Q3 2024 Westport Fuel Systems Inc Earnings Call
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Speaker Change: Hello, television. Hi. Good morning, members of the staff. Good morning, people of Denver. Hello, I am Ashley Nuell. Lost 30 minutes of practice right now, and I need to get a window shutter.
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Good day and thank you for standing by.
Speaker Change: Welcome to Westport's third quarter 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'll 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. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to Ashley Nuell, Vice President of Investor Relations. Please go ahead.
Ashley Nuell: Good morning, everyone. Welcome to Westport Fuel System's third quarter conference call for 2024.
Ashley Nuell: This call is being held to coincide with the press release containing Westport Financial's results that was issued yesterday.
Ashley Nuell: On today's call, speaking on behalf of Westport, is Chief Executive Officer and Director Deb Sceli and Chief Financial Officer Bill Larkin.
Ashley Nuell: Attendance on this call is open to the public, but questions will be restricted to the investment community.
Ashley Nuell: You're reminded that certain statements made on the conference call and our responses to certain questions 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: With that, I'll turn the call over to you, Dan. All right, thanks. Thanks, Ashley. Good morning, everyone. Today, I will be summarizing Westport's progress and results for the third quarter of 2024.
Ashley Nuell: providing updates on our strategic priorities, including an update on the JV with Bobo. Bill will then walk us through our Q3 results and provide some commentary on the ATM offering that we announced in the quarter.
Q3 was a steady quarter with wins in key areas.
This was the first full quarter with Suspira being operational.
Ashley Nuell: that, along with the steps that we have taken with respect to cost-cutting, has enabled Westport to lower expenditures in research and development, as well as sales general and administrative expenses, by approximately 40%, as compared to the same period last year.
Ashley Nuell: This has all led to improved gross margins and adjusted EBITDA. Although we reported a decrease in total revenue this quarter, we view our revenue results for the quarter as a win and I want to provide some clarity as to why.
Ashley Nuell: As I mentioned, this is the first full quarter with FISPERA being operational. That means we transitioned our HPDI revenue from our heavy-duty OEM segment into the joint venture in the quarter and accounted for under the equity method of accounting for investments.
Ashley Nuell: During the quarter, Sphere generated $16.2 million in revenue, more than offsetting our reported decline in consolidated revenue.
Ashley Nuell: With respect to our HPDI joint venture, I want to provide a couple of different updates. The background on its new name, my perspective on its first full quarter of operations, and some insight into the partnership in China.
Ashley Nuell: First, JV unveiled its name, Suspira, as part of its participation in the IAA, one of the most important industry events for commercial vehicles, transport, and logistics.
Ashley Nuell: The name Suspira, which combines Espira, meaning breathe out in Latin, with a C for clean, perfectly embodies the joint venture's mission and vision.
Ashley Nuell: Regarding the JV operations, third quarter revenue for CESPIRA was $16.2 million, a $2.7 million increase from the same quarter last year, which was formerly captured under our heavy-duty OEM segment.
Ashley Nuell: Next, I want to touch on our work with WHAI. As you know, we have a technology development and supply agreement which includes an obligation for WHAI to order certain volumes of HPDI fuel system components.
Ashley Nuell: prior to the end of this year. Currently, we have not received any significant orders against this agreement and we don't currently anticipate orders for any significant additional volume by the end of 2024.
Ashley Nuell: Both Westport and as well as Suspira continue to collaborate with H-I Power on an HPDI fuel system equipped version of the H-I engine platforms and we are currently discussing the next stages of this work and the obligations of each party going forward.
Ashley Nuell: We continue to do things to right-size the business and cut costs where we can. Many of these changes aren't visible in the financial statements immediately. However, in Q3 2024, we really began to see some of our initiatives materialize.
Ashley Nuell: Given this is the first quarter with CISPERA operational, some of our expenses of course will now be reflected as part of CISPERA, yet we are also seeing wins in our other business units.
Ashley Nuell: During the quarter, we decreased the company's SG&A expenses by almost 40%, as compared to third quarter of last year, a decrease of $6.6 million, of which only $2.3 million relates to expenses that now sit in Sespera.
This is a major accomplishment that I'd like to highlight.
Ashley Nuell: Further, our R&D expense has also decreased by over 40% compared to the same quarter of last year. A 2.5 million difference in expenses, mostly attributable to Suspira. We will continue to remain diligent when it comes to cost cutting and decreasing expenses.
Ashley Nuell: ensuring that the business runs more efficiently and effectively over time. We are pleased with our progress so far, but acknowledge that there is still much work ahead of us on this front.
Ashley Nuell: We remain confident in the role that alternative fuels will play in driving sustainability in the future of transportation and industrial application spaces. We do see a slowdown in hydrogen infrastructure development, which is leading to a slower adoption of automotive and industrial applications powered by hydrogen.
Ashley Nuell: We believe that it could be a multi-year delay when it comes to the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure.
Ashley Nuell: However, we remain confident on the role that hydrogen will play in driving sustainability in the future of transportation and industrial application spaces, and in the future of Westport.
Ashley Nuell: While hydrogen is key to the future decarbonization of transport, our components and solutions are already powering emission-reducing innovation today across a range of alternative fuels including natural gas, renewable natural gas, propane, and hydrogen.
Ashley Nuell: With decades of experience, market-leading brands, and unmatched engineering expertise, we are a leader in the market.
Ashley Nuell: Our light duty segment has been performing well. We continue to focus on innovation, creating and deploying fuel system solutions that allow our customers to benefit from the cost advantage of alternative fuels. As you know, we started production earlier this year for the Euro 6 LPG program for a leading global OEM.
Ashley Nuell: Euro 7 LPG fuel system deliveries for this same global OEM customer are anticipated to begin mid to late 2025.
Ashley Nuell: We are also excited to be part of the new Kia Niro Tri-Fuel in Italy, inspired by innovation and efficiency.
Ashley Nuell: Born from a partnership with Kia Italy, this is the first ever OEM hybrid vehicle powered by HEV and LPG technologies.
Ashley Nuell: This car can travel over 1,600 kilometers or almost 1,000 miles on full tanks, all while delivering reduced emissions and uncompromised performance.
Ashley Nuell: Finally, our Prince brand has globally released an LPG fuel system for the Ram 1500 Hurricane 3.0 Di Twin Turbo.
Ashley Nuell: engine and enabling customers to benefit from lower fuel costs and lower emissions.
Ashley Nuell: Lastly, as we have shared before, one of our key delayed OEM customers paused orders as they worked through a buildup of inventory on their end. Orders from this customer have seen an uptick over the last month and we continue to work closely with their team.
Speaker Change: With that, I'll turn it over to Bill to discuss our Q3 2024 financial results in more detail.
Bill Larkin: Good morning and thank you Dan. Moving to our third quarter results. This is the first full quarter with Suspiria being operational and as Dan mentioned we're accounting for Suspiria under the equity method of accounting for investments.
Bill Larkin: Therefore, our third quarter P&L only includes our 55% interest for the net loss of CIS Bureau.
Bill Larkin: In the third quarter of 2024, we generated $66.2 million in revenue, which was a 14% decrease compared to the prior year period. This decline in revenue was primarily driven by the heavy-duty OEM business, which is now conducted in Suspiria.
Speaker Change: Superior generated revenue of $16.2 million in the quarter. This is up from $13.5 million in the same quarter as last year.
Speaker Change: There was a marginal increase of $14.5 million, or 22% of revenue, in the third quarter of 2024. This is up from $13.2 million, or 17% of revenue, in Q3 of 2023.
Speaker Change: This improvement was largely driven by an increase in sales volumes in our light duty business, along with the change in sales mix, with an increase in sales to European customers, in addition to seeing the initial improvements from our cost-cutting initiatives.
Speaker Change: These were partially offset by a reduction in sales to developing regions.
Speaker Change: We continue to demonstrate improvement in our adjusted EBITDA. This quarter we recorded an adjusted EBITDA loss of $800,000.
Speaker Change: which was a significant improvement over the 3 million adjusted email loss recorded in a prior year period.
Hi.
Speaker Change: Light duty revenue for Q3 2024 was $61.59 million as compared to $60.29 million for Q3 2023.
Speaker Change: This increase is primarily driven by an increase in sales in our light-duty OEM and independent aftermarket businesses, partially offset by a decrease in our sales in our fuel storage, DOEM, and electronics businesses.
Speaker Change: There's margin or light-duty business increase in the quarter to 13.99 or 23% of revenue.
Speaker Change: Now this is compared to $12 million or 20% of revenue in Q3 of 2023. This was primarily driven by a change in sales mix with an increase in sales to European customers and a reduction in sales to developing regions.
Speaker Change: As Dan mentioned, our Light Duty segment continues to evolve our LPG fuel system solution, providing more customers with cost-competitive alternatives.
Speaker Change: This, along with the success we are seeing following the start of our Plan 06 deliveries, this has enabled light-duty OEM to drive revenue and margin growth in the quarter.
Speaker Change: High pressure gas controls revenue for Q3 of 24 was $1.6 million. This is a decrease as compared to $3.7 million for Q3 of 23. This is primarily driven by a general slowdown we're seeing in the hydrogen market.
Speaker Change: Gross margin decrease in the quarter to 400,000 or 25% of revenue as compared to 1 million or 27% of revenue in Q3 of 2023.
Speaker Change: Heavy-duty OEM revenue for the third quarter of 2024 is 3.1 million. This is down 10.4 million compared to the same quarter last year. The revenue decrease was a result of the transfer and continuation of the heavy-duty business in Suspiria.
Speaker Change: Revenue earned in the third quarter of 2024 relates to our transitional services agreement with CIS Bureau, which is expected to be in place until early to mid 2025.
Speaker Change: The gross margin of our heavy-duty OEM business in the third quarter of 2024 was flat compared to Q3 of 2023. It was up as a percentage of revenue for 1% in the prior year period compared to 6% in Q3 of 2024.
William Larkin.
Speaker Change: We're going to liquidate our cash and cash equivalents at September 30th, 2024 with 33.3 million, a decrease of 8.2 million as compared to the end of Q2 of 2024.
Speaker Change: The cash used by operating activities was 9.9 million. This change is primarily related to net cash outflows for inventory and timing of payments for accounts payable and accrued liabilities compared to the end of the second quarter, which were partially offset by a reduction in accounts receivable.
specifically the inventory.
Speaker Change: inventory increase in the third quarter by 9.9 million as compared to the end of the second quarter.
Speaker Change: Inventory was primarily impacted by the ramp-up to support expected deliveries of Euro 6 kits in Q4 and the heavy-duty business under the transitional services agreements. However, we were targeting inventory reduction back to more normal levels by the end of 2024.
Speaker Change: The cash provided by investing activities was $7.5 million in the quarter, and the cash used in financing activities was $7 million. This is primarily related to debt repayments, including fully repaying and terminating a revolving credit facility.
Speaker Change: I want to provide an update on our ATM offering. The ATM was set up with the intention of providing added optionality and flexibility to opportunistically raise capital. Since we put the program in place in mid-September, we have not sold any shares under the ATM program.
Speaker Change: We will continue to do what is necessary to ensure we are adequately and fully capitalized to remain focused on solidifying our balance sheets.
Speaker Change: We've been actively implementing cost-saving initiatives, which is reflected in the quarterly results we shared with you today.
Speaker Change: Thank you. With that, I'll turn it back over to Dan. Thank you Bill. Before we wrap up this quarter's earnings call, I wanted to close with a few comments.
Speaker Change: Although I am incredibly proud of the work we have done to date, we acknowledge that considerable work lies ahead as we look forward. Westport is motivated by the possibilities that the future holds and is resolute in its pursuit of innovation and sustainability. To reiterate regarding the global hydrogen market,
Speaker Change: We acknowledge the slowdown in infrastructure development that will likely lead to a slower adoption of automotive and industrial applications powered by hydrogen.
Speaker Change: We are steadfast in our belief that hydrogen is a fuel.
Speaker Change: Although gradual as opposed to immediate, will prevail and become the clean fuel source for the transport industry that is adopted worldwide.
Speaker Change: We are committed to providing solutions that enable our customers to take advantage of lower emissions and lower costs, often provided by alternative fuels like LPG, CNG, LNG, and in the future, hydrogen.
Speaker Change: We have many of these solutions in the market today and are committed to continuing to advance decarbonization across the mobility sector. I want to thank everyone for being here and with that I'll turn it over to the operator to open the call for questions.
Thank you.
Speaker Change: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 11 again.
Our first question comes from Colin Rush with Oppenheimer.
Speaker Change: Hey, this is Andrew on for Colin. Just a couple of questions from us. You guys continue to make incremental progress on GM improvement. Could you guys speak to the contributions of pricing, supply chain optimization, and mix that are driving some of these improvements?
Speaker Change: First of all, it's a little bit of improvements related to the supply chain. It's just across the board.
Speaker Change: And we're looking at every, you know, our entire cost structure from the supply chain to labor to our manufacturing footprint. So, you know, from a supply chain standpoint, it was just a small piece of the overall cost reduction.
Speaker Change: Great, thanks so much for that. And just following up on that, can you guys speak to the evolution and maturation of non-transportation hydrogen applications and the opportunity for West Park, particularly in Europe?
Or not, so you're talking about infrastructure? Yeah, particularly.
Speaker Change: Yeah, so in the infrastructure segments, our high-pressure controls and systems business unit is where we play.
Speaker Change: and with all of our pressure relief valves, tank valves, etc. We do see some opportunities for some of our cryogenic pump products, but those markets are developing. We continue to play in those markets, and not just in...
Speaker Change: It's a global requirement for these types of components, whether it be in China or Europe.
Speaker Change: so we're going to continue to push that that business units technology we in fact with our GFI brand we we've become the leader in the market in terms of performance
Speaker Change: Thanks so much for that. If I can sneak one last one in. As you guys look at the balance sheet, can you speak to what your medium-term working capital and operational cash needs are and how you sort of expect to meet those needs?
Speaker Change: Yeah, so from a working capital standpoint, we did have an increase in our working capital. It was mostly driven by our inventory. That was a big chunk of it.
Speaker Change: We're just building inventory to meet the expected demand for Euro 6 kits in the fourth quarter, as well as for the heavy-duty OEM business. We expect the inventory levels to come down significantly in the fourth quarter.
Speaker Change: and it's going to continue on into 2025. So we believe there's a lot of opportunities to...
Speaker Change: reduce our inventory and improve our inventory returns going forward which will reduce our working capital.
Speaker Change: Other areas, just because of the reduction in revenues, because it is seasonal. Typically our third quarter is the lowest quarter when it comes to revenues. We did see that decline in AR.
Speaker Change: We think there's some opportunities there to try to further reduce our DSOs and improving collections on our AR, reducing our working capital. And on the flip side, just with the timing of our accounts payable.
Speaker Change: you know, that drove up our working capital as well. So we're gonna try to.
Speaker Change: better improve our payment management. So it's going to be a combination of those that try to actually, we want to reduce our working capital next year.
Great, thank you so much. That's all from us.
Our next question comes from Amit Dayal with H.C. Wainwright.
Speaker Change: Thank you, good morning everyone. Dan, congrats on a strong call. Thank you.
Just with respect to Suspiria, is there a...
Speaker Change: Do we have a sense of how much sort of breakeven or gross margin positive level revenues will be? I know this was very early first quarter, but you know, do we need to be at like 20 plus million or 25 plus million per quarter to hit positive gross margins for that business?
Speaker Change: It depends on the mix. It's hard to peg a specific number because there's a split between, you know, final product assembly parts versus aftermarket parts, i.e. the service of the trucks.
Speaker Change: the numbers we would need, but we're still working through, you know, the setup of that business and
Speaker Change: You know, getting it operational takes some time. We obviously started five months ago and
Speaker Change: Okay, understood. With respect to HIV, I know, you know, it hasn't really contributed much.
Speaker Change: the last few years. How should we think about, you know, contribution from OHI going forward? It looks like you are still sort of, you know, maintaining a relationship with them, but...
Speaker Change: You know, should we factor anything from China or WHO as a part of our future projections?
Speaker Change: At this point, I would say no. We have no orders on that contract, but the engagement continues. They are working with us on the HPDI technology for the Chinese market. They're working through their engine development programs.
Speaker Change: and doing their trials and so we're still engaged but we have no orders at this point.
Okay, understood.
Um.
And then, you know, from a...
Tariff perspective right after this election.
Speaker Change: What is our exposure potentially to developments on that side, especially for the U.S. market or business we do in the U.S.? How are we positioning for any headwinds that may emerge from that front?
Yeah, I actually look at it the other way, I...
I see that, I think the runway for...
Speaker Change: natural gas products primarily in North America on in the U.S. on CNG.
Speaker Change: But we see an opportunity that we would like to take advantage of for a longer runway and bigger volumes on natural gas. So we're actually optimistic from this election outcome in that regard.
Speaker Change: Understood. No, that's interesting. Yeah, that's all I have, Dan. I will take now the questions offline.
Thank you. OK, thank you.
Our next question comes from Eric Stein with Craig Hallam.
Good morning, everyone.
Good morning, how are you Eric?
Hey, you're doing well. Thanks.
Speaker Change: So, just, you know, talking about hydrogen and that the infrastructure is in a bit of a transition period, just curious.
behind the scenes for HPDI and the joint venture.
Speaker Change: Are you seeing any change to the activity of OEMs related to hydrogen? And I guess, you know, you're fine if it's hydrogen or LNG or both.
Speaker Change: you know but is there a change for OEMs related to hydrogen is that driving people more to LNG or or what are you seeing at this point?
Yeah
Speaker Change: I'd suggest, Eric, that we haven't actually felt any change on the development side, right? Because, obviously, these development cycles take a number of years and the OEMs are still working, you know, forward on these plans. I think they...
Speaker Change: all the OEMs in the heavy market to see the multiple propulsion systems they're going to need and they're going to continue to develop them.
Speaker Change: The pace of development, we haven't felt a change yet, but I suspect that we're going to see some slowdowns in the development of hydrogen work.
Speaker Change: our multiple business units, we can run all the alternative fuels. We have solutions today. So whether hydrogen's five years or 10 years away, you know, it doesn't matter to us.
Speaker Change: No, absolutely. Okay, and you just mentioned in response to a previous question, just a, you know, a nice runway for natural gas products in the U.S.
Speaker Change: Curious, you know, I know that in the past there's been some talk of
Speaker Change: HPDI interest in North America. I know that you know one of the objectives of both Westport and Volvo was a second OEM in in the joint venture so just wondering if you can speak to those topics.
Speaker Change: Yeah, we continue to work with a second OEM to bring them on board. That work is going to continue throughout the rest of the year here and you know I can't tell you definitively when that will be complete.
However much I would like to, but.
Speaker Change: We will bring on a second OEM, that is our mission. It's the mandate of the joint venture to have multiple OEMs. That was one of the key structures of the deal with Volvo, was to ensure that we had an independent business that could attract
Speaker Change: other OEMs. And we're finding the, you know, the strategy of the OEMs wanting multiple propulsion systems because this segment is going to be
Speaker Change: needing different solutions, it's going to play right into our hands. So it is going to, it's not coming as fast as we want, but it's coming.
Speaker Change: got it and then I mean I would assume then that that interest and I know you're talking about a second one but more broadly it would potentially include something in the US at some point maybe a CNG version I think you've mentioned that in the past
Speaker Change: Yeah, we're working that that angle as well pretty hard and and we absolutely believe there's a place for it in North America and and you know, I think
Speaker Change: The question I got earlier about the U.S. election and the impact on these segments.
Speaker Change: I think it's going to work well for us to give us some some pressure on the market to deliver a CNG solution and you know we are talking to multiple OEMs in North America and we'll continue to position ourselves to be a solution for them.
All right, thanks Dan. Okay, take care.
Speaker Change: Our next question comes from Rob Brown with Lake Street Capital Markets.
Hi, good morning.
Speaker Change: I just wanted to get a sense on your thoughts on the gross margin.
Speaker Change: The gross margin you can get to as you as you take costs out you a good improvement this quarter But what's the you know, what the sense of how much improvement you think you can get there?
Thank you.
Speaker Change: I think for the quarter we were really happy on where we landed on the gross margin. You know, I don't think we're in a position to provide, you know, guidance looking forward. However, you know, the process is not over. You know, I think there's still a lot more work to do across all the input costs, whether it's material costs, direct labor, fixed manufacturing.
Speaker Change: We are continuing to review, look at the entire cost structure and cost to deliver our products, kits, systems, components to our end customers.
Speaker Change: So, you know, I'll leave it at that, but we're still looking at it. Yeah, Rob, one of the important things is we're not just, you know, we're not just content with improving our gross margins today.
Speaker Change: One of the things we're doing is putting in place operational processes.
Speaker Change: to ensure that we can hold on to them. As we all know, in the industrial space, the cost structures are quite sometimes volatile, whether it's on the raw materials or energy, etc. Our goal is to not just fix this foundation, but put in place a
a business process that can hold it and maintain it.
Speaker Change: Okay, got it. Thank you. And then I guess on the, I think you talked about a year or seven.
Speaker Change: shift happening in in 25. What's what's for your opportunity there and and do you
see sort of any transition kind of
Speaker Change: timing slow down or is this incremental to where you're at?
today.
Speaker Change: So for your friendly light-duty business, yeah, you know, we expect it will start transitioning to, you know, delivering Euro 7 kits. I expect it'll be a very seamless.
Speaker Change: transition from Euro 6 to Euro 7, you know, we're already producing those components going through, you know, the
Speaker Change: final certification processes and delivering the components so we're prepared to start delivering those components next year.
Speaker Change: And so there's really no disruption from a production standpoint, switching from Euro 6 to Euro 7.
Speaker Change: Okay, thank you. And then last question on the heavy duty business. Do you see kind of the pipeline increasing there? You know, we've heard indications that that's happening. Are you seeing kind of an uptick in overall demand in that market coming in next year?
Speaker Change: Yes, we're seeing it now. Our volumes are increasing and we're working hard to meet all the volume increases that we're being asked to meet and you know we're actually quite excited about that.
Rob Brown: Okay, great. Thank you. I'll turn it over. Okay. Thank you, Rob.
Our next question comes from McMurray Will with Cormark Securities.
Speaker Change: Hi, good morning. What are the cost-cutting efforts? Is the plan to bring, to get, to EBITDA break even sustainably on a quarterly basis?
Thank you.
Speaker Change: Well, yeah, of course. That's where we're targeting. Absolutely, we want to get there.
Speaker Change: And then, of course, maintain it, just like my comment to Rob, you know, getting things where we want them is step one. Maintaining them with some good business practices is just as important.
Speaker Change: So, digging into that a little bit, is that, are you confident that...
Speaker Change: That's an operational set of changes, or are there still parts of the business that need to be restructured or sold outright? I mean, where are you on that process of restructuring or sort of right-sizing the organization?
Speaker Change: There's still work to do there, absolutely, for us to get this business in a position.
Speaker Change: and a position that, you know, we can be as sustainably...
Speaker Change: improving earnings. So, yes, more work to do on the restructuring and reorganizing of the business.
Speaker Change: And I think, you know, I think we talked about this before, you know, it's not like a light switch. This is going to take some time, and especially doing business in Europe, things don't happen
Speaker Change: as fast as I would like them, but they're happening and we're getting momentum and that's the thing that I'm excited about is the momentum that we've we've got going now in, you know, fixing the business and building a strong future.
Speaker Change: So if you're just trying to put together sort of an outlook, is that a process that takes
Speaker Change: Like is it a question of a few quarters or is it a year?
Speaker Change: But we're committed to it. That's the thing. We see clearly what we can be down the road and we're working hard to execute and achieve those targets.
Speaker Change: Is all the interaction with Wei Chai through the JV? Yes. Okay, so when you talk about bringing in a second OEM, presumably that's not Wei Chai? Correct.
and is the second OEM preference, North America.
Speaker Change: There's nothing precluding one to be in another one in Europe, is there?
No, it's not. Okay.
and then just lastly on you talked
Speaker Change: somewhat already about the hydrogen infrastructure but I'm just taking a big step backward when you look at your experience in gaseous carbon fuels
Speaker Change: Where are we in that process on the infrastructure side? Are we, is it 10 years ago, 15 years ago, or is it like five years? I'm just trying to get a handle on
Speaker Change: Even if you see continued work on the engine side, it's the infrastructure that's really an issue. So any comments on where you would sort of benchmark us in terms of
Speaker Change: Yeah, I think, you know, I think we've got a couple of things happening here. I think we've got a
an industry that needs to get to critical mass.
Speaker Change: in the production of and the infrastructure to supply and deliver.
hydrogen and other gaseous fuels.
Speaker Change: Everything I'm reading tells me that it's further out than I would like. It could be seven, eight years out before we start getting some critical mass. At the end of the day, total cost of ownership is going to drive
Speaker Change: The cost of hydrogen today is still far too high to make a lot of sense.
Speaker Change: and it's not any different than battery electric or any other system. It's all about critical mass and once it's achieved I think we're going to be fine. It's a matter of how quickly we can get there.
Speaker Change: And each country's got its own plans for investments in that, and the markets have their plans.
You know, I wish I had a crystal ball, but...
Speaker Change: We still believe in it. I think the markets still believe in it. It's just a timing issue.
OK.
Speaker Change: Sorry, last one, if I could just jump one more time.
Speaker Change: Given that, given the differences in the countries, and given how important it is for the JV, is getting a second OEM in North America aligned with that?
Speaker Change: So I think we want a, I'll call it a third OEM in North America, not a second. I mean, second is critical and we've got to get the third.
Speaker Change: I think we're going to see the markets develop differently. Today, legislation in Europe is working in our favor, whereas in the U.S. there's work to be done on the legislative front to
Speaker Change: make these solutions acceptable. And I think we're going to see, you know, with the recent election, I think we're going to see some wiggle room coming on that side in the U.S.
Speaker Change: And then you've got China. China is still the largest market. I think there's 150,000 trucks sold this year on LNG in China. It's a massive market. And while we're frustrated about the Weichai situation today, it's still a market that demands attention.
Speaker Change: Okay. Great. That's all my questions. Thanks, guys. Great. Thanks, Mike.
Our next question comes from Jeff Osborne with TD Karin.
Speaker Change: Morning, Jeff. Hey, good morning. Morning. Just a couple of quick ones on my side. You mentioned a pickup in the late OEM customer there in Italy. Can you just characterize that? Are we, you know, half of where we were at normalized run rate before the inventory builds or any perspective on the improvement?
Speaker Change: I'm trying to think of exactly how to answer that. I think what you're asking me is the volume picking up from the delay we had at the beginning of the year due to the inventory buildup.
Speaker Change: Yeah, exactly. If they were running 100 cars a quarter in the past or 100 a week and did it go down to 20 and you're back up to 50, I'm just trying to get a sense of...
Speaker Change: The inflection for that customer, given it was a 14-pass. Yeah, I don't have that exact number off the tip of my tongue, but...
Speaker Change: I think we're more than halfway back. Yeah, yeah, I think, you know, we've substantially recovered since, I call it the first half of the year, and I would say we're more at a normal run rate for that customer in delivering kits.
Speaker Change: And maybe just to follow up on a prior answer you gave about the recovery in the light duty market. Can you be more specific as to which countries you're seeing that? Is that in Italy itself where you have a strong presence or Eastern Europe or South America? Any perspective there would be helpful.
Speaker Change: Well, I think a lot of it's in Europe for, you know, principally the LPG markets, you know, that's what we're seeing a lot of the pickup. When you look at, let's see, more of the emerging markets, it's,
Speaker Change: It's a lot more choppy because a lot of the emerging markets are driven by tenders.
Speaker Change: And so, you know, that can swing, you know, a quarter or a year by several million dollars depending on the timing of those tenders. But, you know, we look at this quarter, you know, a lot of it is just the sale of LPG systems within Europe, mostly in Italy and Eastern Europe.
Speaker Change: Got it. And then just two other quick ones here on Suspiria. You know, double-clicking out beyond the second or third customer, is there anything operationally or sales integration-wise that, you know, you would say would characterize as the two biggest objectives over the next six months or so?
Speaker Change: You know what, we're actually structured with enough capacity on both the supply and assembly side that we can bring on.
second and third OEM right now.
Speaker Change: And so, you know, any addition, so we bring on a second OEM, let's say tomorrow, theoretically, what we're kicking off is a engine development program.
Speaker Change: and the revenues won't come in for a few years, right? That's not an instantaneous thing. We have to tune the system to their engine.
And so.
Speaker Change: As a business, it's structured and ready to take on additional volume, whether it's with the current customer or additional customers. So there's no roadblocks or speed bumps to get in the way of that, but we've got to get the development work done first.
Thank you.
Speaker Change: My last one maybe for Bill is just the cash needs going forward. Is there a way you can quantify? I think you said it was Euro 6 for the inventory. There's sort of multiple pieces here at play. You're five months into a JV. There's still some restructuring left to do over the next year, it sounds like.
Speaker Change: and the one-time inventory bill. But at the current run rate revenue, is there a way to think about what normalized cash burn would be? And then how that can improve going forward?
Speaker Change: Yeah, you know, we're trying to turn the tide on that, and we're hitting it on all fronts in terms of cost reductions, trying to enhance our margins.
Speaker Change: trying to implement operational efficiencies which also include inventory management accounts receivable you know as I mentioned you know the fourth quarter we expect our you know working capital the inventory to come back down to more work normalized levels
Speaker Change: that'll help free up some cash during the quarter. And, you know, it's about continue to improve upon that and sustainability of, you know, trying to reduce our working capital, you know, really it's kind of operate more efficiently in the funder operations.
Speaker Change: So, you know, right now that's what we're focused on, you know, try to, you know, eliminate the cash burden.
Speaker Change: And to that point, I mean, you had 30 sizable cash burn in a quarter relative to our expectations, but you chose not to use the ATM. Was that more a function of the stock price or just an expected or anticipated improvement in Q4?
Speaker Change: It's just, you know, the ATM, you know, I just think that I think we should the ATM, you know, we probably should put in place when we put the original shelf, we file the original shelf. And however, you know, it's just, it's there, you know, it's, you know, it's just to have
Speaker Change: If there's an opportunity to shore up the balance sheets, we will leverage that, but as of right now, we have not issued any shares under the ATM.
That's all I have, thank you. Thank you.
Speaker Change: That concludes today's question and answer session. I'd like to turn the call back to Dan Sceli for closing remarks.
Dan Sceli: Well, thank you very much everybody for your participation. As you can tell from our call today, we're very excited about the momentum and the progress we're making in right-sizing and stabilizing this business. We're excited about the future of our technology and its place in the alternative fuels.
Dan Sceli: and we're going to continue to work very hard to ensure that we put in place the business processes to maintain the gains that we're getting. Thank you very much.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.