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Edited Transcript of SCON earnings conference call or presentation 21-Mar-19 3:00pm GMT

Q4 2018 Superconductor Technologies Inc Earnings Call

SANTA BARBARA Mar 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Superconductor Technologies Inc earnings conference call or presentation Thursday, March 21, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey A. Quiram

Superconductor Technologies Inc. - President, CEO & Director

* William J. Buchanan

Superconductor Technologies Inc. - CFO, Principal Financial & Accounting Officer and VP

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Conference Call Participants

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* Andrew Evan Shapiro

Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member

* Sameer S. Joshi

H.C. Wainwright & Co, LLC, Research Division - Associate

* Steven Kruger

* Moriah Shilton

LHA Investor Relations - SVP

* William Lapp

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Presentation

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Operator [1]

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Good day, and welcome to the STI Fourth Quarter and Year-End 2018 Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Moriah Shilton of LHA. Please go ahead, ma'am.

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Moriah Shilton, LHA Investor Relations - SVP [2]

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Thank you, Ian. Good morning, and thank you all for joining us for STI's Fourth Quarter and Full Year 2018 Conference Call.

If anyone has not yet received the earnings press release, it is now available at the company's website. If you would like to be added to our distribution list or if you would like additional information about STI, you may call LHA at (415) 433-3777.

With us from management today are Jeff Quiram, President and Chief Executive Officer; and Bill Buchanan, Chief Financial Officer. I will review the safe harbor provisions of this conference call and then I will turn the call over to Jeff.

Various comments regarding management's beliefs, expectations and plans for the future are forward-looking statements and are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ from those expressed in the forward-looking statements, and those differences could be material. Forward-looking statements can be affected by many other factors, including those described in the Risk Factors and the MD&A sections of STI's 2017 annual report on Form 10-K. This document is available online at STI's website, www.suptech.com or through the SEC's website, www.sec.gov. Forward-looking statements are based on information presently available to senior management, and STI has not assumed any duty to update any forward-looking statements.

Jeff will begin with an update on STI's Conductus wire program and then turn the call over to Bill for a review of the financials, after which Bill will open the call for Q&A.

And now I would like to turn the call over to Jeff.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [3]

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Thank you, and good morning, everyone. Last year, at this time, we discussed on the earnings call our decision to focus our Conductus wire product development efforts on superconducting magnet applications, in large part due to the attractive revenue potential forecast by several key customers. One year later, we believe that the expected demand from potential customers and the related potential revenue clearly confirms the correctness of that decision.

An ever-increasing number of companies are now pursuing high-field, low-temperature magnet applications, such as next-generation electric machines, NMRs, proton and particle accelerators and fusion devices. For example, there are approximately 2 dozen nuclear fusion participants, including start-ups, government initiatives and commercial company projects, such as Lockheed Martin's compact fusion reactor. All of these entities are attempting to accomplish the goal of delivering energy in a clean, environmentally friendly and cost-effective manner.

In 2018, we successfully developed enhanced Conductus wire that delivered 1.5x the critical current performance and more importantly, doubled the infield magnet performance. These wire optimization efforts included the $4.5 million NGEM project awarded by the Department of Energy to STI and its partners, TECO Westinghouse Motor Company, Massachusetts Institute of Technology and the University of North Texas, and are synergistic with many of the superconducting magnet applications being pursued at this time. We recognized approximately $2 million in revenue from the start of the project in June 2017 through the end of the first budget period in September 2018.

As we have discussed previously, we conducted our R&D efforts utilizing our production systems to ease the transition as we ramp up wire volume production. In the third quarter, the specifications for this high-performance magnet wire were finalized and are now being utilized in our manufacturing runs. In the fourth quarter, we started integrating production enhancements designed to improve process control in order to maximize yield. The completion of these upgrades requires taking our production offline for a short period of time. However, demand from our potential customers at that time was such that we pushed all of the needed production upgrade until the first quarter of 2019.

We are currently completing that production transition process, which involves the certification of each of the 4 steps required to manufacture Conductus wire in high volume. To date, our operations team has certified 2 steps, with the template and the IBAD procedures locked for higher volume. We are now concentrating our efforts on the 2 open items, the HTS deposition machine and the final step of our copper encapsulation.

The deposition machine is in the final stages of routine maintenance and system upgrades, which include heater and temperature control upgrades, new heat shields and the rebalancing of the drum. This effort is required to improve process stability necessary to deliver higher yields and increase capacity. For copper encapsulation, we are working with outside suppliers to optimize methods for full production, long length and high volume. We anticipate the remaining certifications will be signed off by operations in the second quarter.

In 2019, we are focused on ramping production volume, as our customer demand has transitioned from qualifying samples to kilometers near term, with tens of kilometers later this year. We anticipate beginning deliveries of kilometers of wire starting in the second quarter.

We are currently focused on increasing capacity, piece length and yield for our commercial customers. Once these efforts are successfully completed, we expect to begin the second budget period for our Department of Energy project. In this budget period, utilizing TECO's design, we will be focused on producing components for a 5,000-horsepower motor using our Conductus wire. The wire utilized in this budget period will require 10% performance improvement over that obtained in budget period one, along with long piece length and improved yield. Again, the stated goal of the project is to improve performance of Conductus wire to 1,440 amps operating in 65K, 1.5T field and lowering the cost by improving the yield.

Now Bill will provide a review of the financials. Bill?

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William J. Buchanan, Superconductor Technologies Inc. - CFO, Principal Financial & Accounting Officer and VP [4]

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Thank you, Jeff.

We did not record revenue in the fourth quarter, as we remained focused on ramping production from sample size orders to kilometer length orders. In the fourth quarter of 2017, we recorded $307,000, most of which came from our ongoing DOE NGEM project. Total R&D expenses amounted to $697,000 and were $550,000 in the prior year quarter. SG&A expenses were $884,000 compared to $766,000 in the year-ago quarter. Net loss for fourth quarter of 2018 was $2.3 million or a loss of $0.70 per basic and diluted share, compared to a net loss of $1.9 million or a loss of $1.73 per basic and diluted share in the fourth quarter of 2017.

For the full year, total net revenues were $1.6 million compared to $446,000 for 2017. Net loss for the year 2018 was $8.1 million or $4.03 per basic and diluted share compared to a net loss of $9.5 million or $9.06 per basic and diluted share in 2017. Please note the share and per share data for both periods was adjusted for the 1-for-10 reverse stock split effective on July 24, 2018.

On to the balance sheet. As of December 31, we had $5.6 million in cash and cash equivalents. We raised approximately $10 million in net proceeds from equity-related offerings in 2018. In 2018, $7.1 million was used to fund our operation and $200,000 was provided by net changes in our working capital. Based on our current forecast, we expect our existing cash resources will be sufficient to fund our planned operations well into the third quarter of 2019.

And now operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question from Sameer Joshi of Wainwright.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [2]

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So the DOE revenue, when do you expect the second phase of that to begin?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [3]

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We are -- right now, Sameer, we believe it will probably be late in the second quarter, late in the second quarter or early in the third. And then really, that's a function of -- it does require us to focus on it and dedicate some machine runs to that program. And right now, we really are at the point where we want to have all of our runs focused on the wire for our commercial customers that are really looking to build their devices. So we continue to talk with the DOE. The DOE understands kind of where our schedule is and what we're trying to accomplish, as do our partners. So I don't think there's any real surprises there from anybody, but it's really a function of having the commercial customers take precedence at this moment. And so it'll be a quarter from now or so at the earliest, probably.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [4]

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Understood. So coming to the potential commercial customers, can you elaborate or give some color on the kinds of customers that you are talking to, the numbers and the average length of wire per year that these customers are talking about?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [5]

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The majority of the customers that are actively looking for large quantities of wire right now are in the magnet applications. And so we have several orders in-house. And again, like we said, we've transitioned from just providing qualifying order lengths, so small lengths of tens of meters, to hundreds of meters, to now having folks that want kilometer lengths of wire or kilometers of wire, I shouldn't say, they're not necessarily continuous kilometer lengths, but they need kilometers in that overall volume. So that's why we're really focusing our energy on being able to run the machine and then really doing the work associated with getting the higher yield and the higher throughput that we really need to ramp production, and so -- but again, magnet applications are really leading the charge at the moment.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [6]

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Okay. And are you building up any usable inventory during this test phase?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [7]

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We're building up inventory of template because those machines are still operating while we're doing the maintenance on our RCE machine. So we have certainly been building up inventory of template so that when we turn the RCE machine back on, we have plenty of template to run. So we've been focused on that since the first of the year.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [8]

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So the remaining 2 steps which you expect to complete in the second quarter, after that, you should be able to start making meaningful lengths of wires. Is that correct?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [9]

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Well, yes, and we have significant amount of template in stock. So we won't be worried at all about that supply when we start running the machine. And that will allow us to really focus on getting some higher quantities of wire off the machine. And then, of course, the final stage is the encapsulation and outside suppliers. Frankly, those folks are -- they want to run multiple kilometers in a run. So volume through them is not really going to be an issue. It's really more the volume through our RCE deposition is really where we're focusing our efforts.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [10]

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Okay. And have you -- say, if you are able to increase the yields to desired levels, what would your cost per kilometer be and price per kilometer be for the customers?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [11]

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Well, I mean, price, of course, is something that is negotiated with all customers individually. And we won't really talk about that. I will say that we believe we have our costs in line and we will be in the situation where we'll have gross margins in excess of 50%. And so I think that, that is pretty consistent with where we've been in the past. We believe that there is -- and then the goal, of course, as you increase yield, increased yield does 2 things. Number one, it reduces the cost. And number two, it gives you more wire to sell, so it increases revenue as well. So we're confident that our costs are still in line and that we're in position to have a nice contributing product to the bottom line once we start selling it.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [12]

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Okay, one last one. So looking beyond 2019, 2020 and so on, do you expect the applications to remain in the magnet applications or do you see any other kind of customers coming in and contributing to growth?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [13]

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Well, there are certainly other applications that are being talked about and a number of customers are interested in wire for their specific applications that are, I guess, I would say, outside the magnet field. But with what we're hearing on potential demand in magnets, I'm not sure there's going to be any wire available. When you start getting out into 2020, 2019, there's people talking about tens of thousands of kilometers of wire demand in those magnet spaces. And that's many multiples of what the industry can produce today. And of course, almost by definition, that magnet wire is high-performance wire. So that even takes the industry capacity today and reduces it to the number of people who can actually provide that performance. So I think there are opportunities, Sameer, but as of now -- we're not discounting them, but as of now, they're being dwarfed by the magnet applications.

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Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [14]

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Great. It's great to see you talk about tens of -- kilometers of wire later in the year. Good luck on that.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [15]

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Okay, thank you, Sameer.

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Operator [16]

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And we'll now take our next question from Steve Kruger of Foresight Investing.

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Steven Kruger, [17]

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You said that you completed Phase 1 of the DOE contract and that the performance of the latest recipe was certified at 1.5x critical current performance over the initial starting performance. What was the initial starting performance? And what was the current carrying capacity of the certified wire?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [18]

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At the current -- at the specifications, which is the 65 Kelvin and the 1.5 Tesla, I don't know exactly what the starting point was. I do know that we're in the point now, Steve, where we're carrying approximately 1,000 amps, so.

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Steven Kruger, [19]

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Okay. So then the starting point must have been like 650 or something like that if you're...

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [20]

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In that area.

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Steven Kruger, [21]

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And you said the ultimate goal of the DOE is to get to 1,440. But the applications that you're talking about with your commercial -- prospective commercial customers now, what kind of current do they need?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [22]

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Well, that is part of the issue, is that there's customers that have dramatic demand for wire that is not 1,440, is a lot less than 1,440. So the real challenge for us is balancing the desire to continue to push the envelope on wire performance and getting it as good as possible. But really, we want to make sure that we are spending enough attention on the customers that exist today and that have current demands that are significantly lower and have devices that are designed to utilize wire that is not 1,440. Because the reality is, when the wire -- whatever the device is designed to use for current, that's what they're going to carry. And so if the device is designed at 700 amps, for instance, it doesn't really matter whether a wire can do 1,000, because it won't be utilized. So that is the balancing act, and that's really why we have to choose to do one versus the other at the moment. So we'll focus on...

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Steven Kruger, [23]

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I guess the question is...

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [24]

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Go ahead.

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Steven Kruger, [25]

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Is your capability for current right now, does that exceed your customers' requirements, meet or exceed?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [26]

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I'd say it meets, with the margin right now of what the customers need.

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Steven Kruger, [27]

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Okay. So people are generally going to be looking for wire that has a current carrying capacity of less than 1,000 amps?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [28]

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Yes, almost all of the applications today are in the -- well, at the high end, they're in the 600 to 700 amps, are really what people are looking for. There may be an outlier, a scientific device that would like something a lot greater than that, but the majority of the hot runners are in the 600 to 700 amp range.

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Steven Kruger, [29]

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Yes, so the certified capacity of the wire that you're producing now exceeds the requirements of your customers. And so...

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [30]

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It's sufficient for what these customers need. That's correct.

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Steven Kruger, [31]

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Okay. Now you said that the current carrying capacity of your new recipe was certified. What length of wire was used for the certification?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [32]

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It was tens of meters.

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Steven Kruger, [33]

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Okay. And what's the longest length you've produced so far that can meet that 700 amp capacity?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [34]

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Well, I don't know. I don't know what the exact number would be. It's probably 120 meters or something of that nature.

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Steven Kruger, [35]

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And is that sufficiently long? Can they splice enough segments of that length to do what they want to do or is that still not long enough?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [36]

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It depends on the design of the device. Most of the devices are not looking for much more than 100- to 150-meter lengths. Now there are exceptions to that, but the majority of them are shorter lengths.

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Steven Kruger, [37]

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Okay. So if you can get the capability of the deposition machine up to where you can consistently produce multi-hundred meter lengths, you're going to be ready to go, to ramp?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [38]

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That is our belief, yes, yes Steven.

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Operator [39]

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And we'll take our next question from Bill Lapp, who's a private investor.

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William Lapp, [40]

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Jeff, just to follow up with the prior person from Foresight. So are they taking wire now? Are you shipping them wire now, that they're testing with at 120-meter length at all? Are they getting that or not? The customer, are they taking samples of that length?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [41]

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Well, at this instant, our RCE machine is being -- we're finishing some routine maintenance on it. So at this instance, we're not shipping any -- we're not shipping those quantities. We have shipped tens of meter lengths and those were the last samples that were being tested, Bill, so.

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William Lapp, [42]

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Okay, so based on those samples, the people are telling you, if you can produce the lengths we need, we're ready to go and they're waiting on you. I mean, they haven't given you an order or anything, but indication of interest. They're waiting on you to get to big run so that you can do it, right? I mean, is that the next 2 -- you said there's 2 more steps. And once that's done, are you in a position to deliver? I mean, and they're ready to buy?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [43]

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I would say, to speak in general about the view of our customers is that, they're convinced that we can provide the performance and they remain hopeful about our plan to ramp up volume, but that's what we need to be able to indicate to them, that we can start shipping them some kilometer -- total kilometers' worth of wire. And once we do that, that's really the box that needs to be checked to then turn into larger orders. So I guess the way you characterize it as are they waiting for us? Yes, they're waiting for us.

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William Lapp, [44]

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Okay. So once you give them the next big sample of the kilometer and they're convinced, then they're ready to order probably. And you think you're going to have that capability in the second quarter?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [45]

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We expect to deliver kilometers of wire in the second quarter, yes.

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William Lapp, [46]

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Okay. And do we think -- are we worried about the fourth step, like we had with the FLCs (sic) [FCLs]? I mean, when you're sending them out to the last -- to the vendor to coat them with the copper and whatever, do you foresee any problems with that, because it's not the same problems you had with the fault meters?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [47]

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Well, I mean, until we're getting a bunch of that wire and it's working every time and we repeat the process over and over again, are we concerned? Yes. Do we feel we have good partners in place that have demonstrated the ability to provide consistent sort of work there? The answer to that is yes as well. So I guess what it's really going to come down to, Bill, is when we start the spigot going and we start doing the kilometers of wire, that's when we're going to get a much better indication of whether we're getting the consistency that we need. But as of now, yes, I have some concerns, but I'm not overly concerned. I'll always have concerns until the wire is just flowing out the door, but I think we have a good team in place and a good set of partners in place. And so from that perspective, I feel pretty good about where we're at.

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William Lapp, [48]

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And of course, the samples you've been sending them have been done by the outside vendor, right, I mean, the less than a kilometer. So in other words, they've performed, they've done it and it's worked, right?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [49]

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We have, yes. The wire that we've shipped to date has had the outside suppliers doing work on them, so.

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William Lapp, [50]

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Okay, all right. So now that if we get this order, which may not be until the third quarter and we don't know what the schedule would be, how are we going to finance that? Are you going to be able to get any purchase money financing on this without selling more stock or diluting the equity, unless the warrants become exercised, the $3.50 warrants? The stock, today, it's traded like 6 million shares. But what do you see for financing this or what are you going to need to ramp up, to start making the production? You've got to buy inventory, et cetera, right?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [51]

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Yes, the challenge of the ramp is really more of a -- it's a working capital -- it's a working capital issue. And as you start to ramp, the thing that we know for sure is that we will be -- we will -- the goal is to have a relationship. When you're shipping the wire, you may get a very large order, but everyone knows that the wire will be shipped periodically. And that's just kind of the way the industry has been working. And so if you get an order for 50 kilometers, let's say, you'll be shipping -- you won't hold the whole order and then ship all the 50 together, for instance. And so you'll be shipping it and getting paid as you go along. But those are all to be negotiated. I do think that there will be a challenge with working capital. As we start moving towards the hundreds of kilometers, there will be a view on how we finance that. How we do it is really something that we'll -- well, we'll take the best avenue available to us as we can, Bill. So I can't say that is that vendor financing, is that some other sort of financing? We'll always weigh the value of the various transactions and do the one that we think makes the most sense for the company and for the shareholders. And so I guess I'm not going to prejudge that at this moment.

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William Lapp, [52]

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Would some of these customers be willing to make a substantial down payment on some of this, knowing -- I mean, they know you're not General Electric. I mean, they know you're small, but you got the thing they need. Do you think that they would be willing to come up with front money or haven't you talked to them about that?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [53]

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Well, there's been a lot of discussions with a lot of parties about different ways to do things. I don't think I'm going to -- I can't tell you that, yes, there's a host of customers out there that just want to send us money. They want to buy wire and they need the wire to be able to successfully execute on their business plan. We'll continue to talk with them and do what makes the most sense for everybody. And our goal, of course, and everyone's goal, is to be able to ramp production and get some volume out there. And so we'll do what makes the most sense to be able to do that, Bill.

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William Lapp, [54]

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Okay. Well, it sounds like you're in the right direction. This call is what we've been waiting for. I mean, you still have to make the last -- you're at the 80-yard line -- you're almost at the goal line. So that's good.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [55]

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Great. Thank you, Bill.

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Operator [56]

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(Operator Instructions) We'll now take our next question from Andrew Shapiro of Lawndale Capital Management.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [57]

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These will be some follow-ups to what Bill had to say, just to get a little bit more color. I understand you'll get the financing that you can to deliver on the product at the lowest cost of capital as possible. So to get a feel for the timing of the cart before the horse type of situation, you have -- I think your press release had about $5.6 million in cash at the end of December. Are you able to give us an update of your cash balances around now?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [58]

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Well, we'll be filing the K next week, so that will give you a better view. But I mean, we burn less than $2 million a quarter and that hasn't changed. And so I guess...

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [59]

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No, that's a good -- no, that's a good handle there. But now given where you are in cash around now and the timing of when you would make deliveries, can you educate us a little bit on kind of like the payment terms, we'll call it the whole payables, receivables cycle that this line of business is likely to entail so we can get a feel for like what kind of working capital ramp-up might be needed before you start collecting on the receivables that these customers would be generating for us?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [60]

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Well, the majority of the customers that we're talking with at the moment are, that are -- we're not dealing with an international. I think a lot of times, when you get concerned about what are the payment terms, they tend to be pretty long payment terms as you move into potentially other areas of the world. The customers that we're talking with now are, they're all pretty much associated with what goes on in North America, what goes on in Europe. So from a payment term perspective, you have a 30-day, a 45-day sort of cycle. So from that perspective, we're not looking at financing sort of payables, where you're sending wire and getting paid in 6 months. So I guess I just wanted to throw that out right away as kind of the general terms. And as you then go forward and decide -- and again, this is all very much speculation, Andrew, because we haven't negotiated that large order with that customer yet. So I don't really want to spend my time talking about negotiating strategy on this call, but everybody recognizes that we're not in a position to finance anybody's receivables or anybody's payables, I guess I should say, where they'd be able to hold our product for an extended period of time before paying us. I mean, I don't think -- anybody that looks at us realizes that, that's not the position that we're in. And so I think any customer who wants to move forward with us will recognize that it will have to be a relationship where we're going to ship the wire and we're going to expect to be paid for it. And we'll see what the time is between those 2.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [61]

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Well, let me add a little, maybe add a little more color to the question, because I understand your need to tiptoe about some of this. Are we dealing with international customers, where the wire is going to be on a boat and it takes longer? For example, Tesla, when they started shipping their cars to Europe, that was a time lag where they're not collecting the cash as much as they were when they were doing domestic sales, right? So is this an international -- are your near-term customers international or domestic? Can you say that?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [62]

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Both. And the good news is that when you're talking about kilometers of superconducting wire, it isn't like shipping a car. It isn't like shipping a big reel of conventional cable either. The good news is, you can throw it in a box and throw it on an airplane.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [63]

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Okay, good. All right, so it'll be quick. There won't be a major difference between international, domestic. Your customers are probably large, financially well heeled, because they're doing this kind of new development of these pretty, very important electrical products that they need your wire for. Fair enough. So I'm not worried about the credit quality. But in terms of you're building the template, you're financing right now and funding your one set of the inventory. You're going to be running the wire through the RCE machines, et cetera, and you're building that up. Is there a range of money that we're thinking of here that the company will probably need to build up the appropriate ongoing working capital cushion? Is it $2 million? Is it $5 million? Is it just $1 million? Is there a range that you or Mr. Buchanan can tell us at all at this time?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [64]

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Yes, this -- I guess, say, Bill, do you have a view on that at the moment?

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William J. Buchanan, Superconductor Technologies Inc. - CFO, Principal Financial & Accounting Officer and VP [65]

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Yes, I really don't, because you're asking me to speculate on the steepness of any kind of a customer expectation or ramp to deliver this wire. And so it becomes very difficult. In other words, if the machine starts delivering these very high quantities that we expect that it was designed for, that could put some very serious demands on working capital. So no, I really do not care to speculate on the specificities, potential customer order...

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [66]

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I think we can safely say with what we're looking at right now, though, it's probably -- it's in the single digit millions.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [67]

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Okay, all right. I mean, that's helpful.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [68]

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This will involve single digit millions. We're not talking tens of millions right now.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [69]

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Okay, good. I mean, that's helpful, just to kind of give guidance. Because you're going to need a tranche of financing, I don't know if it's equity. We don't know if it's debt, right? You don't know if it's some kind of hybrid in between, probably to get the company to a run ramp of delivering 50% or more margin wire.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [70]

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Yes, and the steepness of the ramp will be a function of, and this is where Bill -- I think Bill is exactly right in that, it's hard for him to say, because with some of the quantities that are being thrown about by some customers, I mean, there could be -- all of a sudden, you could have demand in place for just a tremendous ramp. And then to be honest, the challenge is maybe more not working capital, it's more do you have the -- do you need to spend some money in other ways to really ramp production?

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [71]

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Right. I mean, you're talking like equipment?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [72]

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Yes, well, maybe you've got to go buy another machine or maybe you have to go buy another drum or 2 or whatever you need to do. I think that's -- if the scale of the ramp is really...

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [73]

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I would think that customer, if they're going to give you that kind of order, it would be helpful in facilitating the company's financing capabilities to get there.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [74]

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Well, yes, even if the customer itself wasn't facilitating, I think just the fact that you now have an order of that magnitude that you're trying to service will make our financing activities significantly more -- well, it will be more beneficial to the company to be able to...

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [75]

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Yes, I mean, then you're talking about forms of debt. I mean, certainly not AAA-rated debt, but you're talking about things where there is that. Okay, and then in terms of timing, this seems where it looks like probably you'll have more visibility on these orders and your progress in the second quarter, which is coming up soon, along with probably the timing for when you would go for some financing or for some capital. Does the company have a means of forcing conversion of warrants? And about how much in potential dollars raised, meaning the warrants that are outstanding and their strike price, might the company be able to tap?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [76]

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Well, just to answer one part of that first, we do not have a means to force conversion of warrants. So that is not something that we can do.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [77]

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Do you have any in-the-money warrants, now that the stock's where it is, do you have any in-the-money warrants that are coming up for expiration in the near term?

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [78]

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No, I mean, the closest warrants to be in the money will be -- there's a very large tranche of warrants that are in the money at $3.50.

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Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [79]

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Okay. So we're away from that right now. All right. Well, we look forward to your next sets of won achievements and probably to see the terms under which you are out there attracting another slug of capital, hopefully, not too large and not too dilutive.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [80]

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Very good. Thank you, Andrew.

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Operator [81]

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And this concludes today's question-and-answer session. I'd like to hand the call back to you for any additional or closing remarks.

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Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [82]

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Thank you. I would like to thank everybody for joining us today and we look forward to talking with you again on our next call. Good day.

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Operator [83]

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This concludes today's call. Thank you all for your participation. You may now disconnect.