Westport Fuel Systems Q4 2024 Earnings Results & Report

Westport Fuel Systems EPS Results

• Actual EPS: -$0.59
• Consensus EPS: -$0.24
• Beat/Miss: Missed by -$0.35
• One Year Ago EPS: N/A
• EPS Beat Rate: 4 of last 8 quarters

Westport Fuel Systems Revenue Results

• Actual Revenue: $75.10 million
• Expected Revenue: $70.68 million
• Beat/Miss: Beat by +$4.43 million
• YoY Revenue Growth: N/A

Westport Fuel Systems (NASDAQ:WPRT) (NASDAQ:WPRT) develops and supplies alternative-fuel systems and components for transportation and industrial applications. The company focuses on technologies that enable vehicles and engines to operate on natural gas, renewable natural gas, hydrogen, propane and other lower-carbon fuels.

Its product portfolio includes high-pressure direct injection systems, fuel injectors, regulators, electronic controls, fuel-storage and delivery components, and related systems for heavy-duty trucks, buses, commercial vehicles, passenger vehicles and off-road equipment. Westport also provides engineering, integration and technical support services to vehicle and engine manufacturers.

Westport Fuel Systems sells its products through relationships with original equipment manufacturers, suppliers and other commercial partners in North America, Europe, Asia and other international markets. The company traces its origins to Westport Innovations, founded in Canada in 1995, and adopted the Westport Fuel Systems name following its combination with Fuel Systems Solutions in 2016.

Westport Fuel Systems Q4 2024 Earnings Call Transcript

Key Takeaways

• Agreement to divest light duty business for €75.1 million (with up to €6.5 million earn-outs) is expected to strengthen the balance sheet and allow focus on heavy-duty decarbonization segments.
• Improved profitability: gross margin rose to 19% (from 15%) and adjusted EBITDA loss narrowed to $11.2 million versus $21.5 million a year earlier.
• Liquidity concern: cash and equivalents fell to $37.6 million and management warned funds will not suffice to fund operations for the next 12 months without divestiture proceeds.
• Strategic pivot to core growth areas by focusing on HPDI technology via the Suspira JV and expanding high-pressure controls and systems for natural gas and future hydrogen markets.

Presentation

[Operator]

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ashley Nuell, Vice President of Investor Relations. Please go ahead.

[Ashley Nuell, VP of Investor Relations at Westport Fuel Systems]

Good morning, everyone. Welcome to Westport Fuel Systems' conference call regarding results for the fourth quarter and 2024 fiscal year. This call is being held to coincide with the press release containing Westport's financial results that were issued earlier today. On today's call, speaking on behalf of Westport is Chief Executive Officer and Director Dan Sceli and Chief Financial Officer Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities law. As such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I will turn the call over to you, Dan.

[Dan Sceli, CEO at Westport Fuel Systems]

Thanks, Ashley. Good morning, everyone. Earlier this morning, not only did we announce our 2024 fourth quarter and full-year results, but we also announced an exciting transaction that would lead to the divestment of our light-duty business. This proposed transaction is expected to enable Westport to become significantly stronger from a financial perspective and allow us to taper our focus on creating solutions for hard-to-decarbonize segments of the long-haul heavy-duty transport and industrial space. Given the excitement around this transaction, we have adjusted the flow of this call so we can focus our time on outlining the proposed transaction, the potential that it offers Westport and its shareholders. Today, following a few opening remarks from me, we'll kick the call off with Bill walking through the fourth quarter and year-end results. Then I'll dive into the details of the transaction before we go to our question-and-answer period.

[Dan Sceli, CEO at Westport Fuel Systems]

Despite revenues for the year being down by 9% as compared to the previous year, primarily as a result of the HPDI revenue now sitting in Cespira, our dedication to our three key pillars positioned us to deliver improvements across the board, including in our gross profit and gross profit margins, our adjusted EBITDA, and for one of the first times ever, we delivered positive net cash from operations. I'm very proud of how Westport performed in the 2024 period and recognize we still have a lot of work in front of us as we continue to evolve the company in 2025. I'll now hand the call over to Bill so he can provide some more information on the financial results. Bill.

[Bill Larkin, CFO at Westport Fuel Systems]

Thank you, Dan. Moving on to our fourth quarter and year-end results. As expected, the transition of the heavy-duty OEM business into Cespira impacted revenues for both the fourth quarter and full-year 2024. This was partially offset by an increase in sales in our light-duty segments. In the fourth quarter of 2024, we generated $75.1 million in revenue. This is a 14% decrease compared to the prior year period. For the full-year of 2024, revenue was $302.3 million, a 9% decrease compared to the previous year. In line with our key priority of improving operational excellence and reducing costs, we delivered improved margins in both the fourth quarter and full-year ended December 31, 2024. Gross margin increased to $14.3 million or 19% of revenue in Q4 of 2024. This is up from $8 million or 9% of revenue in Q4 of 2023.

[Bill Larkin, CFO at Westport Fuel Systems]

For the full-year of 2024, gross margin increased to $57.6 million or 19% of revenue. This is up from $48.9 million or 15% of revenue for the full-year of 2023. An increase in sales to established European customers rather than emerging markets also helped to improve our margins. We demonstrate continued improvements in our adjusted EBITDA metric for both the fourth quarter and year-end of December 31, 2024. For the quarter, we report an adjusted EBITDA loss of $1.8 million. This is significantly less than the adjusted EBITDA loss of $10 million in the fourth quarter of 2023. For the full-year, we report an adjusted EBITDA loss of $11.2 million. This is a considerable improvement compared to an adjusted EBITDA loss of $21.5 million for the full-year of 2023.

[Bill Larkin, CFO at Westport Fuel Systems]

Regarding liquidity, our cash and cash equivalents at the end of 2024 were $37.6 million, as compared to $54.9 million at the end of 2023. The decrease is primarily driven by debt payments, partially offset by cash provided by our operating and investing activities. 2024 marked one of the first times Westport generated positive cash flow from operations, with net cash provided by operating activities of $7.2 million. The reduction in operating losses, along with an increase in cash collected from accounts receivable, including the sale of Italian value-added tax receivables of $5.9 million, drove the improvement in cash provided by operating activities, which were partially offset by inventory related to our heavy-duty OEM and light-duty businesses.

[Bill Larkin, CFO at Westport Fuel Systems]

Net cash provided by investing activities was $4.5 million for the year, driven by proceeds from the sale of investments of $30 million, primarily related to Cespira, partially offset by purchases of property, plants, and equipment of $16.9 million, and our capital contributions to Cespira of $9.9 million. Net cash used in financing activities was $25.2 million in 2024. In January 2024, we obtained a new term loan of EUR 3.8 million from UniCredit that has principal repayments starting in 2025. During 2024, in addition to our scheduled principal payments on our term debt, we paid in full the revolving credit facility with RBC, with $15.2 million outstanding on this credit facility at the end of 2023. We closed this revolving financial facility with RBC in November of 2024.

[Bill Larkin, CFO at Westport Fuel Systems]

As you read in our press release and financial results released this morning, based on our projected capital expenditures, debt servicing obligations, and operating cash requirements under our current business plan, we are projecting that our cash and cash equivalents will not be sufficient to fund our operations through the next 12 months. This morning, we also announced the sale of our light-duty business, which will strengthen our balance sheet. In addition, we plan to continue driving our cost reduction initiatives. We have made many positive changes throughout 2024, including improvements in margin and adjusted EBITDA, as I reviewed earlier. We believe this transaction leads the business in the right direction while allowing us to focus through with our commitment to strengthening the balance sheet and developing the HPDI and high-pressure controls and systems segments.

[Bill Larkin, CFO at Westport Fuel Systems]

With that, I will pass the call back to Dan, who's going to walk through our divestiture announcement. Dan?

[Dan Sceli, CEO at Westport Fuel Systems]

Yeah, thank you, Bill. This morning, Westport announced that it has entered into an agreement to divest its light-duty business, which includes the light-duty OEM business, delayed OEM, and independent aftermarket businesses. In addition to significantly strengthening our balance sheet, as Bill mentioned, the proposed transaction simplifies our competitive strategy and streamlines our operations, allowing Westport to focus on HPDI technology in our Cespira joint venture and on our high-pressure controls and systems business, where we see the strongest opportunities for growth. The transaction is valued at $75.1 million or EUR 69.5 million, with the potential for an incremental $6.5 million or EUR 6 million to be paid in earnouts if certain conditions are met. We anticipate closing the transaction by the end of Q2 2025, subject to the receipt of shareholder approval and other customary closing conditions.

[Dan Sceli, CEO at Westport Fuel Systems]

The transaction significantly improves our financial position, and moving forward, we are committed to maintaining a stronger balance sheet. The proposed transaction would bring forward more cash today than we anticipated under the light-duty business's five-year cash flow projections and allows us to fund near-term organic growth opportunities for both Cespira and the high-pressure controls and systems segment. It also enables us to consider bolt-on acquisitions. Finally, post-transaction, our organization will be much smaller and more focused. We will intend to align the cost structure with that of a smaller, more efficient organization. The resurgence of natural gas and renewable natural gas globally provides a market opportunity for Westport, particularly in North America, where natural gas infrastructure is abundant and RNG production is growing. In addition, we believe that hydrogen will play a role in hard-to-decarbonize mobile applications long-term.

[Dan Sceli, CEO at Westport Fuel Systems]

Both Cespira and our high-pressure controls and systems segment have products and technologies enabling the use of lower-carbon fuels today to address decarbonization with net-zero and low-carbon fuels, while also having an affordable solution when zero-carbon hydrogen becomes more available. With this announcement, our goal is to revert back to our roots and become a more focused organization. Westport has 30 years of experience delivering component solutions and developing HPDI technologies. At its core, Westport is a clean tech innovation company that provides OEMs with simplified solutions to decarbonize challenging segments of the heavy-duty transport and industrial markets, utilizing a variety of alternative fuels. Through Cespira, the HPDI fuel system does the on-engine work, while our high-pressure controls and systems segment produce products to do the off-engine work. As our global population continues to grow, transportation of goods remains critically important.

[Dan Sceli, CEO at Westport Fuel Systems]

The global heavy-duty truck market is expected to reach almost 2 million new trucks on the road in 2025. As this segment grows, providing solutions to enable emission reductions is critical. Despite technological advancements, decarbonizing long-haul heavy-duty transport remains a challenge, with substantial reductions in CO2 emissions still to be realized. In fact, in Europe, the technology currently making the largest impact on heavy-duty long-haul trucking GHG emissions are natural gas and biogas-fueled internal combustion engines, with HPDI leading the way. While OEMs have explored multiple alternatives, widespread adoption has been limited. While natural gas and biogas-fueled internal combustion engines have seen modest adoption, such adoption nevertheless eclipses the adoption of any other carbon-mitigating solutions. In addition, fleet operators are prioritizing cost-effectiveness and total cost of ownership, with emissions often taking a secondary role. Therefore, for solutions to gain traction, they must maintain performance and be cost-effective.

[Dan Sceli, CEO at Westport Fuel Systems]

Hydrogen is recognized as a solution for the long-haul applications long-term. Meanwhile, demand continues to grow for low and zero-carbon alternatives in hard-to-decarbonize applications, such as heavy-duty trucking. To address these challenges, Westport, through Cespira, is advancing fuel-agnostic heavy-duty transport-related technologies, growing its natural gas and biogas solutions today while laying the groundwork for hydrogen adoption in the future. The HPDI fuel system is the most affordable, commercially viable option that does not compromise on performance and that can deliver net-zero carbon emissions in heavy-duty transport. As additional hard-to-decarbonize applications emerge in the transport sector, high-pressure systems and controls will be needed regardless of the powertrain and complement the transition from natural gas to renewables to hydrogen. Our high-pressure controls and systems business designs, develops, and produces, and sells components for transportation and industrial applications.

[Dan Sceli, CEO at Westport Fuel Systems]

Development over the last five years has focused on the hydrogen market, but with recent growth in CNG, we intend to leverage our high-pressure expertise and grow the CNG product portfolio, providing effective solutions for decarbonization by utilizing alternative fuels today while advancing zero-emissions hybrid solutions for the future, with preference to those serving heavy-duty off-road and industrial applications. We plan to combine our controls capability direct with our tank valves, regulators, and pressure relief devices, moving us toward a system-based solution. This transition is planned to include the advancement of our product portfolio in addition to additional CNG applications, leveraging the capabilities in our high-pressure controls and systems business to shorten the timeline to enter the North American market with a product offering that can run on RNG today and hydrogen in the future.

[Dan Sceli, CEO at Westport Fuel Systems]

As we look to the future, Westport looks to expand its addressable market, playing a larger part of the ecosystem in mobility and industrial space that is not easily electrified. In closing, first, thank you to everyone who joined the earnings call today. Your continued support is invaluable to us. We are excited about Westport's future, and we want to move through 2025 with purpose, creating value for our shareholders and cultivating opportunities to grow as a company. We believe that shifting our focus to our HPDI and our high-pressure controls and systems segments will provide us with the best possible future. We understand that a lot is proposed to be changing, and with change comes hard work, but we are keen to embrace. Thank you again for joining us today.

[Operator]

As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Eric Stine from Craig-Hallum Capital Group.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

Hi everyone, thanks for taking the questions.

[Dan Sceli, CEO at Westport Fuel Systems]

Hey, good morning, Eric.

[Bill Larkin, CFO at Westport Fuel Systems]

Good morning.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

Hey, hello. Maybe just starting with HPDI, I know you don't break out units, but clearly a step up in revenues in Q4. Maybe if you could just, from a high level, talk about kind of unit trends that you saw in the quarter, reasons for that, and then any detail you can give on expectations, whether it's units or growth for 2025.

[Dan Sceli, CEO at Westport Fuel Systems]

Sure, sure. Certainly we did see Q4 volumes go up with our OEM customer increasing production builds, and we're going to see those carrying on through into 2025. What we're seeing is the marketplace adopting this technology. It's starting to get its legs underneath it. Of course, we're dealing with a global market, and the plan all along has been that this business would grow over the first two, three, four years, and it's in fact doing that. We're hitting the plan versus production volumes, and we feel very good about where it's headed.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

Got it. Maybe just an update sticking with HPDI. I know that you've certainly expressed confidence in past calls and investor outreach on additional OEMs. I know that that is a mandate of the joint venture and its partners. Where do things stand there?

[Dan Sceli, CEO at Westport Fuel Systems]

The efforts to bring in other OEMs continue hard. I'm actually sitting in a foreign country right now, just coming out of meetings with additional OEMs working at it. As you know, we're not allowed to use their names. They don't like that very much. That is in fact where I am right now. Those efforts are picking up steam. I think the biggest thing that we should be watching is this pendulum shift in the natural gas world, right? I think that we're seeing a world that's swinging back from electrify everything or fuel cells for everything. We're feeling the weight of that coming. The commercial discussions with other OEMs are happening and continuing to pick up pace.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

Got it, got it. Maybe just I'll sneak in one more and then turn it over just on the event. Can you just remind me how much debt is tied to that light-duty business? I sense that it's a decent amount, but if you could just kind of dial that piece in for us that you will no longer have, that would be helpful.

[Bill Larkin, CFO at Westport Fuel Systems]

Yeah. Essentially, all the debt except for approximately $7 million is related to the light-duty business. So you're looking.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

That's gone, right? I mean, that'll be gone.

[Bill Larkin, CFO at Westport Fuel Systems]

Yes. Yeah. It will just be the EDC debt that remains with the business with us.

[Eric Stine, Analyst at Craig-Hallum Capital Group]

Okay. That's great. Thank you.

[Dan Sceli, CEO at Westport Fuel Systems]

All right. Thank you, Eric.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Rob Brown from Lake Street Capital Markets.

[Rob Brown, Senior Equity Research Analyst at Lake Street Capital Markets]

Hi, good morning.

[Dan Sceli, CEO at Westport Fuel Systems]

Good morning, Rob.

[Rob Brown, Senior Equity Research Analyst at Lake Street Capital Markets]

Just to clarify to the last point, your sale price of $73 million is sort of net of everything, and then the debt will, that portion of debt will be gone. Your sort of enterprise value of the whole was over, I guess, over $100 million. Is that right?

[Bill Larkin, CFO at Westport Fuel Systems]

You're going to offset that against the cash on the other side.

[Rob Brown, Senior Equity Research Analyst at Lake Street Capital Markets]

Okay. Okay. So you'll net after the debt. Got it. Maybe on the strategy, kind of the strategy of the business going forward, what's sort of the revenue rate of the business that you retain? I know you laid out a number of the components that you'll look to grow, but maybe a sense of how you approach that market, how long it takes to get those products more into the natural gas side, as well as the hydrogen, and just maybe sort of a sense of the strategy of the angle a bit.

[Dan Sceli, CEO at Westport Fuel Systems]

Yeah. The answer is really two different buckets. Obviously, the HPDI or Cespira bucket, we're on a glide path of increasing volumes per plan that were built into this business to start it up. Those are going to continue to go at that pace. Landing another OEM does not give us an immediate revenue bump because any OEM we land will go through the development cycle. What it does get, it gives a commitment to that technology. The other piece of our business remaining is the high-pressure controls and systems. The growth that we have been seeing over the last year has all been hydrogen-based components. We won a significant amount of new business, but the production launches for most of that business are two-three years down the road. What we're doing now, recognizing what's happened in the marketplace, we're going to be pivoting hard.

[Dan Sceli, CEO at Westport Fuel Systems]

We are pivoting hard to go and create opportunities for those same types of pressure control components and systems in the natural gas market. We see a huge swing towards the compressed natural gases in North America. It is basically the same technology that we use for the hydrogen controls, right? What our plan is, is while the programs will come down the road for hydrogen, we need to be selling into the CNG systems now. That is what we are pivoting to do. I do not have any specific timeline to talk to on when that business is going to start rolling in. It is an initiative that we have pivoted to because we have listened to the market. Of course, some investors have brought it up. For sure, it is a huge opportunity, we believe, in North America that we are going to take advantage of.

[Rob Brown, Senior Equity Research Analyst at Lake Street Capital Markets]

Great. Thank you. I'll turn it over.

[Operator]

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our next question comes from the line of Chris Dendrinos from RBC Capital Markets.

[Chris Dendrinos, VP at RBC Capital Markets]

Yeah. Good morning and congratulations on the transaction.

[Bill Larkin, CFO at Westport Fuel Systems]

Thank you.

[Chris Dendrinos, VP at RBC Capital Markets]

I guess maybe to start, just going back to the strategy, and I think you all had mentioned that M&A could be a component of this. Could you maybe just talk about what types of things you would be considering? Is it the U.S. or North America that you're looking to build a bigger presence in? Could this be something that's global in scale? Just help us flush that thought process out a little bit. Thanks.

[Dan Sceli, CEO at Westport Fuel Systems]

Sure, sure. Our strategy really is looking to take the controls that we have, the high-pressure controls, and building it out into a full system capability. We will be looking at potential opportunities to, in fact, do that. We think that the larger immediate opportunity is definitely in North America for that, but it is a global business. There is compressed natural gas used all over the world. We are going to be looking to build out that business to be shifted from being a components play to a systems play. We do have our technology capabilities for the full engine control system. Combine that with the pressure controls, and there are going to be some opportunities in the market to build that out.

[Chris Dendrinos, VP at RBC Capital Markets]

Got it. I guess maybe from an operational standpoint, do you have the R&D capabilities in-house to pursue that today? Or is this going to be a piece of the story where you're shrinking some of the, I guess, call it employee footprint with the sale, but then looking to add new employees in these kind of growth areas? Thanks.

[Dan Sceli, CEO at Westport Fuel Systems]

Sure, sure. The high-pressure controls is an R&D and engineering group completely separate from the light-duty business in Europe. It is located in Cambridge, Ontario, in North America, and just outside of Toronto. They are fully equipped to operate independently and build out this, from a technical perspective, build out this business.

[Chris Dendrinos, VP at RBC Capital Markets]

Got it. Thank you.

[Operator]

Thank you. At this time, I would now like to turn the conference back over to Dan Sceli, CEO, for closing remarks.

[Dan Sceli, CEO at Westport Fuel Systems]

Great. Thank you very much. Thank you to everyone joining the call today. I appreciate the good questions. I know we'll have further discussions. We are very excited about our future. We're going to continue to stay very focused on managing this business with discipline and excellence. That's one of the biggest things that I think we can look back on is shifting the culture to a very disciplined organization so that as we make strategic decisions, as we execute operationally, we're doing it in a very professional way. We're going to manage our costs very, very, very tightly and not get out of control on spending. I'm proud to say that we're a well-run business with a team that's completely motivated to run out this strategy and provide a great future for the shareholders. Thank you very much.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Bill Larkin, CFO
• Dan Sceli, CEO
• Ashley Nuell, VP of Investor Relations

Analysts

• Chris Dendrinos, VP at RBC Capital Markets
• Rob Brown, Senior Equity Research Analyst at Lake Street Capital Markets
• Eric Stine, Analyst at Craig-Hallum Capital Group