American Power Group's (APGI) CEO Lyle Jensen on Q4 2015 Results - Earnings Call Transcript

| About: American Power (APGI)

American Power Group Corporation (OTCQB:APGI) Q4 2015 Earnings Conference Call January 14, 2016 10:00 AM ET


Chuck Coppa - CFO, Treasurer and Secretary

Lyle Jensen - Director and CEO


Perry Highland - Rubicon Investment Management & Analytics


Good morning, ladies and gentlemen and welcome to the American Power Group Announces Fourth Quarter and Fiscal 2015 Results Conference Call. This call is being recorded.

At this time, I would now like to turn the call over to Chuck Coppa, Chief Financial Officer. Please go ahead, sir.

Chuck Coppa

Thank you. Good morning, everyone I’d like to thank you for taking the time to join us. I’d like to quickly read the Safe Harbor statement.

With the exception of the historical information described today in this call, the matters described herein today containing forward-looking statements and opinions, including but not limited to, statements relating to new markets, development and the introduction of new products and the financial operating projections. These forward-looking statements and opinions are neither promises, nor guarantees but involve risk and uncertainties that may individually or mutually impact matters herein, cause actual results, events and performance to differ materially from forward-looking statements and opinions.

Listeners are cautioned not to place undue reliance on these forward-looking statements and opinions, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the results of any revisions to these forward-looking statements and opinions that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

I’d like to turn it over to Lyle now please.

Lyle Jensen

Thanks Chuck. Good morning, everyone and thank you for participating in this morning’s investor conference call. Our call is being held in concert with yesterday’s disclosure of our fiscal 2015 fourth quarter and fiscal year results. But those who have not seen the release or the financial statements they were distributed to all wire services and it can be found on the Internet or on APG’s Web site.

2015 ended up being one of the most challenging years in the evolution of our business model. Entering the year, we expected to transition from our multiyear investment phase into the revenue growth and value appreciation phase. That did not occur as we ran into the headwinds of the current oil crisis, which idled rigs targeted for conversion and we saw a steady decrease in diesel prices which tightened up the price-spread and delayed alternative fuel purchasing decisions by many Class A fleets.

However, what did happen in 2015 is extremely important and has postured APG for an improved outlook for 2016 and beyond. With the strategic and financial support of our preferred Series B Class investors and Board Members, we achieved our first EPA IUL dual fuel approvals on the most complex diesel engine technology in the industry for a late-model Volvo, Mack, Detroit Diesel, and Cummins Class 8 engines. Those test investments led to APG’s first California CARB Dual Fuel EO Certification, which opens up the California market to our diesel emission reduction technology and we can help the state reduce diesel emissions and their non-attainment regions. Also during the year, we invested in our international markets which resulted in multiple successful demo tests and several million dollars of quotations that are expected to launch sometime in 2016.

Finally in August, we acquired process rights to a new revenue stream where we can capture and process remote and stranded flare gas from oil production and monetize the gas into natural gas liquids, and eventually process the flared methane into high-quality natural gas for APG’s dual fuel systems and dedicated natural gas engines. To our management and our preferred series investor group remained bullish on our accomplishments and the value proposition opportunities that lie in front of us. After Chuck summarizes the financial highlights and last week’s Series D capital raise, I will go into more detail on each addressed market to explain why we believe 2016 looks to be much better year than 2015.

Chuck, I’ll turn it back over to you.

Chuck Coppa

Great, thank you. As in the past and as Lyle mentioned, our both SEC filings and press release were out yesterday and very detail-oriented in what we put out there, so I am not going to spend too much time talking about that. But as Lyle mentioned, we don’t have to say that we’re living in a much different world today than we did 15 months ago and even three months ago. And we’ve fought too hard to get where we are today to simply just put our heads in the ground and hope that -- for a higher priced oil.

As Lyle will discuss in more detail, we have to be responsive and adaptive to the ever-changing economic landscape out there and have taken several very proactive steps to help solidify our position going forward, while we weather this low price oil storm. As described in the press release and in the 10-K, we've reduced our operating costs across all functional areas during this past year and as we head into 2016. Importantly, we've restructured about $5 million on the long and short-term debt to better reflect the near-term cash flow implications of a slower ramp than we saw, which will save us north of $1.5 million of cash outflows during 2016, again trying to be proactive and responsive to the world we’re living in today.

As Lyle's mentioned, we've raised additional capital to keep our momentum moving as we open up the California and Latin American markets and we're currently working with our lead bank in Iowa on increasing our credit facility in 2016, based on performance and also renewing it for an extended period of time. As Lyle mentioned, as we announced earlier in the week we closed on about a $2.2 million capital raise with pretty much the same investor group who invested over $7 million this past year in various vehicles. We're blessed to have a group of strategically minded, financially strong investors and Board Members as Lyle mentioned that continue to put their money where their mouth is, in my opinion is a very strong commit -- showing of their commitment and continue to believe in our technology and the significant opportunities in front of us.

There's a reason why we're pretty much the last standing in the industry in my opinion is because we've the best technology of anyone out there and as Lyle will discuss, we've taken this opportunity to build, strength, and solidify our market-leadership position during this down market. I appreciate as a large shareholder myself that dilution stinks, but we do what we have to do to keep the ball moving forward and it’s a much better alternative than some of our competitors they have to face over the coming year.

With that I'll let Lyle talk about where we are today.

Lyle Jensen

Okay. Thanks, Chuck. Well let's do what we've done in the past, we have three diverse end-markets for APG's dual fuel capabilities, let’s go through those, highlight those first and then we'll wrap-up with our newest revenue market and the gas flare capture and recovery. So, now let's start with North American dual fuel stationary market, which historically has been dominated by oil and gas rig conversions. This is the business segment that was hardest hit in 2015 and we currently don't expect any quick recovery in 2016. Now due to the sub-$40 per barrel oil prices, the idling of U.S. oil rigs continues as of last Friday. Baker Hughes reported a number of operating rigs in the past 16 months has dropped at a record rate of 68% or is down 1,085 rigs, that leaves us 516 active rigs across the U.S., many of those but not all of them, but many of those are already been converted to dual fuel, but we still -- so we're still being able to try do chase the ones that have not been converted.

Similar rig idle rates have occurred in Canada at the current low prices. So, we all -- everybody here and including every energy expert that I can read about, everybody knows that today's low global prices are not sustainable, but no one and I mean no one has an accurate prediction on when the timing of the next upswing will occur, so you assume as opposed to a year ago when we’re at the end of the year we -- the experts were projecting the six to nine month dip this year we take a look at and take a look at supply, demand and take a look at all the other world pressures and we just -- we're going to have to adjust to less oil and gas conversions until this market comes back. So, we do have a number of oil rig quotes both in the U.S. and Canada. We expect those will be reactivated when oil prices do start through in that inevitable recovery, but in the meantime we changed -- we focused our marketing efforts on the stationery front to -- onto to the sustainability benefits and the emission reduction benefits of APG's dual fuel.

We currently are converting 11 stationery gen sets at one of the world's largest athletic footwear distribution centers to help meet their sustainability goals. So, we should finish commissioning in February and we look forward to discussing follow-on locations given their significant worldwide footprint. We also have converted emergency backup generators at two VA hospitals to help reduce their carbon footprint and with the recent Paris Climate Change Summit, we're seeing some increased interest in what could be done to lower emissions on these oil engines. So, converting to APG's dual fuel is the viable option in this market and that's where we've spent more of our time here going into 2016.

So, we move onto the North America vehicular market, this is our market that’s been our number one focus since the inception of our business model. It’s been grounded in technology, EPA approvals and moving forward and if we take a look at what we’ve achieved we have over 450 EPA approvals on OUL engines that we achieved in the 2012 to 2014 time period. And then this year the team has achieved its most important milestones in 2015 when we received EPA IUL approval on the latest OEM technology and again that’s been for Volvo, Mack, Detroit Diesel, and Cummins engines. Those approvals led to our first California CARB Cert. which is called an CARB EO Certification approval in 2015 and that’s right now on the Volvo Mack engine has been approved and we have the Detroit Diesel and Cummins engine into California CARB for approval and that is and those approvals are in review and in process.

No company and I mean no company in the world has achieved this level and breadth of natural gas emission approvals not only on the older engines but on these brand new emission technology engines we, -- there is nobody that’s come close to accomplishing what we did in 2015. It’s a great and a big market it’s a growing market as we’ve talked in the past. There is an estimated 700,000 Class A trucks in the United States with this engine technology and that number from looking at projections from the OEMs truck suppliers that looks to grow for several 100,000 trucks per year as this is the diesel engine technology of choice from 2010 and it will go well beyond 2020 as far as working with this base engine.

Looking ahead, this 2015 accomplished and even though it didn’t generate revenues I can’t emphasize how important these approvals are because it is the next-generation of engines that we have to be on to be able to grow our business model. And it’s really those approvals I believe that continue to motivate our group of financial support from our preferred series investors as we move ahead to now try to monetize these approvals.

I do want to take a couple of minutes to explain why that’s important, because we’re talking now about moving from the price spread and just the simple economics of natural gas which we’ll talk about how that’s going to improve in ’16. But we really need to talk about the value of the emission reduction side of our technology and how we see that playing through. So let me give me a couple of minutes on this, a little technical but I think for the listeners on this call this next couple of paragraphs is really the essence of why we continue to secure the type of support that we do. In diesel fuel by the number one emission is nitrous oxides or what’s called NOx for short and it's just I’d say part of diesel fuel that can be reduced a little bit but cannot be eliminated. There is many governmental pressures, regulatory pressures on incentives to reduce NOx emissions and that’s today now crane both at the federal level and the state level.

To give you an example, EPA required new diesel engines to reduce NOx by very aggressive 90% for any engine 2010 or newer compared to the older engines. This was a big move both for the OEM engine manufacturers that took them three or four years to design and bring that to market. They’ve done that successfully and they’ve developed what’s a very complex technology called selective catalyst technology and it has a urea-based diesel fluid exhaust fluid. And so in the industry we talk about it as a SCR DEF technology, but these are the all the new engines from 2010 going past 2020 have this type of capability and have seen a 90% reduction in NOx over the older engine.

For APG to obtain EPA and CARB approval on these new technology engines we have to purchase the test truck, we had to remove the engine from the truck, we had to complete emissions testing on an engine dyno and we had to show that we could not only meet but we had to beat the much tighter EPA standards for these targeted engine conversions. We engaged the EPA emissions test centre at West Virginia University who pulled the targeted engines and conducted the dual fuel engine emission testing. I think it’s important for our shareholders to know that this is the same West Virginia University facility and it’s exactly the same emissions test team that did the research and reported and called out Volkswagen on their emission scandal, so we can I think we will feel very proud that we work with and the results that we get come from one of the most prestigious and reliable emission test facilities in the world.

Our results this year on NOx reduction was very impressive, as we achieved in average an additional 40% reduction in NOx above the average SCR, DEF technology that's in our rig gone down by 90%. So, this is a catch in the eye of a lot of Federal and State environmental groups that somebody can walk in with natural gas, with dual fuel and be able to take an SCR engine and actually significantly reduce further reduce NOx from something that they felt was a very and it was a very major milestone in new engine technology.

So, we anticipate that we're catching the attention, here's some example, three or four examples I want to give you of what we're working in 2016. The Department of Energy has sent out a public notice asking for applications for up to $1 million grant study on dual fuel Class A trucks, West Virginia University, they immediately prepared and submitted our grant application. We went after as much of a $1 million as we hope we can to get and we hope that will lead to Federal endorsement of dual fuel technology and they have a very -- the DOE has a group called clean cities coalition that are represented across the United States to promote alternative fuel and we believe that potentially the result of this study and the NOx reductions that we already know are there that they want to see replicated, this could become a Federal endorsement of dual fuel technology which then could be promoted clean cities coalition across the U.S.

And in addition to Federal we have certain, couple of State ones with the top-two states with Class 8 trucks, the Texas commission on environmental quality has approved all APG 487 engine models to be eligible for their emission reduction incentive grant program and this is focused solely on NOx reduction from a baseline engine, but these will all lead to what's you're going to accomplish whether it be a dual fuel or whether it be a dedicated natural gas truck. Texas has the most Class 8 registrations in the U.S., a little more over 240,000 trucks and we'll talk about our expanding -- the expansion of our dealer network here in a minute, but specifically in Texas we've already signed on two new dealers, looking at one more and we will be using these -- this grant program to apply for fleets to reduce the cost and the purchase of an APG system.

We believe the largest market opportunity will be the State of California, despite all of their air quality improvement efforts California still has six major metropolitan regions labeled as non-attainment areas, which means they have unacceptable pollution levels. NOx's the number one and the most important environmental objective within these non-attainment regions and will be the focus for California during this decade. For example, California has already established a mandate that all 2009 and older heavy duty engines must be brought up to this 2010 SCR standard by 2021 or be retired from off the road. We believe APG has one of the only if not only economic and technical solutions to meet these requirements and we can do it in a much quicker timeframe and we can do within 12 months as opposed to doing it in the next five years.

With California having 150,000 registered trucks that are older than 2010, even 10% market penetration creates a sizeable multi-hundred million market but for APG that was not available to us prior to 2015. We've submitted a $3 million proposal in November under the California sustainable freight action plan to present our solution and we hope to hear back in early to mid-2016 on the status of the awards.

And additionally to this, the Governor of California has set a goal of reducing gas and diesel consumption by 50% by 2030. Here again, we've an example where we are meeting with California at all different levels from the Governor's office through CARB, through natural gas vehicle associations but it’s a well known fact that we can displace 50% to 60% of diesel to-date you don’t have to wait till 2030 to start to realize some of those objectives.

So APG management and several of our directors who are well-connected in California are taking a very active role and are looking at all the regulatory and marketing avenues to open up large markets in California. California doesn’t have to wait 5, 10, 15 years for the next emission technology and even if they do for heavy duty they may never have a new technology that has the required power and torque. APG’s technology can reduce NOx reductions now with no loss of power and torque and we think that will be a very attractive as we get these additional CARB Cert. approvals in California. So, from that standpoint you’re going to be hearing a lot more from us over the coming months on California, as we’re investing heavily in our time and activity there and we see a significant opportunity to exploit the emissions aspect of our dual fuel technology to their benefit.

Let’s move off the technology aspect of it and a couple of other noteworthy events and accomplishments that I think point to a better 2016 in our vehicular revenue opportunities compared to 2015 I listed three or four here. The first one is in mid-December the Congress and President renewed the $0.50 per gallon alternative fuel tax excise tax credit which covers all forms of natural gas. Typically this tax credit had only been approved for the preceding year which never really allowed it to be passed on to customers. So this was the first time and we lobbied heavily so this was the first time the tax credit has not only been approved for 2015 retroactively but has also been approved for 2016. So what we’re seeing is the impact of that is that the natural gas fuelling suppliers can count and know that they have this tax credit to work with and we see many of them already passing on the 2016 tax credit in the form of lower CNG and LNG prices. Since January we’ve seen CNG prices drop $0.30 to $0.60 per gallon and we’ve been able to regain some of the lost price spread even at today’s low diesel prices that are in the $1.85 to $2 range.

Even example regionally, in Oklahoma we’ve seen diesel gallon pump prices in the $1.10 to $1.40 range compared to $1.95 to $2. So, all of a sudden we’ve gone from either price parity to $0.10 to $0.20 price spread now that we’re starting to regain and get back this maybe this 30% to 40% to 50% price spread we believe that will bring some fleets back to reengage discussions. On top of that another federal improvement was that they on January 1 they changed the taxation on LNG based in on its Btu value and that effectively dropped the tax on LNG by $0.17 a gallon and that’s in addition to the $0.50 a gallon excise tax credit. So we’ve got some new opportunities to go back out to fleets that have been on the fence and take a look and show them some of this new economics to see whether those be enough to get them back to be engaged.

Second event that or point I think has improved here is showing an opportunity for ’16 is our three year exclusive dealer agreements with the Wheel Time Network. They expired in December as exclusive regions and -- but they’re being renewed as non-exclusive agreements on non-exclusive regions and what this has done is this has allowed APG to significantly expand our dealer and installer net base in multiple geographical regions starting January 1 where we need to have more representation. So we started work on this in December but really couldn’t sign contracts until we go until January 1 we have close to a dozen freightliner meter built, Volvo truck dealerships that have either signed up or have our contracts under review. And then we’ve fined I see we’re up to three and maybe four now conversion companies down south and out east that have signed our agreements and will be becoming an additional dealer installer.

So, as we take a look going in ’16, we’ve been able to retain who we had with Wheel Time that we’re the most active players in the natural gas industry, but we’re also we’ve more than doubled the number of APG dealers going into '16 and we'll continue work on expanding that, but every new dealer gives you a new list of customer contacts that you didn't necessarily have before that we think will open some doors to the dual fuel opportunities.

If we go the north of this 2015 again was important in Canada, we received British Columbia and Quebec approval on our dual fuel in the first quarter of 2016. We have a natural gas supplier in British Columbia that's offering to subsidize the initial cost of 20 to 30 dual fuel systems to help kick off dual fuel in British Columbia. And as of yesterday's phone call our dealer has heard back from them that they're definitely in line for a lion share of this activity, so that's a good news for them to get kicked off in 2016. In Quebec we've been marketing now for three or four months since our approval and it looks like at least at our, at last this week sales staff call it looks like we'll book our first Quebec dual fuel order in January and again we're talking to some of the largest natural gas fleets in Eastern Canada, but we'll be taking a look at APG now that we have a legal path to do the conversions.

I think our last one that I want to mention for 2016 is our dual fuel glider revenue, our 2016 revenue is forecasted to be up significantly over the 400K that we booked in 2015 to kind of support that we already have 480K in backlog, that is deliverable in Q2 so we're already 20% higher than the full year, just what we're going to deliver this quarter and we've quoted close to $800,000 for the balance of '16 and that includes our number one customer that hauls our both dry goods and wet goods on transport trucks and with they already have their own fuel stations, we're going to benefit from the incentives and tax credit and again we heard this week that they may even be increasing their dual fuel gliders for '16 as they look now to potentially put up another three or four of their own filling stations and if this roles out we'll have now our first customer that will have somewhere between 100 to 125 dual fuel vehicles in their fleet and they just can't be happier with it as from a performance standpoint and the cost of ownership standpoint.

So, we feel good that we have got a -- the 480K came from our dairy and ice cream customer in Oklahoma and these are -- at least remember these are brand new gliders that then are converted, and added with our dual fuel systems so, their last capital expenditure for trucks was in 2014 when we did 10, around 10 trucks that year, they skipped ’15 so we have zero in ’15 and then they came back with their next truck purchase this year, so that's an incremental 480K that we're delivering in January and February that we didn't have an opportunity to deliver in 2015.

Our last dual fuel segment to cover is the international markets. During 2015 our international conversion revenue grew by 67% over 2014, 330K and our additional 2015 fuel testing has set the stage for a much stronger revenue in 2016. For example and through we booked a 59K order, test order in 2015 and that has generated a follow-on backlog of $615,000 for 2016 so just in one order alone we're looking right now to double our international revenue over 2015 just with this one order. Port Stacker, heavy haul trucks and transport buses were all successfully tested and approved and will become -- will be the vehicles that will generate a delivery of the 615K.

In Mexico, APG has been selected as the preferred dual fuel provider by two key fuelling suppliers that have begun to build out the natural gas infrastructure in Mexico, large fleets and beverage distribution and building materials tested APG’s system for most of 2015, we had successful test results by December and in January we have quoted over several million dollars, over $2 million of follow-on for these types of fleets and others forward these two fuelling suppliers and we do expect that this revenue will finally kick in, in the Q3, Q4 period of this year, but it looks like we’ve been very successful in taking the decision of not trying to go it alone in Mexico and partnering with people that are well connected and know how to build out the Mexican infrastructure for fuelling and going in together it’s been a very powerful selling tool for these large companies when you take a technical solution like APG combine it with somebody that’s talking about putting 100s of millions of dollars into building out the infrastructure and makes that fleet owner very comfortable that we’re on the right path. And so we’re pleased that we were selected and we were base-lined against people in the United States dual fuel suppliers in Italy, all over the world, and came out on top as being clearly with our approvals and with our technology and with the over 100 million miles on the road of dual fuel performance that we came out on top is the preferred partner so.

Finally, we’re in Mexico this week as we speak right now we’re defining the duel fuel requirements for gen-sets in mining and on-mine haul trucks and the mining-in application. We’ve seen in the last six months just we’re getting too many increase from Canada all the way to South America from some of the largest mining companies in the world to take a look at reducing their diesel consumption which is just a uncommon amount of diesel that they use to operate in a mine. So, we’re taking a look at it and we have to again because the larger engines we have to take a look at it, we got to understand the engine requirements, we’re working closely with two of the LNG tank companies that have to design both their tanks and their brackets to handle the shear factor of these huge truckloads that you have in the mining industry. But it looks again like we’re bringing it together and this meeting this week could give this into the mine haul business and as we look at the quantities we’ve been asked for bid we’re not too sure that this isn’t going to be larger than the oil and gas conversion market when it was at its highest level. So we’re taking a certain interest in taking a look at the mine haul market.

That kind of wraps-up our dual fuel. We just see -- we know oil rigs are going to be slow but again our major investment has always been vehicular and we truly believe that we see a lot of diverse opportunities on the vehicular side to do what was expected to do and going forward and becoming our dominant revenue source in our business model.

So from there let’s go now to the newest revenue stream that in August we acquired rights to the new process technology where we can capture and process remote and stranded flared gas from oil production. We can monetize that into what’s called natural gas liquids and our fourth unit that we’re building will be capable of capturing the flared methane and converting that into natural gas that we can use either on our dual fuel solutions or could be used on any dedicated natural gas engine.

We did this last year we wrapped up our flare capture service on our first customer a well site in September, as they every well has a let’s call it declamation curve that where you the largest part of your volume comes in the first 60% of the life of the well and then as it drops off there is time then where it’s no longer economically viable to stay on the site. So we wrapped up our first customer in September, our second customer, we were on-track, had gone all the way to completing the trenching on the well site for two of our systems. They’ve been packed up, ready to go and we were supposed to kick that off in November and all of a sudden the price dipped below $35 a barrel and everybody kind of ended up barred and had to readjust and reassess what they were going to do strategically.

So our project was put on hold during the holidays and we have a meeting tomorrow to get back on-track to see what the timing looks like, but again they’ve already invested time and energy into sites and we hope that we can get that thing up and running as soon as possible now that we’ve gone through the holiday period. The drop in oil prices has had an impact on the price of natural gas liquids which had been our primary revenue source, so we’ve regrouped and have matched up and rethought our business model. So now we have we’ll be charging a variable fee that will include the value of the NGLs and then a price that we need or price we need to have to cover and to be profitable. And so it will be a combination of a free service where before our service was at no cost, we were just picking up liquids and selling liquids only. We now will have a free service that will be discounted by the value of NGLs to ensure that we have a steady business model as we go forward.

So despite the oil prices surge we put an externally tax slowdown on couple of customers we're talking to. We know we can touch and field 970 wells that have been drilled and fraced in the Bakken, some of those of which were targeted for flare right now there may not be put into production until the spring. So, we're waiting and watching on those but we do believe we have enough targeted customers right now to, we've got three systems ready to deploy, two of those we think will get deployed here rather quickly and then the fourth system is under construction which will be our methane recovery so, the reason that -- right place at the right time when we still believe this is that if you take a look at 2016 in the Bakken, their flare requirements are coming up, the North Dakota industrial commission will tighten the flare requirements from 75% capture rate to 80% on April 1, that's not too far away.

And in November, they increased their capture rate to 85% and there's just simply not enough technology up here that we can handle those type of increases so, we'll see some of our competition that’s -- current 75%, bringing the fall by the wayside, so we're, we think we're well positioned in really these types of oil prices we're seeing the Companies wait till the very-very last second to make a decision, but the reality is that they're going to be facing choke downs and/or issues with their flares starting as early as April and that's not that far away at this point.

All right, in addition to flare capture requirements in the Bakken, we also as we begin to advertise we're picking up interest and we've had several meetings both with domestic and international and energy companies and they're starting to take a look at the low conversion cost of our system. We can, that is one well site is flaring a 1 million cubic feet of associated gas per day and you can take that 1 million cubic feet and you can convert that into 1,000s of gallons of either propane, butane or natural gas on a daily basis.

So, we're talking about over a year 300 million cubic feet of gas may produce a 1 million gallons of propane, butane and natural gas. So, it's a model that also has for the international energy companies they're taking notice, they're saying hey, we've got a lot of remote international sites that are too far will never be close to a pipeline and if you have a on-site recycled flare gas that can become an important source of energy that will operate the turbines and the gen sets and the vehicles we got to take a look at this, and so we're -- we see those type of discussions opening up in 2016 and that's above and beyond the flare capture rate that we have with the Bakken. So, we've our -- our marketing program hasn't changed, we have a fuel by flare marketing program that's got regulatory aspects to it, it has recycled fuel if they were -- flare or recycled gas to a liquid fuel aspect to it and we believe all of those are opportunities that we can exploit here in 2016.

So, to wrap up -- well 2015 was not the financial year we wanted it, it was very important and strategic year in our evolving business model. APG has the market changing technology that is well beyond our concept validation phase and is poised for accelerated revenue growth. Especially in these times of increasing regulatory pressure to reduce harmful emissions on multiple fronts, now we believe APG provides the best dual fuel conversion technology, we believe we have the total of those cost of ownership available in the market and we see that we are a bridge technology to very significant follow-on markets.

So, in closing I want to thank our group of preferred series investors and board members for their continued support both financially but also with their personal time and opening doors to some good key business connections that we will be able to take advantage of. I also want to thank our small but powerful group of APG employees who absorbed the cut backs this year and we continue to outshine all of the dual fuel competition with the diversity of approvals that allows us to weather one of the worst energy storms on record.

So, with that I will turn it over to our Q&A session.

Question-and-Answer Session


Thank you. [Operator Instructions] And we’ll take our first question from Mitch Landgraf.

Unidentified Analyst

Thanks for the detailed call. For a lack of a better analogy it appears that what has happened with oil prices and a couple of things in the economy have made the coverage there with one product remaining in APG. If I were a end customer that needed to retrofit my Class 8 vehicle and I needed to become into that cover and look for a product that I can tell the only product available right now in the U.S. is APG, maybe with a small flailing product in the lower shelf with the remainders of what are the U.S. operations of clean air power I am not asking to do my due diligence for me. But would that be accurate that for a retrofit Class 8 dual fuel vehicle customer basically the viable option remaining is APG?

Lyle Jensen

Great question, and maybe let me answer it this way, because I thought this was a very tell-tell answer to your response. We’ve just signed on a new dealer in Texas that has been doing conversions. We actually rejected him as a dealer because we wanted to go with the exclusive agreement with the Wheel Time Network so he was disappointed that we said no three years ago. And in Texas our Wheel Time dealer ends up being a very-large billion-dollar company and we’ve always struggled with their margin requirements and really kicking off Texas. So it had been an area that we wanted to improve.

Well now we started as with December coming up we said look it’s going to go non-exclusive are you interested and he said absolutely, he said I’ve been waiting three years for this. He said Lyle let me tell you something. He said the last three years I have tried the other three suppliers, dual fuel suppliers and not only do they not have the EPA approvals for our customers but their systems probably simply don’t work well on the road. And we keep hearing about all the approvals, we keep hearing about following business and whatever. So let me just tell you, we are excited to be able to take on APG because we know you are the best.

And out of the three or four he has tried over three or four lesser for years two of those are no longer in business and the other two are still small that we don’t see them anytime we bid and here is the guy that actually put, who has been putting these systems on and then having the frustrated customers because they don’t have anywhere near the 100 million miles that we have on the road. So, it is accurate that we’re the best of the last for sure and by miles and miles, miles ahead of anybody else that’s trying to put dual fuel on the road.

Unidentified Analyst

One of the brilliance of that has kept APG alive versus some of those other companies are the diversification and leadership technologies such as the flare capture side of our company. And in regard to that I am excited to hear it seems like some of the possible or potential customers are picking up the logic that no matter how low oil a fuel that comes free from the ground is still less expensive. And looking at that spread especially in maybe more remote sites seems to be that APG can still make a powerful financial argument forward investment in our flare capture program. It sounds like you’re getting a good number and nibbles on that now and maybe increasingly so. And sounded like really EPA and the environmental regulations are going to be something that drives this Company and makes us continue to be see viable and then when oil goes back up which it will we’re sitting there, the sole soldier ready to respond with a very viable and well proven dual fuel vehicular solution. Just could you comment a little bit on are you seeing customers that are starting to even do the math that even at this, be it low oil prices, it’s cheaper to use APG flare capture for fuel onsite versus hauling in diesel regardless of how less expensive that fuel is right now?

Lyle Jensen

Absolutely, look I mean, it’s well stated well said it pencils out, it tapers out the key right now is to actually have a system that's actually producing a captured methane to converted to natural gas, but we do believe that and it is a very -- obviously the depreciation of our equipment and the very-very low, hardly any supplies, hardly any direct labor to manage this, it becomes a very efficient way and we're starting to see now, we got to think of this as how do we move -- the regulatory side is the first one that kind of gets you started but selling the volumes of liquid propane or being able to sell natural gas at a very-very low cost compared to diesel, that's really the bigger play in this whole NGL acquisition.

Chuck Coppa

And then this is Chuck as I mentioned earlier or in the month of December and in early part of January we were successful and renegotiating significant amount of the debt relating to the NGL side of the business to the point where we have really been able to reduce the cash outflows dramatically from what they were during '15 it can be more reflective of kind of where the market is today and the timing of deploying the additional equipment. So, as we chip away just as you were saying it as Lyle was saying it, we've really been able to manage the cash outflows relating to that business. So, when it does start picking up that we should be in a better, a stronger position than we would have pre-restructuring of that debt.


[Operator Instructions] We'll go next to Perry Highland with Rubicon Investment Management & Analytics.

Perry Highland

I wanted -- any idea what their revenues could be whether it's this fiscal year?

Chuck Coppa

We haven't right now Perry we're not really talking about, I mean we look at multiple we've looked at right now multiple revenue scenarios for this coming year flat year in their incremental increases based on the certain parts of the business. The NGL side will have a big impact on where those numbers shake out in the coming year. So, right now we really haven't -- based on the multiple models and the capital that we've got in the model that we've got in place we believe we have got the capital to deploy we just haven't been in a position yet to come out with any numbers.

Perry Highland

Okay. And then do you think this last 2.2 million raise should do it?

Chuck Coppa

Well, as I mentioned we've looked at multiple scenarios in the coming year, again the world around us is constantly changing, but based on this cap raise and the plan even at the lowest levels we feel we've got the capital to keep the momentum moving through the end of 2016, obviously we'll adjust accordingly but that's kind of how we see it right now.


[Operator Instructions] And it appears there are no further questions on the phone at this time.

Lyle Jensen

Okay. I want to thank everybody for taking the time today to listen to our update and we look forward to sharing additional updates when we finish the -- release our December 31st results. We'll talk to you here soon. Thank you.


Again, that does conclude today's presentation and we thank you for your participation.s

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