Westport Fuel Systems Inc (WPRT) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Natasha and I will be your conference facilitator today. At this time I would like to welcome everyone to the Westport Fiscal 2007 First Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS]. Thank you.

It is now my pleasure to turn the floor over to your host, Ryan Thompson, Multimedia Manager. Sir, you may begin your conference.

Thank you and good morning. Welcome to our first quarter conference call for fiscal 2007. It is being held to coincide with the disclosure of our financial results. For those who haven't seen the release and the financial statements yet, they can found on Westport's website at www.westport.com.

The first part of this call will involve the prepared statements read by Westport's Chief Executive Officer, David Demers. After David's introduction and summary; Elaine Wong, Westport's Chief Financial Officer, will discuss the company's financials. We will then conclude with Dr. Michael Gallagher, Westport's President and Chief Operating Officer, who will speak to Westport's development programs and operations.

Attendance at this call is open to the public and to media. For the sake of brevity we are restricting questions to analysts and institutional investors. Please identify yourself by name and company when asking questions. For anyone else who has questions or requires additional information, we would ask that you contact our Investor Relations department via email at invest@westport.com, or by telephone at 604-718-2046.

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

Now I will turn the call over to David Demers, Westport's Chief Executive Officer. David.

Thanks Ryan, and good morning everyone. Our fiscal 2007 is off to a strong start and we are expecting strong growth for the rest of the year. In a few minutes -- I am going to be very brief this morning; I will turn this over to Elaine for her review of the quarter, and a discussion of the financial developments over the past few weeks. And then Mike will close the formal program with his assessment of the market opportunities and he will comment on how our recent announcement fit into the operating plan for this year and next.

But, as you've seen recently, major elements for our strategic plan are now falling into place. First, Cummins Westport continues to deliver good financial results, with growing market success around the world. Gross margins are strong, they have been improving. Costs are being well managed, and as a result, we continue to post profitable quarters and have increasing profitability. Our products are reliable, they perform well for our customers and they are increasingly seen as the global benchmark in our market segments.

Cummins Westport's mission this year is to exploit the strong market conditions for natural gas vehicles that have emerged with the rapid rise in oil prices. We expect strong profitable growth this year out of this unit.

Second, we've reached key milestones in the development of our product supply chain with recent agreements with BTIC in China and Cryostar in Europe. In both cases, these deals began as search for reliable cost competitive players for key natural gas vehicle components for our business, LNG tanks and fuel pumps in these two cases. They have both evolved into broader alliances. In the case of BTIC, a full-blown global joint venture company with 50-50 ownership, our first formal joint venture in China. We expect both of these new alliances will deliver incremental revenue towards this fiscal year, and also position us for strong business in the coming years.

Aside from this though, we've also developed what we expect will be global cost and quality leadership in critical components for our heavy-duty vehicle business. With these two deals, we will be positioned to deliver better vehicles to our customers with higher performance, lower cost and better product integration that's been -- than has been seen in the market so far. I'll let Mike give you little more details on that strategy, but I'll move on.

The third, we're focusing on three substantial new market opportunities, we have been doing this for sometime; heavy-duty trucks in North America, in Australia and China; off-road mining vehicles, focusing on Australia to start; and finally, small city trucks in partnership with Isuzu. In each case, this isn't just product development; we need to invest in the long-term development of the market as well, sort of, in parallel on these two fronts. We need to have favorable market conditions developed that support fleet customers in successfully implementing that to get vehicles in their operation. And then secondly, of course, we have to have the right product. We need to have the vehicles that those fleets want to buy, and this has to happen in parallel, neither one can happen without the other.

This has taken our time and effort, but we are making progress and we're developing good momentum in some very large markets. We worked hard to develop strategic relationship in our key markets with governments, energy suppliers and vehicle manufacturers, including our associated supply and distribution partners, so that we can achieve the critical mass we need in each of these target markets. Of course, the most exciting news over the past few weeks has been our announcement of commercial shipment of HPDI heavy-duty trucks in California, where all of these factors are coming together nicely. But I will leave that story to Mike as well.

The fourth strategic element is to build a solid financial foundation around our strategic plan for these opportunities. Over the past few weeks you have seen us complete our strategic investment program with Perseus out of Washington, and we announced the second important financial transaction with Matco of Calgary.

I said this many times before, but I think we have to constantly keep this in the front of our minds. Natural gas [technical difficulty] are still a tiny niche markets around the world. Although we are drilling one, we have seen strong evidence that this could be a very large opportunity. Still, we have to continue our work to develop and educate our target markets with our partners. We have to work hard to reduce the overall life cycle costs and to increase the overall solution benefits for our end customers in each of these key markets. We have to do this despite the challenge of having small production volumes and limited market reach.

But as you look back, it's clearly made considerable progress, concern about environmental pollution and climate change has never been higher, and our benefits in this area, are really incontestable and really has very little competition accounts for the same type of benefits. With sustained high oil prices being consistently expected now in the market, we can demonstrate strong economic benefits to more and more customers around the world, and as we work to develop higher global production volumes and to reduce our production costs, we expect it will be helped further by the fact that conventional diesel vehicles are going to see significant cost increases as they comply with the tough global emission standards and with the new low sulfur diesel fuel that we are going to see in the market in the period to come. So, the gap we think is going to widen in our favor over the next few years and that's going to help us do very well.

Now, we are pleased with our progress this quarter. We think there is evidence that we are on the right track again, and our position has never been stronger as we look ahead. We are pursuing many opportunities that are open only to Westport, because of our unique technologies, our alliances and our market position, and we are expecting a good year.

So, over to Elaine, who will take you through the financials.

Thanks David, and good morning everyone. The press release, financial statement and the management discussion analysis issued today provide a considerable amount of detail regarding our financial results. They are posted on our website, if you have not had chance to see that, I'll review them. Today I will focus on some of the key highlights from our first quarter and how they fit into our longer term plans.

As noted in our annual report, our goals are to; one, continued profitable growth in CWI; two, launch our first heavy-duty truck; and three, develop existing and new partnership to increase revenues globally.

In the first quarter of fiscal 2007, CWI posted revenues of $10.6 million and $1.5 million in net earnings, its seventh consecutive profitable quarter. We share 50% of those earnings with Cummins, Inc., our joint venture partner.

Importantly, CWI's ability to leverage existing Cummins manufacturing and distribution channel means that CWI can accommodate significant growth in revenues and gross margins without adding incremental cost. For example, CWI's revenues grew from $33 million in fiscal 2005 to $42 million in fiscal 2006, but total operating expenses increased by less than $0.5 million, resulting in $3 million earnings improvement.

With CWI revenues having grown by over $0.26 on an annual compounded basis over the last three years, a raise which would take CWI to [$60] million this current fiscal year, we would expect to see most of the incremental margin drop to the bottom line.

CWI's gross margins in the quarter improved significantly from $2.7 million to $4 million, despite revenues being flat in the first quarter compared to the same period last year. Overall, revenues in US dollar terms were up 12%, but were offset by the 11% decline in the US dollar against the Canadian dollar. As cost of goods sold and warranty are also US dollar denominator, the impact of the weakening US dollar is less pronounced on a gross margin basis. In addition, gross margins improved due to better product quality, lower warranty accruals and product mix.

CWI revenues and operating costs will vary from quarter-to-quarter, and are also primarily US dollar dominated. On an overall basis, operating expenses, consisting of R&D and SG&A, were relatively unchanged at $2.7 million for the current quarter versus $2.5 million in the same period of the prior year.

On the Westport side, we continue to invest in strategic markets and product development programs based on the priority analysis in our strategic plan. Mike will speak further to our global heavy-duty truck programs, our Australian mining truck program, our programs with Isuzu and our China initiative.

Basically, our strategic plan calls for us to develop a number of alliances, partnerships and supply relationships in order to achieve commercial success in each of our major programs, sharing both the risks and rewards with our partners and with governments. As much as we can, we leverage the government's funding program and ask our partners to invest with us in both markets and product development expenses.

Our research and development expenses, net of government's funding, for three months ended June 30, 2006, were $6 million compared to $4.9 million for the same period last year. Excluding the effects of $1.3 million stock-based compensation expense in last results year's result, quarter-over-quarter we increased our growth spending by $1.1 million. This was primarily the result of higher research and development spending for heavy-duty on engine, off-engine systems such as the LNG tank and pump in preparation for licensing and commercial production, timing of spending and [inaudible] accrual for TPC royalty payment.

This coincided with the decrease in government funding, with the formal expiration of the technology partnership account to funding agreement and the substantial completion of the South Coast and NREL funded heavy-duty 1.2 gram project. We also accrued $300,000 TPC royalty payment.

Under the terms of its current contribution agreement, TPC is entitled to 0.33% of our consolidated revenues with a minimum payment of $1.35 million annually on March 31 for fiscal 2007 through to fiscal 2013 inclusive. They are also entitled to $4 million in warrants to be issued September 30, 2006.

Although the TPC agreement expired on March 31, 2006, the company and TPC are in discussions to extend the agreement, including the royalty payment terms by two years to complete the original [scrub works]. Westport continues to make claims to TPC while discussions are underway and may in a future period be in a position to recognize those claims if both parties agree to an extension.

Over the course of the year though, we expect that we will catch up with government and partner spending end of the year as overall lower level investments in this quarter indicate. As Mike will speak to you in a few minutes, we do continue to invest in getting our heavy-duty program production ready. We expect to see a near-term return on that investment with the first HPDI shipping over the next few months.

Our consolidated revenues were $10.6 million for the quarter, compared to $10.5 million this quarter last year, almost all of that revenue which was CWI. Going forward, we expect the new revenue streams from delivering heavy-duty trucks from selling CWI tanks. Our net loss for the period was $5.4 million, down from $6.2 million this period last year, primarily from higher gross margins, and lower depreciation and amortization.

Cash used in operations before changes in working capital increased to $3.7 million compared to $3 million to the same period last year, with TPC accounting for most of the change. Like last year, we expect our cash [print to evolved] from quarter-to-quarter as our cash usage for the full year to be better than last year's assuming no new investment programs.

Our cash position itself has substantially improved. As discussed in the last call, during the quarter we completed two separate transactions to position ourselves for the commercialization of our products in key markets around the world and for working capital purposes. We secured strategic investments from Perseus, LLC, and announcing a non-dilutive reorganization or partial sale of one of our subsidiaries, Westport Research Inc. to Matco Capital thereby improving our cash, access to cash and working capital position by over $32 million.

We received $5.5 million from Perseus before June 30, 2006. The convertible note has been bifurcated on our balance sheet between debt and equity as required under Canadian generally accepted accounting principles, with $0.5 million allocated to warrants and $6.1 million allocated to the conversion option. These amounts are included in other equity instruments under shareholders equity. The balance of $2.9 million is shown as long-term debt.

The long-term debt portion of the loan will be increased to the face value using effective interest methods. For the first two years at least, interest is a non-cash expense, payable in further notes of common shares at the then market price. We have the option after two years to pay in cash, shares or notes.

We further received $8.3 million from Perseus on July 14, 2006. This amount will be accounted for on our next quarter's financial statement in a similar manner. With shareholder approval received at the July AGM, Perseus has the option to fill a final tranche of roughly $8 million to us before January 16, 2007, and we have the option, if we reach certain business milestones, of calling this cash before that date. Provision of this tranche is $1.40 per share.

On the Matco transaction, we have substantially completed our reorganization, are in the process of finalizing the necessary documentation primarily around the non-recourse trust facility for minimum $7 million. We expect to receive $4 million in cash from that closing, which we expect in the next several days.

We are pleased to have strengthened our balance sheet and best positioned ourselves for the growth ahead. We are making steady progress and continue to clearly manage our expenses, while pursuing the very large opportunities for us.

I will now pass the call over to Mike.

Thank you, Elaine, and good morning everyone. As David mentioned, the past quarter has been very busy at Westport. I want to share with you this morning some of the operational highlights and achievements over the past few months. I will first start with our heavy-duty LNG truck program.

On the last call, I provided an update on the CARB and EPA certification of the Westport HPDI ISX platform for '06 deployment, and the early interest we had received from some prospective customers. I am happy to say that client interest is beginning to translate into Westport sales, and the list of interested customers is growing. And in fact, we will begin the shipping of the first commercial HPDI LNG trucks to customers this month in August. And with this opportunity and focus, we've been spending a lot of time ensuring that we receive the available orders, and preparing to deliver product into the growing demand [which] has meant talking to potential customers and partners, developing our commercial rollout strategies, and putting our supply chain and component partners in place to deliver the product in a timely manner.

One of the many important components of the HPDI system is the LNG fuel tank. It is a sophisticated piece of equipment, in which the cryogenic LNG is stored on the vehicle. Westport has over the past several years developed a proprietary tank system that allows for reliable storage of LNG on the truck. This tank experience have seen a lot of on-road experience and performed under harsh operating conditions. We feel we've developed a product that is second to none.

As you know, two weeks ago, we formed a joint venture company with Asia's largest supplier of high-pressure cylinders. BTIC Westport will manufacture Westport designed tanks in the new cryogenic plant located in Beijing, and supply all HPDI vehicle systems in the future. Importantly, BTIC Westport will also supply LNG tanks for non-HPDI applications, such as spark-ignited engines for which there is also a fast growing demand. Establishing this 50-50 JV allows Westport to ensure high quality and reliable supply of cost effective LNG tanks for our HPDI customers, while also creating our second joint venture company to capture more of the financial rewards of LNG fueled transportation growth.

Another important component that is integral to HPDI is the onboard LNG fuel pumps. As a reminder, these pumps are necessary to deliver natural gas at high pressure to the engine. We have invested considerable time and resources in ensuring a robust design for the pumps, and we have now also formed an exclusive license and supply agreement with Cryostar SAS of France, a division of BOC.

Cryostar has been in business for over 40 years and is a global leader in cryogenic pump products. They posses the expertise and capacity to ensure a reliable and cost effective supply of LNG pumps for our expected HPDI demand.

And in addition to these supply and joint venture agreements that we have announced, we have also made a lot of progress with key partners in the supply of LNG trucks. As you know, we have a long standing relationship with Cummins, both through Cummins Westport and our HPDI technology partnership agreement, and they continue to be supportive also. And, in fact, Cummins Cal Pacific and Irvine, California, has been particularly active with us recently.

We've also been establishing relationships with key OEM truck chassis manufacturers to ensure an adequate supply of new vehicles on which to install our systems. Our heavy-duty truck team is now finalizing arrangements for support and installation infrastructure in our launch market, which is Southern California. And relating to Southern California, there have been some very exciting developments with the ports of Lost Angeles and Long Beach, also known collectively as the San Pedro Bay Ports.

On June 28, just over a month ago, they issued their awaited joint Clean Air Action Plan, a comprehensive five-year plan aimed at significantly reducing the air pollution emissions from port related activities including trucks, ships, trains, terminal equipment and harbor craft. This plan included specific actions and examples related to significantly reducing the emissions of the approximately 41,000 trucks that service the two ports, with the focus on those trucks traveling in and out of the ports most frequently.

Let me just say that this initiative, which also has the full support of the South Coast AQMD, is very important to Westport. It could act as a major catalyst to jumpstarting HPDI commercial market penetration. We are now expecting to see a request for proposals, or RFP, for up to a 125 heavy-duty LNG trucks in the next few weeks, which we plan to respond to along with fleets and LNG fuel providers.

This initial commercial deployment could see HPDI trucks delivered to some of the major fleet operators at the ports, and would provide us with an opportunity to showcase the product in a very high profile manner and make some significant revenue and gross margin for Westport. Everyone in our heavy-duty vehicle group here at Westport is involved in capitalizing on this opportunity and making this program a success.

Regarding Australia and our mine truck program, we are now on detailed contract negotiations targeted at completing a development and commercial agreement with Energy Developments Limited of Brisbane. We have been at these discussions, as you know, for a while now, and we believe the rewards of opening up this new market and geographic opportunity with a funded development program, merit the hard work now involved in establishing this upfront partnership and the program business agreement.

At Isuzu, our focus now is on completing this year's technical program, while advancing to a commercial relationship. Isuzu has told us that they are preserving their option to deliver a CNG DIS truck in the 2008-09 period, and we continue to deliver improvements in performance fuel economy and emission. We feel that we are at a point in the relationship where a formal commercial relationship makes a lot of sense and is the logical next step.

Finally, regarding our business development efforts in China, things are beginning to heat up. With the formal opening of the first LNG receiving terminal in Shenzhen in June, we have seen a heightened level of interest around our products and their application. And just this week, the China National Offshore Oil Company, CNOOC, announced that it has made substantial progress in securing LNG supply for its five plant LNG import terminals. It's our goal to establish commercial relationships with the key fuel infrastructure companies and engine manufactures, much as we have done here in North America. The pace of economic growth in China continues to be astounding, so you can expect much to happen there in the future for Westport.

So, in summary, although we have been very busy, we expect the things will get even busier soon. Scaling up to deliver commercial HPDI products is the opportunity Westport has been building and working towards for many years. We think our time is now. Capitalizing on our opportunity and execution of the challenge will be no small feat we realize, and it will involve a lot of complex business arrangements as well as our software logistic support system. We plan and are absolutely committed to delivering vehicles to our customers that are reliable, efficient and cost effective, and also a much improved environmental footprint, as well as significant fuel cost savings. Our company is ready for this opportunity and this challenge, and I'm confident of our ability to deliver this and more.

I will now pass the call back to Ryan who will open it up to your questions.

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

[OPERATOR INSTRUCTIONS]. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Tom Astle of National Bank Financial.

Hey, good morning guys.

Hey Tom.

Mike, first of all a quick question on the -- you are planning to gear up to deliver 100 to 125 of the HPDI trucks as you said in the press release. Can you sort of clarify, [you said] there are RSPs coming up in the next few weeks, and then you [often bid] on those and then close back and then deliver the product, is that correct?

Yeah, that's correct. The ports are expecting to issue a joint request for a proposal in the next few weeks. We'll have to look at the details of that and go through just exactly what kinds of responses are they looking for. But our expectation is that we will be working with fleet owners, put together responses from -- with the host fleet they would be looking to operate those trucks. And we should also add that, we are also pursuing some prospects for truck sales outside of the port in addition to that specific large block that the port is looking towards.

Okay. Every time I look at that statement, looks like I should include in my model 100 to 125 trucks sold in the next couple of quarters, is that [reasonable]?

The timing is a little tough to predict, but over the next several months that's kind of what we are gearing up to be, in position to produce, I would say that's not unreasonable.

Okay. I'll watch that. And my next question was on the R&D line, which obviously [camped up], can you just give us an idea what money is being spent on? And I think you also talked about this carrying up, but now I assume that most of your technology is pretty commercial at this point, so it is a little surprising to see that climbing. What -- the question is, where does it go from here, the R&D line?

You want to start with that, Elaine, or you want me to? I can jump on the technical side and next we can have some --

One of the big jump was that TPC expired at the end of March.

Yeah, I saw that. But even excluding that it was still --

And so TPC were [inaudible] 0.5 million to $600,000 per quarter in TPC, and so that was the, I guess, portion of that. The other large project that recently -- we also had couple of other large projects that recently completed, excluding the 401 [penetration] project along the Ontario Highway, and also 1.2 gram project with NREL in South Coast, and so we lost quite a bit of governments funding associated with that. The 1.2 gram work was geared towards commercializing and making sure our products were production ready, so in meeting commercial requirements etcetera, so there is still a little of that going on. We also have some R&D that we are investing in for future products as well, so that's why you'll see the line jump in both. Going forward we expect to get back some of our government funding, and we also expect we will cover some of that with margin from [other] sale of products as well.

[I was looking] at your numbers [inaudible] of R&D, I mean, you have full control over these lines, so you must have an idea where it will be in the next couple of quarters?

I think in the next couple of quarters, the price will remain about the same level and may be comeback down towards the later half of the year.

[Multiple speakers] 6 million or so and then coming down a bit.

I think a lot will depend on when we can, what happens with TPC and what quarter we reach a conclusion on that, and also how quickly we're able to ramp up some of the other funding issues we have underway.

Okay, that's good. And this maybe, David, last question for you to -- need an update on Clean Energy, any news there that you can share with us?

Well, as you know, Tom, it is a private company and they don't publicize financials. I think you should expect that -- if you go and look at their website, they have had lots of news recently. They are picking up new stations, picking up new customers. So, its current price differential between natural gas and diesel fuel in the United States, market conditions are good, so I guess that's all we can say. They are a strong partner for us, clearly they have been critical to us moving into the port, we are partnering with them to develop LNG infrastructure there. So, I think life is good on both fronts.

That's great, thanks.

Thanks Tom.

Your next question comes from [Bob Wallace] of Raymond James.

Hi, Elaine and guys.

Hi, Bob.

The question I have is basically on the production of these 120-100 approximately HPDIs, would they be updated at the end or on the production line or somewhere in between?

This is Mike, Bob. The plan on the first orders is for us Westport to manage the installation of the LNG fuel and component systems, [at so] at the end, the near phase. So diesel trucks will be produced initially as diesel, then they will come to us for upfitting the LNG systems, and we will probably use in our negotiations of these, the Cummins distribution system to actually perform those upfits in Southern California.

Has there been any subsequent orders, assuming that you will get some more size orders, is there a cost reduction then in future?

Yeah, we would expect cost reductions and related price reductions as the volumes ramp up in the future. So, as we go from 100 or so over the next several months, presumably few hundred and thousands and more, coming months and quarters, we would expect the cost targets to come down and the prices come down somewhat as the volume grows.

So, it could be done basically at the manufacturer level and not at the end of the upfitting?

Well, that is kind of a separate question to the degree. Once the volumes get quite large, we would be looking to go into some kind of more formal manufacturing approach, which would add even further cost reductions.

Would you margins remain the same?

The margins will be kind of decided as we go. We wouldn't expect -- I don't expect any slippage in those markets though over time.

You've mentioned in here the potential, the size of the market being 41,000 heavy-duty trucks servicing both ports. Do you have any guesstimate over the next four to five years, what you might be able to penetrate selling 41,000 trucks?

I will just close the port, I guess, rather than trying to figure it out independently. But the port has said, they are going to focus on -- they kind of referred to in my remarks, those trucks out of those 41,000 that they will go back and forth the most often and it has highlighted something in the order of 15,000 or so of that group of trucks that are frequent users of the ports. And then within that they got a bunch of scenarios, Bob, kind of different ways they can go. But they have talked about as many as 5,000 LNG trucks being part of the next -- over the next five years, if they can get all their [dots] in a row.

This is pre-1990s, I believe, is the one they are targeting, are they not?

They are starting with the oldest ones first, but they are also focusing on the ones that are the most frequent users of the port. So, some of the older ones that don't go back and forth that much, they won't worry as much about.

So, it might be frequent users, and I am just throwing this out, [Baskins], Safeway, Wal-Mart, that type of client.

Well, the large fleet, so they tend to be the guys going in and out of the port, so the larger fleets, yeah.

Okay. Back to change -- you said David on the Clean Energy, it was said in a press release that -- [to Boone] that they expected to go on IPO in October of this year. Do you expect to participate in that in any way?

Well, I can't -- I can't put words into [Boone's] mouth -- I mean, if he has made that comment, that's fine. I guess, we can't really predict what's going to go on Clean Energy business. We are a small shareholder, as you know, but we have said in the past that we wanted to kick-start that business. We started Clean Energy, I guess, it's almost six years ago now, in a joint venture with Terasen, and you have been long enough to remember that, that was originally 60-40 deal, where we were 40% of the business. But, as I said in my remarks, we have to develop in parallel. We can't sell vehicles without infrastructure and we need reliable infrastructure partners, and customers need to feel comfortable with reliability of access to fuel. And so, we felt, we needed a specialist fuel company and we went to Terasen with that business plan and that's worked out really well. And now, Clean Energy is now the largest fuel provider in North America for LNG and CNG.

What's the size of the stations that they build in the basin there?

I mean, they vary, some of them are public access, but the key part of the business plan that I think is being successful is building large private stations for private fleets. If you look at the fuel load, if you can imagine the fuel load on the average heavy-duty truck per year or buses, a fleet of 50 or 100 buses or trucks is a very large fuel load compared to what you or I are going to show up and put in our --

In your Volkswagen, right?

Yeah. So, it's a very different proposition to build private stations for large fleets.

So, these are card lock type of things?

Yeah, and we are on the, you know, in the case of bus fleet, typically everybody comes back at night to one yard and they refuel. So, that's been a really good business, but we haven't continued to invest in it, because as I said, we wanted to kick it off, and I' still sit on the Board and we've got lots of strategic relationship for this communication everyday between our people

But the point I am [trying] to get at is that basically, this is another asset that may provide you with funds on the road in order to propagate other thing?

Absolutely, we've been diluted down now to just about 6%, I think, is what we are showing of Clean Energy. As they continue to invest in their infrastructure, they've built a very substantial business. Obviously, we think they've done very well. We still hold that asset on our balance sheet at our original cost. So, I think, will be -- we wouldn't assume that it hasn't appreciated at all. I think that -- but the accounting rule requires the whole added cost. We don't see continuing reasons to invest in that business. We want to invest in products, big products and infrastructure. So if there was an [idea] we would likely sell part of that and reinvest it in product development or market development elsewhere.

But the -- when you bought it probably was 67, is now 88 or 88.5, so there must have been some accounting on that, is that correct, Elaine?

The way the accounting works is that we have to make sure that we carry our assets at a value that's not less than the fair value. So, this case is -- we have determined there is no permanence for us, and permanence in value and so we are able to carry out the 9.1 despite the decline in the US dollar.

Thank you. That's all question.

Thanks Rob.

Thank you.

There appears to be no further questions. I would like to turn the floor over to Ryan Thompson for any closing remarks.

Thank you very much everyone, for taking the time to listen to our conference call. We hope to see you at our next conference call, which we expect to be in late July with the disclosure of our first quarter results. No, it's going to be later than that, early November with our second quarter results of fiscal 2007. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.