~ Executing on Key Deliverables;
Taking Immediate Action on Portfolio Decisions ~
VANCOUVER, Nov. 9, 2016
/PRNewswire/ - Westport Fuel Systems Inc. ("Westport Fuel
Systems") (TSX:WPT / Nasdaq:WPRT) reported financial results
for the third quarter ended September 30,
2016 and provided an update on operations. All figures are
in U.S. dollars unless otherwise stated.
KEY DELIVERABLES IN 2016
1. Merger &
Integration:
Total annual savings and synergies are being
realized through a combination of restructuring and reductions in
manufacturing costs and operating expenses with full synergies on
track to be achieved by 2018.
2. Rationalize
Portfolio:
The management team is currently assessing each
business line against the company's core strengths and
capabilities; and evaluating its competitive and potential market
positioning. Based on initial evaluation, certain divestiture
decisions have been made and the full portfolio evaluation is
moving forward.
3. Drive Efficiencies
and Cost Discipline:
The most significant actions taken this
quarter include:
- Consolidated and closed facilities, as well as reduced future
commitments in several locations including Argentina, China, and North
America that would result in annual savings of approximately
$4.3 million per year.
- Completed the transition to one public company that would
result in annual savings of approximately $4.4 million per year.
- Restructured the corporate and technology segment in
Vancouver that would result in
annual savings of approximately $2.5
million per year.
- Streamlined the supply chain organization and began
implementing a standardized lean inventory control process
globally.
- The post merger integration task force continues to review the
business and operations to determine other synergies and
efficiencies. Additionally, this task force is capturing and
consolidating restructuring actions of Westport and Fuel Systems that were underway
at the time of the merger. Approximately $16.0 million in annual savings have been
achieved to date.
4. Strengthen Balance
Sheet:
The company has engaged advisors to address debt
financing alternatives, including the extension or refinancing of
debt coming due in 2017. Furthermore, the company expects the
sale of non-core assets to provide additional cash to the balance
sheet. With a focus on inventory management, the company also
expects to improve its working capital position and associated cash
needs.
5. Advance
Commercialization of Westport High Pressure Direct Injection
2.0 ("Westport™ HPDI 2.0"):
The Westport™ HPDI
2.0 program remains on schedule and on budget for commercial
release of components to its launch original equipment manufacturer
("OEM") partner in 2017. The program has been
successfully meeting milestones and performance gates. The
company continues to have discussions with multiple OEMs interested
in pursuing Westport™ HPDI technology. Furthermore, a
Westport™ HPDI 2.0 engine can offer an entirely renewable
non-fossil fuel solution for the heavy-duty transportation
sector.
CASH AND WORKING CAPITAL MANAGEMENT
- As of September 30, 2016, the
company's cash, cash equivalents, and short-term investments
totaled $58.7 million. Cash used in
operations, excluding changes in working capital, plus dividends
received from joint ventures for the third quarter of 2016 was
$28.3 million, a sequential reduction
of 62.3% or $10.9 million from the
quarter ended June 30, 2016.
- Gross proceeds in connection with the sale of an 11.7% interest
in Weichai Westport Inc. were approximately $10.9 million, which included a dividend of
$3.6 million. A final cash payment of
$3.6 million was received subsequent
to the quarter.
- The company completed the sale of assets in Plymouth, Michigan and Union City, Indiana for a total of over
$12.5 million.
- As of September 30, 2016,
inventories were $87.6 million, a
reduction of $10.5 million or 10.7%
from $98.1 million as of June 30, 2016. This was primarily due to the
implementation of proven lean principles, along with an enterprise
resource planning system that better align sales, production, and
inventory management.
"We have sold non-core assets and improved our working capital
position through inventory reduction efforts this quarter," stated
Ashoka Achuthan, Chief Financial
Officer of Westport Fuel Systems. "To strengthen our
liquidity position, divestiture decisions have been made and we are
continuing to align costs with revenue. We have engaged
advisors to address debt financing alternatives so that we can
continue pursuing our longer term strategies for growth and
technical leadership," said Achuthan.
"I am delighted to watch our teams around world come together
and collaborate throughout our first quarter as a combined group,"
said Nancy Gougarty, CEO of Westport
Fuel Systems. "I continue to be impressed by the mix of
talents, values, and cultures as a unified group, across all levels
of the combined company. We are making progress on all 2016
key deliverables and we will continue to implement additional
operational efficiencies, merger integration synergies, and working
capital reductions. We have also implemented standardized
supply chain and working capital processes that are already showing
benefits which we expect will grow into 2017. Our portfolio review
is moving forward and we are pleased with the strong interest from
third parties for some of our non-core businesses. We will continue
to work with urgency and take actions that will strengthen the
balance sheet, but also result in a more focused and targeted
company that can drive long-term profitability," said Gougarty.
Q3 2016 FINANCIAL HIGHLIGHTS
These financial highlights provide an analysis of the former
Westport Innovations Inc. ("Westport") and former Fuel Systems
Solutions, Inc. ("Fuel Systems") for comparative
purposes.
|
THIRD QUARTER 2016
FINANCIAL HIGHLIGHTS
|
($ in millions,
except per share amounts)
|
Three Months
Ended
September 30
|
Change
Better /
(Worse)
|
Nine Months
Ended
September 30
|
Change
Better /
(Worse)
|
Note: Nine month
amounts include four months of Fuel Systems' results
|
2016
|
2015
|
2016
|
2015
|
Consolidated
Revenues
|
$
|
76.1
|
$
|
22.3
|
N/A
|
$
|
144.5
|
$
|
78.2
|
N/A
|
Westport
Revenues
|
$
|
24.1
|
$
|
22.3
|
8.1%
|
$
|
71.7
|
$
|
78.2
|
(8.3)%
|
Fuel Systems
Revenues
|
$
|
52.0
|
—
|
N/A
|
$
|
72.8
|
—
|
N/A
|
|
|
|
|
|
|
|
Consolidated Gross
Margin
|
$
|
13.3
|
$
|
0.8
|
N/A
|
$
|
29.7
|
$
|
15.0
|
N/A
|
Consolidated Gross
Margin %
|
17.5%
|
3.6%
|
N/A
|
20.6%
|
19.2%
|
N/A
|
Westport Gross
Margin
|
$
|
2.9
|
$
|
0.8
|
262.5%
|
$
|
14.3
|
$
|
15.0
|
(4.7)%
|
Westport Gross Margin
%
|
12.0%
|
3.6%
|
N/A
|
19.9%
|
19.2%
|
N/A
|
Fuel Systems Gross
Margin
|
$
|
10.4
|
—
|
N/A
|
$
|
15.4
|
—
|
N/A
|
Fuel Systems Gross
Margin %
|
20.0%
|
—
|
N/A
|
21.2%
|
—
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Operating Expenses
|
$
|
35.1
|
$
|
26.7
|
N/A
|
$
|
94.8
|
$
|
78.7
|
N/A
|
Westport Operating
Expenses (Research and
Development, General and Administrative and Sales
and Marketing)
|
24.4
|
26.7
|
8.6%
|
78.9
|
78.7
|
(0.3)%
|
Fuel Systems
Operating Expenses
|
10.7
|
—
|
N/A
|
15.9
|
—
|
N/A
|
|
|
|
|
|
|
|
Income from
Unconsolidated Joint Ventures
|
$
|
2.6
|
$
|
3.6
|
(27.8)%
|
$
|
6.0
|
$
|
13.4
|
(55.2)%
|
Net loss
|
(33.3)
|
(37.4)
|
N/A
|
(52.8)
|
(75.1)
|
N/A
|
Basic Net Income
(Loss) per Share
|
(0.30)
|
(0.58)
|
N/A
|
(0.62)
|
(1.17)
|
N/A
|
|
|
|
|
|
|
|
Cash and Short-term
Investments Balance
|
$
|
58.7
|
$
|
42.1
|
39.4%
|
$
|
58.7
|
$
|
42.1
|
39.4%
|
- Consolidated revenues for the quarter ended September 30, 2016 were $76.1 million compared with $22.3 million for the same period last year,
mainly due to the addition of Fuel Systems' revenue as a result of
the merger. Westport revenue for
the quarter ended September 30, 2016
increased by $1.8 million or 8.1%,
mainly due to the completion of a significant milestone within the
company's Westport™ HPDI programs, resulting in $2.0 million of revenue for the quarter.
- Consolidated gross margin for the quarter ended September 30, 2016 was $13.3 million or 17.5% of revenue, compared with
$0.8 million or 3.6% of revenue for
the same period last year. The increase in Westport gross margin percentage was mainly
due to lower inventory obsolescence charges as compared to the same
period last year and the impact of the milestone payment mentioned
above. Fuel Systems' gross margin percentage for the quarter and
nine months ended September 30, 2016
included amortization of the inventory fair value adjustment
recorded on acquisition. Excluding this adjustment, Fuel Systems'
gross margin percentage for the quarter and nine months ended
September 30, 2016 would have been
19.8% and 21.7%, respectively.
- Consolidated operating expenses were $35.1 million for the quarter ended September 30, 2016, an increase of $8.4 million from $26.7
million in the same period last year primarily driven by the
addition of Fuel Systems' expenses as a result of the merger.
Westport operating expenses
decreased by $2.3 million or 8.6%
primarily related to research & development rationalization,
headcount reductions and facilities closures.
- Net loss for the quarter ended September
30, 2016 was $33.3 million or
a loss of $0.30 per share, compared
with a loss of $37.4 million or a
loss of $0.58 per share in the same
period last year. Excluding $17.5
million in restructuring charges related to facilities
closures and severance costs, Westport Fuel Systems net loss for
the quarter ended September 30, 2016
would have been $15.8 million. This
is compared with the net loss of $37.4
million for the quarter ended September 30, 2015, which included a goodwill
impairment charge of $18.7 million
related to operations in Italy.
Excluding the goodwill impairment charge, the net loss for the
quarter ended September 30, 2015
would have been $18.7 million.
CUMMINS WESTPORT INC.
HIGHLIGHTS
|
CUMMINS WESTPORT
HIGHLIGHTS
|
|
Three Months
Ended
September 30
|
Change
Better /
(Worse)
|
Nine Months
Ended
September 30
|
Change
Better /
(Worse)
|
($ in millions,
except unit amounts)
|
2016
|
2015
|
2016
|
2015
|
Units
|
1,643
|
2,343
|
(29.9)%
|
5,351
|
7,568
|
(29.3)%
|
Revenue
|
$
|
67.5
|
$
|
82.4
|
(18.1)%
|
$
|
206.0
|
$
|
248.5
|
(17.1)%
|
Gross
Margin
|
22.5
|
25.7
|
(12.5)%
|
64.2
|
76.9
|
(16.5)%
|
Gross Margin
%
|
33.3%
|
31.1%
|
7.1%
|
31.2%
|
30.9%
|
1.0%
|
Operating
Expenses
|
14.7
|
13.4
|
(9.7)%
|
47.9
|
38.6
|
(24.1)%
|
Segment
Operating Income
|
7.9
|
12.2
|
(35.2)%
|
16.2
|
38.3
|
(57.7)%
|
Westport Fuel
Systems' 50% Interest
|
$
|
2.6
|
$
|
3.5
|
(25.7)%
|
$
|
5.8
|
$
|
12.8
|
(54.7)%
|
- Revenue was $67.5 million on
1,643 units for the quarter ended September
30, 2016, a decrease of 18.1% in revenue over the same
period last year due to continued market headwinds and an overall
industry decline in truck volumes. Partially offsetting the decline
were higher shipments in the transit market.
- Gross margin during the quarter ended September 30, 2016 decreased by $3.2 million primarily as a result of lower unit
sales. The increase in gross margin percentage year-over-year for
the quarter ended September 30, 2016
was primarily due to higher parts sales compared to the prior year
period.
- CWI operating income attributable to Westport Fuel Systems for
the quarter ended September 30, 2016
was $2.6 million compared with
$3.5 million for the same period last
year. This is primarily due to a decrease in unit sales and higher
engineering expense mainly related to new products and compliance
costs for upcoming regulations.
- CWI began production of the ISL G Near Zero Natural Gas Engine,
North America's first commercially
available near zero NOx midrange engine with exhaust emissions 90%
lower than the current EPA and ARB NOx limit. OEMs such as New
Flyer, Peterbilt, and Kenworth have announced that this engine will
be available to their customers in certain models.
- The ISB6.7 G natural gas engine that was launched in Q2 2016
for the Type C school bus market was featured at the school
transportation STN Expo in July and began its first full quarter of
sales uptake since its launch announcement.
GAAP and NON-GAAP FINANCIAL MEASURES
Management reviews the operational progress of its business
units and investment programs over successive periods through the
analysis of net income, EBITDA and Adjusted EBITDA.
Management uses Adjusted EBITDA as a long-term indicator of
operational performance since it ties closely to the business
units' ability to generate sustained cash flow. Westport Fuel
Systems defines Adjusted EBITDA as net income (loss) attributed to
the business unit or the consolidated company excluding expenses
for (a) income taxes, (b) interest expense,
net, (c) depreciation and amortization, (d)
stock-based compensation, (e) unrealized foreign exchange gain or
loss, (f) goodwill impairment, (g) inventory impairment from
product line closure, (h) bargain purchase gain, (i) merger and
financing costs, (j) amortization fair value inventory adjustment
recorded on acquisition, (k) gain or loss on sale of investments,
(l) gain or loss on disposal of assets, (m) restructuring,
termination and other exit costs, and (n) other . Adjusted EBITDA
includes the company's share of income from the joint ventures.
The term Adjusted EBITDA is not defined under U.S. generally
accepted accounting principles ("U.S. GAAP") and is not a
measure of operating income, operating performance or liquidity
presented in accordance with U.S. GAAP. Adjusted EBITDA has
limitations as an analytical tool, and when assessing the company's
operating performance, investors should not consider Adjusted
EBITDA in isolation, or as a substitute for net loss or other
consolidated statement of operations data prepared in accordance
with U.S. GAAP. Among other things, Adjusted EBITDA does not
reflect the company's actual cash expenditures. Other companies may
calculate similar measures differently than Westport Fuel Systems,
limiting their usefulness as comparative tools. The company
compensates for these limitations by relying primarily on its GAAP
results and using Adjusted EBITDA as supplemental information.
|
GAAP &
NON-GAAP FINANCIAL MEASURES
|
($ in
millions)
|
30-Sep-15
|
31-Dec-15
|
31-Mar-16
|
30-Jun-2016*
|
30-Sep-2016
|
Loss before Income
Taxes
|
$
|
(37.2)
|
$
|
(23.9)
|
$
|
(23.4)
|
$
|
4.2
|
$
|
(32.1)
|
|
|
|
|
|
|
Interest Expense,
Net
|
1.4
|
1.3
|
2.3
|
2.7
|
3.1
|
Depreciation and Amortization
|
3.3
|
3.3
|
3.1
|
3.7
|
5.2
|
EBITDA
|
(32.5)
|
(19.3)
|
(18.0)
|
10.6
|
(23.8)
|
|
|
|
|
|
|
Stock based
compensation
|
3.3
|
3.5
|
4.0
|
2.3
|
2.9
|
Unrealized foreign
exchange (gain) loss
|
(8.0)
|
0.5
|
1.3
|
4.1
|
(7.1)
|
Goodwill
impairment
|
18.7
|
—
|
—
|
—
|
—
|
Inventory impairment
from product line closure
|
5.5
|
—
|
—
|
—
|
4.3
|
Bargain purchase
gain
|
—
|
—
|
—
|
(42.9)
|
—
|
Merger and financing
costs
|
3.2
|
1.3
|
2.1
|
4.5
|
0.4
|
Amortization fair
value inventory adjustment recorded
on acquisition
|
—
|
—
|
—
|
0.7
|
1.9
|
(Gain) loss on sale
of investments
|
—
|
—
|
—
|
6.3
|
(3.9)
|
(Gain) loss on
disposal of assets
|
—
|
0.8
|
—
|
—
|
—
|
Restructuring,
termination and other exit costs
|
—
|
—
|
—
|
—
|
17.5
|
Other
|
—
|
1.0
|
—
|
4.1
|
0.2
|
Total Adjusted
EBITDA
|
$
|
(9.8)
|
$
|
(12.2)
|
$
|
(10.6)
|
$
|
(10.3)
|
$
|
(7.6)
|
*Note: Three months
ended June 30, 2016 include only one month of Fuel Systems'
results
|
FINANCIAL STATEMENTS & MANAGEMENT'S DISCUSSION AND
ANALYSIS
To view Westport Fuel Systems' full financials for the quarter
ended September 30, 2016, please visit
westport.com/company/investors/financial
CONFERENCE CALL PRESENTATION
Westport Fuel Systems is providing a conference call
presentation as a guide to its financial information in a quick
reference format and it should be read in conjunction with Westport
Fuel Systems' interim financial report for the quarter ended
September 30, 2016 and full financials for the year ended
December 31, 2015.
LIVE CONFERENCE CALL & WEBCAST
Westport Fuel Systems has scheduled a conference call for today,
Wednesday November 9, 2016 at
2:00 pm Pacific Time (5:00 pm Eastern Time) to discuss these
results. The public is invited to listen to the conference
call in real time by telephone or webcast. To access the conference
call by telephone, please dial: 1-800-319-4610 (Canada & USA toll-free) or 604-638-5340. The live
webcast of the conference call can be accessed through the Westport
Fuel Systems website at www.westport.com/investors.
REPLAY CONFERENCE CALL & WEBCAST
To access the conference call replay, please dial 1-855-669-9658
(Canada & USA toll-free) or 604-674-8052 using the pass
code 0929. The replay will be available until November 16, 2016. Shortly after the conference
call, the webcast will be archived on Westport Fuel Systems website
and replay will be available in streaming audio and a downloadable
MP3 file.
About Westport Fuel Systems
Westport Fuel Systems engineers, manufactures and supplies the
world's most advanced alternative fuel systems and components. More
than that, we are fundamentally changing the way the world travels
the roads, rails and seas. Our innovative and cost-effective
solutions maintain performance while improving efficiency and
reducing emissions. Offering a variety of leading brands for
transportation and industrial applications, we serve customers in
over 70 countries, including some of the world's largest and
fastest growing markets. To learn more about our business, visit
westport.com.
Cautionary Note Regarding Forward Looking Statements
This press release contains forward-looking statements,
including statements regarding revenue and cash usage expectations,
the effect of and timing of reorganization and restructuring
of our business, the anticipated benefits of the merger with Fuel
Systems, the timing and ability to recognize synergies as a result
of the merger with Fuel Systems, future rationalization of
operations and reduction of overhead expenses, continued research
and development investment, future of our development programs
(including those relating to the referenced HPDI program), timing
for launch, delivery and completion of milestones related to the
products referenced herein (including HPDI components),
Westport Fuel Systems' expected actions, future sales of non-core
assets and the benefits therefrom, the demand for our products, the
future success of our business and technology strategies,
investment in new product and technology development and otherwise,
cash and capital requirements, intentions of partners and potential
customers, the performance and competitiveness of Westport Fuel
Systems' products and expansion of product coverage, future market
opportunities, speed of adoption of natural gas for transportation
and terms and timing of future agreements as well as Westport Fuel
Systems management's response to any of the aforementioned factors.
These statements are neither promises nor guarantees, but involve
known and unknown risks and uncertainties and are based on both the
views of management and assumptions that may cause our actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activities,
performance or achievements expressed in or implied by these
forward looking statements. These risks and uncertainties include
risks and assumptions related to our revenue growth, operating
results, industry and products, the general economy, conditions of
and access to the capital and debt markets, solvency, governmental
policies and regulation, technology innovations, fluctuations in
foreign exchange rates, operating expenses, the availability and
price of natural gas, global government stimulus packages, the
acceptance of and shift to natural gas vehicles, the relaxation or
waiver of fuel emission standards, the inability of fleets to
access capital or government funding to purchase natural gas
vehicles, the development of competing technologies, our ability to
adequately develop and deploy our technology, the actions and
determinations of our joint venture and development partners, as
well as other risk factors and assumptions that may affect our
actual results, performance or achievements or financial position
discussed in our most recent Annual Information Form and other
filings with securities regulators. Readers should not place undue
reliance on any such forward-looking statements, which speak only
as of the date they were made. We disclaim any obligation to
publicly update or revise such statements to reflect any change in
our expectations or in events, conditions or circumstances on which
any such statements may be based, or that may affect the likelihood
that actual results will differ from those set forth in these
forward looking statements except as required by National
Instrument 51-102. The contents of any website, RSS feed or twitter
account referenced in this press release are not incorporated by
reference herein.
SOURCE Westport Fuel Systems Inc.