UQM Update: Anticipating the Sales Ramp with Coda Automotive - Maintaining Price Target

11/09/2009

MDB issued a research update today on UQM Technologies, Inc. (UQM) reiterating its BUY recommendation and $6.00 Price Target.

UQM Technologies reported its second fiscal 2010 quarter results (ended September 30, 2009) with revenues of $2.3 million. Contract services revenues were $431,000 and product sales amounted to $1.8 million. In total, quarterly revenues were flat versus the previous year, but up 7% sequentially. Although revenues were somewhat below our estimates of $3.2 million for the quarter, product sales into the electric vehicle market are just beginning and judging the timing of orders at this juncture is difficult. The company did ship product (albeit in small quantities) to 21 customers during the quarter and we believe this is evidence of the coming wave of real demand for the company’s motors and controllers and a significant precursor to large scale purchase orders. Along with the improvement in revenues, gross margins climbed to 37% compared to 18% during the same period of FY2009 and 28% in the previous quarter. Operating costs and expenses of $2.8 million decreased slightly year-over-year and remained flat compared to the previous quarter. As a result, the GAAP net loss for Q2 improved slightly to $0.5 million or $0.02 per share and the cash loss dropped to near breakeven at just $55,000. Other highlights from the quarter include:

• the signing of a ten-year supply agreement with Coda Automotive to supply 100kW electric propulsion systems for the new all-electric passenger sedan to be introduced in California in 2010 – annual sales are expected at 20,000 vehicles by the end of next year;
• the receipt of a U.S. Department of Energy grant of $45 million to be used to build out additional motor production capacity;
• a worldwide marketing collaboration with BorgWarner to jointly market the company’s electric motors and generators; and
• the successful completion of a $32 million capital raise from the sale of 8.6 million common shares.

The company’s excellent cash position, access to the government grant and the multiyear supply agreement with Coda Automotive provide a solid foundation for significant top and bottom line growth into fiscal 2011. In addition, the company is currently working closely with 14 other entities (7 of which are large OEMs) that are expected to become significant customers in future quarters. With the Coda contract we are anticipating a significant ramp in revenues with estimated sales of about 4,000 units in the December quarter of 2010. For fiscal 2011 we are now estimating revenues of $60 million. As such, we are reiterating our Buy rating and target price of $6.00 per share.