Maxwell Technologies, Inc. (NASDAQ:MXWL) Q3 2018 Results Earnings Conference Call November 6, 2018 5:00 PM ET
Kimberly Tom – Director, IR
Dr. Franz Fink – President and CEO
David Lyle – Chief Financial Officer
Noah Kaye – Oppenheimer
Craig Irwin – ROTH Capital Partners
Jeff Osborne – Cowen and Company
Good afternoon. My name is Gabriel, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Maxwell Technologies Q3 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. Ms. Kimberly Tom, you may begin your conference.
Good afternoon, everyone. And welcome to Maxwell’s third quarter 2018 conference call. This call is being webcast live and together with the earnings release, is available on the Investor Relations section of our corporate website. We also have a replay available for those who are unable to join us.
Speaking from management will be Dr. Franz Fink, Maxwell’s President and Chief Executive Officer; and David Lyle, Maxwell’s Chief Financial Officer. Following our prepared remarks, we will open the call for questions-and-answers.
During today’s call management may make forward-looking statements regarding Maxwell Technologies business and financial performance. These and other forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements.
Please note, any forward-looking statements reflect a company’s opinion only as of the date of this call and the company undertakes no obligation to revise or public release the results of any revision of these forward-looking statement in light of new information or future event.
Additionally, during today today’s call management will reference both GAAP and non-GAAP financial measures. Please refer to our press financial tables herein, which include a GAAP to non-GAAP reconciliation and other supplemental financial information.
I would like to thank you for your interest, and at this time, I would like to turn the call over to Franz.
Dr. Franz Fink
Thank you, Kim, and thank you to all who are joining us this afternoon. Overall in Q3 our retail met the prior guidance we had set. Our focus over the past quarter was on research and development, customer implementations, new alliances and successful proof-of-concept validations. In addition, the retails we are seeing from our dry battery electrode technology are excellent and our strategic collaboration discussions are going well. Further, we believe that initial rents and product sales in several of our key markets in 2019 will set the stage for the next phase of our growth in corporate evolution.
Our third quarter revenue of $33.7 million was up 14.5% sequentially and roughly at the midpoint of our topline guidance. This growth was driven primarily by a 17% increase in our energy storage product revenue.
Non-GAAP gross margin came in at 20%, all the right at the midpoint and non-GAAP operating expense was $12.7 million, $200,000 better than the midpoint. Dave will provide more details on our financial results and outlook later in the call.
Before I dive into each of our business markets, let me provide a quick update from our last earnings call during which we discussed plans to strengthen our balance sheet by pursuing additional financing.
In August, we raised net proceeds of approximately $23 million through a public offering of common stock, which included participation by certain members of Maxwell’s Board of Directors and management. The funds from this raise have alleviated any near-term funding concerns.
Nevertheless, the current geopolitical environment such as that there is potential for protected with China tension which could continue to impede our business over the short-term. To that end we are focused on tightly managing our expenditures and generating efficiencies across our organization and throughout our global footprint.
Concurrently we are activity pursuing additional avenues to enhance our balance sheet and our cash position, including a specific focus on non-dilutive measures. Despite some of the near-term headwinds we are facing, we do have significant momentum behind us. Our technology is evolving rapidly. We are in advanced discussions with some major OEM players for our dry battery electrode technology and our pipeline across all segments is expanding. Our long-term position in my opinion is stronger than it was a year ago or even last quarter.
On our year end call we expect to be in a position to discuss our 2019 financial model as we should have more clarity of the timing of customer project and more visibility regarding the impact of the US China trade dispute. With upcoming milestones anticipated over the next two to three quarters, we believe you will see that the strategy we are implying is the right one to drive shareholder value.
Now let’s move on to product line summaries with an update first on our high-voltage product line. Our strategy to intersect the paradigm shift towards substation digitization in the global high-voltage capacitor market is advancing. Over the last two years we have introduced a number of new products and create a new customer relationships, resulting in a growing pipeline of customer project, despites the tariff and tax reform uncertainty, strongly impacting product sales, we remains a brand product and market share leader in the space.
In the short-term or until there is further clarity or improvements. We expect our high-voltage product line to retain a base level of sales due to the minimum requirements necessary for utilities to maintain certain levels of service.
Growth in cash generation will remain curtailed as a result and we are planning for this accordingly in Q4 and into 2019. However, mid to longer-term nothing has changed. We believe that the continued global need to upgrade aging grid infrastructure bodes well for the future and our competitive position remains strong.
Next, I will move on quality energy storage markets beginning with automotive. An analysis of the general market indicates that the vehicle electrification megatrend is beginning to accelerate. With our game changing Geely/Volvo solution, we demonstrated the benefit that ultracapacitor solutions can provide to supports a heightened demand of the growing electric functions in vehicles.
We continue to see increasing interest in Maxwell’s range of automotive solutions primarily in peak power, autonomous driving and E-active suspension applications. Each of these are large market opportunity for us, and with the technology and solutions we are developing, we believe we have a strong offering and competitive advantage.
Further, we mentioned two large opportunities last quarter and I am pleased to share with you that all development plans remain on track. We are also feeling increasingly confident in an additional opportunity in a peak power application, where our ultracapacitor solution could be utilized in a standard feature on the vehicle platform thus providing for considerable volume that could further proliferate and drive material growth in 2020 and beyond. While timing is never guaranteed, based on ongoing discussions we expect to provide further updates in 2019.
Let’s move next to grid energy storage. If you have followed our earnings calls of the past several quarters, you may recall that we regularly discussed the partnership is a global OEM for transmission level power stabilization opportunity.
In September, we announced our subsystem design-in with Siemens Transmission Solutions. Maxwell’s Grid Energy Storage Systems are an integral design element in the Siemens advanced system solution that is intended to stabilize global power grids. This announcement has spawned heightened interest in our solutions and our global opportunity pipeline has more than tripled since the deal was announced.
We see this as a strong indicator of not only an acceleration of the key megatrend to use of renewable power generation in the grid, but also market validation of the need for Maxwell’s fast responding long asset life ultracapacitor solutions.
Our pipeline contains a mix of smaller microgrid projects, which are quick to flows, as well as larger utility scale opportunities, which tend to have a longer sales cycle. As such, we expect to see a gradually revenue rent in 2019 setting the stage for more meaningful growth in 2020.
Now I will move on to our lithium-ion capacitor or L cap technology in rail. We remain on track with our partner CRRC-SRI to have L cap mass production facility ready for self production by end of this year. Based on recent discussions with SRI, we expect their production to begin a gradual rent next year with continued growth in revenue thereafter.
Let me add that we are on track for our generation 2 L cap technology to be production ready in Q3 2019. In addition, we are currently in discussions with our partner to expand the scope of the partnership to include the next generation technology platform, reaching an agreement with further advanced power and energy densities, lead to new replications and ultimately new revenue and growth opportunities.
With respect to the wind market, in Q3, which is typically our strongest quarter due to market seasonality for traditional wind turbine installations, we experienced growth as anticipated. We are excited about the traction we have made with our wind retrofit solution, where we have begun to penetrate the 20,000 turbine opportunity in the U.S. and we expect to fulfill almost 500 turbine installations by end of the year.
The revenue contribution from this solution is expected to continue to rent throughout 2019 as we extend our reach to more wind farms. In the traditional wind market we expected typical seasonal softness in Q4 as winter weather sets in.
Also we expect demand to remain stable for the foreseeable future. We have been experiencing growing pricing pressure in China, which we believe is primarily driven by geopolitical tensions. This is industry-wide and not specific to Maxwell, but unfortunately this could create some pressure on our 2019 forecast.
Next me provide an update on our dry battery electrode technology, which I believe is the future crown jewel for our company. Execution on refining our patented technology and to scale up of our cell building capabilities is progressing according to plan and creating significant long-term opportunities.
Product samples delivered to potential partners are being very well-received and new business activity is growing. Understand, this is a longer term mission for Maxwell and it will take time for revenue to materialize but when it does, we expected to change the landscape of the company.
We have already initiated to scale up of all pilot line and we are preparing to accelerate investment immediately following the execution of a commercialization agreement with a new partner.
We continue to have multiple discussions regarding our dry battery electrode technology and we are evaluating the best path forward for our company and our shareholders. This includes deep discussions with traditional automotive OEMs, battery manufacturers, as well as global leaders in other sectors of technology and infrastructure. We firmly believe that a commercialization partnership is forthcoming.
In summary, despites the geopolitical headwinds that our business is facing, we have made progress with our customers, new accounts and future partners to such an extent that our opportunity two year to three years out is significantly larger than what we initially believe.
We are well positioned in large global markets that are growing and have a need for our technology solutions. Our dry battery electrode technology in particular is a vital part of our future and it’s a most promising of the ventures we are pursuing.
Now I would like to turn the call over to Dave and I will provide a few additional comments before we open up the call for questions.
Thanks, Franz. Today I’ll discuss our Q3 2018 results and our outlook for the fourth quarter. Starting with Q3, our revenue was $33.7 million, within the guidance we have provided. Energy storage revenue came in at $26.5 million, driven by anticipated seasonal growth in wind and sequential growth in non-China bus. High-voltage revenue came in at $7.2 million with slight sequential growth from Q2.
Non-GAAP gross margin in Q3 was 20% right in line with the midpoint of guidance. Q3 non-GAAP gross margin excludes approximately $255,000 of stock-based compensation expense and $90,000 of Nesscap-related intangible amortization.
Non-GAAP operating expense for Q3 was $12.7 million, $200,000 better than the $12.9 million guidance midpoint, mainly due to discretionary cost contentment. We are looking at all areas of our business to identify further cost saving and to improve efficiencies as Franz had mentioned.
Non-GAAP operating expense excludes approximately $1.79 in stock-based compensation expense and $168,000 in acquisition-related intangible amortization and other expenses.
Net non-GAAP interest expense for Q3 was $787,000, which excludes approximately $465,000 of non-cash amortization of debt issuance costs and discounts relating to convertible debt issuance.
Petty tax expense was $364,000 mostly associated with taxes on our Swiss subsidiary. Q3 non-GAAP net loss was about $7 million, resulting in a net loss per share of $0.16 base – on a basic share count of approximately 42.5 million shares. GAAP net loss was $9.7 million for the quarter and GAAP net loss per share was $0.23. Lastly, Q3 adjusted EBITDA was negative $3.7 million.
Moving to our balance sheet, DSOs for the third quarter were approximately 73 days, inventory turns were 2.8 times. Our inventory decreased sequentially although not as much as anticipated lead to the accounting treatment for inventory at our new contract manufacturer. In Q3 we included an additional $1.7 million on our balance sheet for raw material and work in process inventory at our new contract manufacturer, which did not affect cash or working capital.
We ended Q3 with a cash balance of about $23.6 million, cash usage in the quarter was primarily driven by the repayment of the previously drawn $5 million from our working capital line of credit, reduced EBITDA driven by the lower level of high-voltage product sales, other working capital changes and $1.9 million in capital investment.
Now I would like to provide guidance for the fourth quarter of 2018. We expect topline revenue in Q4 to be in a range of $25 million to $27 million. We expect the sequential decline in energy storage, driven by typical seasonal softness in the wind market and lower sequential revenue and non-China bus, due primarily through management tariffs by our customer. We anticipate this to be somewhat offset by sequential growth in grid and auto.
We are continuing to forecast relatively flat high-voltage product line revenue, given the ambiguity that still remains. We anticipate Q4 non-GAAP gross margin to be 19% plus or minus 100 basis points, which is relatively flat compared to the last few quarters. This lower level continues to be driven mainly by decreased high-voltage revenue. We anticipate excluding from Q4 gross margin approximately $350,000 in stock-based compensation expense and $90,000 in intangible amortization related to the Nescap acquisition.
In Q4 we expect non-GAAP operating expense to be in the range of $12.6 million to $13 million, sequential increases due primarily to higher expenses related to R&D projects and our year end audit. We estimate our Q4 non-GAAP operating expense will exclude approximately $1.8 million in stock-based compensation expense and $210,000 in acquisition-related intangible amortization.
We anticipate net non-GAAP interest expense in Q4 to be about $630,000, which excludes approximately $480,000 in non-cash amortization of debt issuance costs and discounts. We expect our tax expense in Q4 to be about $250,000, mostly associated with taxes and the income of our Swiss subsidiary.
At the midpoint of guidance, the Q4 non-GAAP net loss per share is $0.18 based on a basic share count of roughly 46 million shares, which is sequentially higher due to the full quarter weighted effect of the August public offering. Lastly, Q4 adjusted EBITDA is expected to be negative $5.6 million at the midpoint of guidance. In regards to cash, we expect our cash balance at the end of Q4 to decline, driven by EBITDA losses and roughly $2 million in anticipated capital expenditures.
Now I will turn the call back to Franz for closing remarks.
Dr. Franz Fink
Thanks, Dave. Also we’re navigating to changing circumstances we have never lost sight of the long-term drivers of our business. That is why we are continuing our critical investments in R&D, while managing capital resources to ensure we are positioned for the future.
The markets we are expanding into a significantly larger than our current addressable base and we believe based on feedback from customers and potential partners that Maxwell has a distinct advantage over the competition.
As I discussed today, we anticipate continued pressure on the topline into short-term. We are focused on tightly managing our expenditures and generating efficiencies across our organization and throughout our global footprint. Although as mentioned, we have and continue to address our balance sheet and we considering all options that we believe will provide us with the resources we need both now and into the future to take advantage of the growing opportunities ahead of us, particularly with dry battery electrode and the automotive market.
A few additional points before we open up the call. We expect energy storage product line quarterly run rate in the second half of 2019 to grow year-over-year. Based on Geely’s expectations auto should begin to ramp up in late 2019 as our customer begins production.
Anyway in line with our partnership and design-in announcement with Siemens, our opportunity pipeline has more than tripled and we expect the gradual ramp up in the latter half of 2019. We are on track with our partner in China CRRC-SRI to gradually rent production of L cap cells for the China rail market through 2019 with meaningful revenue materializing in 2020 and thereafter.
In wind, we expect traditional new wind turbine unit demand to remains strong, but we see increasing risks that pricing will put pressure on our revenue in 2019, as the trade war with China persists.
And we continue to make great traction with our wind retrofit solution here in the U.S. and have begun to ramp installations of our module with a growing pipeline of interest, which we believe will partially offset the potential pressure we may see in our traditional wind business.
Lastly, we continue to make very good progress with our dry battery electrode technology and strategic collaboration discussions where we have increasing confidence that a deal is on the horizon.
I know this has been a long road for our investors. We greatly appreciate your support and your patience as we execute our plans. We are at a critical point in Maxwell’s evolution and I personally believe that over the next two to three quarters you will see first-hand why we remain so optimistic about our long-term potential.
Operator, we are now ready to open the call up for questions.
Absolutely. [Operator Instructions] Your first question comes from the line of Noah Kaye from Oppenheimer. Your line is open.
Good afternoon. Thanks for taking the question. Franz, I think, your language here on the progress for dry battery electrode is encouraging and you just I believe that over the next two or three quarters we would see some significant indication of long-term value. Can you explain us what you expect a commercial partnership for dry battery electrodes to entail?
Dr. Franz Fink
Yes. Thanks, Noah for the question. Yes. So, certainly, we’re looking at a partner who has full commitment to a collaboration partnership and bring sufficient knowledge and experience to help us not just financially but also with technical system technology experience in the scale up and commercialization and again possibly with the knowledge helped with the acceleration of that scale up and commercialization, and I think, that’s pretty much simple as we believe it has to be.
We are looking for significant financial support, basically has a big stake and skin in the game but also bring whether that is in manufacturing where it’s in sales, in the electric vehicle, energy storage system, I’m not going into more details to bring additionally the knowledge basically combine it with our team to get that done as fast as we can as we do some scale up and commercialization.
Okay. So, it sounds like a JV structure would be the most likely for you, is that a correct assumption to make here?
Dr. Franz Fink
Well, I’m not sure you should look at this as a formal JV, but let’s put it this way, let’s call it at a minimum of contractual JV that basically has all the key elements on how you put the funding, which says, obviously, multiple options on how that could be done and I hope you understand why I don’t want to go into details.
But also combining the teams, you should not necessarily read into that a pure entire collocation, but of course, a close collaboration where workload is shared leveraging the strength of both parties and just getting the whole job done as efficiently and fast as we as partners could get it done.
Okay. Thanks. And can you help us understand what specifically about the feedback you’ve received and the performance and scalability of the technology is giving you the confidence that something is forthcoming within a couple of quarters?
Dr. Franz Fink
What gives you that confidence?
Dr. Franz Fink
Yes. So there’s few things. We have achieved with our electrodes a maturity and performance again with current using current existing equipment that shows performance characteristics and I’m not just talking energy density and all that important stuff, but initial cycle life characteristics and other ones like better the resistant you name it that are very unique in differentiating.
Additionally, several partners have looked into this technology and have basically taking characteristics of technology and compare it with current wet technology from a cost and manufacturing footprints standpoint.
And while cost of course we can debate which is dependent on how fast electrode production would run versus wet electrode that requires ovens and in that context like we have said could be anywhere and is up to 5% range. So footprint on how much gigawatt you get into manufacturing footprint of two days size of a fact is just staggering. That’s the first key point.
Secondly but if you ultimately believe that it has inherent advantages we have been discussing in the past like leveraging materials at wet has a really difficult is with clearly one additional advantages comes in like energy density that just makes it even more compelling.
Lastly, just to provide an additional data point, we believe that with our partners that’s initial testing, and of course, we have to do the scale-up commercialization that cycle life data and degradation of the electrode and the capability versus wet are subset it looks really, really a very significant competitive advantage. Meaning it does not degrade as fast over cycle life as wet electrodes and from that perspective has scaled-up and proven out could be a very, very significant additional advantage.
So, again, just wanted to summarize from a cost structure manufacturing footprint overall energy density dealing with active materials at wet has difficulties to do through even quality and cycle life type of advantages as its proven out as the feedback is very, very compelling and encouraging.
Okay. Thank you for that comment, Frank. I’ll jump back in queue.
Your next question comes from the line of Craig Irwin from ROTH Capital Partners. Your line is open.
Hi. Good evening and thanks for taking my question. So Dr. Fink, you know that I talked to all of your competitors or essentially all of them, and it actually quite unusual for a competitor to be really excited about an award you heard has gone to a competitor. I’ve been writing about the Audi Q7 in my research on and off for a couple years now. And this competitor of yours believes that you actually been awarded the project that would be probably the largest and most interesting ultracapacitor program out there available in the last few years, and probably for the Maxwell hopefully not for the next couple. But in your prepared remarks you indicated that there’s a large program that that you’re chasing. What would be the final factors for you to press release something or to make some sort of public announcement, would you need the vehicles to actually be on the road, would you need the E-active suspension to be a offered as an option on the vehicles for people to get visibility before you are able to actually say something?
Dr. Franz Fink
No. Hey. Thanks Craig for the question. We, certainly, I’m talking in general you know, I always working with our customers to get announcements like in the case Geely/Volvo case. And of course, sometimes we get that approval sometimes we don’t, but as in that the case with Geely/Volvo case we would want together with as a customer be in a situation where testing has been advanced to the point where the startup production date has been set. So roads to the startup production there is good visibility.
Now again we know that some of those dates could hopefully not move but maybe move a month or maybe sometimes a quarter, but it is not in a stage that early where it’s not quite clear and startup production would be. So in a case like this and in other cases within our customer would authorize the press announcement certainly we would issue one, and of course, we understand so as prove points are important for our investors. So we work very, very hard with our customers to get announcements like we got in the Geely/Volvo case but sometimes we don’t.
Understood. I know your customers are very, sometimes very secretive about their programs and I know we all have to respect their confidentiality, but when people in industry are talking about something its healthy to have it out there which is why I’m asking the question. So the other question I wanted to ask?
Dr. Franz Fink
So the second question I want to ask is about the lithium ultracapacitor, it sounded like CRRC had some significant intensions to adopt. Can you maybe give us an update on where things stand with them, does this look like it will be adopted over the next number of quarters, have you move towards finalizing an agreement to supply them the electrodes so that they can produce these and is the news of CRRC enthusiasm for the product potentially grown more customers towards lithium ultracapacitors?
Dr. Franz Fink
Yeah. You asked quite a few questions here so let me go step-by-step. Yes, we are very, very closely with our partners on getting production line – production ready towards end of this year. They have already initial protect in the planning to rent the production starting in 2019 and going throughout 2019 with as the production ramps, obviously, looking at more projects in 2020 and beyond.
The number is we believe have not changed. They are very, very encouraging where I think in one of the previous calls, we’ve talked about the minimum of in China of 900 trams per year where, of course, CRRC-SRI is a market share leader with significantly above 50% market share.
And then the only other variable we need to bring in that equation is it depends on the length of attract such a strongly we have run without power supply at times batteries are required in the certain percentage in some cities with a lithium capicators.
Nevertheless, by the way, that initial forecast of trends per year we already having indicating and every time and going there and getting more indication that the Chinese government is continue to put more funding, investment into infrastructure spending and rail, and light rail trams are right on top of that list. So we expect that numbers and that opportunity over time maybe not in the short-term but in the reasonably overtime it will go up and not to go down.
Now where you can see their interest and why they are so keen on this, of course, to get even a higher share in light rail trolley we have been developing the same generation2 technology that will get ready by third quarter 2019 and we will address additional trolleys that maybe initially might require additional – different technology.
Lastly, they are as excited about this not just to get the highest share in those trolleys and that’s why we are talking about a generation 3 development. But looking beyond light rail applications in China, now that brings me to the last question you have been asking have we been seeing really an increased interest in lithium capacitor technology as first generation technology is ready and will ramp production here next year and any second generation technology is getting ready in Q3 next year? Yes, that’s absolutely is the case and that ranges across different applications, anything from advance guided vehicles to powering renewable energy solar farms backup solutions and others.
So, yes, we are seeing here also an increased interest but [Technical Difficulty] right expectation here that as the volume is very significant in rail, and of course, for some application generation 2 technology is important, some of those other applications will generate more demand pace, we rule that out in 2019 and beyond. But, nevertheless, it’s a very exciting technology expanding our technology, as well as application space as we head in second half.
Great. Thank you for that. And then I know I’ve asked this question a couple different ways on prior calls, but I’m going to try it a new way this time. So most investors are really interested to know what you think your revenue is going to be for the automotive programs over the next couple of years, would you be disappointed yourself if Maxwell does not have more than $10 million in revenue from these automotive OEM programs, the ‘19 programs that you’ve officially announced to date? Would you be disappointed if you have less than $10 million in revenue from those programs in 2019?
Dr. Franz Fink
Well, so, first of all, Craig, we’re not guiding yet like we said in the call, but not because of automotive, we want to see a little bit more visibility. But if you are saying that all the automotive programs we announced that our new ones that obviously go back like you pointed in E-active suspension to 2016, plus the ones that are ramping plus Geely ramp that it’s going meaningful in that direction, yes. We would be disappointed that from those ones and plus the Geely ramp it would not go into that direction.
Now, again, having this said, it’s a variable there is as Geely ramp that as we’ve said by 2020 is really going to be meaningful and where we really end up with that number is entirely depending whether the ramp in August or it becomes a December end, and then, of course, the number for the year would look here different, because that’s a very big program for us.
But, having this said, as we look in average towards end of next year and then going into ‘20 where we clearly known Geely is going to come in with full force. Yes, I mean, I would be disappointed if we’re not looking at those type of numbers.
Fantastic. That’s really good to hear. Congratulations on the strong execution in this difficult short-term environment we’re working through.
Dr. Franz Fink
[Operator Instructions] Our next question comes from the line of Jeff Osborne from Cowen and Company. Your line is open.
Hi. Good afternoon. Just a couple questions on my end. First of all on the auto design wins, how many do you have to-date? I’ve lost track, is it 15 or it’s like Craig mentioned 19…
Dr. Franz Fink
I just wanted to double check.
Dr. Franz Fink
No. Jeff it’s 15.
And then there’s now three – you alluded to two on the prior call and then one new one this quarter. So there’s three kind of big fish that you’re hunting so to speak?
Dr. Franz Fink
Yes. And there’s a few more in the pipeline but the ones that are ahead there in the pipeline, there’s a two plus one that is moving into a zone where we are getting encouragely more confidence. That is also going things like the next year.
And I think post Geely that that number’s been somewhat stagnant but many other people in the vehicle electrification supply chain that we cover are seeing robust RFQs, RFPs, et cetera. Can you just touch on why is the receptivity of the solution diminishing or is it early adopters made their move and others are taking a wait and see? I guess I’m just a bit concerned that the cadence of that hasn’t picked up.
Dr. Franz Fink
Yeah. That’s a very good question. But I think I can address it. I think it’s actually I would say positive news in the following sense. Some of them that we are not even mentioning that’s why we are referring to the three most material ones, because like we said in the last call, we are at least a Geely/Volvo type of volume if not bigger, so really, really for us very, very meaningful.
Other ones like – if I go back to earlier question from Craig in E-active suspension, we see on the horizon we will be coming but again there is of course two things. First of all, we are starting with most OEMs in the premium platform segment and then depending on what platform we are talking about, I’m sure you can imagine this is a completely different E-active suspension system and is most likely not going to be build in just into a refresher for platform but a complete new platform, they from a cycle time are a little bit further out. So clearly the next months we are there seeing our not 2019, 2020 timeframe, but they could be of course a few we have not talked about that already we started to work on in the past.
Now, while I’m saying it’s not maybe quite as many, we are talking on the three programs here working on very, very significant programs. And Jeff, quite honestly we’re not going to do 20 of them, okay. It’s — you can imagine putting significant molecules net sales with another Tier 1 but significant modules in some cases into really platform systems that as we have said in the last call, we are getting increasingly confident they will proliferate into other platforms, that’s a significant undertaking for our customer but that’s a very significant undertaking for us.
And of course, with respect to our investment into teams available and then we want to execute flawlessly in those cases. We’re not going to do 5 or 10 or 15 of them but focus on a few that really matter and that’s why you are hearing here us really more focusing on a few that will make the difference, but there’s other ones in the pipeline.
That’s good to hear and I appreciate the detailed response. On the dry electrode side, it sounds like you’re very confident about having some momentum there over the next two to three quarters as you articulated earlier. I was hoping that maybe a year ago as people explored that and kicked the tires with you, it was very open ended as to what that would look like financially for the company ranging from you building your own factory to make it and selling powders to other folks to being collocated at facilities to having a license. Is there any articulation that you can share of where that stands, what the business model would be as you look to hone in on these partnership activities…
Dr. Franz Fink
… in particular given the balance sheet where it’s at I guess I’m just concerned about potential financial liability if you were to build that capacity for this directly?
Dr. Franz Fink
Yeah. So let’s be very, very clear. While we remain open on the model where someone – I’ll come to — again to the business model scaling up and commercializing it. While we remain open that someone would take the technology licensing it, as well as if someone would say, hey, Maxwell, could you be an embedded electrode manufacturer in our manufacturing site at least in multiple years for ramp up, again, we remain open.
Let’s be clear, as far as the scale up and acceleration of commercialization is concerned, we need a partner who has a skin in the game, who will put significant funding with us or for us, but also brings significant technology systems, you name it, expertise complementing our expertise that as we combine the expertise of both teams, and of course, in that context leverage the partners funding, as well as what we will put in. We really are here very closely aligned in a very close collaboration with respect to looking at the scale-up in commercialization and that has a small company I think it’s the only model that makes sense for us and our shareholders.
That makes sense. That’s what I want to hear I just want to double check that was the case. The last question I was hoping to explore was just – you referenced non-dilutive financing. I was just going through your K, like you have leases at all your facilities the sale leasebacks are out. Other than a sale maybe the high-voltage business what were the examples in your mind of potential non-dilutive financing other than a sale of a business unit or license fee from someone on the dry electrode side?
Yeah. I can take that and Franz can follow with some color maybe. I think there are absolutely more than one opportunity we have here the obvious one is the one that you pointed out on the high-voltage side. But we’re just to be clear we’re pursuing other options here, none of which I think we can go I think it will be premature at this point to go in some of the details there.
But I think I what we’re looking at should and if we were targeting raising enough cash to be able to get us through the short-term difficulties we’re having related to geopolitical tensions out there and get us to the final to the ramp that we’ve been looking for.
Got it. And then…
Dr. Franz Fink
Dr. Franz Fink
The only addition to that I would like to mention is, from everything we just discussed in the call and in the questions that came up. It’s clearly like David was saying to have enough cash for now and in the future. So I have said we can put like I would say the wood behinds arrow to support those critical programs some of them we just talked about DTE and automotive that will drive the highest value for our shareholders.
That makes sense. Just so I’m clear is that cash whole if high-voltage doesn’t improve and let’s say you have some momentum in the third quarter with vehicle launches and rail being seasonally strong ultracapacitors are doing well. Is that whole in your mind sort of $20-ish million or how do we think about that especially with the drop here in the Q4 timeframe. I would think your axis with liquidity on the revolver would drop, but I haven’t run the numbers on AR and inventory and what not?
Yeah. I think we’re relatively safe on that working capital front, we have $25 million line we can put technically in the kind of $50 million range that we think we have availability up to. So I think that will be for us for not just the short-term, but even into the mid-term regardless of what happens.
That being said, you’re right it really is dependent on how fast we recover on the high-voltage side, as well as how fast and how big we can ramp some of these new opportunity markets and applications we’ve been targeting with some of these new products.
And just as a reminder I think it’s pretty important both from filling the factory utilization issue the gross margins, as well as just selling new products with optimize gross margins. It’s on a multiple front perspective we’re talking about.
We’re talking about grid with the Grid Cell Pack and the Grid Energy Storage System win wind retrofit market opportunity which is relatively new for us. We have new products for new wind turbines and wind. We have on the auto front an entire subsystem design with Geely. So it depends on how fast and how big that is in the second half of 2019.
And then, lastly, like we talked Franz talked about on the rail front the L cap launching into production with our partner in China and how fast that can ramp where the opportunity to serve develop market is clearly a big one.
Appreciate Dave but certainly a lot of balls in here for you, but thanks much.
Dr. Franz Fink
Sure. I think that we’re out of questions, so again thanks for being with us on this call today. We appreciate your patience, your support and we’re looking forward to talking to you here over the next few days and hours and weeks to come. Thanks for joining today.
This concludes today’s conference call. You may now disconnect.