Q2 2024 Westport Fuel Systems Inc Earnings Call
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Operator: Thanks for watching, and don't forget to like, share, and subscribe to our channel. Music, Good day, and thank you for standing by. Welcome to the Westport Fuel Systems Q2 2024 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Larkin, Tony Guglielmin, Bill Larkin,
Speaker Change: Good day and thank you for standing by. Welcome to the Westport Fuel Systems Q2 2024 conference call.
Speaker Change: At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ashley Nuell, VP of Investor Relations. Please go ahead.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ashley Nuell, VP Investor Relations. Please go ahead.
Ashley Nuell: Thank you. Good morning, everyone. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday. On today's call, speaking on behalf of Westport is Chief Executive Officer and Director Dan Sceli and Chief Financial Officer Bill Larkin.
Ashley Nuell: Thank you. Good morning, everyone. Welcome to Westport Fuel Systems second quarter conference call for 2024. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday.
Speaker Change: On today's call, speaking on behalf of Westport, is Chief Executive Officer and Director, Dan Sceli, and Chief Financial Officer, Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community.
Ashley Nuell: Attendance to this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made in this call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and the applicable Canadian securities laws. And as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties.
Speaker Change: You are reminded that certain statements made on this call and our responses to certain questions
Speaker Change: may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws. And as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties.
Ashley Nuell: And as such, we will continue to present our responses to the U.S. and the U.S. and the U.S. And with that, I will turn the call over to you, Dan. All right. Thanks, Ashley, and good day, everyone.
Speaker Change: With that, I will turn the call over to you, Dan. Alright, thanks, Ashley, and good day everyone. Today I'll be recapping our progress and results in the second fiscal quarter of 2024, providing updates on our 2024 strategic priorities, including an update on the JV with Volvo.
Dan Sceli: Today, I'll be recapping our progress and results in the second fiscal quarter of 2024, providing updates on our 2024 strategic priorities, including an update on the JV with Volvo, introducing our new reporting segments, and touching on the success of our July 4th event, before turning the call over to Bill to walk us through our Q2 results and new segment reporting structure in more detail. Q2 was a solid quarter, demonstrated by improvements in our margins.
Speaker Change: introducing our new reporting segments and touching on the success of our July 4th event before turning the call over to Bill to walk us through our Q2 results and new segment reporting structure in more detail.
Dan Sceli: Impacting results was the launch of the JV with Volvo Group. During the quarter, we were excited to close this HPDI JV transaction, which resulted in us recognizing two months of revenue from the heavy duty business and our results. Beginning in June, the HPDI-JV was accounted for under the equity method of accounting for investments.
Bill Larkin: Q2 is a solid quarter, demonstrated by improvements in our margins,
Bill Larkin: Impacting results was the launch of the JV with the Volvo Group. During the quarter we were excited to close this HPDI JV transaction, which resulted in us recognizing two months of revenue from the heavy-duty business in our results.
Bill Larkin: Beginning in June, the HPDI-JV was
Bill Larkin: accounted for under the Equity Method of Accounting for Investments.
Bill Larkin: The improvement in our margins and adjusted EBITDA we saw in the quarter reflects the initiatives we have undertaken to reduce costs and streamline our business, along with initial results from our more recent growth initiatives, such as our LPG fuel system sales to our OEM customer.
Dan Sceli: The improvement in our margins and adjusted EBITDA we saw in the quarter reflects the initiatives we have undertaken to reduce costs and streamline our business, along with initial results from our more recent growth initiatives, such as our LPG fuel system sales to our OEM customers. A revolving business strategy has long recognized the value of strategic partnerships. Turn it over to the operator to open the call for questions. Just to remind everyone, there will be a... Bye while we compile the Q&A roster. Energy. Our first question comes from Colin Rusch of Oppenheimer.
Speaker Change: Turn it over to the operator to open the call for questions.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Just to remind everyone there will be.
Speaker Change: While we compile the Q&A roster.
Speaker Change: And our first <unk>.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Our first question comes from Colin Roche.
Oppenheimer: <unk> Oppenheimer.
Speaker Change: Hey, Collyn.
Speaker Change: Yeah.
Operator: Hey Colin, one moment. Oh, Colin, is your line open now? Oh, one moment. We're having an issue with him, our first class or classes or classes.
Speaker Change: One moment good boy Oh colon is your line open now.
Speaker Change: Oh, one moment.
Speaker Change: We're having an issue with him.
Speaker Change: Mhm.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our first class first class first class first class first class first questions questions questions questions questions questions questions questions questions.
Operator: I apologize, we're having an issue with his line. Our first question comes from Eric Stine of Craig Hallam. Your line is open. Morning, Eric. Hi, Anne.
Speaker Change: I apologize.
Speaker Change: <unk>, we're having an issue with his line okay.
Speaker Change: Okay.
Speaker Change: Yes.
Our first question comes from Eric Stine of Craig Hallum. Your line is open good morning.
Bill Larkin: Hi Bill. Good morning. Can you hear me?
Eric Stine: Hi, Dan Hi, Bill Good morning can you hear me and others.
Speaker Change: So there's some weird stuff going on on this call, but the audio wipes, but.
Eric Stine: I know there's some weird stuff going on on this call, but audio-wise. Okay, good. Well, so I know it's early days for the joint venture, you've had it, or it's been in place for, what, two months. Just curious if you could rank the priorities as you see them now. Have they changed at all?
Unknown Executive: Good day, and thank you for standing by.
Speaker Change: Okay. Good well so I know early days for the joint venture you've added or.
Ashley Nuell: Welcome to the Westport Fuel Systems Q2-TID-24 conference call. At this time, all participants are in a listen-only mode.
Speaker Change: Been in place for two months.
Speaker Change: Just curious if you could kind of rank the priorities as you see them now.
Unknown Executive: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: Have they changed at all and could you give us an update.
Speaker Change: On just thoughts of a new OEM since I know that that was one of the objectives from the start sure sure.
Dan Sceli: And could you give us an update on just the thoughts of a new OEM, since I know that that was one of the objectives from the start? Sure, sure. In terms of priorities, we've launched this joint venture, and our goals immediately are to get it functioning as a standalone business. So putting in place the business systems, the ERP, all of those things are being put in place so that we can operate it separate from Westport. The management team was already organized around a separate entity.
Speaker Change: In terms of priorities we've we've.
Speaker Change: Launched this joint venture.
Unknown Executive: Please be advised that today's conference is being recorded.
Speaker Change: And you know our goals are immediately or to get it functioning as a standalone business so putting in place the.
Ashley Nuell: I would now like to hand the conference over to your speaker today, Ashley Nuell, VP, Investor Relations. Please go ahead. Thank you. Good morning everyone. Welcome to Westport Fuel Systems second quarter conference call for 2024. This call is being held to coincide with the press release containing Westport financial results that was issued yesterday.
Speaker Change: You know the.
Speaker Change: Business systems, the ERP all of those things are being put in place. So that we can operate it separate from Westport.
Speaker Change: Management team was already organized around.
Speaker Change: A separate entity.
Speaker Change: There's a a burden in nine months rollout of.
Dan Celay: On today's call, speaking on behalf of Westport, is chief executive officer and director, Dan C.
Dan Sceli: You know, there's a nine month rollout of actions that make all those things happen to stand alone. So, you know, the immediate priority is getting it functioning and running. But running parallel, equal in priority is bringing on a second OEM, and that activity continues. It's been ongoing for some time. It was ongoing before we closed the joint venture, and it continues to be ongoing. And we, you know, we're hoping that we'll be able to announce something as we continue to work towards, you know, winning that second OEM, which is a priority for both Westport and Volvo. I got it.
Unknown Executive: Lai, and chief financial officer, Bill Larkin. Tend to sign this call is open to the public, but questions will be restricted to the investment community.
Speaker Change: Actions that make all those things happened to Standalone.
Speaker Change: So you know immediate priority is getting a functioning and running.
Speaker Change: But running parallel with equal and priority is bringing on a second OEM and that activity continues its been ongoing for.
Unknown Executive: You are reminded that certain statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of the US and the applicable Canadian nerdy clause. And as such, forward-looking statements are made based on our current expectations. And involve certain risks and uncertainties.
Speaker Change: For some time it was ongoing before actually we closed the joint venture and it continues to be ongoing and we.
Speaker Change: We're.
Speaker Change: Hoping that Oh, we will be able to announce something as we continue to work towards.
Dan Celay: With that, I will turn the call over to Dan. All right. Thanks, Ashley.
Dan Celay: Good day, everyone. Today I'll be recapping our progress and results in the second fiscal quarter of 2024, providing updates on our 2024 strategic priorities, including an update on the JV with Volvo, introducing our new reporting segments and touching on the success of our July 4th event before turning the call over to Bill to walk us through. Our Q2 results and new segment reporting structure in more detail. Q2 was a solid quarter demonstrated by improvements in our margins, impacting results was the launch of the JV with the Volvo Group.
Speaker Change: Winning that second OEM, which is a priority for both.
Speaker Change: Westport and Volvo.
Speaker Change: Yeah.
Dan Sceli: And then, you know, I have heard some talk about market interest in HPDI in North America. And, you know, so I'm just curious, you know, maybe this hasn't changed from when it was part of Westport, but now that you are combined with Volvo in the joint venture, you know, maybe how those plans are coming together, you know, does this help in that endeavor to get it to North America and what that might look like. Sure.
Speaker Change: Got it and then you know I have heard some some talk in the market interest.
Speaker Change: In H P D I in North America, and so I'm just curious.
Speaker Change: Maybe this hasn't changed from when it was <unk>.
<unk> Westport, but now that you are combined with volatile in the joint venture.
And maybe how those plans are are coming together.
Dan Celay: During the quarter, we were excited to close this HPDIJV transaction, which resulted in us recognizing two months of revenue from the heavy duty business and our results. Beginning in June, the HPDIJV was accounted for under the equity method of accounting for investments, the improvement in our margins and adjusted EBITDA, we saw in the quarter. Reflect the initiatives we have undertaken to reduce costs and streamline our business along with initial results from our more recent growth initiatives, such as our LPG fuel system sales to our OEM customer. A revolving business strategy has long recognized the value of strategic partnerships.
Dan Sceli: So HPDI North America is one of those equal priorities, you know, whether it's bringing on a second OEM or bringing the technology to North America through Volvo. You know, we continue to work through engineering and development to build a system that can cross all the continents, but specifically in North America, we see the market is more CNG focused. And so we're working on a plan to fill that need and talk to other OEMs in North America. So our commercial activities will continue to move forward in building this business. Got it. I will, I guess I'll stay tuned on that and make my last one just more bookkeeping.
Speaker Change: Business help in that endeavor to get it to North America, and what that might look like.
Speaker Change: Sure. So H PDI North America is is one of those equal priorities you know, whether it's bringing on a second OEM or bringing the technology to go to North America through Volvo.
You know, where we continue to work through engineering and development are too.
Speaker Change: <unk>.
Build a system that.
Speaker Change: Can cross all the continents, but in specifically in North America.
Speaker Change: We see the market is more CMG focused and does so we're working on.
Speaker Change: Our plan to fill that that need and talk to other Oems in North America. So our commercial activities will continue to move forward in building this business out.
Bill Larkin: So when we think about OpEx in just the moving pieces of Westports going forward, So you said you had $2 million that was not. Repeat, was I correct in hearing that related to the formation of the joint venture? Okay, so $2 million. And then it looks like roughly $5, $6 million of the heavy duty OEM business. That would be roughly the OPEX level that also comes out. I mean, is this kind of an all-in OPEX $15 million type of number per quarter?
Speaker Change: Got it I will Ingersoll stay tuned on that and maybe my last one and just more bookkeeping. So when we think about.
Opex in just the moving pieces of the of Westport.
Speaker Change: Going forward.
Speaker Change: So you said you had $2 million that was that that should not.
Speaker Change: Repeat was I correct in hearing that.
Speaker Change: Related to this formation of the joint venture, Okay. So $2 million, Yeah, and then it looks like roughly $5 $6 million of the heavy duty OEM.
Speaker Change: Business that would be roughly the opex level that also comes out I mean is this kind of a all in Opex 15 million dollar type of number per quarter.
Bill Larkin: We're continuing to look at that, you know, as Dan mentioned, we still have quite a few cost reduction initiatives that we're working on. And so, you know, that's across our business. 15 million, you know, is about right for the current run rate, but we're going to continue to evaluate that. Okay, thank you very much.
We're continuing to look at that as Dan mentioned, Bruce we still have quite a few cost reduction initiatives that were working on and so you know we're beyond that across our business.
Speaker Change: 15.
Kate: $15 million is about right for the current run rate, but we're gonna Kate evaluated.
Speaker Change: Okay. Thank you very much.
Bill Larkin: Thank you. Thanks, Eric. Take care.
Kate: Thank you thanks, Eric take care.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from Chris Dendrinos of RBC Capital Markets. Your line is open. Yeah, good morning. Morning, Chris.
Speaker Change: Our next question comes from Chris <unk> of RBC capital markets. Your line is open.
Chris Dendrinos: Morning. I wanted to ask about a comment, I think it was in either the financial disclosure or the MDA, and it looked like you all exited the JV with wage high. So if you could just speak to that and what maybe the strategy shift was there and, I guess, thoughts going forward with them. Well, I mean, it's really two separate things. You know, this is a JV that was formed a long time ago.
Speaker Change: Yeah. Good morning, good morning, Chris.
Chris: I wanted to ask about there was a comment I think it was in the financial disclosure the MBA and it looks like you all exited the JV with way Chi.
Chris: If you could just speak to that and what maybe the strategy shift was there any I guess thoughts going forward with them. Thanks.
Bill Larkin: And then, you know, more recently, we had, you know, a small ownership percentage, and they finally, you know, exited totally from the joint venture. However, you know, that doesn't change our relationship with, you know, HI, and we continue to, you know, support their development activities. Got it. Thank you. And then maybe maybe just on the light duty segment.
Well I mean, its really two separate things that you know this is a JV that was warm a long time ago.
Chris: And then more recently, we had a small ownership percentage and they finally exited.
Chris: Totally from the joint venture. However, you know that doesn't change our relationship with me away, China, We continue to support their.
Chris: Their development activities.
Bill Larkin: So it's kind of like the mix of light duty OEM was more heavily weighted to Europe, and you noted the reduction in sales in some of those developing regions. Is there any sort of sort of strategic shift going on with, I guess maybe, that business line and maybe where you're focused internationally and how that impacts your growth going forward? Thanks.
Speaker Change: Got it thank you and then.
Speaker Change: Maybe maybe just on the.
Speaker Change: In the light duty segment so.
Speaker Change: It sounded like the mix of our light duty OEM was more heavily weighted to Europe and you noted a reduction in sales in some of those developing regions is there any sort of sort of the strategic shift going on with I guess, maybe that that business line, and maybe where you're focused internationally and how that impacts your <unk>.
Bill Larkin: Sure, sure. So the light duty business impacts this year. So Q1, Q2, and will flow through for a bit.
Speaker Change: Going forward. Thanks sure sure. So the light duty business impacts this year, So Q1, Q2 and will flow through for a bit the.
Speaker Change: The primary one was the OEM that imports vehicles and installs are systems and.
Speaker Change: They they tripled the size of their business and.
Speaker Change: They're launching 14, new models in the middle of all this in.
Speaker Change: So the issue there was they were sued uncontrolled sitting on a pile of inventory that they didn't realize they had so they're bleeding that off so the big hit we're taking there is just an bleeding off that inventory, we expect those volumes to.
Bill Larkin: The primary one was the OEM that imports vehicles and installs our systems. And, you know, they tripled the size of their business, and they're launching 14 new models in the middle of all this. And so the issue there was they were uncontrolled, sitting on a pile of inventory that they didn't realize they had.
Bill Larkin: So they're bleeding that off. So the big hit we're taking there is just them bleeding off that inventory. We expect those volumes to come back. We're waiting to see exactly when they're going to come back later this year, but we do expect them to come back.
Speaker Change: To come back.
Speaker Change: We're waiting to see exactly when theyre going to come back later this year, but we do expect them to come back. The other piece was the the slower launch on the euro six with our OEM over there.
Bill Larkin: The other piece was the slower launch of the Euro 6 with our OEM over there, and that has actually picked up and will be gaining volume. So we're actually fairly upbeat about the volume projections for Europe, but we're waiting to see specific numbers from the marketplace on that. We don't see a major shift in the part of that world that we play in.
Speaker Change: And that has actually picked up and we'll be gaining volume. So we're actually.
Speaker Change: Hum fairly upbeat about a the volume projections for Europe.
Speaker Change: But we're waiting to see a specific numbers from the marketplace on that show.
Speaker Change: We don't see a major shift in our in the piece of that world that we plan.
Speaker Change: In fact, we see it getting a little bit stronger.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: In fact, we see it getting a little bit stronger. Thank you. Our next question comes from Colin Rusch of Oppenheimer and Company. Colin, your line is open. Give this another go.
Speaker Change: Our next.
Speaker Change: Question comes from Colin Rusch of Oppenheimer and company Colin Your line is open.
Colin Rusch: Thanks so much for getting me in. So, guys, can you talk a little bit about what's going on with the vehicle customers for hydrogen on the off-road opportunity? It seems to me that as the mining industry starts to work towards zero emissions and the hydrogen industry starts to look at some dedicated facilities, there might be a meaningful opportunity for you guys. I just want to understand how that's developed.
Brown: Okay Brown gives us another go.
Colin: Thanks, So much for getting me in so guys can you talk a little bit about what's going on.
Speaker Change: With the vehicle customers for hydrogen on the off road opportunity. It seems to me that as a mining industry starts to work towards zero emissions.
Speaker Change: And the hydrogen industry starts to look at some are in a dedicated facilities that there might be a meaningful opportunity for you guys. I just want understand how that's developed yeah sure. So so we have been exploring opportunities in the off road off road is a is a growth segment both inside the joint venture for each PDI and within.
Dan Sceli: Yeah, sure. We have been exploring opportunities in the off-road. Off-road is a growth segment both inside the joint venture for HPDI and within our high-pressure components and systems world because there's a demand there for that technology.
Speaker Change: Our high pressure components and systems World because theres a play there for for that technology.
Dan Sceli: We do see some interesting opportunities coming together and have been in some discussions with some customers on how to help the mining industry transform their technologies. It's early days for us on that, but it is an important priority for us, and we are starting to build out the commercial plan for how to pull it off. Thanks so much.
Speaker Change: We do see some interesting opportunities.
Speaker Change: Coming together them have been in some discussions with.
Speaker Change: Some customers on.
Speaker Change: How to help the mining industry transform their technology. So it's early days for us on that but it is a an important priority for us and we are starting to build out the commercial plan of how to pull it off.
Dan Sceli: And just on the light duty side, you know, it seems to me that there's an opportunity around potentially licensing some of the IP that you guys have and ending up with a little bit of a leaner model. Can you talk a little bit about that opportunity and if that's a real thing that you guys are thinking about? We're currently building out the capitalization of Euro 6, Euro 7 technology that's going to be ramping up over the next two years, two to three years, and that's been our primary focus.
Speaker Change: Thanks, so much and just on the light duty side, you know it seems to me that there's an opportunity around potentially licensing some of the IP that you guys have an ending up with a little bit leaner model can you talk a little bit about that opportunity and if that's a real thing that you guys are thinking about.
Speaker Change: Hum about licensing okay. So you know we were currently.
Speaker Change: You know building out the capitalization of <unk>.
Speaker Change: Euro six euro seven technology, that's going to be ramping up over the next two years.
Speaker Change: Two to three years and that's been our primary focus in terms of licensing.
Dan Sceli: In terms of licensing, I'm not sure who or what you're specifically referring to, but our goal is to expand that technology across multiple OEMs. We do see a pendulum swing back the other way as the world realizes the hydrogen ecosystem may be a little further out than we all want. In the middle of that, we have solutions, whether it's propane gas, the natural gas groups, etc.
Speaker Change: I'm, not sure who or what youre, specifically, referring to but.
Speaker Change: You know our goal is to expand that technology across multiple Oems.
Speaker Change: We do see a pendulum swing back the other way you know as I think the world.
Speaker Change: <unk> sees the hydrogen.
Speaker Change: Ecosystem may be a little further out than we all want in the middle of that we have solutions, whether it's you know a propane gas natural the natural gas groups et cetera and.
Dan Sceli: We're trying to position ourselves to be that bridge between them and bring solutions. We're going to continue to try and commercialize that across Europe and, of course, in our aftermarket around the world. Thanks so much.
Speaker Change: You know, we're trying to position ourselves to be that that bridge in between and bring solutions. So we're going to continue to try and commercialize that.
Speaker Change: Across Europe in and of course, an interactor market around the world.
Operator: I've got a couple of follow-ups, so I'll take them offline. Thanks, guys. Yep. Okay. Okay. Thank you. Thank you. And as a reminder, if you have a question, please press star 1-1. One moment. And our next question comes from Rob Brown of Lake Street Capital Markets. Your line is open. Hey, Rob.
Speaker Change: Thanks, So much I've got a couple of follow up so I'll take them offline. Thanks, guys. Yeah. Okay. Okay. Thank you.
Speaker Change: Thank you and as a reminder, if you have a question. Please press star 111 moment.
Speaker Change: And our next question comes from Rob Brown of Lake Street Capital markets. Your line is open.
Speaker Change: Hey, Rob Good morning, good morning, good morning.
Rob Brown: Good morning. First question on the sort of demand environment in the European HPDI market. It's been sort of coming back, but what's your sense on how that looks over the next 12 months and some of the macro drivers? Yeah, I think, you know, obviously, I mentioned just a moment ago the view of where hydrogen is going to be coming in terms of the ecosystem, the entire ecosystem.
Speaker Change: Our first question is on the on the sort of demand environment in the European H PDI market.
Speaker Change: I think that's been sort of coming back, but whats sort of your sense on how that looks over the next 12 months and in some of the macro drivers there.
Speaker Change: Yeah, I think you know, obviously I mentioned, just a moment ago the.
Speaker Change: The view of where hydrogen is going to be coming in in terms of the ecosystem the entire ecosystem.
Rob Brown: I think the European market is starting to adjust to that future being a little further off. Therefore, they're, you know, turning back to alternative fuels, aside from, you know, fuel cells and battery electric solutions. Clearly, alternative fuel ice engines are going to be gaining some momentum and some market share in Europe.
I think the European market is starting to adjust to that future being a little further off therefore, they're.
Speaker Change: Turning back to the alternative fuels aside from you know the fuel cells in the in the battery electric solutions clearly.
Speaker Change: Alternative fuel likes engines are going to be.
Dan Sceli: And we're excited about that. We're also, you know, working to figure out how to get it in North America, how to commercialize it with different OEMs in North America, including Volvo. But I think the current HPDI system on LNG has a very strong future here in Europe.
Speaker Change: Gaining some momentum and some market share.
Speaker Change: In Europe.
Speaker Change: And we're excited about that we're also working to.
Speaker Change: Figure out how to get it in North America out of commercialize it with different Oems in North America, including Volvo.
Speaker Change: But I think the the.
Speaker Change: Our current H P. D. I system on LNG has a very strong future here and in Europe.
Speaker Change: Okay.
Speaker Change: Okay. Thank you and then on the.
Dan Sceli: Okay, thank you. The Reduction Efforts you talked a little bit about. Producer.
Speaker Change: Our cost reduction efforts, you talked a little bit about some surprise there, but could you give us a sense of how sort of how far you are into that and how much is yet to go.
Dan Sceli: But could you give us a sense of how sort of how far you are into that, and how much is yet to go? Yeah, we've been digging in pretty aggressively across the company, both at a corporate level for corporate costs, which Bill can talk a bit about, and then operationally, you know, across the various segments, whether it's the light duty business or even the joint venture, we're trying to make ourselves a much more right-sized and efficient business across the board.
Speaker Change: Yeah, we've been we've been digging in pretty aggressively across the company both at a corporate level for corporate costs, and which bill can talk a bit about and then operationally.
Bill Larkin: Across the various segments, whether it's the light duty business or <unk>.
Even the joint venture, we're trying to make ourselves a much more.
Speaker Change: Right sized and efficient business across the board.
Dan Sceli: And, you know, one of the challenges is, I think we've talked about in previous calls, the timing of making changes in operations. So, for instance, in Europe, you know, a lot of the cost savings that we want to initiate there take capital and take time.
Speaker Change: And.
Speaker Change: One of the challenges as I think we've talked about in previous calls is.
Speaker Change: The timing of making change in operations. So for instance in Europe.
Speaker Change: He knows a lot of the cost savings that we want to initiate their take capital and take time.
Dan Sceli: You can't just hit a switch and, you know, we are probably a third of the way into it. I'd say we're a third of the way into it. It's also a balance between where we're cost-cutting and where we're investing for the future to take advantage of growth opportunities. It's a bit of both.
Speaker Change: You can't just hit a switch and you know.
Speaker Change: Cost take costs out of our business in Europe like we could here for instance, so you know are we are we a third of the way into it probably I'd say, we're a third of the way into it and and.
Speaker Change: And.
Speaker Change: So and it's also a balance right imbalance between.
Speaker Change: There were cost cutting where we're investing for the future too.
Speaker Change: You know take advantage of growth opportunities, so it's a bit of both.
Dan Sceli: Great, thank you. I'll turn it over to Jeff Osborne of TVCAL, and your line is open. Hey Jeff.
Speaker Change: Okay, great. Thank you I'll turn it over.
Speaker Change: Okay.
Speaker Change: One moment.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Jeff Osborne of TV Cowen Your line is open.
Jeff Osborne: Thank you. Good morning. Thank you. I have two questions. One is, do you have a sense of the kits that are in inventory at your partner in Europe, you know, what you've sold versus the sell through of those vehicles and how long that pressure will be there? Is that something that will be resolved this calendar year, or not? Yeah, I can answer that. So, yeah, it's heavily impacted our first quarter. We did have some impact in the second quarter, early in the second quarter.
Jeff: Hi, Jeff.
Jeff Osborne: Good morning. Thank you two questions. One is do you have a sense of on the kits that are in inventory at your partner in Europe.
Jeff Osborne: Where you've sold in versus the sell through of those vehicles and how long that pressure will be there is that something that'll be resolved this calendar year or no yeah, yeah yeah.
Bill Larkin: We actually started seeing the volume start ramping up throughout the quarter, and, you know, it will continue to increase throughout the third quarter. As we work closely with our customer, you know, as Dan mentioned, they've just grown rapidly, and they haven't put the controls and processes in place to, you know, manage their inventory. So, we've gotten more actively engaged with our customer to be able to manage that and have better, you know, foresight for their needs, their production needs, and their inventory needs.
Jeff Osborne: Yes, I can.
Jeff Osborne: So yes it is.
Speaker Change: It's heavily impacted our first quarter. It did it we did have some impact in the second quarter early in the second quarter and we actually started seeing the volume start ramping up throughout the quarter.
Speaker Change: And those will continue to increase throughout the third quarter, but as we work closely with with with our customer.
As Dan mentioned, they've just grown rapidly and they haven't put the controls and processes in place to manage their inventory. So we've gotten.
Speaker Change: More actively engaged with our customer to be able to manage that and have better.
Speaker Change: Foresight.
Speaker Change: For <unk> with their needs their production needs inventory needs. So that business has it has been recovery during the quarter and we will continue in third quarter.
Bill Larkin: So, you know, that business has been recovering during the quarter and will continue in the third quarter. Perfect. And then my last question is just how to think about OPEX and how to think about that and how you're aiming to reduce that. But how should we think about CAPEX for the second half? That's unclear to me.
Speaker Change: Perfect and then my last question is just how to think I think Eric asked questions on Opex and how to think about that.
Speaker Change: And how youre aiming to reduce that but how should we think about capex for the second half that's unclear to me.
Speaker Change: Maybe it's buried in one of the documents, but what.
Speaker Change: And the split of Capex for yes, we with the JV.
Bill Larkin: Maybe it's buried in one of the documents, but what's been the split of CAPEX with the JV? Well, I think, you know, a big chunk of the CapEx investment this year, you know, historically, we've been in, call it, 13 to 15 million. It's going to run a little higher this year because we've been investing in CapEx to support the, you know, the OEM customer for LPG components for year 2006.
Speaker Change: Well I think.
A big chunk of the Capex investment. This year, you know historically, we've been in call it the $13 million to $15 million.
Speaker Change: We're a little higher this year, because we've been investing capex to support the D.
Speaker Change: Our OEM customer for LPG components for Euro six so we've been investing heavily in new Capex here.
Speaker Change: I think for the back half of the year or just be slightly lower than what we spent in the first half of the year.
Bill Larkin: So we've been investing heavily in new CapEx. You know, I think, for the back half of the year, it would just be slightly lower than, you know, what we spent in the first half of the year.
Speaker Change: And then.
Speaker Change: That'll be the bulk of the capex spending that we need to deal to.
Speaker Change: To support our OEM customer for delivery hero six components.
Bill Larkin: And then, you know, I think that'll be the bulk of the CapEx money that we need to do to support our OEM customer for delivering year 06 components. And then, you know, as we go through this, you know, we will have to recast and we, you know, our CapEx run going forward, you know, now that all the HPDI activities are in the JV, that'll decline as well. So is it feasible that that number could be less than 10 million next year? It could be, but we're actually just kicking off our annual budget process. And as part of that process, we do a deep dive, you know, into what our CapEx needs are, and what the various programs are.
Speaker Change: And then you know as we go through this year.
Speaker Change: We.
Speaker Change: We will have to recast and we our capex run going forward your analysis.
Speaker Change: All of these activities are in the JV that will decline as well.
Speaker Change: So is it feasible that that number could be less than 10 million next year.
Speaker Change: It could be.
Speaker Change: We're actually just kicking off our annual budget process.
Speaker Change: As part of that process, we do a deep dive in what our capex needs, where the various programs and so we're going through that right now.
Speaker Change: Perfect. That's all I had thank you okay.
Bill Larkin: And so we're going through that right now. That's all I have. Thank you. Thank you. I'm not having any further questions at this time. I would like to turn it back to Dan Sceli for closing remarks. I'd like to thank everybody for joining us today. And I hope we answered all your questions. I look forward to the further calls throughout the day.
Dan <unk>: Thank you I'm showing no further questions at this time I would like to turn it back to Dan <unk> for closing remarks.
Dan <unk>: I'd like to thank everybody for joining us today and.
Dan <unk>: I hope we answered all your questions and look forward to the further calls throughout the day.
Dan Sceli: That's all. Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Speaker Change: That's all thank you.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.
Speaker Change:
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Unknown Executive: You You You You You You You You You You Turn it over to the operator to open the call for questions. Just to remind everyone there will be a- I, while we compile the Q&A roster.
Speaker Change: Yeah.
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Unknown Executive: Our first question comes from Colin Rusch of Oppenheimer. Colin is your line open now? No, one moment.
unknown: .. .. Music Music Music Music, Dr. Paret, Donald Trump, Donald Trump, Donald Trump [inaudible] Unknown Executive, Jeremy Chan, Bill Larkin, Tony Guglielmin, Daniel Sceli, Jeremy Chan, Unknown Executive, Jeremy Chan, Bill Larkin, Tony Guglielmin, Daniel Sceli, Jeremy Chan, Dr. Paret, Donald Trump, Donald Trump, Donald Trump [inaudible].
Unknown Executive: Okay, we're having an issue with him. Uh-huh. [inaudible] I apologize we're having an issue with his line. Okay.
Speaker Change: Yeah.
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Eric Stine: Our first question comes from Eric Stine of Craig Hallum, Jarlan Rusch of Oppen. Hi, Ann, hi, Bill.
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Dan Celay: Good morning, can you hear me? Um, you know, I'm just thought of a new OEM since I know that that was one of the objectives from the start. Sure, sure, um, you know, in terms of priorities, we've, we've, you know, launched this joint venture, um, and, you know, our goals immediately are to get it to functioning as a standalone business. So, you know, putting in place the, you know, the business systems, the ERP, all of those things are, are, you know, being put in place so that we can operate it separate from Westport.
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Dan Celay: The ERP management team was already organized around a, a separate entity, you know, there's a, a, about a, a nine month rollout of, you know, actions that make all those things happen to stand alone. So, you know, immediate priority is getting it functioning and running, but running parallel equal and priority is bringing on a second OEM and that activity continues. It's not going for, for some time it was ongoing before actually closed the joint venture and it continues to be ongoing and we, you know, we're hoping that we'll be able to announce something as we continue to work towards. You know, winning that second OEM, which is a priority for both Westport and both.
Speaker Change: Yeah.
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Dan Celay: Got it. And then, you know, I have heard some some talk in the market interest in HPDI in North America. And, you know, so I'm just curious, you know, maybe this hasn't changed from when it was part of Westport, but now that you are combined with Volvo in the joint venture, you know, maybe how those plans are coming together, you know, business with this health and that endeavor to get it to North America and what that might look like.
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Dan Celay: Sure. So, HPDI North America is one of those equal priorities, you know, whether it's bringing on a second to OEM, we're bringing the technology to North America through Volvo. You know, we're we continue to work through engineering and development to build a system that, you know, can cross all the continents, but in specifically in North America, we see the market is more C&G focused and so we're working on a plan to fill that that need and talk to other OEMs in North America. So, our commercial activities will continue to move forward in building this business out.
Unknown Executive: Got it.
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Bill Larkin: I will, I guess I'll stay tuned on that and made me my last one and just more bookkeeping. So, when we think about OPEX and just the moving pieces of the of Westports going forward. So, you said you had $2 million that was that should not repeat was I correct in hearing that related to the formation of the joint venture. Okay. So, $2 million. Yeah. And then it looks like roughly $56 million of the heavy duty OEM business that would be roughly the OPEX level that also comes out.
Speaker Change: Okay.
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Bill Larkin: I mean, is this kind of an all in OPEX $15 million type of number per quarter? We're continuing to look at the ad you know, at the end mission, we still have quite a few cost reduction initiatives that we're working on. And so, you know, we're, you know, that's across our business. You know, $15 million, you know, is about right for the current run rate, but we're going to get you by week that.
Speaker Change: Okay.
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Unknown Executive: Okay.
Okay.
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Unknown Executive: Thank you very much. Thank you. Thanks, Eric. Take care. Thank you.
Speaker Change: Okay.
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Christopher Dendrinos: Our next question comes from Chris Dendrinos of RBC capital markets. Your line is open. Yeah.
Dan Celay: Good morning. Morning, Chris. Morning. I wanted to ask about there. There was a comment. I think it was in the either the financial disclosure of the MDA and it looks like you all excited the JV with way. [inaudible] So, you know, we're going to talk about that. Thank you. Got it. Thank you. And then maybe just on the light duty segment, so it's kind of like the mix of light duty OEM was more heavily weighted to Europe.
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Dan Celay: And you noted the reduction in sales and some of those developing regions. Is there any sort of sort of strategic shift going on with, I guess maybe that that business line and maybe where you're focused internationally and how that impacts your growth going forward? Thanks. Sure. So the light duty business impacts this year, so Q1, Q2, and we'll flow through for a bit. The primary one was the OEM that imports vehicles and installs our systems.
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Dan Celay: And they tripled the size of their business and they're launching 14 new models in the middle of all this. And so the issue there was they were uncontrolled sitting on a pilot amendment inventory that they didn't realize they had. So they're bleeding that off. So the big hit we're taking there is just them bleeding off that inventory. We expect those volumes to to come back. We're waiting to see exactly when they're going to come back later this year, but we do expect them to come back.
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Dan Celay: The other piece was the the slower launch on the year of six with our OEM over there. And that has actually picked up and will be gaining volume. So we're actually, you know, fairly upbeat about the volume projections for Europe, but we're waiting to see specific numbers from the marketplace on that. So we don't see a major shift in, you know, the piece of that world that we plan. In fact, we see it to getting a little bit stronger. Thank you.
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Colin Rusch: Our next question comes from Colin Rush of Oppenheimer and company. Colin, you're gone is open. Thank you for giving us another go. Thanks much for getting me in. So guys, can you talk a little bit about what's going on with the vehicle customers for hydrogen on the off road opportunity. It seems to me that as the mining industry starts to work towards zero emissions. And the hydrogen industry starts to look at some dedicated facilities that there might be a meaningful opportunity for you guys. Just to understand how that's developing.
Speaker Change: Okay.
Dan Celay: Yeah, sure. So so we have been exploring opportunities in the off road off road is a is a growth segment both inside the joint venture for HPDI and within our high pressure components and systems world because there's a play there for for that technology. We do see some interesting opportunities coming together and have been in some discussions with some customers on how to help the mining industry, you know, transform their their technologies.
Dan Celay: So it's early days for us on that, but it is an important priority for us and we are starting to build out the commercial plan of how to pull it off. Thanks so much. And just on the light duty side, you know, it seems to me that there's an opportunity around potentially licensing some of the IP that you guys have and in up with a little bit leaner model. Can you talk a little bit about that opportunity?
Dan Celay: And if that's a real thing that you guys are thinking about licensing? Okay, so, you know, we're currently, you know, building out the capitalization of Euro six, Euro seven, technology that's going to be ramping up over the next two years, two to three years. And that's been our primary focus in terms of licensing. I'm not sure who or what you're specifically referring to, but, you know, our goal is to expand that technology across multiple OEMs.
Dan Celay: We do see a pendulum swing back the other way, you know, as I think the world sees the hydrogen ecosystem may be a little further out than we all want. In the middle of that, we have solutions, whether it's, you know, propane gas, natural gas groups, et cetera. And, you know, we're trying to position ourselves to be that bridge in between and bring solutions. So we're going to continue to try and commercialize that across Europe.
Dan Celay: And of course, in our aftermarket around the world. Thanks so much. A couple of follow up, so I'll take them offline. Thanks, guys. Yep. Okay. Thank you. And as a reminder, if you have a question, please press scar 111 moment.
Dan Celay: And our next question comes from Rob Brown of Lake Street Capital markets. Your line is open. Hey Rob. Morning. First question is on the sort of demand environment in the European HPDI market. I think that's been sort of coming back, but what's sort of your sense on how that looks over the next 12 months and some of the macro drivers there. Yeah, I think, you know, obviously, I mentioned just a moment ago, the view of where hydrogen is going to be coming in in terms of the ecosystem, the entire ecosystem.
Dan Celay: I think the European market is starting to adjust to that future being a little further off. Therefore, they're turning back to the alternative fuels aside from the fuel cells and the battery electric solutions. Clearly, alternative fuel ice engines are going to be gaining some momentum and some market share in Europe. And we're excited about that. We're also working to figure out how to get it in North America, how to commercialize it with different OEMs, North America, including Volvo. But I think the current HPDI system on LNG has a very strong future here in Europe.
Dan Celay: Okay, thank you. And then. The cost reduction efforts, you talked a little bit about some participation, but could you give us a sense of how far you are into that and how much is yet to go? Yeah, we've been, we've been digging in pretty aggressively across the company, both at a corporate level for corporate costs and which Bill can, can talk a bit about and then operation, you know, across the various segments, whether it's the light duty business or even the joint venture.
Dan Celay: We're trying to make ourselves a much more right-sized and efficient business across the board and, you know, one of the challenges is, I think we've talked about in previous calls, is the timing of making change in operations. So for instance, in Europe, you know, a lot of the cost savings that we want to initiate there, take capital and take time. You can't just hit a switch and, you know, take costs out of a business in Europe like we could hear, for instance.
Dan Celay: So, you know, are we, are we a third of the way into it? Probably, I'd say we're a third of the way into it and, and so, and it's also a balance, right, a balance between where we're cost-cutting, where we're investing for the future to, you know, take advantage of growth opportunities. So it's a bit of both.
Unknown Executive: Okay, great. Thank you.
Unknown Executive: I'll turn it over. One moment.
Jeff Osborne: Next question comes from Jeff Osborne of TD Cowan. Your line is open. Thank you.
Bill Larkin: Good morning. Thank you. Two questions. One is, do you have a sense of on the kits that are an inventory at your partner in Europe? You know, what you've sold in versus the sell-through of those vehicles and how long that pressure will be there? Is that something that will be resolved this calendar year or now? Yeah, we, yeah. Yeah, I can answer. So, yeah, it's heavily impacted our first quarter. It did it.
Bill Larkin: We did have some impact in the second quarter early in the second quarter. We actually started seeing the volume start ramping up throughout the quarter. And, you know, those will continue to increase throughout the third quarter, you know, as we work closely with with with our customer. You know, Dan mentioned they've just grown rapidly and they haven't put the controls and processes in place to, you know, manage their inventory. So we've gotten more actively engaged with our customer to be able to manage that and you have better, you know, foresight for, you know, their needs, their production needs inventory needs. So, you know, that business has, it has been recovering during the quarter and will continue in the third quarter.
Unknown Executive: Perfect.
Bill Larkin: And my last question is just how to think, I think Eric asked questions on OPEX and how to think about that and how you're aiming to reduce that. But how should we think about CAPEX for the second half that's unclear to me? Maybe it's buried in one of the documents. But what? Yeah, I think it's in the split of CAPEX first. Yeah, we put the JB. Well, I think, you know, a big chunk of the CAPEX investment this year, you know, historically, we've been in call it the, you know, 13 to 15 minutes, started around a little higher this year because we've been, you know, investing CAPEX to support the, you know, the, our OEM customer for LPG components for a year or six.
Bill Larkin: So we've invested heavily in new CAPEX, you know, I think, you know, for the back half of the year or just be slightly lower than, you know, what we spent in the first half of the year. And then, you know, I think that'll be the bulk of the CAPEX thing that we need to do to support our OEM customer for delivering zero six components. And then, you know, as we go through this, you know, we will have to recast, and we, we, our CAPEX run going forward, you know, to the, the, all the HPI activities on the JB that'll decline as well.
Bill Larkin: So is it feasible that that number could be less than 10 million next year? It could be, but we're actually just kicking off our annual budget process. And as part of that process, we do a deep dive, you know, in what our CAPEX needs were the various programs. And so we're going through that right now.
Unknown Executive: Perfect. That's all right. Thank you. Okay. Thank you. I'm showing no further questions at this time.
Dan Celay: I would like to turn it back to Dan Celay for closing remarks. I'd like to thank everybody for joining us today. And I hope we answered all your questions. I look forward to the further calls throughout the day.
Unknown Executive: That's all. Thank you.
Unknown Executive: This concludes today's conference call. Thank you for participating. And you may now disconnect. Thank you. [inaudible][inaudible][inaudible]