Westport Fuel Systems Inc. (“
Westport Fuel
Systems”) (TSX:WPRT) (Nasdaq:WPRT) reported financial
results for the fourth quarter and year ended December 31, 2017 and
provided an update on operations. All figures are in U.S. dollars
unless otherwise stated.
2017: A Transformative Year
- The company completed a strategic assessment of its entire
portfolio and divested the industrial business assets for gross
proceeds of $87.5 million, positioning Westport Fuel Systems to
focus on the transportation sector.
- Through a series of orchestrated transactions, the company
restructured its debt, which decreased total debt and royalty
payable to $73.5 million as of December 31, 2017, down from $100.6
million in the prior year. Westport Fuel Systems repaid its
debentures of $55.0 million CDN, entered into a $20.0 million USD
loan with Export Development Canada, and raised gross proceeds of
$28.7 million through an equity offering.
- The commercial launch of Westport HPDI 2.0™ for the European
market provides an environmentally friendly, “no-compromise”
performance heavy-duty truck that is ideal for long-haul use.
- The financing activities noted above were complemented by
strong working capital management, which resulted in a cash balance
of $71.8 million at December 31, 2017, an increase of $10.9 million
from the prior year.
Financial Highlights
- 2017 Automotive revenue of $239.4 million
- Q4 2017 net loss from continuing operations of $19.2 million,
an improvement of 57% from a loss of $44.4 million in Q4
2016
- Q4 2017 adjusted EBITDA loss of $3.5 million, an improvement of
67% from adjusted EBITDA loss of $10.6 million in Q4 2016
"We have made solid progress on our company’s transformation,
which has stabilized the company overall," said Nancy Gougarty,
Chief Executive Officer of Westport Fuel Systems. "Ever
increasingly urgent demands for clean vehicles in key markets prove
our market and industry is primed and ready for alternative fuels.
Today we have market-ready solutions for our transportation
customers. Our global reach, extensive product portfolio, and
innovations will further advance our leading position in the
alternative fuel industry and help us build a sustainable,
profitable company that delivers value to shareholders for the
long-term."
2018-2022 STRATEGIC FOCUS
Several macro trends are driving rapid change within the
transportation sector, including adverse sentiment for
diesel-fueled vehicles, urban air quality issues, and increased
deployment of new alternative fuel technologies. To advance
Westport Fuel Systems position in the markets and as a key player
in the alternative fuel industry, the company has identified
critical strategic initiatives that will drive leadership:
- Advance technology leadership and solutions
- Focus on market and customer demand
- Streamline operations and drive efficiency
- Leverage critical partnerships
2018 KEY PRIORITIES
As a result of the strategic focus, the key priorities for 2018
are:
- Broaden product offerings by accelerating development
of new technologies
- To support the powertrain efficiency improvements in higher
peak cylinder pressure, the company has undertaken development to
create a higher pressure fuel system to address
customer needs for higher peak cylinder pressure HPDI technology in
the heavy-duty trucking sector.
- With passenger car powertrain technology advancing to direct
injection, Westport Fuel Systems customers and distributors need
components for direct injection engines. Westport Fuel Systems has
developed technology solutions for direct injection applications
for this passenger car market.
- With the need for technology advancement for spark ignited
product, Westport Fuel Systems has developed and tested with
customers a high efficiency spark ignited ("HESI")
natural gas system offering. This is a ready-now product that is
geared for medium-duty applications.
- Positioned for quick capture of changing market trends
by deploying market-ready solutions
- With Westport HPDI 2.0™, dual fuel, HESI, and advancement to
accelerate Euro VI engine management systems, Westport Fuel Systems
continues to be the "GO TO" company for clean technology solutions.
This is evidenced by the company developing Tata Motors' next
generation spark-ignited engines to meet the Indian market Bharat
Stage VI emission standards.
- Continued cash management initiatives to position the
company to be agile to changing customer and market
demands
- Building on Westport Fuel Systems "back to basics"
manufacturing excellence initiatives to improve the company's
agility to adjust to changing demands, as well as working
capital.
- Drawing on companywide purchasing needs, Westport Fuel Systems
is leveraging its buying position to improve purchase costs to
offset commodity price increases and support gross margin.
- Focus engineering and development with significant customer
funding, as well as projects with critical intellectual properties.
- Increase engagement with key OEMs and industry partners
to advance market position
- By having "customer excellence" as a core guiding principle,
Westport Fuel Systems is enabling its customers to be ahead of the
curve and respond quickly to opportunities in the markets.
- By collaborating with technology partners such as AVL List
GmbH., Westport Fuel Systems is advancing its technology leadership
and solutions, while allowing the company to increase its scale and
be more agile to changing market demands.
- By building relationships with industry associations, academic
institutions, and government organizations, Westport Fuel Systems
is enhancing opportunities for leadership on shared objectives, new
partnerships, and new business opportunities.
GUIDANCE
Westport Fuel Systems expects to achieve
positive adjusted EBITDA during the second quarter of 2018, driven
by continued reduction in research and development expenses and
Cummins Westport Inc.'s ("CWI") performance.
ORGANIZATIONAL UPDATES
In 2013 and 2014, the company implemented a strategy to hire
several seasoned automotive industry professionals. They were
representative of the talent needed to execute the Westport Fuel
Systems mid-term strategic objectives, recognizing that several of
these hires would transition or exit the company in or after 2018.
As a result, succession planning in the near-term has resulted in
and will continue to include internal realignment of employees
moving into new positions, combined with an increase in external
recruitment initiatives. Westport Fuel Systems Chief Financial
Officer (“CFO”), Ashoka Achuthan, has indicated
his plan to step down once his successor has been identified and
appointed. Mr. Achuthan will remain with the company as an advisor
for a period of time, assist with the CFO transition, and continue
to serve as a member of the CWI Board of Directors. The company has
initiated a search and is actively seeking his successor.
Q4 2017 & FULL YEAR 2017 FINANCIAL
HIGHLIGHTS
CONTINUING OPERATIONS |
|
|
($ in millions, except per share amounts) |
Three Months EndedDecember 31, |
Change Better
/(Worse) |
Year EndedDecember 31, |
2017 |
2016 |
2017 |
2016 |
Consolidated Revenues |
$ |
64.2 |
|
$ |
60.1 |
|
7 |
% |
$ |
247.1 |
|
$ |
177.4 |
|
Consolidated Gross Margin |
16.0 |
|
13.1 |
|
22 |
% |
64.1 |
|
36.4 |
|
Consolidated Gross Margin % |
25 |
% |
23 |
% |
— |
|
26 |
% |
20 |
% |
Consolidated Operating Expenses |
32.6 |
|
44.4 |
|
27 |
% |
129.1 |
|
161.0 |
|
Research & Development Expenses (1) |
11.7 |
|
15.0 |
|
22 |
% |
51.1 |
|
55.9 |
|
Income from Unconsolidated Joint Ventures (2) |
(0.3 |
) |
1.3 |
|
(123 |
)% |
12.5 |
|
5.8 |
|
Net Loss from Continuing Operations |
$ |
(19.2 |
) |
$ |
(44.4 |
) |
57 |
% |
$ |
(61.1 |
) |
$ |
(99.4 |
) |
Net Loss per Share from Continuing Operations |
$ |
(0.14 |
) |
$ |
(0.43 |
) |
67 |
% |
$ |
(0.51 |
) |
$ |
(1.09 |
) |
Adjusted EBITDA (3) |
$ |
(3.5 |
) |
$ |
(10.6 |
) |
67 |
% |
$ |
(17.9 |
) |
$ |
(43.4 |
) |
*Notes: The year ended December 31, 2016 included only seven
months of Fuel Systems Solutions, Inc. and its year-over-year
comparison is not meaningful.
(1) Research & development expenses are included in
consolidated operating expenses.
(2) The company's income from unconsolidated joint ventures
would have been $6.4 million and $19.2 million for the quarter
ended and year ended December 31, 2017, respectively, excluding the
$6.7 million one-time unfavourable tax charge related to a deferred
tax asset adjustment as a result of the U.S. tax legislation passed
in December 2017.
(3) Adjusted EBITDA is a non-GAAP measure. Please refer to GAAP
and NON-GAAP FINANCIAL MEASURES for the reconciliation.
SELECTED BALANCE SHEET DATA |
|
|
($ in millions) |
Year EndedDecember 31, |
Change Better
/(Worse) |
2017 |
2016 |
Cash and Cash Equivalents |
$ |
71.8 |
|
$ |
60.9 |
|
18 |
% |
Inventory |
50.7 |
|
53.3 |
|
5 |
% |
Total Debt and Royalty Payable |
73.5 |
|
100.6 |
|
27 |
% |
- Consolidated revenues for the quarter ended December 31, 2017
increased by $4.1 million to $64.2 million, or 7% over
the same period last year. This is largely driven by the
appreciation of the Euro against the US dollar and initial
shipments of the Westport HPDI 2.0™ product.
- Consolidated gross margin for the quarter ended December 31,
2017 increased by $2.9 million to $16.0 million, or 22%
over the same period last year. This is due to higher revenues and
improved operating efficiencies.
- Consolidated operating expenses for the quarter ended December
31, 2017 decreased by $11.8 million to $32.6 million, or 27% over
the same period last year. This is primarily related to an
unrealized foreign exchange gain in Q4 2017 compared to an
unrealized foreign exchange loss in Q4 2016, as well as reduction
in research and development expenses related to Westport HPDI 2.0™
program despite the strengthening of the Euro and Canadian dollar
against the U.S. dollar.
- Income from the unconsolidated joint ventures for the quarter
ended December 31, 2017 decreased by $1.6 million to a loss of
$0.3 million compared to income of $1.3 million in the same period
last year. This reduction is a result of the U.S. tax legislation
passed in December 2017 that reduces the U.S. federal corporate tax
rate from 35% to 21% beginning in 2018. Although the new tax
legislation will significantly benefit CWI in future years, a $13.4
million (Westport Fuel Systems share was $6.7 million) one-time
unfavourable tax charge was recorded in the quarter. Excluding the
tax charge, the company's income from the unconsolidated joint
ventures would have been $6.4 million.
- Net loss from continuing operations for the quarter ended
December 31, 2017 was $19.2 million or a loss of $0.14 per share,
compared with net loss of $44.4 million or $0.43 per share in the
same period last year. This 57% improvement is driven by
reduced loss from operations, lower impairment and obsolescence
charges and a tax recovery despite lower income from unconsolidated
joint ventures in Q4 2017 and an adjustment to the bargain purchase
gain of $7.1 million recognized in Q4 2016.
- In 2017, the company focused on strengthening its balance sheet
through a number of activities by repaying its $55.0
million CDN debentures, gross equity issuance of $28.7 million
and a $20.0 million loan from Export Development Canada.
These financing activities complemented by strong working capital
management resulted in a cash balance of $71.8 million at December
31, 2017 compared to $60.9 million at the beginning of the
year.
CUMMINS WESTPORT INC. HIGHLIGHTS
CUMMINS WESTPORT HIGHLIGHTS |
|
|
|
|
Three Months EndedDecember 31, |
Better /(Worse) |
Year Ended December 31, |
Better /(Worse) |
($ in millions, except unit amounts) |
2017 |
2016 |
2017 |
2016 |
Units |
2,398 |
|
1,881 |
|
27 |
% |
7,955 |
|
7,232 |
|
10 |
% |
Revenue |
$ |
91.6 |
|
$ |
70.4 |
|
30 |
% |
$ |
317.3 |
|
$ |
276.5 |
|
15 |
% |
Gross Margin |
31.3 |
|
17.6 |
|
77 |
% |
109.5 |
|
77.1 |
|
42 |
% |
Gross Margin % |
34 |
% |
25 |
% |
— |
|
34 |
% |
28 |
% |
— |
|
Operating Expenses |
10.1 |
|
13.0 |
|
22 |
% |
52.2 |
|
61.0 |
|
14 |
% |
Segment Operating Income |
$ |
21.2 |
|
$ |
4.6 |
|
362 |
% |
$ |
57.3 |
|
$ |
16.2 |
|
254 |
% |
Westport Fuel Systems 50% Interest |
(0.3 |
) |
1.2 |
|
(129 |
)% |
12.5 |
|
5.6 |
|
123 |
% |
- Revenue for the quarter ended December 31, 2017 increased by
$21.2 million to $91.6 million, or 30% over the same period last
year. This is driven by completion of several bus tender orders,
strong overall demand, pre-buy activities in advance of the 2018
on-board diagnostics ("OBD") compliant engines, as
well as higher parts revenue attributed to higher population of
natural gas engines.
- Gross margin for the quarter ended December 31, 2017 increased
by $13.7 million to $31.3 million, or 34% of revenue from $17.6
million or 25% of revenue in the prior year quarter. The increase
in gross margin and gross margin percentage is driven by higher
revenues and a more favorable product mix.
- Operating income for the quarter ended December 31, 2017
increased by $16.6 million to $21.2 million, or 362% over the same
period last year, primarily due to improvement in gross margin and
lower operating expenses, mostly driven by reduction in research
and development expenses related to OBD compliance.
- Westport Fuel Systems share of CWI's equity interest for the
quarter ended December 31, 2017 decreased to a loss of $0.3 million
from $1.2 million in same period last year, due to a $13.4 million
one-time unfavourable tax charge that was recorded in the quarter
as a result of the U.S. tax legislation passed in December 2017.
Excluding the tax charge, Westport Fuel Systems 50% interest would
have been $6.4 million for the quarter ended December 31,
2017.
NEW OPERATING BUSINESS SEGMENTS IN Q1 2018
Effective January 2018, commensurate with the commercial launch
of Westport HPDI 2.0™, the company restructured its business
segments to allow for further integration of product offerings. The
Westport HPDI 2.0™ product line and all other Technology related
activities previously reported under the Corporate & Technology
segment will be combined with the Automotive business segment and
renamed Transportation.
Under the new organization structure, Westport Fuel Systems will
manage and report the results of its business through three
segments: Transportation, the CWI Joint Venture, and Corporate:
- Transportation: consists of the previous
Automotive segment with the addition of the Westport HPDI 2.0™
product line, technologies such as HESI and electronics, current
and advanced research and development programs, supply chain, and
product planning activities. This segment is accountable for
driving strategy, creating business value, and delivering financial
performance.
- CWI Joint Venture: represents Westport Fuel
Systems 50% share in the CWI joint venture.
- Corporate: responsible for public company
activities, corporate oversight and general administrative
duties.
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. The Company
defines EBITDA as net loss from continuing operations before income
taxes adjusted for interest expense (net), depreciation and
amortization. Westport Fuel Systems defines Adjusted EBITDA as
EBITDA from continuing operations excluding expenses for
stock-based compensation, unrealized foreign exchange gain or loss,
and non-cash and other adjustments. 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. Adjusted EBITDA includes the company's share of income
from 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 U.S. GAAP results and using Adjusted EBITDA as supplemental
information.
GAAP & NON-GAAP FINANCIAL MEASURES
FROM CONTINUING OPERATIONS |
|
($ in millions) |
31-Dec-16 |
31-Mar-17 |
30-Jun-17 |
30-Sep-17 |
31-Dec-17 |
Three months ended |
Net loss from continuing operations |
$ |
(44.4 |
) |
$ |
(12.8 |
) |
$ |
(13.4 |
) |
$ |
(15.7 |
) |
$ |
(19.2 |
) |
|
|
|
|
|
|
Income tax expense |
3.6 |
|
(0.8 |
) |
(4.0 |
) |
0.5 |
|
(0.1 |
) |
Interest Expense, net |
4.3 |
|
3.4 |
|
6.3 |
|
0.9 |
|
2.5 |
|
Depreciation and amortization |
3.4 |
|
3.7 |
|
3.5 |
|
3.9 |
|
3.9 |
|
EBITDA |
(33.1 |
) |
(6.5 |
) |
(7.5 |
) |
(10.5 |
) |
(12.9 |
) |
|
|
|
|
|
|
Stock based compensation |
1.2 |
|
1.1 |
|
3.1 |
|
2.1 |
|
0.7 |
|
Unrealized foreign exchange (gain) loss |
8.1 |
|
(1.6 |
) |
1.0 |
|
2.5 |
|
(1.3 |
) |
Asset impairment |
2.7 |
|
— |
|
— |
|
— |
|
0.6 |
|
Inventory impairment from product line closure |
1.3 |
|
— |
|
— |
|
— |
|
— |
|
Bargain purchase gain |
7.1 |
|
— |
|
— |
|
— |
|
— |
|
(Gain) loss on sale of investments |
(0.3 |
) |
— |
|
— |
|
— |
|
— |
|
Restructuring, termination and other exit costs |
1.5 |
|
1.6 |
|
(1.6 |
) |
(0.1 |
) |
1.8 |
|
CWI US tax adjustment |
— |
|
— |
|
— |
|
— |
|
6.7 |
|
Other |
0.9 |
|
1.3 |
|
(0.3 |
) |
1.0 |
|
0.9 |
|
Adjusted EBITDA |
$ |
(10.6 |
) |
$ |
(4.1 |
) |
$ |
(5.3 |
) |
$ |
(5.0 |
) |
$ |
(3.5 |
) |
FINANCIAL STATEMENTS & MANAGEMENT'S DISCUSSION AND
ANALYSIS
To view Westport Fuel Systems full financials for the fourth
quarter and year ended December 31, 2017, please visit
www.wfsinc.com/investors/financials.
CONFERENCE CALL PRESENTATION
The company 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 full
financials for the year ended December 31, 2017.
LIVE CONFERENCE CALL & WEBCAST
Westport Fuel Systems has scheduled a conference call for today,
Friday March 23, 2018 at 5:30 am Pacific Time (8:30 am 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.wfsinc.com/investors/financials.
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
2079. The replay will be available until March 30, 2018. Shortly
after the conference call, the webcast will be archived on the
Westport Fuel Systems website and replay will be available in
streaming audio and a downloadable MP3 file.
2018 ANNUAL & SPECIAL MEETING OF
SHAREHOLDERS
The Westport 2018 Annual & Special Meeting of Shareholders
will be held on Monday, May 7, 2018 at 10:00 am Eastern Time at
3400 One First Canadian Place, Toronto, ON M5X 1A4.
About Westport Fuel Systems
At Westport Fuel Systems, we are driving innovation to power a
cleaner tomorrow. We are inventors, engineers, manufacturers and
suppliers of advanced clean-burning fuel systems and components
that can change the way the world moves. Our technology delivers
performance, fuel efficiency and environmental benefits to address
the challenges of global climate change and urban air quality.
Headquartered in Vancouver, Canada, we serve our customers in more
than 70 countries with leading global transportation brands. At
Westport Fuel Systems, we think ahead. For more information, visit
www.wfsinc.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 future strategic initiatives, 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 and HESI program), Westport Fuel Systems' expected
actionstiming and results of organizational restructurings, 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,uncertainties and assumptions include those 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, continued reduction in research and development expenses,
increasing trends in gross margin from operations, CWI performance,
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.
Contact Information
Caroline SawamotoManager, Investor Relations
& CommunicationsWestport Fuel SystemsT
604-718-2046invest@wfsinc.com
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