Westport Fuel Systems Inc (WPRT) 2015 Q2 法說會逐字稿

Welcome to the Westport Innovations quarter two FY15 financial results conference call.

(Operator Instructions)

The conference is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Darren Seed, Vice President of Capital Markets and Communications. Please go ahead.

Thanks, operator. Thank you, and good afternoon, everyone.

Welcome to our second quarter of FY15 conference call. 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 www.westport.com.

Speaking on behalf of the Company will be Westport's Chief Executive Officer, David Demers, and Westport's Chief Financial Officer, Ashoka Achuthan, and Westport's President and Chief Operating Officer, Nancy Gougerty. Attendance at this call is open to the public and to media, but for the sake of brevity we are restricting questions to analysts.

You are reminded that certain statements made in 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, and except as required by applicable securities laws, we do not have any intention or obligation to update forward-looking information after this conference call. You're cautioned not to place undue reliance on any forward-looking statements. Now, I will turn the call over to David Demers.

Good afternoon, everyone, and thank you for your interest and support of Westport. Despite some extraordinary economic turbulence around the world, our FY15 plan continues to be on track. I'll take you through some of the highlights in the context of our four key priorities for FY15, and then I'll turn the call over to Ashoka and Nancy for more detail.

First, as we told you, we're continuing our investment program alongside committed OEM partners for new commercial products. And of course, these are long-life products, typically looking at least a decade in life, so these are decisions that we don't take lightly. We do review our products investments quarterly, and we believe all of our current investments represent important strategic opportunities with attractive risk rewards and with committed partners, even in the current markets.

As these programs complete and expenses taper off, we may be in a position to tamp down the historical investment pace while product sales begin to climb. So for example, our next-generation Volvo cars will begin to ship this quarter, and our previously announced Ford F-150 will begin to ship in Q4 this year.

We also made steady progress this quarter on our HPDI product programs, including the announced completion of a major initiative with a new OEM partner. The completion this initiative validates the unique performance and emission characteristics of HPDI 2.0 on the state-of-the-art OEM engine platforms. Our HPDI components are on track for delivery to customers for validation testing in early 2016, and at that point, we would expect the development expenses associated with those components to begin to decline.

Our second theme of the year is that we are continuing to reset and rationalize and consolidate our current product portfolio, while ensuring that we exceed customer expectations with leading price performance and strong value propositions, even the current energy markets. Global energy price volatility and the economic turbulence continues to put pressure on our global business units, most recently in China.

But since natural gas prices generally have been falling in line with petroleum product prices, we continue to see good opportunities for natural gas vehicles in many markets. Since the acquisition of Prins late in 2014, we've also been expanding our offerings in the LPG market, which continues to show promise in some narrow and regional markets.

The third theme, as we told you last quarter, we are looking at selling non-core assets We've identified significant assets that we think we don't need to own, and they are available for sale, but only if we think the price is reasonable and realistic. Market turbulence is certainly creating some challenges, but we've identified our first deal, which we expect to close by the beginning of Q4, and we have more that should reach conclusion on soon and close in Q4. We expect these transactions to yield a little over $50 million to Westport after expenses and taxes, assuming they all close. There are few other assets that we may sell if the right buyer appears.

Last but not least, despite will economic turbulence, we'll continue to drive cost efficiencies and reduce global overhead expenses wherever we can and where this makes sense. Now, this should be apparent with the results this quarter with the 58% drop in cash burn rate compared to a year ago and 15% just from Q1 FY15 alone. At $7.7-million adjusted EBITDA loss for the quarter and a $60.6-million cash balance, with our current plans for non-core asset divestments, the expected the sales of new products, and continued cap discipline, we believe we've got the resources set to complete our transition to positive adjusted EBITDA by mid next year.

We continue to see new opportunities for Westport in this market. We believe our plans are building shareholder value over the long term. When energy markets stabilize and the global economy begins to rebound, we believe we'll be in a strong financial and strategic position. Over to Ashoka, who will take you through the financial details.

Thank you, David. Good afternoon, everyone.

I will provide you with some highlights of our second-quarter actions we have taken to address our expense and cash position and cover our financial outlook for the rest of FY15. As David noted, despite global energy price volatility and economic turbulence in many key markets, Westport achieved a significant improvement on key financial measures for the second quarter of FY15 and is on track to deliver on its financial targets.

Westport revenue from operations, including our Corporate & Technology Investments segment, was $27.8 million for the second quarter ended June 30, compared with $37.9 million for the same period last year. The 27% decrease is due to the timing of service revenue, a $4.1 million unfavorable impact of the foreign exchange translation from the euro to the US dollar, and a sustained economic weakness in certain European and Asian markets. Westport is reiterating its revenue outlook and expects consolidated revenue from Westport Operations & Technology Investments to be between $110 million and $125 million for the ended December 31, 2015.

Cummins Westport, or CWI's, revenue was $93.1 million on 2,947 units for the quarter ended June 30, an increase of 17% over the same period last year. Revenues increased year over year basically due to a strong performance in North American core segments of transit and refuse.

Weichai Westport's revenue was $41.9 on 3,491 units for the quarter, a decrease of 69% over the same period last year. General economic conditions in China, which has resulted in an industry-wide softness in truck demand, contributed to Weichai Westport's weaker sales.

Moving on to operating expenses, Westport Consolidated reduced its combined operating expenses by $9 million, or 26%, for the quarter ended June 30, 2015, compared to the same period last year, primarily due to prioritization of investment programs, institution of cost discipline, reduced headcount, as well as the favorable impact on expenses of foreign currency translation from the Canadian dollar and the euro to the US dollar. Westport continues to drive cost efficiencies and reduce global headcount and (inaudible) expenses. These actions, together with our strategic Initiatives, we believe will be sufficient to enable the Company to reach positive consolidated adjusted EBITDA in mid 2016, while maintaining the momentum required to launch major project initiatives, such as HPDI 2.0.

Moving on to net income, our income from TWI improved significantly during the quarter. Net income for the quarter was $3.4 million, a 7-fold increase compared to the same period in 2014. This improvement was largely related to resolution of the warranty issues associated with the 8.9-liter engine. For Weichai Westport, the net income for the quarter was $0.1 million, a decrease of 86% over the same period last year, due to the significantly lower number of units sold, hazard adoption, and industry-wide truck demand, as I mentioned earlier.

From a consolidated standpoint, the second quarter ended June 30 resulted in a net loss of $20.5 million, or $0.32 loss per share. Included in this quarter is a $3.6 million, or approximately $0.05 per share non-cash impairment charge. This compares to a net loss of $35.4 million or $0.56 per share, in the same period last year, an improvement of 42%. This improvement in net loss was primarily due to overall improvements in our cost structure, increased income of CWI, and income from the completion of a major HPDI engine program this quarter.

Moving onto our cash position, as of June 30, 2015, our cash, cash equivalents, and short-term investment balance was $60.6 million. Cash used in operations, excluding changes in working capital, plus dividends received from our joint ventures, was $8.1 million, compared with $19.2 million for the same period last year, an improvement of 58%. Working capital changes consumed $3.9 million is quarter.

Westport cash management performance confirms the Management's ability to adjust our cost structure in the face of ongoing economic headwinds. We have initiatives in place to continue improving upon our working capital performance over the upcoming quarters. As David mentioned, plans for our non-core asset sales remain on track, with these transactions expected to yield a little over $50 million in the upcoming quarters.

Moving on to adjusted EBITDA and key steps on the path to profitability, adjusted EBITDA loss from our operations segment for the quarter ended June 30 was a loss of $0.2 million, compared to a gain of $1 million for the prior year. This decrease was due to an overall weakness in revenue, as I mentioned earlier, including a significant reduction in service revenue due to the completion of a major project in 2014.

Consolidated adjusted EBITDA loss for the quarter was $7.7 million, compared to a loss of $16.9 million in the prior year, an improvement of 54%. This was due to overall improvements in our cost structure, prioritization of our investment programs, higher CWI net income to Westport, and the recognition of income upon the completion of a major HPDI engine program.

As you can see from our results, we have closed out the second quarter with very strong momentum as we head towards our target of positive adjusted EBITDA in mid 2016. We are facing some headwinds from lower oil prices and economic turbulence in some markets, but believe we have made the necessary adjustments to be able to capitalize on opportunities as they arise when industry conditions improve.

I look for to bringing you further updates on our progress next quarter. With that, I'll pass the call on to Nancy.

Thank you, Ashoka.

Today, I'm going to focus on providing some operational highlights and priorities from the Company. I'll start by saying our Westport Team continues to deliver on our programs. We're hitting key milestones and targets despite the energy price volatility and the economic weakness in certain European and Asian markets.

It feels like the wind is howling outside, but despite these challenges, we're making a number of product announcements in the quarter, including the introduction of a new Volvo car drive powertrain bi-fuel engine, and the EPA certification on the 2015 Ford Transit Van, and the announcement of the new Ford F-150 bi-fuel product. In addition to these announcements, the Team is dedicated to our HPDI 2.0 and continue to focus on component readiness.

As we progress substantially in the engineering of our injectors, rails, and off engine systems for HPDI 2.0, the outcome of a number of engineering challenges to achieve the state of component readiness is here. The deployment of HPDI 2.0 is expected to shift from a design and development phase into testing and validation phase in early calendar year 2016.

The associated adjustments in the technology will be in line with these upcoming phases of development and are indicative of the near-term launch. It would be reasonable to expect that with the near-term launch, our R&D efforts will drop off as these products reach their launch stage.

We have seen strong interest in our technology, as demonstrated in our post quarter 2 end with the announcement of the completion of a major engine program with our fifth HPDI engine customer, in this case, with Daimler AG. As we turn our attention to Weichai Westport and our China sales, despite the challenges that we have seen in the sales of our joint venture, WWI, over the past two quarters, we remain very bullish on the prospects in China for our products as the central government finalizes its policy changes. We continue to expect that the tightening of the environmental policy will drive increased demand for our natural gas vehicle products in China, and we are positioned well to capitalize and expect an industry upturn.

Additionally, we have invested in and are preparing for a new product known as the low pressure pump, or LPP. This relates to the fueling infrastructure, our HPDI technology, and a variety of parts and systems to service the expected growth in demand for natural gas vehicles.

As Ashoka mentioned, our consolidated adjusted EBITDA saw significant improvement of 54% compared to the same period last year. This improvement was primarily due to the strong performance of our joint venture, CWI, and strong cash preservation across all segments. Our cash management performance, as reflected in our adjusted EBITDA, is strong validation that Management's ability to adjust our cost structure of the Company during our challenging condition. I have a very watchful eye and have recently launched a working capital task force internally to keep watch on what we are spending in the investor's capital.

With that, I would like to thank you for your time and interest, and I will push hard to hit our publicly-stated goals on timelines that we have committed to. So with that, I will now pass it back to the operator for questions.

Thank you.

(Operator Instructions)

Laurence Alexander, Jefferies

Hi. This is Jeff on for Laurence.

On the new OEM announcement, how the OEM relationships be accounted for? Are they service revenue situations where you'll shell out the cash initially and then the OEM will reimburse after milestones, or will they be funded mostly by the partner?

I'll jump in. We're all looking at each other. The answer is, depends on the partner and depends on the circumstances.

So I think, generally, we have been building the components, let's say. That's our duty is to get things ready in our supply chain, and so a lot of our work is component readiness, as you heard Nancy say. And so then we're putting more of the work of developing specific engines or trucks onto the OEM partner. But again, we're going to help out in some of those cases, so it's not really cut and dried.

Generally, that's been the divide as we want to build a common platform that we can use with multiple OEMs, and that's why we're spending so much time on the next-generation injectors and rails and fuel pumps and things like that. But at some point, we want the OEM to take on the truck integration, truck development and testing.

So that's typically how the expense split has gone, and our partners are making substantial investments beside us to bring these products to market, which is what we think it's a realistic thing to do. Whether that crosses over into them hiring us to do work that we would expect them to do, that's one circumstance, or whether we step in and help out because it's not clear and we just want to get the program moving, that's the second side.

So generally, I'd say the answer is yes, there's a lot of money to be spent. We're going to divided it up between the partner on a rational basis, and then presumably, we're going to have a similar divide on the rewards when we start to sell product in the marketplace. But right now, our focus is on getting these components to the level of engineering proof and certainty and manufacturability and cost that we think we need.

Nancy, I don't know if you want to elaborate.

No, I think that summarizes it. I think it's a blend, and we continue to work successfully with a variety of different partners. And as we work in this market and as we've stated with the five different customers that we have and we're working on, everyone has their unique way that they want to do it, and I think that's why Westport is their, I'll say partner of choice in this regard because we do have some flexibility.

Great. And if I can switch gears quickly to China, can you elaborate a little bit what you're seeing there and the outlook for the HPDI or the lien burden product there? Given this environment, do you expect to launch the 12-liter, and what was the reaction from the test engines in late 2014?

Well, let me -- I would say that, as I commented, that we remain very bullish on the China market. There is several dynamics going on in China that we think played well for us relative to our segment and relative to national gas. We think that first of all, the discussion that's going on in the central government is relative to their view of what they want to do from the environment and some of the new regulations, plus the demands, I would say, even just for the environmental standards in China being strengthened and the demands of the population on that front. So those played well to us.

At this stage of the game, we continue to be very positive relative to what we're seeing, relative to the market's interest in our HPDI. As I mentioned, we are launching this fueling system called LPP, low pressure pump, which will allow us to be using the LNG and getting the market ready for that fueling source. As you know, HPDI really demands to be run on LNG at this point in time. So we are seeing interest from a variety of folks on this front, and I think that as you look at what's happening with the LPP, that's a precursor for the demands that we're going to see in the HPDI market.

Great thank you.

Ann Duignan, JPMorgan

Hello. Good afternoon.

Can you give us a little bit more color on the assets that you are looking to sell and how you're evaluating those and much interest you expect to have for them? And then could you talk a little bit about, have you had any conversation with Ford at all about maybe selling the entire Westport instead of just breaking up assets?

Ann, this is Ashoka.

No, in terms of non-core asset sales, as we call them -- we call them non-core for a reason. Clearly, these are not asset sales that are going in impact our ongoing revenues. Outside of that, there is very little I can elaborate on, other than the fact that we are on track to have these transactions consummated over the upcoming quarters. And David also mentioned the range of our expectations in terms of proceeds, which is around $50 million. And no, there is no plan to put Westport up for sale.

Okay. I appreciate that.

And then just switching gears, out of curiosity, in your presentation up front when you describe your Business, you describe yourselves as leading provider engine and fuel system technologies utilizing gaseous fuels, and then I notice in your press releases in July 7, you've announced that you're offering a liquid propane system. Is this another shift in strategy?

No, Ann. It's Darren.

The strategy actually specifically was around the Ford F-150 campaign. This is a light-duty focus just based on the market demand. And obviously, we've had the natural gas F-250 and F-350 series and F-150 offering dedicated or bi-fuel, but there was some demand in this specific market for propane applications for pickup trucks, so (multiple speakers)--

And what I'd add, Ann, we've got acquisitions. Our acquisition of Prins last year, we acquired a lot of LPG propane capabilities, so this is an example of how we leverage the capabilities we acquire into our existing product spectrum.

Okay. So maybe the business overview needs to be updated to include other than gas.

We'll make a note of that.

Okay. I'll get back in line. Thank you.

Thanks, Ann.

Eric Stine, Craig-Hallum Capital Group

Hi, everyone. Maybe high-level, wondering, if I hear correct, the OEM activity seems here over the last year, I know that the Daimler program, you've been working on that for many years. Have you seen any change in (inaudible) oil, or is this pretty much (technical difficulty).

It such a small number it's hard to say statistically. I'd say the general feeling -- I'm looking at Nancy here -- is there's widespread acceptance in every market in the world that they need a natural gas strategy, step one. Step two is, I think most people have gone through some technology analysis and understand that they're going to need a high-performance natural gas engine, not just a quick me, too.

Lots of people have launched pretty straightforward duel fuel systems or even gone to a spark ignition system, but I think those first-generation products are now well understood, and their limitations are understood. And so we are seeing a lot of belief that direct injection systems, HPDI systems in particular, are what's going to dominate the market for the next generation. And so, I think everyone is quite engaged in looking at the natural gas strategy.

The only thing that's really changed is timing. I think people are now feeling that the timing is less urgent than it was in 2012, but at the same time, they're all pushing towards the timetable that says they've got to get a product out the door in the next few years because greenhouse gas regulations are hitting and other expectations are hitting, and no one knows when oil is going to turn up. So I'd say generally, the consensus is moving in one direction, which is natural gas is here to stay, and we need it. And number two is, we need unique performance of HPDI. So we're really busy.

Okay. Maybe -- and I know that's about HPDI, but also curious to some of the enhanced spark-ignited product, the traction there. Is that something we could see some developments in 2015? And I would assume that would also be cost sharing.

Yes, I would say that in general, as David said, he used HPDI as an example, but I would -- as he mentioned the need for within the portfolio to have a natural gas product, depending on where the vehicle or engine range is, that we are finding strong interest, and maybe I'll say serious interest in -- relative to this enhanced spark-ignited product that we have. I think that you can, from our point of view, as we have looked at it, there is, obviously, some gains that the people can get by introducing this enhanced spark ignited, which we think is exciting and interesting. But like David said, the need to have a product offering from most OEMs is really critical, so the dialogues we're having are quite encouraging.

Okay. Last one for me.

Just on the OpEx, ex the one-time charges, another nice sequential decline. Any way to quantify how much more you have to go there or what inning you are in? Anything along those lines would be helpful.

As you can see, Eric, our operating [physi can] was pretty much across the board. And R&D, the only word of caution I'd have here is our R&D spend is inherently a little lumpy quarter over quarter, so I would not necessarily read any trajectory at the current level. But outside of the R&D spend, you will notice that we've had significant control and cost discipline across the board on OpEx, so that you can clearly expect will continue.

And I think it's adjusting over time for all the unexpected things as well, and I think that we as an organization have really buckled down, and every time we do have changes we're making the adjustments, and I think that that's why the results came through like they did in quarter 2.

Got it. Thanks.

Rob Brown, Lake Street Capital Markets

Good afternoon. Back to China. Do you have any sense on when the Chinese market stabilizes and turn up?

Gosh, I wish I knew that. I'd be a very wealthy woman. I think at this point in time, I could just repeat what I have read. I think that there is thoughts that the second half of the year will be better than the first half. We need to see if that's going to be true or not.

I would say the China market has a lot of volatility going on that's well beyond just what's happening in the natural gas market. I would say that I'm encouraged because of the activities are still staying on pace for us relative to the programs that we are working with our partners there. So I think that that to me is probably the strongest indicator. But I would tell you, I think China is a hard read at this point in time.

Okay. Thank you.

And then on the HPDI development, you said you'd have -- next step is testing in 2016. Could you just lay out how it rolls out thereafter? Are we two or three years away from product into the market? Is it -- how long until revenue in that business?

I would say it varies. That's why -- so as we have chosen to talk, we're talking about component readiness. I think the individual OEMs will have to speak to how they want to bring it out to market.

I would say each OEM has its own cycle by which we go through to get the engine complete, get the testing done, go through formal certification levels. And as you noted, last year, we did announce for our Weichai engine, we have already received the China 5 certification for that. I think that that's an indication also that things are progressing.

So I would say for us, it's all about getting the right componentry ready and getting it to production status, which we're nearing here and we're closing out here as we -- in the third and fourth quarter and moving into our, I'll say, durability and production level testing.

Great. Thank you.

Jerry Revich, Goldman Sachs

Good afternoon. I'm wondering if you could talk about the performance of Weichai Westport this quarter, if you think we are seeing inventory de-stock, and presumably, there's some, but how far through the de-stock cycle are we? Any color there would be helpful.

I think that you're seeing is just from, what I -- and I've been there a couple of times in the quarter. I would just say that it's very reflective of what's going on generally within the truck market within the China for most of our big trucks. Mind you that the number of units that they produce, though it looks -- it's definitely year-over-year lighter, I think it's still, if you look at on a full-year basis, it's still one of our largest markets relative to natural gas. So though it's not like 2014 was, we're still relatively confident with the uptake level that we see and the interest on the variety of the OEMs that use the Weichai engines

Okay. And Nancy, if it's not inventory de-stock, that implies some share shift towards diesel from gas. Is that what you're saying?

No, I don't think so, because if you look at the overall market in and of itself, you'll find that the first half of the year, just in general, trucks and even diesel, the volume isn't what was the prior year.

Okay

If you look across all the players, not just Weichai, but others that play in the market, as well, on the engine manufacturing side.

And then can you talk about how the natural gas locomotive program is going for your folks? Where are you in the testing process? When do you expect that program to deliver a commercial product?

I don't know that -- we're still working relative to our L&G tenders that we have given to Canadian National Railroad. We are working those, but this point in time, I'm not sure we're in a position to talk too much else relative to what we're doing on the locomotive side. But stay tuned.

Okay. And after you complete the divestitures that you spoke about today, could you just remind us your priority for use of cash? Will you look for M&A opportunities, or do you want to keep the cash on the balance sheet on the R&D? Just reorient us if you could on how we should think about priorities there.

I think, looking around the Ashoka, I think Ashoka is going to turn into gold bars and bury them in his office somewhere. But honestly, it's going to be whatever the strategic plan looks like. This has been a really volatile few years in this industry, as you know.

We think we've called the trends right. There is an increasing push towards OEM product from the aftermarket. We're increasingly seeing people looking for higher technology and more advanced systems because the base engines are getting better.

We're seeing direct injection gasoline. That's why we launched the new technology platform with Global Car because they have one of the first high-performance direct injection gasoline platforms. So the tendency is toward technology and toward integrated OEM products, which is where we've positioned ourselves. There's lots of opportunity across this industry as it makes that shift.

So will there be M&A or investment opportunities? Certainly. Will we want to keep our powder dry because of the uncertainty and the volatility that Nancy talked about. Yes, of course. When we say it's not things that we need to own, it doesn't mean that it's not still of interest, maybe that there are partners that we want to work with that we can sell these to or something like that.

So I think the industry is going through a rapid maturation and transition. We intend to be in the lead in the future as we are today, and so we'll have to decide what to do with our balance sheet as we see the opportunities. But strengthening the balance sheet and giving people comfort that we have the balance sheet we need to finish our programs is certainly a priority for 2015.

Okay. And lastly, I know you don't give quarterly guidance, but you spoke about a couple of product lines that are going to be launching into 4Q. It sounds like you should be building momentum exiting the year. Is that the right way to think about it?

Well, we aspire to be a growth business. I know it doesn't quite look like that, but if you look at CWI, we're up year over year. There seems to be a broad consensus somehow that with low oil prices, there is no interest in natural gas, but it's just not true. There are some very strong core markets that are continuing to develop well.

And we just launched a new engine, as you probably saw, with Cummins Westport for the school bus market. We think the school bus market is finally ready to move in a serious way, so we want to have those products ready and see that growth.

So we're going through a pretty rapid evolution of our product line. Nancy reiterated a few of them, but there's a lot of new products in the cycle. It's not just HPDI. Yes, and of course, we have hopes that we can launch these products at the right time for market demand to assess them and pick up.

That said, the market is certainly challenging and volatile, and we have to be a little humble about picking the timing perfectly. I think we are getting the long-term trends right. We've got the product interest from all the players that we work with and all the OEMs we talk to. I think we're pretty clearly developing products that people want.

How fast we see the market pick them up, we'll have to wait and see, but certainly, we hope that we're on a growth trajectory. That's why we're doing it.

Thank you.

Noah Kaye, Northland Capital Markets

Yes, hi. This is Arjun Bakre in for Noah Kaye. A couple of questions here. First question is regarding the CWI 6.7-liter engine. Do you have any expectations for revenue contribution? I'm just tried to get a sense of how we can model this for the quarter.

Well, bear in mind the depth of the space that CEW as 6.7-liter engine plays in. It's much larger than either of the two engines that they currently have in production. So it is going to be a very significant space, very attractive in certain markets, like school buses. And as we mentioned in our press release earlier this year, the launch is going to be mid-2016. So all in all, we're expecting this to be a very significant player in the space.

The market size, given our 8.9-liter current product for school buses is probably closer to around 5,000 units, just given the size of the engine and the buses it can go in. But I think with the 6.7-liter, you're targeting a market that's closer to 25,000 to 30,000 units per year, so there's definitely a much larger opportunity, to give you a sense of that. And in terms of penetration, hopefully it's something we can look at the rest of the business as a historical trend. Just trying to help you get some log-in together.

Okay. Great. And touching on CWI gross margin, are you anticipating any changes with the rollouts of new products, or do you they're reaching a more sustainable level at this point.

Well, I think they're at sustainable levels at this point

Okay. All right. Thank you.

And then final question is just can you give a little more color into this new LPP product? Where is it in terms of being rolled out, and are there any other (technical difficulty) contributions there?

I would say the focus of this low-pressure pumps and system is really for the China market. I think as you study the China market, you can see that LNG is a pretty predominant fuel, and availability in that market, and we're finding that there is a demand for it. And as we prepare for our HPDI launch, we're finding that a lot of the customers that we'll be doing OEM truck programs with have an immediate need for this kind of product. So our intent is to get it rolled out at the end of this calendar year, so we are prepared with manufacturing facilities and other assets in order to make sure that that comes to fruition.

Okay, yes. Thanks for taking my questions.

Chip Moore, Canaccord Genuity

Thanks

Just wanted to clarify on the disposals, it sounded like your first couple of transactions for these were moving towards completion in the Q4 timeframe. Do you expect those to represent the majority of the expected proceeds there, or how should we think about timing and magnitude?

I would expect -- Chip, was it? Chip, I would expect the majority of the transactions to wind up by the end of this year, yes.

Okay. Great. Thanks.

Jeff Osborne, Cowen and Company

Great. I just had a few questions. One, looking at the CWI units, it looks like the average, if you just take revenue divided by units, looks like the pricing was up about $5,000 sequentially. Is there any noticeable mix shifts between 5-liter and 3.9 this quarter?

It is a mix shift, but there's a contributor. Mix, and then there is parts revenue as well, so yes, a combination of those two.

Is that geographic mix shift or engine displacement size, more towards 12-liter in the quarter?

As you know, we don't break out the split between 8.9 liters and 12 liters, but it is product mix within, shall we say, within North America for the most part

Okay. Great to hear.

And then I was just curious, on the $50 million and asset sales, David. Can you confirm that you have an identified buyer with an agreed-upon price and you're just in the closing process with that? Or is this -- you mentioned, Ashoka, I think that you've identified assets that maybe you've had some offers that were less than attractive. So I'm just try to understand between your comments and the optimism of up to $50 million, how locked and secured that number is

We're -- yes. Again, we're trying to be careful here. Certainly, when we said that we have identified some transactions, we're in active negotiations with multiple parties. We're not yet certain that those transactions are going to close for a bunch of reasons that you can imagine.

So we think we have a pretty good handle, and we're on track to get these things done on the timetable that we've talked about, but there's still enough uncertainty that we're not telling you about. So reasonably confident, but not yet certain. How's that?

That's helpful. And just a last question about the $50 million, is that a pretax number? Is there a taxable gain on the sale of these assets?

That's the proceeds to us after whatever cost or expenses or taxes might be involved. So we're trying to be fair and say yes, that's what we would expect would go into Ashoka's gold bar stash.

Bear in mind, we are sitting on a significant net operating loss position at this point.

Right. And then you mentioned -- just a followup if you're willing to comment. You mentioned no noticeable revenue impact, but I assume there would be a reasonable OpEx impact, or should we think about these more as facilities like sale lease-back transactions? I'm just try to get a sense of what (multiple speakers)--

I think other than telling you it's green and it comes a little box, I think we have shared everything we're willing to share on this, so please, thank you.

All right. Thank you.

(Operator Instructions)

Mike Baudendistel, Stifel

Thank you.

Wanted to ask you about this table in your press release that breaks down total adjusted EBITDA between operating business units and corporate technology investments. Just thinking about your path to getting back to B positive over the next year or so, how would you envision that breaking down between business units and corporate tech investments?

Well, you can see ongoing improvement in the operating business unit performance, and that trend has been building at least for the last year. We did have a blip towards the end of 2014, but we are back on track. So clearly, you can expect to see continuing improvement, maybe not necessarily linear, but certainly, continued improvement in adjusted EBITDA and the operating business units because that's what the operating business units are there for, to make money and help us support our R&D spend on the investment side.

At the same time, you will continue -- you will expected to see a decline in our engineering and investment spend simply because, as Nancy and David mentioned, at the phase of the development program we are at, as programs die down and we enter the validation phase from the development phase, you'll see a decline in the R&D spend. And as we transition from the validation space to production space, you will see the earnings flipping from the investments segment to the operation unit segment.

Okay. Great. A combination of the two.

And then you said a couple times in the press release that currency benefited your expenses. Can you possibly quantify that?

Yes, on the revenue side, I mentioned we had about $4.1 million negative impact due to the euro-to-US dollar exchange rate. Obviously, that unfavorable impact changes to favorable when you look at it on the operating expense side. So there was a like contribution, if you will, on the operating expense side for our euro expenses.

And the Canadian dollar.

What's that?

And the Canadian dollar.

Yes, and the Canadian dollar helps us on our R&D spend in Canada.

Okay. Got it. And then could you just tell us what region of the world that the new HPDI customer is located?

Nancy? (multiple speakers)

It's pretty clear that it's based in Europe.

Got it. Thank you.

This concludes the time allocated for questions on today's call. I will now hand the call back over to Mr. Seed for closing comments.

Thanks very much, everyone, and look forward to seeing everyone on our Q3 conference call, currently estimated for the end of October.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.