Westport Fuel Systems Inc. (“Westport") (TSX:WPRT / Nasdaq:WPRT), a leading supplier of advanced alternative fuel systems and components for the global transportation industry, reported financial results for the third quarter ended September 30, 2024, and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.
“Westport delivered solid results in the third quarter of 2024. Although revenue was down, this decrease was more than outweighed by the revenue earned at Cespira and we delivered significant improvement in Adjusted EBITDA. We continue to execute against our three strategic pillars - harnessing the potential of our HPDI joint venture, enhancing operational excellence, and driving continuous innovation to shape the world’s alternative fueled future. The third quarter represented the first full quarter with Cespira, our HPDI joint venture with Volvo Group, being operational. This, along with the steps we have taken with respect to various cost cutting measures, has enabled Westport to decrease our costs including research and development as well as sales, general and administrative expenses by approximately 40 percent as compared to the same period last year.
We remain confident in the role that alternative fuels will play in driving sustainability in the future of the transportation and industrial application space. Regarding hydrogen, we acknowledge the slowdown in infrastructure development in the global market, which has tapered the adoption of automotive and industrial applications powered by hydrogen. The success of this market depends on the installation of infrastructure and the production of clean hydrogen, both of which have been slow to materialize. However, we are steadfast in our belief that hydrogen as a fuel will prevail – although gradual as opposed to immediate – and become a clean fuel source that is adopted worldwide. In the meantime, Westport currently delivers a suite of proven and innovative components and systems for a wide range of affordable alternative low-carbon fuels such as natural gas, renewable natural gas, propane, and hydrogen. We are driving cleaner performance by addressing lower emissions regulations with practical applications using innovation available today.
As we navigate the next quarter, and the next year, Westport is strongly committed to driving operational excellence, nurturing innovation, and supporting Cespira, all to position the Company for sustainable growth in an evolving landscape. We are focused and dedicated to the present and our future."
Dan Sceli, Chief Executive Officer, Westport Fuel Systems
Q3 2024 Highlights
- Revenues decreased by 14% to $66.2 million compared to $77.4 million in the same quarter last year, primarily driven by the transition of the Heavy-Duty OEM revenues now being reflected in the results of Cespira, of which Westport accounts for as an equity investment.
- Net loss of $3.9 million for the quarter, an improvement over the net loss of $11.9 million for the same quarter last year. This was primarily the result of an improvement in gross margin by $1.3 million compared to the prior year quarter, a significant decrease in operating expenditures and depreciation and amortization as costs previously associated with our HPDI business are now accrued by Cespira, cost reductions in Westport and a net foreign exchange gain of $1.1 million.
- Continued improvement in Adjusted EBITDA[2] achieving negative $0.8 million compared to negative $3.0 million for the same period in 2023.
- Cash and cash equivalents were $33.3 million at the end of the third quarter of 2024. Cash used in operating activities was $9.9 million primarily from an increase in working capital of $11.4 million. Cash provided by investing activities included the sale of investments for $9.6 million related to the collection of $8.4 million from the formation of the HPDI JV and sale of our ownership interest in Westport Weichai Inc. ("Weichai"), partially offset by the purchase of capital assets of $2.1 million. Cash used in financing activities represented debt repayments of $7.0 million in the quarter.
- In September 2024, HPDI Technology, the joint venture between Volvo Group and Westport, launched as Cespira.
Segment Information
Light-Duty Segment
Revenue for the three and nine months ended September 30, 2024 was $61.5 million and $194.2 million, respectively, compared with $60.2 million and $200.4 million for the three and nine months ended September 30, 2023.
Light-Duty revenue increased by $1.3 million for the three months ended September 30, 2024 compared to the prior year quarter, primarily a result of an increase in sales in our light-duty OEM and IAM businesses and partially offset by decreased sales in our fuel storage, DOEM, and electronics businesses. For the nine months ended September 30, 2024, Light-Duty revenue decreased by $6.2 million compared to the prior year period, primarily driven by a decrease in sales in our DOEM, and fuel storage businesses and partially offset by an increase in sales in our light-duty OEM, electronics, and IAM businesses.
Gross margin increased by $1.9 million to $13.9 million, or 23% of revenue, for the three months ended September 30, 2024 compared to $12.0 million, or 20% of revenue, for the three months ended September 30, 2023. This was primarily driven by a slight increase in sales volumes, a change in sales mix with increases in sales to European customers and reduction in sales to developing regions.
Gross margin increased by $4.3 million to $41.4 million, or 21% of revenue, for the nine months ended September 30, 2024 compared to $37.1 million, or 19% of revenue, for the nine months ended September 30, 2023. This was primarily driven by a change in sales mix with an increase in sales to European customers and a reduction in sales to developing regions.
Westport began supplying its Euro 6 LPG fuel system to its global OEM customer in early 2024. Despite a slower start to production than anticipated, Westport expects to exceed planned Euro 6 LPG fuel system deliveries in 2024. This production supply agreement has been instrumental in improving revenue and delivering higher margins, which more than offset the decline in revenue as a result of a key delayed OEM customer continuing to work through their inventory. Production for the Euro 7 LPG fuel system for the same global OEM customer is anticipated to begin mid-to-late 2025.
The Light-Duty segment continues to evolve our LPG fuel system solution, providing more customers with a cost-competitive alternative fuel solution. Recently, two new product platforms were announced utilizing our systems. Westport was excited to be part of the first-ever OEM hybrid vehicle powered by HEV and LPG technologies - the Kia Niro Tri-Fuel in Italy. This revolutionary product, born from Westport's historic partnership with Kia Italia, offers three fuel sources—petrol, electric, and LPG—delivering over 1,600 km on full tanks with reduced emissions and uncompromised performance. Westport also announced the global availability of a LPG fuel system for the RAM 1500 Hurricane 3.0 DI Twin Turbo engine, enabling customers to benefit from lower emissions and lower fuel costs.
High-Pressure Controls & Systems Segment
Revenue for the three and nine months ended September 30, 2024, was $1.6 million and $7.4 million, respectively, compared with $3.7 million and $9.4 million for the three and nine months ended September 30, 2023. The decrease in revenue for the three months ended September 30, 2024 compared to the prior year quarter was primarily driven by the general slowdown in the hydrogen infrastructure development leading to a slower adoption of automotive and industrial applications powered by hydrogen.
Gross margin decreased by $0.6 million to $0.4 million, or 25% of revenue, for the three months ended September 30, 2024 compared to $1.0 million or 27% of revenue, for the three months ended September 30, 2023. Gross margin decreased by $0.9 million to $1.5 million, or 20% of revenue, for the nine months ended September 30, 2024 compared to $2.4 million, or 26% of revenue, for the nine months ended September 30, 2023. This was primarily driven by lower sales volume in the quarter.
Heavy-Duty OEM Segment
Revenue for the three and nine months ended September 30, 2024 includes revenue from the HPDI business from January 1 to June 3, the closing date of the transaction to form Cespira plus revenue earned under a transitional services agreement. Revenue for the three and nine months ended September 30, 2024 was $3.1 million and $25.6 million, respectively, compared with $13.5 million and $34.9 million for the three and nine months ended September 30, 2023.
The decrease in revenue for the three months ended September 30, 2024 is a result of the transition of this business to Cespira and the resulting change in accounting treatment. We continue to earn service revenue from Cespira under the transitional services agreement for the quarter, which is represented in this segment.
Gross margin was $0.2 million, or 6% of revenue, for the three months ended September 30, 2024 compared to $0.2 million or 1% of revenue, for the three months ended September 30, 2023. Gross margin decreased by $1.0 million to $0.4 million, or 2% of revenue, for the nine months ended September 30, 2024 compared to $1.4 million, or 4% of revenue, for the nine months ended September 30, 2023.
Selected Cespira Statements of Operations Data
We account for Cespira using the equity method of accounting for investments.
Cespira earned revenue of $16.2 million for three months ended September 30, 2024. For the prior year quarter, the Heavy-Duty OEM segment included our HPDI business which earned $13.5 million. The revenue increase is largely driven by an increase in HPDI systems sold.
Cespira lost $1.1 million on gross margin for three months ended September 30, 2024. For the prior year quarter, the Heavy-Duty OEM segment earned $0.2 million.
Cespira had operating losses of $5.3 million for the three months ended September 30, 2024. For the prior year quarter, Heavy-Duty OEM had incurred operating losses of $3.7 million.
As previously announced, Westport and Weichai are parties to a technology development and supply agreement which contains an obligation for Weichai to order, and Westport to supply, certain volumes of HPDI fuel system components prior to December 31, 2024. Significant orders for HPDI fuel system components against this agreement have not been received to date and we do not currently anticipate that orders for any significant additional volumes will be received prior to year end. Westport and Cespira continue to collaborate with Weichai Power Co. Ltd (“Weichai Power”) on an HPDI fuel system equipped version of the Weichai Power engine platforms. The parties are currently discussing the next stages of this work and the obligations of each party going forward.
