Westport Fuel Systems Inc., a leading supplier of advanced alternative fuel systems and components for the global transportation industry, reported financial results for the second quarter ended June 30, 2024, and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.
“In the second quarter of 2024, we remained focused on implementing the Company’s three strategic pillars: harnessing the potential of our HPDI joint venture, enhancing operational excellence, and continuous innovation to shape the world’s hydrogen-powered future. We celebrated several accomplishments consistent with our priorities and continue to recognize we have more work to do. The closing of our HPDI joint venture with Volvo Group in June was a transformational step forward and represents one of many steps we are taking to evolve the Company. Our financial results in the quarter were strong, with results from our cost cutting initiatives, along with recent growth projects delivering demonstrated margin improvement.
On July 4th, together with Volvo Group, we celebrated our partnership for the future of HPDI. By combining their extensive expertise in commercial vehicle manufacturing with our innovative fuel system technology, we are creating a powerful force for change. Together we are committed to delivering sustainable, efficient, and economically viable solutions for long-haul transportation.
Finally, our evolving business strategy has long recognized the value of strategic partnerships, and our collaboration within the HPDI joint venture exemplifies this approach. By aligning with the right partners, we amplify our strengths and leverage shared expertise to drive innovation more efficiently and effectively. As we continue to adapt and refine our focus, we have restructured our business into five key segments – HPDI JV, Light-Duty, High-Pressure Controls and Systems, Heavy-Duty OEM and Corporate. This reorganization strengthens the alignment between our competitive strategy and internal operations, positioning us to deliver sustainable, profitable growth over time. Our new structure empowers our team to be more agile, accountable, and sharply focused on achieving our long-term goals."
Dan Sceli, Chief Executive Officer, Westport Fuel Systems
Q2 2024 Highlights
Revenues decreased by 2% to $83.4 million compared to $85.0 million in the same quarter last year, primarily driven by decreased sales volumes in our Light-Duty segment. This was partially offset by increased sales volume in our High-Pressure Controls and Systems and Heavy-Duty Original Equipment Manufacturer ("OEM") segments in the quarter. Revenue for the three months ended June 30, 2024 includes two months of revenue from Heavy-Duty OEM.
Net income of $5.8 million for the quarter compared to net loss of $13.2 million for the same quarter last year. This was primarily the result of a $13.3 million gain on deconsolidation of the HPDI business and formation of the HPDI joint venture ("HPDI JV") with Volvo Group, improvement in gross margin of $2.7 million, decrease in foreign exchange loss by $2.3 million and depreciation and amortization by $1.3 million, partially offset by an increase in research and development expenditures of $0.8 million.
Adjusted EBITDA[1] of negative $2.0 million compared to negative $4.0 million for the same period in 2023.
Cash and cash equivalents were $41.5 million at the end of the second quarter 2024. Cash provided by operating activities was $1.5 million, primarily driven by net cash generated from working capital of $4.5 million, partially offset by operating losses in the quarter. Investing activities included the sale of investments for $20.4 million related to partial sale of our ownership interest in the HPDI JV and the Minda Westport JV, offset by cash capital contributions into the newly formed HPDI JV of $9.9 million and the purchase of capital assets of $5.4 million. Cash used in financing activities was primarily attributed to net debt repayments of $8.9 million in the period. An additional $8.4 million related to the closing of the HPDI JV was received following the end of the second quarter.
Announced the closing the HPDI joint venture with Volvo Group, working together to accelerate the commercialization and global adoption of the HPDI™ fuel system technology for long-haul and off-road applications.
Revised Segment Reporting
Aligning with Westport's evolving business strategy, the Company has refined its business operations and decision-making. Beginning with the second quarter of 2024, Westport will report results under five reportable segments: HPDI JV, Light-Duty, High-Pressure Controls and Systems, Heavy-Duty OEM and Corporate. Financial results from the HPDI joint venture are being accounted for under the equity method of accounting for investments and are also supported by enhanced disclosures in the Company's Management Discussion and Analysis as well as in the Company's condensed consolidated financial statements. The new segments are aligned more strongly with Westport's strategic priorities and provide enhanced disclosure regarding the High-Pressure Controls and Systems and Light-Duty businesses.
Our High-Pressure Controls and Systems segment is at the forefront of the clean energy revolution, designing, developing, and producing high-demand components for transportation and industrial applications. We partner with the world's leading fuel cell and hydrogen engine manufacturers and companies committed to decarbonizing transport, offering versatile solutions that serve a variety of fuel types. While hydrogen is key to the future decarbonization of transport, our components and solutions are already powering emission reducing innovation today across a range of gaseous fuels. While we're still small, our strategic position and innovative capabilities put us on the cusp of significant growth, ensuring we're the go-to choice for those shaping the future of clean energy, today and tomorrow.
Our Light-Duty segment manufactures LPG and CNG fuel storage solutions and supplies fuel storage tanks to the aftermarket, OEM, and other market segments across a wide range of brands. The Light-Duty segment includes the consolidated results from our delayed OEM, independent aftermarket, light-duty OEM operations and electronics businesses.
Our Heavy-Duty OEM business represents historical results from our heavy-duty business for the period January 1 until the formation of the joint venture which occurred on June 3, 2024 and for comparative purposes, for the period January 1 to June 30, 2023. Following the close of the HPDI JV in June 2024, the results of this business are reflected in the HPDI JV business segment. Going forward, the Heavy-Duty OEM segment will reflect revenue earned from a transitional services agreement in place with the HPDI joint venture. This transitional services agreement is intended to support the HPDI joint venture in the short-term as the organization transitions to its own operating entity.
The Company has recast previously reported quarterly segment financial information for the years ended December 31, 2022 and 2023 along with the first quarter of 2024 to reflect the new segments. The change in reporting has no impact on consolidated historical financial results. The recast financial information can be found under the supplemental information section of this press release.
Segment Information
Light-Duty Segment
Revenue for the three and six months ended June 30, 2024 was $69.5 million and $132.7 million, respectively, compared with $73.7 million and $140.2 million for the three and six months ended June 30, 2023.
Light-Duty revenue decreased by $4.2 million for the three months ended June 30, 2024 compared to the prior year quarter and decreased by $7.5 million for the six months ended June 30, 2024 compared to the prior year period. This was primarily driven by a decrease in sales in our delayed OEM, independent aftermarket and fuel storage businesses, and partially offset by increases in sales in our light-duty OEM and electronics businesses.
Gross margin increased by $2.4 million to $15.1 million, or 22% of revenue, for the three months ended June 30, 2024 compared to $12.7 million, or 17% of revenue, for the three months ended June 30, 2023. This was primarily driven by a change in sales mix with increases in sales to European customers and reduction in sales to developing regions.
Gross margin increased by $2.5 million to $27.5 million, or 21% of revenue, for the six months ended June 30, 2024 compared to $25.0 million, or 18% of revenue, for the six months ended June 30, 2023.
High-Pressure Controls and Systems Segment
Revenue for the three and six months ended June 30, 2024 was $3.4 million and $5.8 million, respectively, compared with $2.8 million and $5.7 million for the three and six months ended June 30, 2023. The increase in revenue for the three months ended June 30, 2024 compared to the prior year quarter was primarily driven by increased sales volumes in product and service revenue.
Gross margin increased by $0.1 million to $0.7 million, or 21% of revenue, for the three months ended June 30, 2024 compared to $0.6 million or 21% of revenue, for the three months ended June 30, 2023.
Gross margin decreased by $0.3 million to $1.1 million, or 19% of revenue, for the six months ended June 30, 2024 compared to $1.4 million, or 25% of revenue, for the six months ended June 30, 2023. The decrease in gross margin was primarily related to higher production overhead costs related to the development of new products.
Heavy-Duty OEM Segment
Revenues for the three and six months ended June 30, 2024 includes revenue until the closing of the transaction to form the HPDI JV, which occurred June 3, 2024. Revenue for the three and six months ended June 30, 2024 was $10.5 million and $22.5 million, respectively, compared with $8.5 million and $21.4 million for the three and six months ended June 30, 2023. The increase in revenue for the three months ended June 30, 2024 primarily relates to an increase in product and engineering sales for the two months when the Company wholly owned the HPDI business. Additionally, there is one month of inventory sales from the Company to HPDI JV for $0.5 million under the transitional services agreement.
Gross margin increased by $0.2 million to $1.3 million, or 12% of revenue, for the three months ended June 30, 2024 compared to $1.1 million or 13% of revenue, for the three months ended June 30, 2023.
Gross margin decreased by $1.1 million to $0.2 million, or 1% of revenue, for the six months ended June 30, 2024 compared to $1.3 million, or 6% of revenue, for the six months ended June 30, 2023.
Selected HPDI JV Statements of Operations Data
We account for the HPDI JV using the equity method of accounting for investments.
