Fuel Systems Solutions (FSYS) CEO Mariano Costamagna On Q2 2014 Results - Earnings Call Transcript

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 |  About: Fuel Systems Solutions, Inc. (FSYS)
by: SA Transcripts

Operator

Good day, ladies and gentlemen, and welcome to the Fuel Systems Q2 2014 Results Conference Call. (Operator instructions.) As a reminder this conference is being recorded. I will now turn the call over to your host, Carolyn Capaccio of LHA. Please go ahead.

Carolyn Capaccio

Thank you very much, Operator, and thank you all for joining the call today. With me today from 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 a copy of the press release that was issued this morning and would like one please call LHA 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’d like to remind everyone of the Safe Harbor statement 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. These 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, Mario.

Mario Costamagna

Thank you, Carolyn, and good morning and good evening to everyone. Thanks for joining us on the Q2 2014 conference call.

As you are all well aware, and as demonstrated by the write-off we recorded today, Fuel Systems is undergoing a transition in our end market. This transition requires us to differentiate our value proposition for each of our end markets, close a conversion facility, leverage our R&D capability to develop new products and markets, and rebuild our growth.

This transition is clear in our Q2 results. Revenue of $87.4 million, decreased from last year as Q2 results reflected continued effects of reduced OEM and delayed OEM volumes, and stiff aftermarket pricing competition.

Also, restructuring costs in our automotive units are impacting our profitability. We are closing our Livorno automotive conversion facility and are working to further eliminate costs throughout the organization. We have adjusted our outlook for 2014 to account for these factors and took a non-cash charge to mark down assets to account for our revised expectations.

Our top priorities for the second half of 2014 are to generate positive cash flows while continuing to invest in and develop our long-term growth opportunities in order to return to growth in 2015 and beyond.

As the market evolves to more sophisticated systems, we are maintaining our strong OEM relationships and developing programs centering on both port and direct injection. The leading position achieved in the last year in terms of supply of port injection systems to Ford, Nissan, GM and many others has been strengthened by our advanced innovative technology systems for direct injection engines as LDI and SDI. These last generation systems position us to be market leading suppliers to OEMs.

In Aftermarket, we are maintaining our premier brand while redesigning products to better fit the pricing and features required for the aftermarket. Also, we are putting production in place now and plan to launch the BRC brake pads in early 2015. This new activity is the first strategic project of the side business to leverage our international network of (inaudible).

On the industrial side, we have new programs and products for the mobile and APU markets that we expect to start launching later this year and into 2015. Also, we continue to be on the lookout for the possible opportunistic mergers and acquisitions. We believe we have the relationships, resources and technologies, and premium brand reputation to create new future growth.

Now, I will turn the call over to Tim for an operational review of Automotive and Industrial.

Tim Standke

Thank you, Mariano. I will start with the automotive division which consists of the company’s OEM Passenger and Light Duty Commercial Transportation, automotive aftermarket, and transportation infrastructures operations as well as the US Automotive Unit.

Automotive posted Q2 2014 revenues of $59.7 million which in constant currency decreased 24% from the prior year, reflecting decreases in both OEM, DOEM and aftermarket volumes as a result of difficult economic conditions as well as the loss of previously disclosed programs and customers. Automotive operating loss was $4.5 million, including the impairment charge.

In Italy, DOEM volumes were a total of 2,116 vehicles in Q2. The major makers converted in our Cherasco conversion center continued to be Kia with 844 units, Nissan with 545 units, Hyundai with 371 units, and Mitsubishi with 180 units.

We are closing our Livorno conversion facility due to the trend to lower DOEM volumes, which is related to previously disclosed withdrawal of Chevrolet from European markets and the integration within the OEM factories of the conversion centers of the Kia Picanto and Hyundai I10, and the temporary conclusion of the LPG Nissan Qashqai program. Our Ford Transit Connect Taxi program is now in its startup phase. We now expect to start converting vehicles in October, 2014.

In our OEM business, 14,136 kits or sets of components were supplied worldwide in Q2. Maruti Suzuki remained the largest customer in terms of volumes while Ford Europe is currently the biggest OEM customer in terms of revenue.

In India, the business environment has improved subsequent to the elections. The low price of CNG is having a positive impact on local markets for both aftermarket and OEM.

In Pakistan, a three-year import ban on CNG kits was removed during the month of July. Currently it applies only to OEM, which is the most important segment of the Pakistani market for Fuel Systems. Pak Suzuki, the leading local manufacturer, is reactivating CNG projects and the production of natural gas vehicles should begin in a few months. Our MTM brand supplies to OEMs in Pakistan, which is a large developing market for CNG vehicles.

Our new LPG direct injection system has been introduced into the Italian market. It is in production for the KIA Sportage and Soul, and offers the only models on the market with a full seven-year warranty. We are working with KIA on other models. Other OEMs are also showing a good deal of interest in our LDI technology and we are working to develop potential programs.

Longer term, we anticipate the 2016 Euro Emissions Standards will change the market for diesel and petroleum vehicles. The new generation of Euro 6 diesel engines will require a high level of investment to comply with emissions regulations. Euro 6 compliance is much less of an issue for gasoline engine technology, and this cost advantage should increase the market for CNG and LPG conversion systems.

Fuel Systems is currently the only company having a proven technology to convert, at the OEM level, petrol direct injection engines to LPG with liquid direct injection systems and has proven technology to convert to CNG with port injection systems. With the trend for all engines to be direct injection within the next 10 years, we are positioned to be the preferred choice for OEMs working to meet Euro 6 standards that go into effect on January 1, 2016.

Turning to the aftermarket, kit and component pricing are the driving trends in Europe, Latin America and Asia. Historically, our market strategy was to sell the same premium components into the aftermarket that we sold to OEMs with our marked quality differential acting as our main selling point for aftermarket conversions. With intense competition persisting in the aftermarket we have formalized a new approach, continuing the redesign of key components to improve their cost profile while maintaining the high quality and performance the aftermarket requires.

For example, we have started production of our new CNG single stage pressure regulator that has simpler componentry yet satisfies all requirements and achieves roughly 20% in cost savings. We will dedicate a unit to producing these less complicated aftermarket components at high quality levels under brands designated by geography.

Lower gross margins have become a fact of life and in a price-competitive marketplace we can compete more effectively and enhance our ability to take market share and drive total gross margin contribution with these new products.

The aftermarket business in Eastern Europe is generally stable.

Now I will review some highlights for other strategic growth regions. In Asia volumes in the OEM passenger car segment were 11,460 vehicle conversions in Q2. In India we are working on the new single-stage regulator for Maruti Suzuki. The lower CNG prices and the growing OEM and aftermarket are helping drive improved performance for our Rohan BRC business in India.

In Latin America, our results during Q2 were again mixed. Aftermarket volumes increased in the key markets of Mexico, which is presently the fastest growing Latin America market, Brazil, Peru and Colombia.

The Argentinian aftermarket remains stable with some trend for further growth. In Venezuela, the unstable situation of the past 18 months appears to be resolving. In September we plan to restart production activity at various local OEMs. Simultaneously, MTM is restarting supplies to Ford. While volumes will be modest compared to the past we are encouraged to have revenue contributions from this market resuming.

In North America, our business for the CNG vehicle market continues to be mainly driven by GM. In Q2 2014, GM’s 610 van and K2 – formerly 911 – pickups orders booked were approximately 1,450 units including the extended cab, crew cab model. We expect to begin receiving orders for 2015 models late in 2014. Our plan is to increase and

expand the prototypes that we are developing with GM for Model Year 2015, which should lead to increased volumes Q4 2015.

In the US aftermarket, while we have already lined up certifications for 2015 the market is still struggling due to the lack of prep engine platforms for half-ton pick-ups. We are targeting completion of a bi-fuel CNG kit for the Ford F150 5-liter engine and a bi-fuel CNG fuel system for the Chevrolet 1500 Silverado direct injection engine in Q4 of this year.

Our Infrastructure Division continues to make gradual progress increasing penetration and is engaging in negotiations for additional contracts. In Q2, we received two large orders for large compressors from Finland and Azerbaijan for 2015 production.

In addition as announced in June we created a new unit named BRC Brakepads to launch a comprehensive range of high-tech automotive brake pads. BRC Brakepads is located in Cherasco, Italy, and consists of a world class R&D center and new manufacturing site supervised by MTM’s seasoned development experts. We expect to launch our first products in early 2015 with manufacturing capacity of over 1 million sets annually.

BRC Brakepads products will incorporate chemical technology designed for high-performance competitive racing that is cleaner and more environmental-friendly than current models. The brake pads will be sold under Fuel Systems’ existing brands. While the primary market will be Italy, we are also targeting Eastern Europe and Turkey, France and Germany, along with South American and Asian markets.

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.

FSS Industrial reported revenue of $27.7 million. In constant currency, Industrial revenue decreased 14.2% from the prior year, primarily reflecting lower demand and the previously announced loss of a large customer. Industrial operating income was $2.5 million, excluding the impairment loss.

In our mobile markets several new mobile engine programs are progressing as expected and will begin launching in early 2015. In our Stationary industrial market several new programs for power generators have launched in early 2014 and more are in development.

In the APU market segment sales volume remains robust. Our new design programs will offer products that require less run time, thereby saving fuel, that will begin launching in 2015.

The commercial vehicles segment continues to be negatively impacted by the sluggish economy. In summary, the Industrial business has many new programs that will be launching and moving into full production in 2015.

Now I’ll turn the call over to Pietro.

Pietro Bersani

Thank you, Tim. First I will discuss results for Q2 ended June 30, 2014, as compared to Q2 2013.

Total revenue was $87.4 million compared to $111.1 million. Q2 2014 revenue decreased 21% on a constant currency basis. Automotive represented 68% of revenues and industrial represented 32% of revenues.

The Americas – North and South – delivered 48% of group revenue. North America was 29% and Latin America was 19%. This level compares to 45% of revenue during Q2 2013. Europe accounted for 39% of consolidated revenue, with Asia delivering the remaining 13%. Fuel Systems’ revenue base remains diversified among macro global regions.

Foreign currency translation in the quarter was an unfavorable $0.2 million.

Gross profit was $17.9 million or 20.4% of revenue, compared to $25.8 million or 23.2% of revenues. The FX impact on gross profit was $0.2 favorable. The lower gross margin dollars primarily reflects the lower revenue and a shift in the mix of business.

R&D expense was $7.1 million compared to $7.3 million. FX impact on R&D in Q2 2014 was $0.2 million unfavorable. The slight decrease relates to lower supplies expenditures and lower outside service expense in Automotive which were partially offset by additional costs for the industrial business as we continue to invest in existing products as well as look to expand our current offering with new solutions.

SG&A expense was $58.6 million in Q2 2014 which included $44.3 million in goodwill and long-lived asset impairment charge, compared to $13.7 million in Q2 2013. The increase in SG&A includes by segment: in FSS Industrial, $3.3 million in Q2 2014 compared to $3.3 million in Q2 2013 with higher outside service costs offset by a decrease from lower compensation costs; in FSS Automotive, $9.4 million in Q2 2014 compared to $8.8 million in Q2 2013. The increase is mostly due to facility closure costs and related severance partially offset by lower outside service and consulting expenses.

FX impact in Q2 2014 is 0.1% favorable.

The company recorded a Q2 2014 non-cash goodwill and long-lived asset impairment charge of $44.3 million comprised of a goodwill impairment of $39.9 million and the write down of long-lived assets of $4.4 million related to both of our operating segments. The split by division for the charge was $40.2 million for Automotive and $4.1 million to Industrial. Within Automotive $35.8 million was charged to goodwill and $4.4 million to long-lived assets. Within Industrial, $4.1 million was charged to goodwill and nothing to long-lived assets. In addition in Q2 the company recorded a tax benefit of $1.1 million related to the long-lived asset impairment.

Total operating expenses were $65.8 million or 75.2% of revenue. Excluding the non-cash charge, operating expenses were $21.4 million or 24.5% of revenue, compared to $21.0 million or 18.9% of revenue in Q2 2013.

Operating loss was $47.9 million or 54.8% of revenue. Excluding this charge, operating loss totaled $3.6 million or 4.1% of revenue, compared to an operating income of $4.8 million or 4.3% of revenue, in Q2 2013. FX impact on operating income for Q2 is $0.1 million favorable.

Income tax benefit was $2.8 million compared to income tax expense of $1.4 million. Our Q2 income tax reflects the current mix of income and rates by jurisdiction. However, currently there are certain foreign jurisdictions where tax benefits are now included into the company’s income tax provision and as a result the company expects its effective tax rate for 2014 to be lower than in 2013.

Net loss was $44.2 million, or net loss of $2.20 per diluted share. Excluding this charge, net loss for Q2 2014 was $1.0 million, or $0.05 per diluted share, compared to a net income of $2.6 million, or a net income of $0.13 per diluted share.

Now on to the balance sheet. On April 30, 2014, to ensure an appropriate level of global liquidity, we renewed and expanded our credit facility to $20 million, extending the maturity date to April 30, 2015.

At June 30th, 2014, our cash and cash equivalents balance was $69.6 million compared to $81.0 million at December 31, 2013. Cash used by operations during the quarter ended June 30th, 2014, was $5.8 million compared to cash provided by operations of $4.0 million in the same period a year ago. Cash used in investing activities was $5.4 million. During the quarter ended June 30th, 2014, $2.4 million was used for fixed asset purchases and $0.1 million was used for financing activities.

Inventory was $94.5 million at June 30th, compared to $95.1 million on December 31st, 2014. Inventory turns were 3x. Inventory is $0.6 million lower than at December 31, 2013, which reflects lower level of sales activity. Inventory management remains a key initiative for the management team as we strive to operate in an efficient manufacturing platform.

Accounts Receivable at June 30th, 2014 was $59.5 million compared to $65.0 million at December 31st, 2013. Accounts receivable is down primarily due to the lower level of current revenues. Accounts receivable reflect the relative quarterly size of revenues, the timing and mix of OEM and aftermarket as well as infrastructure business levels.

Days sales outstanding was 68.1 compared to 65.5 at 2013 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, 2014 were $360.0 million, compared to $415.3 million at December 31, 2013.

Now on to our financial guidance. We now expect our full-year 2014 revenue to be in the range of $335 million to $355 million. We have reduced our expectation for 2014 gross margin to a range of 19% to 21%, and our expectation for 2014 positive cash flow as defined by Adjusted EBITDA to between $4 million and $8 million.

The revised outlook is based upon the following expectations. Automotive operations: the slower global transportation market given increasingly aggressive competition and the difficult economies in developing countries in Latin America and Europe, including the previously-disclosed loss of certain OEM and DOEM programs in Asia and Europe and the discontinuation of the Chevrolet brand in Europe. The slower markets will be partially offset by the anticipated maintenance of the company’s leading market share in the European aftermarket, albeit at gross margins reduced from prior expectations.

Industrial operations: the effect of the previously-announced loss of a large customer is expected to be partially offset by new engine programs beginning in late 2014 and early 2015, and by modest growth in the auxiliary power unit and mobile markets.

A lower margin performance in 2014 relative to 2013 reduced from prior expectations due to lower DOEM and OEM revenue volumes and revisions in the expected revenue mix, as well as lower gross margins on aftermarket products; incremental costs as the company continues to implement cost reductions for future periods as it focuses on achieving greater operational efficiencies for 2015 which should benefit 2015 profitability.

The company expects its effective tax rate for 2014 should be lower than in 2013 resulting from the anticipated mix of business by tax jurisdiction as mentioned above. We are reducing costs and our guidance takes into account the costs of restructuring the business that will be incurred in 2014 for the benefit of 2015 and future periods.

We have been conducting negotiations to reduce our automotive workforce in Italy, as well as the number of hours worked. We expect to complete this process by year-end to reduce our 2015 cost base.

And this concludes our prepared remarks. Operator, now I would like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) Our first question comes from Rob Brown with Lake Street Capital. Your line is open.

Rob Brown – Lake Street Capital

Good morning. Your cost reductions, you talked about getting some of that in ’15. Will you have it all sort of on a run rate basis by the end of ’15 or can you give us a sense of what those cost reductions are and sort of the timing of when they get fully implemented?

Pietro Bersani

Well Rob, you can imagine a cost savings in mid-70’s region being applicable for 2015, so we expect a very much good impact on our profitability for 2015 and moving forward.

Rob Brown – Lake Street Capital

A mid-70’s?

Pietro Bersani

I mean mid-seven-digit region.

Rob Brown – Lake Street Capital

Okay, thank you. Got it, okay. And then on the competitive environment, are you still seeing pricing come down? Do you have a sense how much pricing’s come in? Has it stabilized or are you seeing that competitive environment continually getting difficult?

Pietro Bersani

Well, it depends really on the geography. I will certainly confirm that in Europe as well as in Italy in particular that pricing competition is very much strong, but in other regions like India we are experiencing a positive trend in the changing price which will definitely help to get back to a very satisfactory level of revenues in that area. So that’s really a composite effect or combined effect if you prefer based upon the geographic region that we are talking about.

Overall except for specific geographies like India I would say that certainly the pricing competition is very much strong and that’s going to continue to affect in particular our aftermarket business, and that’s why it’s an important approach that we are now implementing that was mentioned by Tim.

Rob Brown – Lake Street Capital

Thank you. And then last question, on the Pakistan opportunity now that that’s opened up, what size business can that become? Can you give us a context of maybe what that can be as that ramps?

Pietro Bersani

You may think about, as you know on a mid/long-term perspective to get back to a high seven-digit region – that’s what we expect. You may remember that the main OEM relationship we have there is with Pak Suzuki so we are [pretty much bullish] in that respect. Just to clarify that now is going to affect OEM only. We have to see what other implications from an aftermarket point in that country.

Rob Brown – Lake Street Capital

Okay, great. Thank you, I’ll turn it over.

Pietro Bersani

You’re welcome.

Operator

Our next question comes from Colin Rusch with Northland Capital Markets. Your line is open.

Noah Kaye – Northland Capital Markets

Yes, hi, this is Noah Kaye in for Colin, how are you?

Mariano Costamagna

Hi Noah.

Noah Kaye – Northland Capital Markets

Hi. Question: in the past couple of years I think Europe has been running around $150 million or so. Obviously the emissions regulations can be a big driver. Can you put some perspective around the increase in revenues or the increase in the market opportunity you might see from those standards? How much do you think your Europe revenues can grow and how should we think about positioning?

Mariano Costamagna

Well, it’s difficult. I mean to answer your question, which makes a lot of sense of course because this is one of the biggest positive factors that we have in front of us. It is of course as you may imagine difficult to imagine at this time what could be the dollar amount impact for the company as well as for our competitors. Certainly due to the fact that we have so many good indications for the gas and direct injection engines compared with diesel in order for them to meet with those requirements we are expecting a very huge impact, which means that over two to three years starting from 2016 it may certainly be in a range of high-seven-digit region, low-eight-digit region. That’s to start. But this is something that is an extremely difficult prediction to be made.

The more that is going to impact the market category like ABC in Europe, which has the most, which has been the best seller, the more we are going to benefit because of the OEMs that we are currently serving. So whenever we talk about the small engines stating 1.0 or 1.5-liter class that is actually the biggest opportunity for us.

Noah Kaye – Northland Capital Markets

Mm-hmm. And then can you just put in context the closing of Livorno, how you would assess your capacity, your production capacity to serve a market if there was indeed an uptick? How can you help us think about that?

Mariano Costamagna

I think that that is going to be no problem at all in the sense that first we have been able to right-size our production manufacturing capability to the current demand, but you may remember, Noah, how much flexible this business is. So when in 2009, 2010 we were faced with the tremendously high Italian incentives from the government, I mean it was not that difficult at all to ratchet, to ramp up the production because basically our assembly lines are labor-intensive rather than capital-intensive. So that’s not going to be a problem at all.

So this is good news because at the same time we are able to reposition our cost structure without any problem, without any prejudice to future production improvement in connection with the Euro 6 opportunity.

Pietro Bersani

Yes, just a comment – our Cherasco [Rationa] are able also to increase till 10,000 cars per month. Today we are around 2500 cars per month and that means there are a lot of opportunities to increase if the market required this kind of production.

Tim Standke

Yes, and if you look at the past in 2008, 2009 when we ramped up it took very little time to bring these production facilities up and move them into multiple shifts, and that’s because the processes and procedures that we have in Cherasco are translatable pretty much anywhere, especially throughout Italy.

Noah Kaye – Northland Capital Markets

Mm-hmm, that’s very helpful. And so finally if you can just touch, gentlemen, on the M&A environment, I wonder if you can give us a little bit of color on the kind of criteria you have. What are you targeting more right now? Is it immediate revenue? Is it strategic? How should we be thinking about that a little bit?

Mariano Costamagna

Well, Fuel Systems’ Board and management is focusing a lot of attention in terms of the growth of the company – that’s what we are trying to pursue, that’s what we are looking at. So anytime we are looking at and considering any possible opportunities in M&A, that’s primarily the target – to get back to the growth back to the company. So that means that there are many options that feed into that value proposition and we are working that direction as declared as one of the strategic options that we worked into the game in order to pursue our global strategy.

Noah Kaye – Northland Capital Markets

Great, thank you so much.

Mariano Costamagna

You’re welcome.

Operator

Our final question comes from Eric Stine with Craig-Hallum. Your line is open.

Eric Stine – Craig-Hallum Capital

Good morning, just a few questions from me. Maybe we can just start in the Industrial business. You talked about some new programs coming in, new customers, just the visibility you’ve got into that and the confidence that those do start up in late 2014 and into 2015. And then just to clarify in your commentary, well “unclear” – do you expect growth in 2015 when you add back, when you’ve got the APU and also the mobile business in some of those programs?

Mariano Costamagna

Yes, thanks for your question. Well, speaking of mobile it is clear that we are on the right track about our programs with Ford and Nissan. The vast majority of those programs will be producing the biggest impact in the second half of 2015; in particular we expect Ford, the start of the production is anticipated for late Q1 and that’s primarily dependent upon the customer’s model launch timing. So we expect the production, the revenue to ramp up towards the end of 2015 with full production and revenue for 2016 for that program in particular.

About the other important program which is Nissan we are currently in the final stage of development and we have a number of engines which have been sent out to strategic customers for testing.

From a stationary standpoint I think that we have been mentioning over the last couple earnings call that we have very much interest in programs about the cold engine fuel system component, both air-cooled and liquid-cooled system components. And the vast majority of them have been launching in 2014 so we expect that in 2015 that we can benefit from the full deployment of those programs.

We also mentioned I think the auxiliary power unit. We are currently under early design processes from some of those key products affecting both the battery, diesel and diesel track and diesel rail. Most of the outcomes from those improvements and redesign will benefit the company from 2015. And therefore we expect that the full-year EBIT will be as a net effect from 2016 at least with regard to the auxiliary power unit.

Does that answer your question?

Eric Stine – Craig-Hallum Capital

Yeah, that was great color. I guess I was just wondering in your prepared remarks you talked about that you have, you’re encouraged – I was just unclear. You feel like 2015 is a year where you can see growth in the Industrial segment year-over-year or is it really about you’re going to get these programs up and running and then we see growth come back in 2016?

Pietro Bersani

It’s more (inaudible) in the sense that the way it will look in 2015 from an Industrial perspective is more a kind of return at approximately the level that we had in 2013. So in order to get back to that position, to that growth in 2015 it will be more appropriate.

Eric Stine – Craig-Hallum Capital

Okay, got it. And then maybe just the last one from me: you talked about the redesign in the aftermarket for that product in simplifying it. I’m just wondering how fast do you think that that can start to have an impact? And then when you think about how you’re positioned in the market are you looking to be kind of in-line on price or are you looking to be a lower-priced product and gain share back in that market? Thanks a lot.

Pietro Bersani

Well, we’ve now started to design and develop the new product for aftermarket and the new product is the new ECU and the new CNG single-stage regulators. They’re newly engineered in order to reduce the cost, to get this product more let’s say suitable for the aftermarket and to regain also the margin that we put in the market to maintain our share and our let’s say position in the market. There is also another product, quite new that we’ll launch in November this year, is the new [Genius Max] and the new generation of product that’s suitable for the aftermarket in order to let’s say realize our gross profit of the product. So our project and all is in place and then as I said we launch this in November, the end of this year, or December.

Back to Mariano’s comment about the new single-stage regulator, I think it is good to draw to your attention that we are expecting to achieve roughly 20% in cost savings by using that component, and therefore we’ll be able to bare at the same time the improvement of the cost profile while still maintaining the high quality and the performance that the market is requiring because it’s so much a competitive market.

Eric Stine – Craig-Hallum Capital

Okay, thank you.

Operator

Thank you. Ladies and gentlemen, that concludes the Q&A session. And I’ll now turn the call back over to Mr. Bersani for closing remarks.

Pietro Bersani

Gentlemen, thank you for your participation and we’ll speak with you next quarter.

Operator

Ladies and gentlemen, that does conclude today’s conference. You may all disconnect and everyone have a great day.

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