U.S. Markets close in 4 hrs 52 mins

Edited Transcript of SCON earnings conference call or presentation 9-May-19 3:00pm GMT

Q1 2019 Superconductor Technologies Inc Earnings Call

SANTA BARBARA May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Superconductor Technologies Inc earnings conference call or presentation Thursday, May 9, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jeffrey A. Quiram

Superconductor Technologies Inc. - President, CEO & Director

* William J. Buchanan

Superconductor Technologies Inc. - VP & CFO & Principal Accounting Officer

================================================================================

Conference Call Participants

================================================================================

* Amit Dayal

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Sameer S. Joshi

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

* Steven Kruger

* Moriah Shilton

LHA Investor Relations - SVP

* William Lapp

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Superconductor Technologies' First Quarter 2019 Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Moriah Shilton of LHA. Please go ahead, ma'am.

--------------------------------------------------------------------------------

Moriah Shilton, LHA Investor Relations - SVP [2]

--------------------------------------------------------------------------------

Thank you, Raily. Good morning, and thank you for joining us for STI's First Quarter 2019 Conference Call. If anyone has not yet received the earnings press release, it is now available at the company's website. If you'd 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 in the MD&A sections of STI's 2018 annual report on Form 10-K. These documents are available online at STI's website, www.suptech.com or through the SEC's website. 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 he will open the call for Q&A. And now I would like to turn the call over to Jeff.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, and good morning, everyone. We continue to make progress in the first quarter, ramping our production capability to meet customer expectations. As we shared with you on the last earnings call in late March, we're going concentrate our ramp efforts on the 2 remaining processes required to manufacture our conductor's high-performance magnet wire in high-volume, 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, all upgrades to heaters, temperature control, heat shields and the rebalancing of the drum are completed in the first quarter. We are now bringing all process conditions back to best known methods.

We undertook these upgrades to improve the process stability necessary to deliver higher yields and increase production capacity. For copper encapsulation, we are working with outside suppliers to optimize methods for coproduction along lengths and high volume. We expect these final 2 steps to be signed off by operations in the second quarter.

More importantly, we expect to start delivering Conductus wire optimized for magnet applications in the second quarter, with the plan to shift tens of kilometers later this year. Our superconducting magnet customers have forecasted the need for thousands of kilometers of wire starting in the next few years.

One promising superconducting magnet application for Conductus wire is for next-generation fusion devices. In April, we announced that Conductus wire was selected by the Institute for Plasma Research India, IPR, for use in its Tokamak Fusion development.

Recently, we received a number of questions about fusion power applications. Let me take a few minutes to share our view of the massive potential of this developing market. Fusion projects have been under development like governments and educational institutions for several decades. Billions of dollars have been invested to date into the fundamental science and physics surrounding fusion. Many technologies have taken giant leaps forward during the ensuing years, from computer processing power to the discovery of advanced materials. The technology utilized to make superconducting wire has similarly made great advances during that time.

Early fusion projects utilized low-temperature superconducting materials. As high-temperature superconducting materials emerged, scientists began to incorporate HTS where it provided a distinct advantage. In recent years, it has become evident that the second generation of HTS materials provide a significant advantage for fusion projects, especially techniques that value very strong magnets. Due to the superior curve density of the 2G HTS materials, for the first time, designers see a path to the construction of a magnet powerful enough for the application and compact enough to make the overall device a manageable size.

There are a number of fusion systems under development today, leveraging multiple technical concepts at the core of the design to achieve the plasma reaction required in all fusion devices. Various approaches include laser designs, magnetic targeted fusion, Tokamak fusion magnets and several other novel techniques.

Tokamak architectures are of particular interest to STI as they utilize ultra-high-performance magnets to contain the plasma. Tokamak designs have been under development for a number of years and represent a very significant portion of the funding to date to develop a fusion device.

The most notable recent example is the ITER project, a $20 billion Tokamak fusion program that uses superconducting magnets 15.5 meters in height. The ITER system is expected to be the first fusion system to produce more power than it uses, a watershed achievement for the technology.

The development of this system began in 2006, utilizing the best superconducting materials available at that time. ITER is now 50% built and is scheduled to become operational in 2025.

It's important to note that since 2006 dramatic performance improvements have occurred with the advent of high-performance 2G HTS wire. Many industry experts believe that this new wire will allow Tokamak designs that are significantly smaller, addressing a huge current barrier to future commercialization. The main benefit derived from the new superconducting wire is to increase the electrical field or the superconducting magnets, thereby delivering the magnetic strength needed in a much smaller package.

We have discussed with you in the past the superior power density performance that Conductus wire brings to magnet applications. Another important element is the ability to operate at the higher temperature of 20 kelvin versus the legacy 4 kelvin. This temperature increase reduces the cost, complexity and size of the overall crowd-cooling subsystems.

The recent advances in all areas of fusion has gained significant attention in the market. Investors such as Bill Gates, Jeff Bezos and Jack Ma have been involved in providing significant funding for fusion projects, pursuing the promise of clean limitless energy. Fusion is a great complement to solar and wind and can operate 24/7 and offers an excellent way to provide load-balancing for the power grid. We look forward to being a part of the evolution in fusion technology as the industry transitions from theoretical physics to the creation of commercially viable fusion power generation facility.

Turning back to our recent success with IPR, this is an important design win for us. IPR is a well-respected Tokamak research center that has designed and built Tokamaks in the past. Their selection process included rigorous analysis of many leading suppliers with a focus on wire performance, company's experience in superconductivity and local support. Conductus wire's performance was successfully tested by IPR to ensure it met the required specification. We look forward to working with IPR as they move forward with the development of fusion device components, utilizing the next-generation wire technology represented by Conductus. We also look forward to working with our distribution partner in India King Corporation to begin -- to build out our customer footprint by providing additional customers with high-performance magnet wire that delivers a competitive advantage.

Before I turn the call over to Bill, I wanted to note that as discussed in prior calls, we are currently focused on increasing capacity, piece length and yield for our commercial magnet application customers. Once these efforts are successfully completed, our current plan is to begin the second budget period of our Department of Energy next-generation electric machine program.

This project is aligned with our longer-term goal of improving yield performance and providing longer length that increases capacity. Now Bill will provide a review of the financials. Bill?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Jeff. We did not record any commercial product revenues in the first quarter as we remained focused on ramping production from sample size orders to commercial kilometers length orders. Total R&D expenses amounted to $688,000, and were $577,000 in the prior year quarter. These efforts remain exclusively focused on our Conductus wire.

SG&A expenses were reduced to $861,000 in the first quarter of 2019, compared to $1.041 million in the year ago quarter. Net loss for the first quarter of 2019 was $2.3 million or loss of $0.70 per share, compared with net loss of $2.2 million or a loss of $1.98 per share in the first quarter of 2018.

Under the balance sheet, as of March 30, we had $3.6 million in cash and cash equivalents. In the first quarter of 2019, $2 million was used to fund our operations.

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.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll take our first question from Amit Dayal with H.C. Wainwright.

--------------------------------------------------------------------------------

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [2]

--------------------------------------------------------------------------------

Jeff, maybe just to begin, what is the size of the initial orders that you expect to deliver in the second quarter? Is this in the hundreds of meters range, or larger? And is this multiple orders or just a single order?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

We have several orders. They're all in the hundreds of meters of wire on them. So they're -- they're less than 1 kilometer, but more than 100 meters and -- for each. So when you add them all together, it's in excess of 1 kilometer, is what we plan to try to get out in the second quarter.

--------------------------------------------------------------------------------

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [4]

--------------------------------------------------------------------------------

And these are going to be shipped in the second quarter? Do you expect to recognize any revenues related to this in the second quarter or maybe later? How do -- how will that work?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Bill -- I guess I'm not sure on the revenue recognition side whether we would actually recognize that revenue or not. Bill, do you have any view on that?

--------------------------------------------------------------------------------

William J. Buchanan, Superconductor Technologies Inc. - VP & CFO & Principal Accounting Officer [6]

--------------------------------------------------------------------------------

It would depend on how soon before the end of the quarter we would actually get that product out. There is a small acceptance period and that may delay the revenue recognition.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

But other than that there's no other real revenue recognition issue that you're concerned about?

--------------------------------------------------------------------------------

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [8]

--------------------------------------------------------------------------------

Understood. So in relation to the Tokamak opportunity, has sort of a long-term effort, do you have plans or timing for specific deliverables during the next few quarters? And will you generate any revenues from any early efforts around this or will that take some time?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, the goal, of course, Amit, is to get out these orders in the second quarter and what -- specifically, with one of our customers, the guidance has been that there will be an order for tens of kilometers, following on the successful completion of stage one. So when we start shipping tens of kilometers of wire, again the goal being to do that in the second half of the year, we will certainly be recognizing revenue from that.

--------------------------------------------------------------------------------

Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [10]

--------------------------------------------------------------------------------

Okay. And any other partnerships like TING that are -- maybe you guys are working on that could materialize in next few quarters?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

We don't have -- really, I would say, TING is unique with our distribution methods as a representative that helps us with the Indian market. We don't really -- we sell direct into all other markets, so really no other partners of a similar stature that I would say we're using.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

And we'll move on to our next question from Sameer Joshi with H.C. Wainwright.

--------------------------------------------------------------------------------

Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [13]

--------------------------------------------------------------------------------

Just a clarification on the previous question from Amit, did you mean the Tokamak opportunity is more near term or -- I guess that is a more a long-term opportunity, right?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Well, the -- when you look at some of these Tokamak opportunities, they -- the -- long term, the potential demand is huge. In the near term, there is certainly demand that will keep us busy for 2019 and beyond. So I think it's just more of a question of scale, the scale of those opportunities, Sameer. But I'd say, the near-term opportunities are for the Tokamak applications as well. Kind of -- it's a combination, I guess, is what I'd say.

--------------------------------------------------------------------------------

Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [15]

--------------------------------------------------------------------------------

Okay. Got it. And then the -- I know you mentioned the DOE opportunity you will focus on after you have completed these 2 remaining steps for the current rollout. What do you expect the timing of that to be, and are the partners in concert with you for progress on that?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

Well, yes. I mean the other partners are ready to execute on their portion of the plan. There has been quite a bit of design work that's been done and so now it's all about getting some more wire and building a sample device and then working with the Department of Energy to get the -- relative to move forward to your -- so it's all -- it'll all work in concert with the partners and with the DOE as far as when exactly we kick off that -- the second phase of that program. But yes, I'd say, everybody is pretty much ready to go.

--------------------------------------------------------------------------------

Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [17]

--------------------------------------------------------------------------------

Okay. And then a question on the balance sheet. We see that net PP&E amount is now around less than $800,000 and we expect that to be depreciate over the next 2 or 3, 3 or 4 quarters, but what is the actual useful life of the equipment that you have? And do you expect any additional CapEx requirements to build for the capacity or to maintain this?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, we continue to -- there's certainly -- and I think, we expense most of the maintenance work that we do on the machines and only when we do a major upgrade would be capitalize that. Is that correct Bill?

--------------------------------------------------------------------------------

William J. Buchanan, Superconductor Technologies Inc. - VP & CFO & Principal Accounting Officer [19]

--------------------------------------------------------------------------------

That is correct.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So I would say the intention is to not have any large capital expenditures associated with the machines that we have in place, because they're -- today, they're operating at certainly less than the design capacity of those machines. Now we may make some decisions on bringing in additional drums, for instance, to be able to turn around the work on the RCE faster. So that would be a potential investment that we would make. Those are relatively modest, you're adding a drum for $300,000 or $400,000. So those are not major investments.

And then I guess the other side of it, Sameer, is that there is always the potential that we want to ramp up the capacity in one of the areas of our template production and that would of course be something that we would potentially spend capital on, but those decisions haven't been made yet and they're not -- they don't need to be made yet. And those investments are relatively modest as well, $1 million to $2 million at the most. So I think that, yes, you're going to see that. The depreciation is certainly in place to take that amount on the balance sheet down, but the good news is the machinery is still usable, and we have not -- we're not approaching the end of life on any of those assets.

--------------------------------------------------------------------------------

Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [21]

--------------------------------------------------------------------------------

Understood. And just one last clarification on -- from the 2 remaining steps for the deposition and copper encapsulation. So is there -- do these have to be completed before you can actually ship those hundreds of meters of wire or is that wire in a good enough shape to go without these process enhancements?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, what we're really talking about is the complete sign off by our operations team that says, "Yes, this process is completely dialed in and doesn't need to be modified." You are correct that we don't need final sign off on a process to be producing the hundreds of meters of wire we need to send to these customers. So we're doing both. I mean we're trying to produce wire and we're really trying to get that process dialed in, in the way that, that doesn't -- our production team can get take control of it and sign off on it and say, okay, it's -- there's no more development work been done on refining a particular piece of what's going on in those processes. And we're very close to that.

--------------------------------------------------------------------------------

Sameer S. Joshi, H.C. Wainwright & Co, LLC, Research Division - Associate [23]

--------------------------------------------------------------------------------

Okay. Understood. So in the next -- before the end of June, you will be -- actually be able to -- in either event to be able to ship the wire hundreds of meters?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

That's correct.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

(Operator Instructions) And we'll move on to our next question from Bill Lapp, private investor.

--------------------------------------------------------------------------------

William Lapp, [26]

--------------------------------------------------------------------------------

Good morning, Jeff and Bill. Can you hear me okay?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [27]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

William Lapp, [28]

--------------------------------------------------------------------------------

Jeff, I came in a little late, but I did hear you say that, and Bill, about the shipment you're going have before June. It's almost a kilometer, I think is the way you said by the time it's shipped. Is that correct of wire?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [29]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

William Lapp, [30]

--------------------------------------------------------------------------------

So can you give us kind of what would that be? Have you set the price for that or what would be the revenue, if you can book it?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [31]

--------------------------------------------------------------------------------

We have set the price. I would say, again, the revenue, when you're talking hundreds of meters of wire, I mean, just remember that you don't really get meaningful revenue until we're shipping multiple, multiple kilometers. And so it would be -- I guess I don't want to say we're selling a kilometer for a particular price, Bill. I mean I don't want to get into naming our price on this phone call here. But it's not going to be millions of dollars, let's just -- to set expectations.

--------------------------------------------------------------------------------

William Lapp, [32]

--------------------------------------------------------------------------------

Okay. So then when you do start, have you come to an agreement with the 2 vendors that if you -- after June you're going to be -- the 2 customers? Have you come to an agreement on the price once you start shipping? Has that been negotiated at this point?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [33]

--------------------------------------------------------------------------------

We've negotiated. We've had a number of conversations around pricing. And I would say, it's always hard to say that you're ever done discussing price because the market continues to have an effect on what is going on, and we are not the only participants in that market. But I feel pretty good on where we're at in the view we've given to our customers on what we plan on charging for the wire in the near term.

And the discussions with all of our customers as we move forward is that the price per wire is certainly -- some of the factors that impact the price on wire -- of the wire are the volume. And so as volume increases and becomes more manageable and more predictable and all of those things, then pricing will be reflected accordingly. So I guess I'm not going to say, Bill, that we have -- that everything is locked on and we have a rock solid agreement with all of our customers on what the price is going to be. But I think everybody is aware of what the factors are that will impact the price going forward, and we will continue to negotiate in that way about, okay, what's the next order looks like and what do the orders after that look like and we will work together with our customers to also come to a point where everyone is agreeable.

--------------------------------------------------------------------------------

William Lapp, [34]

--------------------------------------------------------------------------------

And I think you said you're shipping to 2 customers, am I correct or that -- by before the quarter end? So is it 2 customers or did you not say that?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [35]

--------------------------------------------------------------------------------

We said we have -- I said we -- the question was, do we have orders and who are they orders from? And I said, we have orders from 2 customers for hundreds of meters each. So and -- also start shipping in the second -- we'd be shipping in the second quarter, we can ship at all grade.

--------------------------------------------------------------------------------

William Lapp, [36]

--------------------------------------------------------------------------------

Okay. But then with these 2 customers, based on your conversations, would they -- is there -- would they take -- if one of them wants it, would they take up your entire production or would there be between both of them? I mean other words, if these customers, what they need, would you supply both or the volume they're looking at would take up your whole capacity?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [37]

--------------------------------------------------------------------------------

I would say the volume from one of the customers can take up a vast majority of the capacity. So it's -- we'll do what we can to meet the needs of everybody. But yes, I mean the potential is there that we'll be primarily consumed with fulfilling the demands from one.

--------------------------------------------------------------------------------

William Lapp, [38]

--------------------------------------------------------------------------------

Okay. So basically, you're looking, if you get these orders from both customers or one, that once you get acceptance and start shipping it could take up your whole capacity on your current machine? Is that correct?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [39]

--------------------------------------------------------------------------------

We definitely believe that we'll be ramping production very aggressively on our -- in our production facility. And yes, we'll be stressing it pretty fully here as we approach the end of the year. That's the intention.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Steven Kruger, [41]

--------------------------------------------------------------------------------

Jeff, could you characterize for us the progress you've made on yields, perhaps giving us some idea of what kind of lengths you can now produce defect free? Are you up to 100 meters defect free or 300 or 500? On a repeatable basis, can you give us some color on that?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [42]

--------------------------------------------------------------------------------

I'd say what we're probably doing consistently, Steve, is we're getting lengths that are less than -- right around 100 meters, 80 meters, 90 meters that are -- when you say defect free, so without a drop off that dramatically reduces the performance, so. And again, we talked about this in the past, it's all about -- you want consistency because whatever the weakest performance in the length of wire is, it dictates the performance of the entire piece of wire.

Just remember that for many of these applications that we're working on now, we're not trying -- it would be -- we would love to get, let's just say, 500 meters defect free, but we don't need to get -- the lengths that we need are in the 30- to 40-meter pieces without defects in it in order to meet these requirements. So that's really what we're trying to do, as in, how many pieces can we get off. When we think about yield, it's like, well, we're trying to fulfill these particular orders, what's the yield on being able to do that.

So we're not at 500 meters. We're a little less than 100. But frankly, that's sufficient for what we're trying to do right now.

--------------------------------------------------------------------------------

Steven Kruger, [43]

--------------------------------------------------------------------------------

Okay. And when you go back to work on the DOE contract and as I understand the next phase is to improve the yield, if you're just under hundred now, what do you need to be at to meet the goals of the DOE contract when you're done with that, in terms of lengths? Repeatable lengths that are defect free?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [44]

--------------------------------------------------------------------------------

Well, again, yield is calculated in a couple of different ways so, yes, it's how much continues length are you getting without defects, but it's also, are you having non -- any runs that are -- you don't have any failures in the runs, right? So you want to be in a situation here every run is resulting in usable wire coming off of the machine and ultimately that's a combination of a number of things. Did the run go as planned? Are there any defects? Is the composition of the wire correct? All those things kind of play into it. But -- so I guess I'm really just trying to point out that the length is not the only thing that we're focused on to try to improve yield.

--------------------------------------------------------------------------------

Steven Kruger, [45]

--------------------------------------------------------------------------------

Okay. So I understand that. That's great. But going back to -- well, maybe in terms of both of those parameters, where do you need to be to satisfy the requirement of the DOE contract when you're done, both in terms of defect free lengths you can make on a repeatable basis and also, let's say, percentage of the runs that are good runs?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [46]

--------------------------------------------------------------------------------

Well, I mean the DOE is a -- the DOE program is all about improving your yield and improving your lengths. And there are certainly milestones that are in there. It's a constant negotiation between the different parties because frankly our commercial -- well, the DOE, of course, would love to see that machine run and get continuous kilometer lengths over and over and over again. And -- but on the other side of it, what we're trying to do is we're trying to build a motor that uses superconducting wire that doesn't need kilometer lengths. And really they just want us to be focused on getting them the wire they need to build the device, so that's our commercial partner.

So you're really -- I guess I'm -- what I'm saying is that I don't think that there's a rock solid performance metric that needs to be met on the yield side that would determine whether the -- that, that would say, yes, the program was completed successfully, the program wasn't completed successfully. It all comes down to -- if we can build the device that utilizes a superconducting wire and gets us next-generation motor looking like it's going to go, I think that would be viewed as success by all parties involved.

--------------------------------------------------------------------------------

Steven Kruger, [47]

--------------------------------------------------------------------------------

Okay. Can you give us any color at all on how much -- like, what multiple of improvement is your goal over the next year or 2 in terms of lengths and percentages of good runs?

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [48]

--------------------------------------------------------------------------------

Well, I'd say the -- we're at a point where we think we probably need to be in 20%, 30%, 40% improvement over the next several years in pretty much all of those metrics. I mean, that's the -- we're close on the current lengths or maybe not as much we would like. We have a few failed runs where we would like not to have failed runs. I'd say it's -- so it's meaningful, 20%, 30% improvement, but it's not -- it doesn't -- we don't need to be twice as good, for instance.

--------------------------------------------------------------------------------

Steven Kruger, [49]

--------------------------------------------------------------------------------

Okay. That's very helpful. One last question, if I may, the reading recently about China's building these ultrahigh voltage transmission lines, 1.1 million volts that these lines can carry, is that likely to have (technical difficulty).

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [50]

--------------------------------------------------------------------------------

Sorry, you cut off there a little bit at the end. Is it likely to have what? I'm sorry, I must have -- I think I lost Steve. Is there anybody else still on or did I get disconnected here?

--------------------------------------------------------------------------------

William J. Buchanan, Superconductor Technologies Inc. - VP & CFO & Principal Accounting Officer [51]

--------------------------------------------------------------------------------

I think you're still connected Jeff, this is Bill.

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [52]

--------------------------------------------------------------------------------

Okay. Well, I'll try to answer the question. I didn't get it all, but I would say that my view on it is probably that those ultrahigh voltage transmission lines, if the question was going to be, is that going to be utilizing superconducting wire in it, I would say my view on it today is that the answer is probably no, really just because of the lengths that we're talking about and the fact that almost all those high-voltage lines that are been designed today are all aerial and that today is not really a good application for a superconducting transmission cable.

But I think the bigger -- the biggest issue is just that I don't think there's enough wire available from any source to do that sort of a project at this time.

Operator, I think we should move to another question. It sounds like Steve is disconnected.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

And this time we have no further question. And I'd like to turn the call back over to management for any additional or closing remarks.

--------------------------------------------------------------------------------

Jeffrey A. Quiram, Superconductor Technologies Inc. - President, CEO & Director [54]

--------------------------------------------------------------------------------

Okay. Very good. I would like to thank you all very much for joining us today, and we look forward to speaking with you again on our next call. Good day.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

And that concludes today's call. Thank you for your participation. You may now disconnect.