Executives
Dennis Bunday – CFO, EVP and Secretary
Pat Cavanagh – President and CEO
Analysts
Paul Johnson – Nicusa Capital
Juan Noble – Taglich Brothers
Peter Nitz [ph]
Michael Taglich – Taglich Brothers
Williams Controls, Inc. (WMCO) F1Q2011 Earnings Call Transcript February 3, 2011 4:15 PM ET
Operator
Good afternoon. My name is Michael and I would be your conference operator today. At this time, I would like to welcome everyone to the Williams Controls’ first quarter 2011 results conference call. (Operator instructions) I will now turn the call over to Mr. Dennis Bunday, Chief Financial Officer of Williams Controls. Please go ahead, sir.
Dennis Bunday
Good afternoon, everyone, and welcome to our first fiscal quarter 2011 conference call. Before we begin, you should note that the following discussion and responses to questions reflect management's views as of today, February 3, 2011, and may include forward-looking statements.
Actual results may differ materially from those projected in the forward-looking statements. Information concerning risk factors and other factors that could cause actual results to differ materially is included in our filings with the SEC, including our 2010 Annual Report on Form 10-K, our fiscal 2011 quarterly reports on Form 10-Q and our fiscal 2011 current reports on Form 8-K.
Specific factors that may cause such a difference include, but are not limited to, availability of adequate working capital, domestic and international competitive pressures, increased governmental regulation, increased cost of materials and labor, and general economic conditions in the United States and abroad.
I will now turn the call over to our CEO, Pat Cavanagh, for his comments on the quarter.
Pat Cavanagh
Thank you, Dennis. Good afternoon, everyone, and welcome to our fiscal first quarter investor conference call. This morning, we released our financial results for the first quarter of fiscal 2011.
Our sales for the first fiscal quarter were $13.6 million, up 15.7% over the same quarter last year. This is typically the weakest quarter of the year, because there are fewer working days and scheduled customer shutdowns.
Net income for the quarter was $644,000 or $0.09 per diluted share compared to $396,000 or $0.05 per diluted share last year. From a standpoint, sales were up 57% to European truck OEMs, improving over last year’s first fiscal quarter due to higher customer build rates this year and a low base last year due truck inventory overhang and weak market conditions.
Asian sales increased 49% on increased volumes in both the truck and off-road segments in China and India. As we have talked about in the past, this growth is due to increased usage of emission compliant engines in these markets.
NAFTA truck sales were up 10% from the same quarter last year. Current NAFTA industry forecast are for somewhere between 200,000 and 244,000 class 8 truck shipments in calendar year 2011, up from 154,000 units in calendar year 2010. December was the fourth month in a row of strong class 8 orders. Moreover, class 8 orders in both December and January are over 25,000 each month, which results in an annual order rate of 300,000 class 8 trucks. This could point to an upside in the industry forecast in 2011, if this continues, but it still unclear until we get through the first calendar quarter. Presently, forecast for NAFTA class 8 truck production in 2012 are in the 260,000 to 310,000 unit range.
Class 5 through class 7 NAFTA medium-duty truck production reached 116,000 units in calendar year 2010 and is expect to reach 125,000 units in calendar year 2011 and 168,000 units in 2012. We believe the recent increase in truck demand is driven by rising freight demand coupled with improving trucker profits, strengthening used truck prices, easing credit conditions and the record age of the North American fleet. I think combined with everyone else’s improving confidence in economy.
Dennis Bunday, Mark Koenen, and I were in Pune, India in January to celebrate the grand opening of our new manufacturing plant. We will begin production in this quarter at that facility. In attendance at our celebration were executives from several of the major Indian truck OEMs along with a number of our suppliers. Indian sales in our first fiscal quarter were almost half of our total sales to India in all of fiscal 2010. We believe we will sell over $2 million to the Indian truck OEMs in fiscal 2011 from our plant in Pune.
The (inaudible) countries now account for over 60% of the total over 6-ton world truck production. And they are expected by some forecasters to grow by more 50% by 2014. As you know, we’ve been aggressively positioning Williams early in these markets to take advantage of their growth and the penetration of more emission-friendly engines that will use our electronic throttle pedals.
In calendar year 2010, there were an estimated 1.1 million trucks over 6 tons produced in China, 240,000 in India and 53,000 in Russia, compared to 300,000 in North America and 291,000 in Europe. These volumes are expected to grow in 2012 to 1.2 million in China, 312,000 in India, and 102,000 in Russia, while the North American market over 6 ton is expected to reach 493,000 and in Europe, it will grow to over 550,000.
I will now turn the call over to Dennis to discuss our financial performance in the quarter.
Dennis Bunday
Thank you, Pat. Net income for the quarter was $644,000 or $0.09 per diluted share compared to net income of $396,000 or $0.05 per diluted in the first quarter of 2010, the 63% improvement in net income was a combination of higher sales, lower material and warranty cost as a percent of sales, and engineering, selling and administrative costs growing at slower rate than sales.
For the quarter, the basic EPS share count was 7,290,122 and fully diluted shares were 7,436,184. At quarter end, we had 7,292,944 shares outstanding.
First quarter 2011 gross profits were $4.3 million, a 19% improvement over the first quarter of last year and a 12% improvement over the fourth fiscal quarter of 2010. For this year’s first quarter, gross margins were 31.6% of sales compared to 30.6% in the first quarter of last year and 27.1% in the fourth quarter of last year. Contributing to the gross margin improvement, material costs were lower in the quarter as have been able to transition to a lower pricing structure for some components of our new products as volumes ramp up.
Also last year, we were working through a difficult warranty issue which was resolved in the fourth quarter of last year, resulting in warranty costs this quarter that were $65,000 lower than the corresponding quarter a year-ago.
Overhead was up 18% from the first quarter of 2010. In addition to directly variable overhead items such as shipping and production supplies, several smaller items including India start-up expenses and medical premiums contributed to the increase.
Wage expense was also higher this quarter due in part to the temporary salary reductions that were in effect in the first quarter of fiscal 2010 as part of our prior cost reduction program.
Although not a significant factor in this quarter’s comparisons, our freight situation warrants a comment. As we mentioned in some of our previous calls, managing freight cost was a challenge last year as orders ramped up rapidly and many of our suppliers had difficulty meeting the aggressive delivery schedules. We estimated that expedited freight costs as over $500,000 last year.
Our supply chain and logistic situation has improved significantly and our first quarter freight costs as percent of sales were lower than at any time last year.
Operating expenses, which include engineering and development, sales and administration, were up $343,000 during the quarter compared to last year’s first quarter. As was the case with overhead, the first quarter of 2010 included temporary salary reductions which, when compared to the first quarter of 2011, contributed to part of the increase in all operating expense categories.
Engineering costs increased as we can continue to have a record number of engineering projects under development. To meet this higher demand, we have three additional engineers working on customer-specific projects this year compared to last year’s first quarter.
In addition to the reinstatement of full salary levels from the salary reduction program began in 2009, administrative expenses were also up in part due to filling positions left [ph] vacant during the economic down turn. Offsetting some of these increases in operating expenses was a reduction in legal fees as the first quarter of fiscal 2010 included legal fees associated with the Cuesta class action lawsuit which was settled during the later part of fiscal 2010.
Now, turning to the balance sheet and cash flow. Net cash at end of the quarter, which includes our cash balance and a small outstanding amount on our revolver, was $1.3 million, a decline of $1.7 from our year-end cash balance. EBITDA, which consists of operating income, depreciation and the non-cash charge for stock option expense, contributed $1.6 million. However, first quarter is when we normally pay a number of once-yearly payments including property taxes, insurance payments, and bonuses, and a decline in cash is not unexpected.
In addition, pension payments, increases in inventory and timing of payments of some accounts payable and payment of our previously accrued warranty item with one customer contributed to the reduction in cash. Although net cash is down to $1.3 million at December 31, 2010, we believe this cash on hand plus our borrowing capacity of $5.8 million on our revolving loan facility will be sufficient to meet our working capital needs in the future.
Depreciation and amortization expense for the first quarter was $560,000 and non-cash stock option expense was $169,000. CapEx for the quarter was $836,000. This is higher than the capital spent during last year’s first quarter and more reflects what is expected for the full year. We have a record number of new projects that we are tooling up for and we are also expanding our test and development facilities to handle the increased activity. We are also aggressively implementing next generation cellular manufacturing to further improve our production capability and quality.
In addition, capital spending in fiscal 2011 will be higher than normal due to the opening of our India manufacturing facility. For the full year, I expect we will spend about $3.5 million to $4 million on capital projects in 2011.
This concludes our formal comments. We would now like to turn the meeting over to questions.
Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from the line of Paul Johnson with NICUSA Capital.
Paul Johnson – Nicusa Capital
Wow, changed the name of the firm, cool.
Pat Cavanagh
Hi, Paul, how are you?
Dennis Bunday
Paul, I thought maybe you changed the firm.
Paul Johnson – Nicusa Capital
No, no, no. I was like, “Whoa, who’s that?” How are you? Happy New Year.
Dennis Bunday
Very good, happy New Year.
Pat Cavanagh
Happy New Year to you, Paul.
Paul Johnson – Nicusa Capital
Couple of questions. First, gross margins were up nicely sequentially. I know a couple of things went on in the September quarter that obviously dampened that.
Pat Cavanagh
Right.
Paul Johnson – Nicusa Capital
If in fact, you are sort of shadow internal forecast on revenues work out this year, how should we be thinking about modeling gross margins in fiscal ‘11 and fiscal ‘12?
Pat Cavanagh
Do you want to handle that, Dennis?
Dennis Bunday
I can take a shot at that. Well, we have a relatively large component of our cost of goods in sales, that is overhead which is of course not directly variable with sales. So, although we don’t break out a lot of specifics in there, there is that fixed component to it. If sales continue to increase, our expectation is that gross margins will increase. I think if you look at a couple of years ago when we were in the 17 million-ish range of sales, we were in the mid 30% range of gross profit margins, somewhere in there. I don’t think that’s unreasonable.
Pat Cavanagh
I guess, that was really the hidden question.
Dennis Bunday
Yeah. Really, yeah.
Pat Cavanagh
The question is, if sales go up, we expect the margins to improve.
Dennis Bunday
(inaudible)
Paul Johnson – Nicusa Capital
There is nothing about the current product offering that would suggest that old historical margins are unattainable.
Pat Cavanagh
No.
Dennis Bunday
No, not really no. There is always a mix of margins -- some products have better profit margins than the ones that can (inaudible) not quite so good in everything. But in general, I don’t see that directionally changing significantly.
Paul Johnson – Nicusa Capital
Okay. Got it.
Pat Cavanagh
You know, Paul, we are going into higher volume production with our new LCV pedal which we’re launching this quarter in India and that margin is not – that’s the margin of some of our historical products. At the same time, we’re introducing a number of new products that have higher margins. So we think the mix is kind of keeps us in the same ballpark that we always been in.
Paul Johnson – Nicusa Capital
I guess my thought was that most of the degradation of gross margin over the last year and a half have been the absorption issue, Dennis, that you referred to.
Dennis Bunday
That’s a fair state.
Paul Johnson – Nicusa Capital
And if in fact sales...
Dennis Bunday
And well, I take that back, Paul. Actually there was that plus we had these freight problems. Last year, when the economic ramped up, not unlike a lot of folks, we had some logistics challenges as we’re trying to -- our customers were putting in orders pretty quick and our suppliers were trying to catch up, and we did a lot of air freighting last year to cater [ph] customer demands and that was in there too.
Paul Johnson – Nicusa Capital
Yeah, (inaudible).
Dennis Bunday
That – hopefully, we got that pretty well behind us. It’s always a challenge but hopefully that’s pretty well behind us.
Pat Cavanagh
Our suppliers, a lot of companies, had cut back and when the market turned around, it was really tough for some of them to bring production back up. And with our position in the market, we were not going to absolutely – and in no circumstances are we going leave one of our customers without product; it just wasn’t going to happen. So that drove some of that cost.
Paul Johnson – Nicusa Capital
Yeah, fair enough. And you guys did a very good job of articulating that along the way. So I just want to make sure I was interpreting this correctly. My next question is, the inventories are built pretty steadily now for three to four quarters and not to put words in your mouth, but I assume that’s an anticipation of a need to have higher inventories?
Dennis Bunday
That’s a fair statement.
Pat Cavanagh
Yeah.
Pat Cavanagh
And the other thing too is, I won’t say I think we are probably abnormal -- if you go back in 2010, we were a little bit lower on inventories than we would like to have been. We had -- because of the air freight issues and stuff like [ph] -- we had shortages of inventory that we were dealing with. So we were probably a little bit lower than we would have liked to have been for the sales levels as we are ramping up, but I mean the idea is that we’re landing [ph] inventory for –
Dennis Bunday
Yeah, there is a couple of things. In addition, Paul, we’ve got a number of new products that we’re introducing. We’ve got to build inventory to launch those products. We’ve got the India operation coming up where we’ve had to duplicate inventory to get that started up. So, got some of those things going on.
Paul Johnson – Nicusa Capital
Dennis, you might not have thought of it this way but the turns in the quarter then are a little lighter then you’d like to see or is this actually sort of where would like to see them?
Dennis Bunday
I think right now, as Pat said, we’re landing some inventory to get India started up. We have several new products that we are in process of gearing up for. So, once we get that through and balance [ph], I expect our turns to increase.
Pat Cavanagh
What we can target, Paul, is -- it’s a little bit, we don’t look at it so much as turns but as a percent of sales and we tend to look at world-class companies that have kind of a global footprint like we do, at under 10% of -- inventory under 10% of sales.
Paul Johnson – Nicusa Capital
Okay. Fair enough. Really for Pat -- last quarter, you guys started to articulate certainly a more robust outlook for class 8 trucks, for heavier trucks, and certainly global production, you are now starting to see exposure between your China facility and your India investment. I’m assuming that if those forecasts are even closely accurate, maybe they are even [ph] aggressive, but there is an evidence to suggest they are not -- they are conservative. That you guys have not lost share, ASPs haven’t shifted a whole lot. I realize the India product is probably a little bit less expensive. I assume you’ll participate if that proves to be true in calendar ‘11 and ’12; those sorts of for trucks.
Pat Cavanagh
Yeah, absolutely. I mean we are deeply engrained in that market and we are very focused on it, and the real question and the question I get all the time, especially from our Board of Directors, is that how fast will a penetration of electronic engine happen in China and India, and that’s really – that’s a difficult question to ask because they are not quite as clean and precise as our regulatory system is here in North America. So, they are kind of moving ahead in kind of bits and spurts and we’re really at the very kind of beginning of that right now. How fast over the next two or three years that penetration ramps up and how well we maintain our share in those developing markets is really going to tell the story.
Paul Johnson – Nicusa Capital
Fair enough. If I look back a couple of years ago, you guys were doing mid to higher teens revenue per quarter with a product line that was more narrow geographic, more narrow in terms of the end markets. I am now looking at a company that has got a true global footprint. You’ve got an expansion of products in terms of the size of the trucks you address, and the number of products you can ship into the trucks.
Pat Cavanagh
Paul, to answer your question, my goal is just substantially surpass where we were in sales a couple of years ago. And we think…
Paul Johnson – Nicusa Capital
Okay. And to think I was trying to be soft pedaling it... So, you’ve answered the question?
Pat Cavanagh
Yeah.
Paul Johnson – Nicusa Capital
All right. Thank you
Pat Cavanagh
Thanks, Paul.
Operator
(Operator instructions) Your next question comes from the line of Juan Noble with Taglich Brothers.
Juan Noble – Taglich Brothers
Hi, good afternoon.
Pat Cavanagh
Good afternoon, Juan. How are you?
Juan Noble – Taglich Brothers
Good, thanks. Just a couple of questions. The first one, I was curious if you could break out the NAFTA sales for the quarter; what percentage of total sales did they make up? And with the increase in overseas sales, do you believe that NAFTA sales will make up a greater or lesser percentage of total sales for the year?
Pat Cavanagh
Well, let’s see. NAFTA sales were 61% of our total for the quarter.
Juan Noble – Taglich Brothers
Was that 51% or 61%?
Pat Cavanagh
61%.
Juan Noble – Taglich Brothers
61% of total, okay.
Pat Cavanagh
And that’s the overall market, Juan, and that’s not just trucks; that’s our NAFTA sales, which includes off-road and a number of other elements of our sales mix.
Juan Noble – Taglich Brothers
Okay. I’m just trying to – because obviously with China and well, India, I think you said about $2 million in sales for India right now. So I’m just curious if – especially with the robust forecast for the NAFTA market, if you feel that that would actually be a greater percentage than say this first quarter for the entire fiscal year?
Pat Cavanagh
I would have to run the numbers. What I think I said in my comments, Juan, was that the NAFTA – it’s too early to tell. We are seeing some interesting developments in the last several months in truck orders. Now, that – when that translates into shipments, there is a delay there. So we are not sure the impact that it’s going to have on total NAFTA truck sales this year and we are not sure exactly, I mean, to a certain extent, we have budgeted and so on, but there is also what is going to happen with the off-road segment. We believe – I think, directionally, we believe that NAFTA will become a smaller and smaller part of our overall sales.
Juan Noble – Taglich Brothers
Okay. I can understand that. And the press release, you said you recently increased your staffing. I am just curious if there would be more hiring going forward as business improves or do you feel that the current staffing can handle – roughly handle what you expect for the year?
Pat Cavanagh
Well, there is a thing that flexes with us, is the number of engineers to handle new product programs. Obviously, when we look at our administrative complement of people and sales, we feel pretty good where we are at. But as we develop these new programs, and they have – some of them have some very short fuses; we flex our engineering capability to be able to respond to our customers in a timely manner. So, I think as Dennis said, we added a number of engineers over the last year to meet some very specific new programs that we were able to win, and we will continue to do that as time goes on. And we are looking to win a significant number of new programs this year, as we did last, and we may add more engineers.
Juan Noble – Taglich Brothers
Okay. But, on the –
Pat Cavanagh
We are also – Juan, we are also going to add staff at our India facility and we are not at the full complement of people to meet our sales goals right now. So we will be adding some people there.
Juan Noble – Taglich Brothers
In India, which is – I think you forecasted about maybe 2 million in sales there.
Pat Cavanagh
Right.
Juan Noble – Taglich Brothers
So I don’t imagine a big ramp-up in hiring there, but –
Pat Cavanagh
We will probably add at least 30 people over the next year.
Juan Noble – Taglich Brothers
And what would that be dollar wise? Just to get an idea of what that –
Pat Cavanagh
I really don’t have a number; I can get that to you later. Certainly, the salary levels of assembly workers and engineers and software people and those types of people in India are at a lower level than they are in the US.
Juan Noble – Taglich Brothers
That’s why I was hoping to get maybe a ballpark figure of what to expect in that area.
Pat Cavanagh
We will take a look at it, Juan; we can talk later. It’s probably – you are probably looking at somewhere between 30% and 40% of US rates, probably less for the actual manufacturing people. If you look at the professional side, I think it’s in that 30% to 40% range.
Juan Noble – Taglich Brothers
Okay. Just one final question actually in regard to – I’m just curious because obviously, with the plant there, the shipping costs go down, but now with the plant in India and specifically, what, about $2 million in revenue you are forecasting for the year, how much of an impact would shipping now from India have on the gross margins versus how the small amount of business was done in India before?
Pat Cavanagh
Well, the business is ramping up pretty significantly in India and we are going to be shipping direct from India. We are going to manufacture the product in India for the Indian OEMs. So there will be a reduction in the cost to manufacture the product, assuming that we were manufacturing it here, but some of that product was manufactured in China; but it was a small amount. The reason we are there is that we felt that we had to be local to be able to win the business with the major Indian truck OEMs and obviously, that product is – a large portion of that product is sourced in India and we will not be shipping parts in. There will be some parts that we will, but the majority of the larger components that make up the product will be sourced in India. And there is a transition process as we go through that, but that’s really our plan. We may down the road use the India facility to supply Europe or some other markets such as Russia or others, and we haven’t really decided on that issue right now.
Juan Noble – Taglich Brothers
Okay. But going back to historic rates at a given level of revenue, now that you ship from India say in the second quarter, it shouldn’t really have an impact on the –?
Pat Cavanagh
Juan, the amount of sales that we had in India that we were shipping in from China or the United States was very, very small. So, I mean, it is lost in the shuffle really; those kinds of shipping costs. And in many cases, the customer was paying those shipping costs.
Juan Noble – Taglich Brothers
Okay. So, basically, I mean, this coming year, fiscal 2011, gross margins at least on historical basis for given level of revenue should more or less be in the ballpark? This shouldn’t affect it either positively or negatively as far as the planned shipping from India now?
Pat Cavanagh
No, not really, Juan. I mean, not really.
Juan Noble – Taglich Brothers
Okay. Thank you.
Operator
Thank you. Your next question comes from the line of Peter Nitz [ph], a stockholder.
Peter Nitz
Gentlemen, as long-term stockholder, I wonder as sales and profits ratchet up, how do we generate more interest in the stock from hopefully new purchasers?
Pat Cavanagh
Dennis?
Dennis Bunday
Well, I think as everybody knows, one of the challenges is always float with our stock and I think we have to – as we do better, hopefully our income will drive a higher stock price and it will shake some of those shares loose, so that there can be some additional trading in the stock. But we manage this thing pretty conservatively and pretty prudently, we think. And what we are focused on right now is long-term growing this business. We had a lot of opportunities in a lot of markets worldwide and the thing that we are really focused on is growing this company, so that we can create the higher EBITDAs, the higher earnings that are going to drive the stock price. I mean, that’s really the plan here.
One of the things that we are doing this year and we’ve done it in the past, we are going to the Taglich Investor Conference and we are going to be making a presentation there. That always seems to help the trading volume in the stock and we are trying to do that this year. And we continue to talk to investors and people that are interested in the stock and – but I will tell you that we don’t do a lot of promotional activity and we don’t spend a lot of time in New York; we tend to spend a lot of time at our customers and maybe we need to do a little more promotional work.
Peter Nitz
Well, as you can see, there is very, very little stock sales taking place and hopefully, you can drive more interest through something like a stock split or a dividend or an IR – continuous IR kind of thing to get more interest in the stock itself.
Pat Cavanagh
Yes, you may be right.
Peter Nitz
One other question, are you happy with the margins that are taking place considering your two new plants in China and India? Do you see that these margins are where you want them to be based on your prior plant production?
Pat Cavanagh
Without a doubt. We are very satisfied with the margins in both places.
Peter Nitz
Okay. Thank you.
Pat Cavanagh
All right. Thanks, Peter.
Operator
(Operator instructions) Your next question comes from the line of Michael Taglich.
Michael Taglich – Taglich Brothers
Hello, guys.
Dennis Bunday
Hey, Mike.
Pat Cavanagh
Hi, Mike. Good afternoon.
Michael Taglich – Taglich Brothers
A very good afternoon to you too. Question for you. How much were the losses in the December quarter?
Pat Cavanagh
Hang on, Mike.
Dennis Bunday
Mike, they were under $200,000. That’s basically just that start-up cost in India, yes.
Michael Taglich – Taglich Brothers
And where do you think the profitability run rate will be in the second half of this calendar year there?
Pat Cavanagh
I think what you are going to find, Mike, is it we are going to start shipping in relatively small quantities in the second fiscal quarter of the year. This is a start-up operation without a doubt. We had to go over there; we had established all of our manufacturing, the manufacturing process to get people hired and all that. So we are going to be looking forward, ICS making small profits in the latter part of the year, in the fourth quarter. This time, I think we will probably – we will probably have a small profit in the fourth quarter.
It’s like any other start-up. It depends on how quickly the customers are taking the product at the levels stocking, but we are going to use cash there this year. And whether that’s $300,000, $400,000, $500,000, a lot of it just depends on timing. But it’s not going to be a – I don’t think we will see a cash generation from India until next year. The other thing too is that – in there, we have CapEx and that uses our operating expenses, but we are spending – that’s going to cost us – now we have $0.5 million plus.
These are pretty sophisticated manufacturing. So this is – these are just sophisticated manufacturing soldiers we have in the US or China, plus we had to put utilities in and prep this thing for manufacturing at the quality levels that Williams Controls manufacturers at and that is not cheap. And so, we still have some more work there, we saw some more shelf to put it in and this type of thing. So, on top of that -- so we are looking at using cash without a doubt this year.
Michael Taglich – Taglich Brothers
Okay. Is China the beating cash [ph] or pretty even or – from a cash flow generation standpoint?
Pat Cavanagh
Well, part of that is how you manage the pricing in this type of thing, because a lot of products come from China back into the United States, but if you took – if you took our China operations, China selling into our China customers, that is probably still at a use of cash level, yes.
Michael Taglich – Taglich Brothers
Is it a big number or small number?
Pat Cavanagh
That’s not a big number, Mike, again, India level that type of thing.
Michael Taglich – Taglich Brothers
Okay.
Pat Cavanagh
It’s not millions and millions, but it is not – these are – again, China is similar to India, it’s still a start-up. They are a very small percentage of the trucks manufactured, and that’s one of the exciting things about this business. It’s one of the – they are a small percentage today, the emission compliant engines and using our pedals, and they are still the mechanical. So as that continues to develop, we will start generating cash on those businesses, but right now, the market is still in the development process.
Michael Taglich – Taglich Brothers
Okay. All right. I’m done, thanks.
Pat Cavanagh
Thanks Mike.
Dennis Bunday
Thanks Mike.
Operator
And there are no further questions. I would like to turn the call back to management.
Pat Cavanagh
Well, thank you, everyone. This concludes our first quarter conference call and thank you for attending today. Bye now.
Dennis Bunday
Bye, thank you.
Operator
Thank you, ladies and gentlemen. This concludes today’s conference call and you may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!