Q2 2020 Westport Fuel Systems Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Westport fuel systems second quarter 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Shawn Severson with Alpha direct advisors Westports Investor Relations Representative. Please go ahead.
Thank you and good morning, everyone welcome to Westport fuel systems second quarter conference call, which is being held to coincide with the press release, continuing Westport fuel systems natural results there was distributed yesterday.
Today's call speaking on behalf of Westport fuel systems, as Chief Executive Officer, David Johnson, Chief Financial Officer, Richard George I'd Kinda back on this call is open to the public intermedia the questions they will be restricted to the investment community.
Reminded that certain statements made in this conference call and responses to various questions may constitute forward looking statements within the meaning of the U.S. inflatable Canadian securities laws and as such forward looking statements are made based on our current expectation and involve certain risks and uncertainties actual results may differ materially from those projected in the forward looking statements.
You are cautioned not to place undue reliance on the state.
Information obtained this conference call it subject to unqualified in its entirety by information obtained in the company's public filings I'll now turn the call over to David and then.
Thank you Sean good morning, everyone.
I sincerely hope that all of you and your loved ones are healthy and well that you're finding some time to enjoy this summer.
Since the updated you with our Q1 results in early May there have been strong signal strike green recovery in multiple jurisdictions around the world and associated stimulus spending to build the better more resilient low carbon economy.
I believe in agreeing recovery, president and lifetime opportunity to transform our transportation systems. So that we can sustainably move people in freight.
And I'm confident that we had an important role to play.
At Westport fuel systems, we've developed validated built solutions that are in production for sale and 70 countries and are being used around the world to enable net zero carbon transportation.
Following our Kobin shutdown, our teams have safely and effectively resumed operations at all of our global locations.
While revenue was significantly impacted in Q2 due to the shutdowns and those of our customers around the world I'm pleased to report our net income was positive and improvement versus the same period last year.
Our team is showed resilience and that's been steadfast in their efforts to remain nimble in response to this difficult time.
I'm, particularly proud of the significant efforts, we've made and the results you've achieved improved liquidity since the start of here.
And I'm equally proud of the incredible efforts made by our team members take care of each other drink.
Safely returned to work and to respond to our customers throughout the shutdown every period.
The Cobot 19 global pandemic continues to have far reaching ripple effects. The surge increment of Iris cases in the U.S. and elsewhere as analysts closely watching recovery related indicators and while a high degree of uncertainty remains we do see bright spots on the right.
Our business is heavily focused in Europe, China, India and it's in those markets are starting to see if some promising green shoots of optimism.
Cobot 19 is that many aspects of our life on hold but the need for action on climate change remains pressing.
As the economy ramps back up increased online transactions means increased demand for commercial truck and the government regulators around the world Our holdings from other requirements for reduced she or two machines.
Air quality improvement Lockdown brought new focus to the public health discussion and the benefits of deploying cleaner mobility technologies.
I'll talk more about each market shortly but first I'd like to share some top line financial results.
Our second quarter results directly reflect the impact cobot 19 related customer shutdowns, which began in China in January spread to Europe in March and then North American April.
Revenue decreased to $36 million from 82.4 million in the same period last year due to the impact of at 19, the very shutdowns in all our business segments. Net income was 3 million compared to a net loss from continuing operations at 2.3 million for the same period and 29 too.
It's 5.3 million year over year improvement results My 7.7 million dollar insurance recovery recorded in the current quarter, which was related to the $10 million field service campaign expense recorded in the first quarter this year.
We also lowered operating expenses and benefited from a foreign exchange gain compared to the second quarter Threeninety.
As you've heard we've been hard at work to shore up our balance sheet strength and liquidity and reduce our cost of capital to weather the difficult market conditions brought on by Kobe 90.
Since the beginning of the year, we announced over $50 million in liquidity improvements with new debt facilities totaling $32.9 million.
We also referred $6 million from principal payments due in 2020 and refinanced our convertible notes with the Cartesian group, extending the maturity and reducing the coupon rate.
We're also participating and government wage subsidies and other support programs netting a cumulative benefit of 3.8 million in the second quarter.
We continue to focus on cost reduction disciplined cash management and supporting our global team and their communities as we navigate this recovery period and respond to ramping Kasper Dan demand for our products.
As our customers partners and suppliers returned to production there have been many questions about the impact of the downturn on our industry in various markets.
The European Commission is striving for climate neutrality by 2050, which represents both a big challenge and a big opportunity.
<unk> neutrality in transportation will only be possible policy that account for the use of renewable gases like biomethane.
Natural gas together with Biomethane are a great example of the potential for a circular economy linking mobility Miss renewable energy agriculture.
In Europe, the current uptake by a messing equates to an increasing share of renewable gas in the near term decarbonize. The transportation sector projections are that by 2030, 40% bio methane will be available to power the entire natural gas fleet, reducing overall greenhouse gas emissions by 55% delivering up to 1 million jobs.
The timeline for creating the CEO to baseline for commercial vehicle emissions concluded on June Thirtyth that this year now the races on to achieve their goals and avoid the financial penalties, which come into effect in 2025.
As a multitude of regulations and policy framework have been introduced in the EU national and local levels keeping on top of a rapidly evolving landscape can be a challenge, but the message is clear Europe want the big change when it right away.
Stimulus packages may benefit the growing refueling infrastructure for gaseous fuels and we see increasing demand for transportation solutions that reduce emissions as much as possible as quickly as possible.
[noise] converting to natural gas to provide much needed cost relief to operators restricting recover from the impact of cobot 19 on their businesses, which in turn may help keep costs down for consumers.
As of last month, Europe reached a milestone with the installation of its 300 LNG stations and CNG stations now number nearly 3900.
The LNG fueling infrastructure in Europe has almost doubled in just the last two years the growth and the market has been driven by the new you had to give you seem to regulations and increasing availability of LNG in Europe. This has been a multiyear journey, we believe there's more runway.
We need emissions reductions in all sectors to achieve our climate targets heavy duty vehicle manufacturers must provide solutions for a range of applications and the currently like another Clement family of solutions that its market ready and suitable for large scale production.
Our products are not a test or an experimental stage there mainstream for sale and in used around the world today, and we believe they're an important part economic recovery in many markets.
[noise], even modest market share growth of vehicles that use our technologies, well, making significant impact on our revenues and profitability.
In Italy, one of the most important alternative fuels markets in Europe, we're seeing encouraging signs of recovery for light duty business for the overall Italian market in June new vehicle, LPG and CNG registrations are progressing towards Creek covenant levels.
Some regions CNG vehicles make up 112% of the total number of light duty Carson.
The Italian government is preparing a new stimulus package targeted part at the automotive sector indications are that this package may include nearly 1 billion to strengthen Kurt incentives to encourage sales instead of New York combustion engine cars.
There are few details as to the specifics of these incentives. We believe this is another positive note like GE business.
On the heavy duty side of our business you also see pads as a part for natural gas vehicles in Europe.
Since the start of Threenineteen natural gas field trucks in Germany have been exempt from road total charges, which can save 10000 year old per year per vehicle in operating costs.
Since I have to structure has now been extended into 2023.
As reported last quarter, our way try Westport joint venture has completed all the emissions testing for the Chinese Ministry of ecology, and the environment and the Chinese Ministry of industry, we await the conclusion to the final paperwork for certifications. So he can begin commercial sales.
The long term potential of H.P.D. I in China, the largest natural gas commercial vehicle market World remains compelling we have a great partner, a great product and a large market deserves and look forward to ramping up sales than it is important market in due course.
We're working to grow our business in India. The market fundamentals are strong with widespread fuel availability government support and compelling economics.
Well local shutdowns continue it affected areas and the impact operations some of our Oems our operations in India are open for business.
We already have a leadership position in India as natural gas passenger car market with a strong bases OEM customers, including Tata Motors, Mahindra Mahindra Rudy Suzuki P. as you and others.
We have completed more than 20 engine development projects to bring our customers CNG engines up to the new Barack standard six which were adopted on April 1st of this year.
Abrupt students six emission standards, which affect all vehicles from motorcycles heavy trucks culminated a massive effort over the past four years to upgrade vehicles to meet these standards.
Prior to this Indian here to be S. Four regulations, which are equivalent to the euro four standards that were in place in 2000 sites in Europe.
India Skip the whole vs five generation and now I'd be a six equivalent to European standards, a dramatic reduction inox in particular, the matter missions that will improve air quality in the Indian subcontinent.
We're seeing strong growth for CNG vehicles, and even a burgeoning interest in our energy resources to fuel this market.
[noise] CNG vehicles are attractive in EMEA market with most Oems offering multiple vehicles powered by CNG because of the fuel price difference versus gasoline and diesel.
CNG fueling infrastructure is growing with over 17 under stations in place today and expected to double the 3500 stations by 23 three.
And then onto a 10000 stations by 2030.
We're pleased with the progress you've made on the new B S. Six products in India and believe this strong growth potential for us there.
There continues to be much interest around hydrogen vehicles in recent months and I wanted to share a few of my thoughts.
Well hydrogen faces many of the same challenges that natural gas Diego space and to 15 years ago. The appeal of the net zero emissions technology is undeniable and presents a compelling long term option for our future.
We along with others like you back going it's gone you have spent the better part of decade successfully tackling similar heavy duty vehicle obstacles as what we see UN hedged market today, a lack of fueling infrastructure. The challenge to officially produced hydrogen a substantial incremental you can cost and scaling up a vehicle production.
Hydrogen fuel cell vehicles sales remained low and volume extensive to produce and restricted to sales and a few countries or regions that built hydrogen fueling stations that said progress has been steady as I said earlier. This story is familiar to many of US had been around this industry for awhile.
We already participating hydrogen market across all transportation applications, and we continue to make investments this opportunity we sell hydrogen components engineered in Canada, and manufacturing facility, Italy to customers like plug power Ballard and Oems and tier one suppliers hydrogen is a modest fraction of our revenues today, but that's because the global use appeals.
Valves is relatively small we believe hydrogen fuel cells have a place in the market when predicted growth in adoption happens a place to take advantage of that potential.
Well, we support efforts for innovative technologies to reach marketability critical industrials get production, we must take advantage of today's solutions or risk car costs to our global environment. That's solution, it's h. VDI.
In Q2, we prepared our 2019 environmental social and governments report our company has evolved through the combination of several environmental startups. So it's always been committed to ensuring the way. They do business has a positive impact on our people the environment and the communities in which we work in live I want to share just a few highlights from our report.
All of our appetite and facilities are certified as having met the international standards ISO 14001 for environmental management systems as is our technology Center in Vancouver.
This certificate is evidence of our commitment to develop design test sample engines that fuel system commodity that meet or exceed the expectations of our OEM partners and customers and former licensee effective environment of practice the process at our facilities.
We also launched new code of conduct in support of our ongoing efforts to ensure our global diverse workforce. This entire to do the right thing for the right reason in the right way.
Over 95% around plays completed the trading on her new code of conduct.
And this year, we achieved gender parity on our board of directors.
We continue to be committed to delivering financial results and care just as much about the way in which we achieved those results. So I encourage you to read more about our efforts and report on our website when its published on August 11th.
As we look out to the remainder of the year steady recover OEM and aftermarket businesses the growth of H. media in Europe, and the upcoming production Watch Beach began in China are keys to our success now I'll turn it over to Richard to review our financial.
Thank you David.
Hi, David described in the financial highlights at the beginning of a call during the second quarter. Our revenue was 36 million, which was a year over year decrease of 46.4 million.
The decrease was mainly driven by corporate 19 related factory closures and reduced customer demand.
As we discussed in our first quarter results call or facilities in Italy were closed in April and reopened in early may.
We were also impacted by the temporary closure of our H. VDI launch partners facilities in April.
As most of our businesses have no reopened we're seeing improvements of the man and are expecting moderate recovery through the remainder of the year.
Perhaps most encouraging is that we're seeing stronger each VDI orders than previously expected.
Consolidated gross margin for the quarter decreased by 7.1 billion or 37% to 12.2 million compared to 19.3 million, where the comparative period in 2019.
Gross margin decreased due to lower overall sales during the quarter and contractual h. VDI price reduction.
Offsetting the sales decline was a $7.7 million insurance recovery recorded in the quarter to quarter, which related to the $10 million charge. We took in the first quarter for a field service campaign for the replacement of pressure well leased devices.
Consolidated operating expenses for the quarter end that decreased by 14.7 million to 10.5 or 58% operating expenses were lower due to government wage subsidies compensation reduction and reduced spending in the current quarter.
In addition, we had an unrealized foreign exchange gain of 3.6 million due to appreciation of the Canadian dollar.
Net income of 3 million increased by 5.3 million compared to second quarter.
2019, as a result of a 7.7 million over insurance recovery that I spoke about.
Lower operating expenses due to government subsidies salary reduction and the higher foreign exchange gains and this was partially offset by lower gross margins and lower it was from our CW wise joint venture.
We saw similar improvement in EBITDA.
Compared to the prior year quarter EBITDA increased by 5.2 million from 4 million to 9.2 million.
After adjusting for non cash and nonrecurring items year over year adjusted EPS decreased by 1.9 million from 8.1 million to 6.2.
Excluding the insurance recovery adjusted EBITDA would have been negative 1.5 million for the quarter.
Turning to our business unit performance OEM revenue was 19.1 million during the current quarter.
Which decreased by $25.6 million year over year, mainly due to facility shutdowns and the H. VDI price reductions, we expect to see a recovery in sales during the second half of 2020 as H. VDI sales volumes returned to pre coven 19 levels continue to grow.
The OEM business segment generated operating income of 1.1 billion during the quarter and this was mainly due to 7.7 million dollar insurance recovery.
Independent aftermarket.
On rate had revenue of 16.9 million during the quarter, a decrease of 20.7 million year over year, mainly due to the shutdown of our plans and carrasco and I'll be there during the pandemic on an optimistic no customer demand has been recovering steadily over the past agreements.
Due to austerity measures taken by management, which subsidies the operating loss in the independent aftermarket business segment.
Was 1.2 million and not a larger doesn't.
CW eyes operating income decreased by 32% year over year due to lower sales driven by OEM factory shutdowns and reduced customer demand due to covert 19.
Yeah equity income from the joint venture was 4.1 million, which was down 31% year over year due to lower CW <unk> earnings driven by a 21% decrease in sales.
Now turning to liquidity during the quarter, we had a net cash outflow of 10.2 dollars or operational cash flows were impacted by reduced sales volumes from factory shutdowns caused by the time them.
Buildup of inventory as a precautionary measure to secure our supply chain.
Further we were also impacted by lower dividends from CW or.
During the quarter, we also meet our annual royalty payment to the Cartesian group, which was partially offset by a new financing secured from Unicredit under the Italian government liquidity degree.
In response to the financial impact of a pandemic. We have also taken actions to reduce costs obtain wage subsidies from governments and other support programs and delay non critical projects and capital expenditures.
We executed deeper client play to refinance the company to improve liquidity and our ability to finance the goal of the company.
For the past several months, we have successfully completed over $15 million in new financing and refinancing which has significantly improved our liquid.
For the next year, we will continue to evaluate our financing needs to ensure alignment to the long term growth plans of our businesses. We're confident that our option plan will provide us with the necessary liquidity to meet our obligations as they come do provide the capital can continue to grow our business, but can I turn it back to date.
Thank you Richard to recap, we remain focused on a few key priorities for the second half of the year.
Successful launch based via in China continued cost reduction.
New light duty in heavy duty OEM businesses <unk> market geographies.
Hospital growth of our likely the business are both aftermarket in OEM channels.
Despite the near term uncertainty a stronger regulatory ecosystem is still there and so it was a strong desire for a green recovery.
I'm confident in our team and we're committed to delivering.
Westport fuel systems as market ready tested in gaseous fuel vehicles to achieve scale in many market segments with the potential of renewable gas to offer a net zero carbon solutions, we're ready to be part of the economic recovery with that I'd like to turn it back to the operator to take your questions.
Thank you we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
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Our first question comes from Eric Stine of Craig Hallum. Please go ahead.
Hi, David I record.
Morning.
Morning, So I appreciate all the color I was just wondering.
Maybe by end market, taking a little further loved the you know just hear some discussion about trends you're seeing by segment early here in third quarter.
So just to get started yeah. Thanks for your question Eric.
Generally we're seeing you know the recovery that the we're hoping for of course steeper would've been better but a month over month, we do see a the markets coming back and so that's encouraging I think this speaks more than anything else to the fundamental need we habits society for transportation, whether it's an people of freight.
We Oh we.
We need our vehicles and ER and that'd be needs and to be Cleveland. So I think overall, we're happy to see the American coming back and that's good we do see a a stronger recovery or on the commercial side. So on a commercial trucking and with our age media products than we do on a on the consumer side and.
We think that's just a timing things like anything else people can defer their purchases and I would say people, we're heartened by the koby crisis around the world and significant way that it takes some time for that come back, but the overall the green recovery that we see.
And the actions that governments are taking a really supportive of a bar mission to update transportation.
And so on a long term basins, we feel good.
In the near term, where we're pushing very hard to see that recovery to come back across all the segments.
Yep.
Good and maybe just I'm digging in on H.P.D. I, a little bit Oh, Yeah, I know, you've always had the issue where you're a step removed from the ultimate lead customer.
But I would I'd love to just get your thoughts on the confidence there I mean, you you're clearly more confident there than any other parts of their business sitting do you attribute that to it there are some pent up demand and you know it. So you took a quarter a quarter and a half off because the cold bid and now things are zoom ordered or something else to that dynamic.
Well I would say.
It's really important and the commercial truck we industry around the world just to think about some of the fundamentals. So you know.
He goes to five trucks leads using trucks and when you have what we have happening in Europe.
In the sentence like Germany has to basically exempt natural gas trucks and extend that 2023, I mean that it's a huge economic impact you have to understand that in the world with trucking needs or businesses that are working to moving freight for their customers and make money doing it and so when you have an advantage like.
A road told tax exemption and you look at the fundamental advantages our technology offers in all markets around the world of saving money on fuel, which is such a substantial portion of the cost you know we go back 12, or 18 months or you're talking about the products new and people are our testing it out there trying to buy one or two and work.
We're moving beyond that phase, which is really what we've anticipated and looking forward to where basically leads are saying no I've heard you got to fight I've seen and I talked about this role until taxes. All these factors are coming together to drive demand in previous calls I've mentioned, the fact that we were coming up on the conclusion of the baseline measurement period for this.
The other two standard for commercial truck companies.
Europe and that's the that deadline came and went at the end of Q2 and so the baseline is now established and you dig into any of those reports you can see that long haul tracking hasn't absolutely fundamental waiting of on the owner of 70, 80% depending on what exactly you categorize as long as.
But it's really that factor in having OEM people to achieve their targets in 2025, 20, Threerd and so now as I mentioned in my comments in the races onto the to meet does targets and so I think all those factors are coming together to really supportive of our business and the growth.
You know got it. So overall, we're we're pleased about that dynamic playing out.
In the market right now.
Yes, and then my last question and you kind of read my mind, there, but on the baseline now being SAP.
So it sounds like part of that is your current partner now is really incentivized to push.
On a speedy I, but curious how that's starting to impact we're continuing to impact conversations with new potential partners.
Yeah, I think a dozen most important thing here that I was worried about and the coven period and has not come to fruition is that no. One is backing down from the requirements and 2025 in 2030 with respect as you go to missions from commercial trucking or per passenger cars for that matter and so.
You know like like it is on your mirror objects are closer than they appear it's coming I did [laughter]. It's that we have this deadline as an industry. We have these penalties that a booming and we have this need in a in the world to a cleanup transportation, we do see I'm too and I think the markets and the our our customers perspective.
Customers are increasingly recognizing that we can help them meet those requirements and that and certainly our lead customers showing away.
Okay. Thank you.
Thank you Eric.
Our next question comes from Colin Rusch of Oppenheimer. Please go ahead.
Thanks, So much yeah do your team provides but any sort of visibility on.
When you expect a orders began a in China and how that can you, obviously very close with a with your partner there but.
And your sense of.
In any indications are I'm talking about not at all.
Yeah. So I think so the question telling that area. This morning fundamentally a we've received daughters and still corners. So as the you know filling the pipeline of product. So we know our our the actual commercial launch of engines and then vehicles is on the horizon, it's coming.
But the acceleration that as orders is pending the actual certification release from the Chinese authorities and so that is as you know it's been kind of the first there was cobot then there was a let's say bureaucratic challenge and so we've had the I would say significant delay in that regard that we we don't appreciate and had to work through.
And hopefully the last that work or through what happened, but we've already received daughters and we'll fill those orders can basically tell the pipelines have you can start production, which our customers can start production their customers can start production.
But these are yeah, we're missing a piece as you guys you can appreciate.
Yep got it Okay, and then just shifting gears hi, John I appreciate the commentary around that in the gas expertise. Yeah. I guess can you speak to the opportunity near term as folks go through the early stages. The vehicle development you know.
How NKTR with those folks and what that that opportunity might look like over the last couple of years and then yeah. How you start to think about content per vehicle.
As we get into some real real viable solutions.
Quite 20 to 23.
Absolutely I think it's no for us it kind of seems like a just another if you will make because we're in the gas fields business, that's our specialization and as I mentioned about opening comments that there is that there isn't a beauty and an l. against two circular economy that that hydrogen potentially has.
And but we're already a leader in that market primarily in the in off what applications material handling.
Power and supporting customers like Ballard, that's as I think about how that unfolds to the point of your question.
There were working heavily with customers around the world that are pursuing this technology.
You know, China, Japan, and North American snuff, one so we have a very good engagement with customers that are developing products and we're supporting them strongly and Ah. Yes, we're excited about the opportunity, but I do have to be cautionary and my kind of outlook because there's a lot of work to be done to go from.
Prototypes to production to volume on all these on road applications. A you know I think you're aware that in North America, we had some fuel cell vehicles that are already in the marketplace.
But it's it's a small small world and only a few refueling stations and in places like Europe, We had a very little so far so there's a fair runway to go but we do think it's an important technology support and had very big opportunity for our industry and transportation General Decarbonize, and so while governments or something.
Morning, It and industry supporting it where they're off to support it with the kinda components that they need to go along with the fuel cell and ER and provide a system in total for delivering the fuel from the tank to the fuel cell.
Thanks much.
<unk>.
Our next question comes from Rob Brown of Lake Street Capital markets. Please go ahead.
Good morning.
Good morning.
I just wanted to follow up on the an age media business I think you talked about stronger order activity you expected in the second half and could you maybe clarify that a little bit in terms of do you see pre pandemic levels kind of getting back to their or do you see growth beyond that.
And how does how fast is that ramp looking to you at this point.
Yeah. Thanks for the question Rob Good to hear you. This morning. So the fundamentally as you know from 2018, we launched a Twain 18, we saw significant growth we forecast going into 2020 that growth would continue and that we would see a further increases.
As the product gains traction and LNG infrastructure build out so that was kind of our plan clearly a the code we had a crisis pandemic their actions around the world shutdowns of our customers the shutdown square that this funds to big hole in our in our plan.
But what we see actually is that with the the the order that we're receiving in Q3 and Kishore, we have an opportunity to to make up for those losses in total and perhaps a do better than original plan. So there's there's lots of work to be done nothing is done until it's done but overall the the outlook is quite positive for the next two quarters.
Okay, great Great and then.
You touched on a little bit, but just wanted to get a little more detail on b the activity by the industry and respond to these environmental regulations.
You know how much are there other partners or potential partners looking at that LNG versus hydrogen and and is it a is it a both kind of discussion or is it or are they picking one technology versus the other.
I think one of the thing that's clear to to all the companies that we work with around the world to explore develop and bring to production or technologies that are technology is ready. It's validated it's well known it works. It has a low total cost of operational refueling.
Infrastructures, there and their customers are seeking it so.
This this is mounting day by day quarter by quarter and that we took a course of big pause because in co made in terms of that that ground swell in that activity.
Its customers.
And as we all know constrained our.
Working hours and focused on keeping our companies going in Nicole good period. So we're seeing that come back and now time. This past requirements is 25 in 2030 are closer than they were before the pandemic and Ah. So I think we're a known quantity there's been a lot of discussion as you know you're up around.
Hydrogens right, there or electrification is right there, we should do that and it could just skip LNG I.
I think there is a growing realization that the those products aren't available right now and a that 2025 is closer than you thought and that our product is something that somebody can be deployed.
So overall bullish and don't have any announcements to make today, but look forward to the chance to make those announcements in future.
Okay, great. Thank you I'll turn it over.
Thanks, Rob.
Our next question comes from I'm It deal of H.C. Wainwright. Please go ahead.
And you have a good morning, David Granger.
Mr through.
China Hurts you said you received orders, but not ship them is that true is that correct.
Well. So we received its just something that we've got some still has just to build so you know this is that normal process I would say a filling the pipeline of the preproduction parts and then production ready parts and then regular order flow we are not into the regular order flow at this point in time, but we do have an order that's not yet.
Well that will fill.
In Q3.
Understood. So these are just like.
In the tends not to 100, so I mean do not do even look at.
Yeah, I can't go into the quantities, but are there they're meaningful to us and there are representative of the launch that's similar to what we did but airwatch partner in Europe or two years ago.
Okay understood. That's that's good to hear.
You know these loans and grants et cetera that you.
Taken on the last few months.
Are there any particularly the strict is drones look on men's associated with any of the yeah, we should be around.
I mean to know a there there's no.
Just like in our commercial terms nothing on the street business.
Okay understood frankly that a lot of the loans, you've got it really improved our cost of capital and extended our maturities and so.
The government supported financing has been really I would think friendly to industry and so we were pleased with what was on offer and I'm glad to have been able to secure it 13 in Europe for example in support of easy also.
Understood.
And then you know this there too so.
So the recovery or see any you know you're back in.
Older locations are open again, youre your functioning against that somewhat normal levels probably.
From here or do we see some sequential improvements for the remainder <unk> preneed gritty you know compared to what we did in the second quarter.
Yeah. So the the Crystal ball of course is never perfectly clear.
But what we are seeing it as Richard mentioned kind of month by month improvements back towards quote unquote normal levels.
I I'm, there's there's a lot of uncertainty.
In the market still you know we have a daily reports of new outbreaks of new locked down and second wave and all these things and that's really says weigh heavily on.
On the marketplace and of course I think people also look at all the other spending done by governments and think about the general economy unemployment. So there's a lot of a anxiety and uncertainty still to play out but so far you know we're seeing step by step increases you know to have a 56% revenue drop in Q2, typically our best quarter.
The huge blow to our company I'm very very proud of the work we've done too to endure it and get through it with the liquidity measures in support of our governments and partners around the world.
But we do see that recovery step by step and we're hopeful that nobody in this year. We can say that 20 to 21 will be not just a normal year, but a a up year for us.
Understood.
And that's what I would guess I take my other questions I'll say thank you.
Thanks.
Once again, if you have a question. Please press Star then one.
Our next question comes from Jeff Osborne of Cowen and company. Please go ahead.
Hey, good morning, guys. Most that I've been asked a couple of on my end I think you mentioned in her prepared remarks about a reduction in price with H.P.D. I did I hear their correct and can you just expand on that if I did.
Sure as as a part of our long term supply agreement with a with Volvo, We did have either European supply cuts, where we did have some.
Price reductions that were structural or the way to think about that as low volume higher priced higher volume lower price, it's pretty normal in the business and we've been seeing those and having to explain those if you will at the quarter over quarter margins have been decreasing the fixed to that of course is to continue to buy about curves and get the cost out in bringing in March.
Back in so that's probably in our plans and you'll see that unfold in the quarters ahead.
I guess, maybe I would've thought the opposite would have happened if the volumes are down.
The.
So the price went down as well, but as the volumes rebound.
I just want make sure I understand that.
Yeah, so inside of time or straight volume.
Is there like breakpoint find every six months the price goes down regardless of volume or it's about 100 units. It's one price if its 500 units there it's a different burst.
Yeah, I can't go into the details of the contract obviously, but clearly what we've had is Ah pricing at the start of production that's higher than pricing has now and that that that will stabilize and then we were doing the work to bring costs down.
So it was more time based contract under binding contract with the fundamental and still comes by saying that the early units would have higher prices.
Got it okay.
And then you mentioned a Italy on the passenger car side, we're starting to do better are there any other markets that you're seeing is green shoots.
Yeah, I think you know we didn't talk a lot about talked a little bit about it but India is a very important markets for us and they're there I would say still struggling to come out of the crisis and the pandemic, but at the same time the at the standards there that change the game in India.
Played out without a change to the schedule. So that is the change to brought standards. Nick and you know this is a story really where basically the the.
Advent of Euro six brought and six means the cost of diesel engines are going up quite dramatically to can be aftertreatment that has to be additive that standard.
And that those costs being very high people look for alternatives and natural gas vehicles or an excellent alternative and they already have a significant infrastructure place. So as result of that we're seeing strong demand for our product that marketplace and contacts from additional cuts first thing we need to offer the product can you help us and so.
It's really a very positive sign for us that Brock said, it's six was not delayed as that came into effect right in the middle of of the Kobin recovery on April 1st of this year and ER and so we're excited about the opportunities in that market already have a very strong position working with really almost every single men.
Next year in India, GE to help them bring their natural gas products in the marketplace.
In that market. For example, there are some of our customers have dropped diesel and gasoline.
Charlie and all their offerings is natural gas and LPG vehicle.
So those kinds of changes I really significant and a really bode well for our business.
Makes it a it's great to hear and then the otherwise I wish I had is you made reference to a possible subsidy or support around green initiatives for transportation in Italy, and I think even said details are limited, but it's my understanding some of the other countries in Europe that have had a covert related.
Support for transportation was more around electrification is there anything in the public domain out of Italy that would suggest that a LPG or any other gaseous fuel would be supported.
Yeah, so our understanding of what's being developed it is really that I referenced in my opening comments was support structure for all sorts of technologies, including ours, which it also include electrification hybridization, yeah, theres, a fuel cell vehicles or whatever so I think they're taking a an agnostic approach and or.
In a comprehensive approach to those technologies that support their environmental goals and incentivizing the recovery of those disproportionately which is obviously brooks our favorite.
Key ingredient as the government can put it in any government Italian anybody else competitor that structure that says here's an incentive for clean technologies that it's really about what customers want to buy what they can use and whats available for manufacturers. So to incentivize something is not available then that's nothing is going to happen, but our products are available in the marketplace and doing very well so.
As an example earlier this year pre code that there was some huge increase in the number of natural gas vehicles registered Italy, I forget the number it was above 50% increase and in the registrations year over year again that was a pre covered metric, but I think we quoted in our Q1 call actually but.
So the markets moving in that direction and the kind of support we get from the government then applies to many technologies, including ours.
That's what we expect.
Perfect. Okay. That's all I had thank you so much of the detail.
Hi, Jeff good to talk to them.
This concludes the question and answer session I would like to turn the conference back over to David Johnson for any closing remarks.
Yeah. Thank you very much I appreciate everybody joining the call as you can well understand Oh, just us but around the world Ur Cobot, it's been an absolute challenge for business and where amongst that I am very pleased with the work that we've done to get through it to take care of bar.
Our team members to support our customers as they close in reopened and they're changing demand and and now we're seeing the recovery that gives us hope that the future is a great and future that we could support growing too. So overall you know I think we're through this crisis to a large degree there's still some uncertainty in the future.
But overall, we're on a good path I think we're well positioned to grow and prosper and you kind of future. Thanks again for your time and support.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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