Oct 27, 2010
Executives
Jill Bertotti - Allen & Caron Dan Coker - President and CEO Barry Steele - CFO Bud Marx - Chairman
Analysts
Rick Hoss - Roth Capital Partners Steve Dyer - Craig-Hallum Tyson Bauer - Wealth Monitors
Matt Mishan - KeyBanc
Walter Ramsley - Walrus Partners Steve Dyer - Craig-Hallum
Operator
Welcome to the Amerigon 2010 Third Quarter and Nine Months Results Conference Call. During today’s presentation all parties will be in a listen-only mode.
Following the presentation the conference will be opened for questions. (Operator instructions).
This conference is being recorded today Wednesday, October 27, 2010. I would now like to turn the conference over to Jill Bertotti of Allen & Caron.
Please go ahead.
Jill Bertotti
Good morning and thank you for joining us today for the Amerigon Incorporated third quarter and nine month results conference call. Before we start today’s call there are a few items I would like to cover with you.
First, in addition to disseminating through peer newswire this morning’s news release announcing Amerigon’s results, an email copy of the release was also sent to a number of conference call participants. If any of you need a copy of the news release, you may download a copy from either the Amerigon website at www.amerigon.com, or the Allen & Caron website at www.allencaron.com.
Additionally, a replay of this conference call will be available via a link provided on the event page of the Investor Section of Amerigon’s website. Finally, I have been asked to make the following statements.
Certain matters discussed on this conference call are forward-looking statements that involve risks and uncertainties and actual results maybe different. Important factors that could cause the company’s actual results to differ materially from its expectations on this call are risks that sales may not significantly increase; additional financing, if necessary may not be available; new competitors may arise; and adverse conditions in the automotive industry may negatively affect its results.
The liquidity and trading price of its common stock maybe negatively affected by these and other factors. Please also refer to Amerigon’s Securities and Exchange Commission filings and reports, including but not limited to Form 10-Q for the period ending September 30, 2010 and its Form 10-K for the year ended December 31, 2009.
On the call today from Amerigon we have Dan Coker, President and CEO; Barry Steele, Chief Financial Officer and Bud Marx Chairman. Management will provide a review of the results, after which there will be a question-and-answer period.
I would now like to turn the call over to you, Dan.
Dan Coker
Thank you for joining us again for our third quarter earning results for 2010. We had a pretty eventful quarter for us.
We broke a pretty big revenue record for us. For the first time we have achieved $30 million of revenue in a single quarter and we are all very pleased with that.
That shows a lot of hard work and a lot of people’s part to get us to that scale and also clearly put us in a position to be better than $100 million in revenue for the full year 2010. We are quite excited about that breaking a $100 million in revenue is a goal that we have had for while and we look like we are in a position to achieve that for 2010, we are pretty pleased.
We had a pretty exciting period in the third quarter. The market continues to show slow signs of growth worldwide.
The US market is beginning to come back probably a little lower than all of us. We prefer, but the number for this year look like the North American side will be somewhere in the 11.5% range and next year it looks like it’s going to be a little bit stronger than that.
All functions are based upon economic activity stabilizing, which right now it’s not a pretty good bet. We are going to follow the same pattern we have had in the past.
We are going to speak to Barry, he is going to give us a few of the details, we’ll speak to Bud who will talk to us little bit about the advanced development team’s activity and then we’ll open the floor for questions. With that comment, I would like to introduce Barry Steele, our CFO.
Barry?
Barry Steele
The 2010 third quarter for Amerigon saw a $30.5 million in product revenue. That’s about $12 million or 65% increase from the prior year’s $18.4 million and sequentially it’s about $1.7 million increase or about 6%.
This is primarily driven by new product program launches. We have launched a number of new programs since last year.
We also see better production levels in the industry, in the automotive industry, in North America for example our growth; the production growth was about 26% since third quarter last year. We also saw our first quarter with about 250,000 in revenue on our new heat and cool mattress.
Our gross margin for the third quarter was 29%. That compares to 25% for the prior year and 30% for the prior quarter, the second quarter of this year.
The increase over the prior years primarily driven by product mix, better improved products mix and lower material costs primarily thermometric (inaudible) as well as it increased slightly from the prior quarter is represented by product mix. We also have a little bit slighter increased costs due to some exposure to the Japanese yen and some of the purchase of components and certain programs.
So given the strength in the yen over the quarter that we did not have had, there were some decrease in our margin from that. Our R&D spending for the third quarter 2010 was 2.3 million.
This is an increase about 854,000 or 60% from the prior year and a decrease of about 560,000 some or 20% from the prior quarter. The increases are primarily represented by ZT Plus advanced materials program that we began contributing 100% to where we borrow share back in the first quarter of this year.
Also had clear understanding on our P&L. The decrease from the prior quarter is some rationalization in the R&D standing.
However, I will point out that it’s probably the lower end of the range in the R&D standing level that probably see some increases as we continue through time in the fourth quarter and beyond. Selling, general, and administrative expenses was about flat to prior year at $2.5 million, which is about $500,000 increased to prior year, flat from the prior quarter.
The increase is primarily is due advanced selling activities or expanding our reach in Europe, Korea, and China for programs that we see potentially coming there. We do expect that with our new European office that opened October 1st and some of the efforts we are trying to put in place for our expand in, our outreach in China, we’ll see some increase in SG&A as we go on to the next few quarters.
Our earnings per share were $0.12 for the third quarter. That is $0.07 increase from the prior year and a $0.02 increase from the second quarter of this year.
The only last thing I would like to point out is that our cash and short term investment resources are now stand at $35.4 million. That’s a $7 million increase from the beginning of the year, our operating cash flow has been very positive and we have been able to continue to strengthen the balance sheet and that’s what I have.
Dan Coker
Okay, thank you very much Barry. That’s actually quite a bit.
This is our fifth record quarter in a year on the revenue, sorry revenue quarter in a row and it’s quite exciting for all of us to be able to report these results. With that we would like to see if Bud is going to give us some comments about how things are going on the advanced development projects.
Bud Marx
Well, good morning everyone. It’s good to be back on the Dan and Barry show.
I was in the air for the last couple of earnings conferences, so the airlines don’t let you participate despite the priority. Well, the big news to talk about was the retirement of Lon Bell, which will be effective at the end of the year.
We are still discussing all the bits and pieces, but we are very fortunate to be able to secure Lon services as a consultant for us, for at least a year and likely beyond that because his contributions are unique and we want continuity. At the same time, anticipating that this would come because line is which (inaudible) with IT in the couple of years ago, Dan and rest of the groups have been putting in place very capable to fill and behind and continue the development work is so important for our future.
Barry is characterized the R&D spending appropriately because we’re seeing some opportunities that we think might be very advantages. A word on the whole R&D side, this is taken longer than we had expected and I know that that seems like we’ve been out his for years without result.
We look at this carefully and as concluded that this was appropriate and useful and potentially very beneficial for the future of the company and we’re bending every effort to achieve the results that, yeah we achieved given the rate of spending. That’s my report from Southern California, which is not been sunny; I will turn it back to Dan.
Dan Coker
Thanks for the weather report out there. We will take a little bit more time in our in show than I would have like that were go ahead operator and open the floor to questions, so, we get the input from our investment community.
Operator
(Operator instructions). Our first question is from the line Rick Hoss with Roth Capital Partners.
Please go ahead.
Rick Hoss - Roth Capital Partners
First Barry, (inaudible) expense is that a number?
Barry Steele
It’s a $1.320 million.
Dan Coker
Just far the SG&A line goes with the anticipation of the European office. Should we think about that at on an annual basis incrementally may be 500,000?
Rick Hoss - Roth Capital Partners
It would probably, Barry, I haven’t got budget directly in front of me, but I’m guessing it will run some place. We’re planning put a team of probably three to four people in place.
We’ve got three fulltime people now and one person working as the consultant whether. We’re at the full run rate yet, but I would guess Barry would you get some more around 800,000.
Barry Steele
Yeah, that will be what I would say couple of hundred (inaudible) quarters but I won’t get at that point.
Rick Hoss - Roth Capital Partners
On the gross margin, some really talked about some product mix in there. Is the product mix that we’re talking increased contribution from say it is generated or are you still selling those at approximate same sort of margin (inaudible)?
Barry Steele
Yeah, they’re about the same margin as the regular businesses.
Rick Hoss - Roth Capital Partners
Should we expect kind of a flat gross margin than on a sequential basis there and how should be look at that?
Barry Steele
It will be potentially flat, that depending on, I’m very excited it could be slightly up, I would try few more slightly up and slightly down I get at this point.
Rick Hoss - Roth Capital Partners
The last question, do you think ASPs were above $70. Is that contribution from the mattress product or how would you explain that?
Barry Steele
Yeah, I would explain that as being we’ve shown in our release, this [PCF] unit and there is some revenue in there, we’ve taken top line, you’re not getting the exact that number.
Operator
(Operator instructions). The next question is from the line of Steve Dyer with Craig-Hallum.
Please go ahead.
Steve Dyer - Craig-Hallum
Just with respect to the bid, wondering if you’re willing or able to quantify sort of the what it mentioned in the quarter and may be have to guess looking out as to way your expectation are either from a sales perspective or profitability?
Dan Coker
Barry pointed out that we had a couple of $100,000 of revenue in the third quarter and that’s a very, very early revenue that we’ve had basically just setting up of the Mattress Firm retail outlets in the city of Austin, Texas and from very, very small preliminary work in the Dallas area, which was the Texas State Fair is held in Dallas and is quite a big deal and the mattress firm people introduced the exclusive heated in cool bed at the show with great response. In terms of how that predicts anything it’s really very, very early in the game.
We do expect the margins on the bed to be slightly better than the automated margins and we think there is a room for additional growth and that as we get into the production of the devices and get a little bit more efficient as we go through, well, if you were talking like hundreds of beds here are not, hundreds of thousands what you’re making in our other operation. As that goes forward, it’s going to take us sometime to push this into the marketplace, the [mat firm people] are excellent at marketing and retailing a product we selected in specifically because of the strength and skill what they have.
They have the ability to be able to go out and tell the story about what this is exciting new product. We’ll do for people in a way that the consumers were related, something frankly that Amerigon not very good at.
We’re going to understand the consumer mind. We understand more of an industrial market so that’s why we specifically went after a very strong retail partner (inaudible) and bring that strength, if it be.
They will be rolling these products out through their major metropolitan areas between now and by the end of the year, we hope to have most of the major metropolitan areas covered and then we’ll begin their advertising program to begin bringing in the customers. Our expectations are modest at the moment.
We think that we will probably take about three years to give this product of fully available in the mattress firm stores nationwide and in a position where we can set firmly said okay, this thing looks like may be good or not. We see that building over a three year period that will start to flow next year in 2011, which we are first year of being available in an all 600 stores that mat firm has and we’ll see where it goes.
We are pretty positive and we’re encouraged by the early response we got over this first couple of hundred bed.
Steve Dyer - Craig-Hallum
Okay, very helpful. Do you have any incremental cost associated with that whether it would be marketing advertising anything going forward, are they bearing most of that?
Dan Coker
No, that’s actually, guess this maybe a little bit unique in the mattress business, but the relationship we have is that they are responsible for the sales and distribution of the product.
Steve Dyer - Craig-Hallum
You’d mentioned (inaudible) currency issued in the quarter and I don’t thing you had a hedge in place this quarter. Is that something you’re look at going forward or you going to quite felt that for a while?
Dan Coker
We actually do have some hedges in place for the fourth quarter. That’s partly that were hedging out at this point.
Steve Dyer - Craig-Hallum
Then just happen over to other side of the business. What is your sense stand and sort of inventory with the automakers in the channel on some of your key platforms you’re feeling comfortable with that or I know we’ve been very under stock for the better part of the year now.
How are you thinking, how do you feel right now?
Dan Coker
That the inventories on most of the vehicles are pretty solid right now since they’ve got efficient stock of their desire. They are not past the levels they have been in the past, but they do have a good working inventory in most vehicles.
Some of the popular item, popular lines like relevance specifically say, but some of the items are still pretty paid on inventory. The car companies have learnt their lesson that building inventory way ahead of demand is a very dangerous path and that they’re all keeping their inventories under tighter control.
These vehicles are available and I don’t think you’re going to see any more inventory bill and I don’t think you’re going to see any drop off because there they’ve got excess inventory.
Steve Dyer - Craig-Hallum
Okay, great. Last question for now.
What percentage of your revenue would you say is coming from heater and ventilated, I’m just trying to gage how significant part of the business that is?
Dan Coker
Barry, I’d say less that 10% of what would you say.
Barry Steele
It’s probably about (inaudible) actually.
Operator
The next question is from the line of Tyson Bauer with Wealth Monitors. Please go ahead.
Tyson Bauer - Wealth Monitors
Couple of quick questions and testing the memory here, but since Dr. Bell have a special 15% ownership in BSST and future bright cash flow, how is that going to play out, well he retain that as additional ownership or are you looking to buy them out?
What’s the thought there?
Bud Marx
I should probably handle that. If, we’re a little bit previous on this because we haven’t worked out all the details, but it is our intention to buy out Dr. Bell’s interest and to be able to work to let’s say find greater efficiency and the combination between BSST and Amerigon. If all goes according to plan we will have purchased that interest by the end of the year.
Tyson Bauer - Wealth Monitors
That would give us an idea of how you see the valuation of the total fee which will be nice. Couple of other quick questions, the location in Europe, the new location, is that solely for the purpose of the automobile sector, or you have other intentions and what are your expectations by getting in to that German market which you had difficulties in the past?
Dan Coker
Well, our location is in Augsburg, Germany which is basically kind of in the middle of the triangle between where Audi, Mercedes, Porsche and BMW all are headquartered. We chose that specifically because it’s a good area, it’s got a lot of good people, it’s a technical area that got a lot of good automotive expertise in the local region and it is very easily accessible to all of Europe and all of the major markets that we want to participate in.
We specifically chose Germany as our site for our center of attention for the European markets because that’s, the German auto manufacturers are key to the auto industry worldwide and certainly to the European market. As I mentioned we have already hired three German engineers who have experience in the automotive and industrial markets and it is our intention to use that as a contact bridge to make direct contact with the auto and industrial market from their headquarters. This is a real serious commitment on Amerigon’s part to introduce our products and our services and our technology to the broader European market and to really focus on developing long term relationships with all of our German partners.
Tyson Bauer - Wealth Monitors
Obviously to try to get acceptance in that area.
Dan Coker
Yes.
Tyson Bauer - Wealth Monitors
Ford has commented early, some of the largest dealerships that we talked to in the country, luxury lines have a nice, strong outlook, going forward, are you also seeing that as that kind of give you a little more confidence going into next year that the product lines and models that you are on has a reasonably better outlook than may be in general?
Dan Coker
Yes, I’d say that’s, as a pattern we’ve kicked up as the markets come back, the higher end models have come back a little stronger than the mid-range and entry level and we do expect that trend to continue not just next year, but the next three years.
Tyson Bauer - Wealth Monitors
Last question, with new models coming in at the (inaudible) introduction dates, when should we start to see production increases for some of those new models that you will be coming on for those that are being introduced late December, January that kind of timetable?
Dan Coker
Yes, as the market typically picks up in the third quarter for us for new models, next year will probably be pretty much like that. There are a couple of models that will be introduced early in the year that will be significant for us. We’re looking for a little bit of an aberration to the normal third-quarter jump. You will see a pretty typical pattern overall.
Operator
The next question is from the line of Matt Mishan with KeyBanc. Please go ahead.
Matt Mishan - KeyBanc
Good morning guys. You guys, Amerigon is significantly outperforming light vehicle production on the top line. My question for you is if you are growing at 65% in light vehicle production in the quarter, might head, was growing somewhere in the area of 25% or 30%, what is the difference there? Is it new business growth, is it product mix? How you basket that difference?
Barry Steele
The answer is ‘yes’ to all of those.
Dan Coker
Mainly, mainly, we are introducing new products on top of the industry growth, so our penetration is increasing.
Barry Steele
It is actually penetration growth is what we are really getting at Matt. We are not just a market basket where out of 10 vehicles in the entry level, 10 vehicles in the mid market, and 10 vehicles in the high-end-market.
We are concentrated mostly on the high-end-market and the upper middle range and those markets are doing very well and we are making significant penetration in to the marketplace both in the high end and in the upper-mid-range. That has been a very big driver for us, as we are working our way down in to the middle market sectors where the volumes are significantly higher.
As the market is coming back 15%, 20%, and 25% we are getting into some very, I’d say, growth oriented for us, we are used to dealing in smaller run rates for an annualized vehicle for a high-end platform. When we get on something like the F-150, the F-250 vehicle lines where the literally the lines generate a million vehicles a year, the opportunities for us are greatly increased.
It has been part of our strategy to try to broaden our breadth and outpace the market. As we said earlier it is yes to all those.
With the markets coming back a little bit, and that is helpful and we are increasing our penetration rates into specific target areas.
Matt Mishan - KeyBanc
As I look out to 2011 and 2012, and then I am assuming at least on the automotive side, you have pretty good visibility into the platforms you are on and the associated volumes that you are going to see there. If I assume that light vehicle production is just flat, I mean how much do you outperform just based on your new business growth and your increased penetration, by what percentage you outperform light vehicle production in 2011 and 2012?
Dan Coker
I don’t know.
Barry Steele
We try to resist making forecast that’s far in advance Matt. We have said that we expect to grow in the rage of 20% to 25% a year and that would count for both industry growth and penetration growth and entry into new markets.
That’s probably as specific as we want to be at this time when you say that even be more specific.
Dan Coker
Matt Mishan - KeyBanc
All right, that’s very fair. I apologize if you guys have already talked about, and I am sure you already have.
I jumped on the call little bit late. Can you discuss a little bit about why, despite the increase in sales the gross margin 3Q from 2Q came down a little.
Dan Coker
Barry said that earlier and he can handle it quickly.
Barry Steele
That is primarily mix, slight increase in mix from both point in time as well as the ad impact it was little higher in our 3Q, high actually.
Matt Mishan - KeyBanc
Tellurium was fairly stable and seems to be hanging around that $200 per kilo range.
Barry Steele
Cost of tellurium has been improved slightly from Q3 last year, that is only because of just -- we have a slight decrease during the quarter, but absolutely flat actually compared to 2Q.
Barry Steele
Just one point on all this issue of margins, we have to say that what we are seeing is the period of rather pronounced dollar weakness that might actually continue for a while and similar to the issues we’ve encountered on tellurium when we see a problem that affects our margins we take a look at it and begin to develop solutions that are fundament in long term, but they take a while to put into place. You can see us beginning to chew on this issue of what is the implication of dollar weakness for us over the next 2 to 3 years and what are the right strategies to deal with it, but if it is going to be a pronounced problem, we’re going to have to figure that out.
Matt Mishan - KeyBanc
Just on tellurium and obviously we have all been hearing rumors about rare earth in China not wanting to export that. What are your suppliers of tellurium or you may or your contract manufacturers who are requiring tellurium telling you about the volume, have they seen any kind of price increases over the past week or two?
Dan Coker
Actually what we are seeing is already most of our suppliers are in China and so they are Chinese source and so the Chinese government has been little restrictive trade policy on the rare earth metals themselves. What we are actually doing is taking the Chinese rare earth and we are fabricating it into product in China and exporting that.
That’s type of relationship that China actually like, but we have not seen any specific swings or changes in availability of material or costing of material or any restrictions at all from any government entities worldwide that are dealing with us.
Barry Steele
It’s fair to observe Dan that technically tellurium is not a rare earth, so it has not been included in what the Chinese were doing vis-à-vis the Japanese or even in the broader market. The broad issue that Dan addressed, in the way he addressed that is correct.
Matt Mishan - KeyBanc
That is very, very helpful. Just lastly on your lawsuit and your litigation with WET, can you sort of update on where you are with that?
Dan Coker
In process, there is, the legal process in America is painstakingly accurate and thorough.
Operator
The next question is from the line of Jack Osher with (inaudible) Capital. Please go ahead
Unidentified Analyst
Thanks for taking my questions. Any more color you can provide around, not to beat the dead horse, but maybe if you can quantify the change sequentially in gross margins, what was it related to mix versus yen; that would be helpful.
Barry Steele
I would say they are both equal to each other.
Unidentified Analyst
Roughly 65 bps a peace, now that will normalize in Q4?
Barry Steele
It will probably, it (inaudible) in Q4.
Dan Coker
Hey, guys, don’t stuck us into talking about margins in the future because that is one variable too much.
Unidentified Analyst
Well, then the variable you guys were talking about, Bud, 20% to 25% annual growth, that’s a fair thing to plug into our mouth now for ‘11 I assume.
Bud Marx
Well, now don’t kill me down, what we have said is over a period of the next 2 to 3 years we can see in the future that number looks achievable, but we have not given a specific forecast for 2011 and don’t intend to today. (Inaudible) that forecast, that’s your girl.
Unidentified Analyst
Fair enough. One other one on the mattress firm sell in, if they have 580 locations how do we think about the number of units stocked per location?
Dan you mentioned we are talking about a hundred beds so far and how do we think about the selling that occurred, I know there was a very minimal impact to the September quarter given this was a September launch, but how do we think about the impact on a selling basis for revenue and gross profitability?
Dan Coker
Well, they actually, I don’t think they plan to stock all 600 stores with a warehouse full of their (inaudible) individual stores by central warehouse location. There will be a line filled, if you would for the balance of this year, but we are not expecting thousands and thousands of beds to be rolling out of our supply chain.
What we are expecting in this to do a very orderly plan to roll out as they hit all the major markets in their area from Arizona to Atlanta as they fill up the availability and begin to introduce this product into their stores. We are not looking for a huge spike in activity in the fourth quarter, we are looking for a nice gradual steady slow plan as they pop into Dallas and Houston and Atlanta and all the other major markets.
Operator
The next question is from the line of Walter Ramsley with Walrus Partners. Please go ahead.
Walter Ramsley - Walrus Partners
Thanks, congratulations, another great quarter. I got a couple of questions, out of the let us say 1.2 million units that were shipped through the nine months, can you give us a rough idea of how many were shipped at cars that took it as standard equipment as opposed to options?
Dan Coker
Well, I can’t do that. That was top off of my head, Barry, might be able to.
Barry Steele
It is all we can calculate. I would say about 20 or 30%, but that’s a pretty wild guess though.
Walter Ramsley - Walrus Partners
Do you have an idea of how many want to would you might calls cars as supposed to SUVs?
Barry Steele
That I do have. For the quarters it is briefly above 40s and low 40s percent, and then CUVs and pickups and the general category with the rest.
Walter Ramsley - Walrus Partners
The take rates and the options portion any obvious changes still about the same?
Dan Coker
It has been a slight drop in that and that we’ve added now the pickup truck lines are fairly significant piece of our business and then those take rates are significantly less and those kind of high-end vehicle lines we are receiving in mid 80s as a take rate and now we are seeing in some of the truck lines, I doubt 25% to 40% range. It has fallen off a little bit from kind of an average of low 70s but we have not done that calculation lately.
Barry that might be something that is good for us to look at it again since we got kind of a major swing.
Barry Steele
Yeah. As we look at it we have not seen any real significant changes out of vehicle-by-vehicle basis.
Walter Ramsley - Walrus Partners
On that subject it is fair to say that the F1-50 and F2-50 have two elements to them one are work trucks which probably are the lesser loaded and a more what I call utilitarian, and then there is the European cowboy and I would bet that is the this split of those two markets if you look at open cowboy only which were really cab that the take rates would be very high, consistent with what we are seeing on the high end vehicle. It is okay.
Dan Coker
I would concur that’s probably a good bet.
Walter Ramsley - Walrus Partners
The 15% order whatever that is with Dr. Bell, if that goes through will that be the end of the non-controlling interest line on the (inaudible)?
Barry Steele
Yeah. We will own a 100% of all the shares and there will be no external calls barring something that I can’t foresee but that would extinguish the minority.
Walter Ramsley - Walrus Partners
You are going to have to go back and restate the previous quarters for the current year on that or how do you going to handle it?
Dan Coker
Good question. I haven’t even got a clue.
Barry, do you know?
Barry Steele
I do not think that will be required because you would see the information there and you would (inaudible) being in current quarters but you would not have a change in the financial statement.
Walter Ramsley - Walrus Partners
The earning would say the same for the first three quarters, is that what you are saying?
Barry Steele
My understanding would be that it is correct, yeah.
Walter Ramsley - Walrus Partners
Last one. I do not if you can answer it or not but you mentioned some of these new potential products that are being worked on.
What is stationery temperature management? Is that keeping my stationery cool or what is that?
Dan Coker
Stationery temperature manager would basically would be six HVAC systems to the home as well as to office as opposed to mobile air conditioning systems, which are transportation related.
Walter Ramsley - Walrus Partners
Out of any of those that were mentioned, the anything likely to contribute to revenues next year?
Dan Coker
We certainly hope so. Not that we are willing to predict the moment we have been focusing a lot of effort on the development of the advanced HVAC systems and power generation for a few years and I would say at his point we do not see anything happening in a significant way in 2011.
Walter Ramsley - Walrus Partners
What do you think it might become a significant piece of business?
Dan Coker
We are famous for saying in three to five years but I would say this is going to be a couple of years before we see significant revenue from those area.
Walter Ramsley - Walrus Partners
One last thing, you moving off to Germany you, can you just kind of tell us what the lay of the land is from a competitive standpoint? I mean, I understood that the German sort of had their own version of this technology.
What is the game plan?
Dan Coker
The game plan is to introduce them to a better working, better performing, more efficient design. The major obstacle that we have in the European market in particular and also in the German market is overcoming that market kind of temperate climate.
It is kind of temporary climate. There has been a reluctance in the broad German European market to accept active cooling as being a critical feature that adds comfort to vehicle life and we have not done a very good job of communicating the additional ancillary benefits of having an intimate delivery system in the vehicle to be able to very quickly and be very effectively add or subtract temperature from the occupants thermal comfort zone.
That’s something that is becoming quite an appealing feature as the world turns to more efficient methods of transportation and seeking more efficient vehicles. Adding heated and cool seat, actively heated and cool seat improves the response time for the vehicle when the person needs to add heat or cool.
That will be our big selling point in the European market as that they will eventually and hopefully with our German partners assistance over there they will see that there are some very significant advantages to having actively heated and cool seats. The competition as that you point out, we do have one competitor in the world who is the primary seat heater manufacturer and they are German and they do have, I would say, a comparable product in their line and they are also in the marketplace trying to convince the customers of that advantage of this product.
We have a tough road to go to convince the market, that the product is a good thing and to convince them that we are the best supplier, but I believe that we have been able to do that in the broader global market in North America and Asia in particular and I believe that will have similar successes in Europe particularly now that we focus more of our attention and resources on achieving that goal.
Operator
The next question is from the line of (inaudible) Growth Fund. Please go ahead.
Unidentified Analyst
My question is what is ZT Plus, what should we expect coming out of ZT Plus? You are kind of working on advanced materials or what does that mean for us in the next three years or so?
Dan Coker
ZT Plus’ mission is to develop materials with enhanced performance that we can then take advantage of with, I’d say, exclusivity or with preferred position compared with other people that are working in the same arena. We are working first time high temperature materials because the properties of those materials have been enhanced ahead of those for heating and cooling.
We are seeing a high temperature significant improvement in the material performance. We had to translate them into material that is usable for stuff beyond lab samples, that’s purpose of ZT Plus and we also have to develop the eating and cooling material that addresses our principal developed markets with, which are immediately available.
Those are the two tasks and that is that we expect to achieve over the next couple of years.
Unidentified Analyst
ZT Plus would by trying to may be on a replace tellurium in a thermal electric device?
Dan Coker
In some versions that is actually that is true, but in heating and cooling world its principal mission is to enhance the performance of tellurium with building of other materials and with the different ways of arraying the atoms literally within the material matrix. Those are the two missions.
Unidentified Analyst
Then from the BSSC side with the cooling cuff holders with that the something developed within he BSSC that completely in Amerigon I am not sure the structure, the company, they have three subsidiaries almost the half?
Dan Coker
Probably the simplifying some of that structure. You can think of the America has been having been the development arm for products that are automotive and for products that are readily transferable from our existing technology into product.
The BSSC mission is to develop product that is more advanced, but we will actually see those two missions merge over time.
Unidentified Analyst
Is ZT Plus, housed in the same facility?
Dan Coker
They are seven minutes away in Azusa in a very nice separate facility that is purposed, engineered and built for the material development we are talking about.
Unidentified Analyst
Is there any thought to ever maybe puts some heating and cooling seats in airline?
Dan Coker
Yes, we have looked at that in the past and we have actually made several airline seat prototypes in the past 5 years, actually we have worked with a couple of people to try to find a way to get into that. That market is a little bit murky to us.
We don’t really understand that, but we do have a basic relationship with couple of the main guys that supply. Particularly our focus has been on the business class and first class and private aviation seating structures, which we see as a pretty attractive market place particularly in an age, when the airlines themselves are trying to find ways to differentiate between the coach class and the business class seating price structures.
Unidentified Analyst
You have no deals signed yet or?
Dan Coker
Yes, we have nothing signed yet and it’s a little bit of an enigma for us and that we go to the seat guys and they say great idea. We have actually even been to what I would call the OEM, the Boeings and people like that and they say great idea.
We go to the airline operators and they say great idea, so we cannot find the guy who makes the decision in all of this is to whether we should outfit a vehicle and see how it look or as they say an airplane and see how it looks. We actually had a person working on our staff, trying to understand and decide for that and we got sidetrack with an exciting new project in the bedding area.
We are going to be putting some focus back on that again and see if we can figure that out. If that’s a good viable opportunity for us.
I have never actually been on a flight, where I was either warm or cool enough and I take a lot of flight so.
Unidentified Analyst
Absolutely great. In terms of the bed, if I live on the East Coast how do I get one any?
Dan Coker
Mattressfirm.com, I would recommend. We are looking at how we broaden the distribution nationally for this product line our initial focus is getting a clear concentrated effort in the warmer climate and so the country do not staying with the breeze coast it is not a beautiful place to live.
A bit of our strength here is to being able to provide cool-dry air to the sleep environment in the warmer climate. That’s our main purpose and push right now, but we will be coming with ordinary using.
Unidentified Analyst
Lastly, the original theory has nothing to do with this anymore?
Dan Coker
That’s correct. The original theory program basically extinguished, when the [steely] people were acquired by an investment group and they basically decided that this was project that they didn’t want to pursue.
Operator
(Operators Instruction) Our next question is a follow-up from the line of Steve Dyer with Craig-Hallum.
Steve Dyer - Craig-Hallum
Just housekeeping Barry we keep talking about 37.5% tax rate in every quarter, I don’t think you guys have actually been there since 2006. Is that still a number we should use from a modeling perspective or should we go lower?
Barry Steele
Well, that 37, so yes. Splitting here between 37% to 37.5%, but that is a good range plus.
Operator
In the line there are no further questions at this time. Please continue.
Dan Coker
We pretty much beat that horse we can that about all we know. That the quarter will go ahead and sum up and say, that the third quarter 2010 was a historic quarter from our revenue standpoint, the introduction of a new bedding product and introduction to the marketplace.
We are saddened to hear that Dr. Bell has decided that he is going to relax and enjoy his life a little bit more, but he has committed to continuing to work with us and particularly focusing on helping our advanced teams work through some weather complex issues that we also troubled with in the thermoelectric industry.
In general, it’s been a good quarter. We feel like this is going to be a good year and we are excited about getting at 2011 and the challenge of that has for us.
We certainly appreciate everyone attended today and we ask you to join us again in about 90 days as we review the fourth quarter and our yearend results for 2010. Thank you very much.
Operator
Ladies and gentlemen this concludes our conference call. You may now disconnect.
Thank you for your participation.