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Quantum Technologies reports 4Q14 financial results

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Hydrocarbon Engineering,

Quantum Fuel Systems Technologies Worldwide, Inc. has reported its financial results for the fourth quarter of 2014.

4Q14 highlights:

  • Overall revenues of US$13.0 million and US $34.1 million reported for the quarter and full year 2014.
  • Product sales of US $11.1 million for the fourth quarter, more than double the amount of product sales reported for the third quarter; driven by continued execution of storage systems strategy.
  • Fourth quarter marked continuation of significant evolving product mix; shifting from sales of stand alone CNG tank vessels to delivering additional value as a supplier of CNG fuel storage modules that integrate the company's industry leading CNG tanks in a complete packaged CNG system.
  • Entered into a software license and development agreement with Fisker Automotive and Technologies Group to support the re-launch of Karma vehicle.
  • Backlog for products, contract services and software license fees increased during the fourth quarter by US $7.1 million to US $29.6 million, of which US $17.8 million is associated with product orders.
  • Expect strong overall revenue growth in 2015.

4Q14 overview

Fuel Storage & Systems division

All revenues from continuing operations are generated by the Fuel Storage & Systems segment. Total revenues amounted to US$13.0 million for 4Q14, of which US$11.1 million related to product sales and US$1.9 million related to contract engineering services. This represents an increase of US$0.3 million in total revenues compared to 4Q13. Current period product revenue was primarily comprised of CNG fuel storage systems, including shipments of the Company's Q-CabLIT and Q-Rail product lines, the integration of fuel system units into General Motors' Chevrolet CNG Impala production vehicles, stand alone CNG fuel storage tanks, and the delivery of a hydrogen dispenser unit.

In May 2014, the company shifted its strategic direction from selling stand-alone CNG tanks to a focus on selling complete CNG fuel storage modules and systems. Under this new strategy, the company has experienced and is continuing to target significant revenue streams for sales of its complete CNG fuel storage modules. Although the shift in business strategy was not void of challenges, the company was able to quickly gain material market share for CNG storage systems within the heavy duty truck market in the second half of 2014 which, along with shipments of fuel systems for General Motors' CNG bi-fuel Chevy Impala passenger vehicle that commenced in September 2014, provided broad based revenues that resulted in higher overall product sales in 4Q14 compared to 4Q13.

"We were excited to close out the year with strong momentum, order flow and an expanding customer base for our innovative and emerging storage product offerings that demonstrates we are making significant progress in implementing the shift to our systems based strategy," said Brian Olson, President and CEO of Quantum. "We are excited about moving this strategy forward into 2015 and, as previously announced, we expect 2015 revenues to be 40 to 50% higher than 2014," continued Olson.

During the fourth quarter, the company received additional product orders from new and existing customers for its Q-Lite CNG storage tanks and its complete fully integrated fuel storage modules, including the Q-Cab and Q-Rail product lines that incorporate the Q-Lite storage tanks.

As previously announced, the company also executed an agreement with Fisker Automotive and Technologies Group (Fisker) in October 2014 pursuant to which the company will license its plug in hybrid control software to Fisker to support the re-launch of the Karma vehicle line and the planned Atlantic vehicle line. In addition, Quantum will serve as Fisker's exclusive software development partner until at least such time that Fisker exercises its option to acquire joint ownership of the hybrid control software.

As a result of the additional product orders received and the agreement with Fisker that occurred in the fourth quarter, the company's total order backlog increased to US$29.6 million as of 31 December 2014, of which US$17.8 million related to product orders and US$11.8 million related to future engineering services and licensing fee arrangements.

From a system cost perspective, the company incurred significant costs and expenses during the second half of 2014 related to establishing its manufacturing capabilities to support its change in strategic direction. Although product gross margins improved nearly 20 basis points in 4Q14 compared to 3Q14, cost of goods sold and gross margins during the fourth quarter continued to be negatively impacted by high build costs associated with setting up expanded manufacturing processes to produce the new fuel storage module products. These costs included incremental expenses to set up new supply chains, establish new processes, acquire parts and materials at low volume pricing levels, and scrap out of parts that did not meet the Company's internal quality standards or that resulted from enhanced designs. The company expects these incremental expenses to continue to decline in 2015 as it moves past the initial stages of production which, in turn, will favourably impact the gross margins in future periods.

Contract services revenue was lower in the 4Q14 compared to the same period in 2013 in part due to a gain recognised in the amount of US$1.8 million in 2013 under the General Motors Impala programme.

During calendar 2014, significant levels of engineering services were provided by the company under development contracts with Advanced Green Innovations, LLC, and its affiliate, ZHRO Solutions LLC (AGI) associated with the design, development and validation of a complete packaged CNG fuel storage and delivery system for aftermarket use for heavy and medium duty trucks. As a result of customer initiated delays that caused the company to suspend activities under the programme in the fall of 2014, no revenue was recognised related to AGI during 4Q14, and the anticipated completion date of the AGI system cannot be determined at this point.

The company's customer funded development activities are reported as costs of contract services. The overall gross margin realised on contract services revenue for 4Q14 decreased compared to the same period in 2013 primarily due to the gain recognised in 4Q13 under the General Motors Impala development programme.

The operating results include research and development expenses associated with internally funded engineering development programs. The expenses for these programmes amounted to US$2.2 million in 4Q14, as compared to US$1.5 million in 4Q13. Internally funded research and development in 2014 primarily related to efforts to advance CNG tank and storage module technologies. Included in 4Q14 were incremental expenses associated with significant design and validation efforts for the Company's innovative Q-Cab Back-of-Cab module that the company began shipping in the second half of 2014.Selling, general and administrative costs of continuing operations amounted to US$2.9 million and US$10.2 million for the fourth quarter and full year in 2014, as compared to US$2.6 million and US$11.1 million for the same periods in 2013, respectively.

Adapted from press release by Rosalie Starling

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