Delivers Positive Adjusted EBITDA; Updates
Revenue Guidance
Westport Fuel Systems Inc. (“
Westport Fuel
Systems”) (TSX/NASDAQ:WPRT) reported financial results for
the third quarter ended September 30, 2018 and provided an update
on operations. All figures are in U.S. dollars unless
otherwise stated.
"We have delivered our second consecutive quarter of positive
adjusted EBITDA in Q3 2018," said Nancy Gougarty, Chief Executive
Officer of Westport Fuel Systems. "This is a result of our full
suite of ready-now products that are taking advantage of the shift
away from traditional fuels, providing OEMs and consumers with
solutions while continuing our focus on operational excellence. In
addition, during the quarter we achieved another milestone of
securing an HPDI customer in China, by signing development and
supply agreements with Weichai Westport Inc. With their
volume commitment, this presents an opportunity for economies of
scale, which we expect to lever. Stronger regulations for reduced
CO2 emissions continue to be a key driver for heavy-duty OEM
engagement in Europe and China."
Q3 2018 HIGHLIGHTS
- Consolidated revenue of $65.5 million compared with $56.4
million in Q3 2017, a 16% increase year-over-year primarily due to
strong sales in the aftermarket and the OEM businesses, including
shipments of the Westport HPDI 2.0™ product. Sequentially,
consolidated revenue decreased by $15.0 million or 19% primarily
due to lower sales from all businesses, partially resulting from
the European summer shutdown, as well as the depreciation of the
Euro against US dollar.
- A net loss from continuing operations of $12.1 million in Q3
2018 which represents a 25% improvement from $16.2 million in Q3
2017. Sequentially, net loss from continuing operations
increased by $6.4 million from a Q2 2018 loss of $5.7 million,
primarily due to a decline in revenue and associated gross
margin.
- EBITDA in Q3 2018 was negative $3.0 million, an improvement
from negative $11.1 million in Q3 2017. Adjusted EBITDA in Q3 2018
was positive $4.3 million, an improvement from negative $5.7
million in Q3 2017.
- As expected, research and development
("R&D") expenses declined to $7.8 million in
Q3 2018, a 39% reduction from $12.8 million in Q3 2017. The
reduction is largely due to the launch of Westport HPDI 2.0™ in
2017.
- A 33% increase in Cummins Westport Inc.
("CWI") net income to the company of $7.7 million
in Q3 2018 from $5.8 million in Q3 2017.
- Cash and cash equivalents as of September 30, 2018 were $54.2
million compared with $51.2 million as of June 30, 2018.
- Closed the sale of the CNG compressor business to Snam S.p.A.,
a leading European gas utility company, for gross proceeds of
approximately $14.7 million (€12.6 million), inclusive of a
holdback released with the completion of an independent audit
within Q3 2018.
- Entered into definitive development and supply agreements with
Weichai Westport Inc. ("WWI") to develop, market,
and commercialize a heavy-duty, natural gas engine utilizing the
Westport HPDI 2.0™ technology in China. The new natural gas engine
will be certified to meet China VI emissions standards and is
expected to be launched in the second half of 2019. Westport
Fuel Systems will supply HPDI 2.0 system components to WWI.
The supply agreement has commitments to purchase a minimum of
18,000 units between WWI's launch and the end of 2023.
GUIDANCE
Westport Fuel Systems is updating its expected consolidated
revenue from continuing operations to be in the range of $260
million to $275 million for the full year 2018. This is a
change from its previous guidance of a range of $235 million to
$255 million.
Q3 2018 FINANCIAL HIGHLIGHTS
CONTINUING OPERATIONS(1) |
|
|
|
($ in millions, except gross margin % & per share
amounts) |
Three Months EndedSeptember 30, |
Change Better
/(Worse) |
Nine Months EndedSeptember 30, |
Change Better
/(Worse) |
2018 |
2017 |
2018 |
2017 |
Consolidated
Revenues |
$ |
65.5 |
|
$ |
56.4 |
|
16 |
% |
$ |
209.8 |
|
$ |
172.3 |
|
22 |
% |
Consolidated Gross Margin |
15.6 |
|
13.7 |
|
14 |
% |
52.0 |
|
46.3 |
|
12 |
% |
Consolidated Gross Margin % |
24 |
% |
24 |
% |
— |
|
25 |
% |
27 |
% |
— |
|
Consolidated Operating Expenses |
30.6 |
|
34.2 |
|
11 |
% |
89.7 |
|
94.8 |
|
5 |
% |
Research & Development Expenses (2) |
7.8 |
|
12.8 |
|
39 |
% |
23.8 |
|
38.5 |
|
38 |
% |
Income from Unconsolidated Joint Ventures |
7.7 |
|
5.8 |
|
33 |
% |
17.0 |
|
12.8 |
|
33 |
% |
Net Loss from Continuing Operations |
$ |
(12.1 |
) |
$ |
(16.2 |
) |
25 |
% |
$ |
(30.4 |
) |
$ |
(42.1 |
) |
28 |
% |
Net Loss per Share from Continuing Operations |
$ |
(0.09 |
) |
$ |
(0.15 |
) |
40 |
% |
$ |
(0.23 |
) |
$ |
(0.38 |
) |
39 |
% |
Adjusted EBITDA (3) |
$ |
4.3 |
|
$ |
(5.7 |
) |
175 |
% |
$ |
9.5 |
|
$ |
(15.0 |
) |
163 |
% |
(1) The 2017 and 2018 periods have been revised to reflect the
change in business segments previously discussed and reflect the
reclassification of the industrial and compressor businesses to
discontinued operations.(2) Research & Development Expenses are
included in Consolidated Operating Expenses.(3) Adjusted EBITDA is
a non-GAAP measure. Please refer to GAAP and NON-GAAP FINANCIAL
MEASURES for the reconciliation.
- Consolidated revenues for the quarter ended September 30, 2018
increased by $9.1 million to $65.5 million, or 16% over the same
period last year. This is largely driven by strong sales in the
aftermarket and OEM businesses including shipments of the Westport
HPDI 2.0™ product.
- Consolidated gross margin for the quarter ended September 30,
2018 increased by $1.9 million to $15.6 million, or 14% over the
same period last year, primarily due to higher sales from the
aftermarket and OEM businesses. While the gross margin percentage
stayed consistent with the prior year period at 24%, there was an
increase in gross margin percentage due to higher sales in the
aftermarket and the light- and medium-duty OEM businesses. However,
this was partially offset by lower gross margins generated from the
Westport HPDI 2.0™ product sales and a decrease in high margin
engineering service revenue associated with the Westport HPDI 2.0™
launch customer.
- Consolidated operating expenses for the quarter ended September
30, 2018 decreased by $3.6 million to $30.6 million, or an 11%
improvement over the same period last year. The decrease in
operating expenses is largely driven by a reduction in R&D
expenses following the launch of Westport HPDI 2.0™ in 2017 and a
decrease in the Transportation segment's SG&A expenses, offset
by higher legal expenses related to the SEC investigation.
- Net loss from continuing operations for the quarter ended
September 30, 2018 decreased by $4.1 million to $12.1 million from
$16.2 million for the same quarter in 2017.
- Adjusted EBITDA improved to positive $4.3 million in Q3 2018
from negative $5.7 million in Q3 2017. The year-over-year
improvement in adjusted EBITDA is primarily due to higher revenues,
higher CWI income, and lower operating expenses.
CUMMINS WESTPORT INC. HIGHLIGHTS
CUMMINS WESTPORT HIGHLIGHTS |
|
|
|
|
Three Months Ended September 30, |
Change Better
/(Worse) |
Nine Months EndedSeptember 30, |
Change Better
/(Worse) |
($ in millions, except gross margin % & unit amounts) |
2018 |
2017 |
2018 |
2017 |
Units |
2,090 |
|
1,780 |
|
17 |
% |
5,031 |
|
5,557 |
|
(9) |
% |
Revenue |
$ |
86.2 |
|
$ |
75.5 |
|
14 |
% |
$ |
225.3 |
|
$ |
225.7 |
|
0 |
% |
Gross Margin |
27.3 |
|
27.9 |
|
(2) |
% |
70.0 |
|
78.2 |
|
(10) |
% |
Gross Margin % |
32 |
% |
37 |
% |
— |
|
31 |
% |
35 |
% |
— |
|
Operating Expenses |
6.8 |
|
13.0 |
|
48 |
% |
26.3 |
|
42.0 |
|
37 |
% |
Segment Operating Income |
$ |
20.5 |
|
$ |
14.9 |
|
38 |
% |
$ |
43.7 |
|
$ |
36.1 |
|
21 |
% |
Westport Fuel Systems 50% Interest |
$ |
7.7 |
|
$ |
5.8 |
|
33 |
% |
$ |
17.0 |
|
$ |
12.8 |
|
33 |
% |
- CWI revenue for the quarter ended September 30, 2019 increased
by $10.7 million to $86.2 million or 14% over the same period last
year. This is primarily driven by higher shipments for the
near-zero emissions products, particularly for bus and trucking
applications, as well as higher service parts revenue.
- CWI gross margin for the quarter ended September 30, 2018
decreased by $0.6 million to $27.3 million, or 32% of revenue from
$27.9 million or 37% of revenue in the prior year quarter,
primarily due to product mix along with favourable net warranty
adjustments in Q3 2017.
- CWI operating income for the quarter ended September 30, 2018
improved by $5.6 million to $20.5 million, or 38% over the same
period last year. The improvement is due to lower R&D expenses
associated with the completion of activities related to the
on-board diagnostics requirements and the near-zero emissions
engines, as well as lower sales and marketing expenses primarily
due to prior period cost recovery from government agencies related
to a demonstration program.
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 gains or
losses, and non-cash and other adjustments that the company deems
to be non-recurring in nature. 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 and such information may not be appropriate for other
purposes. Adjusted EBITDA includes the company's share of
income from joint ventures.
The terms EBITDA and Adjusted EBITDA are not defined under U.S.
generally accepted accounting principles ("U.S.
GAAP") and are not a measure of operating income,
operating performance or liquidity presented in accordance with
U.S. GAAP. Adjusted EBITDA and EBITDA have limitations as an
analytical tool, and when assessing the company's operating
performance, investors should not consider EBITDA and 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, EBITDA and Adjusted EBITDA do
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 EBITDA and Adjusted EBITDA as
supplemental information.
GAAP & NON-GAAP FINANCIAL MEASURES FROM
CONTINUING OPERATIONS |
($ in millions) |
30-Sep-17 |
31-Dec-17 |
31-Mar-18 |
30-Jun-18 |
30-Sep-18 |
Three months ended |
Net loss
from continuing operations |
$ |
(16.2 |
) |
$ |
(20.8 |
) |
$ |
(12.6 |
) |
$ |
(5.7 |
) |
$ |
(12.1 |
) |
|
|
|
|
|
|
Income tax expense |
0.4 |
|
0.1 |
|
0.9 |
|
0.1 |
|
2.6 |
|
Interest expense, net |
0.9 |
|
2.5 |
|
2.1 |
|
1.7 |
|
2.3 |
|
Depreciation and amortization |
3.8 |
|
3.9 |
|
4.2 |
|
4.1 |
|
4.2 |
|
EBITDA |
(11.1 |
) |
(14.3 |
) |
(5.4 |
) |
0.2 |
|
(3.0 |
) |
|
|
|
|
|
|
Stock based compensation |
2.1 |
|
0.7 |
|
0.3 |
|
1.4 |
|
0.6 |
|
Unrealized foreign exchange (gain) loss |
2.5 |
|
(1.3 |
) |
— |
|
5.2 |
|
2.2 |
|
Asset impairment |
— |
|
0.6 |
|
— |
|
— |
|
— |
|
Restructuring, termination and other exit costs |
(0.1 |
) |
1.8 |
|
0.6 |
|
0.2 |
|
— |
|
CWI US tax adjustment |
— |
|
6.7 |
|
— |
|
— |
|
— |
|
Legal costs associated with SEC investigation |
0.9 |
|
0.9 |
|
0.9 |
|
2.5 |
|
3.5 |
|
Other |
0.1 |
|
— |
|
0.2 |
|
(0.9 |
) |
1.0 |
|
Adjusted EBITDA |
$ |
(5.7 |
) |
$ |
(4.9 |
) |
$ |
(3.4 |
) |
$ |
8.6 |
|
$ |
4.3 |
|
FINANCIAL STATEMENTS & MANAGEMENT'S DISCUSSION AND
ANALYSIS
The above information is qualified in its entirety by reference
to Westport Fuel Systems full financial statements and related
management's discussion and analysis. To view Westport Fuel
Systems full financials for the third quarter ended September 30,
2018, 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 third quarter ended September 30, 2018.
LIVE CONFERENCE CALL & WEBCAST
Westport Fuel Systems has scheduled a conference call for today,
Thursday, November 8, 2018 at 1:30 pm Pacific Time (4:30 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.wfsinc.com/investors/financials.
REPLAY CONFERENCE CALL & WEBCAST
To access the conference call replay, please dial 1-800-319-6413
(Canada & USA toll-free) or 604-638-9010 using the pass code
2650. The replay will be available until November 15, 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.
About Westport Fuel SystemsAt Westport Fuel
Systems, we are driving innovation to power a cleaner tomorrow. We
are inventors, engineers, manufacturers and suppliers of advanced
clean 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 adjusted EBITDA
expectations, volume growth and future production costs, the timing
for launch and characteristics of Westport Fuel Systems' new
natural gas engine with WWI, the demand for our products, the
future success of our business and technology strategies, cash and
capital requirements 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, governmental policies
and regulation, technology innovations, fluctuations in foreign
exchange rates, operating expenses, continued reduction in research
and development expenses, CWI performance, the availability and
price of natural gas, global government stimulus packages, the
acceptance of and shift to natural gas vehicles, 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 and
manufacture products and components, 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 SawamotoSenior Manager, Investor
Relations & CommunicationsWestport Fuel
SystemsT 604-718-2046invest@wfsinc.com
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