Westport Fuel Systems Inc (WPRT) 2017 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Westport Fuel Systems Second Quarter 2017 Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I will now like to turn the conference over to Ms. Caroline Sawamoto, Manager of Investor Relations and Communication for Westport Fuel Systems. Please go ahead.

Welcome to the Westport Fuel Systems Second Quarter 2017 Conference Call, which is being held to coincide with the press release containing Westport's Fuel Systems financial results that went out earlier this afternoon.

On today's call, speaking on behalf of Westport Fuel Systems are Chief Executive Officer, Nancy Gougarty; Chief Operating Officer of the Automotive segment, Andrea Alghisi; as well as Chief Financial Officer, Ashoka Achuthan. Attendance at this call is open to the public and to media, but questions will be restricted to the investment community.

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 U.S. and applicable Canadian securities law, and such forward-looking statements are made based on our current expectations and involve some risks and uncertainties.

Actual results may differ materially from those projected in the forward-looking statements, so you are cautioned not to place undue reliance on these statements. Information contained in this conference call is subject to and qualified in its entirety by information contained in the company's public filings.

I will now turn over the call to Nancy.

Thank you, Caroline. Good afternoon, and thank you for joining us for the Westport Fuel Systems second quarter results conference call, and I'd ask you please to turn to Page 3 or Slide 3. A year ago, I spoke to you on my first conference call as CEO. On that call, I shared my vision for the combined company. As part of that, I set out some clear objectives including taking quick and decisive actions to unlock our value of our technology, assets and people. I also indicated that we have much to do, but we would be measured, purposeful, share results and outcomes, not intentions.

I am pleased to say that we have made considerable progress on these goals in the first 4 quarters, and we are a different Westport Fuel Systems today. We have shifted our focus to our core businesses where we have an advantage, sold non-core assets and eliminating unprofitable distracting businesses and/or initiatives, advancing our key technologies and improving our financial positions substantially. In parallel, we are driving operating efficiencies and cost reductions.

Turning to Slide 4. As some of you have heard me say, one quarter is a data point, 2 is a line, but 3 to 4 quarters is a trend. The first 2 quarters -- the last 2 quarters of 2017, I've had a much improved story over 2016. Our revenue and gross margins are trending up, our costs are trending down, and our adjusted EBITDA is trending in the right direction. This has been achieved through a number of initiatives such as reducing the number of our facilities by 41% or a 30% reduction in square footage; improving our working capital; and inventory management, focusing our R&D efforts and rightsizing our workforce. We have come a long way in 4 quarters, but there is still more work to be done. Our goal is to make Westport Fuel Systems a sustainable, profitable company that delivers value to customers, employees and shareholders.

The leadership team is committed to achieving adjusted EBITDA breakeven in early 2018 and improving from there. As we exit 2017, our HPDI capital spending will mostly be behind us, and our R&D spending dropping, and the bulk of our restructuring payments will be complete. The asset sales and the recent equity raise has given us a financial platform to execute our goals. Combining our improved financial performance in our key sectors of our business, we are excited and energized about the future of Westport Fuel Systems as we lead the shift of the global transportation system from petroleum to clean gaseous fuels in all forms.

I hope our recent track record has given you confidence that the company is moving in the right direction and can meet and exceed our goals.

Turning to Slide 5. As I mentioned earlier in my comments, much has changed in the past year. With the sale of our industrial business earlier this year, we have streamlined Westport Fuel Systems into 3 ongoing business segments: automotive; our joint venture, Cummins Westport; corporate and technology.

Looking at our automotive business, our focus in the past 4 quarters has been on integrating the company and transforming our operating performance. In the first half of 2017, it has translated into good sales with strong revenues in quarter 1 as well as quarter 2. Part of this is due to our customers and suppliers who stayed with us during this time of transition and now see the merits of the venture -- of the merger. I could tell you that we have made the right decisions in our portfolio rationalization. The businesses we have maintained are contributing to our improved performance. Looking at quarter 3 and quarter 4, our focus remains on operational excellence and taking steps internally, steps that are in our control and we know how to execute upon to improve our overall performance and find additional cost savings. We believe the results will be better economies of scale, greater consistency across brands and a clear path into 2018.

Turning to CWI. It was a strong quarter. I am extremely pleased with the leadership team that it was able to deliver the strong performance which was above expectation.

I will let Ashoka talk more about our Cummins Westport joint venture as he is a board member. However, I can tell you we are enthusiastic about the engine lineup, which positions CWI well for 2018.

Our corporate and technology sector, which includes Westport HPDI and other advanced technologies. This is a milestone year as we look to ship the first commercial Westport HPDI 2.0 components to our launch partner. This is a culmination of many years of dedicated work and determination to bring HPDI 2.0 to market. We are closer than ever on seeing HPDI 2.0 trucks on the European roadways. The actual timing is driven by our launch partner, and we will defer to them. But we look forward to be able to talk more and report on this in the third quarter.

Our commitment to innovation and technology is key to who we are. We continue to have discussions with OEMs that come to us first because we are the global leader in natural gas technology development. But before -- as I have said, our work will be funded by these partners, and our commercial opportunities must be known before moving forward. In addition to HPDI, we're making progress on other gaseous fuel technologies as well. There are other exciting opportunities, but as you know, we will tell you about them when they are refined and complete.

On the corporate side, we continue to address our residual legacy obligations with the objective of putting them behind us by the end of 2017. This will allow us to concentrate on growing in 2018 and beyond. It is a parallel process of improving our overall performance, which will ensure that nothing will weigh us down as we move forward.

Before turning the call over to Andrea, I'd like to reiterate the management team is committed to the success of the company, and we have personally invested our own money into Westport Fuel Systems.

Last year, I outlined a clear vision of our path ahead. The vision remains unchanged. We're on a path we set out on and we will continue to dedicate our efforts to focusing on our core business, eliminating unprofitable initiatives, advancing key technologies and improving our financial performance. The team is acutely aware that we cannot and will not remain stagnant. We will continue to restructure our business to align with the next phase with our launch of HPDI 2.0. We are working hard and more confident than ever of what we can achieve. We are ready for the challenge and excited to start a new chapter for Westport Fuel Systems.

Thank you for taking time to join us today, and I look forward to speaking to you soon. Andrea, over to you.

Thank you, Nancy. Before getting into the slides, let me start by saying that in the last few months, I had visited customers and distributors and they are pleased with the focus we have put on addressing their needs after the merger. And with our service-level performance, even with the working capital reduction efforts we have carried out, we can see now with our top line the results of this focus on our clients.

Now starting on Slide 8. My comments will compare the second quarter of 2017 with the first quarter of 2017. Because the merger did not occur until June 2016, year-over-year results are less meaningful for comparative purposes. As you can see on the slide, we have transformed our automotive segment over the past 4 quarters. We are pleased with what has been accomplished and with the improvement of the first half of 2017 versus the second half of 2016. However, there is more to do, and additional efforts are underway, which we expect will show results in the coming quarters. As my colleagues and I have learned over our years in the industry, you cannot control market cycles, government policies or commodity prices. You can only control how you operate and deliver to your client.

Now turning to the performance in the second quarter. Revenues were up from Q1 2017 on higher aftermarket performance, notably in Eastern Europe and Turkey as well as currency tailwinds but weighed down by continued weakness in the Argentinian market. We have taken further restructuring actions in this region and did see an upturn in the market in July, which we hope will continue, but we will act quickly and decisively to assure our costs are aligned with market dynamics.

Gross margins of 24% were down slightly from Q1 due to a mix effect on OEM industrial treatment sales and to [a known] one-off effect in Westport Sweden and OMVL. On the other end, you can see the improved performance in the first half of 2017, driven by our alignment efforts.

Adjusted EBITDA for the automotive segment was $3.1 million or 5.1%, down from the first quarter. Adjusted EBITDA was impacted by lower volumes in Argentina and lower gross margin due to the above-mentioned sales mix effect. Actions have already been taken to address these effects and we expect to see margin improvement, all things equal, in the second half of 2017. We confirm that we are on track to reach our target adjusted EBITDA margins of 7%, 10% in 2018 and beyond. As we look at the rest of the year, we don't see any major changes in the outlook, and despite the typical seasonal [pardon] of the second half being weaker than the first half, with the September quarter, the weakest due to the holiday shutdowns and model year turnover. We are leaving our automotive guidance of $200 million, $230 million unchanged at this time and look forward to providing future updates.

I will now turn the call over to you, Ashoka.

Thank you, Andrea. My comments begin on Slide 10. With our recent monetization of non-core assets and financing actions, I'm pleased to state that our balance sheet has been strengthened, and we are now in a financial position to execute our long-term plan going forward. Many of our existing and prospective customers and partners are also reassured by these improvements on our balance sheet and liquidity position.

As of June 30, we had cash and cash equivalents of $87.7 million, which included proceeds from the sale of our industrial business during the quarter. In July, we completed an equity offering that generated additional gross proceeds of $28.7 million.

In connection with our debentures of CAD 55 million maturing in September 2017, on August 8, we made an offer to the debenture holders to either redeem or consent to an extension of the maturity date for a period of 3 years. As Nancy mentioned, we are trending in the right direction but know there is more work to be done to get the company on a profitable and sustainable footing. One year into the merger, we've had significant accomplishments. We have achieved $30 million of run rate merger cost savings, a year ahead of schedule. We have sold non-core assets, generating in excess of $100 million in cash. We have improved the automotive segment adjusted EBITDA from the second half of last year compared to the first half of this year from negative $0.8 million to positive $6.7 million. And our consolidated adjusted EBITDA has changed from negative $21.8 million in the second half of last year to negative $9.4 million the first half of this year, a 57% improvement.

Now turning to Slide 11, which shows the results of CWI, our joint venture with Cummins. Revenues and gross margins were up year-over-year and sequentially. The refuse market remains solid, and we also saw an uptick in the U.S. trucking sales. Gross margins were helped by higher volumes, higher parts revenue contributions and a favorable volatility adjustment, which is a direct result of quality upgrades put in place to improve product reliability and durability.

Income for the period was also helped by lower R&D and SG&A spending. As stated in earlier calls, CWI has elevated R&D and sales and marketing costs over the past 2 years as the company launched its new 6.7-liter engine, incurred engineering expenses to incorporate onboard diagnostics and for the development of zero-equivalent emission engines. We are almost through this higher spend and expect to see a significant decline in these spending levels in upcoming years.

CWI's new product line is a very significant milestone for the company. These new engines mean our customers can choose the most affordable path to zero-equivalent emission with no commercial constraints on supply or technological readiness.

Turning to Slide 12, which shows our SG&A and R&D expenses from our continuing operations by segment. Our SG&A costs did tick up during the quarter due to an additional $1.8 million in stock-based compensation charges as well as some foreign exchange impact. Rightsizing our cost structure remains a key priority, and further actions are underway. We will continue to take appropriate steps needed to align costs and revenues.

R&D spending was $14.2 million, up from the prior quarter, driven mainly by spending in our current HPDI program, much in line with the expectations laid out at the last call. As of now, we expect R&D spend in the second half of 2017 to be about the same or slightly higher than in the first half. In 2018, we expect R&D spend in the corporate and technology segment to be at about half the levels of 2017. We are also working on consolidation opportunities in our automotive divisions, which we expect will provide additional R&D savings as we move into 2018.

Turning to Slide 13, which shows our quarterly cash walk. Starting with the $47.7 million as of March 31, 2017, we received $79 million in net proceeds from the sales of our industrial business and $1.7 million in dividends from our joint venture. We also had $9.9 million in debt repayments, the majority of which was a prepayment of royalties payable to address our collateral obligations to Cartesian Capital. We had cash costs relating to restructuring activities and related to our discontinued businesses of $11.8 million.

Capital expenditures were $11.2 million, mainly related to equipment purchases to support the HPDI 2.0 production. We expect to spend an additional $7 million to $8 million in capital expenditures in the rest of 2017. Again, this is a onetime spending to support the HPDI 2.0 program.

Cash used in operations was $8.1 million, up slightly from the first quarter as expected on the higher R&D spend but much improved from the second half of 2016. We closed the quarter at $87.7 million, which of course, does not include the July equity offering, which had gross proceeds of $28.7 million.

Moving on to Slide 14. To summarize, as Andrea mentioned, we continue to expect our automotive revenues to be between $200 million and $230 million for 2017. We remain focused on aligning our costs to our revenues. We are excited to be shipping commercial HPDI components to our launch partner later this quarter, a significant milestone for the company. Our adjusted EBITDA will fluctuate in the second half due to the timing of HPDI spending and seasonality in the automotive business. However, we remain on track to reaching positive adjusted EBITDA on a consolidated basis in early 2018.

We look forward to reporting on our future progress and to speaking with some of you at upcoming investor conferences.

I will now turn over the call to the operator for questions.

(Operator Instructions) The first question comes from Rob Brown with Lake Street Capital Markets.

On the HPDI rollout, just wanted to get a sense of how you see that sort of playing out. You said shipping components in Q3. Do you have a shipment build that sort of fills the channel? Or how does the timing of that look at this point?

Rob, this is Nancy. On the HPDI rollout, again, we're a little bit paced at this point in this time relative to our launch partner's plans, but where we see our activities at this point in time, it's really filling the pipeline, as you have suggested. And that is -- what we're working with, we have really moved very far through what we call this PPAP with our suppliers so that we have all the supplier readiness there. And then it's a matter of filling the pipeline into our launch customer.

Okay. Good. And then, just following that, you said CapEx spending for the rest of the year, a little bit -- what's sort of the normalized CapEx spending after you're done with the HPDI side piece?

Ashoka, why don't you talk about that? Because he did mention something about what we -- what to expect in '18. So perhaps, you can outline '17 and a bit of -- more on '18.

Sure. As I mentioned, Rob, our spend this year -- as I mentioned, is essentially due to the equipment we are paying for at some of our key component suppliers, mainly at Delphi. We expect that to be complete by the end of this year. So on an ongoing basis, we expect our -- in 2018 and beyond, we expect maintenance CapEx to be in the region of, say, between $5 million and $7 million.

Okay. Good. And then switching to CWI, it was a very strong quarter. I guess what are the trends there? Do those continue? Were there some onetime stuff in this quarter? Or do you see that continuing? And then, maybe what's the trajectory of the cost out there as well?

No, I think it was a good quarter in a number of levels. Volumes are holding up well. We are seeing strong demand on the refuse side. And as you know, we just -- we launched the 6.7-liter engine into the school bus market last year. So on the revenue side, it's holding up well. The trucking uptake of the 12-liter engine is also positive, so there is good news on that front. But on the earnings side, the reason we had such a significant improvement over the prior quarter had to do with the warranty accrual -- a favorable warranty accrual adjustment. Now these adjustments are calculated once every quarter at the end of each quarter based on the warranty costs incurred during the course of that quarter, and it's essentially catch-up adjustment at the end of each quarter. So while this was very strong, I do not expect this favorable warranty to continue to play out going forward unless, of course, there are incremental improvements and you start seeing the effect of this incremental improvements.

Ashoka, I guess I would also add is that with this zero-equivalent product that we have, I think that the product is coming out in the marketplace in just the right time. Because it has attributes that are similar to that, that you would have with electric vehicles, we're finding that, that also -- as we move into '18, since all the engines will be the zero equivalent, this will also position us quite well for additional growth and opportunities, especially as certain cities, whether it's L.A. or others, are looking to refresh their fleets or add additional, I'll say, more -- I'll say environmentally friendly products into their portfolios in terms of their public transport products.

Yes. Absolutely. Good point.

The next question comes from Amit Dayal with Rodman & Renshaw.

Just one question around the guidance. You think by this point of the year, the guidance range would have been narrowed a little bit? Could you give us any color on what are the variables between this range in guidance that may be in play?

We spent a lot of time talking about whether we should narrow the guidance. However, at this point in time, we have some seasonality because of the European holiday season and some attributes like that. So at this point in time, we decided, at least as we move in to quarter 3, we were going to hold onto it. And I think that as -- I'll give it back to Andrea for a few words. But I think that we are going to just wait and see how quarter 3 turns out, and then we'll come back and talk about this as we move into the next quarter.

Yes. As you mentioned, Nancy, historically, the second half of the year usually is, let's say, the lowest compared to the first one, in particular in Q3, as you mentioned, due to the reasons I mentioned also during my section. And so we prefer to wait until Q3 in order to understand if we can narrow and maybe improve the -- let's say, the guidance furthermore. So after Q3, you will see for sure a different range.

Understood. And in terms of the HPDI 2.0 launch, are there any concrete dates around shipments or announcements that we can sort of look forward to?

I would say that, from our point of view, we're being very much gated by the launch partner. We do have schedules on hand, and we know what our shipping windows are and what our obligations are relative to their schedules. However, as I said, I think that we'll have a much more satisfactory discussion with you guys as we move into quarter 3 as they have -- as they move further into their launch window and have put their plans out on The Street. So bear with us as we get through this and move into the -- as we close out quarter 3, I think the discussions will have a lot more clarity to them.

Understood. And just lastly, are there any additional milestone payments due in relation to HPDI 2.0? Or are we done with those?

Sure. Yes, there are additional milestone payments that we will be making through calendar year -- the rest of calendar year '16 (sic) ['17] and even into early calendar year '18. But as you can see, we are continuing to really drive our costs down as we're now past some key milestones relative to where we are, but there are a few, as you could imagine, as we get through the latter -- into the final launch phase.

The next question comes from Jeff Osborne with Cowen and Company.

Most of them have been addressed but just a couple, Nancy. Can you talk about beyond your launch partner that you have later this year what the outlook looks for '18? Do you anticipate other partners being able to launch? Or where are you with the developments for people other than the launch late this year?

As I mentioned, Doug (sic) [Jeff], we are in discussions with quite a few folks relative to HPDI. I think that this is an interesting time in the trucking industry for a variety of different reasons. As you can hear globally and as I travel around the world, the voice around -- where the opinions are around diesel and greenhouse gas trying to be much, much more clean relative to the environment, all of these have ratcheted up very, very positive discussions with quite a few of the OEMs that we interface with. So there is a lot of, I'll say, discussions going on. HPDI is a good portion of that. However, I don't want to get ahead of ourselves, even though I see some things that are quite promising. I want, really want to wait until we get them fully inked before we bring them out. But I would indicate to you that HPDI is one of the best technologies that we have in terms of greenhouse gas, the 20% improvement that we get over that of diesel. And there are a lot of other positive attributes as well, especially as infrastructure gets built and the customers are seeing a zero-compromise product, and they get like-diesel performance. So we're very pleased with where we are on that front, but we've got to get a few more things solidified in terms of how we want to differentiate products and be able to bring the products out to market with others.

Makes sense. Can you just comment if there's anyone other than your launch partner actually doing fuel test validation work? Or are these still just discussions about theoretical (inaudible)?

No, no, no. We're -- I would say things are moving along. I'm not going to give you specifics, but I would say that some folks are moving trucks onto the road, and other people have -- we've finished engine work and we're now moving on to the next phase.

Got it. I just want to make sure we're past the discussion phase and there is actually some work being done. So it sounds like that's the case, and good to hear. Ashoka, I heard the comment for 2018 about R&D, since we're going down in the half as HPDI 2.0 launches. Can you just touch on the other line items within OpEx, how we should be thinking about those for the year? Or are there any other major moving pieces there? Or are you just being disciplined in maybe some slight reductions but nothing [hurling]?

Yes, I mean as I mentioned, our integration efforts have started to bear fruit already, and we are a year ahead in terms of schedule with our merger integration. And now, our focus -- and most of that focus has been on the COGS side, on the cost of goods sold side. And you can see the effect on our gross margin levels compared to last year. We are now turning our focus on the OpEx side, both R&D and SG&A. With the corporate and technology segments, it's pretty straightforward. And that as the launch gets behind us, we expect to see a 50% drop, which is a reasonable number to kind of work into your model, a 50% drop in R&D expenses. Additionally, we are looking at consolidating engineering efforts on the automotive side as well. So we expect that -- you can expect to see a decline. At this point, unable to give you a range or a number. And likewise, with SG&A, while a good number of actions have already been instituted, notably, the closure of the Fuel Systems corporate headquarters in New York City, which we have essentially integrated into our Vancouver operations with minimal incremental cost, we have exited a very significant lease obligation here in Vancouver. There was a plan to move corporate offices into a larger, more expensive facility. So we exited that under very favorable terms, which is a part of our restructuring costs this year. So you can expect improvement, no doubt, and we will look forward to reporting on that as it rolls out.

Makes sense. Look forward to seeing it. Just lastly, can you just talk about the regional trends you're seeing on the passenger vehicle side from the legacy Fuel Systems and for the smaller piece of Westport? And in particular, I was just curious what your exposure to Venezuela is.

Andrea, why don't you take that one on? On Venezuela, it's relatively small, but I'll let Andrea just talk about what we're seeing on that side of the world.

Yes. I'm not sure I got all the questions. Could you repeat please the questions? You are mentioning the performance (inaudible).

Yes, I was just wondering if you could kind of walk us around the world and say roughly, Italy or Western Europe is 50% of demand. Just -- are you seeing any major regional trends as it relates to adoption of your passenger car solutions? And then in particular, I was curious about the Venezuelan exposure. I know historically, your company had, had some exposure to that market.

Yes, yes. So let's say that -- well, as you know, we have -- and also as Ashoka was mentioning, we have consolidated our footprint in the U.S. So starting from North America, we have consolidated our footprint in the U.S. because with this, let's say, low oil price, demand is not very strong, I would say, for Light-Duty. So we have consolidated our footprint there because demand is just not strong there. Getting to South America, we have also consolidated our footprint in Argentina. Argentina has been going through a dramatic downturn in the first, I would say, 3 months. And then in May and June has been even worse. Now in July, we had some positive news with the -- a revamp in the market, but I will wait the next 2, 3 months to understand if this is structural or it's just, let's say, an isolated event. Eastern Europe and Turkey, in particular, getting out to Europe and Middle East, are the markets that are going better, I would say. So we see very positive market trends in Eastern Europe, so Russia, Poland and Turkey as well. Turkey has become the first market, I would say, in particular for the aftermarket channels. In Italy, aftermarket now is start increasing again, even though very slowly. But as on the OEM side, in particular for LPG, the first 6 months, we have experienced a 25% growth year-over-year, so very, very, let's say good trend. I would say that, in general, in Europe, alternative fuels are going very well. And this is a trend that is going probably against diesel as everybody is mentioning. So not only electrification is taking place but also we are playing, let's say, our role in getting part of the diesel, I would say, market share. Moving to Asia, I would say that India is very interesting market also for Light-Duty. I would say, for all the application, but in particular, for Light-Duty. We have very interesting relationship with established OEMs there in India with our CNG solutions, and also in the aftermarket, in particular for taxi applications. China, I would say, we have -- there is a moderate interest for alternative fuels in the Light-Duty. It's more a delayed OEM kind of market and their electrification is going very fast. I hope I've given you an overview.

(Operator Instructions) The next question comes from Colin Rusch with Oppenheimer.

Can you talk a little bit about the maturity of the infrastructure or the fueling infrastructure in Europe as you go into the back half of the year? How many partners are you working with to look at that buildout? And how can we expect that to pace or what the cadence might look like over the next 6 to 12 months?

I assume that you're talking more around the LNG. I would tell you that -- and Andrea has got some great statistics on where we are built out relative to CNG and LNG in the European markets. But what I would tell you on the LNG side, we are seeing continued efforts. Now the good news is as we work with the various OEMs in Europe, they are also working with us collaboratively with our fueling, a variety of different fuel partners. Shell, in particular, is one that we work with quite well. We are working also with certain government groups that are trying to build what they call corridors, so like there's such a blue corridor that's going in place. So there's quite a bit of activity. And one of the things that we're highly encouraged as we get into this launch window is, is that in several areas, whether it's Spain or in the U.K., there is a tremendous amount of infrastructure already in place and just a matter of getting vehicles there that can use the LNG infrastructure that's already in place. As you can imagine that there has been a lot of work over the last years of moving the port infrastructures around into using LNG. And that has also enabled infrastructure to be quite nicely built out at this point in time. So we're -- we work with a variety of different fuel providers. And I think the other good news is by collaborating with -- triangulating the OEMs with the fuel providers as well as with Westport in terms of getting products on the road, this is -- the, combination of that is quite powerful. And we're seeing good buildup, and we're not finding that fuel infrastructure is really restraining the ability to grow at this point, least in the European market.

Great. That's very helpful. And then just turning to the balance sheet, can you talk a little bit about your expectations for working capital needs as you go through the balance of the back half? Are you going to see working capital as a source of cash as we go into the back half of the year? Or are you going to see a little bit of increased investment?

Ashoka, take that one?

Yes. Thanks, Nancy. Yes, you're right. As we launch HPDI, obviously, we have to address the fact that we will see an uptick in our working capital position there, but we don't expect to be that significant or -- in single digits is the best direction I can give you in terms of where I expect that to be. We continue to take action on the rest of the operations to address working capital at all levels: AR, AP as well as inventory levels. So we expect to see some moderation of the increase in working capital on the corporate and technology segment.

Okay. Great. And then final question is just around debt repayment. How much are you expecting to pay back in the back half of this year? And how should we anticipate that rolls through in the third and fourth quarter?

I think that, again, Ashoka mentioned, and he can go into the details. Right now, we have gone to our debenture holders. They have been very good to us. Many of them have been with us since 2008. So we'll wait and see exactly how many of them would want to continue and extend their venture -- their debentures with us. That will really determine the -- a good portion of the repayment that we need to take in the last part of the year. And those -- the debentures right now, if folks don't want to do anything with them, September 15 is the date that we need to be able to repay them. However, as Ashoka mentioned, that we're in active discussions with them now and we'll see prior to that September 15 date exactly what their desires are.

The next question comes from Eric Stine with Craig Hallum.

So I just wanted to touch on Europe. I know in that market, Iveco and Scania, they've come to market with their spark-ignited engine, and uptake has been solid early. Just wondering, given HPDI diesel equivalents, what kind of confidence that gives you and your launch partner, what that potentially looks like early, but then also as you look out 3 to 5 years.

Well, I think, Eric, what we're finding is in the European market, as I mentioned, with some of the dynamics going on and some concerns relative to diesel and how it impacts the environment there, all of these products, whether it's the Scania or Iveco products, spark-ignited, I think that this zero-compromise product that we have with the HPDI is going to put us in very good stead. And its cost -- its operating cost and its performance, the combination of those 2, we think, is going to put us there. So we are quite pleased to be able to offer a product that has a bit superior performance over that of the SIs. So we think Europe is going to be quite strong market. We see Spain, we see the U.K., we see Central Europe, or whether it's Germany or the Netherlands, and those places going to be great launch venues for us as we move here into the latter part of '17 and early '18. And we think that, that -- we're just going to continue to build on that as we work with other OEMs as well.

Yes. Maybe just sticking with HPDI and the cost profile, and I know that you're not in charge of the price and I get that. But just from a high level, HPDI versus spark, I mean, is it possible that you see an equivalent-priced engine or potentially cheaper, just given that there are many -- the number of components is quite a bit less?

Again, what we're finding on the spark-ignited, in many cases, folks are using LNG as well. So they're having LNG tanking and that kind of thing. It's very hard for us to tell. I would say that as we get into third quarter, we will have a better understanding of exactly what the prices are comparatively. But at this point in time, I think that, again, with the performance characteristics and that kind of thing, we should be quite competitive.

Got it. Okay. And maybe last one for me just on the Light-Duty business. Last call, you mentioned some outstanding tenders in various markets, so maybe just an update on some of those, whether those are potentially 2017 events or whether those are more 2018.

I would tell you that we have made progress on them. In certain cases, there will be activity that will be in '17, and in some cases, some of them will carry over to '18 revenue. But we had -- as we moved into quarter 3, we did have some positive, I'll say, shipments that were against one of our tenders. Andrea, maybe you could add some further color. But it wasn't -- it didn't impact our quarter 2, but it should have positive impact on our quarter 3.

Yes, as you mentioned, Nancy, we had -- the first tender we won for North Africa, we shipped that in July. So we'll see -- you'll see the results in Q3. The same tender, we had a further request, and we won that for, let's say, the second part of the year. So you'll see the results in Q4 2017. Another tender for North Africa that we won are going to affect 2018. And then another one we are participating will be awarded, let's say, at the end of August. So that one will be shipped probably -- if we win it, at the end of the year.

Got it. Any way to talk about the magnitude of that? Or are these just kind of standard course of business tenders that you win going...

Yes. I would say the good news is, is that yes, these are standard course of business. I think that with our -- as we have combined and merged, we're in a much stronger position because, first of all, we're not competing with Fuel Systems. They're part -- Westport Fuel Systems is one team now. But we've got multiple brands that we can bring out into these different countries. So I think we're well positioned on all these, and these are all good opportunities for us. And based on how the countries do these -- they come and go, but each year, we're able to participate. And we're very pleased this year we've had quite strong performance against the tender side.

Yes, yes. Exactly. That's normal course of business. Even though the one that we will ship in 2018 was the biggest ever happened, so 60,000 kits, so systems. So revenues there will be between $6 million and $8 million, so a pretty sizable tender. But that's correct. It's a standard way of business. They are recurring tenders. And as a combined entity now, we are able to provide competitive prices and competitive products with all our brands.

That's all the time we have for questions today. I would like to turn the conference back over to Caroline Sawamoto for any closing remarks.

Thank you, everyone, for joining us today. If you have any follow-up questions, feel free to reach out to the Investor Relations team, and we look forward to speaking with you again in early November. Thanks again for your interest in Westport Fuel Systems.

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