Fuel Systems Solutions, Inc. (FSYS)

[Democritus_of_Abdera]

Nov 8 2011 FSYS Q3 CC Notes....

The following information is old as it relates to content from the November 2012 Conference Call... However, news flow out of FSYS is limited; the CC data is among the newest available.

I am reviewing this CC now because I'm trying to determine if there is a reason that the FSYS share price is at its lowest value in years ...

To summarize the CC:

1. The AT&T GMT610 Van (Savana and Express) contract announced in January 2012 ( #msg-71580239 ) is still active, albeit delayed...

...Some orders we had forecasted for the second half have slipped into 2013 due to timing issues with AT&T .... We were just waiting for the final numbers in terms of units from AT&T because like I said, this is a budget season, so this is the reason why we made reference to the timing issue. This is an important program like you know. We are very satisfied in terms of what the units will be. No doubt about the fact that, once again, there will be a shifting from 2012 to 2013, but nothing changed in terms of the potential – potentiality of such a program.

2. Production of the GM 2500 bi-fuel CNG pickups at Union City, Indiana has begun... As an addendum, delivery was initiated in late December ( http://www.sec.gov/Archives/edgar/data/1340786/000118143113004062/rrd367324_39121.htm ).

The FSYS Union City GM line is capable of running up to 5,000 to 10,000 vehicles a year. This compares to the approximately 40,000 yearly production rate of delayed OEM vehicles currently produced world wide, i.e.

Delayed OEM volumes continued at an average of 3,300 units per month and are trending upward, in particular with Korean manufacturers Hyundai, Kia, and SsangYong, as well as Chevrolet, Ford, Nissan, Peugeot, Mitsubishi and Citroen.

3. The industrial division is weak and will probably remain so in the near term ... in particular, the APU business, diesel and rail are down reflecting a softening market.

There are plans to launch our new low-cost battery product in early 2013, filling out the APU line.

4. The share of alternative fuel vehicles continues to increase in Europe’s extremely depressed automotive market. Italy is doing very well, probably because Italy has one of the highest price differentials between alternative and traditional fuels.

It is not clear if the total number of alternative fuel vehicles in Italy as increased.

5. Argentina is problematic.

In Argentina there was a significant increase in CNG fuel prices (around 300%) that is having a negative impact upon FSYS' Argentinean revenues. This marks the end of a decade of price controls for CNG in Argentina (see: http://www.laht.com/article.asp?ArticleId=556185&CategoryId=10718 )

6. The foreign money supply issue in Venezuela has been resolved and order flow has resumed at healthy rates from Venezuela.

7. In India and China, volumes remained stable, with Maruti Suzuki units in India steady at 5,000 per month and Shanghai Volkswagen steady in China at 1,000 units per month.

8. The situation in Thailand improved in Q3 (following last year's devastating floods). Volumes of Honda increased and are expected to continue to do so, but Mitsubishi is taking longer to recover. At this point, FSYS does not expect new Mitsubishi orders until the new model year begins in mid-2013.

9. Aftermarket volumes in Peru and Chile continued to increase. But numbers are small.

10. The commercial vehicle’s contribution was driven by the Hino program in Japan. FSYS is working on new development programs in India, Thailand and Southeast Asia, as well as the heavy-duty bus market in China.

11. Changes in foreign exchange rate do not have a significant impact upon operating income.

When it comes to FX impact in terms of translation, every time you get a negative impact on revenues that is of course a positive impact on a cost standpoint. Now as the result, the FX impact on operating income is definitely not material. We’re talking about $0.5 million over the first quarter. So the right way to look at that and it’s making clear decision between the translational FX impact from the – compared to the transactional FX impact. So we do run our foreign operations in local currency, so not just revenues, also the costs incurred locally and that’s why we do have this limited impact on an FX standpoint on our income statement, in particular on the – at the operating income level.

12. 2012 Outlook expressed in the Nov CC:.... Fuel Systems reduced its 2012 outlook due to the following assumptions concerning conditions at the end of the year...

Automotive division; based on the latest information available from OEM customers, revenue contributions are now expected to be delayed from programs planned and intended in certain Latin American automotive markets from 2012 until 2013; lower revenue from lower than previously expected growth in the European aftermarket products; and the reduced revenue contribution from U.S. Automotive, as the market continues to develop more slowly than originally anticipated.

Industrial division, expected to continue slowdown in stationary equipments, APUs and mobile industrial equipment market.

Based on the aforementioned factors, the company now expects full-year 2012 revenue to be between $380 million and $395 million, and expects 2012 gross margin of 23% to 24%, with 2012 operating margin of 1% to 3%.

Now if we look at a very short-term perspective, we have experienced a delay – a kind of delay in terms of shipping the units for U.S. Automotive. So, the big impact in terms of what changes between the guidance in the second quarter and the current guidance is the impact from U.S. Automotive and Industrial business, especially in regions like in North America and Europe. We continue to consider extremely a very good opportunity and as a matter of fact, what happened is that there were some timing issues in this respect, in particular in connection with our U.S. automotive business. So, still very interesting in multi-year programs. And we continue to believe that we are going to ship the units in the – within the last – end of this year and of course having a ramp-up in the volumes in the next year.