Westport Fuel Systems Inc (WPRT) 2005 Q1 法說會逐字稿

Welcome to the Westport Innovations Conference Call about Fiscal 2006 First Quarter Financial Results. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Barbara Barry, Director of IR. Ma'am, you may begin.

Good morning, everyone. This is Barbara Barry. Welcome to our call. I'm the Director of IR for Westport Innovations. This is our First Quarter Conference Call for the 2006 fiscal year. It's being held to coincide with the disclosure of our financial results. For those who haven't seen it yet, the news release is on Westport's website at www.Westport.com.

The first part of this call will involve a prepared statement read by Westport's CEO, David Demers. After David's introduction and summary, Elaine Wong, Westport's CFO, will provide a breakout of the company's financials. After that, Guan Saw, Cummins Westport's President, will review CWI's activities for the quarter. The speakers will then conclude with Michael Gallagher, Westport's President and COO, who will speak to Westport's development program.

Attendance at this call is open to the public and to media, but for the sake of brevity, we are restricting questions to analysts and institutional investors. Please identify yourselves by names and company when asking questions. For anyone else who has questions, or requires additional information, we would please ask that you contact our IR department via email at invest@westport.com.

This conference call may include forward-looking statements expressing Westport's expectations, hopes, beliefs, and intentions on strategies regarding the future. It is important to note that Westport's actual future results could materially from those projected in such forward-looking statements because of a number of factors including, but not limited to, general economic conditions, business and financing conditions, labor relations, government action, competitive pricing activity, expense volatility, and other risks detailed from time to time in the company's filings with regulatory authorities.

Now I will turn the call over to David Demers, Westport's CEO.

Thanks, Barbara. Good morning, everyone. Fiscal 2006 is off to a great start. Cummins Westport has made its fourth profit in its first six quarters, and you can see growth is strong. Had a very strong quarter with shipments in North America. With a strong base in transit and refuse in North America, where Cummins Westport is the market leader, and with substantial growth opportunities in these markets internationally, Cummins Westport is well-positioned for strong progress in this fiscal year and in the year's ahead. Westport's own program again turned in a strong cash flow performance. We hit our expected 3 million cash burn rate while continuing our development programs. Mike will give you some more detail on that at the end of the call.

Now in the letter to shareholders in our annual report, published a few weeks ago, I outlined three trends that make us believe that we're on the verge of major transportation changes throughout the world. Increasing oil demand and the associated rise in prices, increasing urbanization throughout the world, and growth in the associated transportation infrastructure, and finally, the recognition around the world that transportation is the [process] and the largest contributor to complex environmental challenges that we have to solve. Now to capitalize on these tends, our management team has three primary objectives this year.

First, Cummins Westport, our joint venture with Cummins, will continue to focus on strong international growth by focusing on global bus and urban truck applications, building on a strong base of OEM product offerings, which we expect is going to widen the gain this year to include several new manufacturers. Cummins Westport also expects to launch lower-cost engines, produced in plants in India and in China.

Our stated goal when we launched Cummins Westport in late 2003 was to see 20% compound growth in U.S. dollar revenue annually, and to see possibly under growth and profits. Last calendar year, Cummins Westport grew at almost 40 percent over CIBC. But this year, we expect to see continued strong growth, even on that basis.

Cummins Westport is also introducing its Next-Generation engine, which will meet 2010 emission standards toward the end of next year. Development, of course, is well underway, and we expect to see it completed this year. We note that a third-party consulting group, [Kayaks] has just concluded that engines of this type should have significant total lifecycle cost advantages over clean diesel engines in 2010, so long as oil prices stay above $30.

The second objective is building on Westport’s work over the past two years. To develop financial partners for our global-development program. We will announce additional commercial alliances to deliver next-generation natural gas engines -- incorporating our high-pressure direct injection technologies. As Mike will discuss in more detail, we see near-term opportunities in China, Japan and Australia that will materially broaden our Company’s global business.

Third, in the case of steel engines, natural gas engines and hydrogen are still very much a niche market. We’ll continue our work to develop new markets, to create demand for our products through alliances with governments and with leading fleet customers. And by working with customers, we will reduce costs and the overall solution benefits for the end-customers in these key markets.

Although the environmental benefits of natural gas vehicles are not contestable, we believe that wide-scale adoption of NGVs depends on delivering economic value to customers. This is a tough challenge, after all -- because we know that at least in the near-term, volumes of natural gas vehicles will remain relatively small.

But our work on total lifecycle costs shows that we’ve made considerable progress, already -- and we know where we need to focus our efforts in the neat-term. Obviously, we’re being helped a lot as oil prices stay high. We’ve achieved real progress over the past 2 years. We’re confident that we’re on the right track, and we see continued improvement in our business, this year.

Growth in global expansion is never without risk, of course. We need to prudently manage our cash resources, and invest only at a sustainable pace -- but without sacrificing longer-term opportunities. Last year, we cut our burn rate by almost 50 percent -- which materially reduces our business risk going forward. We’re doing that while still rapidly building our international business, developing new markets and delivering new technologies. As these new initiatives mature, we can expect quick financial returns -- because our business model doesn't require substantial working capital or manufacturing scale of investments.

I’ll turn the call now over to Elaine, who’ll take you through the quarter. Let me close by saying that though we’re pleased with our first quarter, our position has never been stronger, as we look ahead. Market forces are clearly moving to be more favorable to our business in major markets around the world -- including North and South America, Asia and Europe. And we expect to be able to capitalize on the return. Thanks for calling in. Here’s Elaine.

Thank you. Good morning, everyone. Thanks for joining us. Our financial statement and SG&A are on the website, [to attain] a more-detailed discussion on our first quarter ending June 1st, 2005. This morning, I’ll be focusing on the highlights.

As David has already noted, we had a slow start for fiscal 2006. It was a steady first quarter at both the Westport and [inaudible]. Overall, our net loss for the period approached $6.2 million, or $0.08 per share, compared$6.9 million, or $0.11 per share, first quarter last year.

CWI contributed a profit of just under $100,000 in the three months ended June 30th, 2005, compared to a loss of $2 million at this time last year, with higher gross margins and the lower R&D expenses.

Our revenues and profit contributions ended [inaudible] for the quarter, we are pleased that CWI has now been profitable for 3 consecutive quarters. As of June 1st, 2005, we have $14.6 million in cash and short-term investments -- down $5.7 million since March 31st, 2005. [inaudible] cash operations before [inaudible] a 35 percent decrease from this quarter last year [inaudible] $4.7 million.

Accordingly, [inaudible] up. [inaudible] agencies, and [inaudible] $6.3 million in working capital. Just after June 30th, we collected $1.7 million in [inaudible]

[Turning to other areas]. The three months ended June 30th, 2005, compared to 2004 -- the product revenues were up 19 percent -- despite engine shipments being down 12 percent. Product revenue increased $6.5 million, to $7 million unmixed, with more [seasonal] shipped in the quarter to North American private customers, [inaudible] last year. And a [inaudible] portion [inaudible] engine shipments [inaudible] engines to China.

[inaudible] increased from $3.3 million to $3.5 million -- up [inaudible] in the quarter. Approximately [inaudible] revenue related to catch-up adjustment, as this was made effective January 1st [inaudible] quarter.

Gross margins also were flat, at 26 percent. The [inaudible] gross margin down [inaudible] 35 percent last year. [inaudible]

[inaudible] expenses. Our expenses are generally flat, on a year-over-year basis. [inaudible] increased by $0.8 million. If you recall, this quarter last year [inaudible] development costs associated with the launch of the [L] Gas engine. However, this decrease is [inaudible] was offset by a $1.2 million increase in [loaned]-cash stock-options and Westport R&D expenses.

Over the quarter, with 2.4 million [options] [inaudible] the cancellation of the [inaudible] in the last two years. Our [inaudible] 2.9 million share options [inaudible] Accordingly, these options have [inaudible] investment divisions that were shared by and/or [inaudible]

New accounting practices require that stock-based contribution [inaudible] stock options [inaudible] fair value method and be recognized [inaudible] over [the investment] period. Stock options of private-share priced [inaudible] investment division are [inaudible] on the [inaudible]. We do not show the [calculated] fair value, which results in a value o f[inaudible] stock options. Our total stock options first quarter were $1.6 million.

An additional $0.2 million of stock-based expense was also recognized in the quarter. [inaudible] the total of non-cash stock-based compensation expense of $1.8 million, or $0.02 per share. Average $0.01 per [inaudible] had [inaudible]

[inaudible] market expenses increased by $0.4 million on a [inaudible] basis, increased [inaudible] business development effort in Asia. And the [inaudible] decreased by $0.6 million, as [inaudible] fixed assets were fully amortized as [inaudible]

Effective amortization was [inaudible] negotiate the terms of original asset [inaudible] which we outlined for our year-end financial [figures].

In summary, we [inaudible] original [inaudible] Euro to 0.6 million Euro. Even though it’s effective [inaudible] on the balance sheet as of March 31, and are now being amortized over the [inaudible] quarter.

We also entered into [inaudible] working relationship with GBH. We will be outsourcing our new [inaudible] development work for them. They’ll provide us with more flexibility and allow us to focus on Westport development [during the year].

Looking forward, our focus for the balance of the year will be [inaudible], without sacrificing longer-term opportunities. We look forward to continue to see that drive success in both the top and bottom lines, and [inaudible] pleasure the many opportunities that we’re working on, which Guan and Mike will speak to you in more detail.

Guan, [inaudible] over to you.

Thank you, Elaine. Good morning, everyone. Before I begin, I’d like to preface this by saying that I’ll be referring to our calendar year quarter as CWI’s financials are based on a calendar year.

CWI was profitable in the 2nd quarter. This marks the third consecutive quarter that CWI has been profitable, as Elaine has mentioned, just now. I will be highlighting our 2nd quarter financial results, followed by the review of our CWI’s three progressive performances. America, Asia and Europe. And I’ll conclude with an update of CWI’s key initiatives.

Q2 actual volume was [at 300] units compared to 352 units in Q2 last year. Despite this decrease, we generated higher gross revenues, due to a higher proportion of our sales coming from the Americas and Europe.

While we sell our [inaudible] mix of [inaudible] engine.

[Past] revenue also increased 50 percent over Q2 last year. [inaudible] increased product and tops margin. And the management control of expenses contributed to helping us achieve [inaudible] net income.

Looking forward, the [inaudible] new year forecast shows that CWI will be profitable from revenues generated from engines and parts. This [inaudible]. The CWI business plan calls for a 20 percent [inaudible] profitability over our [inaudible]. We expect to work without [inaudible] Americas.

CWI completed engine shipments to San Diego, Santa Monica and [North County] in the first half of year. Compared to previous second quarters, CWI’s second quarter has been strong, due to the transit and refuse market.

Health code has taken further action on the fleet group regulations in Los Angeles. But we [inaudible] more positively encouraged more Californians to move ahead with the lower emission gas engines. CWI will continue to ship engines to LA Metro and Washington Metropolitan [inaudible] Transit Authority in the next two quarters, to fulfill their orders.

The recent announcement by Vancouver Transit to purchase natural gas engine-powered buses is a focus set forth for the future of natural gas in Vancouver.

Asia. All the cities in China continue to [buy] from CWI. [Here is] our second-largest CWI customer in China. This is public [inaudible]. Public transit is the largest customer. [inaudible] unit this quarter.

CWI also recently shipped to a new customer [inaudible] [Japan]. About 200 km outside of Beijing. We [inaudible] for CWI launching a localized natural gas engine in China, which I will review briefly, in a moment. Shanghai has taken CWI’s prototype units -- which we are hoping will eventually turn into a substantial order in a later quarter.

Outside of China. The Philippines Department of Energy launched the country’s first clean-air public buses, followed by CWI engines in Manila. On July 1, the president of the Philippines -- Gloria Macapagal Arroyo, the Canadian ambassador to the Philippines, and the Chinese ambassador -- [were] the first gas engines of the CWI-powered bus. We are expecting to continue to receive orders from the Philippines after this successful launch.

CWI also will see an order from Bangladesh -- a country that has an abundance of natural gas.

Europe. Q2 was a good quarter for Europe. Our strongest OEM, PBI, took all the [inaudible] located in this quarter. Other European OEMs are still purchasing CWI engines -- which is good news.

In Russia, we had several prototype installations in place at various stages. And we continue working with the local OEMs there. We also have regular engine delivery to European OEMs in the second half of 2005, and going forward into 2006.

Now, I’ll give you a brief update on 3 of CWI’s key initiatives. They were announced during the last quarter’s call.

1 -- be a low-cost producer. Local manufacturing in India is proceeding according to schedule, with the launch of a local CWI engines plant. From [inaudible] of our 2005, we are expecting the China license to be [inaudible] manufacturing plant to be signed on 30 August. This will allow CWI to start working with common [inaudible] on localized product, and will put CWI in a very strong position to increase sales to new customers and to our existing [inaudible].

2 -- expansion into new market segments. In Q4, 2005, CWI will launch an LPG product for profit. CWI is currently reviewing other market factors. Growth opportunities, which will generate incremental margin with relatively little investment required. CWI is working with both joint-venture partners, Cummins and Westport, to develop business goals -- by liberating their technology and products.

3 -- new product launch. CWI’s new product launch is on-schedule. The 2007 product is expected to be available late next year. The [Euro 4] product launch is also on-schedule, and we are pleased with our progress. CWI continues to lead the industry with a practical, low-emissions engine that offer excellent performance, reliability and value for our customers.

I will now turn the call over to Mike Gallagher, Westport’s president and COO. Mike?

Thank you, Guan -- and good morning, everyone. Six weeks ago, I summarized the important strides our heavy-duty trucking program has made over the past year. With major new partner commitments and funding for technology, development and demonstration. At the end of May, we launched our next-generation of this trucking technology -- called the “Clean-air corridor project,” in Eastern Canada. We now have these 5 new demonstration L&D trucks rolling on the 401 corridor, with emissions of only 1.2 grams per brake horsepower nitrogen oxide. That’s among the cleanest trucks in the world.

The first 60 days of the rollout have gone well, and we are generating lots of data on how our L&G trucks can contribute to cleaner air and economic service. We have also been talking to Nortel in Northern California, and the City of San Francisco, about an opportunity to expand our commitment to this next-generation L&G truck technology in the Bay area.

We have funding from [Inrel] in-hand, as you know, to support it and expand the demonstration commitment, there.

On the light-duty front, we successfully completed two new major Isuzu milestones, by demonstrating that our hot-surface technology can achieve sub-1 gram NOx emission levels. And we delivered the new demonstration vehicle, using their smallest truck chassis, known as the ELF NKR. As a result of this success, Isuzu has indicated to us that they would like to commit to an additional 18-month funded program, and the design and configuration for commercial vehicles. We’ll be talking about that over the summer with Isuzu.

We have also now signed our $2 million contract with SBTC here in Canada, and [Soccer Daisy], to implement our program to demonstrate our 8th CNG. That’s the hydrogen natural gas blended fuel technology -- here on TransLink buses in Vancouver. The first of these busses will be rolling in less than a year.

On the new-initiatives front, as Dave mentioned, Westport has never been more active. We are diligently progressing on a number of projects around our recent announcements. They involve both our HPDI and hot-surface technology. In China, for trucks and buses, and in Australia, with EDL for mine trucks.

This all supports what we have been observing for some time, now. Namely, that international pressures on oil supply and increasing oil prices -- along with the drive for environmental security -- are creating new economic advantages and opportunities for natural gas engines and vehicles.

Last week’s landmark decision by the Greater Vancouver Transportation Authority -- TransLink -- to turn away from a diesel path and focus on natural gas transit engines for their future -- is just the latest signal of the growing position and viability of natural-gas engines in the transportation sector.

All these forces are supporting and adding momentum to Westport programs. And they in fact provided the platform for another strong quarter of Westport financial results that we’ve reported.

We took another 35 percent bite out of our first-quarter cash burn, compared to a year ago. Remember, that is on top of the 46 improvement recently reported for the full fiscal year ’05, over the prior year. And all without sacrificing our preeminent global technology leadership position.

We very much look forward to talking with you in the coming quarters, as our new initiatives materialize into full-scale Westport commercial programs -- building added value for Westport shareholders, and creating a global commercial enterprise that we can all be proud of.

With that, I’d like to turn it back to Barbara, and open it up for questions from the conference call participants.

Thank you, Mike. We have now completed the formal remarks of the call and are ready to take any questions that you might have. Operator? Could you please queue any questions?

Thank you. The floor is now open for questions. If you have a question, please press *1 on your touchtone phone, at this time. If at any point your question is answered, you may remove yourself from queue by pressing the # key. Questions will be taken in the order they are received. If you [inaudible] you pose your question, would you please pick up your handset, to provide optimum sound quality? Please hold while we poll for questions.

Once again, if you do have a question, please press *1 at this time.

[Sara Alford, Kingsport] Capital.

Hi, guys. Just a couple of housekeeping things that I wanted to understand. Maybe, Elaine, you’re probably the one to answer a lot of this. But with respect to the jump in parts revenue, there was some change in terms of the parts list that you guys are using for CWI. Could you just elaborate on that a little bit more?

Good morning. If you remember, CWI [inaudible] annually and [inaudible] quarterly basis, as well -- but not this early. [inaudible] the parts list to make sure that’s current. That it reflects the parts for any new products that have been launched, recently. And to make sure that it’s complete and up-to-date.

In this current quarter, we did a more thorough review of that. We also changed the process that we [inaudible] that parts list. This [inaudible] brought in the definition of [inaudible] starting the definition of what’s on that list. Accordingly, that increased the revenue by about $500,000 or $600,000 for the quarter. Plus another $600,000 coming from the fact that it was effective January 1st.

Now, I’ve [inaudible] relatively quickly, given that it comes out in a bunch of other things that are going on this morning. But am I right? Did I read somewhere that in fact, the parts gross margin percentage was down? Or lower than maybe what I would’ve expected? I think in fact, that maybe [inaudible]

Is that something that… Is there anything there that we would assume would continue on a go-forward basis, as far as changes? Or is that just sort of a one-off situation that occurred in this quarter?

I think with the change in the parts list, you will see a change in the parts margin. It will still fluctuate from quarter-to-quarter. If you remember last year, parts margin averaged about 35-36 percent -- fairly consistently. But this year it was a broader list. I suspect you’ll see a few more [inaudible] than you did last year.

That helps. Then secondly, just with respect again to sort of financial questions. I’m looking at your AR, and I’m trying to… I’m assuming that a big chunk of that is government funding-related. I was just hoping you could clarify that for me.

Yes. It is government. In the news, I think [inaudible] about $4 million or something. [inaudible] million dollars was added government funding.

Okay.

Yes. So we collected about 1.7 of that just after June 30th.

Then I think that in essence, those are my financial-related questions -- except for one thing. Could you just refresh my memory, Elaine, as to how the flow of AR works with your sales and [inaudible] in the CWI joint venture? I’ve always understood that they would be managing that process. I just want to make sure that I’m still right on that, or whether or not that’s something that the CWI now manages with the various customers.

[inaudible] for managers. [inaudible] July. So that will be counted with [inaudible] et cetera. CWI is responsible for any [inaudible] where it has negotiated separate credit terms than they have with their customers. Most of the increase [inaudible] is financed by [inaudible]. There is some [inaudible] CWI, but I would say it’s mostly government funding.

Then just with respect to [inaudible] guys in the plant, on the stock. I guess it’s fairly typical. But obviously, I would continue to anticipate that we’re going to see some fairly substantial variability on engine shipments from quarter-to-quarter. It sounds to me like you guys have made really good progress, with respect to some of your OEM relationships. But all of that is broadening the markets. You are in a broadening.

Then in the absence of being provided with a backlog, can you give maybe a little bit more comment on whether or not you guys are feeling that you’re seeing greater visibility in terms of the building of the market. You’ve already provided some good commentary on that. I’m just wondering whether or not internally you’re feeling more confident with your ability to forecast the header budget for… Not necessarily on a quarter-by-quarter basis, but really in the short term for the long-term. Do you see or can you give more evidence of seeing that momentum build, as far as momentum on orders?

Sara -- this is Guan, from CWI. Definitely, we are building a very good relationship with our OEMs. And our OEM base has increased. But in terms of what we are seeing here in the planning or the backlog -- this is really [inaudible] something that they would like to keep [inaudible] internally.

Then if I were to look forward, I would say that the prospect, in terms of what CWI’s feel for revenue’s future will be -- it’s going to be bright. Because we are [inaudible]

There are really three key initiatives that we are doing, and this has been proceeding very, very well. The next thing that we are doing is to increase our customer base. Our OEM base. So this [year] has been really doing very well for CWI.

Then the next thing is that we have seen the oil prices increase toward $60 -- or over $60. That helps to [inaudible] the conservation of using natural gas engines in a lot of our public transit market, as well as [inaudible] markets.

Yes. That’s good. Thanks. You mentioned some expansion to new market segments, and you touched on forklifts. I’m curious as to whether or not you can elaborate a little bit on that.

What I can tell you is that the OEMs… I would say that [Sunoco] -- they are launching the product. And I believe that on their website, they have already done a lot of promotion related to helping to get engines that are supplying this OEM. So that’s all I can tell you. And they have been doing a lot of various promotions. And the Company’s reception has been pretty good. That’s what I understand from the [other] OEMs.

Okay. That’s great. Thanks a lot.

Matt Wale, [Step] Securities.

Guan, I was just wondering. How can you characterize the activities in China? I think we were expecting some sort of local assembly in mid-’05. Are we now seeing shipments out of those local facilities?

[inaudible] but we -- I think the license agreement with our Cummins joint venture… This is going to happen in early August. So we need to get this license agreement done. Then the localization will begin. What it means is that the launch of the localized engine -- the physical engine -- will start sometime in 2006.

That’s calendar 2006?

Yes. Calendar year 2006.

Does that change, at all? I guess your calendar ’05 goal for 1,500 units -- so far, you’re half-way there. It looks like that’s still your goal?

The [inaudible] what is really the revenue that’s really being generated by CWI. If you look at the revenue itself, the after-market parts revenue has been coming up. And our engine volume, yes, is coming up. But what I’m really focusing on is the [inter] revenue. Because the international business is going to be focused heavily from a 2006 [inaudible] -- as you can see. Most of the initiatives come from international business in the future.

So I shouldn’t be expecting that 1,500 number, then?

Yes.

Just watch the revenue.

Yes.

In terms of the gross margin, how steady? Despite the shift to the [O-Gas]? Should we see the mix impact in gross margin, at all?

That is right. Take, for example, in terms of [inaudible] the B engine [inaudible] the L engine. Obviously, we are looking at it when we sell the L engine. It’s probably going to bring in a little bit higher price, compared to the B engine. Obviously, it will impact our gross margin a little bit more. So, yes -- you are right.

Then also, the other thing is that I see in different markets, we do have some [devaluations] in terms of margin. So I would really say that yes, the L engine will probably have a better margin, compared to the B engines, for example.

So what was going on then, this quarter? Because you did ship more with a shift to L gas. Right? Was there a foreign exchange effect?

Matt, it’s Elaine, here.

On a gross margin, you shift the increase in gross dollars margin -- where you’re going from a [inaudible] just to be [inaudible] margin’s already a little bit better.

[inaudible] it will vary -- depending on the customers and where they’re going -- et cetera.

So it’s more because of the parts revenue?

It’s mostly the parts revenue. Yes. Parts [inaudible] 35 percent last year to about [47] percent this year. So [inaudible] 6 percent this year.

That level, though, of revenue from parts -- we should be expecting that as a new sort of base?

Chances are, you may see just the data [inaudible]. So in terms of [inaudible] inclusive [inaudible] it will vary from quarter-to-quarter, though.

Also, Elaine -- what sort of covenant condition do you have on the long-term debt, and the demand installment [inaudible]?

We do have some covenant positions with our bank. They’re secured by cash, primarily. There’s also some other working capital relationships [inaudible] but [inaudible] model with your general collateral and [inaudible] mainly backed with cash.

Our [scenario] really starts with a few million dollars.

I think you have another, on the debt line. There are other… I guess there’s not a note associated with it. Right? Just… Long-term debt and other long-term obligations… Another 1.48. That’s just like a bank loan?

There’s room for [inaudible] that line [inaudible] is a [inaudible] that’s in a [inaudible] that we took in Germany. And it passes that [inaudible] that line [inaudible]

And there are capital leases, as well.

Stock-based compensation was up about 600 percent. Is this a level we should be expecting to see going forward? Or is this some one-time issue?

If the issue happened in the quarter and if it’s consistent with our expense last year -- just the [inaudible] would be different.

Then, Michael.

There was a significant component, Matt. This is Mike. [inaudible] one-time option [strength]. To answer the one-time part of your question.

Was that sort of related to year-end?

It was the timing -- it was shortly after year-end. So in that sense, it was somewhat related, in that we do year-end annual compensation reviews. But it was related to the fact that the options pool had become very significant in terms of available options. The fact that we felt… We hadn’t done a one-time options grant for our employees, and over half of these options went to staff. But we hadn’t done a one-time options grant for employees in years. We felt it was a very good time to incentivize the staff, now that we’ve got Westport moving forward on a number of fronts -- over the long-term, to boost retention incentives and to boost enthusiasm.

Just the last thing, Michael. On the Isuzu. It sounds like they want to continue sort of on the development program, another 18 months. I guess that we should just read into that, that a commercial deal is unlikely that that’s imminent in that sort of 18-month period?

It’s tough to say how well that will all play out. Because we’re in early stages of discussion, Matt. But I think we would expect some fairly… This fiscal year coming up is around the 18-month technical program -- development program funding for us. Keeping options open for commercial commitments. So as I say, we’ll be coding the development for a commercial configuration of the ELF. So keep the commercial commitment options open.

But I think they will let that evolve and just kind of track the development progress -- the market opportunity and price of oil and the environmental regs. Keeping it open -- the time when they would actually look to do the commercial commitment, which is difficult to predict, I would say.

That’s all I have. Thank you.

[inaudible], Raymond James.

Good morning, ladies and gentlemen. Couple of things here, I wanted to go over. One is the Clean Energy that’s not been mentioned in the last little while. And the infrastructure there and the growth in various parts of the world. To give us a sort of flavor of the availability of fueling.

Is that it, [Bob]?

Well, that’s one.

Do you want to give the full list? Or do you want us to just go one-by-one?

There’s no mention of the [Beamer] type of operation. And on the OEM -- on the operations in China and India -- are you margins the same as they are, currently? Will they be?

That’s 3. About the Clean Energy, I’ll let Mike do BMW and Ford, and we’ll go back to Guan on the China-India margins.

Clean Energy’s a private company. So they don’t disclose financials. And because we’re down now on the order of 10 percent, we don’t disclose it, either. We just account for it on a cost basis.

That said, if you go to the Clean Energy website, which I think is CleanEnergyFuels.com, you’ll see pretty much everything you need on their growth. They have very healthy growth in their business. Particularly on the LNG side. They’re continuing to see strong demand from their large fleet customers, and they are, of course, finished commissioning of new stations in Boston, with the Boston delivery, last year. So that business is very healthy.

I think we might have mentioned before that Clean Energy’s growth will be in LNG, and they’re building a large LNG facility in California. That’s planned to be on-stream next year, to provide increased supply of energy to meet the rapid growth in demand.

That business has gone very well for us, and that model of working with a focused group of management to deliver fuel to customers, we think is very productive. That’s what we’re trying to replicate around the world. Whether or not we have an equity interest in those infrastructure partners. But certainly in China, in Europe, in South America -- we need to have that kind of presence.

Clean Energy, of course, is in Canada. And Clean Energy will be working with TransLink, we understand, to develop their infrastructure for their new natural gas buses. So most of this has gone very well, though we don't show it in our financial statements -- because we’re down to a 10 percent.

Mike -- you want to comment on [hydrogen, now]?

Yes. [inaudible] just part of that question, David, was the… You had just mentioned Europe, et cetera. What is the growth in the building up of infrastructure in other parts of the world? Whether it’s not X-Clean Energy, but other people you’re seeing? Trying to get relationships going. For instance, did Germany not announce 100 on the autobahn, et cetera? 100 stations?

Well, it’s actually more than 1,000.

It’s very rapid growth in countries that are building natural gas vehicle populations. I’m happy to send you links on this. It’s not hard to find on the web, Bob. So we don’t see any barriers. I guess that’s the bottom line. We don’t see any barrier to the growth of our business in these [inaudible] We’re also seeing, as I think you know, Bob, a tremendous expansion of developing LNG infrastructure, here. You and Dave talked about stations. But the LNG import infrastructure is really experiencing phenomenal growth in several countries around the world, right now. Top of the list probably being China and the US. So that’s something we’re tracking very closely.

On the hydrogen front, you asked about the BMW program. So just to mention that our hydrogen injector and hydrogen engine R&D programs are still active with both BMW and Ford. In fact, those are the material amounts. But that’s the most [inaudible] on the Ford program. The different alliance [inaudible] couple of weeks with an additional $50,000 purchase order signed with Ford, to expand the program slightly around the issue of coatings for hydrogen injectors. And we are talking with Ford about possibilities of the longer-term program, there -- and how we might boost that up with the appropriate funding partners.

BMW -- Italy is to move along with leadership out of our Dortmund, Germany technology operation. BMW’s been pleased with the performance results coming out of that program over the summer. We’re now talking with them about how best to finalize conclusions from that piece of work, and move forward into the fall and winter phase of the program.

For your good other question that you [inaudible] India and China. Where the margin could be the same as North America. [inaudible] will be a no. Definitely, the margin will be lower than what we have seen. But the most-important thing in localization in China and India is the bigger volume.

I can really quote you examples. Like [inaudible] my site -- they are asking for 6,000 units. And [inaudible] slightly lower price natural gas engine. Therefore, some of the diesel engine manufacturers in China product 120,000 to 150,000 engines a year in diesel engines. So if we are really looking at operations in India and China, we are really wanting to go for the volume. That is really very important, in terms of growing the revenue.

Thank you very much.

Thank you. At this moment, we have no further questions. I would like to turn the floor back over to Barbara Barry [inaudible]

Thank you. Thank you, everyone, for taking the time to listen to our conference call, today. As is our policy and our practice, it’s taken questions from our analysts and our institutional investors. If anyone else has questions or requires additional information, we ask that you give us a call, or contact our IR department at Invest@Westport.com.

We hope to see you and hear from you at our next conference call, which we expect to be in October, with the disclosure of our 2nd quarter results for fiscal 2006.

Goodbye, everyone -- and have a great day.

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time, and have a wonderful day.