UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of May 2024
Commission File Number: 001-34152
WESTPORT FUEL SYSTEMS INC.
(Translation of registrant's name into English)
1691 West 75th Avenue, Vancouver, British Columbia, Canada, V6P 6P2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
£ Form 20-F S Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
EXHIBIT INDEX
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| Exhibit | | Description |
| 99.1 | | |
| 99.2 | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | WESTPORT FUEL SYSTEMS INC. |
| | |
| | By: | /s/ William E. Larkin |
| | Name: | William E. Larkin |
| | Title: | Chief Financial Officer |
Date: May 8, 2024
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| | Management's Discussion and Analysis |
BASIS OF PRESENTATION
This Management’s Discussion and Analysis (“MD&A”) for Westport Fuel Systems Inc. (“Westport", the “Company”, “we”, “us”, “our”) for the three months ended March 31, 2024 provides an update to our annual MD&A dated March 25, 2024 for the fiscal year ended December 31, 2023. This information is intended to assist readers in analyzing our financial results and should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, for the fiscal year ended December 31, 2023 and our unaudited condensed consolidated interim financial statements for the three months ended March 31, 2024. Our unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s reporting currency is the United States dollar ("U.S. dollar"). This MD&A is dated as of May 8, 2024.
Additional information relating to Westport, including our Annual Information Form (“AIF”) and Form 40-F each for the year ended December 31, 2023, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, respectively. All financial information is reported in U.S. dollars unless otherwise noted.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements that are based on the beliefs of management and reflects our current expectations as contemplated under the safe harbor provisions of Section 21E of the United States Securities Act of 1934, as amended. Such forward-looking statements include, but are not limited to, the orders or demand for our products (including from our LNG HPDI 2.0TM fuel systems) supply agreement with Weichai Westport Inc. ("WWI"), the timing for the launch of WWI's engine equipped with Westport's LNG HPDI 2.0 fuel systems, the variation of gross margins from our LNG HPDI 2.0 fuel systems product and causes thereof, and the timing for relief of supply chain issues (including those related to semiconductor supply restrictions), opportunities available to sell and supply our products in North America, consumer confidence levels, the recovery of our revenues and the timing thereof, our ability to strengthen our liquidity, growth in our heavy-duty business and improvements in our light-duty original equipment manufacturer ("OEM") business and timing thereof, improved aftermarket revenues, our capital expenditures, our investments, cash and capital requirements, the intentions of our partners and potential customers, monetization of joint venture intellectual property, the performance of our products, our future market opportunities, our ability to continue our business as a going concern and generate sufficient cash flows to fund operations, the availability of funding and funding requirements, our future cash flows, our estimates and assumptions used in our accounting policies, our accruals, including warranty accruals, our financial condition, the timing of when we will adopt or meet certain accounting and regulatory standards, and the alignment of our business segments.
These forward-looking statements are neither promises nor guarantees but involve known and unknown risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed in or implied by these forward-looking statements. These risks include risks related to revenue growth, operating results, liquidity, our industry and products, the general economy, conditions of the capital and debt markets, government or accounting policies and regulations, regulatory investigations, climate change legislation or regulations, technology innovations, as well as other factors discussed below and elsewhere in this report, including the risk factors contained in the Company’s most recent AIF filed on SEDAR at www.sedar.com. The forward-looking statements contained in this MD&A are based upon a number of material factors and assumptions which include, without limitation, market acceptance of our products, product development delays in contractual commitments, the ability to attract and retain business partners, competition from other technologies, conditions or events affecting cash flows or our ability to continue as a going concern, price differential between compressed natural gas, liquefied natural gas, and liquefied petroleum gas relative to petroleum-based fuels, unforeseen claims, exposure to factors beyond our control as well as the additional factors referenced in our AIF. Readers should not place undue reliance on any such forward-looking statements, which are pertinent only as of the date they were made.
The forward-looking statements contained in this document speak only as of the date of this MD&A. Except as required by applicable legislation, Westport Fuel Systems does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after this MD&A, including the occurrence of unanticipated events. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
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| | Management's Discussion and Analysis |
BUSINESS OVERVIEW
Westport is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. Our diverse product offerings, sold under a wide range of established global brands, enable the use of a variety of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, battery or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including LPG, compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. We supply our products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to OEMs and Tier 1 and Tier 2 OEM suppliers. We also provide delayed OEM (“DOEM”) offerings and engineering services to our customers and partners globally. Today, our products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.
The majority of our revenues are generated through the following IAM and OEM businesses:
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| Independent Aftermarket ("IAM") | We sell systems and components across a wide range of brands, primarily through a global network of distributors that consumers can purchase and have installed onto their vehicles to use LPG or CNG fuels, in addition to gasoline. |
| |
| OEM Businesses | |
| Heavy-duty OEM | We sell systems and components, including LNG HPDI 2.0 fuel system products, to engine OEMs and commercial vehicle OEMs. Our fully integrated LNG HPDI 2.0 fuel systems, enables diesel engines using primarily natural gas fuel to match the power, torque, and fuel economy benefits found in traditional compression ignition engines, resulting in reduced greenhouse gas emissions and the capability to cost-effectively run on renewable fuels.
Upon closing of the joint venture with Volvo Group, the HPDI business will be operated through the joint venture. |
| Delayed OEM ("DOEM") | We directly or indirectly convert new passenger cars for OEMs or importers to address local market needs when a global LPG or CNG bi-fuel vehicle platform is not available directly from the OEM. |
| Light-duty OEM | We sell systems and components to OEMs that are used to manufacture new, direct off the assembly line LPG or CNG-fueled vehicles. |
| Electronics | We design, industrialize and assemble electronic control modules. |
| Hydrogen | We design, develop, produce and sell hydrogen components for transportation and industrial applications. Also, we are adapting our HPDI fuel systems to use hydrogen or hydrogen/natural gas blends in internal combustion engines. |
| Fuel storage | We manufacture LPG fuel storage solutions and supply fuel storage tanks to the aftermarket, OEM, and other market segments. |
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| | Management's Discussion and Analysis |
RISKS, LONG-TERM PROFITABILITY & LIQUIDITY
Global Supply Chain Challenges and Inflationary Environment
While OEM production is back on track after COVID-19, there are other disruptions that we are closely monitoring and making efforts to mitigate, including the impact of the global shortage of semiconductors, raw materials and parts on our businesses; however, we do not expect this shortage to affect our long-term growth.The global semiconductor supply, raw materials shortages and inflationary pressure on production input costs continued to affect the automotive industry and will continue to impact our business for the foreseeable future. Our production and end-customer demands are materially impacted by the prolonged supply chain disruption, which continue to put pressure on our margins.
Furthermore, due to the ongoing conflict in the Middle East and continuing attacks on cargo ships in the Red Sea, hundreds of vessels are avoiding the Suez Canal and disrupting global supply chains. These vessels are being forced to reroute around southern Africa vastly increasing transport times and freight costs. This global disruption to the international trade routes has put additional pressure on the Company’s supply chain and the automotive sector as a whole. We continue to monitor the situation to mitigate transportation delays and costs to the Company.
Fuel Prices
To date, there has been continued global gaseous price fluctuations including LNG and CNG but also for liquid fuels including crude oil, diesel, and gasoline, which continues to persist given uncertainty in supply levels and European geopolitical risk due to the Russia-Ukraine conflict. Higher gaseous fuel price negatively impacts the price differential of gaseous fuels versus diesel and gasoline, which may impact our customers' decisions to adopt such gaseous fuels as a transportation energy solution in the short-term. We continue to observe softness in demand in our heavy-duty and light-duty OEM sales volumes caused by the uncertainty over the elevated prices of CNG and LNG relative to diesel and gasoline in Europe. Despite pressure on CNG and LNG prices, the increased LPG price differential to gasoline in Europe continued in 2023 and 2024 and was favourable to customer demand, which supported increased sales in our fuel storage business.
Long-term Profitability and Liquidity
We continue to observe high inflationary pressures, global supply chain disruptions, higher interest rates and volatile fuel prices which negatively affect customer demand going forward and have an adverse impact on our production and cost structure.
We believe that we have considered all possible impacts of known events arising from the risks discussed above related to inflation, supply chain, and fuel prices in the preparation of the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2024. However, changes in circumstances due to the aforementioned risks could affect our judgments and estimates associated with our liquidity and other critical accounting assessments.
We continue to generate operating losses and minimal cash flows from operating activities primarily due to the lack of scale in our heavy-duty OEM business. Despite customer interest, sales of our LNG HPDI 2.0 fuel systems to our OEM launch partner continue to be adversely affected by the impact of the continued volatility in natural gas prices and decreasing end-customer demand. Cash provided by operating activities was $0.1 million for the three months ended March 31, 2024.
As at March 31, 2024, we had cash and cash equivalents of $43.9 million. Although we believe we have sufficient liquidity to continue as a going concern beyond May 2025, the long-term financial sustainability of the Company will depend on our ability to generate sufficient positive cash flows from all of our operations specifically through profitable, sustainable growth and on the ability to finance our long-term strategic objectives and operations. In addition to new contract announcements, entering new markets, and executing the investment agreement to establish the joint venture with Volvo Group, we are focused on improving profitability through growth in our heavy-duty OEM business, driving economies of scale and improvements in our light-duty OEM and IAM businesses, including pricing measures and manufacturing strategies driving margin expansion. If, as a result of future events, we were to determine we were no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying unaudited condensed consolidated interim financial statements and the adjustments could be material.
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| | Management's Discussion and Analysis |
FIRST QUARTER 2024 RESULTS
Revenues for the three months ended March 31, 2024 decreased by 6% to $77.6 million compared to $82.2 million in the same quarter last year, primarily driven by decreased sales volumes in our DOEM, fuel storage, light-duty OEM, and heavy-duty OEM businesses. This was partially offset by increased sales volume in electronics products and from increased IAM sales to the North American, Western Europe and South American markets in the quarter.
We reported a net loss of $13.6 million for the three months ended March 31, 2024 compared to net loss of $10.6 million for the same quarter last year. This change was primarily the result of:
•decreases in our gross margin for the three months ended March 31, 2024 of $1.6 million compared to the same quarter last year due to lower sales volume impacting the absorption of fixed costs and the impact of increasing material costs because of global inflation;
•increase in research and development expenditures of $0.4 million due to increased testing and engineering resources for our HPDI fuel systems and increased expenses in the hydrogen business;
•increase in foreign exchange loss by $0.7 million.
Cash and cash equivalents were $43.9 million at the end of the first quarter 2024. Cash provided by operating activities was $0.1 million due to operating losses of $12.5 million, and net cash generated from working capital of $8.4 million. Investing activities included the purchase of capital assets of $4.9 million. Cash used in financing activities was attributed to net debt repayments of $5.8 million in the period.
We reported negative adjusted EBITDA of $6.6 million, (see "Non-GAAP Measures" section in this MD&A) during the first quarter of 2024 as compared to negative adjusted EBITDA of $4.5 million for the same quarter last year.
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| | Management's Discussion and Analysis |
SELECTED FINANCIAL INFORMATION
The following table sets forth a summary of our financial results:
Selected Consolidated Statements of Operations Data
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| | | | | | | | Three months ended March 31, |
| | | | | | | | | | 2024 | | 2023 |
| (in millions of U.S. dollars, except for per share amounts and shares outstanding) |
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| Revenue | | | | | | | | | $ | 77.6 | | | $ | 82.2 | |
Gross margin1 | | | | | | | | | $ | 11.7 | | | $ | 13.3 | |
Gross margin %1 | | | | | | | | | 15 | % | | 16 | % |
| Income from investments accounted for by the equity method | | | $ | — | | | $ | 0.1 | |
| Net loss | | | | | | | | | $ | (13.6) | | | $ | (10.6) | |
| Net loss per share - basic and diluted | | | | | | | | | $ | (0.79) | | | $ | (0.62) | |
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| Weighted average basic & diluted shares outstanding (millions) | | | 17.2 | | | 17.2 | |
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EBIT1 | | | | | | | | | $ | (12.4) | | | $ | (9.3) | |
EBITDA1 | | | | | | | | | $ | (9.2) | | | $ | (6.3) | |
Adjusted EBITDA1 | | | | | | | | | $ | (6.6) | | | $ | (4.5) | |
1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.
Selected Balance Sheet Data
The following table sets forth a summary of our financial position as at March 31, 2024 and December 31, 2023:
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| | | March 31, 2024 | | December 31, 2023 |
| (in millions of U.S. dollars, except for per share amounts and shares outstanding) |
| Cash and cash equivalents | | $ | 43.9 | | | $ | 54.9 | |
Net working capital1 | | 46.3 | | | 56.4 | |
| Total assets | | 338.8 | | | 355.7 | |
| Short-term debt | | 8.6 | | | 15.2 | |
| Long-term debt, including current portion | | 44.8 | | | 45.0 | |
| | | | |
Other non-current liabilities1 | | 28.5 | | | 29.5 | |
| Total liabilities | | 192.1 | | | 195.3 | |
| Shareholders' equity | | 146.7 | | | 160.4 | |
1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.
Refer to note 21 of the unaudited condensed consolidated interim financial statements for subsequent event information.
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| | Management's Discussion and Analysis |
RESULTS FROM OPERATIONS
OPERATING SEGMENTS
We manage and report the results of our business through three segments: OEM, IAM and Corporate as described in the Business Overview. The Corporate business segment is responsible for public company activities, corporate oversight, financing, capital allocation and general administrative duties, such as securing our intellectual property.
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| (in millions of U.S. dollars) | Three Months Ended March 31, 2024 |
| Revenue | Operating Income (Loss) | Depreciation & Amortization | Equity Income (Loss) | |
| OEM | $ | 49.3 | | $ | (8.3) | | $ | 2.4 | | $ | — | | |
| IAM | 28.3 | | 2.0 | | 0.6 | | — | | |
| Corporate | — | | (6.2) | | 0.2 | | — | | |
| Total Consolidated | $ | 77.6 | | $ | (12.5) | | $ | 3.2 | | $ | — | | |
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| (in millions of U.S. dollars) | Three Months Ended March 31, 2023 |
| Revenue | Operating Income (Loss) | Depreciation & Amortization | Equity Income (Loss) | |
| OEM | $ | 56.3 | | $ | (6.0) | | $ | 2.3 | | $ | 0.1 | | |
| IAM | 25.9 | | — | | 0.6 | | — | | |
| Corporate | — | | (3.4) | | 0.1 | | — | | |
| Total Consolidated | $ | 82.2 | | $ | (9.4) | | $ | 3.0 | | $ | 0.1 | | |
| | | | | | | | |
| | Management's Discussion and Analysis |
Revenue for the three months ended March 31, 2024
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| (in millions of U.S. dollars) | | | | | | | | | | | | Three months ended March 31, | | Change |
| | | | | | | | | | | | | | | | | 2024 | | 2023 | | $ | | % |
| OEM | | | | | | | | | | | | | | | | $ | 49.3 | | | $ | 56.3 | | | $ | (7.0) | | | (12) | % |
| IAM | | | | | | | | | | | | | | | | 28.3 | | | 25.9 | | | 2.4 | | | 9 | % |
| Total Revenue | | | | | | | | | | | | | | | | $ | 77.6 | | | $ | 82.2 | | | $ | (4.6) | | | (6) | % |
OEM
Revenue for the three months ended March 31, 2024 was $49.3 million compared with $56.3 million for the three months ended March 31, 2023.
OEM revenue decreased by $7.0 million in the first quarter of 2024 compared to the prior year period and was primarily driven by decrease in sales in our DOEM, fuel storage, and light-duty OEM businesses. Sales volume from heavy-duty OEM decreased in the first quarter compared to the prior year period, partially offset by higher engineering service revenues and higher sales volumes in the electronics business.
IAM
Revenue for the three months ended March 31, 2024 was $28.3 million compared with $25.9 million for the three months ended March 31, 2023.
The increase in revenue for the three months ended March 31, 2024 compared to the prior year period was primarily driven by increased sales to North America, Western Europe and South America. This was partially offset by lower sales volumes in Africa and Eastern Europe.
Gross Margin for the three months ended March 31, 2024
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| (in millions of U.S. dollars) | | Three months ended March 31, | | % of | | Three months ended March 31, | | % of | | Change |
| | | 2024 | | Revenue | | 2023 | | Revenue | | $ | | % |
| OEM | | $ | 4.5 | | | 9 | % | | $ | 8.1 | | | 14 | % | | $ | (3.6) | | | (44) | % |
| IAM | | 7.2 | | | 25 | % | | 5.2 | | 20 | % | | 2.0 | | | 38 | % |
| Total gross margin | | $ | 11.7 | | | 15 | % | | $ | 13.3 | | | 16 | % | | $ | (1.6) | | | (12) | % |
OEM
Gross margin for the three months ended March 31, 2024 decreased by $3.6 million to $4.5 million, or 9% of revenue, compared to $8.1 million, or 14% of revenue, for the same prior year period.
The decrease in gross margin for the three months ended March 31, 2024 was driven primarily by the decrease in sales volumes in DOEM, fuel storage, light-duty and heavy-duty OEM businesses.
IAM
Gross margin for the three months ended March 31, 2024 increased by $2.0 million to $7.2 million, or 25% of revenue, compared to $5.2 million, or 20% of revenue, for the same prior year period.
The increase in gross margin for the three months ended March 31, 2024 was primarily driven by higher sales volumes and improvement in sales mix to higher profit markets.
| | | | | | | | |
| | Management's Discussion and Analysis |
Research and Development Expenses ("R&D")
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| (in millions of U.S. dollars) | | | | | | | | Three months ended March 31, | | Change |
| | | | | | | | | | | | | 2024 | | 2023 | | $ | | % |
| OEM | | | | | | | | | | | | $ | 6.5 | | | $ | 6.3 | | | $ | 0.2 | | | 3 | % |
| IAM | | | | | | | | | | | | 1.2 | | | 1.0 | | | 0.2 | | | 20 | % |
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| Total R&D expenses | | | | | | | | | | | | $ | 7.7 | | | $ | 7.3 | | | $ | 0.4 | | | 5 | % |
OEM
R&D expenses for the three months ended March 31, 2024 were $6.5 million compared to $6.3 million for the same prior year period.
IAM
R&D expenses for the three months ended March 31, 2024 were $1.2 million compared to $1.0 million for the same prior year period.
Selling, General and Administrative Expenses ("SG&A")
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| (in millions of U.S. dollars) | | | | | | Three months ended March 31, | | Change |
| | | | | | | | | | | 2024 | | 2023 | | $ | | % |
| OEM | | | | | | | | | | $ | 5.9 | | | $ | 6.1 | | | $ | (0.2) | | | (3) | % |
| IAM | | | | | | | | | | 3.6 | | | 3.9 | | | (0.3) | | | (8) | % |
| Corporate | | | | | | | | | | 4.1 | | | 3.4 | | | 0.7 | | | 21 | % |
| Total SG&A expenses | | | | | | | | | | $ | 13.6 | | | $ | 13.4 | | | $ | 0.2 | | | 1 | % |
OEM
SG&A expenses for the three months ended March 31, 2024 were $5.9 million, compared with $6.1 million for the same prior year period.
IAM
SG&A expenses for the three months ended March 31, 2024 were $3.6 million, compared with $3.9 million for the same year prior year period.
Corporate
SG&A expenses for the three months ended March 31, 2024 were $4.1 million, compared with $3.4 million for the same prior year period. SG&A expenses increased by $0.7 million due to higher consulting and severance costs, partially offset by lower share based compensation expenses.
| | | | | | | | |
| | Management's Discussion and Analysis |
Other significant expense and income items for the three months ended March 31, 2024
Foreign exchange gains and losses reflect net realized gains and losses on foreign currency transactions and net unrealized gains and losses on our net U.S. dollar denominated monetary assets and liabilities in our Canadian operations that were mainly comprised of cash and cash equivalents, accounts receivable and accounts payable. In addition, we have foreign exchange exposure on Euro denominated monetary assets and liabilities where the functional currency of the subsidiary is not the Euro. For the three months ended March 31, 2024, we recognized a foreign exchange loss of $1.8 million, compared to a foreign exchange loss of $1.1 million for the three months ended March 31, 2023. The loss recognized in the current period primarily relates to unrealized foreign exchange loss that resulted from the translation of U.S. dollar denominated debt in our Canadian legal entities.
Depreciation and amortization for the three months ended March 31, 2024 and March 31, 2023 were $3.2 million and $3.0 million respectively. The amounts included in cost of revenue for the same periods were $2.2 million and $2.0 million, respectively.
Interest on long-term debt and amortization of discount
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| (in millions of U.S. dollars) | | | | | | | Three months ended March 31, | | |
| | | | | | | | | | 2024 | | 2023 | | |
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| Interest expense on long-term debt | | | | | | | | | $ | 0.8 | | | $ | 0.6 | | | |
| Royalty payable accretion expense | | | | | | | | | — | | | 0.2 | | | |
| Total interest on long-term debt and accretion on royalty payable | | | | | | | | | $ | 0.8 | | | $ | 0.8 | | | |
The interest expense on long-term debt and accretion on royalty payable for the three months ended March 31, 2024 compared to prior year period remained consistent due to an increase in interest expense on long-term debt for additional term loans borrowed in 2023, offset by a decrease in royalty payable accretion due to the extinguishment of the royalty payable in 2023.
Income tax expense was $0.7 million for the three months ended March 31, 2024 compared to income tax expense of $0.9 million for the prior year period. The decrease was mainly due to lower taxes from our European operations.
| | | | | | | | |
| | Management's Discussion and Analysis |
CAPITAL REQUIREMENTS, RESOURCES AND LIQUIDITY
Our cash and cash equivalents position decreased by $11.0 million during the first quarter of 2024 to $43.9 million from $54.9 million at December 31, 2023. The decrease was primarily driven by purchases of fixed assets and net debt repayments, partially offset by net cash provided by operating activities and proceeds from new term loans.
Cash Flow from Operating Activities
For the three months ended March 31, 2024, net cash provided by operating activities was $0.1 million compared to net cash used in operating activities of $9.3 million in the three months ended March 31, 2023, a $9.4 million decrease in net cash used in operating activities. The decrease in cash used in operating activities was primarily driven by changes in working capital, specifically in accounts receivable and accounts payable and accrued liabilities. Net cash inflows from accounts receivable resulted from collection of trade receivables and management of accounts payables and accrued liabilities compared to the prior year period, which was offset by net cash outflows in inventory compared to the prior year period.
The global supply chain disruptions and high inflation continue to challenge the automotive industry with rising manufacturer costs. We are responding with pricing and productivity countermeasures to manage our profitability. For further discussion, see the "Long-term Profitability and Liquidity" sections in this MD&A. These conditions continue to persist. Consequently, the duration and severity of the impact on future quarters is currently uncertain.
Cash Flow from Investing Activities
For the three months ended March 31, 2024, our net cash used in investing activities was $4.8 million compared to net cash used in investing activities of $2.9 million for the three months ended March 31, 2023. The increase was primarily driven by our purchases of property, plant, and equipment in Italy.
Cash Flow from Financing Activities
For the three months ended March 31, 2024, our net cash used in financing activities was $5.8 million compared to net cash used in financing activities of $2.7 million for the three months ended March 31, 2023. Net payments on our operating lines of credit and long-term facilities increased to $17.7 million for the three months ended March 31, 2024 compared to $11.0 million in the prior year period, mainly due to higher repayments of the revolving financing facility and term loans compared to the prior year period.
| | | | | | | | |
| | Management's Discussion and Analysis |
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
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| | Carrying amount | | Contractual cash flows | | < 1 year | | 1 - 3 years | | 4-5 years | | > 5 years |
| Accounts payable and accrued liabilities | | $ | 99.0 | | | $ | 99.0 | | | $ | 99.0 | | | $ | — | | | $ | — | | | $ | — | |
| Short-term debt (1) | | 8.6 | | | 8.6 | | | 8.6 | | | — | | | — | | | — | |
| Long-term debt, principal, (2) | | 44.8 | | | 40.3 | | | 13.4 | | | 21.3 | | | 4.8 | | | 0.8 | |
| Long-term debt, interest (2) | | — | | | 9.2 | | | 2.9 | | | 4.1 | | | 1.9 | | | 0.3 | |
| | | | | | | | | | | | |
| Operating lease obligations (3) | | 21.5 | | | 24.6 | | | 2.6 | | | 5.3 | | | 4.6 | | | 12.1 | |
| | $ | 173.9 | | | $ | 181.7 | | | $ | 126.5 | | | $ | 30.7 | | | $ | 11.3 | | | $ | 13.2 | |
Notes
(1) For details of our short-term debt, see note 13 in the unaudited condensed consolidated interim financial statements.
(2) For details of our long-term debt, principal and interest, see note 14 in the unaudited condensed consolidated interim financial statements.
(3) For additional information on operating lease obligations, see note 12 of the unaudited condensed consolidated interim financial statements.
SHARES OUTSTANDING
During the three months ended March 31, 2024, and March 31, 2023, the weighted average number of shares used in calculating the diluted income per share was 17,220,540 and 17,168,578, respectively. The Common Shares and Share Units (comprising of performance share units, restricted share units, and deferred share units) outstanding and exercisable as at the following dates are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (weighted average exercise prices are presented in Canadian dollars) | |
| | | March 31, 2024 | | | | May 8, 2024 |
| | | Number | | Weighted average exercise price | | | | | Number | | Weighted average exercise price | |
| | | | | $ | | | | | | | $ | |
| Common Shares outstanding | | 17,223,154 | | | | | | | | 17,233,960 | | | | |
| Share Units | | | | | | | | | | | | |
| Outstanding | | 441,585 | | | 13.56 | | | | | | 441,585 | | | N/A | |
| Exercisable | | 17,915 | | | 9.92 | | | | | | 7,109 | | | N/A | |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited condensed consolidated interim financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated interim financial statements. We have identified several policies as critical to our business operations and in understanding our results of operations. These policies, which require the use of judgment, estimates and assumptions in determining their reported amounts, include the assessment of liquidity and going concern, warranty liability, revenue recognition, inventories, and property, plant and equipment. The application of these and other accounting policies are described in note 3 of our annual consolidated financial statements and our MD&A for the year ended December 31, 2023, filed on March 25, 2024. Actual amounts may vary significantly from estimates used. There have been no significant changes in accounting policies applied to the March 31, 2024 unaudited condensed consolidated interim financial statements, and we do not expect to adopt any significant changes at this time.
| | | | | | | | |
| | Management's Discussion and Analysis |
NEW ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," to enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented in the financial statements. We plan to adopt the standard beginning with our 2024 annual consolidated financial statements. We are currently assessing the impacts of this ASU but expects it to only impact disclosures with no impact to its operations, cash flows or financial position.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures" to enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, under the amendment entities are required to disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December 15, 2024. We will adopt this standard on a prospective basis as allowed by the standard. We are currently assessing the impacts of this ASU but expects it to only impact disclosures with no impact to its operations, cash flows or financial position.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the three months ended March 31, 2024, there were no changes to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| | | | | | | | |
| | Management's Discussion and Analysis |
SUMMARY OF QUARTERLY RESULTS
Our revenues and operating results can vary significantly from quarter to quarter depending on factors such as the timing of product deliveries, product mix, product launch dates, R&D project cycles, timing of related government funding, impairment charges, restructuring charges, stock-based compensation awards and foreign exchange impacts. Net income (loss) has and can vary significantly from one quarter to another depending on operating results, gains and losses from investing activities, recognition of tax benefits and other similar events.
The following table provides summary unaudited consolidated financial data for the past year as comparison:
Selected Consolidated Quarterly Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three months ended | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 | | 31-Dec-23 | | | 31-Mar-24 | | | | | |
| (in millions of United States dollars except for per share amounts) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total revenue | | $ | 80.0 | | | $ | 71.2 | | | $ | 78.0 | | | $ | 82.2 | | | $ | 85.0 | | | $ | 77.4 | | | $ | 87.2 | | | | $ | 77.6 | | | | | | |
| Cost of revenue | | $ | 69.5 | | | $ | 59.9 | | | $ | 73.5 | | | $ | 68.9 | | | $ | 70.6 | | | $ | 64.2 | | | $ | 79.2 | | | | $ | 65.9 | | | | | | |
| Gross margin | | $ | 10.5 | | | $ | 11.3 | | | $ | 4.5 | | | $ | 13.3 | | | $ | 14.4 | | | $ | 13.2 | | | $ | 8.0 | | | | $ | 11.7 | | | | | | |
| Gross margin percentage | | 13.1% | | 15.9% | | 5.8% | | 16.2% | | 16.9% | | 17.1% | | 9.2% | | | 15.1% | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (11.6) | | | $ | (11.9) | | | $ | (16.9) | | | $ | (10.6) | | | $ | (13.2) | | | $ | (11.9) | | | $ | (13.9) | | | | $ | (13.6) | | | | | | |
EBITDA1 | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | | | $ | (10.9) | | | | $ | (9.2) | | | | | | |
Adjusted EBITDA1 | | $ | (4.3) | | | $ | (4.5) | | | $ | (12.9) | | | $ | (4.5) | | | $ | (4.0) | | | $ | (3.0) | | | $ | (10.0) | | | | $ | (6.6) | | | | | | |
| U.S. dollar to Euro average exchange rate | | 0.94 | | 0.99 | | 0.98 | | 0.93 | | 0.92 | | 0.95 | | 0.92 | | | 0.92 | | | | | |
| U.S. dollar to Canadian dollar average exchange rate | | 1.28 | | 1.31 | | 1.36 | | 1.35 | | 1.34 | | 1.35 | | 1.35 | | | 1.35 | | | | | |
| Loss per share | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.70) | | | $ | (0.70) | | | $ | (1.00) | | | $ | (0.62) | | | $ | (0.77) | | | $ | (0.70) | | | $ | (0.81) | | | | $ | (0.79) | | | | | | |
| Diluted | | $ | (0.60) | | | $ | (0.70) | | | $ | (1.00) | | | $ | (0.62) | | | $ | (0.77) | | | $ | (0.70) | | | $ | (0.81) | | | | $ | (0.79) | | | | | | |
Notes
(1) These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussion of these non-GAAP financial measures or ratios.
| | | | | | | | |
| | Management's Discussion and Analysis |
Non-GAAP Financial Measures:
In addition to the results presented in accordance with U.S. GAAP, we used EBIT, EBITDA, Adjusted EBITDA, gross margin, gross margin as a percentage of revenue, net working capital, and non-current liabilities (collectively, the “Non-GAAP Measures") throughout this MD&A. We believe these non-GAAP measures provide additional information that is useful to stakeholders in understanding our underlying performance and trends through the same financial measures employed by our management. We believe that EBIT, EBITDA, and Adjusted EBITDA are useful to both management and investors in their analysis of our ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures. Management also uses these non-GAAP measures in its review and evaluation of the financial performance of the Company. EBITDA is also frequently used by stakeholders for valuation purposes whereby EBITDA is multiplied by a factor or "EBITDA multiple" that is based on an observed or inferred relationship between EBITDA and market values to determine the approximate total enterprise value of a company. We believe these non-GAAP financial measures also provide additional insight to stakeholders as supplemental information to our U.S. GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by, in the case of EBITDA, removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities), asset base (depreciation and amortization) and tax consequences. Adjusted EBITDA provides this same indicator of Westport's EBITDA from operations and removing such effects of our capital structure, asset base and tax consequences, but additionally excludes any unrealized foreign exchange gains or losses, stock-based compensation charges and other one-time impairments and costs that are not expected to be repeated in order to provide greater insight into the cash flow being produced from our operating business, without the influence of extraneous events. Readers should be aware that non-GAAP measures have no standardized meaning under U.S. GAAP and accordingly may not be comparable to the calculation of similar measures by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 | | 31-Dec-23 | | 31-Mar-24 |
| Revenue | | | | | | | | | | | | | | | | | | $ | 82.2 | | | $ | 85.0 | | | $ | 77.4 | | | $ | 87.2 | | | $ | 77.6 | |
| Less: Cost of revenue | | | | | | | | | | | | | | | | | | 68.9 | | | 70.6 | | | 64.2 | | | 79.2 | | | 65.9 | |
| Gross margin | | | | | | | | | | | | | | | | | | $ | 13.3 | | | 14.4 | | | 13.2 | | | 8.0 | | | 11.7 | |
| Gross margin % | | | | | | | | | | | | | | | | | | 16.2 | % | | 16.9 | % | | 17.1 | % | | 9.2 | % | | 15.1 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2024 | | December 31, 2023 | | |
| (in millions of U.S. dollars) | | | | | | | | | | |
| Accounts receivable | | | | | | $ | 87.6 | | $ | 88.1 | | |
| Inventories | | | | | | 58.1 | | 67.5 | | |
| Prepaid expenses | | | | | | 6.6 | | 6.3 | | |
| | | | | | | | | | |
| Accounts payable and accrued liabilities | | | | | | (99.0) | | (95.3) | | |
| Current portion of operating lease liabilities | | | | | | (2.6) | | (3.3) | | |
| Current portion of warranty liability | | | | | | (4.4) | | (6.9) | | |
| | | | | | | | | | |
| Net working capital | | | | | | $ | 46.3 | | $ | 56.4 | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2024 | | December 31, 2023 | | |
| (in millions of U.S. dollars) | | | | | | | | | | |
| Total liabilities | | | | | | $ | 192.1 | | $ | 195.3 | | |
| Less: | | | | | | | | | | |
| Total current liabilities | | | | | | 133.2 | | 134.8 | | |
| Long-term debt | | | | | | 30.4 | | 31.0 | | |
| | | | | | | | | | |
| Non-current liabilities | | | | | | $ | 28.5 | | $ | 29.5 | | |
| | | | | | | | |
| | Management's Discussion and Analysis |
EBIT and EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 | | 31-Dec-23 | | 31-Mar-24 | | | |
| Loss before income taxes | | | | | | | | | | | | | | | | | | | | $ | (11.5) | | | $ | (11.0) | | | $ | (16.4) | | | $ | (9.7) | | | $ | (13.0) | | | $ | (12.0) | | | $ | (14.0) | | | $ | (12.9) | | | | |
| Interest expense (income), net (1) | | | | | | | | | | | | | | | | | | | | 0.7 | | | 0.2 | | | 0.1 | | | 0.4 | | | (0.1) | | | 0.2 | | | (0.2) | | | 0.5 | | | | |
| EBIT | | | | | | | | | | | | | | | | | | | | (10.8) | | | (10.8) | | | (16.3) | | | (9.3) | | | (13.1) | | | (11.8) | | | (14.2) | | | (12.4) | | | | |
| Depreciation and amortization | | | | | | | | | | | | | | | | | | | | 3.1 | | | 2.8 | | | 2.8 | | | 3.0 | | | 3.0 | | | 3.2 | | | 3.3 | | | 3.2 | | | | |
| EBITDA | | | | | | | | | | | | | | | | | | | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | | | $ | (10.9) | | | $ | (9.2) | | | | |
Notes
(1) Interest expense, net is calculated as interest income, net of bank charges and interest on long-term debt and accretion of royalty payables.
Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 | | 31-Dec-23 | | 31-Mar-24 | | | |
| EBITDA | | | | | | | | | | | | | | | | | | | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | | | $ | (10.9) | | | $ | (9.2) | | | | |
| Stock based compensation | | | | | | | | | | | | | | | | | | | | 0.9 | | | 0.8 | | | 0.2 | | | 0.7 | | | 0.8 | | | (0.3) | | | 1.4 | | | 0.3 | | | | |
| Unrealized foreign exchange (gain) loss | | | | | | | | | | | | | | | | | | | | 2.5 | | | 2.7 | | | 0.4 | | | 1.1 | | | 2.4 | | | 1.4 | | | (0.9) | | | 1.8 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on extinguishment of royalty payable | | | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | 2.9 | | | — | | | — | | | — | | | | |
| Severance costs | | | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 4.5 | | | — | | | 0.5 | | | | |
| Impairment of long-term investments | | | | | | | | | | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | $ | (4.3) | | | $ | (4.5) | | | $ | (12.9) | | | $ | (4.5) | | | $ | (4.0) | | | $ | (3.0) | | | $ | (10.0) | | | $ | (6.6) | | | | |
Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars)
WESTPORT FUEL SYSTEMS INC.
For the three months ended March 31, 2024 and 2023
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Balance Sheets (unaudited) |
| (Expressed in thousands of United States dollars, except share amounts) |
March 31, 2024 and December 31, 2023 |
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents (including restricted cash) | | $ | 43,902 | | | $ | 54,853 | |
| | | | |
| | | | |
| Accounts receivable (note 5) | | 87,629 | | | 88,077 | |
| Inventories (note 6) | | 58,060 | | | 67,530 | |
| Prepaid expenses | | 6,624 | | | 6,323 | |
| Assets held for sale (note 7) | | 48,468 | | | — | |
| Total current assets | | 244,683 | | | 216,783 | |
| Long-term investments (note 8) | | 5,043 | | | 4,792 | |
| Property, plant and equipment (note 9) | | 37,108 | | | 69,489 | |
| Operating lease right-of-use assets | | 21,701 | | | 22,877 | |
| Intangible assets (note 10) | | 6,379 | | | 6,822 | |
| Deferred income tax assets | | 11,094 | | | 11,554 | |
| Goodwill | | 2,994 | | | 3,066 | |
| Other long-term assets | | 9,765 | | | 20,365 | |
| | | | |
| Total assets | | $ | 338,767 | | | $ | 355,748 | |
| Liabilities and shareholders’ equity | | | | |
| Current liabilities: | | | | |
| Accounts payable and accrued liabilities (note 11) | | $ | 99,038 | | | $ | 95,374 | |
| | | | |
| | | | |
| Current portion of operating lease liabilities (note 12) | | 2,590 | | | 3,307 | |
| Short-term debt (note 13) | | 8,614 | | | 15,156 | |
| Current portion of long-term debt (note 14) | | 14,462 | | | 14,108 | |
| | | | |
| Current portion of warranty liability (note 15) | | 4,434 | | | 6,892 | |
| Liabilities held for sale (note 7) | | 4,078 | | | — | |
| Total current liabilities | | 133,216 | | | 134,837 | |
| | | | |
| | | | |
| Long-term operating lease liabilities (note 12) | | 18,914 | | | 19,300 | |
| Long-term debt (note 14) | | 30,355 | | | 30,957 | |
| | | | |
| Warranty liability (note 15) | | 1,285 | | | 1,614 | |
| Deferred income tax liabilities | | 3,332 | | | 3,477 | |
| Other long-term liabilities | | 4,964 | | | 5,115 | |
| | | | |
| Total liabilities | | 192,066 | | | 195,300 | |
| Shareholders’ equity: | | | | |
| Share capital (note 16): | | | | |
| | | | |
| Unlimited common and preferred shares, no par value | | | | |
| | | | |
| | | | |
17,223,154 (2023 - 17,174,502) common shares issued and outstanding | | 1,245,408 | | | 1,244,539 | |
| Other equity instruments | | 9,134 | | | 9,672 | |
| Additional paid in capital | | 11,516 | | | 11,516 | |
| Accumulated deficit | | (1,088,082) | | | (1,074,434) | |
| Accumulated other comprehensive loss | | (31,275) | | | (30,845) | |
| Total shareholders' equity | | 146,701 | | | 160,448 | |
| Total liabilities and shareholders' equity | | $ | 338,767 | | | $ | 355,748 | |
| Commitments and contingencies (note 18) | | | | |
| Subsequent event (note 21) | | | | |
See accompanying notes to condensed consolidated interim financial statements.
| | | | | | | | | | | | | | | | | |
| Approved on behalf of the Board: | Anthony Guglielmin | Director | Brenda J. Eprile | | Director |
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three months ended March 31, |
| | | | | | | | | 2024 | | 2023 |
| Revenue | | | | | | | | $ | 77,574 | | | $ | 82,240 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Cost of revenue and expenses: | | | | | | | | | | |
| Cost of revenue | | | | | | | | 65,851 | | | 68,879 | |
| Research and development | | | | | | | | 7,693 | | | 7,263 | |
| General and administrative | | | | | | | | 10,353 | | | 9,768 | |
| Sales and marketing | | | | | | | | 3,287 | | | 3,649 | |
| | | | | | | | | | |
| Foreign exchange loss | | | | | | | | 1,820 | | | 1,076 | |
| Depreciation and amortization | | | | | | | | 1,043 | | | 1,037 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | 90,047 | | | 91,672 | |
| Loss from operations | | | | | | | | (12,473) | | | (9,432) | |
| | | | | | | | | | |
| Income from investments accounted for by the equity method | | | | | | | | 31 | | | 129 | |
| | | | | | | | | | |
| Interest on long-term debt and accretion on royalty payable | | | | | | | | (812) | | | (847) | |
| | | | | | | | | | |
| Interest and other income, net of bank charges | | | | | | | | 341 | | | 466 | |
| Loss before income taxes | | | | | | | | (12,913) | | | (9,684) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Income tax expense | | | | | | | | 735 | | | 944 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Net loss for the period | | | | | | | | (13,648) | | | (10,628) | |
| Other comprehensive income (loss): | | | | | | | | | | |
| Cumulative translation adjustment | | | | | | | | (430) | | | 1,970 | |
| Comprehensive loss | | | | | | | | $ | (14,078) | | | $ | (8,658) | |
| | | | | | | | | | |
| Loss per share: | | | | | | | | | | |
| | | | | | | | | | |
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| Net loss per share - basic and diluted | | | | | | | | $ | (0.79) | | | $ | (0.62) | |
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| Weighted average common shares outstanding: | | | | | | | | | | |
| Basic and diluted | | | | | | | | 17,220,540 | | | 17,168,578 | |
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See accompanying notes to condensed consolidated interim financial statements.
| | |
|
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Statements of Shareholders' Equity (unaudited) |
| (Expressed in thousands of United States dollars, except share amounts) |
| Three months ended March 31, 2024 and 2023 |
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| | Common Shares Outstanding
(adjusted, note 15) | | Share capital | | Other equity instruments | | Additional paid in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total shareholders' equity |
| January 1, 2023 | | 17,130,316 | | | $ | 1,243,272 | | | $ | 9,212 | | | $ | 11,516 | | | $ | (1,024,716) | | | $ | (35,318) | | | $ | 203,966 | |
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| Issuance of common shares on exercise of share units | | 41,617 | | | 1,235 | | | (1,235) | | | — | | | — | | | — | | | — | |
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| Stock-based compensation | | — | | | — | | | 633 | | | — | | | — | | | — | | | 633 | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (10,628) | | | — | | | (10,628) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 1,970 | | | 1,970 | |
| March 31, 2023 | | 17,171,933 | | | $ | 1,244,507 | | | $ | 8,610 | | | $ | 11,516 | | | $ | (1,035,344) | | | $ | (33,348) | | | $ | 195,941 | |
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| | Common Shares Outstanding | | Share capital | | Other equity instruments | | Additional paid in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Total shareholders' equity |
| January 1, 2024 | | 17,174,502 | | | $ | 1,244,539 | | | $ | 9,672 | | | $ | 11,516 | | | $ | (1,074,434) | | | $ | (30,845) | | | $ | 160,448 | |
| Issuance of common shares on exercise of share units | | 48,652 | | | 869 | | | (869) | | | — | | | — | | | — | | | — | |
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| Stock-based compensation | | — | | | — | | | 331 | | | — | | | — | | | — | | | 331 | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (13,648) | | | — | | | (13,648) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (430) | | | (430) | |
| March 31, 2024 | | 17,223,154 | | | $ | 1,245,408 | | | $ | 9,134 | | | $ | 11,516 | | | $ | (1,088,082) | | | $ | (31,275) | | | $ | 146,701 | |
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See accompanying notes to condensed consolidated interim financial statements.
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| (Expressed in thousands of United States dollars) |
| Three months ended March 31, 2024 and 2023 |
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| | | | | | | Three months ended March 31, |
| | | | | | | | | 2024 | | 2023 |
| Operating activities: | | | | | | | | | | | |
| Net loss for the period | | | | | | | | | $ | (13,648) | | | $ | (10,628) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | |
| Depreciation and amortization | | | | | | | | | 3,247 | | | 3,027 | |
| Stock-based compensation expense | | | | | | | | | 331 | | | 633 | |
| Unrealized foreign exchange loss | | | | | | | | | 1,820 | | | 1,076 | |
| Deferred income tax | | | | | | | | | (40) | | | (148) | |
| Income from investments accounted for by the equity method | | | | | | | | | (31) | | | (129) | |
| Interest on long-term debt and accretion on royalty payable | | | | | | | | | 22 | | | 105 | |
| Change in inventory write-downs | | | | | | | | | 413 | | | 586 | |
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| Change in bad debt expense | | | | | | | | | (121) | | | 84 | |
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| Other | | | | | | | | | (248) | | | — | |
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| Changes in operating assets and liabilities: | | | | | | | | | | | |
| Accounts receivable | | | | | | | | | 12,526 | | | (1,041) | |
| Inventories | | | | | | | | | (7,434) | | | (591) | |
| Prepaid expenses | | | | | | | | | (400) | | | (1,684) | |
| Accounts payable and accrued liabilities | | | | | | | | | 4,725 | | | 763 | |
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| Warranty liability | | | | | | | | | (1,020) | | | (1,382) | |
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| Net cash provided by (used in) operating activities | | | | | | | | | 142 | | | (9,329) | |
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| Investing activities: | | | | | | | | | | | |
| Purchase of property, plant and equipment | | | | | | | | | (4,893) | | | (3,007) | |
| Proceeds on sale of assets | | | | | | | | | 135 | | | 98 | |
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| Net cash used in investing activities | | | | | | | | | (4,758) | | | (2,909) | |
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| Financing activities: | | | | | | | | | | | |
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| Repayments of operating lines of credit and long-term facilities | | | | | | | | | (17,689) | | | (10,994) | |
| Drawings on operating lines of credit and long-term facilities | | | | | | | | | 11,848 | | | 8,251 | |
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| Net cash used in financing activities | | | | | | | | | (5,841) | | | (2,743) | |
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| Effect of foreign exchange on cash and cash equivalents | | | | | | | | | (494) | | | 760 | |
| Net decrease in cash and cash equivalents | | | | | | | | | (10,951) | | | (14,221) | |
| Cash and cash equivalents, beginning of period (including restricted cash) | | | | | | | | | 54,853 | | | 86,184 | |
| Cash and cash equivalents, end of period (including restricted cash) | | | | | | | | | $ | 43,902 | | | $ | 71,963 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
| (Expressed in thousands of United States dollars) |
| Three months ended March 31, 2024 and 2023 |
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| | | | | | | Three months ended March 31, |
| | | | | | | | | 2024 | | 2023 |
| Supplementary information: | | | | | | | | | | | |
| Interest paid | | | | | | | | | $ | 1,114 | | | $ | 742 | |
| Taxes paid, net of refunds | | | | | | | | | $ | 532 | | | 506 | |
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See accompanying notes to condensed consolidated interim financial statements.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
1. Company organization and operations:
Westport Fuel Systems Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20, 1995. Westport Fuel Systems is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. The Company’s diverse product offerings sold under a wide range of established global brands enable the use of a number of alternative fuels in the transportation sector that provide environmental and/or economic advantages as compared to diesel, gasoline, batteries or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including liquid petroleum gas ("LPG"), compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. The Company supplies its products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to original equipment manufacturers (“OEMs”) and Tier 1 and Tier 2 OEM suppliers. The Company’s products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.
2. Liquidity and Going Concern:
In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
Management's evaluation has concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these condensed consolidated interim financial statements ("interim financial statements") are issued. These interim financial statements have therefore been prepared on the basis that the Company will continue as a going concern.
The assessment of the liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that the interim financial statements are issued. This includes judgments about the Company's future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, forecasted costs and capital expenditures, amongst others. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.
The Company continues to sustain operating losses and minimal cash flows from operating activities. As at March 31, 2024, the Company had cash and cash equivalents of $43,902 and operating losses of $12,473 during the three months ended March 31, 2024. Cash provided by operating activities were $142. The Company's short-term and long-term debt was $53,431, net of deferred financing fees, of which $23,076 was current. In 2023, the Company amended the minimum cash covenant under the term loan with Export Development Canada ("EDC") reducing the minimum cash requirement to $15,000. If the Company's cash and cash equivalents fall below the minimum cash requirement, the Company may be required to repay the outstanding amount of the term loan, which was $9,785 at March 31, 2024.
The Company is incurring inflationary pressure on production input costs from sourcing semiconductors, raw materials and parts, and increased labor costs that are impacting margins. The Company sources components globally and is exposed to price and inflation risk, which may affect the Company's liquidity.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
2. Liquidity and going concern (continued):
Management is closely monitoring its financial condition and is working on initiatives to reduce its working capital and increase profitability to improve its cash flow from operating activities. The Company's current financial projections expect meaningful collections of accounts receivable from key customers and a reduction in inventory levels across the Company's operations.
The ability to continue as a going concern beyond May 2025 will depend on the Company's ability to generate sufficient positive cash flows from all its operations, specifically through working capital improvement, profitable and sustainable growth, and the Company's ability to finance its long-term strategic objectives and operations, including the joint venture with Volvo Group. If, as a result of future events, the Company was to determine it was no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying unaudited condensed consolidated financial statements and the adjustments could be material.
3. Basis of preparation:
(a) Basis of presentation:
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and do not include all of the information and disclosures required by accounting principles generally accepted in the United States ("GAAP"). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2023.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
(b) Foreign currency translation:
The Company’s functional currency is the Canadian dollar and its reporting currency for its interim financial statement presentation is the United States dollar ("U.S. Dollar"). The functional currencies for the Company's subsidiaries include the following: U.S. dollar, Canadian dollar, Euro, Argentina Peso, Chinese Renminbi (“RMB”), Swedish Krona, Indian Rupee and Polish Zloty. The Company translates assets and liabilities of non-U.S. dollar functional currency operations using the period end exchange rates, shareholders’ equity balances using the weighted average of historical exchange rates, and revenues and expenses using the monthly average rate for the period with the resulting exchange differences recognized in other comprehensive income (loss).
Transactions that are denominated in currencies other than the functional currencies of the Company’s or its subsidiaries' operations are translated at the rates in effect on the date of the transaction. Foreign currency denominated monetary assets and
liabilities are translated to the applicable functional currency at the exchange rates in effect on the balance sheet date. Non-monetary assets and liabilities are translated at the historical exchange rate. All foreign exchange gains and losses are recognized in the condensed consolidated interim statements of operations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through other comprehensive income (loss) until realized through disposal or impairment.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
3. Basis of preparation (continued):
Except as otherwise noted, all amounts in these interim financial statements are presented in thousands of U.S. dollars. For the periods presented, the Company used the following exchange rates:
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| | | | Period ended | | Average for the three months ended | |
| | | | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | March 31, 2023 | | | |
| Canadian Dollar | | | 1.36 | | | 1.32 | | | 1.35 | | | 1.35 | | | | |
| Euro | | | 0.93 | | | 0.90 | | | 0.92 | | | 0.93 | | | | |
| RMB | | | 7.23 | | | 7.10 | | | 7.20 | | | 6.84 | | | | |
| Polish Zloty | | | 3.97 | | | 3.92 | | | 3.96 | | | 4.39 | | | | |
| Swedish Krona | | | 10.69 | | | 10.04 | | | 10.40 | | | 10.44 | | | | |
| | | | | | | | | | | | |
| Indian Rupee | | | 83.38 | | | 83.18 | | | 83.02 | | | 82.21 | | | | |
| Argentina Peso | | | 857.61 | | | 806.72 | | | 850.08 | | | 191.65 | | | | |
4. Recently issued accounting standards:
Recently issued accounting guidance, not yet adopted:
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," to enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented in the financial statements. The Company is currently assessing the impacts of this ASU but expects it to only impact disclosures with no impact to its operations, cash flows or financial position.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures" to enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, under the amendment entities are required to disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impacts of this ASU but expects it to only impact disclosures with no impact to its operations, cash flows or financial position.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
5. Accounts receivable:
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| Customer trade receivables | | $ | 70,186 | | | $ | 83,175 | |
| Holdback receivable | | 10,455 | | | — | |
| Other receivables | | 6,387 | | | 6,709 | |
| Income tax receivable | | 2,489 | | | 1,369 | |
| Due from related parties (note 17) | | 2,543 | | | 1,671 | |
| Allowance for credit losses | | (4,431) | | | (4,847) | |
| | | $ | 87,629 | | | $ | 88,077 | |
In 2022, a holdback receivable was recorded as part of the sale of the Company's interest in Cummins Westport Inc. to Cummins Inc. ("Cummins"). The holdback will be retained by Cummins for a term of three years to satisfy any extended warranty obligations in excess of the recorded extended warranty obligation. Any unused amounts will be repaid to the Company at the end of three-year term and, in the event that the holdback is not sufficient to cover the extended warranty obligations, the Company may also be required to supplement this holdback amount to cover valid extended warranty claims. As at March 31, 2024, the Company estimates to receive the full amount from Cummins based on the historical warranty claims.
6. Inventories:
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| Purchased parts and materials | | $ | 38,554 | | | $ | 50,770 | |
| Work-in-progress | | 3,042 | | | 2,801 | |
| Finished goods | | 16,464 | | | 13,959 | |
| | | | |
| | | $ | 58,060 | | | $ | 67,530 | |
During the three months ended March 31, 2024, the Company recorded change in write-downs to net realizable value of approximately $413 (2023 - $586).
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Notes to Condensed Consolidated Interim Financial Statements (unaudited) |
| (Expressed in thousands of United States dollars except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
|
7. Assets and liabilities held for sale:
On March 11, 2024, the Company entered into agreements to establish a joint venture ("JV") with Volvo Group ("Volvo"). As part of the formation of the JV, the Company will contribute certain HPDI™ assets and liabilities, including related fixed assets, intellectual property, and net working capital. Volvo will acquire a 45% interest in the JV for an initial consideration of $28,350. The JV will be jointly controlled by both parties. Upon closing of the JV with Volvo, the HPDI business will be operated through the joint venture.
The Company's assessment is that, subsequent to the deconsolidation of the HPDI business, its interest in the JV will be accounted for using the equity method. Under this accounting method, the Company's initial investment in the JV will be recognized at fair value of the Company's non-controlling interests. Subsequently, this cost basis will be adjusted for the Company's share of the JV's net income or loss and other comprehensive income, net of any dividends or distributions received from the JV.
As at March 31, 2024, the Company has measured the assets and liabilities recorded as held for sale at the lower of carrying value and fair market value less costs to sell, which management has determined to be carrying value. The carrying values of the major classes of assets and liabilities that the Company will contribute to the JV are as follows:
| | | | | | | | | | |
| | March 31, 2024 | | |
| Current assets: | | | | |
| Inventory | | $ | 14,862 | | | |
| Prepaid expenses | | 888 | | | |
| | | | |
| | 15,750 | | | |
| | | | |
| Property, plant and equipment | | 32,718 | | | |
| | | | |
| | | | |
| Total assets | | $ | 48,468 | | | |
| | | | |
| Current liabilities: | | | | |
| | | | |
| Accounts payable and accrued liabilities | | 1,897 | | | |
| Current portion of warranty liability | | 1,854 | | | |
| | 3,751 | | | |
| | | | |
| Warranty liability | | 327 | | | |
| | | | |
| | | | |
| | | | |
| Total liabilities | | $ | 4,078 | | | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
8. Long-term investments:
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| Weichai Westport Inc. | | 1,411 | | | 1,411 | |
| Minda Westport Technologies Limited | | 3,485 | | | 3,234 | |
| Other equity-accounted investees | | 147 | | | 147 | |
| | | $ | 5,043 | | | $ | 4,792 | |
| | | | |
9. Property, plant and equipment:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net Book |
| March 31, 2024 | | Cost | | Depreciation | | Value |
| Land and buildings | | $ | 9,158 | | | $ | 2,746 | | | $ | 6,412 | |
| Computer equipment and software | | 8,570 | | | 6,266 | | | 2,304 | |
| Furniture and fixtures | | 5,695 | | | 3,539 | | | 2,156 | |
| Machinery and equipment | | 59,184 | | | 36,024 | | | 23,160 | |
| Leasehold improvements | | 12,711 | | | 9,635 | | | 3,076 | |
| | | $ | 95,318 | | | $ | 58,210 | | | $ | 37,108 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net Book |
| December 31, 2023 | | Cost | | Depreciation | | Value |
| Land and buildings | | $ | 9,206 | | | $ | 2,635 | | | $ | 6,571 | |
| Computer equipment and software | | 9,386 | | | 6,773 | | | 2,613 | |
| Furniture and fixtures | | 8,326 | | | 6,103 | | | 2,223 | |
| Machinery and equipment | | 129,642 | | | 75,111 | | | 54,531 | |
| Leasehold improvements | | 13,221 | | | 9,670 | | | 3,551 | |
| | | $ | 169,781 | | | $ | 100,292 | | | $ | 69,489 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
10. Intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Intangible |
| March 31, 2024 | | Cost | | Amortization | | Assets, net |
| Patents and trademarks | | $ | 19,943 | | | $ | 13,668 | | | $ | 6,275 | |
| Technology | | 3,997 | | | 3,893 | | | 104 | |
| Customer contracts | | 11,372 | | | 11,372 | | | — | |
| | | | | | |
| | $ | 35,312 | | | $ | 28,933 | | | $ | 6,379 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Intangible |
| December 31, 2023 | | Cost | | Amortization | | Assets, net |
| Patents and trademarks | | $ | 20,417 | | | $ | 13,724 | | | $ | 6,693 | |
| Technology | | 4,094 | | | 3,965 | | | 129 | |
| Customer contracts | | 11,646 | | | 11,646 | | | — | |
| | $ | 36,157 | | | $ | 29,335 | | | $ | 6,822 | |
| | | | | | |
11. Accounts payable and accrued liabilities:
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| Trade accounts payable | | $ | 73,517 | | | $ | 70,567 | |
| Accrued payroll | | 17,970 | | | 18,129 | |
| Taxes payable | | 4,900 | | | 4,302 | |
| Deferred revenue | | 2,651 | | | 2,376 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | $ | 99,038 | | | $ | 95,374 | |
12. Operating leases right-of-use assets and lease liabilities:
The Company has entered into various non-cancellable operating lease agreements primarily for its manufacturing facilities and offices. The Company's leases have lease terms expiring between 2025 and 2038. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The average remaining lease term is approximately six years and the present value of the outstanding operating lease liability was determined applying a weighted average discount rate of 3.0% based on incremental borrowing rates applicable in each location.
The components of lease cost are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three months ended March 31, |
| | | | | | | | | 2024 | | 2023 |
| | | | | | | | | | | |
| Amortization of right-of-use assets | | | | | | | | | $ | 676 | | | $ | 832 | |
| Interest | | | | | | | | | 156 | | | 183 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total lease cost | | | | | | | | | $ | 832 | | | $ | 1,015 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
12. Operating leases right-of-use assets and lease liabilities (continued):
The maturities of lease liabilities as at March 31, 2024 are as follows:
| | | | | | | | |
| | |
| The remainder of 2024 | | $ | 2,532 | |
| 2025 | | 2,762 | |
| 2026 | | 2,523 | |
| 2027 | | 2,453 | |
| 2028 | | 2,188 | |
| Thereafter | | 12,140 | |
| Total undiscounted cash flows | | 24,598 | |
| Less: imputed interest | | 3,094 | |
| Present value of operating lease liabilities | | 21,504 | |
| Less: current portion | | 2,590 | |
| Long-term operating lease liabilities | | $ | 18,914 | |
13. Short-term debt:
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | | | |
| Revolving financing facilities | | $ | 8,614 | | | $ | 15,156 | |
| | | | |
| | | | |
The Company has a revolving financing facility with HSBC Bank Canada. On March 28, 2024, HSBC Bank Canada and its subsidiaries were sold to Royal Bank of Canada ("RBC"). The terms and conditions of the revolving financing facility did not change as a result of the sale. This facility is secured by certain receivables of the Company and the maximum draw amount is $20,000, based on the receivables outstanding. As the Company collects these secured receivables, the facility is repaid. The revolving financing facility's advances in either U.S. dollars or Euros bear interest at the secured overnight financing rate plus 3.76% per annum or the Euro short-term rate plus 3.6%, respectively. As at March 31, 2024, the amount outstanding for this loan was $8,614 (December 31, 2023 - $15,156).
The Company has a revolving financing facility with ING. The maximum draw amount is $1,511. Advances under this financing facility are denominated in Polish Zloty and bear interest at the Warsaw interbank offered rate plus 1.2% per annum. As of March 31, 2024, the amount outstanding for this facility was nil (December 31, 2023 - nil).
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
14. Long-term debt:
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Term loan facilities, net of debt issuance costs | | $ | 42,960 | | | $ | 42,879 | |
| | | | |
| | | | |
| Other bank financing | | 520 | | | 531 | |
| Capital lease obligations | | 1,337 | | | 1,655 | |
| Balance, end of period | | 44,817 | | | 45,065 | |
| Less: current portion | | 14,462 | | | 14,108 | |
| Long-term portion | | $ | 30,355 | | | $ | 30,957 | |
| | | | | | | | | | | | | | | | | |
| Term loan | Maturity date | Interest rate | March 31, 2024 | | December 31, 2023 |
| EDC | September 15, 2026 | U.S. Prime Rate plus 2.01% | $ | 9,785 | | | $ | 10,763 | |
| UniCredit - April 2021 | March 31, 2027 | 3-month Euribor plus 1.65% | 6,144 | | | 6,793 | |
| UniCredit - May 2020 | May 31, 2025 | 3-month Euribor plus 1.60% | 1,381 | | | 1,693 | |
| UniCredit - July 2020 | July 31, 2026 | 3-month Euribor plus 1.75% | 7,369 | | | 8,313 | |
| Deutsche Bank - August 2020 | August 31, 2026 | 3-month Euribor plus 1.70% | 3,410 | | | 3,867 | |
| Banca de Credito Cooperativo - November 2023 | December 31, 2028 | 3-month Euribor plus 1.75% | 2,139 | | | 2,192 | |
| Deutsche Bank - November 2023 | September 30, 2029 | 3-month Euribor plus 1.90% | 7,518 | | | 7,710 | |
| Rabobank - December 2023 | December 31, 2028 | 4.70% | 1,435 | | | 1,548 | |
| UniCredit - January 2024 | December 31, 2028 | 3-month Euribor plus 1.52% | 3,779 | | | — | |
| Term loan facilities, net of debt issuance costs | | $ | 42,960 | | | $ | 42,879 | |
On December 13, 2021, the credit facility and non-revolving term facility with EDC were refinanced into one $20,000 term loan, with quarterly principal and interest payments. The loan is secured by share pledges over Westport Fuel Systems Canada Inc., Fuel Systems Solutions, Inc., Westport Luxembourg S.a.r.l and by certain of the Company's property, plant and equipment.
On October 9, 2018 and November 28, 2019, the Company entered into two Euro denominated loan agreements with UniCredit S.p.A. (“UniCredit”). On April 29, 2021, the Company and UniCredit amended the terms of these Euro denominated loan agreements to combine the facilities into one $8,803 loan facility, with quarterly principal and interest payments.
On May 20, 2020 and July 17, 2020, the Company entered into two Euro denominated loan agreements with UniCredit. There are no securities provided on the loans, as the loans were made as part of the Italian government's COVID-19 Decreto Liquidità.
On August 11, 2020, the Company entered into a Euro denominated loan agreement with Deutsche Bank. There is no security provided on the loan, as the loan was made as part of the Italian government’s COVID-19 Decreto Liquidità.
On November 28, 2023, the Company entered into a Euro denominated loan agreement with Banca de Credito Cooperativo with quarterly principal and interest payments. There is no security provided on the loan, as the loan was made as part of the Italian government's guarantee program administered by the Servizi Assicurativi del Commercio Estero ("SACE").
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
14. Long-term debt (continued):
On November 29, 2023, the Company entered into a Euro denominated loan agreement with Deutsche Bank with quarterly principal and interest payments. There is no security provided on the loan, as the loan was made as part of the Italian government's SACE guarantee program.
On December 4, 2023, the Company entered into a Euro denominated loan agreement with Rabobank and principal and interest are paid monthly. The loan is secured by certain property owned by the Company.
On January 10, 2024, the Company entered into a Euro denominated loan agreement with UniCredit with quarterly principal and interest payments and the first payment is due in 2025. There is no security provided on the loan, as the loan was made as part of the Italian government's SACE guarantee program.
The Company has entered into interest rate swaps with Unicredit and Deutsche Bank, which are directly associated with the Unicredit (2020 and 2021), Deutsche Bank (2020), Deutsche Bank (2023) and UniCredit (2024) term loans. These interest rate swaps serve as a hedging mechanism against potential fluctuations in future interest rates, ensuring stability in loan repayments. As of March 31, 2024, the Unicredit interest rate swaps have maturity dates ranging from 2025 to 2028 and a total notional value of $18,357. Additionally, the Deutsche Bank interest rate swaps have a maturity dates ranging from 2026 and 2029, with a notional value of $10,861. The notional value of these interest rate swaps is adjusted concurrently with scheduled principal payments on the corresponding loans. These interest rate swaps have been designated as cash flow hedges and have been structured to be highly effective. As of March 31, 2024, the fair value of the interest rate swaps amounted to $740, which is included in other long-term assets (December 31, 2023 - $822).
Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-financial covenants. As of March 31, 2024, the Company is in compliance with all covenants under the financing arrangements.
The principal repayment schedule of long-term debt is as follows as at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term loan facilities | | | | | | Other bank financing | | Capital lease obligations | | Total |
| Remainder of 2024 | | $ | 10,237 | | | | | | | $ | 130 | | | $ | 399 | | | $ | 10,766 | |
| 2025 | | 14,350 | | | | | | | 130 | | | 380 | | | 14,860 | |
| 2026 | | 10,518 | | | | | | | 130 | | | 191 | | | 10,839 | |
| 2027 | | 3,688 | | | | | | | 130 | | | 180 | | | 3,998 | |
| 2028 and thereafter | | 4,167 | | | | | | | — | | | 187 | | | 4,354 | |
| | $ | 42,960 | | | | | | | $ | 520 | | | $ | 1,337 | | | $ | 44,817 | |
15. Warranty liability:
A continuity of the warranty liability is as follows:
| | | | | | | | | | | | | | |
| | | March 31, 2024 | | December 31, 2023 |
| | | | |
| Balance, beginning of period | | $ | 8,506 | | | $ | 14,299 | |
| Warranty claims | | (809) | | | (6,826) | |
| Warranty accruals | | 826 | | | 5,152 | |
| Change in estimate | | (363) | | | (2,204) | |
| Impact of foreign exchange changes | | (260) | | | (1,915) | |
| Transfer to liabilities held for sale | | (2,181) | | | — | |
| Balance, end of period | | 5,719 | | | 8,506 | |
| Less: current portion | | 4,434 | | | 6,892 | |
| Long-term portion | | $ | 1,285 | | | $ | 1,614 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
16. Share capital, stock options and other stock-based plans:
During the three months ended March 31, 2024, the Company issued 48,652 common shares, net of cancellations, upon exercises of share units (three months ended March 31, 2023 - 41,617 common shares). The Company issues shares from treasury to satisfy share unit exercises.
(a) Share Units (“Units”):
The value assigned to issued Units and the amounts accrued are recorded as other equity instruments. As Units are exercised or vest and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital.
During the three months ended March 31, 2024, the Company recognized $409 (three months ended March 31, 2023 - $700) of stock-based compensation associated with the Westport Omnibus Plan. The Westport Omnibus Plan aims to advance the Company's interests by encouraging employees, consultants and non-employee directors to receive equity-based compensation and incentives. The plan outlines the stock-based options types, eligibility and vesting terms.
A continuity of the Units issued under the Westport Omnibus Plan are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, 2024 | | Three months ended March 31, 2023 |
| | | Number of
Units | | Weighted
average
grant
date fair
value
(CDN $) | | Number of
Units | | Weighted
average
grant
date fair
value
(CDN $) |
| Outstanding, beginning of period | | 478,643 | | | $ | 15.68 | | | 317,432 | | | $ | 24.10 | |
| Granted | | 50,000 | | | 9.31 | | | 289,518 | | | 15.70 | |
| Vested and exercised | | (48,652) | | | 24.08 | | | (41,617) | | | 40.60 | |
| Forfeited/expired | | (38,406) | | | 26.07 | | | (22,283) | | | 23.80 | |
| Outstanding, end of period | | 441,585 | | | $ | 13.56 | | | 543,050 | | | $ | 18.40 | |
| Units outstanding and exercisable, end of period | | 17,915 | | | $ | 9.92 | | | — | | | $ | — | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
16. Share capital, stock options and other stock-based plans (continued):
During the three months ended March 31, 2024, 50,000 share units were granted to certain employees and directors (three months ended March 31, 2023 - 289,518). This included 50,000 Restricted Share Units (“RSUs”) (three months ended March 31, 2023 - 139,255), nil Performance Share Units (“PSUs”) (three months ended March 31, 2023 - 150,263), and nil Deferred Share Units ("DSUs") (three months ended March 31, 2023 - nil).
Values of PSUs are determined using the Monte–Carlo Simulation Model. RSUs typically vest over a three-year period so the actual value received by the individual depends on the share price on the day such RSUs are settled for common shares, not the date of grant. Vesting of DSUs shall occur immediately prior to the resignation, retirement or termination of directorship, in accordance with the terms of Westport's Omnibus Plan.
As at March 31, 2024, $1,525 of compensation expense related to Units awarded has yet to be recognized in results from operations and will be recognized ratably over 2 years.
(b) Aggregate intrinsic values:
The aggregate intrinsic value of the Company’s share units at March 31, 2024 as follows:
| | | | | | | | | |
| | | March 31, 2024 | |
| | (CDN $) | |
| Share units: | | | |
| Outstanding | | $ | 3,817 | | |
| Exercisable | | — | | |
| Exercised | | 435 | | |
(c) Stock-based compensation:
Stock-based compensation associated with the Unit plans is included in operating expenses as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended March 31, |
| | | | | | | | | | 2024 | | 2023 |
| Cost of revenue | | | | | | | | | $ | 41 | | | $ | 55 | |
| Research and development | | | | | | | | | 110 | | | 119 | |
| General and administrative | | | | | | | | | 199 | | | 416 | |
| Sales and marketing | | | | | | | | | 59 | | | 110 | |
| | | | | | | | | | $ | 409 | | | $ | 700 | |
Of the stock-based compensation expense recognized in the three months ended March 31, 2024, $331 was settled in shares and $78 was settled in cash (three months ended March 31, 2023 - $633 and $67, respectively).
17. Related party transactions:
The Company's related parties are Minda Westport Technologies Limited, directors, officers and shareholders that own greater than 10% of the Company's shares.
The Company engages in transactions with Minda Westport Technologies Limited and recorded $2,543 of accounts receivable as at March 31, 2024 (December 31, 2023 - $1,671). During the three months ended March 31, 2024, the Company sold inventory to Minda Westport Technologies Limited for $2,081 (three months ended March 31, 2023 - $1,403).
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
18. Commitments and contingencies:
(a) Contractual commitments
The Company is a party to a variety of agreements in the ordinary course of business under which it is obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’s product to customers where the Company provides indemnification against losses arising from matters such as product liabilities. The potential impact on the Company’s financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred significant costs related to these types of indemnifications.
(b) Contingencies
The Company is engaged in certain legal actions and tax audits in the ordinary course of business and believes that, based on the information currently available, the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
19. Segment information:
The Company manages and reports the results of its business through three segments: OEM, Independent Aftermarket (“IAM”), and Corporate. This reflects the manner in which operating decisions and assessing business performance is currently managed by the Chief Operating Decision Maker (“CODM”).
Financial information by business segment as follows:
| | | | | | | | | | | | | | | |
| Three months ended March 31, 2024 | |
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | |
| OEM | $ | 49,333 | | $ | (8,277) | | $ | 2,471 | | $ | 31 | | |
| IAM | 28,241 | | 1,987 | | 577 | | — | | |
| Corporate | — | | (6,183) | | 199 | | — | | |
| | | | | |
| | | | | |
| | | | | |
| Total Consolidated | $ | 77,574 | | $ | (12,473) | | $ | 3,247 | | $ | 31 | | |
| | | | | |
| | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 | |
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | |
| OEM | $ | 56,345 | | $ | (6,005) | | $ | 2,262 | | $ | 129 | | |
| IAM | 25,895 | | (35) | | 638 | | — | | |
| Corporate | — | | (3,392) | | 127 | | — | | |
| Total Consolidated | $ | 82,240 | | $ | (9,432) | | $ | 3,027 | | $ | 129 | | |
| | | | | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
19. Segment information (continued):
Revenues are attributable to geographical regions based on the location of the Company’s customers and are presented as a percentage of the Company's revenues, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | % of total revenue |
| | | | | | | Three months ended March 31, |
| | | | | | | | | | 2024 | | 2023 |
| Europe | | | | | | | | | 67 | % | | 70 | % |
| Asia | | | | | | | | | 11 | % | | 12 | % |
| Americas | | | | | | | | | 13 | % | | 11 | % |
| Africa | | | | | | | | | 4 | % | | 4 | % |
| Other | | | | | | | | | 5 | % | | 3 | % |
Total assets are allocated as follows:
| | | | | | | | | | | | |
| | Total assets by operating segment |
| | March 31, 2024 | | December 31, 2023 |
| OEM | | $ | 183,349 | | | $ | 201,348 | |
| IAM | | 147,415 | | | 145,640 | |
| Corporate | | 8,003 | | | 8,760 | |
| Total consolidated assets | | $ | 338,767 | | | $ | 355,748 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
20. Financial instruments:
Financial management risk
The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company has a history of losses and negative cash flows from operations since inception. At March 31, 2024, the Company has $43,902 of cash and cash equivalents, including $105 in restricted cash.
The following are the contractual maturities of financial obligations as at March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
amount | | Contractual
cash flows | | < 1 year | | 1-3 years | | 4-5 years | | >5 years |
| Accounts payable and accrued liabilities | | $ | 99,038 | | | $ | 99,038 | | | $ | 99,038 | | | $ | — | | | $ | — | | | $ | — | |
| Short-term debt (note 13) | | 8,614 | | | 8,614 | | | 8,614 | | | — | | | — | | | — | |
| Term loan facilities (note 14) | | 42,960 | | | 47,550 | | | 15,659 | | | 24,745 | | | 6,361 | | | 785 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other bank financing (note 14) | | 520 | | | 525 | | | 135 | | | 130 | | | 130 | | | 130 | |
| | | | | | | | | | | | |
| Capital lease obligations (note 14) | | 1,337 | | | 1,352 | | | 509 | | | 522 | | | 167 | | | 154 | |
| Operating lease obligations (note 12) | | 21,504 | | | 24,598 | | | 2,532 | | | 5,285 | | | 4,641 | | | 12,140 | |
| | | $ | 173,973 | | | $ | 181,677 | | | $ | 126,487 | | | $ | 30,682 | | | $ | 11,299 | | | $ | 13,209 | |
Fair value of financial instruments
As at March 31, 2024, cash and cash equivalents are measured at fair value on a recurring basis and are included in Level 1.
The carrying amounts reported in the unaudited condensed consolidated interim balance sheets for accounts receivable, and accounts payable and accrued liabilities approximate their fair values due to the short-term period to maturity of these instruments.
The long-term investments represent the Company's interests in Minda Westport Technologies Limited, Weichai Westport Inc. and other investments. Minda Westport Technologies Limited is the most significant of the investments and is accounted for using the equity method. WWI and other investments are accounted for at fair value.
The carrying values reported in the condensed consolidated interim balance sheets for obligations under capital and operating leases, which are based upon discounted cash flows, approximate their fair values.
The carrying values of the term loan facilities, and other bank financing included in the long-term debt (note 14) are carried at amortized cost, which approximate their respective fair values as at March 31, 2024. The interest rate swaps (note 14) are accounted for at fair value using quoted market prices.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
| Three months ended March 31, 2024 and 2023 |
20. Financial Instruments (continued):
The Company categorizes its fair value measurements for items measured at fair value on a recurring basis into three categories as follows:
| | | | | | | | |
| | Level 1 – | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| | | |
| | Level 2 – | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| | | |
| | Level 3 – | Inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
When available, the Company uses quoted market prices to determine fair value and classify such items in Level 1. When necessary, Level 2 valuations are performed based on quoted market prices for similar instruments in active markets and/or model–derived valuations with inputs that are observable in active markets. Level 3 valuations are undertaken in the absence of reliable Level 1 or Level 2 information.
21. Subsequent Event:
On April 18 2024, the Company closed the share purchase agreement with Uno Minda Limited ("Minda") and sold 26% of Minda Westport Technologies Limited's share capital to Minda for cash consideration of $1,776, net of withholding taxes.
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