Q1 2020 Westport Fuel Systems Inc Earnings Call
[music].
Thank you for sending by this is the conference operator.
Welcome to the Westport fuel systems first quarter 2020 results conference call I.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
He joined the question to you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Shawn Severson with Alpha direct advisors Westports Investor Relations Representative. Please go ahead mr. see person.
Thank you and good morning, everyone welcome to Westport fuel systems first quarter conference call, which is being held to coincide with the press release contained Westport fuel systems financial results there was distributed yesterday.
On today's call speaking on behalf of Westport fuel systems, as Chief Executive Officer, David Johnson, Chief Financial Officer, Rich doors Eddie.
Tenants on this call is open to the public into media, but questions will be restricted to the investment community you reminded that certain statements made in this conference call in our responses to various questions may constitute forward looking statements within the meaning of the U.S. applicable Canadian securities laws and as 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. 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'll now turn the call over to David David.
Good morning.
Thank you for joining our conference call to review Westport fuel systems Q1 2020 results.
I sincerely hope that all of you with your colleagues friends and family are healthy and well, let you stay healthy well.
I've had a chance to speak with many of you said territory 19 year on results call on March 17.
It has certainly been a challenging time, but I've also been incredibly impressed with the resiliency and injury. The our team in the face of this global crisis.
Our focus has now shifted from Cobot 19 response to a safe and efficient post Kobe had recovery.
As this pandemic made its way around the world. Our teams have been following government guidelines local protocols in each jurisdiction, where we operate.
Our people are some tremendous fortitude and safely and effectively resumed operations at all or locations.
Despite the near term uncertainty and expected softer demand in the passenger vehicles current business I'm confident that the need for affordable clean transportation solutions for me, it's encouraging to see that climate change hasn't fall into the back burner.
Rather we're seeing signs that the green recovery is on.
Cost consciousness renewed pragmatism means that capex decisions will be heavily scrutinized and with that scrutiny will come in realization that electric propulsion for long haul heavy duty truck applications is that best inexpensive distant hope for the far off future.
Gaseous fuel solutions, our proven available and affordable right now.
Vehicle purchase decisions might be delayed by the postcode bit economy, we believed compelling fundamentals quite directly solutions for Westport fuel systems.
And with renewable natural gas otherwise known as bio methane the story on becomes more compelling.
[noise] post cobot, the challenges of climate change and urban air quality have not disappeared.
That need to officially move goods hasn't disappeared the world needs affordable clean transportation more than ever.
There have been a number of important developments since our year to results call and I'll walk through those and moment, but first I want to share the headline Q1 financial results.
On the heels of our successful Threenineteen results each of our operating segments was performing in line or ahead of our 2020 expectations prior to the onset other shutdowns that economic fallout cobot 19.
Our first quarter results reflect the impact of could at 19 related customer shutdowns, which began in China in January and spread to Europe, and North American mid March.
Roughly 75% of our global operations are located in Italy, where shutdowns were implemented in the second half of March and then through all of April.
In Q1, we mitigated Chinese supply chain disruptions stem from there could shut down and we're able to increase inventories and shipped to meet customer demand in advance of our own shutdowns.
Our headline financial results are as follows.
Consolidated revenues for the quarter decreased 8% or $6 million to $67.2 million compared to the same period last year.
Adjusted EBITDA of minus 3.6 million was lower compared to 7.3 billion last year, primarily due to a $10 million charge for a service campaign to replace press release valves in the field.
I must note there have been no failures in the field to date, we've been proactively with our customers to eliminate the remote risk associate with the batch of our components are replacing those components in the field, we expect to recover a significant portion of this charge from our insured during the second half a year, but accounting rules now that was to book the insurance recovery at this time.
Our efforts to shore up the balance sheet and improve liquidity include the recently announced long term 5 million Euro loan secured through Unicredit. We're in the process of securing a $10 million bridge facility with export development Canada.
We have been successful in accessing various government support programs in Canada, Italy in the Netherlands, and expect approximately 4 million wage subsidies in Q2 2020, we very much appreciate that support at this time.
So now we're back at work in order flow is returning we continue to focus on cost reduction disciplined cost management and supporting our global team in their communities as we navigate this recovery period.
At the same time, you've been able to secure new business opportunities such as the recently announced deal with gas deck in Egypt.
It's encouraging to see green shoots of optimism in the face so much uncertainty.
As our customers partners and suppliers returned to production there have been many questions about the impact the downturn in our industry, let's start with China.
Despite cobot 19 related delays are we try Westport joint venture has completed all the emissions testing with the Chinese Ministry of ecology, and environment and was the Chinese ministry of industry.
We greatly respect the efforts of the Chinese government officials to confirm the test that were completed their satisfaction. We're optimistic that the current administrative proceedings will conclude with the final paperwork for certification in the near future.
Well the certification delay affects the timing of the commercial launch and the production and sales ramp that follows we do not expect will change the shape of the adoption curve.
The long term potential of H.P.I. in China, the largest natural gas commercial vehicle market in the world remains compelling we have a great partner and a great product and a large market dessert and we look forward to doing that just when it Chinese government provides a fan of green light.
Now, let's turn to Europe.
The European Union screen deal includes measures to increase the supply of low emissions feels.
Bio methane otherwise known as renewable natural gas or R&D accounts were 17% them all natural gas fuel consumed by road transportation in Europe and in some countries Biomethane already dominates.
For example in the UK renewable natural gas Biomethane is nearly 70% of the mix well in Sweden, 94% of CNG fuel is sold is renewable.
In Denmark, all CNG stations dispense renewable natural gas exclusively.
Production capacity is driven and the infrastructure is in place and rapidly expanding.
Rail Dutch sell has just committed to opening 10 more sites this year in Germany to more in Belgium, one in Poland, beginning to invest also in Austria.
There are liquefaction plants are bio G are progressing quickly expected to come on line. This year in a large German liquefaction facility coming online 2021.
A vehicle fuel with renewable gas is effectively climate neutral.
We believe renewable gas is the best solution to accelerate the de carbonization of the transportation sector.
In Germany, the authorities have a nasty extension to the role toll exemption for CNG and LNG, having new trucks through 2023.
While still subject to parliamentary approval. This is an important signal to the marketplace that natural gas trucking is a critical component of Germanys decarbonization plants.
[noise] additional subsidies on the purchase of natural gas vehicles announced in July 29 team that is 12000 zero for LNG vehicles, 8000 year olds for CNG vehicles, and a fuel energy tax on natural gas that is 70% less than diesel adds up to significant savings. These subsidies amount to approximately 70000.
I think euros of savings in the first five years vehicle operation.
You also see signs that weren't optimism for our liked it and aftermarket products.
According to the European Automobile manufacturers Association. This latest report the demand for cars filled with CNG in Europe decreased by 68% in the first quarter 2020.
It did the remains Europe's largest market for light duty vehicles, followed by Spain, Belgium, France, Sweden, Germany.
Like most of you I've been following closely the commentary about the global economic recovery.
As the economy restarts gaseous fuels, including LPG natural gas hydrogen and renewable gases I figured prominently in the greendale initiatives of the east recovery plan.
Commercial demand is strong we may not see quite a steep growth curve as we are projecting for 2020 on the aftermarket side, we're concerned about consumer confidence and we expect to endorse and softness in man.
We believe a focus on renewable and decarbonize gases as well as clean as a stable mobility offers an opportunity to boost the economic recovery retaining creates jobs and cheap critical emissions reduction goals.
As we look out to the remainder of the year distended recovery of our OEM and aftermarket businesses the growth of H.B. on Europe, and the upcoming production lunch Beach beyond China are keys to our success.
I'm confident we can whether the current headwinds in our team is committed delivering on their strategic priorities.
To recap we remain focused on the successful commercial launch of H.P.D. I in China.
Further cost reductions.
New light duty and heavy duty OEM businesses in key market geographies and the price profitable growth of our light duty business through both the aftermarket and OEM channels.
Despite the near term uncertainty a strong regulatory ecosystem is still there and so is this target tire for green recovery.
Now I'll turn it over to Richard to review our financials Richard.
Thank you David.
As David described in the financial highlights of the beginning of the call. During the first quarter revenues were 67.2 million, which was a year over year decrease of 6 million or 8% compared to the first quarter 19.
The decrease was driven mainly by lower sales in March.
Light duty heavy duty business caused by the shutdowns from coal was 19.
We had softer sales in our light duty OEM business to our Russian and German customers.
We have some contracted price concessions door H. VDI launch partner that started in late fourth quarter 2019 gross.
Gross margin of 4.3 million decreased by 12.9 million year over year, primarily due to the $10 million charge, we took on the field service campaign.
On a tax affected basis.
George was approximately 7.5 million.
As David described we expect to recover 70% the replacement cost from insurance recovery. However, we have not recorded the recovery at this time due to the early stage of the insurance claim review.
We expect to recognize insurance recovery once we have official confirmation from the insurance company.
Excluding the charge margins were also impacted by lower revenues from our OEM businesses by 3.6 million, partially offset by some improvement in our independent aftermarket business of about 1 million.
Income from equity investments of 5.4 million.
It was down 37% year over year due to lower CW, our earnings driven by 17% decrease in engine sales and lower parts sales.
The decrease in engine sales in the first quarter 2020, largely reflects the timing of transit orders and build schedules combined with lower refuse market sales.
Net loss of negative 15.3 million down 12.3 million year over year resulted mainly from the 7.5 billion dollar charge for the field service campaign, lower OEM margin and an unrealized foreign exchange loss of approximately $7 million from the translation of ours.
Plus dollar denominated debt in our Canadian legal entities.
The unrealized foreign exchange loss was driven by a 9% devaluation in the Canadian dollar.
As most of our revenues are generated in euros. This is somewhat less of a conservative paying down our debt and actually realizing a true cash foreign exchange loss and more of an accounting loss.
Turning to EBITDA year over year ever, though was negative $11 billion, which was $15.3 million less than positive 4.2 million in the first quarter of 29 team.
After adjusting for non cash and nonrecurring items.
As share based compensation.
Unrealized foreign exchange loss year over year, adjusted EBITDA decreased by 10.9 million from pauses up 7.3 million negative 3.6 million.
Turning to our liquidity and financing we had a net cash outflow up 6.9 million during the first quarter and we ended up with 39 million in cash on hand, the cash outflow was driven mainly by a buildup of working capital.
The CW I didn't was consistent year over year. However, we expect decreases for the remainder of the here.
Our cash flow from financing activities were lower year over year due to a deferral of one principal payments on the export development, Canada term loan and we drew on our credit facility.
Over 19 has built those new challenges.
Which we have been dealing with since early March and though we expect to persist through the end of the year.
Majority of our businesses like now reopened and we are seeing demand beginning to pick up albeit modestly.
We have taken several steps to improve our liquidity.
These actions to date have created approximately $20 million and short term liquidity to weather the economic impact of co with 19.
We are taking a structured and measured approach to secure liquidity for the short term, but thinking about refinancing for long term to fund our growth HPD dart and or other growth opportunities.
The actions taken to many of which we have communicated in press releases or at or ATM include a deferral of $6 million principal payments agreed by export development, Canada, which is effectively a de facto extension of the term loan the 2022.
As previously announced 5 million Euro loan to one of our time subsidiaries by Unicredit under the Italian government stimulus program known as the the critical of liquidity Todd.
Salary and other compensation deferrals of reductions, which we expect will reduce expenses by 2 million.
Sure.
Turning 20 across the board spending cuts and capital expenditure reductions, which are anticipated to reduce cash outflows by $3 million during 2020 wage subsidies from several governments and the jurisdictions, we operate like Canada, it'll either another Sweden, adding that states are expected to provide $4 million in the second.
Quarters.
In addition to the auctions completed we also expect new debt financing enabled by government programs in Canada, usually including a $10 million bridge facility from export development, Canada. We are also pursuing additional loans in Italy under that the crypto liquidity, though.
As discussed at our ATM, we indicated that we were working to secure bridge on long term financing in the range of $20 million to $30 million.
With the recent Unicredit loan you see bridge financing we are comfortable that this range is achievable.
We're also in discussion with current lenders the potential extend maturity dates on other loan obligations under mutually agreeable terms.
Over the next year, we will also continue to evaluate ore sources and uses a financing to improve our cost of capital and aligned to the long term growth and you took a company.
We are confident about our action plans will provide us with unnecessary liquidity to meet our obligations as they come due and provide the capital to continue to grow our business.
Westport fuel systems as market ready tested ambitious skilled vehicles have achieved scale and many market segments with the potential of renewable gas to offer net zero carbon solutions, we are ready to be part of the economic recovery.
With that I'd like to turn it back to the operator for your questions.
Thank you well now begin the question and answer session.
Analysts who wish to join the question can they press Star then one on your telephone keypad, you will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset for pressing any key.
To withdraw your question. Please press Star then too.
Well, we'll pause for a moment as colors join the queue.
Our first question comes from Eric Stine with Craig Hallum Capital Group. Please go ahead.
Hi, David I Richard.
Good morning, Hey, great to hear.
Confidence in the balance sheet, given the steps taken to date and some things you're targeting near term I was wondering your two two months into the quarter about a month beyond how where you've started to ramp back up in Italy, I mean, I know that a lot of uncertainty and and still.
The environment it is.
I mean, just a lot of questions works, but any anything any details you can share about.
What you're seeing early days in Italy markets, where you may be seeing some relative strength.
That would be very helpful.
Yeah, Eric glad to answer glad to follow up you know it's it has been in that continues to be a difficult time as the as everyone knows not just us.
But oh, we do see Green shoots says as we mentioned just a moment ago that the there there are.
The becoming like back delights consumers and industries also and so as you know going into the co big crisis, we created a number of scenarios.
Sure they like many companies did and stress tested our our liquidity plans against those scenarios and as we look at that and that kind of looking backwards a little bit on what's actually unfolding.
We see that the we rebounded the equation enough. So our worst case is there that we use is worse than it's actually use right now, which maybe sounds a lot. So optimistic but frankly, you know we're pleased to see the market coming back and we think that the actions being taken by governments have been very helpful.
But we're not through this yet so that's where we come out saying you know so far so good we're pleased that our factories are opening we're pleased that our customers are reopening how we're pleased to get the orders from our OEM customers and see that order bank building back up.
But you know there's a there's a lot of kind of still ahead of us and it looks like a long road.
Right right now okay.
I can appreciate that.
Maybe then just on on China, and wait Shai I mean your commentary here in the call is it's certainly different and more optimistic than in the in the release itself you know same targeting something in 2020.
I'm curious I mean, what what types of actions have you taken in the market.
And I know that doesn't change the you know what you think that the growth curve looks like but I mean, how does this set up and that if we were to see a.
The the certification was granted I mean do you think this is a quarter or two or how do you think about when you may start to see activity and then that activity followed by a a ramp in volumes.
Yeah, I totally get where you're coming from another question and were making our our efforts to understand as best we can looks ahead first in the Chinese market, we're confident and getting that certification. We've done all the things we do a the product is ready to launch we need to certification of course read that pay.
Work and that we expect that become I don't know at what pace. So we're hopeful if any day now, but they were a wait and see above.
In terms of the market dynamics, though I I'm I'm really encouraged about the opportunity that we have a great power partner with reach I power.
Were the strongest player in the market with natural gas engines already today with spark ignited product, adding HBT added mix you know, it's a it's a far superior product in spark admitted product that we think a the market is really ready for it having said that we also recognized like we went through in Europe with our lead kept your there there is only.
Turning cycle for every fleet operator every truck driver to try it out and get used to the new technology and get comfortable with it.
We do think that the evidence that you will have the market uptake in Europe will propel the Chinese market, even more we also think that a wage I powers and supplier engines, and our joint venture, which I Westport as a supplier engine that can serve multiple Oems and will serve multiple Oems and so we have that additional benefit nonetheless.
My expectations for this year are modest and my expectations are 2021 are quite significant I'm looking forward to launch curve unfolds in front of us.
Got it.
Maybe last one for me just if you could provide some details on the on the phone the the pressure pressure device.
And I guess, where I'm coming from is that likely some bearing on the insurance repayment. I mean, you clearly feel confident about that but also in the timing of getting that a reimbursement I think you're targeting for Q.
Yeah, absolutely. So so this is Ah you never liked to have these situations, but in our business.
You have to react I'm very pleased with the way our team has reacted we identified the root cause we fixed the root cause we got new parts into production and we're working with all our customers around the world to replace those suspect parts that are in the field as quickly as we can.
You know in terms of the insurance recoveries seems pretty clear to us that we're in a good place then we'll have a good result, but necessarily we have to work with our insurer to ER to secure those recoveries such provide all the evidence.
And work through that process and that just takes time. So I've had in my career. Unfortunately, a chance to work on a number of actually like this with different Oems and it always takes longer than you'd like with respect to getting the job done and are getting insurance recoveries, but at the same time. A this is a just a let's say normal.
Part of business. Unfortunately that we have to go through time to time, so the a CR weight we are too.
The insurance recoveries and to provide a good products for customers.
And in that you know that view that it always takes longer than you'd like you're you're factoring that in when you talk about fourq you as the target.
Absolutely. So we have the discussion opened up a darn sure, but we haven't been able to concluded at this point time, it's pretty early in the process. We've just.
Started the process in the field. So there's plenty of work to be done, but I don't think this is a multiyear process by the way shape or form. So I think we can this years very reasonable.
Okay. Thank you.
Thank you Eric good to hear you.
Our next question comes from Rob Brown with Lake Street Partners. Please go ahead.
Hi, good morning.
Good morning, I just wanted to just wanted to clarify the kind of in the automotive side, the OEM versus the aftermarket recovery expectations.
In order flow start to return from the OEM side, and I guess, which one do you sort of see ramping more quickly and sort of your view on the habit of those two markets recover.
Yeah, I think it's.
Pretty clear from what we've seen already and just thinking about the marketplace.
The trucking industry in general around the World has a demand that doesn't fluctuate nearly as much as what consumers do so you know the trucking side, we need to move rates and one of the things I was kind of letting recently is that you know, but typically in an economic downturn like we're certainly having now and we'll have for some time.
Truck fleets do push off orders.
And don't buy as many trucks as they originally planned to conserve some their capital in kind of tough times.
But when I expectation is that when they push up those letters are pushing water is off of diesel trucks, and they're keeping or maybe increasing their order of LNG trucks, you know with Germany, putting in place or that extending a tax exemption for natural gas trucks.
Germany at their big economic incentives and we are no that our trucks provide you got low lower total cost of operations, even absent those road total incentives and purchases and it's just based on the fuel price. So from my perspective, while the market for trucking may decline of Rals have some softness that will last summer in true.
Short period of time, hopefully the demand for our products I think could actually and we expect to grow and we're seeing side to that.
The passenger vehicle side this really get the Sammy budgets, you know basically people taking their cars to look a workshop and having it changed.
From a gasoline only to abide deal with natural gas or propane. A this is a individual decision to the consumer and so the consumers need to see that the economy's coming back. They can go out to dinner again, it's a their job is is retained these real individual Ah ah aspects of a budgets and so forth at.
The same time I think a countervailing forces there is that basically our products that are purchased in markets around the world because of the money that the page. They are on fuel and so we think theres a balance there that will be achieved and we will have a good business going forward, but it's really hard to judge it right now until we truly get into the.
I'll say the nor the normal range of recovery that is just starting to unfold right now in markets around the world.
Okay. Good. Thanks, Thanks for that clarity and then I'm on the CW I side at was down in the quarter, but what's your visibility there and how those demand trends stabilized here into the the most recent months have you seen that come back or is that still quite uncertain.
And we see a little bit of softness that I think a much like the comments I made regarding commercial vehicles in Europe at the same thing plays out in North America. You know as an example, you know you PS placed this a large order last year talking about their view of natural gas trucking and I you know from what I understand in the marketplace.
Learnt backing away from that they recognize I've done years of March and decide what kind of technologies.
They want to apply in the marketplace.
The waste management in the World and another key customers bars continued to be keen to have our product portfolio in operation for their fleet.
I do think there in some some softness if you will in transit buses as I've mentioned previously has nothing to go but where basically you know electric buses have made some inroads and so that puts pressure on our train side of the business. Nonetheless, I think as people try out those technologies and natural gas in transit will continue to be an important part of the mix and so we see.
Some softness just based on the general economy and and some.
Ladies and so forth, but but not so significant in the Grand scheme of things we believe.
Okay, great. Thank you I'll turn it over.
Thanks, Rob.
Our next question comes from Colin Rusch with Oppenheimer and company. Please go ahead.
Thanks, So much guys well talk a little bit more about the details on the CDC facilities in sort of covenants are anticipating collateral, including restricted crashed that won't be associated with that that mine.
Hi, Collin, it's Richard regarding a security and collateral it's going to be the thinks the same one that's.
Even with some new [laughter], so nothing really changed on that.
The there was a very friendly it's a very friendly loan. It's a you know it's going to be prime plus 3% I'm sorry, if it comes at a time, that's very helpful to us and.
The D.C. has been a a big supporter of clean Tech and has been in our corner right from the beginning as can be seen by the you know that deferral sort of the extension effectively at the terminal.
Okay, we hold together, we hope to get announced the shortly we're just going through the paperwork because of all the security our or just the way the nature of some of our loan. So we've done in the past, there's a little bit tricky of where we're we're Apache security in different jurisdictions about ceiling thing, that's really holding it up right now.
Okay, and so you can use the that that capital across the organization or is it really going to be restricted.
To the giant business.
Yes, the it's mainly dedicated towards investing in each BTI and working capital in the parents. So it's that's one of them on is gonna be spent with regards to the rest of the business, where we're using that financing through a mainly through a Italian banks right now which have been even more lucrative there.
No sub to 2% cost of borrowing.
Okay got it and then can you talk a little bit about the dynamics on on inventory levels and sell through for both aftermarket subsidiary on business and I think.
No one of the concerns is really around you know have worked through the system components and kits that are out there do you have a sense of.
You know how many months of inventory are in the channel at this point and kind of the order pattern bankruptcy right now.
Her incremental business.
Yeah, absolutely let me let me talk first about the OEM I think this is a very interesting kind of dynamic to understand so our de OEM business delayed Orient business as you know in speech the retrofitting.
Zero kilometer brand new cars that come from Oems.
As they come from the factory before they go to the dealer and then really a great business for us and what we see right. Now is that basically you know the the vehicles that were on ships and in transit from our customers in a in Asia are still coming and so the pause if you will.
And the drop in the market for for US and operations were delayed OEM is still in our future. So we're running quite strongly there was a backlog because we shut down for a little bit more than month in cosco and as soon as we opened there was all sorts of vehicles ready crestor retrofit, so that's going plus or minus a close to full tilt for estimate.
I know you inside.
On the on the kept side, where we're shipping kits out to customers around the world. A you know basically a I'd say inventory levels words are particularly out of line and so but we had this pause of our operations producing kits and had caused the workshops and distributors around the world and I would say these were largely coordinated.
So we don't see any specific buildup of inventory or drop out of inventory and so this is what we've been watching very closely because of course, we're not going to sell more until that are sold offset the dealers and distributors around the world workshops around the world. So that order flow is starting to come back and giving us a some encouragement that the market's reopened.
King and customers getting back to let's say normal behavior, well, let's have a material flow that is something that.
It's good for our business in that we can manage and keep up with.
Okay, and then on the supply chain side, because it's been pretty proactive in terms of.
Getting components and are you seeing any any issues or delays on incremental component supply as you start to ramp up again.
Yeah. This is another area, where I think both through our efforts as you mentioned you know kind of that when China shut down first to be had splashing, China that we had two or two.
Find alternatives and accelerate shipments and things like that we did that that worked well kind of meeting into our own shut down and then a lot of our supply base for our especially Italian operations, but elsewhere Dutch operations are our local and they're in the area and so they had the same kind of experience if you will get back to shutdown.
And so overall, we have not had significant supply chain disruptions, there's always something to work on for our supply chain team, but that but nothing that we haven't been able to mitigated that caused us a you know any significant so let's say material consequence inherit related refrac customers.
Okay. Thanks, guys.
Thanks Collyn.
Our next question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.
Yeah. Good morning, Thanks for taking my questions.
Just a clarification on China or the you mentioned that but the thing was done but the certification was impending or was it a word that that's a according to them that they expected and is the certification or delayed because of any.
Technical issues.
There there are no remaining technical issues Sameer. So yeah, we passed all the tests that they confirmed we passed over the past it really is as we understand from our side within the bureaucracy and the Chinese Ministry Institute.
Process, the [laughter], the paperwork and get that the certifications out and I can't begin to explain but that process looks like how long. It will take seems to all of us from the outside should be quick but the year, we stand waiting for that area. There certification I do expect it to come and I do expect it's just the bureaucracy that side, it's really hard to.
But to be down okay. So how long within a week and then a month, but is it.
Right understood Okay. Thanks for that.
As far as the food. So it was comping a goes a bit.
It's just the cost of replacing the units or is there any associated liabilities.
That the you expect or may already have incurred.
Yeah. So yeah. It it's just the cost of the replacement basically so it's a fair bit of labor or to make replacements component in the field the up to go to the vehicle and make the replacement and so that's the primary cost that we see and frankly and unfortunately, we have no field instances.
Liabilities in that regard.
Okay.
Keep that that track.
Okay. Good snow up and then one just last clarification on day stranded costs and its were lower by 5.8 million off which one point they need to to the onetime costs, but then holdco before medium of the remainder or distribute good.
Between the lower compensation costs, and nothing but a little even.
Blame second.
Yeah, I'm, just trying to understand what how much of these are going to be up but ongoing then what is onetime.
Oh, yes, because repeat your question again.
Oh, yeah. The agenda costs were lower by 5.8 million and Ah Ah I don't 4 million of those are can be attributed to lower compensation costs and a favorable settlement of the legal claim.
So what what wasn't even play in my mind.
The legal claim was a it was roughly about a 400000.
And we had a crude or more for that are historically, because it did manage to settle for a small amount.
So the dot one goes away and then what was the second one.
Yes, so I was trying to understand how much of this Ah Miller compensation caused some and continuing to second quarter and maybe type work.
The lower compensation costs will definitely probably continue to about August so in terms of the wage subsidies that we get in Italy.
And Canada those have been extended till the end of on August 31st.
So almost there so it really depends on me the length of the.
Endemic right now, it's almost all almost all of the third quarter.
Got it okay. Thanks, everyone.
No problem.
Our next question comes from Jeffrey Osborne with Cowen and company. Please go ahead.
Hey, good morning up most of the the questions were asked but I'm trying to get better understand understanding of your dialogue with with wage hike. So clearly are waiting for a certification you seem frustrated that it's not in.
Our is way to actively marketing the vehicle or the truck engine et cetera, expecting an eminent receivable of the certification or.
They are all wheels in motion until that is a received.
Yeah, So I would say hi, Jeff good morning, and that I would say very clearly that the weight shy or our joint venture in our trickster partner, which a power or are working with our.
Our customers the vehicle Oems are.
Two.
Repair in the field, if you will because obviously when you prepare the at each beady eye engine that because the number components on the answer but there's quite a few components on the vehicle. So as an example, the tests that were Ron that achieved that you need to the certification include vehicle test that we've been doing with our customers. So I would say that ground is pretty well established.
And ER and ready or it's just a question I know in cold water until you have a certification and so we need that certification. So we can.
Take the orders from our customers in place and that they've come to complete those letters with thoughts for the component.
Got it and then a couple of people asked about different end markets for you and order strength or lack thereof is there a way instead of playing the game of asking it. Each one separately is there way you could say of all the end markets you sell to which one is recovered the quickest or as the best visibility for you and which ones are worse.
What I would tell you is that a you know and start with that kind of struggling part the struggling part is in India. A you know I'm really bullish about that market in general, but the they've had a very long shutdown to end the I think at that really challenging.
Reopened that business and to get back on our feet there, but on the other under the spectrum on strength of our business I'm really encouraged by what's happening in Europe with respect to support by the government and also order flow from our customers with respect to specifically H. BTI. So in the end we won't.
Get the growth that we were hoping for in this year, just because of kovats, but I see a significant strength and I'm continues the.
Compelled by the business opportunity and frankly, the need I think a you met acquired in my opening remarks that my view is as a.
Tough times Oems.
Like the ones I've reported before and like the ones that are customers today I have to dial back on their capex investments are just like we are and when they do that they're going to look for more pragmatic in practical solutions I think that so I think it bodes well for us and we're seeing that are ready as a fleets place their owners with their lead customer in Europe.
As those letters come onto us.
Got it. Thank you that's all I had.
Thanks, Jeff.
This concludes the question and answer session I would like to turn the conference back over to Shawn Severson for any closing remark.
Yeah, I think I'll take that it's better everything Johnson so.
I want to thank everyone for joining the call and I really appreciate that your timing question.
As we look at our business, we recognize clearly that's a tough times, where they've been very focused on making sure we could to protect our employees in our and our team members and their health and safety is Paramount. We think overall that has worked well we're happy be back at work and we're looking forward to the economic recovery as it as it unfolds and we're poised.
With liquidity, we have to get through this period and continued to deliver for our customers and help get the world to a lower carbon transportation, that's a truly economic affordable and available now.
So thanks, everyone for your time and have a good day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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