- Company reports positive operating income for the quarter and 126% growth in total revenue over the corresponding prior year quarter
Quantum Fuel Systems Technologies Worldwide, Inc. (Nasdaq: QTWW), a global leader in compressed natural gas (CNG) storage systems, integration and vehicle system technologies, today reported its results for the fourth quarter of 2013. Conference call information is provided below.
Fourth Quarter 2013 Highlights:
- Record level of revenues recognized in a quarter from CNG related products and engineering services
- Record shipments of CNG tank units achieved in the quarter
- Company reaches positive operating income from continuing operations
- Revenues and gross margins positively impacted by a contract amendment on General Motors program for engineering services
2013 Fourth Quarter Operating Results Overview
Overall revenues from continuing operations reached $12.7 million in the fourth quarter of 2013, an increase of $7.1 million over the same period in 2012. This growth was driven by a record level of revenues from CNG related products and engineering services recognized during the fourth quarter of 2013.
Product sales recognized in the fourth quarter from the sales of CNG fuel storage tanks and systems amounted to $8.0 million, which represented record quarterly revenues for CNG related product sales and an increase of $5.4 million, or 208%, over the same period in 2012. The Company’s backlog for products associated with CNG fuel storage tanks and systems was $13.0 million at December 31, 2013.
The Company reported overall operating income from continuing operations of $0.5 million in the fourth quarter of 2013, compared to an operating loss of $1.8 million in the fourth quarter of 2012, representing an improvement of $2.3 million.
“We are pleased with completing a successful year with a strong quarter in terms of growth, financial operating performance, execution and momentum. The pillars for success continue to be put into place and we are excited about carrying forward our focus, determination and business plan into 2014. We are at the front-end of an abundant opportunity in natural gas storage for trucking applications and are excited to be well positioned with our advanced compressed fuel storage technology and product portfolio, in addition to our strong capabilities in delivering complete packaged storage solutions to the market,” said Brian Olson, President and CEO of Quantum.
Fuel Storage & Vehicle Systems Segment
All revenues from continuing operations are generated by the Fuel Storage & Vehicle Systems segment.
Product revenue for this segment was $8.0 million in the fourth quarter of 2013, as compared to $2.6 million in the fourth quarter of 2012. The 2013 and 2012 fourth quarter product revenue was substantially all related to shipments of CNG storage tanks and packaged systems. Overall product gross margin as a percentage of product revenue was 31% in the fourth quarter of 2013, as compared to 23% in the comparable period in the prior year.
As a result of the Company’s growth of its CNG storage tanks and systems revenues in 2013 and expectations for continued growth, an expansion of its tank manufacturing capacity remained under way during the fourth quarter of 2013 and the Company is now undertaking to expand annualized capacity to approximately 20,000 units by September 30, 2014.
Contract services revenue for this segment was $4.7 million in the fourth quarter of 2013, representing an increase of $1.7 million over the fourth quarter of 2012. Contract revenue is derived primarily from system development, application engineering and qualification testing of products and systems under funded contracts with OEMs and other customers. During 2013, the Company received two new engineering development programs related to CNG trucks and passenger vehicles that are significant to the Company’s business strategy. These programs include contractual arrangements that, subject to certain conditions, provide for the Company to become the production supplier of fuel storage systems should these programs reach production.
Costs of contract services, previously reported as part of research and development expenses, represent costs associated with customer funded engineering development programs.
Overall contract services gross margin as a percentage of contract services revenue was 44% in the fourth quarter of 2013, as compared to 56% in the same period in the prior year. Included in contract services for the fourth quarter of 2013 was engineering services revenue associated with the General Motors Chevrolet Impala CNG development program. In December 2013, the Company and General Motors amended the contractual arrangements related to the Impala development program that, in part, removed certain gain contingencies and, consequently, positively impacted revenue recognition by $1.7 million for services provided to date under the program. In connection with these contractual amendments, the Company also immediately recognized $0.8 million of deferred engineering costs associated with the Impala program. The comparability of contract services gross margin was also impacted by the recognition in the 2012 fourth quarter of $2.3 million of revenue and $0.8 million of costs associated with the termination of a hydrogen tank development program with General Motors.
Total overall revenue associated with CNG products and engineering contract services for the fourth quarter of 2013 amounted to $12.2 million, representing a $9.3 million increase over the $2.9 million of revenue related to CNG products or services for the corresponding period in the prior year.
The operating results of this segment include research and development expenses associated with internally funded engineering development programs. The expenses for these programs amounted to$1.5 million in the fourth quarter of 2013, as compared to $2.6 million in the fourth quarter of 2012. Internally funded research and development in 2013 primarily related to efforts to advance CNG storage technologies by integrating and testing lighter materials, tank mounting fixtures and developing different size storage vessels to add to the Company’s existing product portfolio. The lower expense reported for the fourth quarter of 2013 was primarily due to the suspension of development activities associated with the Ford F-150 plug-in hybrid electric vehicle program in late 2012, which represented $0.8 million of internally funded costs for the prior year fourth quarter.
This segment reported operating income of $2.1 million for the fourth quarter in 2013, as compared to an operating loss of $1.3 million reported for the fourth quarter of 2012.
Corporate Segment
Corporate expenses were $1.7 million in the fourth quarter of 2013, as compared to $0.5 million for the same period in the prior year. The lower corporate expenses reported in the fourth quarter of the prior year period is mainly attributable to a non-recurring gain recognized in October 2012 of $1.1 million from a partial reversal of a $1.7 million facility exit charge initially recognized in June 2011. Excluding the impact of the $1.1 million non-recurring gain, overall Corporate segment expenses increased 9% in the fourth quarter of 2013 primarily as a result of increased legal and other professional fees.
Renewable Energy Segment – held for sale
As previously announced, the Company is in the process of selling the assets of its wholly owned subsidiary, Schneider Power Inc. (Schneider Power), and is actively pursuing buyers for the remaining business operations. Schneider Power, an operator of the 10 megawatt Zephyr Wind Farm and holder of interests in certain renewable energy projects, represents the entire operations of the Company’s Renewable Energy business segment. As a result of the Company’s intent to sell the remaining assets of the business, the historical activities and balances of the Renewable Energy business segment are reported as discontinued operations held for sale in the accompanying consolidated financial information presented herein.
The Renewable Energy segment reported a net loss after taxes of $0.2 million in the fourth quarter of 2013, as compared to net income after taxes of $0.5 million in the fourth quarter of 2012.
The net loss reported for discontinued operations held for sale includes the recognition of $0.8 million of revenue from energy sales in the fourth quarter of 2013, as compared to $0.8 million in the same period of 2012, and includes operating expenses in the fourth quarter of 2013 of $0.7 million, as compared to operating expenses of $0.4 million in the same period in 2012. Included in operating expenses in the fourth quarter of 2013 was a loss of $0.1 million associated with the closing of the sale of certain early stage development projects and a goodwill impairment charge of $0.2 million. Interest expense on long-term project financing obligations was $0.3 million in the fourth quarter of 2013, as compared to $0.4 million in the fourth quarter of 2012.
Non-Reporting Segment Results
Interest Expense. Interest expense of continuing operations, net of interest income, amounted to $0.6 million in the fourth quarter of 2013, as compared to $0.8 million in the fourth quarter of 2012. Interest expense represents both cash payments based on stated contractual rates and non-cash imputed rates associated with equity-linked characteristics (e.g. warrants and debt principal conversion features), accelerated maturities and/or other contractual provisions of the debt securities. Included in the fourth quarters of 2013 and 2012 are non-cash interest costs of $0.3 million and $0.4 million, respectively. Non-cash interest expense in the fourth quarter of 2013 primarily related to the imputed interest costs associated with convertible notes issued in September 2013.
Fair Value Adjustments of Derivative Instruments. Derivative instruments during the fourth quarter of 2013 consisted of embedded features contained within certain warrant contracts. Fair value adjustments of derivative instruments represent non-cash unrealized gains or losses. The share price of our common stock represents the primary underlying variable that impacts the value of the derivative instruments. The net charges recognized during the fourth quarter of 2013 of $5.8 million were primarily due to the increase in our closing share price that increased the fair value of the derivative instrument liabilities during the fourth quarter of 2013 ($3.18 share price at September 30, 2013 and increasing to $7.80 atDecember 31, 2013).
Consolidated Net Loss
The consolidated net loss for the fourth quarter of 2013 was $6.0 million, compared to a net loss of $6.6 million in the fourth quarter of 2012. The main component of the net loss in the current year period was related to the fair value adjustments of derivative instruments discussed above, which offset improvements realized in the operating results of continuing operations compared to the prior year period.
Balance Sheet and Liquidity
The Company had total cash and cash equivalents of $6.3 million for its continuing operations as ofDecember 31, 2013. On February 20, 2014, the Company completed an underwritten public offering and received net proceeds of $15.3 million. In addition, from January 1, 2014 through March 5, 2014, the Company received approximately $3.7 million in cash proceeds from warrant exercises. Subsequent toDecember 31, 2013, the Company paid down the outstanding balance under a revolving line of credit that it has with a financial institution, which amounted to $3.8 million as of December 31, 2013, to zero. As of March 5, 2014, the Company had total cash and cash equivalents for its continuing operations of approximately $18 million.
Financial Tables
The Company’s consolidated financial information for the three and twelve month periods endedDecember 31, 2013 and 2012 is as follows:
| Quantum Fuel Systems Technologies Worldwide, Inc. | ||||||||||
| Condensed Consolidated Financial Information | ||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||
| December 31, | December 31, | |||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||
| (Unaudited) | (Unaudited) | |||||||||
| Statements of Operations: | ||||||||||
| Revenues: | ||||||||||
| Net product sales | $ 7,979,096 | $ 2,602,523 | $ 22,943,639 | $ 14,526,031 | ||||||
| Contract services | 4,741,136 | 3,016,610 | 8,960,051 | 8,186,040 | ||||||
| Total revenues | 12,720,232 | 5,619,133 | 31,903,690 | 22,712,071 | ||||||
| Costs of revenues: | ||||||||||
| Cost of product sales | 5,501,684 | 2,010,930 | 16,261,662 | 10,757,138 | ||||||
| Cost of contract services | 2,670,250 | 1,321,848 | 5,296,499 | 5,117,187 | ||||||
| Total costs of revenues | 8,171,934 | 3,332,778 | 21,558,161 | 15,874,325 | ||||||
| Gross margin | 4,548,298 | 2,286,355 | 10,345,529 | 6,837,746 | ||||||
| Operating expenses: | ||||||||||
| Research and development | 1,487,433 | 2,626,346 | 5,996,414 | 9,441,447 | ||||||
| Selling, general and administrative | 2,589,595 | 1,445,414 | 11,086,020 | 11,814,812 | ||||||
| Total operating expenses | 4,077,028 | 4,071,760 | 17,082,434 | 21,256,259 | ||||||
| Operating income (loss) | 471,270 | (1,785,405) | (6,736,905) | (14,418,513) | ||||||
| Other income (expense): | ||||||||||
| Interest expense, net | (561,510) | (822,861) | (4,877,122) | (5,496,149) | ||||||
| Fair value adjustments of derivative instruments, net | (5,769,639) | 238,000 | (8,421,268) | 372,000 | ||||||
| Impairment of investment in and advances to affiliates | – | (484,557) | – | (5,447,592) | ||||||
| Gain on modification of debt and derivative instruments, net | – | – | – | 649,786 | ||||||
| Equity in gains (losses) of affiliates | – | 1,026 | (5,998) | (771,427) | ||||||
| Other, net | 23,355 | – | 23,355 | (68,983) | ||||||
| Loss from continuing operations before income taxes | (5,836,524) | (2,853,797) | (20,017,938) | (25,180,878) | ||||||
| Income tax expense | – | (800) | (1,600) | (4,000) | ||||||
| Loss from continuing operations | (5,836,524) | (2,854,597) | (20,019,538) | (25,184,878) | ||||||
| Loss from discontinued operations, net of taxes | (207,422) | (3,771,199) | (3,025,028) | (5,729,008) | ||||||
| Net loss attributable to stockholders | $ (6,043,946) | $ (6,625,796) | $ (23,044,566) | $ (30,913,886) | ||||||
| Per share data – basic and diluted: | ||||||||||
| Loss from continuing operations | $ (0.33) | $ (0.24) | $ (1.37) | $ (2.34) | ||||||
| Loss from discontinued operations | (0.01) | (0.31) | (0.20) | (0.53) | ||||||
| Net loss attributable to stockholders | $ (0.34) | $ (0.55) | $ (1.57) | $ (2.87) | ||||||
| Weighted average shares outstanding – | ||||||||||
| Basic and diluted | 17,950,120 | 11,952,779 | 14,642,320 | 10,783,844 | ||||||
| Cash Flow Information (1): | ||||||||||
| Net cash used in operating activities | $ (3,144,195) | $ (1,308,475) | $ (10,049,486) | $ (12,470,129) | ||||||
| Net cash used in investing activities | $ (1,370,346) | $ (352,190) | $ (2,084,755) | $ (4,916,938) | ||||||
| Net cash provided by financing activities | $ 5,617,373 | $ 1,118,690 | $ 17,239,929 | $ 15,596,657 | ||||||
| (1) The cash flow information includes Schneider Power for the periods presented. | ||||||||||
| December 31, | December 31, | |||||
| 2013 | 2012 | |||||
| Balance Sheet Information: | ||||||
| Continuing operations: | ||||||
| Cash and cash equivalents | $ 6,254,359 | $ 1,435,658 | ||||
| Working capital (deficit) | $ 3,499,175 | $ (8,387,625) | ||||
| Total assets | $ 39,645,800 | $ 27,034,902 | ||||
| Derivative instruments | $ 2,415,000 | $ 600,000 | ||||
| Debt obligations, current & non-current: | ||||||
| Principal and accrued interest | $ 17,412,016 | $ 13,564,903 | ||||
| Debt discounts | (5,671,145) | (1,504,353) | ||||
| Total | $ 11,740,871 | $ 12,060,550 | ||||
| Discontinued Operations: | ||||||
| Cash and cash equivalents | $ 777,622 | $ 578,080 | ||||
| Total assets | $ 26,358,742 | $ 34,226,458 | ||||
| Total liabilities | $ 23,415,110 | $ 26,908,713 | ||||
| Total stockholders’ equity | $ 16,979,952 | $ 14,222,681 | ||||
| Shares issued and outstanding: | ||||||
| Preferred stock; $0.001 par value | – | – | ||||
| Series B common stock; $0.02 par value | – | 12,499 | ||||
| Common stock; $0.02 par value | 18,875,253 | 11,940,183 | ||||
| Total | 18,875,253 | 11,952,682 | ||||
