorded in Q1 of 2010.
Sales of microelectronics and high-voltage capacitor products came in at $14 million for the quarter, up 2% from last year’s first quarter and both of these mature product lines continue to make significant contributions to the Maxwell bottom line. That sales growth along with continuing costs and efficiency improvements enable the company to show a non-GAAP net profit of about $1.6 million for the quarter. Now, that’s the fifth consecutive quarter that the company has been profitable on a non-GAAP basis. Kevin will provide more details on those and some other financial items in a few minutes.
Ultracapcitor sales and modules for wind turbine, blade pitch and power quality applications and for hybrid and electric drive systems for public transit vehicles continue to be the main drivers of our ultracap sales growth. Along with increasing contributions from a stop-start idle elimination system for automobiles in Europe and various backup power applications. The number of Maxwell ultracapacitor equipped wind turbines operating around the clock worldwide is on pace to approach 20,000 by year-end. A significant portion of Maxwell sales into wind energy over the past couple of years have gone into China where renewable energy has been a focus of government policy and funding, although we continue to hear rumblings of slower growth. There as the government adjusts its wind energy subsidy programs we’ve been able to keep growing by attracting new customers to gain more market share. To augment what we are hearing from customers, we’ve engaged a consultant on the ground in China to analyze wind and other market opportunities and to assess the direction of government policies.
On the basis of that intelligence, we believe that China’s ever-growing appetite for electrical energy and concerns about urban air pollution and greenhouse gas emissions from coal fired power plants bodes well for further expansion of wind energy capacity there.
In addition, China’s leading wind turbine OEMs are now moving aggressively to export their products on a global basis. Energy storage and power delivery systems for recuperative braking and torque-assist systems in low emission hybrid electric transit buses and zero-emission electric rail vehicles continue to be the other primary driver of ultracapacitor sales. But before we get into what we are seeing there I need to set the record straight on some misinformation about a bus fire in Shanghai that has found its way under the web. One report described the bus as an ultracapacitor bus, in fact the bus used a combination of locally produced lithium-ion batteries and locally produced ultracapacitors, they were not Maxwell ultracapacitors to improve the efficiency for their system. The bus manufacturer has stated publicly and photos clearly depict that it was the battery pack that started the fire. This has also happened with lithium-ion batteries in cars, laptops and cell phones. Ultracapacitors did not spontaneously combust, which is one of the reasons they are continuing to gain traction in transportation applications.
There are now some 4000 hybrid buses powered by Maxwell ultracapacitors in daily service around the world and here again, we are gaining share. So that number is growing even faster this year. As we noted in the past, the Chinese government has identified a number of major cities with significant air quality issues and is providing subsidies for local public transit agencies for the purchase of hybrid and electric transit vehicles. China produces more buses than the rest of the world combined and hybrids are accounting for a growing share of that production. Our ultracapacitor continue to demonstrate their efficiency, safety and longevity in this heavy cycling application, so we believe we’ve already begun to tap the very large potential for our productions in heavy vehicles.
In Europe, where regulation focuses on reducing carbon dioxide emissions, hybrid bus, electric rail and other heavy duty OEMs and drive train integrators continue to incorporate Maxwell ultracapacitors in their designs. As we reported in May, Flextronics Automotive in Germany has designed Maxwell ultracaps into a breaking energy recuperation system that Flextronics will begin producing next year to reduce fuel consumption and CO2 emissions in commercial vehicles. The system captures and stores breaking energy to power air conditioning, heating, lighting and other passenger comfort and safety features, as well as providing a reservoir of standby power to stabilize the vehicle’s electrical system.
Our automotive program with Continental AG for PSA, Peugeot and Citroë diesel cars in Europe is in full series production. It’s for our micro hybrid stop start idle elimination and voltage stabilization system that PSA introduced in two of its diesel engine platforms last fall. About 300,000 of these cars will be on the road by the end of this year, which will represent another very significant validation both for ultracap products and for Maxwell as a supplier. As most of you know, the European Union has enacted legislation requiring that 65% of new cars produced in Europe next year are met no more than 130 grams of CO2 per kilometer. That equates to about 42 miles per gallon for gasoline engine and 48 miles per gallons for diesel. That percentage will increase to 75% in 2013, 85% in 2014 and then to a 100% of cars produced in Europe in 2015. In 2020, the CO2 emission threshold is scheduled to ratchet it down to 95 grams per kilometer, so further hybridization and electrification will be required for all vehicles.
All hybrid cars incorporate a stop start idle illumination function that turns off the internal combustion engine as the car slows and then restarts the engine when the driver touches the clutch or accelerator. Batteries are the incumbent technology for stop start cars, but constant restarting and stop and go urban traffic wears out batteries quickly. This heavy cycling and cold weather also affect the batteries ability to deliver enough power for repetitive restarting, so stop start systems constantly monitor to the battery to determine if it has sufficient power for the next restart. If not, the system disables itself until the generator disabled itself until the generator can recharge the battery. So no fuel saved, no emission reductions are achieved until the battery recovers.
PSA’s ultra cap powered stop-start system restarts every time in all conditions reliably reducing fuel consumptions and emissions by up to15% in urban driving. PSA also knows that using ultracapacitors to power the restarts allowed it to reduce the battery size by 30%, that’s smaller, wider, less expensive battery that fits under the hood instead of having to be located in the trunk which eliminates about 20 feet of heavy expensive battery cable and simplifies the wiring scheme and reduces the assembly labor of the vehicle.
US automakers have begun announcing stop start launch plans also and we were in Detroit with Continental just last month to explain and demonstrate how ultracapacitors make micro hybrid cars more reliable, more fuel efficient and more environmentally, friendly. Although we only have one program in production so far with more than 60 million new cars being produced around the world each year, auto applications obviously represent an enormous opportunity. Even a small amount of ultracapacitors content per car multiplied by any reasonable fraction of the vehicles produced would add up to an energy storage market opportunity that could be measured in the billions of dollars by the end of the decade.
We know the world is waiting to hear about our next automotive design win. We have plenty of development activity underway with several automakers and tier one suppliers but we can’t tell you at any certainty when to expect another program announcement only that it is not enough. What we can tell is that a number of other applications are beginning to drive serious volume that are helping us to maintain the 50% plus year-over-year growth rate ultracaps are generating for the third straight year. For example, for the first time in company history we’ve produced and sold more than $1 million of our postage stamp sized PC 10 cells in the second quarter and we have orders for $1.5 million for Q3.
Most of them are going into data storage devices called Solid State Drives or SSD’s for enterprise computing installations such as data centers our SSD customers are mounting the ultracaps right on the circuit board where they stand ready to provide a few seconds of instantly available backup power to allow working process to be saved in the event of a power interruption. PC 10’s also are used in smart utility meters where they provide power for wireless transmitters that allow meters to be read remotely. Earlier this year, we introduced an ultracapacitors module designed specifically to handle brief power disturbances and provide short-term bridge power to the primary backup power source within an integrated uninterruptible power supply system. This UPS module, which as you all approved has been evaluated in several beta sides and now is available as a standard product.
In June, we announced another new product, an engine start module that access an onboard jump start power source or hard to start diesel trucks, fleet trails are underway and we are in the process of signing up a distributor that specializes in products for truck OEMs, truck dealers and truck fleet operators to help us develop this very significant market opportunity.
In April, we announced the ShinMaywa, the world’s third-largest producer of garbage trucks has designed our ultracapacitors into a quiet fuel saving all-electric garbage loading mechanism for their trucks. ShinMaywa estimates that trucks equipped with this system will save 2,400 liters of diesel fuels and eliminate more than 6 tons of CO2 emissions each year.
Now that Maxwell ultracapacitors have established themselves in these and other markets, hardly a week goes by with our new clients from actual or would-be competitors. Few of any of them can speak as we count about millions of units soon to be $20 million Maxwell ultracapacitor cells that are out there working in the field everyday.
In a few minutes, I will discuss some recent developments with our other two product lines and comment on the future prospects. But first our Chief Financial Officer, Kevin Royal will provide some additional detail on Q1 financial results. Kevin?