Westport Fuel Systems Inc. (WPRT) Q2 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Westport Fuel Systems Second Quarter 2017 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] I will now like to turn the conference over to Ms. Caroline Sawamoto, Manager of Investor Relations and Communications for Westport Fuel Systems. Please go ahead.

Welcome to the Westport Fuel Systems second quarter 2017 conference call, which is being held to coincide with the press release containing Westport Fuel Systems financial results that went out earlier this afternoon. On today's call speaking on behalf of Westport Fuel Systems are Chief Executive Officer, Nancy Gougarty; Chief Operating Officer of the Automotive Segment, Andrea Alghisi, as well as our Chief Financial Officer, Ashoka Achuthan. Attendance at this call is open to the public and to media, but questions will be restricted to the investment community. You are reminded that certain statements made in this conference call and our responses to various questions 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, so you are cautioned not to place undue reliance on these statements. Information contained in this conference call is subject to and qualified in its entirety by information contained in the company's public filings. I would now turn over the call to Nancy.

Thank you, Caroline. Good afternoon and thank you for joining us for the Westport Fuel Systems second quarter results conference call. And I'd ask you please to turn to Page 3 or Slide 3. A year ago I spoke to you on my first conference call as CEO. On that call I shared my vision for the combined company. As part of that, I set out some clear objectives including taking quick and decisive actions to unlock our value of our technology, assets and people. I also indicated that we have much to do, but we would be measured, purposeful, share results and outcomes not intentions. I am pleased to say that we have made considerable progress on these calls in the first four quarters and we are a different Westport Fuel Systems today. We have shifted our focus to our core businesses where we have an advantage, fold non-core assets and eliminating unprofitable distracting businesses and/or initiative. Advancing our key technology and improving our financial positions substantially. In parallel, we are driving operating efficiencies and cost reductions. Turning to Slide 4, as some of you have heard me say, one quarter is a data point, two is a line, but three to four quarters is a trend. So, first two quarters, the last two quarters of 2017, I've had a much -- is much improved story over 2016. Our revenue and gross margins are trending up, our costs are trending down and our adjusted EBITDA is trending in the right direction. This has been achieved through a number of initiatives, such as reducing the number of our facilities by 41% or a 30% reduction in square footage, improving our working capital and inventory management focusing our R&D efforts and rightsizing our workforce. We have come a long way in four quarters, but there is still more work to be done. Our goal is to make Westport Fuel Systems a sustainable profitable company that delivers value to our customers, employees and shareholders. So leadership team is committed to achieving adjusted EBITDA breakeven in early 2018 and improving from there. As we exit 2017, our HPDI capital spending will mostly be behind us and our R&D spending dropping and the bulk of our restructuring payments will be complete. The asset sales and the recent equity raise has given us a financial platform to execute our goals. Combining our improved financial performance in our key sectors of our business, we are excited and energized about the future of Westport Fuel Systems as we lead the shift of the global transportation system from petroleum to clean gaseous fuels in all forms. I hope our recent track record as given you confidence that the company is moving in the right direction and can meet and exceed our goals. Turning to Slide 5. As I mentioned earlier in my comments, much as changed in the past year with the sale of our industrial business earlier this year, we have streamlined Westport Fuel Systems into three ongoing business segments, automotive, our joint venture Cummins Westport, corporate and technology. Looking at our automotive business, our focus in the past four quarters has been on integrating the company and transforming our operating performance. In the first half of 2017 it has translated into good sales with strong revenues in quarter one as well as quarter two. Part of this is due to our customers and suppliers who stayed with us during this time of transition and now see the merits of the venture, of the merger. I could tell you that we have made the right decisions in our portfolio rationalization. The businesses we have maintained are contributing to our improved performance. Looking at quarters three and quarter four, our focus remains on operational excellence and taking steps internally. Steps that are in our control and we know how to execute upon to improve our overall performance and find additional cost savings. We believe the results will be better economies of scale, greater consistency of cost brands and a clear path into 2018. Turning to CWI it was a strong quarter, I am extremely pleased with the leadership team had that it was able to deliver the strong performance which was above expectations. I will let Ashoka talk more about our Cummins Westport joint venture as he is a Board member. However, I could tell you we are enthusiastic about the engine line up which positions CWI well for 2018. Our corporate and technology sector which includes Westport HPDI and other advanced technologies. This is a milestone year, as we look to ship the first commercial Westport HPDI 2.0 components to our launch partner. This is a combination of many years of dedicated work and determination to bring HPDI 2.0 to market. We are closer than ever on seeing HPDI 2.0 trucks on the European roadways. The actual timing is driven by our launch partner and we will defer to them. But, we look forward to be able to talk more and report on this in third quarter. Our commitment to innovation in technology is key to who we are. We continue to have discussions with OEMs that come to us first because we are the global leader in natural gas technology development. But, before as I have said, our work will be funded by these partners and our commercial opportunities must be known before moving forward. In addition to HPDI, we're making progress on other gaseous fuel technologies as well. There are other exciting opportunities, but as you know we will tell you about them when they are signed in complete. On the corporate side, we continue to address our residual legacy obligations. We see objective of putting them behind us by the end of 2017. This will allow us to concentrate on growing in 2018 and beyond. It is a parallel process of improving our overall performance, which will ensure that nothing will weight us down as we move forward. Before turning the call over to Andrea, I'd like to reiterate the management team is committed to the success of the company and we have personally invested our own money into Westport Fuel Systems. Last year, I outlined a clear vision of our path ahead, the vision remains unchanged. We're on a path we set out on and we will continue to dedicate our efforts to focusing on our core business, eliminating unprofitable initiative, advancing key technologies and improving our financial performance. The team is acutely aware that we cannot and will not remain stagnant. We will continue to restructure our business to align with the next phase with our launch of HPDI 2.0. We are working hard and more confident than ever of what we can achieve. We are ready for the challenge and excited to start new chapter for Westport Fuel Systems. Thank you for taking time to join us today and I'd look forward to speaking to you soon. Andrea, over to you.

Thank you, Nancy. Before I getting into this light, let me start by saying that in the last few months, I had visited customers and distributors and they are pleased with the focus we have put on addressing their needs after the merger. And with our service level performance even with the working capital reduction efforts we have carried out. We can see now our top-line the results of this focus on our clients. Now starting on Slide 8, my comments will compare the second quarter 2017 with the first quarter of 2017, because of the merger did not occur until June 2016 the year-over-year results are less meaningful for competitive purposes. As you can see on the slide, we have performed our automotive segment over the past two quarters. We are pleased with what has been accomplished and with improvement of the first half of 2017 versus the second half of 2016. However, there is more to do and additional efforts are underway which we expect will show results in the coming quarters. As my colleagues and I have learned over our years in the industry, you cannot control market cycles, government policies or commodity prices. You can only control how you operate and deliver to your client. Now turning to the performance in the second quarter. Revenues were up from Q1 2017 [on higher] [ph] aftermarket performance notably in Eastern Europe and Turkey as well as currency tailwinds, by waiting down by continued weakness in the Argentina market. We have taken further actions in that region and did see an upturn in the market in July, which we hope will continue. But, we will have quickly and [indiscernible] to assure our costs are aligned with market dynamics. Gross margins of 24% were down slightly from Q1 due to a mix effect on OEM [indiscernible] one-off effect in Westport Sweden and [indiscernible]. On the other hand you can see the improved performance in the first half of 2017 driven by our alignment efforts. Adjusted EBITDA for the automotive segment was $3.1 million or 5.1% down from the first quarter, adjusted EBITDA was impacted by lower volumes in Argentina and lower gross margin due to the above mentioned sales mix effect. Actions have already been taken to address these effects and we expect to see margin improvement working sequel in the second half of 2017. We confirm that we are on track to reach our target adjusted EBITDA margins of 7%, 10% in 2018 and beyond. As we look at the rest of the year, we don't see any major changes in the outlook and expect the typically seasonal part of the second half being weaker than the first half, with the September quarter, the weakest due to the holiday shutdowns and more than a year turnover. We are leaving our automotive guidance of $200 million, $230 million unchanged at this time and look forward to providing future updates. I'll now turn the call over to you, Ashok.

Thank you, Andrea. My comments begin on Slide 10, with our recent monetization of non-core assets and financing actions, I'm pleased to state that our balance sheet has been strengthened and we are now in a financial position to execute our long-term plan going forward. Many of our existing and prospecting customers and partners are also reassured by these improvements on our balance sheet and liquidity position. As of June 30, we had cash and cash equivalents of $87.7 million which included proceeds from the sale of our industrial business during the quarter. In July, we completed an equity offering that generated additional gross proceeds of $28.7 million. In connection with our debentures of C$55 million maturing in September 2017, on August 8, we made an offer to the debenture holders to either redeem or consent to an extension of the maturity date for a period of three years. As Nancy mentioned, we are trending in the right direction, but know there is more work to be done to get the company on a profitable and sustainable footing. One year into the merger, we've had significant accomplishments. We have achieved $30 million of run rate merger cost savings a year ahead of schedule. We have sold non-core assets generating in excess of a $100 million in cash. We have improved the automotive segment adjusted EBITDA from the second half of last year compared to the first half of this year from negative $0.8 million to positive $6.7 million. And our consolidated adjusted EBITDA has changed from negative $21.8 million in the second half of last year to negative $9.4 million, the first half of this year a 57% improvement. Now turning to Slide 11, which shows the results of CWI our joint venture with Cummins. Revenues and gross margins were up year-over-year and sequentially, the refuse market remained solid and we also saw an uptick in the U.S. trucking sales. Gross margins were helped by higher volumes, higher parts of revenue contributions and a favorable warranty adjustment which is a direct result of quality upgrades put in place to improve product reliability and durability. Income for the period was also helped by lower R&D and SG&A spending. As stated in earlier calls, CWI has had elevated R&D and sales and marketing costs over the past two years as the company launched its new 6.7 liter engine incurred engineering expenses to incorporate on board diagnostics and for the development of zero equivalent emission engines. We are almost through this higher spend and expect to see a significant decline in these spending levels in upcoming years. CWI's new product line is a very significant milestone for the company. These new engines meet our customers can choose the most affordable path to zero equivalent emissions with no commercial constraints on supply or technological readiness. Turning to Slide 12 which shows our SG&A and R&D expenses from our continuing operations by segment. Our SG&A cost did pick up during the quarter, due to an additional $1.8 million in stock-based compensation charges as well as some foreign exchange impact. Rightsizing our cost structure remains a key priority and further actions are underway. We will continue to take appropriate steps needed to align costs and revenues. R&D spending was $14.2 million up from the prior quarter driven mainly by spending in our current HPDI program, much in line with the expectations laid out in the last call. As of now we expect R&D spend in the second half of 2017 to be about the same or slightly higher than in the first half. In 2018, we expect R&D spend in the corporate and technology segment to be at about half the levels of 2017. We're are also working on consolidation opportunities in our automotive divisions, which we expect will provide additional R&D savings as we move into 2018. Turning to Slide 13 which shows our quarterly cash walk, starting with the $47.7 million as of March 31, 2017 we received $79 million in net proceeds from the sales of our industrial business and $1.7 million in dividends from our joint venture. We also had $9.9 million in debt repayments the majority of which was a prepayment of royalties' payable to address our collateral obligations Cartesian Capital. We had cash costs relating to restricting activities and related to our discontinued businesses of $11.8 million. Capital expenditures were $11.2 million mainly related to equipment purchases to support the HPDI 2.0 production. We expect to spend an additional $7 million to $8 million in capital expenditures in the rest of 2017. Again this is a one-time spending to support the HPDI 2.0 program. Cash used in operations was $8.1 million up slightly from the first quarter as expected on the higher R&D spend, but much improved from the second half of 2016. We closed the quarter at $87.7 million which of course does not improved the July equity offering which had gross proceeds of $28.7 million. Moving on to Slide 14, to summarize as Andrea mentioned, we continue to expect our automotive revenues to be between $200 million and $230 million for 2017. We remain focused on aligning our costs to our revenues. We are excited to be shipping commercial HPDI components to our large partner later this quarter, a significant milestone for the company. Our adjusted EBITDA will fluctuate in the second half due to the timing of HPDI spending and seasonality in the automotive business. However, we remain on track to reaching positive adjusted EBITDA on a consolidated basis in early 2018. We look forward to reporting on our future progress and to speaking with some of you at upcoming investor conferences. I will now turn over the call to the operator for questions.

[Operator Instructions] The first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Good afternoon.

Hi Rob.

On the HPDI rollout, just wanted to get a sense of how you see that sort of playing out, you said shipping components in Q3 do you have a shipment build that sort of fills the channel or how is the timing of that looks at this point?

Rob this is Nancy, good to hear you. On the HPDI rollout again, we're little bit paced at this point in time relative to our launch partner plans, but where we see our activities at this point in time is really filling the pipeline as you have suggested and that is what we're working with we have really moved that very far through what we call this pee pap with our suppliers so that we have all supplier readiness there and then it's a matter of filling the pipeline into our launch customer.

Okay, good and then just following that you said CapEx spending for the rest of the year a little bit, what sort of the normalized CapEx spending for you down the HPDI piece?

Ashoka, why don't you talk about that, because you did mention something about what we, what to expect in 2018 so perhaps you can outline 2017 and a bit of more on 2018.

Sure, as I mentioned Rob our spend this year, as I mentioned, is essentially due to the equipment we are paying for at some of our key component suppliers mainly Delphi. We expect that to be complete by the end of this year, so on an ongoing basis we expect our, into 2018 and beyond we expect maintenance CapEx to be in the region of say between $5 million and $7 million.

Okay, good and then switching to CWI was a very strong quarter, I guess what are the trends there to those kind of continuous there is some one-time stuff in this quarter or do you see that continuing and then maybe what sort of the trajectory of the cost out there as well?

No I think it was a good quarter at number of levels, volumes are holding up well. We are seeing strong demand on the refuse side and as you know we just have launched the 6.7 liter engine into the school business market last year, so on the revenue side it's holding up well. The trucking uptake of the 12 liter engine is also positive, so there is good news on that front. But on the earning side the recent we had such a significant improvement over the prior quarter had to do with the warranty accrual of favorable warrant accrual adjustment. Now these adjustments are calculated once every quarter at the end of the each quarter based on the warranty costs incurred during the course of that quarter and it's essentially a catch-up adjustment at the end of each quarter. So while this was very strong, I do not expect this favorable warranty to continue to play out going forward, unless of course there are incremental improvements and you'll start seeing the effect of those incremental improvements.

Ashoka I guess I would also add is that, with this zero equivalent product that we have, I think that this, the product is coming out in the marketplace in just the right time, because it has attributes that are similar to that, that you would have with electric vehicles. We're finding that also as we move into 2018 since all the engines will be the zero equivalent this will also position us quite well for additional growth and opportunities, especially as certain cities well there is LA or others are looking to refresh their fleet or add additional, I'll say more, I'll say environmentally friendly products into their portfolios in terms of their public transport products.

Yes, absolutely, good point.

Great, thank you. I'll turn it over.

The next question comes from Amit Dayal with Rodman & Renshaw. Please go ahead.

Thank you and congrats guys. Just one question around the guidance, you know you think by this point of the year the guidance range would have been narrowed a little bit, could you give us any color on what are the variables between this range in guidance that maybe in play?

We've spent a lot of time talking about whether we should narrow the guidance. However, at this point in time, we have some seasonality because of the European holiday season and some attributes like that. So at this point in time, we decided at least as we move into quarter three we are going to hold on to it. And I think that if I'll give it back to Andrea for a few words, but I think that we are going to just wait and see how quarter three turns out and then we'll come back and talk about this as we move into the next quarter?

Yes as you mentioned Nancy, historically the second half of the year is usually is let's say the lowest compared to the first one in particular in Q3 as you mentioned, due to the reasons I mentioned also during my section. And so we prefer to wait until Q3 in order to understand if we can narrow and maybe improve, the let's say the guidance furthermore. So, after Q3 you will see for sure a different range.

Understood, and in terms of the HPDI 2.0 launch are there any concrete dates around shipments or announcement that we can sort of look forward to?

I would say that from our point of view, we're being very much guided by the launch partner. We do have schedules on hand and we know what our shipping windows are and what are obligations are relative their schedules. However, as I said, I think that we'll have a much more satisfactory discussion with you guys as we've been to quarter three as they have, as they move further into their launch window and have put their plans out on the street. So bear with us as we get through this and move into the, as we close out quarter three, I think that the discussions will have a lot more clarity to them.

Understood, and just lastly, are there additional milestone payments due in relation to HPDI 2.0 are we're done with those?

Yes. There are additional milestone payments that we will be making through calendar year, the rest of calendar year 2016 and even into early calendar year 2018. But as you can see, we are continuing to really drive our cost down as we're now passed some key milestones relative to where we are. But there are a few, as you can imagine as we get through the letter into the final launch phase.

Thank you. That's all I have.

The next question comes from Jeff Osborne with Cowen and Company. Please go ahead.

Hi good afternoon, most of them have been addressed, but just a couple Nancy, can you talk about beyond your launch partner, that you have later this year, what the outlook looks for 2018 do you anticipate other partners being able to launch or where are you with the developments for people other than the launch late this year?

As I mentioned we are in discussions with quite a few folks relative to HPDI, I think that its, this is an interesting time in the trucking industry for a variety of different reasons. As you can hear globally and as I travel around the world, the boys around where the opinions are around diesel and greenhouse gas trying to be much more clean relative to the environment. All of these have retched it up very, very positive discussions with quite a few of the OEMs that we interface with. So there is a lot of, I'll say discussions going on HPDI is a good portion of that, however I don't want to get ahead of ourselves even though I see some things that are quite promising, I want really want to wait until we get them fully inked before we bring them out. But, I would indicate to you that HPDI is one of the best technologies that we have in terms of greenhouse gas, the 20% improvement that we get over that of diesel. And there are a lot of other positive attributes as well especially as infrastructure gets built and the customers are seeing a zero compromise product and they get like diesel performance. So we're very pleased with where we are on that front, but we've got to get few more things solidified in terms of how we want to differentiate products and be able to bring the products out to market with others.

Makes sense, can you just comment if there is anyone other than your launch partner, actually doing fuel test validation work or are these still discussions about theoretical?

No, no, I would say, things are moving along, I'm not going to give you specifics, but I would say that some folks are, moving trucks on to the road and other people have finished engine work and we're now moving on to the next phase now.

Got it, I just want to make sure we're passed the discussion phase and there is actually some work being done, so it sounds like that's the case and good to hear. Ashoka I heard the comment for 2018 about R&D since we're going down in half as HPDI 2.0 launches, can you just touch on the other line items within OpEx how we should be thinking about those for the year or are there any major moving pieces there or you're just being disappointed in maybe some slight reductions but nothing heroic?

Yes, I mean as I mentioned, our integration efforts have started to bear fruit already and we are a year ahead in terms of schedule with our merger integration and now our focus and most of that focus has been on COGS side, on the cost of goods sold side and you can see the effect that our gross margin levels compared to last year. We are now turning our focus on the OpEx side both R&D and SG&A with the corporate and technology segment it's pretty straight forward and that has we launch gets behind us. We expect to see, 50% drop which is a reasonable to kind of work into your model, 50% drop in R&D expenses. Additionally, we are looking at consolidating engineering efforts on the automotive side as well. So, we expect that, you can expect to see a decline at this point, unable to give you a range or a number. And likewise with SG&A while a good number of actions have already been instituted notably the closure of the fuel systems corporate headquarters in New York City, which we have essentially integrated into our Vancouver operation with minimal incremental cost. We have existed very significant lease obligation here in Vancouver there was a plan to move corporate offices into larger more expensive facilities that we existed that under a very favorable terms which is a part of our restructuring costs this year. So, you can expect the improvement no doubt and we will look forward to reporting on that as it rolls out.

Makes sense looking forward to see it. Just lastly can you just talk about the regional trends you are seeing on the passenger vehicle side, the legacy fuel systems and for the smaller piece of Westport and in particular I was just curious what your exposure to Venezuela is?

Andrea why don't you take that one on, and on Venezuela its relative small, but I let Andrea just talk what we're seeing on that side of the world.

Yes, I'm not sure I got all the question could you repeat please the question, you are mentioning the…

I was just wondering if you can walk us around the world and say roughly Italy or Western Europe's 50% of demand just are you seeing any major regional trends as it relates to adoption of your passenger car solutions and then in particular, I was curious about the Venezuela and exposure, I know historically your company has had some exposure to that market?

Yes, so let's say that, well as you know we have and also Ashoka was mentioning we have consolidated our footprint in the U.S. So, starting from North America we have consolidated our footprint in the U.S. because with this let's say low oil price demand is not very strong, I would say for light-duty. So we have consolidated our footprint there, because demand is not strong there. Getting to South America, we have also consolidated our footprint in Argentina, Argentina is being going through a dramatic downturn in the first, I would say three months and then in May and June has been even worse. Now in July we had some positive news with having bump in the market. But I will wait let the next two, three months to understand which is factorial or just let's say an isolate event. Eastern Europe and Turkey in particular getting out to Europe and Middle East are the market that are going better I would say. So, we see very positive market trend in Eastern Europe, so Russia, Poland and Turkey as well. Turkey has become the first market, I would say in particular for the aftermarket channels. In Italy aftermarket announced increasing a gain even though very slowly, but as on the OEM side in particular for LPG that first six months we have experienced a 25% growth year-over-year. So very, very let's say good trend, I would say that in general in Europe alternative fuels are going very well. And this is a trend that is going probably against diesel has everybody is mentioning. So not only electrification is taking place, but also we are planning let's say however overall in getting, part of the diesel, I would say marketshare. Moving to Asia, I would say that India is very interesting market also light-duty, I would say for the applications in particular for light-duty we have very interesting relationship with established OEM there in India with our CNG solutions and also in the aftermarket in particular for taxi applications. China, I would say we have there is a moderate future for alternative fuels in the light-duty is more a delayed OEM kind of market and there our rectification is going very fast.

Very good, I appreciate all the details. All good.

I hope of giving another view, I hope I was giving you another review.

That's more than enough. Thank you so much.

Okay, thank you.

[Operator Instructions] The next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thank you so much. Can you talk a little bit about the maturity of the infrastructure of the feeling infrastructure in Europe as you go into the back-half of the year, how many partners are you working with to look at that build out and how can we expect that to pace, what the guidance might look like over the next 6 to 12 months?

I assume that you are talking around the LNG, I would tell you that, Andrea has got some great statistics on where we are built out relative to CNG and LNG in the European market. But, what I would tell you on the LNG side, we are seeing continued efforts, now the good news is as we work with the various OEMs in Europe they are also working with us collaboratively with our fueling, a variety of different fuel partners, Shell in particularly is one that we work with quite well. We are working also with certain government groups that are trying to build what they call corridor so like there is such a blue corridor that's going in place. So there is quite a bit of activity and one of things that we are highly encouraged as we get into this launch window is this that in several areas whether its Spain or in the UK there is a tremendous amount of infrastructure already in place, and just a matter of getting vehicles there that can use the LNG infrastructure that's already in place. And you can imagine that there has been a lot of work over the last year of moving the port infrastructures around into using LNG and that have also enabled infrastructure to be quite nicely build out at this point in time. So, we're on, we work with variety of different fuel providers and I think the other good news is by collaborating with, triangulating the OEM with the fuel providers as well as with Westport in terms of getting products on the road. This is the combination of that is quite powerful and we're seeing good build up and we're not finding that fuel infrastructure is really restraining the ability to grow at this point at least in European market.

Great, that's very helpful. And then just turning to the balance sheet, can you talk a little bit about your expectations for working capital needs as you go through the balance of the back-half, are you going to see working capital as a source of cash, as we go into the back-half of the year you can see a little bit of increased investment?

Ashoka take that one.

Yes thanks Nancy. Yes, you are right as we launch HPDI obviously we had to address the fact that we will see an uptick in our capital position there. But we don't expect to be that significant or in single digits is the best direction I can give you in terms of where I expect that to be. We continue to take action on the, at the rest of their operations to address working capital at all levels AR, AP as well as inventory levels. So, we expect to see some moderation of the increasing working capital on the corporate and technology segment.

Okay, great. And then final question is just around debt repayment. How much are you expecting to pay back in the back-half of this year and how should we anticipate that rolls for in the third and fourth quarter?

Well I think that again Ashoka mentioned and he can go into the details, right now we have gone to our debenture holders that have been very good to us many of them have been with us since 2008. So, we'll wait and see exactly how many of them would want to continue and extend their venture, their debentures with us that will really determine the, a good portion of the repayment of that we need to take in the last part of the year. And those the debentures right now if folks don't want to do anything them that September 15 is the date that we need to be able to repay them. However, as Ashoka mentioned that we're in active discussions with them now and we'll see prior to that September date exactly what their desires are.

Perfect. Thanks so much guys.

The next question comes from Eric Stine with Craig-Hallum. Please go ahead.

Hi, everyone. So I just wanted to touch on Europe, I know in that market [indiscernible] they've come to market with their spark ignited engine an uptake as been solid early, just wondering given HPDI diesel equivalence, you will kind of confidence that gives you and your launch partner, what that potentially looks like early, but then also as you look out three to five years?

Well, I think Eric, what we are finding is in the European market as I mentioned, with some of the dynamics going on and some concerns relative to diesel and how it impacts the environment there. All these products whether it's the [indiscernible] products spark ignited. I think that this zero compromised product that we have with the HPDI is going to put us in very good stead, and its cost its operating cost and its performance, the combination of those two we think is going to put us there. So, we are quite pleased to be able to offer a product that has a bit superior performance over that the size. So, we think Europe is going to be quite strong market. We see Spain, we see the UK, we see Central Europe and whether its Germany or the Netherlands and those places going to be great launch venues for us as we move here into the latter part of 2017 and early 2018. And we think that we're just going to continue to build on that as we work with other OEMs as well.

Yes. Maybe just sticking with the HPDI in the cost profile and I know that, you are not in charge of the price and I get that, but just from a high level HPDI versus spark, I mean is it possible that you see an equivalent priced engine or potentially cheaper just given that there are many, the number of components is quite a bit less?

You know again, what we're finding on the spark ignited in many cases folks are using LNG as well, so they are having LNG tanking and that kind of things. It's very hard for us to tell, I would say that as we get into third quarter we will have a better understanding of exactly what the prices are comparatively. But at this point in time, I think that again, with the performance characteristics and that kind of thing we should be quite competitive.

Got it, okay. Maybe last one from me just on the light-duty business last call you mentioned some outstanding tenders in various markets, so maybe just an update on some of those whether those are potentially 2017 events or whether those are more 2018?

I would tell you that, we have made progress on them in certain cases, there will be activity that will be in 2017 and some cases some of them will carry over to 2018 revenue. But we had a - as we moved into quarter three, we did have some positive, I'll say shipments that were against one of our tenders. Andrea maybe you could add some further color, but it wasn't, it didn't impact our quarter two, but should have positive impact on our quarter three.

Yes as you mentioned Nancy, we had, the first time that we won for North Africa we shipped that in July, so you will see the results in Q3. At the same time there we had further request and we won that for let's say the second part of the year, so you'll see the results on Q4 2017. And other tender for North Africa that we won are going to affect 2018 and then another one we are participating will be awarded let's at the end of August, so that one will be shipped probably if we win it at the end of the year.

Got it, anyway to talk about the magnitude of that are these just kind of standard course of business tenders that you win?

Yes, I would say the good news is that these are standard course of business, I think that with our as we have combined and merged, we are much in a much stronger position, because first of all we're not competing with fuel systems they are part, Westport Fuel Systems is one team now. But we've got multiple brands that we can bring out into these different countries. So, we're well positioned on all these and these are all good opportunities for us. And based on how the countries do these, they come and go but, each year we're able to participate and we're very pleased this year we've had quite strong performance against the tender side.

Okay, thank you.

Yes, exactly, that's normal course of business, even though the one that we will ship in 2018 was the biggest ever attempt, so 60,000 kit systems. So revenues there will be $600 million, so a pretty sizable tender, but that's correct, is the standard of business they are recurring tenders as a combined entity now we're able to provide competitive prices and competitive products with all our brands.

That's all the time, we have for questions today. I'd like to turn the conference back over to Caroline Sawamoto for any closing remarks.

Thank you everyone for joining us today. If you have any follow-up questions feel free to reach to the investor relations team. And we look forward to speaking with you again in early November. Thanks again for your interest in Westport Fuel Systems.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.