NEW YORK Aug 7, 2015 (Thomson StreetEvents) -- Edited Transcript of Fuel Systems Solutions Inc earnings conference call or presentation Thursday, August 6, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Carolyn Capaccio LHA - Vice President * Mariano Costamagna Fuel Systems Solutions, Inc. - President, CEO, Director * Tim Standke Fuel Systems Solutions, Inc. - Executive Director * Pietro Bersani Fuel Systems Solutions, Inc. - CFO ================================================================================ Conference Call Participants ================================================================================ * Eric Stine Craig-Hallum - Analyst * John Quealy Canaccord Genuity - Analyst * Rob Brown Lake Street Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to Fuel Systems Second Quarter 2015 financial results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Carolyn Capaccio of LHA. Ma'am, you may begin. -------------------------------------------------------------------------------- Carolyn Capaccio, LHA - Vice President [2] -------------------------------------------------------------------------------- Thank you very much, operator. Good morning everyone and thank you all for joining the call today. With me today from Fuel Systems Management are Mariano Costamagna, CEO, Pietro Bersani, CFO, and Tim Standke, Executive Director. Today, Mariano will provide an overview. Tim will review operations of FSS Automotive and FSS Industrial, and then Pietro will follow with the financial detail and open the call for your questions. If you have not received the copy of the press release and would like one, please call LHA's offices at 415-433-3777 and we will send one to you. The release has also been posted to the Investor Relations tab on Fuel Systems' website at www.fuelsystemssolutions.com as has a copy of management's prepared remarks, so you can follow along. Before I turn the call over to the team, I would like to remind everyone of the Safe Harbor statements included in the earnings press release that was issued today. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements, including statements made during the course of today's call. Such forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by Fuel Systems Solutions. Actual results may differ from those projected in the forward-looking statements. The forward-looking statements involve significant risks and uncertainties, some of which are beyond the control of the Company and are subject to change based upon various factors. For a more detailed discussion of some of the ongoing risks and uncertainties of the Company's business, I refer you to the Company's various filings with the Securities and Exchange Commission. And now, it's my pleasure to turn the call over to Mariano Costamagna, CEO. Please go ahead, Mariano. -------------------------------------------------------------------------------- Mariano Costamagna, Fuel Systems Solutions, Inc. - President, CEO, Director [3] -------------------------------------------------------------------------------- Thank you, Carolyn, and good morning and good afternoon to everyone. Thanks for joining us on the second quarter 2015 conference call. Our second quarter revenue decreased 11% in constant currency and adjusted EBITDA was down but remained positive. These trends continue to reflect weakness in many of our end markets that are affected by economic pressure, lower oil prices and strong competition. And we have had to adjust our financial outlook primarily to reflect sudden softening in the aftermarket in Argentina. There were, however, some positive signs in the second quarter. While still in its early stages, our restructuring program is already improving our operating leverage and improved gross margin of our Automotive business. Further, the Automotive aftermarket is strengthening in certain European geographies. Also, our Industrial division renewed and extended a key contract out to 2019. Finally, our Automotive infrastructure unit won a new multi-year contract with the leaders in the Italian gas market, as we announced the other day. While we continue to see revenue decreases, their impact is being mitigated by the cost reduction and the restructuring program we have initiated on both product cost and operating expenses. Our focus remains to continue to execute the steps of our restructuring program to create cost, organizational, and manufacturing efficiencies while refining and reinforcing our value proposition to the current and future customers in automotive and industrial end markets. Finally, the strategic process being conducted by our Strategic Oversight Committee to enhance the shareholder's value is proceeding. Now, I will turn the call over to Tim for an operational review of the Automotive and Industrial divisions. -------------------------------------------------------------------------------- Tim Standke, Fuel Systems Solutions, Inc. - Executive Director [4] -------------------------------------------------------------------------------- Thank you, Mariano. Thank you, Mariano. I will start with the Automotive Division, which consists of the Company's OEM/DOEM passenger and light duty commercial transportation, automotive aftermarket, our BRC Car Service, and transportation infrastructure operations. The global situation continues to be unfavorable for gaseous fuels. Persistent low oil prices, together with the economic crisis, are still affecting many areas, including Argentina, Russia, Italy and others, and the political instability that has impacted Argentina, Venezuela, Pakistan, Thailand and others, is generally depressing our market, emphasizing the aggressiveness of our low-cost competitors and causing uncertainty about the future. Against this backdrop, there are some positive results within the OEM and DOEM markets, which are globally demonstrating relatively stronger signals in terms of vitality and interest for gaseous fuels and for CNG in particular. Having said that, we are coping with a weak market, in particular the aftermarket, with a twofold strategy. In the short term, we are increasing our operating leverage, reducing distribution fixed costs, particularly in Brazil, optimizing our distribution channel, particularly in Italy, and optimizing our value proposition to customers and distributors through dedicated promotions. In the long term, we are more and more differentiating our value proposition between the OEM channel and the aftermarket channel, with dedicated products and focused organization and processes. Let's look more closely at these markets. Automotive posted second quarter 2015 revenues of $40.7 million, which in constant currency decreased 16.6% from the prior year, primarily reflecting lower aftermarket, DOEM, and compressor sales volumes. Automotive operating loss was $3.5 million. In Italy, DOEM volumes were a total of 3,687 vehicles in Q2. The major makers converted in our Cherasco conversion center continued to be Kia with 1,815 units, Hyundai with 115 units, Nissan with 975 units, Subaru with 50 units and Mitsubishi with 57 units. DOEM programs currently underway with Ford include the Ford V408 Transit Connect as an LPG taxi for the Hong Kong market only, and the Ford Ka on LPG for the Italian market only. As a result of lower market demand for the Transit Connect taxi than originally projected, we are now anticipating the volumes for this program to be significantly lower than estimated when it was launched last year. The Ford Ka program is progressing as expected and will continue in 2016. In our OEM business, Ford Europe remained the biggest OEM customer in terms of revenue while Maruti Suzuki remained the largest customer in terms of volumes. In Europe, we continue to work with several OEMs on feasibility studies for LPG direct injection programs and we believe some are very promising. Our LPG direct injection technology is an important competitive advantage as adapted -- as adoption of direct injection systems grows to become the industry standard by 2018. Currently, we are producing systems for Kia Italia for the KIA Sportage and Soul at the rate of approximately 200 vehicles per month. Turning to the aftermarket, we recorded growth in some of our historically strong European markets. Turkey and Poland came back and other Eastern European countries are improving. In Italy, our market share for all of our brands was nearly 32% and margins improved due to a price increase in the top selling LPG kits. However, we continue to see the trend of customer preference for OEM-installed LPG systems on new or used vehicles instead of retrofitting gasoline vehicles with LPG conversions. The price differential between gasoline and LPG remains very attractive and we are hopeful demand will increase as the economy improves. Now, I will review some highlights for other strategic regions. In Asia, volumes in the OEM passenger car segment were approximately 6,684 sets sold to Maruti, in addition to 360 kits sold to Honda India and 125 kits sold to Ford for the Transit Connect Hong Kong application for conversions in Q2. In China, we are preliminarily -- preliminary discussion -- we are in preliminary discussions with several smaller, local OEMs while Shanghai Volkswagen remains on hold. In India, our program with Maruti Suzuki continues as planned. We are working to develop similar partnerships with other OEMs. In Latin America, the poor economy, political uncertainty resulting from imminent elections and weak market demand have resulted in a substantial drop in sales in Argentina. In Venezuela, OEM production remains very low, but we are seeing some positive developments with Ford that have improved our position there. In North America, we are on track to begin production for the model year 2016 programs with G.M. G.M. recently began accepting orders for the model year 2016 610 van and K2 programs. The customer continues to work with us to refine forward production plans and we still expect regular production to start in mid-October for the 610 van and in mid-November for the K2.xx. However, as lower oil prices have dampened the overall demand for CNG vehicles in North America, especially in the light duty truck segment, it is too early to project volumes. Additionally, we expect vehicle production for the new model year 2016 Cab Chassis program that is the same as the K2, but without the bed, to begin in the fourth quarter. In the U.S. aftermarket, volumes have improved year over year. We are working on certifications for 12 programs, including our bi-fuel CNG fuel system kit for the model year 2016 Chevrolet 1500 Silverado, 5.3 liter V8 direct injection engine. We are also launching the Ford F150 engine kit. Our new BRC Car Service, which includes brake pads, filters, lubricants and batteries, continues to focus on developing its distribution network and creating good relationships with the already signed workshops. Revenues are increasing month over month and growth is expected to accelerate as the network expands. In July, our infrastructure division targeting the Italian and traditional European market signed a new exclusive multi-year contract with Eni S.p.A., an Italian multinational oil and gas company headquartered in Rome, to supply and maintain new CNG refueling stations to be constructed in Italy. Under the terms of the contract, over the next three years, we will supply Eni's newly constructed natural gas stations with complete plug and fill CNG compressors and refueling accessories, and we will provide station maintenance over the next five years. Eni has historically opened 20 to 30 new stations per year, and winning this exclusive contract is a great achievement. Next, I'll provide an overview of the Industrial Division, which consists of the Company's industrial mobile and stationary and auxiliary power unit, or APU, and the heavy duty commercial transportation operations. During this difficult period, we are focused externally on new markets and customers to drive growth and internally on driving continuous improvement initiatives to improve our customers' experience as well as to increase our effectiveness. As the business returns to higher levels, we will begin in an even stronger -- we will be in an even stronger position competitively to further leverage our capabilities. FSS Industrial reported revenue of $26.5 million. In constant currency, Industrial revenue increased 0.6% from the prior year, primarily reflecting lower demand for mobile and stationary equipment, increased competition and a decrease in heavy duty sales in Thailand that were offset by higher sales of Auxiliary Power Units in North America. In our mobile markets, our new product introductions are underway. We began production shipments of the K25 industrial certified engine early in the second quarter, and additional sample engines are under evaluation at other forklift OEMs. Our Ford 2.5 liter industrial certified engine continues to be in evaluation testing with strategic forklift OEMs. We have also secured extensions of existing supply contracts in the European market. The heavy and light duty stationary markets remain soft and we expect continued weakness through the second half of this year. The Truck and Rail APU market segment continued to generate strong sales in Q2. We had good success testing and evaluating the new battery APU product, which we plan to launch in the second half of this year. We are well positioned to enter this new market. Also, we received the first significant order for our new Low Profile Rail APU. Initial production order shipments are scheduled to begin in Q4 with the remainder to ship in Q1 2016. In the commercial vehicles segment, demand is expected to remain flat through 2015. We have new platforms in development to drive stronger revenue in future periods. In summary, we are focused on executing on opportunities in all our markets. Now, I'll turn the call over to Pietro. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [5] -------------------------------------------------------------------------------- Thank you, Tim. Before I review the numbers, I would want to take a moment to give you an update on our three-year restructuring program. As we expected, Q1 was indeed at the bottom in terms of operations, and we began generating benefits in Q2 from cost reduction and restructuring activities. In February, we began implementing the activities planned out in the restructuring program, and continued that cost reduction and restructuring implementation in the second quarter. First, the direct material reduction initiatives have begun to realize benefits in the second quarter, having a tangible benefits to gross margin. Second, we began to consolidate the selected manufacturing facilities in South America and Italy, in particular, we have started to shut down our operations in Venezuela in order to reduce our fixed costs. The Venezuelan business will be managed directly by our Argentinean subsidiary TA. In Italy, we are consolidating the production of all the components into one factory to optimize utilization and reduce fixed costs. Third, we began to implement alternative sales and distribution model in Brazil, in particular, we closed our owned subsidiary and will sell our products through a distributor, again, to reduce fixed costs and enable us to better manage the high volatility of this market. Fourth, we reduced our production volumes of inventory in Italy through temporary unemployment to decrease labor costs and working capital needs. And fifth, we began to reduce non-labor operating expenses as part of an effort to reduce all non-labor cost items. For example, we have addressed our transportation costs and are renegotiating all contracts in Italy. As a result of the aforementioned actions, we recorded restructuring costs and costs related to professional fees of $2.5 million in second quarter Adjusted EBITDA as follows, $0.9 million for severance, $0.3 million for the write-off of long-lived assets in connection with rationalization of activities, and $1.3 million for professional fees. We achieved savings in the second quarter of approximately $1 million. We currently anticipate an equal amount of savings and expenses in 2015 as a result of the fine tuning of restructuring activities. Our overall expectation for the three-year cost reduction and restructuring program remains substantially unchanged, aside from foreign currency impact, for estimated annualized savings of $22 million and costs of approximately $8 million. We continue to move forward aggressively with the ongoing cost reduction and restructuring activities we have just described. On July 27, 2015, we filed an 8K disclosing that Andrea Alghisi, our Interim Chief Operating Officer, had notified management that he would resign from his position as interim COO as a result of his resignation as managing director of AlixPartners, our restructuring consultant, to accept a position elsewhere. Andrea's resignation will become effective at the end of the third quarter of this year, and he will continue to serve as interim COO in transition until then. We continue to remain on track on -- with our implementation of our cost reduction and restructuring plan and we will continue to update you on a quarterly basis. Now, I will discuss results for the second quarter ended June 30, 2015, as compared to the second quarter of 2014. Total revenue was $67.2 million, again, $67.2 million, compared to $87.4 million. Second quarter 2015 revenue decreased 11.1% on a constant currency basis. Automotive represented 61% of revenues and Industrial represented 39% of revenues. The Americas, North and South, delivered 50% of group revenue. North America was 34% and Latin America was 16%. This level compares to 48% of revenue during the second quarter of 2014. Europe accounted for 40% of consolidated revenue with Asia delivering the remaining 10%. Fuel Systems' revenue base remains diversified among macro global regions. Foreign currency translation in the quarter was an unfavorable $10.5 million. Gross profit was $15 million, or 22.3% of revenue, compared to $17.9 million, or 20.4% of revenue. The FX impact on gross profit was $1.2 million unfavorable. The lower gross profit primarily reflects the decreased volumes. R&D expense was $5.6 million, compared to $7.1 million. FX impact on R&D in Q2 '15 was $1 million favorable. SG&A expense was $14.7 million in Q2 of 2015, compared to $14.3 million in Q2 of 2014. The increase in SG&A includes, by segment. In FSS Industrial, $3.1 million in Q2, compared to $3.3 million in Q2 2014. In FSS Automotive, $7.3 million in Q2 2015 compared to $9.4 million in Q2 2014. Decrease relates primarily to FX which was favorable by $1.5 million. [Although] the FX impact in Q2 2015 is $1.8 million favorable or 12.3%. Total operating expenses were $20.2 million, or 30.1% of revenue, compared to $65.8 million, or 75.2% of revenue in Q2 of 2014, which included $44.3 million in goodwill and long-lived asset impairment charge, excluding the non-cash charge, operating expenses were $21.4 million, or 24.5% of revenue in Q2 2014. FSS Automotive and Industrial operating expenses decreased primarily due to FX, offset by an increase in corporate expenses of $2.7 million compared to the prior year as the result of increases in outside services for consultants in connection with restructuring and other strategic activities. Operating loss was $5.3 million, or 7.8% of revenue, compared to an operating loss of $47.9 million, or 54.8% of revenue, which included the aforementioned non-cash asset impairment charge of $44.3 million, in the second quarter of 2014. Excluding this charge, operating loss totaled $3.6 million, or 4.1% of revenue in Q2 of 2014. The increased loss primarily reflect the lower revenues, particularly in the aftermarket and the DOEM market, in addition to an increase in costs for outside services in corporate, which is partially mitigated by cost savings generated by the restructuring program. FX impact on operating income for Q2 is $1.6 million favorable. Income tax provision was $0.7 million in the current quarter, compared to an income tax benefit of $2.8 million in Q2 2014. Our income tax rate is primarily a result of the fluctuation of earnings in various foreign jurisdictions and losses incurred for which no tax benefits have been recorded. For the second quarter of 2015, there were certain foreign jurisdictions where tax benefits were not included in the Company's income tax provision. This was a result of a valuation allowance for deferred tax assets in Italy that was recorded in the first quarter of 2015. In the second quarter of 2014, the Company's tax provision reflected a benefit from this jurisdiction. Net loss was $6 million, or net loss of $0.32 per diluted share, compared to a net loss of $44.2 million, or a net loss of $2.20 per diluted share including the aforementioned goodwill and long-lived impairment charge, for the second quarter of 2014. Now, let's move onto the balance sheet. At June 30th, 2015, our cash and cash equivalents balance was $48.6 million, compared to $85.2 million at December 31st, 2014. Cash used by operations during the quarter ended June 30th, 2015 was $1 million compared to cash used by operations of $5.8 million in the same period a year ago. Cash used in financing was a result of the stock repurchase program where we bought back $6.2 million of shares. Cash used by investing activities was $2.3 million, which was primarily related to an increase CAPEX for $2.4 million offset by proceeds from sales of asset of $0.01 million. Inventory was $72.8 million at June 30, 2015 compared to $80 million at December 31st, 2014. Inventory turns were 3.2 times. Inventory is $7.2 million lower than at December 31st, 2014. $4.8 million is due to the strengthening of the U.S. dollar. Local currency amounts decreased in many subsidiaries. As part of our restructuring program, we are conducting a detailed analysis of inventory and will be implementing further inventory reduction initiatives across the Company. Accounts receivable at June 30th, 2015 was $46.9 million compared to $47 million at December 31st, 2014. A decrease of $3.3 million is attributed to FX offset by increases in accounts receivable of $3.4 million. Accounts receivable reflect the relative quarterly size of revenue, the timing and mix of OEM and aftermarket and infrastructure business levels. Days Sales Outstanding was 66.5 compared to 59.4 at 2014 year-end. We remain diligent in our collection activities and are certainly aware of its impact on our cash flow. Total assets as of June 30th, 2015 were $262.7 million, compared to $324.2 million at December 31st, 2014. Now, let's move onto our financial guidance. We have reduced our 2015 revenue outlook to be in the range of between $270 million to $280 million, reflecting significant slowdown in Argentinian aftermarket activity due to the local market conditions and political uncertainty. Weaker than previously anticipated demand from aftermarket, OEM, compressor and new business lines despite the continued maintenance of our automotive market share amid slower market demand, in part due to challenging economic conditions and persistent aggressive competition in the global transportation market, as well as lower oil prices. Continued lower demand and continued high competition for mobile industrial equipment partially offset by growth in the APU market. The outlook for 2015 gross margin is in the range of 21% to 23%, bringing down the range from 22% to 24%. Adjusted EBITDA outlook for 2015 of $5 million to $10 million, primarily reflecting a reduction in the outlook for results from operations due to increased automotive market weakness primarily in Argentina and certain European countries. The revisions to gross margin and Adjusted EBITDA outlooks reflect the decreased volume of revenue and change in the business mix, offsetting the improvements from the 2014 and 2015 restructuring activities to date. With that said, this concludes our prepared remarks. And operator, now, I would like to open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) And the first question comes from Eric Stine from Craig-Hallum. Your line is open. Please go ahead. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [1] -------------------------------------------------------------------------------- Good morning, everyone. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [2] -------------------------------------------------------------------------------- Good morning, Eric. -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [3] -------------------------------------------------------------------------------- I'm wondering, can you just give -- I mean, you give the reason for the guidance reduction, but maybe just kind of the weighting of those things, you know, in your -- in your comments, it sounded like Argentina was a, you know, was a pretty large portion of that but, you know, given the magnitude of the CUD, I mean, I'm curious what the other items are. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [4] -------------------------------------------------------------------------------- Yes. So, Eric, you are right about the fact Argentina is the main factor, the main negative factor. And the local difficult microeconomics as well as the political, and certainly because of the [mutual] this coming October political actions is a -- is the underlying explanation. Switching that to other geographies, I think that when it comes to aftermarket, when it comes to compressors as well as the ramp up of our business aligns that where -- we have this second level factors in terms of magnitude. And that the whole idea explanation for that is that we continue to be negatively impacted by the lower oil price, as well as some persistent difficult economic situation in some key European countries, including Italy. That doesn't mean that the full picture when it comes to Europe, which is such an important to macro region as you know, is completely that way -- this way. Why? Because as the team remarked, there are some key -- other key European countries that which from an aftermarket standpoint now back to a [gold pad], and I'm referring to primarily Poland and Turkey. But again, if you just move, switch a little bit more to this side, Russia, because of the current problems with the -- with the local currency as well as the impact of the sanction to the country are, you know, performing in substantially a lower way than expected. So it's a real -- a bunch of other secular leveled factors which has to be [either] back to the main factor, which as you correctly pointed out, is about Argentina. -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [5] -------------------------------------------------------------------------------- And so, I mean, is it safe to say that that would make up, you know, you get about 20 million well it's 20 million at the midpoint, I mean, is Argentina -- is it half of that, or, I mean, is that too high? -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [6] -------------------------------------------------------------------------------- No, no, you are - actually if I say even probably more than half of their size. -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [7] -------------------------------------------------------------------------------- Okay. And then maybe, you know, your commentary about, you know, that not all markets are bad and actually some are starting to improve. Can you just talk about what you think is driving that in Poland and Turkey? I mean, I guess specifically in Turkey, I mean, you definitely got some political uncertainty there as well, so there's got to be some factors overriding that. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [8] -------------------------------------------------------------------------------- It's always -- number one, the prevailing price, retailed price differential between CNG and LPG and the gasoline diesel, which is still good. Number two, there is always a lower threshold below [region] novelty, I mean, the local customers that don't want to go. In a sense that BRC no longer act as the commission brand continue to be recognized as a brand there and technology leader, which means that it's not always true all the -- for the certain point that, you know, a cheaper standing price always deserve, you know, a significantly reduced level of technology, number one. Number two, it is definitely true that over the years, so there had been certain cycles, you know, in those countries, which means that it's pretty much normal that after a successful market penetration that we went through over the last two or three years, they always -- there is always a sort of a digestion by the local market, in terms of bonds. And clearly, when it comes to difficult times that from an economy standpoint, certainly, you know, the local competitors are proud to form the lower limit which I just mentioned as a, you know, a nice play -- a nice way to attack it because of the extremely low selling prices. -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [9] -------------------------------------------------------------------------------- Okay. All right, thanks for that. Maybe just last one from me, just -- could you provide a little more color, you talked about the renewed and extended contract in industrial, I assume that's material handling, if it's not, maybe clarity into what application and, you know, just, you know, some clarity on the size of that as well. Thank you. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [10] -------------------------------------------------------------------------------- Oh, you're right, Eric. I mean, that's exactly the kind of application where I don't hear about. So, I can, you know, I can tell you at this time that is definitely about [local] industry. And that's going to be a very much significant, you know, contract expansion for which we are very much satisfied. So, I confirm what you said, yes. -------------------------------------------------------------------------------- Eric Stine, Craig-Hallum - Analyst [11] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [12] -------------------------------------------------------------------------------- You're welcome. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Thank you. Our next question, comes from John Quealy from Canaccord. Your line is open. Please go ahead. -------------------------------------------------------------------------------- John Quealy, Canaccord Genuity - Analyst [14] -------------------------------------------------------------------------------- Hey, good afternoon folks, or good morning, I guess, depending where you are. So, a couple quick questions, on the battery APU product, can you just comment on the expected gross margins on that versus the traditional APU offering? -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [15] -------------------------------------------------------------------------------- Well, John, certainly the track, if you [view] strongest component when it comes to auxiliary power unit, and then they ramp up from the battery APU is very much significant compared to the diesel APU business. So, they're both continually strong year in Q2. And we believe that this strong performance will continue to put the remainder of the year 2015. On top of that, we are going to start with initial production on the light --rail, excuse me, APU, which would begin the shipping at the end of this year, that -- in the Q4 of 2015. So, in essence, we are very much satisfied from both the development and the progressive launch of new APU batteries, excuse me, new auxiliary power units like the battery one, as well as from the launch of the light rail APU at the end this year. So those are the two key components in the success of this business. -------------------------------------------------------------------------------- John Quealy, Canaccord Genuity - Analyst [16] -------------------------------------------------------------------------------- Okay. So, the product still support existing gross margins in that business line or will they supplement them? -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [17] -------------------------------------------------------------------------------- All right, if they're supporting them, then we're expecting even better contribution because of the economics connected to the new product. -------------------------------------------------------------------------------- John Quealy, Canaccord Genuity - Analyst [18] -------------------------------------------------------------------------------- Okay, great. And then, the -- a broader question, Pietro. The cash out look in the buyback, how much is less than your plans for the buyback and given this revised guidance, what would you expect the cash to be at the end of the year? Thank you. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [19] -------------------------------------------------------------------------------- Well, we still have a caution in terms of what was the amount [rise] by the board there to be [stantum] buyback. I can tell you that we still have a number of million dollars left. And, in terms cash flow, as you know, we don't provide, John, with the cash flow in projection at year end. However, if you consider that for the first six months of the year, we have been predominantly using the -- our cash flow, the buyback in connection with the buyback, as well as for the operating activities, which means through financing, they're working the requirements. And to a much lesser extent for some CAPEX entity investment, I will say that you have the right picture in order to, you know, to estimate what would be -- certainly, what are the main frame being placed when it comes to cash. And, you know, what would be directionally the size of cash and cash equivalent at the year end. -------------------------------------------------------------------------------- John Quealy, Canaccord Genuity - Analyst [20] -------------------------------------------------------------------------------- Okay. Thanks, Pietro. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [21] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Thank you. (Operator Instructions). Your next question comes from Rob Brown from Lake Street Capital. Your line is open. Please go ahead. -------------------------------------------------------------------------------- Rob Brown, Lake Street Capital - Analyst [23] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [24] -------------------------------------------------------------------------------- Good morning, Rob. -------------------------------------------------------------------------------- Rob Brown, Lake Street Capital - Analyst [25] -------------------------------------------------------------------------------- [Just in] restructuring, where do you gross margins able to get to is and sort of -- as opposed to restructuring and gets done, and where do you turn the gross margins [getting in]? -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [26] -------------------------------------------------------------------------------- Well, Rob, we made clear that when it comes to our 2015 restructuring program, at the end of the program, we have a very much interest in level of analyzed benefits and savings to -- from 2000 -- from the end of 2017, I would say from 2018, from the beginning of 2018. We are still talking about, you know, during the program of net benefit of our cost $14 million. The way that to the benefit and restructuring program are going to benefit our profit and loss, is pretty much significant gross profit as well as at the bottom line. We don't provide specific information in terms of how much is above, how much is below the line. But if you consider that the areas of the, you know, focus from restructuring program to involve both a workforce reduction, which means the revenue to the costs of [restructuring are mistaken], as well as the reduction in operating expenses, you may understand that they're pretty much significant starting from the gross profit line item. -------------------------------------------------------------------------------- John Quealy, Canaccord Genuity - Analyst [27] -------------------------------------------------------------------------------- Okay, thank you. And on your strategic review process, you said that it's still ongoing, you've been doing in a while. Could you just give us a sense of at least where you're at in the process, are you, you know, percent of the way through, or give us a sense of where you're at in that process? -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [28] -------------------------------------------------------------------------------- No, we are exactly on track, Rob, because, you know, DT is really first quarter when we started to take benefit from a savings standpoint. So, we are exactly on track. We believe that for the rest -- for the full year, this year, for the full of 2015, basically, we are going to include an equal amount of savings and cost, but since our Q1 call [monthly]-- actually, Q4 call, we made clear that (inaudible - technical difficulty) biggest impact from a [co] standpoint of the initiatives that we are working through. So, in terms of savings, in terms of costing, as well as in terms of process online, we are exactly on track in that respect. -------------------------------------------------------------------------------- Rob Brown, Lake Street Capital - Analyst [29] -------------------------------------------------------------------------------- Okay. And I'm sorry, I was also thinking in terms of your greater strategic review process -- -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [30] -------------------------------------------------------------------------------- Oh. -------------------------------------------------------------------------------- Rob Brown, Lake Street Capital - Analyst [31] -------------------------------------------------------------------------------- --not just cost savings. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [32] -------------------------------------------------------------------------------- Oh, I'm sorry, I misunderstood your question, Rob. The Strategic Oversight Committee has continued to explore initiative in order to increase shareholder value. Nothing at this point of time is off the table, all options and alternative that you can imagine are under analysis. And we will simply let you know when we come to a certain conclusion. -------------------------------------------------------------------------------- Rob Brown, Lake Street Capital - Analyst [33] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [34] -------------------------------------------------------------------------------- You're welcome. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Thank you. I'd like to hand the conference back over to Mr. Bersani for closing remarks. -------------------------------------------------------------------------------- Pietro Bersani, Fuel Systems Solutions, Inc. - CFO [36] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you all for your participation and we'll speak with you next quarter. Thank you very much. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect. And have a wonderful day.
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