Westport Fuel Systems Inc. (WPRT) Q3 2012 Earnings Report, Transcript and Summary

Darren Seed - Vice President of Investor Relations & Communications and Member of Disclosure Committee David R. Demers - Founder, Chief Executive Officer, Director, Member of Strategy Committee, Member of Disclosure Committee, Member of Nominating & Corporate Governance Committee and Director of Cummins Westport Inc William E. Larkin - Chief Financial Officer and Member of Disclosure Committee

Lucy Watson - Jefferies & Company, Inc., Research Division Graham Mattison - Lazard Capital Markets LLC, Research Division Ann P. Duignan - JP Morgan Chase & Co, Research Division Ravi Gill - Goldman Sachs Group Inc., Research Division Shawn M. Severson - JMP Securities LLC, Research Division Alexander E. Potter - Piper Jaffray Companies, Research Division Chip Moore - Canaccord Genuity, Research Division Aaron Spychalla - Craig-Hallum Capital Group LLC, Research Division David Galison - CIBC World Markets Inc., Research Division Matthew Blair - Macquarie Research Carter W. Driscoll - Capstone Investments, Research Division Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Hello, this is the conference operator. Welcome to the Westport Innovations Inc. 2012 Third Quarter Financial Results Conference Call and Webcast. [Operator Instructions] the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I'd like to turn the conference over to Darren Seed, Vice President of Investor Relations and Communications. Please go ahead, Mr. Seed.

Thank you, and good afternoon, everyone. Welcome to our third quarter conference call for fiscal 2012 that is being held to coincide with the disclosure of our financial results earlier this afternoon. Those who haven't seen the release and financial statements yet, they can be found on Westport's website at www.westport.com. In rather unique circumstances today, our Canadian law firm filed our financial statements and MD&A on the Canadian filings system, or CEDAR, in advance of our usual and very much standard process time of 4 p.m. Eastern or 1 p.m. Pacific. As soon as we identified the error, we identify -- we, excuse me, took immediate action and halted the trading of our stock, and pulled up the release time of our press release by about 30 minutes. So we do apologize for any inconvenience this may have caused, but are just pleased to move forward with our conference call as scheduled. Speaking on behalf of the company will be Westport's Chief Executive Officer, David Demers; and Westport's Chief Financial Officer, Bill Larkin. Attendance at this call is open to the public and to the media, but for the sake of brevity, we're restricting questions to analysts. You are reminded that certain statements made in this conference call, and our responses to various questions, may be -- may constitute forward-looking statements within the meaning of U.S. and applicable Canadian securities law, and such forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements. Information contained in this conference call is subject to and qualified in its entirety by information contained in the company's public filings. And except as required by applicable securities laws, we do not have any intention or obligation to update forward-looking information after this conference call. You are cautioned not to place undue reliance on any forward-looking statements. Now I will turn the call over to David Demers.

Thanks, Darren, and good afternoon, everyone. As you've seen, 2012 has bumped into a sudden slowdown in deliveries, but we believe this is just a lumpiness phenomenon, compounded by some current economic uncertainty, of course. Order activity remains high, and we see momentum building for both current and new products for 2013. We now expect 2012 to end up at about 30% revenue growth over 2011, which is lower than we had forecasted at the start of year but consistent with our long-term growth over the past 8 years. So despite the surprise break late in September, we're satisfied with the significant progress in our business plan this year. As usual, I'll relinquish the floor shortly to let Bill take you through the financial statements, but I wanted to elaborate a bit on how we see our current position as we head into 2013. 2012, I think in retrospect, we'll see it as a major turning point in our business. I believe that it starts a major new phase in our development after we spent the last decade doing market creation work and technology proof of concept work. But I think it's clear we've now established that natural gas can work in a broad array of transport applications, that it can be delivered economically to customers all over the world and that we've developed a business model that allows our industry to launch successfully new products in a capital-efficient and risk-reduced approach that makes money for everyone in the value chain. This year, we also saw a broad consensus for the first time that natural gas will take material market share in every global transportation market within the next 5 years. Obviously, I don't have time to go through these studies today, but consensus suggests that we'll see, for example, 7% to 15% share of the North American trucking industry running on natural gas in 2017. Some markets will see penetration rates even beyond the high end of this range. Whether the numbers emerge at the low end or the high end, I think, is a little irrelevant. It's an enormous change from our current position and it's a spectacular business opportunity for our industry and for Westport. So I think we can look at the last few years as classic technology chasm-crossing activity. The early adopters are now behind us and the main event is about to start. I think Westport has established a unique market position. We're the only company in the space with market-leading technologies and products in every major geography and in every major segment. Now I know people sometimes find our story and our business plan complicated, and some complain that we're unique and impossible to position and compare, which I suppose I can accept as a compliment. But really, we have to understand this is never going to be simple. This is an epochal change. Shifting the world from one major energy source, oil, to a new and very different one, natural gas, requires coordination and cooperation on a tremendous global scale. And we're doing it in place, as it were, without tearing everything up and starting over. In fact, we're doing it in a way where both systems will coexist for decades. But forget for now about how unlikely and how challenging this idea might have been. It is happening. So to try and clarify how we see it, I'm going to divide the work ahead of us into 5 major links in the value chain. Well first off, of course, we -- and I'm speaking here in the industry sense, not just Westport. The industry needs to solve the technology challenges of using gaseous fuels on vehicles. And then we need to engineer and manufacture specific unique vehicle components, such as fuel injectors, fuel pumps, fuel tanks, all that stuff that's required for a natural gas vehicle to work. Now this work has been going on for decades, it's true, and there are lots of people who make components for this system. But now that the market is coming, the major market is coming, I think winners will emerge who can deliver on those traditional product metrics like price and quality and performance and scalability and service. Naturally, Westport is active in that space. We build some things, we have other things that are built to our design by other people as appropriate. We've been selectively acquiring and integrating some component suppliers with key capabilities into our portfolio. At this point, we believe we have the best portfolio of natural gas components and the best platform for delivery in the industry, and we're pushing hard to widen our lead. Now a second step, of course, is to design and test engines, the device that turns natural gas into something that we can do and use for work. And we also need to think about total vehicle systems, recognizing that moving to a new fuel, whether it's pressurized CNG or cryogenic LNG, is a very, very big deal. Of course, these engines and systems rely on the components built for us by the first step in the value chain. But the skills and capabilities required to design and build mass produced vehicles are rare, and they're locked up in just a few dozen OEM companies around the world. Westport developed unique partnership models with a surprising number of these global OEMs. At this point, we believe that every remaining OEM must organize their own natural gas product line and strategy within a very short time or face a real market share cliff. Product lead times are long and even small movements in market share could be catastrophic in this world. Natural gas is going to be 10% of the market in 5 years, and if you haven't started work today, you're probably too late. 2012 saw us establish whole new markets, such as locomotives and mining trucks with Caterpillar and heavy-duty pickup trucks with Ford. Obviously, there are big synergies between our component business and our OEM Systems business. Third, I hope it's clear that no vehicles on a new fuel can operate without fuel stations, fuel delivery and a source of fuel. And whether that's natural gas from traditional oil and gas development or unconventional gas, such as coal bed, methane or shale gas or even biogas, we have to get this organized and it has to be coordinated. Again, Westport is active here with a long list of partners around the world, and specific services such as JumpStart to help the early markets get some momentum. I'm going to come back at this one in a minute because we've seen spectacular growth on this issue this year. Fourth comes the customer and the need to introduce this new energy concept and then ensure the customer can fully exploit the economic potential of the shift to gas. From the customer view, our products, which are vehicles that embody our technology, our components and our systems, look and feel a lot like conventional gasoline and diesel vehicles. But fleet owners, drivers and mechanics need to be trained in the differences in order to really understand the potential for dramatic operating improvements. This isn't just fuel cost savings, it's the potential for reduced price volatility, the ability to lock in long-term prices for fuel, first mover competitive advantages, environmental benefits and so on. So yes, Westport's jumped into this stage, and we help our OEMs and fuel partners, and with our teach-the-teachers approach, we can reach a very broad audience with a small but critical investment. In return, we're getting invaluable feedback into new product opportunities and priorities that we can feed back up the chain. This is a key value proposition for our OEM partners. And finally, we have the systemic benefits to whole industries, for example, the benefit of lowering, fundamentally, shipping costs or less cost volatility, and to society itself, whether that's energy policy, energy development, energy security, environmental impact. Now we don't lobby per se and we don't think that government subsidies to this industry would form a healthy long-term foundation. But the local economic development, energy, security and environment issues are important, and we found it very helpful to step into this area too. So although this plan sounds complicated and perhaps too ambitious, the fact we believe our work in each area makes the whole plan stronger than the sum of the parts. And as we move into this next phase, the key milestones we're working towards, I think, are quite straightforward, and you should be able to see our progress quite clearly. First, we want to significantly improve our OEM product coverage in each market segment. We want customers to have as much choice of natural gas vehicles as they do with conventional diesel and gasoline. Second, we want to see broad infrastructure build-out in every geographic market. And we want this coordinated with local customer adoption, training and support so that we can encourage adoption on a significant scale. And third, the third theme I'd say, which runs throughout these businesses is we need continued, relentless focus on higher product performance, lower costs, better reliability and more robust supply chains. And we do this so that we can maintain our competitive lead and force any followers to work hard to keep up. Now as you know and as I've said, our strategy at Westport has been to develop partnerships, to work with a broad cross-section of the automotive industry to create natural gas versions of their diesel and gasoline products. And so I can note that, just in our Mid-Range and Heavy-Duty Truck business in North America alone, we've gone from just one product with one partner in 2008, to 9 major truck models this year in 2012, and we're looking to have 16 launched in 2013 with our new engine from the joint venture. Momentum is building nicely for several new products over the next few years. And with more product offerings, we'll make it easier for customers to move our way. Now within that broad theme, we've also been working hard to reduce the price of the products. And to do that, we need to focus on dramatic improvements in the critical supply chain components on both cost and reliability, while working with our OEM partners to improve production and sales efficiencies. Now we're making lots of progress on this front. I think Bill will cover this in a little more detail too. But if you can just pull out the numbers in the financial statements on our Heavy-Duty 15 business this year, you can see the effect. Our average selling price is down 22% over the past 12 months, and that -- it's simple, we're reducing the price for the system. But if you compare gross margin percents and do a little arithmetic, you can see that our costs must be down 37% year-over-year for us to achieve this. And that's true. So we're reducing costs and we're passing that on to the customer. Another data point on this issue would be the recent price reduction with our Ford F-250 and F-350 products, which reflect some cost reductions just since the product launched in June. Now we're determined to push this process continuously over the next few years until we reach an overwhelmingly attractive value proposition for natural gas in every market. Generally, the industry projections that I referred to earlier look at likely penetration in the 10% to 15% range, for example, within 5 years. Those numbers are assuming a 2 to 3-year payback period. The fact is that we could see much higher penetration rates if the price is right. And of course, we plan to take things there. All that said, as we talked about earlier, we can't put vehicles on the road unless people know how and where to refuel. But 2012 will also be a transition year for that. It's a phase change really in this obstacle to performance. We still aren't where we need to be, but the situation gets dramatically better next year. And by 2015, we think this will no longer be seen as a serious challenge anywhere in the world. Now even then, we won't be finished with infrastructure, but any customer who wants fuel should be able to organize it by then. On the LNG infrastructure development front in particular, we continue to see positive momentum in North America from existing players, as well as interesting new entrants, such as ENN out of China. ENN purchased some existing locations in Utah and are now building out stations and establishing a corridor in the Rockies under the BLU banner. Here in BC, the Fortis BC program, providing funding for fleets and stations using LNG, is progressing, although a little bit slower than their initial plans. We expect to see trucks shipped for that program starting early next year. As we heard in June, Shell and TravelCenters of America have signed an MOU to build out 100 stations in the U.S. Now we look forward to finalizing that agreement so that they can move forward with actual construction. And of course our friends at Clean Energy continue to build out the American natural gas highway. Now last week, Clean announced that they have completed construction on more LNG stations in the last 3 months than they had in the previous year. We're glad to see the acceleration of builds, and we're pleased that Clean is taking the approach of building out the required stations to serve these long-haul corridors in advance of everyone else. Now once a station's been build, you need about 20 trucks to make it viable to commission the station and fill the storage tank and open for business. So we're working alongside Clean to find those anchor customers that will allow a completed station to become an open one. A good example from this quarter has been in Phoenix. We worked together to bring Kenan Advantage Group in as we anchor customer in Phoenix, with 25 Westport HD-powered LNG trucks to open that station. For those of you that don't know them, Kenan is the largest tank truck transporter in North America. So you can imagine our plan is to see them buy more trucks in a variety of locations. And now that station in Phoenix is open and anchored with Kenan, it will allow smaller fleets the opportunity to join in and start converting to LNG as well. Before we leave infrastructure, I'd like to say a few words about the JumpStart program that we began this year where we lease portable fuel stations to customers, either in remote sites or in advance of a permanent station. Now the program's gone very well, and it's clearly going faster than we expected as we're seeing demand far outstrip our supply. Our initial 5 stations have all been leased out. The next tranche of 4 units that are on order have already been all been spoken for in advance of their arrival. So we're accelerating this program and we've ordered additional units, which will expand our capacity to meet the demand for these -- this early start as people are building out infrastructure. We expect that in 2013, we'll see some current JumpStart customers get access to newly built permanent stations, and then we can redeploy those existing units. So I hope you can see why we're calling this a phase change. This is really a completely different world for us. Not that we've proven out the capability of this capital-light partnering model, and now that we're seeing market acceptance of our products and product plans in each segment, we can shift our focus to more traditional management issues: growth, customer support and profits. We believe we've developed a very broad platform for global growth and profitable returns for our shareholders for years to come. We're in a very fortunate and exciting position. The opportunity is hear and now. We've got a unique position. And over the next few years, we'll begin to see the payoff for our long investment, and we believe reward your patience. Thanks very much. Over to Bill.

Thanks, David, and good afternoon, everyone. I will start off with the Q3 highlights and then walk through the financial details for each of our business units. For the third quarter ended September 30, 2012, we recorded consolidated revenue of $76.1 million. This represents a decrease of $4.9 million or 6% compared with the prior-year period. Our year-to-date consolidated revenues were $270.8 million, up $106.8 million or 65% compared to the prior-year period. Our consolidated gross margin for the quarter ended September 30, 2012, was $21.2 million or 27.8% of total revenue. This compared with $25.8 million or 31.8% of total revenue in the prior-year period. Our year-to-date gross margin was 33.3%, and this is compared to 35.7% in the prior-year period. David kind of talked about this already, but as an example of how we are improving the products in the market and our related economics, our average selling price for the quarter for the HD 15-liter product was $47,400. This is compared with $62,700 in the same period last year. This is a 24.4% reduction in sales price. In addition, our margins have improved from being negative in the prior-year period to a positive 5.3% [Audio Gap] quarter. Our HD 15-liter gross margin percent is still low to encourage early market adoption of LNG trucks. And we expect our margins to increase in the future as we continue to drive costs down. We are developing new products and investing in proprietary technology programs that will help contribute to future revenue and earnings potential. On that note, research and development, R&D, expenses were $20 million for the 3 months ended September 30, 2012, an increase of $6.1 million from $13.9 million in the same period last year. CWI's R&D expenses were $3.6 million compared with $2.3 million. Westport HD R&D expenses were $7.3 million compared to $6 million. R&D activities for our heavy-duty programs in North America, Europe and China have been ramping up for new product offerings with our HPI technology. Of the $7.3 million that we incurred during the quarter, $3.6 million was related to our efforts under our OEM development programs, which will be recovered at the next milestone. Westport LD R&D expenses were $2.7 million compared with $4.2 million in the prior-year period, and corporate R&D expenses were $6.3 million compared with $1.4 million. This is primarily due to investments in new product development programs. To support our new product development programs, pending commercialization, we are building Westport's foundations, including the addition of new facilities in Detroit and Louisville and acquired operations. As a result, general and administrative expenses were $9 million for the 3 months ended September 30, 2012, an increase of $2.1 million from $6.9 million in the prior-year period. We are training LNG truck dealerships, working with service staff to make sure our customers are getting the attention that they need, and working with new OEMs to help them proliferate their natural gas product offerings. As a result, sales and marketing expenses were $10 million for the 3 months ended September 30, 2012, an increase of $2.3 million from $7.7 million in the same period last year. As of September 30, 2012, our cash, cash equivalents and short-term investments balance was $294.7 million compared to $307.2 million at June 30, 2012. During the quarter, our cash used in operations was only $3.6 million, and this is compared to $21.8 million in the prior-year period. As discussed in my R&D comments, we will continue to prudently invest in new programs and technology that will provide a substantial return. As a reminder, our strategy incorporates an asset-light business model, which has -- which helps us grow our business without having to make significant capital investment. For the third quarter of 2012, our consolidated adjusted EBITDA was a loss of $18.5 million compared with a loss of $5.4 million in the prior-year period. Please see a reconciliation of adjusted EBITDA in our earnings press release dated today. As previously announced, on October 29, we lowered our revenue outlook to $340 million to $350 million or a 30% year-over-year growth. While this is still a great accomplishment in itself, the reduction of revenue naturally has an impact on our bottom line. Our net loss attributable to Westport for 3 months ended September 30, 2012, was $32.5 million or a $0.59 loss per share. This is compared with a net loss of $13.2 million or $0.27 loss per share in the prior-year period. Additionally, we recognized a $7.4 million net foreign exchange loss, which was driven by the movement in the Canadian dollar relative to the U.S. dollar which was unrealized. Excluding the foreign exchange impact, the company's net loss and net loss per share was $25.1 million and a loss of $0.46 respectively. We break out our businesses into operating segments, and I'll walk you through the revenue and gross margin details for the Westport Light-Duty, CWI and Westport Heavy-Duty segments. Starting off with our Light-Duty business, Westport LD generated $25.6 million in revenues during the quarter compared with $25.7 million in the prior-year period. This slight decrease in revenues is primarily attributed to the economic conditions in key geographic markets, including the Eurozone and weaker euro to U.S. dollar exchange rates, which was lower by approximately 11% from the same period last year. In the second quarter, we launched the WiNG Power Systems, and we are still on track to deliver more than 500 units by the end of the year. In the quarter, Westport Light-Duty recorded gross margin and gross margin percentage of $6.1 million and 23.9% compared with $5.3 million and 20.6% respectively in the prior-year period. Now moving on to CWI. During the quarter, CWI generated $45.5 million in revenue on 1,588 units, a decrease of 7.5% from the same period last year of $49.2 million on 1,625 units, reflecting a general slowdown in truck shipments, and reduced orders in the refuse segments. And this is after 4 quarters of record sale. The strong economic benefits of driving natural gas trucks with CWI engines, 9-liter ISL G is being utilized in broader applications and duty cycles than as virtually designed. This is great to see such a distribution, but we are experiencing warranty adjustments that in the short term have affected our warranty accruals. As a result, gross margin and gross margin percentage for the quarter ended September 30, 2012, were $13.4 million and 29.7% compared with $20.7 million and 42.2%, respectively, in the prior-year period. Now excluding the warranty-related adjustments, CWI gross margin percentage would have been 36.9% for the quarter. CWI has identified the issues and are working on the fixes to push through the developments in the sales channel as soon as possible. Now moving on to Westport Heavy-Duty. For the 3 months ended September 30, 2012, Westport HD generated $3.7 million of revenues with 58 HD systems shipped during the period, compared with $6.2 million in the same quarter last year with 85 HD systems shipped. Our gross margin, and this is not including service revenue in gross margin percentage, for the quarter were $240,000 and 6.5% compared with negative $563,000 and negative 9.7%, respectively, in the same period last year. Our Weichai-Westport joint venture continues to see a strong demand for their spark-ignited natural gas engines. The JV generated $50.7 million in revenues on almost 5,000 engines during the quarter, compared with $29.9 million with about 2,300 engines in the prior-year period, representing a 96% year-over-year increase. Year-to-date, the JV has delivered almost 13,000 engines. Currently, we only recognize our 35% interest in the net income of the JV. For the quarter, we recorded income for Weichai-Westport joint venture of about $700,000 compared with $400,000 in the same quarter last year. For further financial disclosure, please see our MD&A and financial statements as filed and posted on the company's website for more detail. I will now call -- pass the call back to the operator to open the call for questions. Operator?

[Operator Instructions] First question is from Laurence Alexander of Jefferies & Co. Lucy Watson - Jefferies & Company, Inc., Research Division: This is Lucy Watson on for Laurence today. Could you just provide a little bit more color on your new expansion plans for JumpStart and what's changed there?

I'm pointing at Bill. I guess I get this one. You want to?

No, go ahead.

If you remember, JumpStart is offering now these mobile refillers. It's kind of like a tanker trunk on wheels where you can actually refuel, built by Chart. Really nice little portable unit. And we're using them really with fleets that had remote locations or who are waiting for a station but wanted to get started. They're quite economical if you've only got a small number of trucks because you can kind of go take the fuel station to where you can get it refilled and then take it back where the trucks are operating. So we've seen a lot of demand for them in particularly the oil and gas market, where they really aren't going to be putting in a permanent station because the trucks will move from site to site. But we're also seeing it just in fleets pretty much everywhere, where people see the flexibility. So we're offering it primarily as a service to our customers. It's not really intended to be a big moneymaker, but it really removes a major obstacle to adoption. So we'll be expanding it. I'm looking at Bill, because you just signed the capital requisition. Probably be 3x as much capacity for JumpStart next year over the start of this year. So I think it's gone really well. But I think it also represents a good kind of bellwether for what we're trying to do in the marketplace. We want to remove obstacles and help customers adopt gas. And that's going to drive our sales and profits by delivering product faster. That make sense, Lucy? Lucy Watson - Jefferies & Company, Inc., Research Division: Yes. And on Weichai, quickly, looks like your volumes were down sequentially. What was behind that? And can you provide an update on the unit ramp expected there?

On the margins?

Unit count sequentially. I don't think so. I'm looking around, where's our reconciliation chart?

I think we were just down just a little bit sequentially.

Oh, quarter-to-quarter. Not year-over-year. Yes.

Correct.

I'm just looking at quarter year-over-year. Yes, we're about 112% year-over-year sequential quarter, again some of this is timing in China. But...

We were over 5,000 -- around 5,000 units in Q2, Lucy. So I know -- I probably wouldn't read much to it other than just general lumpiness. We're still expecting to grow easily over 80%. I mean, we're still year-over-year 100%. So obviously we can't forecast for Q4, but we're still seeing strong growth in demand in China and -- for a lot of reasons. I just don't see any erosion at the moment.

The next question is from Graham Mattison of Lazard Capital.

Just first a question on R&D and also G&A and sales and marketing expense. I guess, I'd assume you're getting discounted legal services after today's episode. But the guidance that you gave earlier this year, still for both R&D and G&A and marketing, still hold, given in the light of last week's press release?

Yes, I think we're still on track what we communicated for earlier. We're looking about $80 million in research and development for the full year. And then consistent with this quarter, I think our -- both our G&A and sales and marketing were about $10 million each.

It's a big wild card. I'll jump in, Graham. The wild card out here has been the [indiscernible] work we've been doing. And I think we said last quarter that we think we're -- that's going to continue. We are investing on our own, although the deal with Caterpillar suggests that they're going to cover our R&D for the things that they want us to develop for them. But for the things that we're doing on our own and for other partners in the high horsepower sector, there is some R&D that's not funded. But that's going to continue at about the same rate that we've established this year, and so that shouldn't really have a dramatic change in any way.

All right. Great. And then on the product launches that you mentioned in last week's press release, on the automotive and also the off-road side. In today's press release, you mentioned the Volvo V70 wagon in Europe. Is this the automotive launch you were referring to? And then is there any update on the off-road launch that you -- from the prior press release?

I'm looking at Darren. I'm trying to remember.

I don't think we can say much about things that aren't announced. Yes, of course, the new addition of the Volvo product in Sweden is a new product. But no. Obviously, there's going to be a whole series of new products coming out of each space...

We still expect -- sorry. Graham, we still expect more product announcements in automotive in higher horsepower. But as you can appreciate, that's all we can say at the moment.

Yes, on the off-road space, we did see a lot of data released from our partners at Caterpillar at the public conference last month. So I think you can get a bunch of information there on the specific mine truck and specific locomotive products. And we're going to see an array of products and product services in that space to allow the rail industry and the mining industry to adopt natural gas. So no, I think lots of progress, and 2013, we should see whole bunch of new stuff.

Okay. Great. And then last on the HD HPDI engine, there's definitely a meaningful drop in ASPs. Could you give us some specifics in terms of what drove that drop in the ASPs? And then how we should think about margins and ASPs going into 2013?

Well, it's a bunch of things. And frankly, there's a lot more room to go. As we get ready to launch the Volvo version of that product, of course, that's going to have even more capabilities of setting a new plateau for component price. And as we migrate those components that we've developed with the Volvo system and the Volvo supply chain back into the North American product, that gives us another room to move. So no, I think a lot of it is basic stuff. We have been taking costs out. We've been improving reliability significantly. And so a big part of this reduction year-over-year is -- has been our experience with warranty. If we can take the warranty out, it lets us reduce the cost, but it's working to reduce the cost of building the truck. I think there is a lot of room left to go. I think that's -- it's going to be -- have to be coordinated with our partners at Peterbilt and Kenworth. But we've learned a lot in the last 18 months about how to build trucks and how to build them reliably. And I think we can do a much better job at getting the price out. Now what's even nicer, of course, is that our cost is dropping even faster and so that's allowing us to get margins that are a little more reasonable than they were at launch. And we expected that, and so we've been setting prices with customers that are presuming that we'll achieve some of these cost reductions. And so the early shipments might be a low margin, but for the overall contract, we make a pretty reasonable return. So I think that the game has just started. We do want to continue to push prices down to the point where there is this very compelling value proposition.

The next question is from Ann Duignan of JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Yes, I'd like to talk a little bit about the launch of the CWI 12-liter, the timing of that. Is that going to be formally launched at Mid-America next year or is it a January 1 start?

I think we've always said early '13. So I'm going to stick with early '13. Mid-America, as you know, is a very convenient place to sell a products.

I think it's in March. It is in March, Ann. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Yes, I'm well aware.

Yes. I know. There's -- there are 12-liters selling today in beta units and early tests units. But I think in terms of production, I'm sure it's going to be a ramp. And we just to have to stick with our public answer that it is early 2013, and what month that means is, I don't know...

Well, I mean, and like any engine product launch and any vehicle product launch, people want to exercise the systems a bit. So there will be a slow rolling start, and then volumes will pick up once everybody's systems are comfortable. And so full volume probably won't be hit until second half of the year. But I can tell you the volume demand and the plans are pretty coherent, and I don't think there's much more we can say on that one. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. And then just based on your warranty experience on the ISL G, will you be accruing at a higher level, a higher percent of sales, for warranty for the 12-liter?

Oh, sure. It's -- if you look at when we launched the ISL G back in 2007, it was heavily burdened with warranty and the margins were very low 20s, and that's very consistent with the launch of any new engines. So I don't have high expectations for the margins. I can't give a specific range, but they're not going to be anywhere near what we're seeing today across all of our mature product platforms. And then if you look in history, it'll take about 7 quarters, maybe a little bit more, to kind of work through all those bugs, and we'll start seeing a steady improvement in the warranty history. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. That's helpful from a modeling standpoint. I appreciate it. And then just finally, on the Heavy-Duty, the 15-liter. I know you're lowering the ASPs to try and make it more economical, give customers the opportunity to have a 2-year payback. But from a philosophical standpoint, how do you address the fact that, at the end of the day, you've no control over the price of natural gas?

Well, let's step back a bit. I didn't want to go into this. Darren said I was too long already. But if you'll actually look at the energy cost, natural gas is less than 10% these days of diesel fuel. So there's a lot of room for lots of services between that cost of the commodity, cost of the molecule, and when it gets delivered to your tank. So there's a lot of work going on, on what is the right pricing model. But I think our fleets are smart enough to recognize that that's the real opportunity. So there's been lots and lots of back and forth on should we price to diesel? Should we price to commodity? Should we get a fixed price? And all those options are in the market now and there's a lot of -- there's a lot of arm wrestling. So I think that the price of natural gas is going to be determined by the fact that we've got a lot of players who are offering pretty attractive prices and still making pretty nice margins. So I think that the price of natural gas, we're seeing settle down a bit. It's settling down into that $1.50, $2-- a gallon gap with diesel fuel. It's actually even higher in Europe and in Asia these days. So I think that just competition is going to encourage pretty attractive fuel differentials. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. And just finally, again from a modeling perspective, I presume that the cost of these JumpStart mobile units resides in SG&A, not necessary on Heavy-Duty P&L?

These are fixed assets. And so they don't hit the P&L.

The next question is from Vance Edelson of Morgan Stanley.

This is Millie sitting in for Vance. Could you just provide an update on any government incentives in China or anything that might encourage the adoption of nat gas trucks in China?

Bill, you want to? What's really happened in China is that the government has declared natural gas for trucking as a priority, and particularly LNG for trucking. And if you haven't seen it, I'm pretty sure there was some discussion on our website. I'm looking around.

Well, there's also a new -- there's a new governmental document about their 5-year plan, Millie. I can make it available to anyone who asks, the new documentation on it. So there is a new government direction. Frankly, it's a big -- as David says, it's a big government push right now for natural gas.

The next question is from Jerry Revich of Goldman Sachs.

This is Ravi Gill on for Jerry. David, for the Light-Duty business, how much of the softness in Europe is inventory de-stock versus lower build rates? And can you talk about how order rates in North America stacked up relative to shipments in the quarter?

Order rates and shipments. You're talking about the Ford pickup truck for North America?

I guess firstly on the Europe side, so...

Okay. How about -- if we just look at the usual, the European situation's been pretty grumpy all year. I don't think that's a surprise to anybody. So yes, we have seen inventory rates getting eaten into it. That's a standard industry response. We've seen this happen now in North America where people just aren't holding inventory, they don't want to end the year with any inventory. So that, we expect, is's going to rebound in both markets. But until we see some of the economic uncertainty in Europe get resolved, it's going to be a really -- it's going to be really very hard to predict. Now we're doing pretty well in Europe, and our business, we think, is strong. But it certainly would be stronger if we got rid of some of this economic chaos. North America has actually been -- just because it's just got launched and because there's been pretty substantial demand, that's doing well. And as Bill said, we'll exceed the 500 units that we set as a target for the second half of the year. And on those levels, we can manage. We're pretty much building to order on that front, too. There's not a lot of inventory going out to the dealers. So we think that process is also well in hand, despite the fact that there's so much nervousness right now across the market about any sort of inventory and what's going to happen with the fiscal cliff. So generally, I'd say we got good, solid demand from early adopters, and we would expect that we could broaden that market substantially next year. Did that answer the question or you have to...

Yes. And then I was hoping you can talk more about the near- to medium-term penetration opportunity for Light-Duty in North America, particularly on the fleet side? And then perhaps you can frame it similar to the way you do in the Heavy-duty business in terms of size of the addressable market and then your penetration goal.

Yes. Well, that's a great question. Now part of this is, of course, predicated on idea we are going to be able to broaden product offerings. I know there are lots of people who think of the F-250 as a commuter car, but most people think it's a little too big. So we do need to have far broader coverage, which we're working hard on, in the North American and the Canadian market. But that product alone, I think, is a great start. We've designed the Louisville facility to have much higher capacity at -- and there's not really a lot of capital required to take that up to build probably 20,000 units. Ford's been very pleased with the result. I think it's fair to say that they think this is a great model going forward. We'd like to broaden out the product line with them. We'd like to introduce other products with other manufacturers. So the challenge is going to be where is the demand and where are we going to see that. The F-250, F-350 as a heavy-duty product is really targeted at fleets. Seen a lot of interest in fleet, particularly city and state governments. There was a 22 state RFP that you saw. I think it was an early indicator that people are keen on moving to natural gas vehicles. So this will play out over the next 12 to 18 months. We aren't -- we're not going to launch products without apparent demand. But the business model does allow us to launch products with relatively modest volume expectations. So I think what we're looking for are lead customers, people who say, "Can you build this? Can you do that?" And we'll apply the same sort of techniques to get that product out the door.

And then just lastly, on the LNG infrastructure build-out, you noted in the announcement last week about a slower-than-anticipated build-out. But Clean Energy results indicated their plans were on track. So can you just expand more on where you're seeing the near-term pickups?

It's not -- I mean, Clean Energy isn't the only player. I think that's what I was 're trying to make clear in my statement. There are a lot of people who are now in the LNG business around the world. And it's not really a case that anything is not happening, it just sometimes takes longer than expected. I think it's fair to say we expected Shell to have infrastructure built at a faster rate than they have this year. We've got our first truck fleets with Shell in Alberta. But that's going to come on strong over the next 18 months, we think. The new entrants, ENN in Utah are another good example where they've got some good build plans, but they're not in place yet. And Clean has done a great job of building out the highway. But the bulk of those stations are coming at the end of the year. And so the fleet customers, they're not going to take delivery and wait around for the station. We would expect that we're going to see truck deliveries in the quarter after those stations get finished and commission. So I think that's really all we were trying to say. With the combination of economic uncertainty, with some of the shifting plans with the general economic challenges on trucking fleets, that's really what's resulted in this break light phenomenon.

The next question is from Shawn Severson of JMP Securities.

I wanted to go back to the kind of pricing and payback question and dig into that a little bit. I guess, one, what do you think the real sweet spot is for the payback? I mean obviously, the less, the better, but where it really gets over that tipping point, both for like a 13-liter launch and then also with a 12-liter. And then secondly, as you've been reducing prices, what's been the willingness or do you think going forward is the willingness of the truck OEMs to drop their prices to ensure that, at the retail or buyer level, that the prices are dropping? Or is that going to be a function of just more competition and they'll fight amongst themselves and drop prices for nat gas trucks?

I mean, to be very blunt, we haven't dropped our price unless the OEMs are dropping their price. So yes, it is a coordinated strategy, and we've got agreement. Again part of our -- because we're working in the field, as I said, in that fourth bucket, we are working in a customer-by-customer, bid-by-bid basis. So we know what the prices are and we know what the commitments are. Most of the fleets that we're working with now, of course, are very big fleets who are used to buying large quantities and getting fixed prices for a year's supply of vehicle. So these are processes that are well understood and everybody knows the game. So we can get good feedback on what the price point is for a particular fleet. Now in this case, it's a little more complicated because every fleet has a different duty cycle and they have different fuel consumption patterns. And it's that fuel consumption pattern that determines the payback. But it's really hard for us to say, "Well, you have the price that gives you a 2-year payback." And then someone else is going to pay a price that's higher because they burn more fuel. So it's -- the industry doesn't work that way. What we're trying to do is say, there's a core market that's getting under a 2-year payback today. Those are guys who consume a lot of fuel. The current fuel differentials, you can kind of do the math that says a $45,000, $50,000 differential. If they're getting $2 a gallon, they've got to be doing 25,000 gallons of fuel to get a 1-year payback. And there are fleets out there who are seeing that, and it's very compelling. Then we have to get organized on the specific vehicle and configuration they want, which we don't have everything available today, get the fuel infrastructure. So it can be very compelling but it still takes a while to get it organized. What we want to do is push the price down where an average fleet operator, who might be doing 15,000 gallons a year, 12,000 gallons a year, is getting that sweet spot, 18-, 24-month payback. And that's some way away, but we think over the next couple years, it's quite credible that we'll see trucks that are at that price point. So that's the goal. We want to organize all of our OEM partners to understand that, that's where the competition will be and that we need to have a plan that reduces the cost of production so that they can preserve their margins and their competitive position. So long answer, but I think the sweet spot is to get down into that sort of 80% of the new truck buyer market, look at their price point, make sure that they're gaining a great economic story. And everybody who's above that is even more compelling.

We saw some of that, Shawn, in the refuse market. And you're probably aware, too, that the prices there, on the back of competition and competitive OEMs, those prices came down significantly. Where there used to be a $50,000, $60,000 spread on refuse trucks, where the spread now is probably $30,000, $35,000.

The next question is from Alex Potter of Piper Jaffray.

I had a couple questions here. First of all, if you could comment a bit on the trajectory, downward trajectory of margins from the Weichai joint venture. I was wondering if you could comment. Over last couple quarters, we've had a little bit lower profitability run rate. I was just wondering whether or not this might be, I guess, a new normal.

No, it's just -- I think we've talked about this last quarter. It has been trending down. And it is a competitive landscape, and it's a function of they want to capture market share. So they're being very, very aggressive in trying to capture and maintain their market share. I can't say if this is going to be temporary, but I would definitely like to see -- I would expect this to be temporary and expect to see margins start going up in the future.

Okay. I was wondering also if you can give a little bit of commentary on visibility for HPDI orders. I know that, just from talking to people in the marketplace, there's obviously a lot of enthusiasm, a lot of anticipation for the 12-liter, which is going to be coming out here, and that will coincide, as you said earlier, with the rollout of infrastructure. By that same reasoning, are you also seeing, I guess, an uptick in enthusiasm or orders or interest on the 15-liter side once that infrastructure becomes available?

Yes, sure. I'm looking at Darren. You want to comment or...

Yes, absolutely. Yes, I think we are seeing some interest in orders. I think -- clearly, everyone is, at the moment, looking at a lot of economic and external factors before they make any commitments and decisions. But definitely, the build-out of infrastructure is -- obviously, it is happening, whether coinciding for the 12 or just more 15-unit -- 15-liter orders. But yes, there is definitely some interest. And we have some repeat customers. As we announced today in our press release, UPS has bought another 21 LNG tractors. And so we expect to see more truck sales in Heavy-Duty into 2013. Additionally, the FortisBC program, which we did highlight today in the press release, FortisBC has got a program there right now, is looking at funding over 100 LNG tractors. So there's a lot of what I would describe as near-term opportunities, and hopefully, we can just convert them into orders as soon as possible.

Okay, great. And then my last question, if you could just give an update on the 13-liter with Volvo. Is everything on track there? Any -- just, I guess, a progress update, what your updated timing expectations are, if you have any. And then also, how broadly that product is going to be distributed? Obviously, Volvo is all over the place. Are we going to see that in North America? Are we going to see it in Europe, South America?

Yes, you will see it globally. I think we've announced ...

In North America.

Yes, so there will be an EPA-rated version and a European Euro 6 version.

For 2014. And it's still -- to answer question, it's still on track, Alex.

Okay. So no change in the timing expectation?

No.

No.

The next question is from Chip Moore of Canaccord.

Just following up on that last question a bit. Based on what you can see now, can you talk a little bit about how you see that HD shipment number progressing first half versus back half next year?

I thought we have got a little bit allergic to try and forecast anything in this economy. But I think the line that Darren just talked about with repeat orders from early customers, honestly, really reassuring. Our first customers are kind of into it about a year now. Most of them were -- they were buying lots of trucks. But a lot of this was proof of concept, that we really got enough scale to make a real meaningful assessment. And so a repeat order from someone like UPS, we think, gives us some comfort. But yes, we've got ways to go yet on pricing and delivery and product availability and all this stuff, but we've got a value proposition that makes economic sense. So we're pushing on that. I think you will see our early customers come to the same conclusions and deploy more trucks. Some early turmoil, we talked about early in the year, with one of the big early markets we saw for this heavy-duty truck was the oil and gas exploration and water haulers like Heckmann. And of course, there's been a lot of turmoil in that industry this year, and a lot of those early trucks have been redeployed in other geographies just because the...

Price of gas.

The price of gas is down so much. So lots of turmoil in the obvious markets we targeted, but I think it's coming into the mainstream market now. We're seeing a lot of just general fleet interest and a lot of major fleets saying it's time to put natural gas on the road. So I think next year's going to be strong for the Heavy-Duty 15. Backlog and enthusiasm around the 12-liter is also really strong. But we're seeing a lot of customers look at the 9-liter. They've had the 9-liter in trucking operations. And as Bill said, they're beating it to death. But they're very happy because it's a small, light engine that gets pretty good fuel economy. And those trucks are priced really attractively. So I think that the trucking industry is really getting their head around how to adopt natural gas and really capture some great operational savings. And with that knowledge, it's going to become very mainstream next year. So lots of new product that needs to get brought on the road. As I said, we have many new truck products hitting, particularly with the 12-liter. And that will take some time to get that out into the market successfully. But in the last couple years, I think anyone should be able to buy any truck they like in a natural gas version, and there should be pretty good economic proposition.

And just one follow-up. Can you give us a sense of what some of your customers are locking in for fuel costs?

I think I said it's kind of $1.50, $2. That's pretty typical. A lot depends on how close you are to an LNG liquefier or which country you're in. Price gaps in Canada are pretty high right now because, of course, we pay higher taxes on diesel fuel. You get the same tax on natural gas. But that just means the differential is higher. Differential in Europe is quite high right now, believe it or not. So we've been telling people to look at $1.50 as something you can expect. That's pretty common to see, and we're seeing some contracts that are even higher. Yes, that's the gap.

The next question is from Eric Stine of Craig-Hallum.

This is Aaron in for Eric. Can you touch -- you kind of touched on the Fortis program a little bit, and I know you put the units in there. Is that kind of illustrative of the mix that you see there? Is that still going to be 1,000 units over time? And can you kind of talk about that...

I know we previously announced the funding mechanism and how much -- if you did the math, how many trucks it worked out to be. In terms of the max -- excuse me, the mix between Cummins Westport related vehicles or HD 15 related vehicles, it's always tough to figure out how to forecast the mix going forward. Because this is just the first tranche. We actually expect another tranche in 2013. And so I think this is going to be a great program that we just expect to see orders for both Cummins Westport and HD 15 every time the relaunch in RFP happens. But it's just tough to forecast the exact mix.

Right, okay. And then can you kind of touch on the build-out of fueling stations up there? I saw an announcement yesterday with Vedder and Fortis. Any color there?

I think that generally speaking, as I tried to say earlier, there's a lot of LNG activity. A lot of this is quite public now. So there's lots of people who are announcing LNG capacity, liquefier capacity, and making it available to offload LNG and haul it to a fuel station somewhere. So that's probably 10x higher today than it was a year ago. And the number of people who are actually in the station business or the fuel hauling business is up. So we shouldn't be surprised to see Fortis and Vedder saying we're expanding LNG infrastructure, because I think it's just become mainstream now. But yes, we're going to see more in Canada. I'm very pleased to see that we're finally catching up to our success in other parts of the world like China. So we're seeing, actually, lots of interest in natural gas vehicles in Canada from the pickup trucks up to heavy hauling.

Right, okay. One more question on the UPS side of things. How many units, roughly, are they at now? Do you have any color on their future plans and maybe mixing in the 12-liter there?

Well, we know that the long-haul shipments for the UPS -- I mean, I think they're actually one of the largest LNG tractor fleets, I know, in North America right now. We can get -- I can get you to the specific numbers in the UPS fleet. But the 12-liter, again, when you look at the applications we're selling them to, these are transfer -- freight transfer trucks going up and down the highways from anywhere from Utah or Texas, as we announced today. There's a lot of interstate vehicles carrying a lot of heavy weight. So typically, those are the 15-liter applications just because of what the customers are looking for. But it's just tough to say what effect or what -- how many 12 liters they may demand.

The next question is from David Galison of CIBC.

First question just on the HD side. So you shipped around 280 so far this year. Are you still expecting maybe more of a muted bump in Q4? Or how should we look at that?

Q4 is going to be...

We've communicated reasonably quiet.

Pretty quiet, yes.

I mean, with our revenue today -- pardon me, the revenue we've announced today, you can see it's -- we're probably expecting more than anything, just a flat, standard Q4. And because right now, all of our growth, our product launches, the next set of automotive, trucking and off-road applications, they're all launching in 2013. So from a build -- if you just take this back, Dave, from a build slot commitment standpoint to manufacturing, there's very little we can do to change where we are today in the next 6 weeks, 8 weeks. So right now, most of the product launches we have are really slated for 2013. And that includes Heavy-Duty, in addition to, as we pointed out on the call today, a couple of LNG infrastructure stations that are expected to build out. And as Clean even says, in Q1, Q2, that will build out nicely. So I think that's where you see better fourth quarter correlation to Heavy-Duty shipments.

Okay. And then just on the TADA agreement, so your typical development schedules have been running roughly 12 to 18 months. And you had mentioned that this one was, I guess, an accelerated development schedule. I'm just wondering if you could provide some color on that.

Well we typically have a 12, 18 month for just a proof of concept. I think this is probably in general why we've used the term accelerated, is when the product may be available, it's probably more accelerated than a traditional full -- if you look at Volvo by comparison, we first announced Volvo in July of 2008, and we're launching in 2014. So that is definitely looking at a far more aggressive schedule than that to launch a product.

Do you have any idea what the penetration rate for natural gas could be for this product?

Well, it's -- I think we've said this before. We've worked with TADA for some years, particularly in their automotive side. But this is a new -- it's a new concept for their -- kind of their sweet spot, which is light- and medium-duty trucks and buses. Now the Indian market, those are smaller vehicles than you see here. So when we talk about truck and bus, those are typically much smaller engines and much smaller duty cycles. So we're looking for something that is very economical but very high performance. So no, we're really excited. I think it's going to be a fun project. We've done enough work on it with TADA to this stage. This really is meant to be a development and commercialization program to get into the market on an accelerated basis. So it's, as Darren said, typically 12 to 18 months. So we would hope to see product out there in 2014.

The next question is from Matthew Blair of Macquarie Capital.

Just thinking about your market share in light of this global slowdown in truck sales. It looks like Weichai Westport's share was up this quarter despite the sequential drop in sales. CWI is a little bit harder to tell. Can you help us out here? Is the ISL G still gaining share over these past couple quarters in the North American Class 8 market? Or do you feel like you're losing share?

Yes, I mean, obviously, we're all that there is on the natural gas side. But compared to diesel, yes, I think that the slowdown has been much more abrupt on the diesel front. And yes, we've muted but we're still growing. So I think probably share would grow. Now this is still single-digits share in most markets. Refuse has been really a natural gas story all year. So yes, I think -- Darren is saying we're 30% penetration. So we think that's going to continue to rise. I think in any sort of economic uncertainty, people with our cost-saving story are going to do better than people who are just business as usual. The problem on natural gas trucks is just it's such a high capital cost that it's pretty easy for people to say, "Let's wait and see." So we need to find a way to spread that capital cost out or reduce the obstacle. But generally, I think natural gas is going to continue to grab share away. And that means that the OEMs who are strong in natural gas are going to benefit at the expense of OEMs that are not as strong in natural gas.

Sure, sure, okay. And then, Bill, sorry if I missed this here. But the service income this quarter, was that for Volvo? And then also, on a going forward, the Caterpillar service income, can you give us any guidance on how we should think about modeling that out over the next year or so?

As you know, we have multiple development agreements, and the $1.4 million was under one of those agreements. And I can't give you a lot of color going forward other than, during the quarter, we recorded $3.6 million of R&D expense that will be recovered at one of the next milestones. So we've been burning $3.5 million, $4 million a quarter in R&D that we would expect to be reimbursable in the future.

The next question is from Carter Driscoll of Capstone Investments.

A bit of a -- trying to use the 12-liter as a gauge. Obviously, FedEx had their announcement of prototype trial of a couple of your engines. And I'm trying to get a sense of when they actually start that trial, how that progresses in terms of the time frame, any feedback they may or may not give you, when that becomes maybe an initial order, maybe using them as an example of one of the larger fleets versus, say, one of the smaller regional players and how that -- compare and contrast that. Trying to get a sense of what ramp might look like in 2013 based on expectations of adoption. If you could just kind of frame that out for us, that would be helpful.

I can frame it, but you're going to have do paint the picture, I'm afraid. That's one of the numbers I really would love to have. I think the -- I mean, the short answer is we do have quite a few beta trucks out there. Each of the OEMs have a number of trucks that are in the field with customers. I haven't looked at a recent count, Bill. Do you know? It's a couple of dozen, I think, are out there. And they've been out there now for -- just counting the miles, for almost a year, we've had trucks on the road. So yes, the FedEx trucks are new. That's adding to their existing fleet. They've got some 15 liters. They've got some 9 liters. So I think everybody's quite excited with the product. Early feedback has been really good. But obviously, we want to put a bunch of miles on this engine. If we've learned one thing, it's that trucks are exercised to the maximum every day of their life. So we need that reliability and service data, and we need lots and lots of miles built up. There is going to be another early release, a limited release, to qualified fleets early in the year. And then as production starts to begin, we'll start rationing them out to people. As I said earlier, demand has been great. I think people really feel like the 9-liter is a little small and the 15-liter is a little big, and this could be just right for a lot of fleets. And with the advantage of not having complex after-treatment because it's monofuel, it doesn't have diesel pilots, the systems are simpler, it may not have exactly the great performance characteristics of the 15-liter. But the 15-liter is our clear home in long-haul, heavy-haul applications. But the 12-liter is going to do just fine when you're moving Coca-Cola around the city, something like that. So lots of demand, lots of interest. Time will tell how many we actually release. And obviously, we've still got work to do with our supply chain, with engineering and with the testing before we're ready to launch. But so far, I think the market is ready for this product. It's going to have very broad availability across many different trucking platforms, and we think that's just inevitably going to mean rapid adoption.

And if I may, just a quick follow-up. The RFP, the 22-state RFP, and then pushing the Big 3 to develop a broader line of vehicles powered by nat gas, any discussion you can give about your take on how that may or may not spur the market, whether this first year might be pretty small quantities. But how important it is to the adoption of natural gas from the municipal and state level because of this RFP.

Darren is going to go.

Yes, I think -- I did a lot of digging into this. I think -- look, it was a great message, there's no doubt. I'll take maybe the statistical approach, and David can give also the strategic and color approach. There was a number of RFPs that were awarded on sheer price and performance. Some were actually -- in some specific states, frankly, they actually looked and were only interested in the Ford F-250 program with the WiNG power system. That's great. I think this, overall, is just going to message -- I think, Carter, to your comment, it is saying to the Big 3 to develop natural gas solutions. In terms of any kind of statistical and order approach to how to look at that RFP, that is -- it's still quite light. I think we've had very modest expectations, have had them since the get-go. I think just because someone had won an RFP doesn't mean there was an order, and that's where we were trying to caution people on expectations. But this is a great message.

Yes, the RFP was a request for proposals. That's what it means. It didn't mean anybody actually intended to do much. The other lesson I'd take from it, I'll just add a little different dimension to what Darren said, was that the 22 states, we congratulate them for getting organized. And obviously, we've been working with all of them. But the process was designed -- the original goal here was to get a bunch of purchasing agents in a room and say, "Let's aggregate our orders so that we get enough volume to go back to the OEMs and say, 'Yes, see, here's a big number. Build what we want.'" And unfortunately, if you actually read the tender documents, what happened was we got 22 states in a room, and they all said, "Well, I want it this way, and I want it that way. And I want this brand, and I want that brand." So it ended up not aggregating anything. And of course, the OEMs were able to say, quite legitimately, "You've always said that we need to get some volume, and we're still not seeing significant volume with any particular model." I think we can all say that, but the message has been heard. And certainly, we're seeing a lot more enthusiasm for the OEM development of vehicles. And the model that we've developed with Ford is -- we've had a lot of people into that plant to kick tires and look at how it works. I think that, that quasi-OEM process where we help -- with a fully tested, fully integrated, fully manufactured vehicle that looks like it came out of the factory, in close collaboration with the OEM, is a great way to get relatively low volume product out but still make a reasonable return. So we're going to see a lot more product options made available through the OEMs. I'm convinced of that. They're engaged. They see it coming. What they're really looking at now is how to do it, and I'm not lose their shirt.

Next question is from Jeff Osborne of Stifel Nicolaus. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Most of my questions have been answered. But just on the China front, can you touch on, Bill, or David, the HPDI launch there and give us an update on that? Are you beta testing units now and still expect that in the first half of next year?

Yes, we're -- actually, I didn't think we said first half. I'm looking at Darren. We've been testing. I think there was a note in the press release, yes, on the high altitude test, which is really good. And we had a lot of reaction to that because I don't think natural gas engines ever operated at that altitude successfully. So with the resource haulers and the heavy haul work in the far west in China, this high-altitude performance test got a lot of attention. So that was at 16,000 feet or so, almost 5,000 meters, which, believe it or not, apparently there's lots of highways in China that run at that altitude. So yes, we're still testing. We're still building the supply chain capability with Weichai. The product launch, I think all we've said was 2013. I don't think we've picked a date. But clearly, the demand is there. What we need to do now is make sure the supply chain's ready and the product is ready to release into the market. China, as you know, never does anything small. So they're building LNG infrastructure at a terrific clip, and the price of fuel is pretty attractive. So again, we want to get the product ready to launch. I don't see any significant delays right now. It's just a question of following the procedure, and then presumably, we'll see some orders. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: I understand. And then on the 15-liter front, just is the bulk of the demand there today in Canada? Or what's the rough split of U.S. versus Canada?

Well, I think it's almost been almost all U.S. We're just really starting to see some orders in Canada. Vedder is probably the most visible recent fleet. Obviously, Robert in Quebec had been an early fleet. So the demand, the interesting demand is coming in Alberta in the oil patch. Shell has significant plans for LNG, and the fleet that we did this quarter was with Bison. So I think we're going to see a lot of enthusiasm throughout the natural gas supply chain. But the bumps in the road this year, both moving out of the Haynesville and moving trucks to Texas and moving to the Marcellus, I think putting all that aside, everyone has seen the writing on the wall, that if they want to reduce their fuel costs, they're going to have to start to use natural gas. We're seeing a lot of people in the gas community talk about using their own commodity and building demand and how much demand could we build for our own product if we use our own product. So that, I think, is inevitably going to lead to demand for the HD 15 truck. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And just one last one for Bill. On the CWI warranty charge this quarter, was that predominantly associated with the 8.9-liter or a different product?

Yes, it's predominantly 8.9, what I touched upon in my prepared remarks, and predominantly in the trucking applications. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And how do you think about the experience that you had with that relative to the launch of the 12-liter and your response to your prior questioner about the 6 to 7 quarter kind of roll-off of the egregious warranty charges reserves that you have to start. My sense is that the 8.9 liter's been out much longer than that period and now some of these...

Yes, it's been more recently in trucking applications. Historically, it's been for refuse and buses. And then more recently, they've been getting installed into regional trucking application. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you, okay. So do you expect that type of warranty reserve to continue? Or is this something over the next 3 to 6 months, the problems would be solved?

We -- for the existing products, as I mentioned, we've identified the issues. We're working on the fixes and we're trying to get those rolled out as quickly as possible. And it takes 2, 3 quarters after implementing those fixes to see that come back through the warranty provision. And so right now, it's just an accrual hanging up on our balance sheet.

This concludes the time allotted for questions on today's call. I will now turn the call back over to Mr. Seed for concluding comments.

Thank you very much, everyone, for your patience. And we look forward to seeing you in February on the year-end conference call.

Ladies and gentlemen, this conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day.