Westport Fuel Systems Inc (WPRT) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Westport Innovations 2010 third quarter financial results conference call. Introducing the speakers today will be Mr. Darren Seed. Please note that this call will be recorded and is available on webcast. There will be a question-and-answer period at the end of the presentation. Please go ahead, Mr. Seed.

Thank you and good afternoon, everyone. Welcome to our third quarter conference call for fiscal 2010. It's being held to coincide with the disclosure of our financial results earlier this afternoon. For those who haven't seen the release and financial statements yet they can be found on Westport's website at Westport.com. Speaking on behalf of the company will be Westport's Chief Executive Officer David Demers, and Westport's Executive Vice-President and Chief Financial Officer Elaine Wong, and the President and Chief Operating Officer Mike Gallagher. Attendance on this call is open to the public and to media, but for sake of brevity we are restricting questions to analysts and institutional investors.

You are reminded that certain statements made on this conference call, and our responses to various questions, may constitute forward-looking statements within the meaning of US and applicable Canadian securities law and such forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements. Information contained in this conference call is subject to and qualified in its entirety by information contained in the Company's public filings. In acceptance required by applicable securities laws we do not have any intention or obligation to update forward-looking information after this conference call. You are cautioned not to place undue reliance on any forward-looking statements.

Now I'll turn the call over to David Demers.

Thanks, Darren, and good afternoon, everyone. As usual, I'm going to lead off with some comments about our strategic plan and the progress made this quarter and then I'll turn it over to Elaine to take you through the financial statements. As I'm sure you've seen, Mike has transitioned to a new job, but he is here with us, as well. I think he is going to be answering some questions. Although he doesn't have a formal statement he is going to make some closing remarks or something, I understand. So we'll see what Mike is up to.

So turning to the quarter, starting with top line revenue you can see that we returned to strong year-over-year growth. 42%, if you're looking in US dollars to US dollars. And although this is muted by foreign exchange effects when we translate to Canadian dollars, we're still showing 24% year-over-year growth which is certainly the strongest thing we've seen so far this year. Our most mature line of business, Cummins Westport, set another all time revenue and profit record this quarter. The last quarter we were able to tell you that was July to September 2008. Are we through with recessions now? Probably it is too early to say but at least we can say this is better news than we were seeing a year ago at this time.

Margins for the quarter were good, even without considering some of the one time positive adjustments. We saw demonstrated reductions in our warranty expenses which allowed some positive adjustments after our cautious stance earlier this year. But I'll leave these details for Elaine. On the heavy duty side of the business, we're completing our shipments to the port and to some of our Australian customers as we transition to the new 2010 GX product from North America which is based on the new Cummins ISX platform with integrated after treatment. During the quarter we shipped 40 heavy duty systems. We anticipate about the same number through contract to be delivered through April. As you may have seen, Cummins received certification of the diesel version of the ISX for 2010 in January. This now allowed us to proceed with our own certification applications. This process is always uncertain but we would hope to see formal certification from the EPA and CARB for our 2010 product before the end of April. Port customers, of course, are going to be able to take delivery of 2009 model year trucks until the end of April so shipments to those customers that are scheduled for early 2010 are unaffected by that emissions change.

Turning to third line of business, Juniper's light duty engine venture, of course, has had no impact on our revenue line yet but we did achieve some significant milestones this quarter and we're approaching first commercial production for first OEM customer, Clark. During the quarter we received EPA certification of the first Juniper engine and we completed some production readiness milestones. Of course, I've had high hopes for this business for some time, I've shared that with most of you. Of course, it is very early days, still pre revenue, but feedback from our early markets has been encouraging. We think many customers will find the value package offered by Juniper compelling. It's a fully engineered system based on advanced Hyundai passenger car engines that have been optimized for natural gas and propane operations, and we're doing this at a very competitive price performance package. Juniper expects to commence shipment from production facilities in Korea within the next few months.

As we look forward to Q4 for the current fiscal year and then beyond to fiscal 2011, as we suggested at the halfway point this fiscal year we thought the second half of fiscal '10 would show strength compared to the first half, and fiscal 2011 would see more robust growth. At this point we still think this is the correct stance although the pace of growth next year is still going to be dependent on a number of external factors, including a few game-changing events such as the NATGAS Act in the US. At this point, we believe Q4 will continue the strength shown in Q3 and full-year revenue for the fiscal year will show growth over fiscal 2009. Last quarter we were at about 12% behind the pace compared to the previous year. Today, essentially, we've caught up to fiscal '09, and although I don't anticipate reaching our usual historic double-digit growth rate this year, in the overall context of a market that has been off 30% to 50% we think growth even in single-digits is respectable.

Looking ahead, we're cautiously optimistic about sales growth in fiscal 2011 but it is clear we still have many challenges in the marketplace as well as internal milestones that we need to work through. We still see caution signals in many segments of the commercial vehicle market both off and on road. Even presuming better economic outlook and willing customers, we've seen credit problems continuing and indecisiveness in the face of such significant market uncertainty. On balance, then, we're continuing to grow our market share but deals take time to close. Even where significant assistance from government programs are available, some customers are continuing to jurisdiction shop for even better terms, or they're in wait and see mode with major incentives such as the NATGAS Act proposals on their radar screen.

Nevertheless we believe decision points are approaching and unless we see a significant negative event in the economy, we think sustainable growth should reemerge later in our next fiscal year. That said, CWI has several bright spots including global government stimulus spending on infrastructure such as buses and refuse trucks in North America in Europe, in India and in China, regional haul LNG trucks in North America, as well as strong bus opportunities continuing around the world, including some follow-up sales in India. CWI is also working hard on new products and new markets. Overall we expect stronger growth from CWI next year and continued profit leverage as we demonstrated this quarter.

The heavy duty business is pivoting with substantial completion of our work at the ports in Los Angeles and Long Beach. We still have trucks to ship and customers to support at the ports and there will be follow-up tenders next year we understand. But now we want to take the field and market experience that we've earned in Los Angeles and apply it to the much larger opportunity in North American long haul trucking. And we want to launch new products with partners like Volvo in Europe and Weichai in China. In North America we're working hard to develop blue corridors with LNG refueling infrastructure that will enable this long haul market to develop. This will be paced, of course, by the parallel development of commitments to LNG by long haul fleet operators as a corporate policy. This will all take time but the market opportunity is so large that even relatively slow penetration rates we believe make the effort worthwhile. Market dynamics are, of course, different in other parts of the world but we believe the lessons learned in North America will be transferable as we help build the commercial vehicle market in those regions with our new partners.

The first corridor to develop is likely going to connect Los Angeles, Las Vegas and Salt Lake City. And there are several other projects including the 401 highway connecting Montreal to Detroit and Canada which could also emerge next year. What we're looking for are anchor fleets that can help justify the investment needed to produce this LNG infrastructure, but once the infrastructure begins to develop we would anticipate that other fleets will join in.

Looking at our HD product line, the heavy duty product line, we're transitioning our GX heavy duty engine to a new platform for 2010 emissions compliance. Our 2010 engines will include all of the new features of the next generation Cummins engines, including SCR after treatment. The reasons are simple. We want to start with the latest generation Cummins systems as the base for our products, and we concluded that on balance keeping the new SCR systems will allow us to improve both fuel economy and performance while cutting tailpipe NOx emissions by 75% compared to 2009. Behind the scenes we've made substantial progress on supply chain issues for the 2010 GX product that will improve both cost and scalability of production. Since we first started shipping trucks at the port, for example, all-in prices including taxes have dropped by more than CAD30,000 per truck. We're approaching the 50% price reduction point since the introduction of the GX engine in 2007. We intend to continue to aggressively draw prices as we see improvements in our supply chain cost and as our field experience allows us to reduce warranty approval.

We have been asked why we want to drop prices in the face of potential government subsidies such as the NATGAS Act in the United States. Don't get me wrong, NATGAS Act incentives would truly be game changing and we're optimistic, in fact, that this policy action will be taken by the US government this year. Nevertheless, our intent is long term global market penetration. And that means our strategy must be to seek economic leadership against the incumbent which is diesel fuel in all of our markets around the world. With our new program at Volvo, with our program at Weichai, we want to see price at product introduction to be attractive in each potential market. So cost reduction remains an important initiative and we hope to see those benefits pass through to our end customers, although, of course, we don't necessarily set vehicle prices.

Our Volvo program is off to an excellent start with strong commitment by both teams to provide a world leading gas engine that will see large-scale adoption in markets around the world. We've not yet announced those markets or the product plans, in fact, that we intend to pursue for obvious competitive reasons. What I can tell you now is that the engineering work is well underway. Volvo engines have been operating on natural gas in our facilities for over a year and collaborative progress has been very successful in achieving our engineering goals. This year we will continue product and supply chain development work as we develop the market introduction and penetration plans with our partner at Volvo.

We have not disclosed the business model for Volvo yet for the simple reason that there are still several options. At this point we've committed to collaborate on development of Volvo brand LNG engines and related equipment. Hence our recent capital financing. Volvo has committed to collaborate on the program, open their supply chain and distribution channels up to this process, and to help mutually established market target volumes that would see our investment in this Volvo development program paid back to Westport.

As I told you last quarter despite the economic turmoil around us, or maybe because of it, we've never been busier. The idea of natural gas as a fuel for commercial vehicles isn't new but now that the idea of LNG as a fuel for trucks has been validated at the ports of Los Angeles and Long Beach, we're seeing the idea, and support for the idea has spread rapidly around the world and to other applications. High performance trucks built by the major manufacturers that use a clean cheap fuel is going to get attention at a time when major concern in the industry is fuel price and fuel price volatility. It doesn't, of course, mean that we can expect instant market acceptance. We will need to prove long term performance, durability and long term economic advantage in this very conservative and risk averse industry. That is what is underway now and we expect that we will be successful over time.

Putting aside the quarterly financial metrics we're convinced that we're approaching that market tipping point. We're working hard to ensure that if and when we see commercial fleets decide that it's time to move we will be ready to meet any conceivable demand.

To wrap up, fiscal 2010 is shaping up to be an excellent year in the context of our long term business plan despite the challenging markets. We're well positioned to see significant breakthroughs in new markets. Our current business remains healthy and even growing. We intend to use this period of economic turmoil to continue to strengthen our economic and competitive position while continuing to be prudent managers of our resources.

So that's really all I have to say for now. I'll turn the floor over to Elaine to take you through the financials.

Thanks David and good afternoon, everyone. The press release, financial release and management's discussion analysis provide a considerable amount of detail regarding our third quarter fiscal 2010 financial results and are posted on our website.

For the third quarter ended December 31st, 2009, consolidated revenue increased by 24% to CAD38.4 million on 1,202 units shipped compared to CAD31.1 million on 824 units shipped in the same quarter last year. The increase in revenue is primarily because of higher shipments of engines and higher parts revenue. This was a record total revenue quarter for Cummins Westport with revenues of CAD34.8 million on 1,062 units shipped, up 35% from CAD25.8 million on 768 units shipped in the previous year. Non-CWI revenues included CAD0.9 million from sale of BTIC Westport SI tanks to customers in China, and totalled CAD3.6 million on 40 HD LNG systems shipped compared to CAD5.3 million in the comparative quarter when 56 HD LNG systems were shipped. Consolidated revenue increased 42% on a US dollar basis but was negatively impacted by change in the average foreign exchange rates.

For the nine months ended December 31, 2009 and 2008, respectively, consolidated revenue was CAD95 million and CAD95.6 million, respectively, a decrease of 1%. CWI revenues were up CAD4.1 million or 5% to CAD88.3 million on 2,809 units shipped from CAD84.2 million from 3,236 units shipped. The increase was driven by parts revenue which was up CAD5 million and increased ship revenues and was offset by reduction of product revenues of CAD900,000 and lower shipments. Non-CWI revenues were CAD6.7 million on 68 units shipped compared to CAD11.4 million on 126 units shipped the same period last year. As a reminder units shipped do not include kit shipments.

While we are pleased with the top line growth we proceed to caution listeners that quarterly numbers can and do (inaudible) significantly from period to period, and revenues can be impacted by a number of things including timing of delivery on major order orders, foreign exchange and product mix.

For the three months ended December 31, 2009, we reported a net loss of CAD7.3 million or CAD0.21 loss per share. This compares to Q3 '09 net loss of CAD8.9 million or CAD0.28 per share. The improvement year-over-year was primarily the results of CWI results with increased revenues and improved margins offset by CAD900,000 increase in operating expenses. Our 50% share of CWI increased from CAD0.1 million to CAD2.9 million.

For the nine months ended December 31, 2009, we reported net loss of CAD25.5 million or CAD0.78 per share compared to a net loss of CAD11.7 million or CAD0.39 per share in the comparative period. Increase in net loss of CAD13.8 million was primarily the result of a CAD12 million decrease on gains net of taxes from the sale of investments. Without this impact, the net loss for the nine months ended December 31, 2009, and 2008, would have been CAD25.6 million and CAD23.8 million, respectively.

Turning to gross margins and expenses for the quarter, CWI margins were 43%, up from 18% in the comparative quarter primarily due to improved warranty experience and the favorable supplier pricing adjustment on parts. A favorable CAD1 million warranty adjustment was taken this quarter compared to an unfavorable adjustment of CAD2.4 million this quarter last year. In addition, change in customer supplier parts pricing contributed about CAD1.7 million to an improved gross margin. Going forward we would expect normalize margins to return to the more traditional 30% range. Total CWI operating expenses for third quarter were CAD5.6 million and included approximately CAD1.6 million in policy expenses related to customer support offset by decreases in administration expenses and R&D expenses. Non-CWI revenue gross margins were about 6% in the quarter. Margins are likely going to remain lumpy for at least a few more quarters affected by foreign exchange and any adjustments in inventory or warranty. Recall also that we have been dropping our selling prices for OEM products to reflect lower product costs going forward but we're still working through historical inventory which reflects our low volume supplier pricing. Non-CWI operating expenses decreased by CAD0.6 million year-over-year, mainly as a result of reduction in R&D program costs.

Turning to the balance sheet. our cash and short term investments at December 31, 2009 totaled CAD107.2 million compared to CAD82.6 million as of March 31st, 2009. Cash used in operations and for capital expenditures for the nine months ended December 31st, 2009 was CAD20.4 million. Changes in non-cash operating working capital was CAD3.9 million due to decreases in accounts receivable of CAD5.3 million for shipments made late in the quarter and decreases in accounts payable and accrued liabilities. We also raised CAD57.5 million in net proceeds in the December, as well, and that added to our cash balance.

Forecasting our business has always been a challenge. On this call last year I said that 2010 we would focus on business levers such as margin improvements, cost reduction and product quality improvement. To this end, we have accomplished a great deal in the last quarter and last 12 months. We have improved CWI margins and continue to implement cost reduction initiatives as product reliability remains a key focus. As previously disclosed, I will moving into a strategic development role here at Westport and will do my part to help get Westport closer to profitability through strategic partnerships and acquisitions that will add value to the Company. I will also be taking on some of Mike's corporate responsibilities as he takes on his new part-time strategic advisor role. We have some incredible opportunities and challenges in front of us but we also have the core competencies to adapt and meet our goals and milestones. Where there are gaps I will work hard to ensure that we close them.

As this is my last call as CFO, I would like to thank you for your interest and support over the past seven years. I will now pass the call back to the Operator to open the call for questions. Operator?

(Operator Instructions). Our first question is from Graham Mattison from Lazard Capital, please go ahead.

Good afternoon, everyone. I was wondering, a question on the GX shipments. Could you give us an order of magnitude split between the ports and other markets, notably Australia?

Yes, they're mostly port shipments in the last quarter.

That's great. And then in terms of, for the GX unit getting to the 2010 certification, you plan to get that or hope to get that by April. Do you see a potential lag in sales just in the near-term, or are you already speaking with customers about doing shipments or potential once you get that certification?

Everybody is looking at me. This is Mike. So I'll jump in. The current quarter, which we're moving into, which is our fourth quarter, we'll have shipments moving out based on the '09 product, actually, around the HMD and the ports agreement to allow those trucks to be delivered through April. So there should be a fairly seamless transition between the current product and the new certified product. And just a comment related to how that fits internationally, the Australia product isn't undergoing that product change right now, so it would be no difference in the product being offered in Australia for a while yet.

All right, great. I'll jump back in queue. Thank you very much.

Thank you. Our next question is from from Lawrence Alexander from Jefferies & Company, please go ahead.

Good afternoon. First question, Volvo made an announcement at the end of last year that they would have a bi-fuel natural gas truck that meets Euro 5 that would be launched in 2010. Will you receive any revenue from that?

Hi, Lawrence, it is David. No, it's nothing to do with us . Actually I'm not sure if there is anything new in that. I'm trying to remember what that one was. They've had a bi-fuel truck making the rounds in their environmental tour for the last year or so. So I'm not sure what that product looks like or what they're doing. Certainly I don't think it's part of a long-term commercial product plan.

And then secondly with BTIC, do you see much operating leverage there, or should we just think of it as running at break-even going forward.

For BWI, I think the volumes and so on are still, compared to the rest of our revenues, fairly low so I think you should assume break even or not. To the extent they're slightly profitable, I don't think you should model much into that in the near term.

Lastly, is the R&D this quarter a good new run rate or is this an anomaly and it will revert back to the historical spend?

I think, as we always said, with the quarters, they are lumpy so I suggest maybe you look at the year-to-date number rather than the quarter number. I don't think they're actually, they may not be that different, but because of timing depending on what the guys are doing, if they're buying materials or not, it can be lumpy, so take the year-to-date number is probably a better number to use going forward. And year-to-date we're still down about 10%.

Okay. Thank you.

Thank you . The next question is from Rob Brown from Craig-Hallum Capital, please go ahead.

You mentioned you're looking at reducing your ASP on the heavy duty side. Can you give us an update and where you're thinking that would be? I think in the past it was CAD50,000 to CAD60,000. Where are you at now and where you thought it goes over the next 12 months?

Hi, Rob. I guess you'll find out soon. Maybe we'd better leave it at that. As I said, our intent is to be economically competitive. We want to see a life cycle cost advantage. So our long-term target is to see people get a 12 to 18-month pay-back on fuel savings. So we've taken you through all of these projections. There is lots of hand-waving on what is a fuel deferential, what is a capital cost, and what is long-term sustainable. But that is our business model. We think that we can achieve that. So right now our ASP is under CAD50,000 and we will continue to push that down. Now, when you take that into Australia, and there is multiple tanks, and there is extended parts and service, and things like this, the contract price rises quickly, too. So I can't really give you an exact number on what ASP on heavy duty will be going forward , but I can tell you that we are continuing to drop our purchase price and the 2010 product will be cheaper than the 2009 product.

Okay. Great. Thanks for covering that. And the second question, you had some one-time expenses in your sales and marketing for CWI, I guess you call it product support. Is that really one time this quarter or do you expect some of that continuing?

Yes, it was policy expense, Rob, so what that means is once in a while the sales guys decide they're going to do something really nice for a customer on a product that's out of warranty, et cetera. We don't normally do it at this level, so in Q3 we took an accrual of about CAD 1.6 million. I think going forward you'll always see some level of policy expense but certainly not to this level. Again, (inaudible) would be a better indication for normalized numbers.

Okay. Thank you.

Thank you. Our next question is from John Roy from Janney, please go ahead.

Thank you. You were mentioning about the Juniper engines and you expect the Korean products to ship in the next few months. Can you give us any more color on that and how that's going.

Hi, John, this is David. Sorry, you're a little garbled, so I didn't quite hear.

The Korean products from the Juniper engine, you were saying that was going to ship in the next couple months. Can you give us a little more color on that?

Sure, I can always give you lots of color. Darren will hit me in a minute, though, if I go too far out. I think we've announced that those are 2 and 2.4 liter Hyundai passenger car engines. So the engines are built by Hyundai in Korea. They have been industrialized and so they get shipped to us ready for natural gas and propane. Hyundai has been great to work with. And then we produce the engines at a third-party facility in Korea for shipment around the world. The first OEM we did announce was Clark Material Handling. This will be a global product for them. And they will be shipping within a few months. And so that's really what we're gearing up to do is to support those OEMs and we've seen initial orders, to get ready for Clark, and you'll start to see revenue flowing from Juniper soon.

I think we said last time, but if we didn't this might be news, we are also putting engines into other industrial applications like oil fields, substantial interest in other industrial applications for a fully-engineered, high-performance engine like this in other applications. So I'm optimistic about Juniper. It's not going to move the financial dial any time soon but I think it has great prospects in the longer term.

On that, is it the high performance nature that you feel is your advantage there versus other approaches?

I think we're coming at this from a little different viewpoint than a lot of other market participants, in that we do believe that there's going to be a very large alternative fuel market emerging over the next few years in those small engines which are traditionally gasoline engines. Very different price point than we're used to in the diesel world. So what we're trying to do is take our business model in working with the OEMs, creating clean versions of existing state of the art engines and packaging, and take that into markets where there's value seen in that fully engineered product. So this is a very low emissions, high efficiency engine at a new price point in this industry. So I think that is what we're trying to do, is position ourselves for five years out, let's say, when the alternative fuel market in that engine class starts to mature, and at that point we think it will be a more traditional Tier 1 OEM structure, with state of the art performance determining what gets into the marketplace. That is what we're trying to do.

Thanks much. I'll get back into the queue.

Thank you. The next question is from Eric Stine from Northland Securities, please go ahead.

Good afternoon, everyone, congrats on the nice quarter. I was wondering if we could just start with India. Can you just give us the kit business level in the corridor?

There were shipments to India in the quarter. I got to pull this up. Hold on, Eric. Yes, we never disclose the exact amount but I can tell you it was a pretty healthy quarter for kits and royalty revenues. It was similar to what we did in Q1.

Okay.

You're well over three quarters through that program, is that correct? We are, yes.

You touched on going after some follow-on business in India. Can you talk about potential opportunities with Volvo? I know they just introduced their CNG bus, and there is a CIL representative saying that you were in discussions. Anything you can share there?

Probably not.

I can give you a couple things. Actually I just found the numbers, too. So the revenue number was about CAD2.7 million this quarter, compared to CAD1.4 million this quarter last year. We are about 75% through. There is a follow-on opportunity that (inaudible) is looking at. When we get that we'll announce that. And Volvo did, as you indicated, put out a press release. But, again, when we get the orders on that we'll announce that.

Okay. Fair enough. Just turning to Weichai, any update on the potential timing of government approval?

I get that one. Everybody is pointing at me. The short answer is no. There is movement but it has been slow, so I'm kind of loathe to predict after it's just been so uncertain in the past. We're coming up on the big holiday season. I would expect that at the earliest it would be the next quarter, our Q4. It could slide into Q1.

We don't see any real issue here, frankly. It is just procedural. We do want to see the procedure happen. We do want to get things going. The engineering work is continuing. There's lots of work happening between the two teams. We would like to get the joint venture registered and done, and invested. We have been watching it with some interest. We are investing, just to remind everybody, we are investing in an existing company. Weichai does have a subsidiary. Part of the reason this has been slow is Weichai has to work with the local government to change the ownership structure to allow international investment. That is really what we're working with them on. But in the meantime, they are continuing to sell older versions of natural gas engines into the bus business so we will be investing in that existing business and existing process. So we're continuing to be engaged, see what they're doing, see what we can help with and get ready to step into that business, as board members and shareholders. But lots can be done. I wish I could tell you something more specific about the registration process, but it really isn't in our hands.

Okay. Understood, but is it fair to say you sound a little more optimistic?

I think it's moving forward. As I say, I don't see any sign that Weichai isn't just as committed as we are to pushing ahead. In the short term it is not holding up the works, probably changing the business model of the business plan. They're continuing to develop their business on the existing product line, and we will invest at the same rate and same pace and same valuation. So all in all, I think it's going to happen. It's just going to take some.

Okay. That's great. Thanks a lot.

Thank you. Our next question is from Thomas Daniels from Thomas Weisel.

Guys, it's Tom in for Dilip. Thanks for taking my question. First, I was just going to ask if you could give us some color on the Walmart demo project. I think last quarter you talked about it nearing towards its end and just wondering how that's gone and if there is a possibility for some follow-on orders.

This is Mike, Thomas. That has been a good program for us. As you know, we put four demonstration trucks into their Apple Valley distribution center in Southern California that run in commercial service for many months. The demonstration program is nearing completion. I think it's fair to say that Walmart and we both concluded that the trucks performed well, met its performance goals, and that the technology's received favorable remarks around that. they haven't moved to the next step of procurement around LNG trucks. They will be looking at their buy needs, incentive programs, et cetera. And so we're watching that and staying in close touch with them. I might say that we did receive a special invitation from them, in an event yesterday that their CEO Canada hosted here in Vancouver on sustainability in the future of retail business and trucking in general. It had 300 people in downtown Vancouver yesterday with a big contingent of Walmart executives.

Great. I did see that press release that Walmart was doing that. Thank you for that. My one other question would be on the Clean Cities program. I know it's going to take some money for the money to flow, specifically about the San Bernardino LNG project with JB Hunt. Are you guys talking to JB Hunt? Can you give us a little more color on maybe timing of those orders?

The Clean Cities program, as you say, there were a number of contracts. I think there were 25 national awards, of which natural gas vehicles were in 19 of those regional awards, including customers like JB Hunt, UPS, Southcoast, HMD, and others. JB Hunt, we have been discussing. They were looking at the smaller engine trucks so they were looking at mid-range engines, not the heavy-duty GX product. So those discussions have been primarily through Cummins Westport. And those discussions continue. JB Hunt hasn't found a way, yet, to move forward with that natural gas program. They're not sure just when or how that might move forward. So we're just staying in contact. I think the UPS program is one you might want to watch because I think they're looking to be a bit more aggressive and they've got trucks in both California and in these corridors that Dave referred, the Las Vegas, California corridor, as well as the Salt Lake City, Utah operation.

Great. That's all for me. I'll jump back in the queue. Thanks, guys.

Thank you. Our next question is from Michael Willemse from CIBC, please go ahead. Please go ahead.

Thank you . Good afternoon, congrats on the results. Just to follow up on the question on Clean Cities program. So have you had any sales yet that were related to the Clean Cities program?

I'm just looking around the table. It's David, Mike. I don't think we've seen any contracts issued yet. I know there has been contract negotiations that have been underway for probably 90 days. I think Mike took you through this a couple of quarters ago. It is a fairly complicated process, unfortunately, where the contracting agency is actually the Clean Cities organization in each community with the Department of Energy. So that step, I think, is, for the most part, done. But a lot of these applications were put in a year ago so now the details of the final procurement are getting worked out between the Clean Cities organization and the fleet and the local players. And of course a lot of it, there have been a lot of new product announcements in the last 12 months so people are changing their product plans. So there is lots and lots of detail to get sorted out. So I'm not aware of any actual orders that have happened yet from the stimulus, but we would expect that they would flow through 2010.

We have been back and forth with a lot of discussion on this. Honestly I don't worry about it, either. I think it's a great sign of the interest in natural gas and natural gas trucks. It has created a lot of enthusiasm in a lot of our OEM partners to launch new products. You've seen new CWI trucks launched with a number of vendors over the last few months, partly as a result of the customer demand they're seeing through things like the stimulus program. So in any event, I think we're going to see sales outside these programs that are much larger in magnitude than what we've seen under the stimulus contract. So I'm not all that concerned about these particular projects.

To Dave's point, I think that it's absolutely true that these awards, announcements, were pretty big factors in both Kenworth and Peterbuilt decisions to take the CWI ISLG into their chassis, which was announced last quarter.

Okay. And just on the heavy-duty engine market in general, Cummins had a very strong quarter for shipments in the fourth quarter, and then in the first half of 2010 they're guiding to a very significant drop because of the change-over in EPA. Is their overall market still pretty uncorrelated with the natural gas engine market or could that have some impact at CWI or heavy duty engine in general?

We all aspire to the point where our volumes are going to significantly move the dial for Cummins. It is a great dream. It is completely disconnected. There was a big pre-buy in the diesel world ahead of the January 2010 emission standards. CWI has already met those standards so there was really no change in product in 2010. We certified, of course, but there is really no change in the configuration. We saw no pre-buy and I don't think any psychological change in buying characteristics. So it's why we said we thought 2010 is going to be strong for CWI anyway. It has nothing to do with the emissions standard change.

On the heavy duty side, yes, there is a big transition, and, as you know, there has been all kinds of turmoil and controversy in the heavy-duty engine side on the diesel front on the introduction of urea as part of the SCR selective catalytic reduction after treatment systems that are pretty universal now in the 2010 diesel product. It is going to create a lot of turmoil on the diesel fleets. I think on the natural gas side people are going to be pleased with performance and fuel economy of our 2010 product, as we introduce it. So we haven't seen any real push-back from anybody on this emission transition for us.

The Australia product, as Mike alluded to, the Australia product is the same this year, it will change next year. So we expect Australia will be picking up this year. So as I summarize this, I know I've gone on a bit, but we don't really see the January 2010 date as having any significant impact on our plans. It is a transition. We're shifting market. We're shifting focus to new opportunities. We think the product is well set up for customer satisfaction and that's what we want to achieve next year.

Okay, and just one last question. On the NATGAS Act with the recent changes in Congress, are you concerned about some gridlock delaying the passage of the Act, or what is your latest thinking there?

We've been cautious. This is going to be the third quarter we talk about NATGAS. I'm looking at Darren. It has been out there for quite a while. I'm not going to say we wouldn't love to see the NATGAS Act pass because it would be a game changer. It has really captured the attention of a lot of market participants on both the natural gas producer side as well as the truck manufacturers' side and truck fleet. So that's great. It's done its job. It's got people looking at the economics of natural gas.

I can tell you, because we've said this many times, we are not relying on subsidy programs like this as part of our strategic plan. So we're proceeding as if it is not in place and won't be in place, because we have to. Washington is also an interesting place and certainly we can't predict when and where legislation is going to get passed or put into place. That said , we would be stupid to ignore it. It is potentially a very large game-changing opportunity in term of our economics. It would bolt us forward by years in our plan to get to that economic parity. So we do need to be ready to scale up if we need to. And that is what we've working on, is how can we scale up quickly in the event that economic parity is achieved relatively quickly through a process like the NATGAS Act.

It is two sided. We're pushing ahead as if it isn't in play. We are confident we have a strong opportunity without the NATGAS Act. If it passes we want to be ready to maintain leadership and happy customers in the wild market that would follow it, too. So if and when, we'll be ready. If we get some more time to get ready, that's fine, too. If it happens next week, the party is on. So we're trying to be conservative and optimistic at the same time.

I wanted just to add one thought, you mentioned the gridlock. I guess we're fortunate that we're not part of the healthcare bill. But there is a view that there's a ton of bipartisan support for the NATGAS Act, actually, and there is a view that it could be seen as a win win for both sides of the House and Senate and might even get some wind in its sails around that. But as Dave said, very difficult to predict. I would say just on a development this morning, there is a new senate jobs bill that was introduced and that does, in fact, include the one-year extension on the fuel tax credit, as part of it, which we're very happy about. That would have been a small part of this broader NATGAS Act that we're talking about.

Okay. Good, thanks for that. Thank you.

Thank you. (Operator Instructions) Our next question is from Ian Tharp from Dundee Securities. Please go ahead.

Hi, thanks, and good afternoon, everyone. A lot of questions have been covered. I wanted to go to the Asian sales. Just looking at your quarter on quarter revenues, it looks like your Asian sales were down quite a bit in the quarter. Just any color on the Asian sales that would have accounted for that?

I think quarters are lumpy and it depends on who is actually taking deliveries in that period. And also sometimes when you look at the percentage breakdown, every area could actually be up but just depending on where your primary shipments are going. So I would just say it's just a timing of when the Asian customers are taking delivery.

So it is not any underlying trend in China or any of the other markets, really?

No.

And some of the engines end up in buses actually in South America as well, even though the original shipments go to Asia.

And keep in mind, India is not in Asia as well so you are primarily in the Chinese market.

Okay. I'll leave that answer as uncertain, then. I think what you're saying is we report the number but it doesn't mean anything.

I'm thinking of your model, if you're trying to model where things are coming from, you have to just look at it on an overall revenue basis.

We'll just attach the lumpy moniker to it.

Lumpy is always safe.

Okay, it's lumpy. Moving on to the next market question, it looks like with the ports starting to, if I can use the phrase, wind down here, by the end of April, and Australia really being the bulk of the rest of the sales for HD, I wonder if you could talk a bit about the activity in Australia which really has to shore up demand for HD. I know part of that may come from Clean Cities and other organic growth but just talking a bit about Australia, if you could.

Sure. Australia has actually picked up steam in the last few months, partly as the tail of a development with some tax incentives that were put in place for use by last June 30th in terms of commitment. So there was some movement, and we're just starting to see trucks move now as a result of that. So we're seeing an awful lot of interest there, I would say, both from fleets and from fuel providers, which is relatively new, as well. So we would expect that to continue, and to trend upward over time around overall economics.

With respect to the broader heavy-duty product, the existing one, the GX, we will see some continuing activity at the ports. And I think we've referred to another round of tender/procurement in 2010. Don't have all of the details yet, but I would expect it to be of similar order of magnitude as the recent procurement which we would expect to do well at with both Cummins Westport and Westport product. And, then I think Dave talked about interest throughout the North America with fleet and the heavy-duty product, and I think we would continue to see some development there, whether through special incentive programs like Clean Cities, DOE, and others, or the NATGAS Act or just the rollout of the 2010 product. So we should watch that segment for movement, and evolution.

Okay. Great. And then just one final one. Going back to the Volvo. I may have missed it in the subtle details , I know you're just talking about the business model now, we're all eagerly awaiting how that is formed. But I wonder if you could walk us through some of your thinking around the work that has been done to date on the engines, how you would tool out manufacturing with Volvo and then obviously leading on to revenues from that joint venture?

I wouldn't say we just started to talk about business model, we have been talking about business model from day one, I think. It is a really intriguing relationship, frankly. We're really enjoying it. The engineering work has gone really well. We think we've got a pretty good handle on a number of product opportunities. I don't want to go into a lot more detail on that. Obviously there is a first product that's targeted. And it's probably not what people expect. It is not North American trucks, is the first product. We think that there's a very large global market developing for alternative fuel engines and Volvo, as one of the world leaders, want to introduce world-leading products. So let's just leave that one at that.

In terms of how we're going to gear up for production, clearly we need to have new suppliers and new supply chain. We need to partner with Volvo to recruit those relationships. That's been underway for probably a year now. I think the business model has all kinds of possibilities. Now, we are a bit unique in that we aren't Tier 1 manufacturer. We are not a fuel injector supplier. We are kind of an intermediary. We are a design house. We're a market creation operation. We've put together a bunch of the technology. So this does give us a lot more flexibility in terms of business model, with a partner like Volvo. Or Cummins, for that matter. As you've seen, we've done multiple business models with Cummins, too. So I think that where this is going to go is something that's going to be creative and a win-win for both Westport and Volvo, and I think we're all going to make a lot of money and that's really what this is all about.

That's a good place to leave it. That's all I have. Thanks very much.

Thank you. Our next question is from Bob Wallace from Raymond James. Please go ahead.

Thank you very much. First of all, I'd like to say thanks a lot, Elaine and Mike. How are we going to replace Mike?

I think Dave's given my job to about six people.

I see. The operations in Korea, you mentioned Korea on this, just very briefly, with Hyundai, and the Clark thing, and crossing over on that. Plus, as you're saying, somewhere in the oil fields that this engine is being used. Is that correct?

Yes.

And other applications are being used or being looked at?

Absolutely. Would you like one, Bob , they look really good, they're a very pretty engine. Looks good under your desk.

I've always wanted a pretty engine.

Just write a check and no problem.

Whereabouts? North America? Europe?

In terms of market?

Yes, please.

It's a global opportunity and they're being sold around the world.

They are being sold. So it is multiple.

Yes.

Okay. And this is all under the Juniper?

Yes.

Thanks very much and thanks Elaine.

Thank you. We have no more questions at this time. I would like to return the meeting over to Mr. Seed.

Thank you, everyone, I shall pass the microphone over to Mike.

I knew you were going to do that. Thanks, Darren. Really just a closing word of thanks. As we stated, or as I stated, in our press release a couple of weeks ago, it truly has been an honor and a privilege to serve as Westport's President and Chief Operating Officer these past several years.

I've greatly enjoyed working with Dave and Elaine and Darren and the team on building Westport into what I think is a great company today with a great future. I'm looking forward to my new role, my upgrade, to Senior Advisor. I'm going to be focusing on senior international energy and environmental relationships for the Company, and helping Dave out in other ways as I can. And I look forward to continuing as Chairman of the board at Cummins Westport and as a member of the Westport board itself. And, lastly, I just want to tell each of you, the many of you that I have worked with over the years, how much I have enjoyed my interactions with the financial community and each of you, and particularly talking with each of you these past 29 quarter calls. So thanks very much.

Thank you, operator.

Thank you. The conference has now ended . Please disconnect your lines at this time and we thank you for your participation.